REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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SALTON SEA FUNDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4911 47-0790493
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
SALTON SEA BRINE PROCESSING L.P. California 4911 33-0601721
Salton Sea Power Generation L.P. California 4911 33-0567411
Fish Lake Power Company Delaware 4911 33-0453364
Vulcan Power Company Nevada 4911 95-3992087
CalEnergy Operating Company Delaware 4911 33-0268085
Salton Sea Royalty Company Delaware 4911 47-0790492
BN Geothermal Inc. Delaware 4911 91-1244270
San Felipe Energy Company California 4911 33-0315787
Conejo Energy Company California 4911 33-0268500
Niguel Energy Company California 4911 33-0268502
Vulcan/BN Geothermal Power Company Nevada 4911 95-3992087
Leathers, L.P. California 4911 33-0305342
Del Ranch, L.P. California 4911 33-0278290
Elmore, L.P. California 4911 33-0278294
(Exact name of Registrants (State or other (Primary Standard (I.R.S. Employer
as specified in their charters) jurisdiction of incorporation Industrial Classification Identification No.)
or organization) Code Number)
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302 SOUTH 36TH STREET, SUITE 400-A, OMAHA, NEBRASKA 68131 (402) 231-1641
(Address, including zip code, and telephone number, including area code, of
the Salton Sea Funding Corporation's principal executive offices)
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STEVEN A. MCARTHUR, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SALTON SEA FUNDING CORPORATION
302 SOUTH 36TH STREET, SUITE 400-A
OMAHA, NEBRASKA 68131 (402) 231-1641
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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WITH COPIES TO:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER, 153 EAST 53RD STREET
NEW YORK, NEW YORK 10022 (212) 821-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box.[ ]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount Proposed Maximum Proposed Maximum
Securities to be Offering Price Aggregate Amount of
to be Registered Registered per Security (1) Offering Price(1) Registration Fee
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7.02% Senior Secured Series D
Notes Due May 30, 2000 $70,000,000 100% $70,000,000 $24,137.94
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8.30% Senior Secured Series E
Bonds Due May 30, 2011 $65,000,000 100% $65,000,000, $22,413.80
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Guarantees (2) (3) (3) (3) (3)
$135,000,000 100% $135,000,000 $46,551.74
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Salton Sea Brine Processing L.P., Salton Sea Power Generation L.P., Fish
Lake Power Company, Vulcan Power Company, CalEnergy Operating Company,
Salton Sea Royalty Company, BN Geothermal, Inc., San Felipe Energy
Company, Conejo Energy Company, Niguel Energy Company, Vulcan/BN
Geothermal Power Company, Leathers, L.P., Del Ranch, L.P. and Elmore,
L.P. are each registering Guarantees of the payment of the principal of,
premium, if any, and interest in the Securities being registered hereby.
Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no
registration fee is required with respect to the guarantees.
(3) Not applicable.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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SALTON SEA FUNDING CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus............... Facing Page; Cross Reference Sheet; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................................ Inside Front and Outside Back Cover Pages of
Prospectus; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........................ Prospectus Summary; Risk Factors; Selected
Historical Financial and Operating Data of the
Salton Sea Funding Corporation; Selected
Historical Combined Financial and Operating
Data of Salton Sea Guarantors; Selected Historical
and Pro Forma Combined Financial and
Operating Data of the Partnership Guarantors;
Selected Historical Combined Financial and
Operating Data of the Royalty Guarantor
4. Terms of the Transaction............................. Prospectus Summary; Risk Factors; The Exchange
Offer; Summary Description of the Series D and
Series E Securities; Summary Description of
Principal Financing Documents; The Exchange
Offer; Ownership
5. Pro Forma Financial Information...................... Prospectus Summary; Capitalization; Selected
Historical and Pro Forma Combined Financial
and Operating Data of the Partnership
Guarantors; Pro Forma Condensed Combined
Unaudited Financial Data
6. Material Contacts with the Company Being
Acquired............................................. Not applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters................................... Not applicable
8. Interests of Named Experts and Counsel............... Legal Matters; Independent Accountants;
Independent Engineer
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................................... Not applicable
S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
10. Information with Respect to S-3
Registrants.......................................... Not applicable
11. Incorporation of Certain Information by
Reference............................................ Not applicable
12. Information with Respect to S-2 or S-3
Registrants.......................................... Not applicable
13. Incorporation of Certain Information by
Reference............................................ Not applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants.................... Cover of Registration Statement; Prospectus
Summary; Risk Factors; Use of Proceeds; The
Exchange Offer; Capitalization; Selected
Historical Financial and Operating Data of the
Salton Sea Funding Corporation; Selected
Historical Combined Financial and Operating
Data of the Salton Sea Guarantors; Selected
Historical and Pro Forma Combined Financial
and Operating Data of the Partnership
Guarantors; Selected Historical Combined
Financial and Operating Data of the Royalty
Guarantor; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Certain Relationships and Related
Transactions; Business of the Guarantors;
Management
15. Information with Respect to S-3
Companies............................................ Not applicable
16. Information with Respect to S-2 or S-3
Companies............................................ Not applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies...................... Not applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited................... Not applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer.................................... Available Information; Prospectus Summary; The
Exchange Offer; Management; Executive
Compensation; Ownership; Certain Relationships
and Related Transactions
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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.
PROSPECTUS SUBJECT TO COMPLETION (DATED JULY 3, 1996)
SALTON SEA FUNDING CORPORATION
Offer to Exchange 7.02% Senior Secured Series D Notes Due
May 30, 2000 for any and all of its outstanding 7.02% Senior
Secured Series D Notes Due May 30, 2000; and Offer to
Exchange 8.30% Senior Secured Series E Bonds Due May 30,
2011 for any and all of its outstanding 8.30% Senior Secured
Series E Bonds Due May 30, 2011.
At May 31, 1996, the Guarantors' proportionate share of project-level
indebtedness was approximately $96.6 million, which indebtedness is
effectively senior to the Securities (as defined below). Such indebtedness was
repaid in full out of the proceeds of the offering of the Old Securities (as
defined below). The Funding Corporation has not issued, and does not have any
present expectation to issue, any significantindebtedness to which the New
Securities would be senior.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _________ ___, 1996, UNLESS EXTENDED.
Salton Sea Funding Corporation (the "Funding Corporation"), a special
purpose corporation and a wholly owned indirect subsidiary of CalEnergy
Company, Inc. ("CalEnergy"), hereby offers, upon the terms and subject to the
conditions set forth in the Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal" and together with this Prospectus,
the "Exchange Offer"), to exchange (i) its 7.02% Senior Secured Series D Notes
Due May 30, 2000 ("New Series D Securities") which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an equal
principal amount of its outstanding 7.02% Senior Secured Series D Notes Due
May 30, 2000 ("Old Series D Securities"), of which $70,000,000 aggregate
principal amount is outstanding, and (ii) its 8.30% Senior Secured Series E
Bonds Due May 30, 2011 ("New Series E Securities" and collectively with the
New Series D Securities, "New Securities") which have been registered under
the Securities Act pursuant to a Registration Statement of which this
Prospectus is a part, for an equal principal amount of its outstanding 8.30%
Senior Secured Series E Bonds Due May 30, 2011 ("Old Series E Securities" and
collectively with the Old Series D Securities, "Old Securities"), of which
$65,000,000 aggregate principal amount is outstanding. The New Securities, the
Old Securities, the Initial Securities (defined herein) and the Additional
Securities (defined herein) are collectively referred to herein as the
"Securities."
The Funding Corporation will accept for exchange any and all Old
Securities that are validly tendered and not withdrawn on or prior to 5:00
p.m., New York City time, on ________ __, 1996, unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Securities may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Securities being tendered for exchange. However, the Exchange Offer is subject
to certain customary conditions which may be waived by the Funding
Corporation. The Funding Corporation has agreed to pay the expenses of the
Exchange Offer. See "THE EXCHANGE OFFER." There will be no cash proceeds to
the Funding Corporation from the Exchange Offer. See "USE OF PROCEEDS."
(Cover continued on following page)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF OLD SECURITIES WHO TENDER THEIR OLD SECURITIES IN THE EXCHANGE
OFFER, SEE "RISK FACTORS" ON PAGE 31 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is ________ ___, 1996
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The New Securities are being offered for exchange in order to satisfy
certain obligations of the Funding Corporation under the Exchange and
Registration Rights Agreement, dated June 20, 1996 (the "Registration Rights
Agreement"), among the Funding Corporation and the Initial Purchaser (as
defined below). The New Securities will be obligations of the Funding
Corporation evidencing the same indebtedness as the Old Securities and will be
entitled to the benefits of the same Indenture (as defined herein), which
governs both the Old Securities and the New Securities. The form and terms
(including principal amount, interest rate, maturity and ranking) of the New
Securities are the same as the form and terms of the Old Securities, except
that (i) the New Securities have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Old Securities and (ii) the New Securities will not provide for any
increase in the interest rate thereon. The Old Securities provide that under
certain circumstances, including if the Exchange Offer has not commenced by,
and a shelf registration statement has not been declared effective by, March
17, 1997, the respective interest rates on the Old Securities will increase by
0.50% per annum following March 17, 1997, until the Exchange Offer is
commenced or the shelf registration statement is declared effective. Upon
consummation of the Exchange Offer, holders of Old Securities will not be
entitled to any increase in the rate of interest thereon. See "THE EXCHANGE
OFFER" and "SUMMARY DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS--
Registration Rights Agreement."
Prior to the Exchange Offer, there has been no established trading
market for the Old Securities or the New Securities. The Funding Corporation
does not intend to apply for listing or quotation of the New Securities on any
securities exchange or stock market. Therefore, there can be no assurance as
to the liquidity of any trading market for the New Securities or that an
active public market for the New Securities will develop. Any Old Securities
not tendered and accepted in the Exchange Offer will remain outstanding. To
the extent that Old Securities are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered, or tendered but unaccepted, Old
Securities could be adversely affected. Following consummation of the Exchange
Offer, the holders of Old Securities will continue to be subject to the
existing restrictions on transfer thereof and the Funding Corporation will
have no further obligations to such holders to provide for the registration of
the Old Securities under the Securities Act. See "SUMMARY DESCRIPTION OF
PRINCIPAL FINANCING DOCUMENTS-- Registration Rights Agreement."
The Old Securities were originally issued and sold on June 20, 1996
to CS First Boston Corporation (the "Initial Purchaser") in a transaction not
registered under the Securities Act in reliance upon the exemption provided in
Section 4(2) of the Securities Act (the "Initial Offering"). Accordingly, the
Old Securities may not be reoffered, resold or otherwise pledged, hypothecated
or transferred in the United States unless so registered or unless an
applicable exemption from the registration requirements of the Securities Act
is available. The Funding Corporation is making the Exchange Offer in reliance
on the position of the staff (the "Staff") of the Division of Corporation
Finance of the Securities and Exchange Commission (the "Commission") as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, the Funding Corporation has not sought its own
interpretive letter and there can be no assurance that the Staff would make a
similar determination with respect to the Exchange Offer. Based on
interpretations by the Staff, the Funding Corporation believes that New
Securities issued pursuant to the Exchange Offer in exchange for Old
Securities may be offered for resale, resold and otherwise transferred by a
holder thereof (other than (i) an "affiliate" of the Funding Corporation
within the meaning of Rule 405 under the Securities Act, (ii) the Initial
Purchaser to the extent it acquired Old Securities directly from the Funding
Corporation solely in order to resell pursuant to Rule 144A of the Securities
Act or any other available exemption under the Securities Act or (iii) a
broker-dealer (which may include the Initial Purchaser) who acquired Old
Securities as a result of market-making or other trading activities) without
further compliance with the registration and prospectus delivery requirements
of the Securities Act, provided that such New Securities are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Securities.
Based on the position taken by the Staff, the Funding Corporation
believes that broker-dealers who acquired Old Securities as a result of
market-making activities or other trading activities ("Participating
Broker-Dealers") may fulfill their prospectus delivery requirements with
respect to the New Securities received
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upon exchange of such Old Securities with a prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Securities. Accordingly, this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Securities.
See "PLAN OF DISTRIBUTION." Any holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction unless such sale is made pursuant to an exemption from such
requirements.
AVAILABLE INFORMATION
The Funding Corporation has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Registration Statement," which term shall include all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules
and regulations promulgated thereunder, covering the New Securities being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Funding Corporation and the New Securities,
reference is hereby made to the Registration Statement. Statements made in
this Prospectus as to the contents of any contract, agreement or other
document referred to in the Registration Statement 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 the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Funding Corporation is subject to the periodic and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and in accordance therewith files annual and quarterly reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Funding Corporation may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. The Commission also maintains a Website (http://www.sec.gov.) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Funding Corporation is required by the terms of the indenture,
dated as of July 21, 1995 (the "Indenture"), between the Funding Corporation
and Chemical Trust Company of California, as trustee (the "Trustee"), under
which the Securities are issued, to furnish the Trustee with annual reports
containing condensed financial statements audited by their independent
certified public accountants and with quarterly reports containing unaudited
condensed financial statements for each of the first three quarters of each
fiscal year.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS.
IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDING CORPORATION. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NEW
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE FUNDING CORPORATION SINCE THE DATE HEREOF.
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FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR
A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT, NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY
OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON
THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE,
TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION 4
DEFINED TERMS 7
PROSPECTUS SUMMARY 8
RISK FACTORS 31
USE OF PROCEEDS 35
THE EXCHANGE OFFER 35
CAPITALIZATION 44
SELECTED HISTORICAL FINANCIAL AND OPERATING
DATA OF THE FUNDING CORPORATION 45
SELECTED HISTORICAL COMBINED FINANCIAL AND
OPERATING DATA OF THE SALTON SEA GUARANTORS 46
SELECTED HISTORICAL AND PRO FORMA COMBINED
FINANCIAL AND OPERATING DATA OF THE PARTNERSHIP
GUARANTORS 47
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
OF THE ROYALTY GUARANTOR 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 51
BUSINESS OF THE GUARANTORS 61
MANAGEMENT 73
EXECUTIVE COMPENSATION 74
OWNERSHIP 74
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 75
SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS 76
SUMMARY DESCRIPTION OF THE SERIES D AND
SERIES E SECURITIES 96
SUMMARY DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS 99
PLAN OF DISTRIBUTION 137
LEGAL MATTERS 138
EXPERTS 138
INDEPENDENT ENGINEER 139
PART II II-I
INDEX TO FINANCIAL STATEMENTS F-1
INDEX TO PRO FORMA CONDENSED COMBINED
UNAUDITED FINANCIAL DATA P-1
APPENDIX A GLOSSARY OF DEFINED TERMS A-1
APPENDIX B INDEPENDENT ENGINEER'S REPORT B-1
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DEFINED TERMS
All capitalized terms used in this Prospectus and not otherwise
defined have the meanings assigned thereto in Appendix A hereto.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Certain capitalized terms used but not defined in this summary are
used herein as defined elsewhere in this Prospectus and in the Glossary
included as Appendix A. See also the "RISK FACTORS" included in this
Prospectus which holders of the Old Securities should carefully consider
before tendering their Old Securities in the Exchange Offer.
FUNDING CORPORATION
The Funding Corporation is a special purpose Delaware corporation and
an indirect wholly-owned subsidiary of CalEnergy formed for the sole purpose
of issuing the Securities in its individual capacity as principal and as agent
acting on behalf of the Guarantors. The following chart illustrates the
corporate structure of the Funding Corporation and the Guarantors. The
principal executive office of the Funding Corporation is located at 302 South
36th Street, Suite 400-A, Omaha, Nebraska 68131 and its telephone number is
(402) 341-1641.
OWNERSHIP STRUCTURE
GRAPHIC OMITTED
INITIAL OFFERING
On July 21, 1995 (the "Initial Closing Date"), the Funding
Corporation issued an aggregate of $475,000,000 of its unregistered Initial
Securities, consisting of Series A Securities, Series B Securities and Series
C Securities. On February 13, 1996, the Funding Corporation consummated an
exchange offer pursuant to which it issued substantially identical Initial
Securities which had been registered under the Securities Act in exchange for
such unregistered Initial Securities. On June 1, 1996, the aggregate principal
amount of the Initial Securities then outstanding was $428,035,000.
On the Initial Closing Date, the Funding Corporation loaned the
proceeds of the Initial Securities to the Initial Guarantors in consideration
for which (i) such Guarantors issued their Initial Guarantees and (ii) the
Salton Sea Guarantors, jointly and severally, the Initial Partnership
Guarantors, jointly and severally, and the Royalty Guarantor issued their
respective Project Notes to the Funding Corporation in the initial principal
amounts of $325,000,000, $75,000,000 and $75,000,000, respectively.
The Initial Securities, the Old Securities and the New Securities
shall rank pari passu. For a more complete description of the terms and
conditions of the Project Notes and the Securities, see "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities", "THE EXCHANGE OFFER"
and "SUMMARY DESCRIPTION Of PRINCIPAL FINANCING DOCUMENTS."
CALENERGY
CalEnergy was formed in 1971 and is 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. CalEnergy
owns all of the capital stock of Magma Power Company ("Magma"). CalEnergy has
an aggregate net ownership interest of 432 MW of electrical generating
capacity in power plants in operation or under construction in the United
States and overseas, which have an aggregate net capacity of 575 MW (including
its interests in the Salton Sea Projects and the Partnership Projects). As of
March 31, 1996, CalEnergy had over $2.7 billion in assets and its common stock
is publicly traded on the New York, Pacific and London Stock Exchanges under
the symbol "CE." Approximately 34% of CalEnergy's common stock is beneficially
owned, through indirect subsidiaries, by Peter
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Kiewit Sons, Inc., a privately held construction, mining and telecommunications
company headquartered in Omaha, Nebraska.
In February 1995, CalEnergy completed the acquisition of all the
outstanding stock of Magma (the "Magma Acquisition"). Magma had previously
owned or controlled substantially all of the assets of the Initial Guarantors,
including the three Salton Sea Projects then in operation and 50% partnership
interests in each of the four Partnership Projects. At the time of the Magma
Acquisition, Magma's interest in the Initial Guarantors generated
substantially all of Magma's earnings. The purchase price for the Magma
Acquisition was $957 million, of which $457 million was funded by CalEnergy
and $500 million was provided by an interim bank facility which was borrowed
on a non recourse basis to CalEnergy and secured by the stock of Magma. The
Magma Acquisition loan was subsequently refinanced with a portion of the
proceeds of the Initial Offering and other cash provided by CalEnergy and
Magma.
Since the Magma Acquisition, the operations of the Salton Sea
Projects and the Partnership Projects acquired in such acquisition have
substantially improved, and significant cost savings and efficiencies have
been realized. On April 17, 1996, a subsidiary of CalEnergy acquired all of
the stock of BN Geothermal, Inc. ("BNG"), Niguel Energy Company ("Niguel"),
San Felipe Energy Company ("San Felipe") and Conejo Energy Company ("Conejo")
from Edison Mission Energy ("Mission") for $70 million. Such Acquired
Partnership Companies owned 50% partnership interests in each of the
Partnership Projects. See "BUSINESS OF THE GUARANTORS--Partnership
Projects--Recent Partnership Acquisition." As a result of such acquisition
(the "Partnership Acquisition"), CalEnergy has obtained full operating and
ownership control of all of the Partnership Projects. In order to realize the
benefits of the Partnership Acquisition and to further consolidate the
financial structure of the Guarantors, the Funding Corporation issued and sold
the Old Securities in order to (i) refinance all existing project-level debt
at the Partnership Projects, (ii) fund certain capital improvements at the
Partnership Projects and the Salton Sea Projects and (iii) fund a portion of
the purchase price for the Acquired Partnership Companies.
Magma directly or indirectly owns all of the capital stock of or
partnership interests in the Funding Corporation and the Guarantors. CalEnergy
Operating Company ("CEOC"), a subsidiary in which Magma owns a 99% interest
and the Funding Corporation owns a 1% interest, currently operates each of the
Salton Sea Projects and the Partnership Projects. Affiliates of Magma control,
through a variety of fee, leasehold, and royalty interests, rights to
geothermal resources for power production in the Salton Sea Known Geothermal
Resource Area ("SSKGRA"). The Funding Corporation believes that such resources
will be sufficient to operate the Salton Sea Projects and the Partnership
Projects at contract capacity under their respective power purchase agreements
through the Final Maturity Date. See "BUSINESS OF THE GUARANTORS--General
Description of the Projects."
GUARANTORS
Each of the Salton Sea Guarantors, the Partnership Guarantors and the
Royalty Guarantor is an indirect wholly-owned subsidiary of CalEnergy.
Salton Sea Brine Processing L.P. ("SSBP"), Salton Sea Power
Generation L.P. ("SSPG") and Fish Lake Power Company ("Fish Lake")
(collectively, the "Salton Sea Guarantors") own four geothermal power plants
located in Imperial Valley, California known as Salton Sea Unit I, Salton Sea
Unit II, Salton Sea Unit III and Salton Sea Unit IV (collectively, the "Salton
Sea Projects"). See "BUSINESS OF THE GUARANTORS--Salton Sea Projects."
Each of Vulcan/BN Geothermal Power Company ("Vulcan"), Elmore, L.P.
("Elmore"), Leathers, L.P. ("Leathers") and Del Ranch, L.P. ("Del Ranch" and,
collectively with Vulcan, Elmore and Leathers, the "Partnership Project
Companies") owns a geothermal power plant located in Imperial Valley,
California known as the Vulcan Project, the Elmore Project, the Leathers
Project and the Del Ranch Project, respectively (such projects, collectively,
the "Partnership Projects"). As is more fully described below, the other
Partnership
9
<PAGE>
Guarantors collectively own or have the right to receive cash flow
from 100% of the equity in such Partnership Project Companies.
Vulcan Power Company ("VPC") and its wholly-owned subsidiary, BNG,
own 100% of the partnership interests in Vulcan. CEOC and its wholly-owned
subsidiaries, Niguel, San Felipe and Conejo, collectively own 90% partnership
interests in each of Elmore, Leathers and Del Ranch, respectively. Magma owns
all of the remaining 10% interests in each of Elmore, Leathers and Del Ranch.
CEOC is entitled to receive from Magma, as payment for certain data and
services provided by CEOC, all of the partnership distributions Magma receives
with respect to such 10% ownership interests in each of Elmore, Leathers and
Del Ranch and Magma's special distributions equal to 4.5% of total energy
revenues from the Leathers Project.
Vulcan, Elmore, Leathers, Del Ranch, BN Geothermal, Niguel, San
Felipe and Conejo (collectively, the "Additional Partnership Guarantors"),
together with CEOC and VPC (collectively, the "Initial Partnership
Guarantors"), are collectively referred to as the "Partnership Guarantors".
See "BUSINESS OF THE GUARANTORS--Partnership Projects."
Salton Sea Royalty Company (the "Royalty Guarantor") has received an
assignment of certain fees and royalties ("Royalties") paid by three
Partnership Projects, Elmore, Leathers and Del Ranch. In addition, the Royalty
Guarantor has received an assignment of certain Royalties payable by certain
geothermal power plants located in Imperial Valley, California which are owned
by an unaffiliated third party (the "East Mesa Project", and together with the
Salton Sea Projects and the Partnership Projects, the "Projects"). Such
Royalties are subject to netting and reduction from time to time to reflect
various operating costs, as reflected in the financial statements herein. See
"BUSINESS OF THE GUARANTORS--Royalty Projects."
THE EXCHANGE OFFER
<TABLE>
<CAPTION>
<S> <C>
Registration Rights Agreement............ The Old Securities were sold by the Funding Corporation on June 20,
1996 to CS First Boston Corporation (the "Initial Purchaser"), which
placed the Old Securities with "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act). In connection therewith, the Funding Corporation
executed and delivered for the benefit of the holders of Old Securities
the Registration Rights Agreement, providing for, among other things,
the Exchange Offer.
The Exchange Offer....................... The Funding Corporation is offering to exchange (i) $70,000,000
aggregate principal amount of Old Series D Securities for an equal
principal amount of New Series D Securities and (ii) $65,000,000
aggregate principal amount of Old Series E Securities for an equal
principal amount of New Series E Securities. The New Securities will
be obligations of the Funding Corporation evidencing the same
indebtedness as the Old Securities and will be entitled to the benefits
of the Indenture, which governs both the Old Securities and the New
Securities. The form and terms (including principal amount, interest
rate, maturity and ranking) of the New Securities are the same as the
form and terms of the Old Securities, except that (i) the New Securities
have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer applicable to the Old
Securities and (ii) the New Securities will not provide for any increase
in the interest rate thereon. The Old Securities provide that under
certain circumstances, including if the Exchange Offer has not
commenced by, and a shelf registration
10
<PAGE>
statement has not been declared effective by, March 17, 1997, the respective
interest rates on the Old Securities will increase by 0.50% per annum
following March 17, 1997 until the Exchange Offer is commenced. Upon
consummation of the Exchange Offer, holders of Old Securities will
not be entitled to any increase in the rate of interest thereon under the
Registration Rights Agreement.
Resales of New Securities................. New Securities issued pursuant to the Exchange Offer in exchange for the
Old Securities may be offered for resale, resold and otherwise transferred
by holders thereof (other than any holder which is (i) an "affiliate" of
the Funding Corporation within the meaning of Rule 405 under the Securities
Act, (ii) the Initial Purchaser to the extent it acquired Old Securities
directly from the Funding Corporation solely in order to resell pursuant
to Rule 144A of the Securities Act or any other available exemption under
the Securities Act or (iii) a broker-dealer (which may include the Initial
Purchaser) who acquired Old Securities as a result of market-making or
other trading activities), without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that
such New Securities are acquired in the ordinary course of such holder's
business and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in a distribution (within the
meaning of the Securities Act) of such New Securities.
Each broker-dealer that receives New Securities for its own account as a result
of market-making or trading activities pursuant to the Exchange Offer must acknowledge
that it acquired the Old Securities as the result of such activities and must
agree that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such New Securities. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the Staff, the Funding Corporation
believes that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the New Securities received upon exchange of such Old
Securities with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Securities. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of such New
Securities. Subject to certain provisions set forth in the Registration Rights
Agreement, the Funding Corporation has agreed that this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Securities for a period
ending 120 days after the effectiveness of the Registration Statement of which
this Prospectus is a part (subject to extension
11
<PAGE>
under certain limited circumstances described herein) or, if earlier,
when all such New Securities have been disposed of by the Participating
Broker-Dealer. See "THE EXCHANGE OFFER" and "PLAN OF DISTRIBUTION."
Minimum Condition........................ The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Securities being tendered for exchange.
Expiration Date.......................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
______________, 1996 (the "Expiration Date"), unless the Exchange
Offer is extended, in which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is extended.
Withdrawal Rights........................ Tenders may be withdrawn at any time prior to the Expiration Date.
Any Old Securities which have been tendered for exchange but which
are not exchanged for any reason will be returned to the holder thereof
(or credited to the appropriate account) without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination
of the Exchange Offer.
Interest on the New Securities........... The New Series D Securities will bear interest at the rate of 7.02% per
annum from the most recent date to which interest has been paid on
the Old Series D Securities or, if no interest has been paid on the Old
Series D Securities, from June 20, 1996. The New Series E Securities
will bear interest at the rate of 8.30% per annum from the most recent
date to which interest has been paid on the Old Series E Securities or,
if no interest has been paid on the Old Series E Securities, from June
20, 1996. Interest on the New Securities is payable semiannually on
May 30 and November 30 of each year, commencing on the first such
date following the issuance of the New Securities. Holders of Old
Securities whose Old Securities are accepted for exchange will not
receive any payment in respect of accrued and unpaid interest on such
Old Securities.
Conditions to the Exchange Offer......... The obligation of the Funding Corporation to consummate the
Exchange Offer is subject to certain conditions. See "THE
EXCHANGE OFFER--Conditions to the Exchange Offer." The
Funding Corporation may terminate, waive or amend the Exchange
Offer at any time prior to the Expiration Date.
Procedures for Tendering................. Tendering holders of Old Securities must complete and sign the Letter
of Transmittal in accordance with the instructions contained therein
and forward the same by mail, facsimile or hand delivery, together
with any other required documents, to the Exchange Agent, either
with the Old Securities to be tendered or in compliance with the
specified procedures for guaranteed delivery of Old Securities. Certain
brokers, dealers, commercial banks, trust companies and other
nominees may also effect tenders by an Agent's Message (defined
herein) in case of book-entry delivery to the Exchange Agent prior to
the Expiration Date. Holders of Old Securities registered in the name
of a broker, dealer, commercial bank, trust
12
<PAGE>
company or other nominee are urged to contact such person promptly if
they wish to tender Old Securities pursuant to the Exchange Offer. See
"THE EXCHANGE OFFER--Procedures for Tendering." Letters of Transmittal
and certificates representing Old Securities should not be sent to the
Funding Corporation. Such documents should only be sent to the Exchange
Agent. Questions regarding how to tender and requests for information
should be directed to the Exchange Agent. See "THE EXCHANGE OFFER--
Exchange Agent."
Acceptance of Old Securities and
Delivery of New Securities............ Subject to certain conditions, the Funding Corporation will accept for
exchange any and all Old Securities which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Securities issued pursuant to the Exchange
Offer will be delivered promptly following the Expiration Date. See
"THE EXCHANGE OFFER--Terms of the Exchange Offer."
Certain Federal Income Tax
Consequences.......................... The exchange of Old Securities for New Securities by holders should
not be a sale or exchange or otherwise a taxable event for federal
income tax purposes, and holders should not recognize any taxable
gain or loss or any interest income as a result of such exchange.
Exchange Agent........................... Chemical Trust Company of California is serving as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer.
Effect on Holders of
Old Securities........................ Holders of Old Securities who do not tender their Old Securities in the
Exchange Offer will continue to hold such Old Securities and will be
entitled to all the rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but unaccepted, Old Securities will
continue to be subject to the restrictions on transfer provided for in the
Old Securities and the Indenture. To the extent that Old Securities
are tendered and accepted in the Exchange Offer, the trading market, if
any, for the Old Securities could be adversely affected. See "RISK FACTORS
--Consequences of Exchange and Failure to Exchange."
</TABLE>
STRUCTURE OF AND COLLATERAL FOR THE SECURITIES
The Securities will be payable from the proceeds of payments made in
respect of principal of and interest on the Project Notes by the Guarantors to
the Funding Corporation. The Securities are secured by the capital stock of
the Funding Corporation and guaranteed by the Guarantors. The Guarantees
(which are unlimited in the case of the Salton Sea Guarantors and which are
limited to Available Cash Flow, in the case of the Partnership Guarantors and
the Royalty Guarantor) are secured:
(i) in the case of the Salton Sea Guarantee, by a senior first
priority Lien on substantially all of the assets of the Salton
Sea Guarantors, a pledge of the equity interests in the Salton
Sea Guarantors and an assignment of the cost overrun funding
commitment provided by CalEnergy to the Salton Sea Guarantors
in connection with the Substantial Completion of the Salton Sea
Expansion (the "Cost Overrun Commitment");
13
<PAGE>
(ii) in the case of the Partnership Guarantee, by a senior first
priority Lien on substantially all of the assets of the
Partnership Project Companies, a senior first priority Lien on
the Equity Cash Flowsand Royalties of the Initial Partnership
Guarantors and a pledge of the stock of and other equity
interests in the Partnership Guarantors; and
(iii) in the case of the Royalty Guarantee, by a senior first
priority Lien on all Royalties paid to the Royalty Guarantor
and a pledge of the capital stock of the Royalty Guarantor.
As is more fully described elsewhere in this Prospectus, CEOC, VPC
and the Royalty Guarantor receive various Royalties and Equity Cash Flows from
the Partnership Project Companies and an unaffiliated third party. At the time
of the Initial Offering, CEOC and VPC owned or had the right to receive (among
other things) equity distributions relating to 50% of the Partnership Project
Companies. In connection with the Initial Offering, CEOC, VPC and the Royalty
Guarantor pledged all such Royalties and Equity Cash Flows as Collateral for
their obligations under the Project Notes and Guarantees (the "Existing
Partnership Collateral"). Similarly, in connection with the Initial Offering,
CEOC, VPC and the Royalty Guarantor agreed to deposit all such Royalties and
Equity Cash Flows with the Depositary Agent pursuant to the Depositary
Agreement for purposes of paying, inter alia, their obligations under the
Project Notes (the "Existing Partnership Cash Flow Deposits").
In connection with the offering of the Old Securities, CEOC and VPC
acquired the remaining 50% equity interests in the Partnership Project
Companies and retired existing non-recourse debt of the Partnership Project
Companies. As security for the Partnership Project Note and the Partnership
Guarantee, the Partnership Project Companies pledged all of their revenues and
assets as Collateral for their obligations under the Partnership Project Note
and the Partnership Guarantee (the "Additional Partnership Collateral") and
agreed to deposit all of their revenues with the Depositary Agent pursuant to
the Depositary Agreement for purposes of paying, inter alia, their obligations
under the Project Notes (the "Additional Partnership Revenue Deposits"). The
Funding Corporation believes that these changes benefit Securityholders by
increasing the revenues available to pay the Securities, and, by refinancing
existing Del Ranch, Elmore and Leathers indebtedness, removing the structural
subordination of the Securities to such indebtedness and providing holders
with a direct first priority lien on the Partnership Project assets. However,
since the Royalties and Equity Cash Flows constituting the Existing
Partnership Collateral (other than the East Mesa Royalties) are payable solely
out of the revenues of the Partnership Project Companies pledged as Additional
Partnership Collateral, the supplemental benefits of such Existing Partnership
Collateral and Existing Partnership Cash Flow Deposits are, as a practical
matter, largely subsumed and included within the grant of the Additional
Partnership Collateral and Additional Partnership Revenue Deposits.
Accordingly, the Additional Partnership Collateral and Additional Partnership
Revenue Deposits should be viewed as comprising all of the material
Partnership Collateral and sources of revenue available as security for, or
payment of, the Partnership Project Note and Partnership Guarantee.
The structure has been designed to cross-collateralize cash flows
from each Guarantor without cross-collateralizing all of the Guarantors'
assets. Therefore, if a Guarantor defaults on its Credit Agreement, Project
Note or Notes or its Guarantee, without causing a payment default on the
Securities, then the Trustee may direct the Collateral Agent to exercise
remedies only with respect to the Collateral securing such Credit Agreement,
Project Note or Notes and Guarantee. If, however, such default causes a
payment default on the Securities, then the Trustee may accelerate the
Securities and direct the Collateral Agent to exercise remedies against all
such Collateral and, if different, the Collateral from the Salton Sea
Guarantors.
The Funding Corporation and the Guarantors are obligated to maintain
a Debt Service Reserve Fund and/or a Debt Service Reserve Fund Letter of
Credit in an aggregate initial amount equal to the maximum remaining
semiannual scheduled debt service on the Securities. After January 1, 2000,
the Debt Service Reserve Fund Required Balance will increase to the maximum
remaining annual scheduled debt service on the Securities.
14
<PAGE>
THE PROJECTS
Set forth below is a table describing certain characteristics of the
Salton Sea Projects and the Partnership Projects, and the Guarantors'
collective interests therein.
15
<PAGE>
THE SALTON SEA PROJECTS AND THE PARTNERSHIP PROJECTS
<TABLE>
<CAPTION>
FACILITY CAPACITY AND NET
OWNERSHIP INTEREST OF
PROJECT GUARANTORS (In MW)(1)(2) LOCATION
------- ------------------------ --------
<S> <C> <C>
Salton Sea Projects
Salton Sea Unit I............................................. 10.0 Imperial Valley, CA
Salton Sea Unit II............................................ 20.0 Imperial Valley, CA
Salton Sea Unit III........................................... 49.8 Imperial Valley, CA
Salton Sea Unit IV............................................ 40.0 Imperial Valley, CA
-------
Subtotal............................................... 119.8
-------
Partnership Projects
Vulcan........................................................ 34.0 Imperial Valley, CA
Elmore........................................................ 38.0 Imperial Valley, CA
Leathers...................................................... 38.0 Imperial Valley, CA
Del Ranch..................................................... 38.0 Imperial Valley, CA
-------
Subtotal............................................... 148.0
--------
Total.............................................. 267.8
=====
<FN>
- -------------------
(1) Facility Capacity does not necessarily reflect full electric output available for sale to SCE.
(2) CEOC and its wholly-owned subsidiaries collectively own an aggregate 90%
interest in, and CEOC is entitled to receive the additional 10% equity
distribution payable to Magma by, each of Elmore, Leathers and Del Ranch.
VPC and its wholly-owned subsidiary own Vulcan.
</TABLE>
<TABLE>
<CAPTION>
DATE OF COMMERCIAL CONTRACT
PROJECT OPERATION EXPIRATION CONTRACT TYPE POWER PURCHASER
------- ------------------ ---------- ------------- ---------------
<S> <C> <C> <C> <C>
Salton Sea Projects
Salton Sea Unit I....................... 7/1987 6/2017 Negotiated SCE
Salton Sea Unit II...................... 4/1990 4/2020 SO4 SCE
Salton Sea Unit III..................... 2/1989 2/2019 SO4 SCE
Salton Sea Unit IV...................... 6/1996 (est.) 6/2026 (est.) Negotiated SCE
Partnership Projects
Vulcan.................................. 2/1986 2/2016 SO4 SCE
Elmore.................................. 1/1989 12/2018 SO4 SCE
Leathers................................ 1/1990 12/2019 SO4 SCE
Del Ranch............................... 1/1989 12/2018 SO4 SCE
</TABLE>
TRANSACTION STRUCTURE(1)
GRAPHIC OMITTED
- -------------------
(1) This chart reflects loans made to the Guarantors in connection with
the offering of the Initial Securities and the Old Securities. See
"USE OF PROCEEDS."
SALTON SEA PROJECTS
The Salton Sea Guarantors collectively own the four Salton Sea
Projects with an aggregate net generating capacity of approximately 119.8 MW.
All of the Salton Sea Projects have executed long term power purchase
agreements, providing for the sale of capacity and energy to SCE.
Salton Sea Unit II and Salton Sea Unit III have modified SO4
Agreements with SCE. These contracts provide for fixed price capacity payments
for the life of the contract, and fixed price energy payments for the first 10
years. Thereafter, the energy payments paid by SCE will be based on SCE's
then-current, published
16
<PAGE>
short-run avoided cost of energy (the "Avoided Cost of Energy"). The fixed
price energy periods expire on April 4, 2000 and February 13, 1999 for Salton
Sea Unit II and Salton Sea Unit III, respectively.
Salton Sea Unit I and Salton Sea Unit IV have negotiated contracts
with SCE.The Salton Sea Unit I contract provides for a capacity payment and
energy payment for the life of the contract. Both payments are based upon an
initial value that is subject to quarterly adjustment by reference to various
inflation-related indices. The Salton Sea Unit IV contract also provides for
fixed price capacity payments for the life of the contract. Approximately 56%
of the kWhs are sold under the Salton Sea Unit IV PPA at a fixed energy price,
which is subject to quarterly adjustment by reference to various
inflation-related indices, through June 20, 2017 (and at SCE's Avoided Cost of
Energy thereafter), while the remaining 44% of the Salton Sea Unit IV kWhs are
sold according to a 10-year fixed price schedule followed by payments based on
a modified Avoided Cost of Energy for the succeeding 5 years and at SCE's
Avoided Cost of Energy thereafter.
All of the Salton Sea Projects, other than Salton Sea Unit IV, have
been operating for at least 5 years. The three operating Salton Sea Projects
operated at a combined Contract Capacity Factor of 98.6% in the 5 years ended
December 31, 1995.
The Salton Sea Guarantors have recently expanded the capacity of the
Salton Sea Projects through the construction of Salton Sea Unit IV adjacent to
the site where Salton Sea Unit III is currently located. As of the end of May
1996, construction of Salton Sea Unit IV was substantially completed and the
facility had commenced deliveries of electrical energy to SCE. On May 24,
1996, Salton Sea Unit IV commenced its 30-day capacity demonstration test
under the Salton Sea Unit IV PPA. The test is proceeding without difficulties
and the facility is currently producing in excess of 40 MW. In addition, on
June 6, 1996, the facility satisfactorily completed its 24- hour reliability
test. The 30-day test with respect to Salton Sea Unit IV was completed by the
end of June 1996, and, accordingly, under the Salton Sea IV PPA, SCE is now
obligated to pay full contract rates. The Funding Corporation now plans to
seek confirmation from the Independent Engineer that Substantial Completion
under the Indenture has occurred, which will result in CalEnergy having no
further obligation under the Cost Overrun Commitment. See "SUMMARY DESCRIPTION
OF PRINCIPAL PROJECT DOCUMENTS--Salton Sea Guarantor Project Contracts--Salton
Sea Unit IV--Cost Overrun Commitment."
In October 1995, the Salton Sea Guarantors completed the installation
of the pH Modification Process at Salton Sea Units I and III. The pH
Modification Process has been in use at Salton Sea Unit II for over 5 years.
The process lowers the pH of the geothermal resource, thereby significantly
reducing the amount of solids in the geothermal fluid which precipitate out of
solution. This is expected to result in significantly lower operation and
maintenance costs. See "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
The budget for the Salton Sea Expansion was $135 million (including a
$10 million contingency). In connection with the Initial Offering, CalEnergy
provided the Cost Overrun Commitment to fund any costs of construction of the
Salton Sea Expansion, which, if applicable, may be required to be incurred in
excess of the budgeted amount of $135 million in order to cause Substantial
Completion by January 1, 1998. This commitment is expected to be satisfied in
June 1996 upon Substantial Completion of Salton Sea Unit IV but in any event
would expire on the earlier of (i) January 1, 1998, (ii) the mandatory
redemption (if any) of Series B and Series C Securities having an aggregate
principal amount of at least $150 million or (iii) under certain circumstances
involving a confirmation of the Investment Grade Rating for the Securities.
See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea Unit IV"
and "SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E SECURITIES--Mandatory
Redemption."
PARTNERSHIP PROJECTS
The Partnership Projects have an aggregate facility generating
capacity of 148 MW. The Partnership Guarantors collectively own 100% of the
Vulcan Project and 90% partnership interests in each of the Elmore, Leathers
and Del Ranch Projects. Magma owns the remaining 10% interests in each of the
Elmore, Leathers and Del Ranch Projects and, in connection with the Initial
Offering, agreed to pay to CEOC the partnership
17
<PAGE>
distributions it receives from such interests in exchange for certain
proprietary data and services provided by CEOC. Magma has assigned to CEOC
Magma's right to such payments and such payments are collateral for the
Securities. These payments are made from revenues which constitute Partnership
Collateral. See "PROSPECTUS SUMMARY--Structure of and Collateral for the
Securities." The 50% interest in each of the Partnership Projects previously
owned by certain affiliates of SCE were acquired by a subsidiary of CalEnergy
on April 17, 1996 and transferred to CEOC and VPC on the Closing Date. See
"BUSINESS OF THE GUARANTORS--Partnership Projects."
All of the Partnership Projects have executed SO4 Agreements for the
sale of capacity and energy to SCE which contracts provide for fixed price
capacity payments for the life of the contract and fixed price energy payments
for the first 10 years. Thereafter, the energy payments paid by SCE will be
based on SCE's Avoided Cost of Energy. The fixed price energy period for the
Vulcan Project expired on February 9, 1996 and will expire on December 31,
1998 for the Del Ranch and Elmore Projects and December 31, 1999 for the
Leathers Project. See "SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Partnership
Project Contracts."
All of the Partnership Projects have been operating for at least 5
years. The Partnership Projects operated at a combined Contract Capacity
Factor of 113.1% in the 5 years ended on December 31, 1995.
ROYALTIES AND ROYALTY PROJECTS
The Royalty Guarantor has received an assignment from Magma of
certain Royalties received from the Leathers, Del Ranch and Elmore Projects
and the East Mesa Project in exchange for the provision to those Projects of
the rights to use certain geothermal resources, as well as the assignment of a
power purchase agreement. Substantially all of the assigned Royalties are
based on a percentage of energy and capacity revenues of the Projects.
Pursuant to the assignment, the Royalty Guarantor is entitled to receive the
aggregate percentages of such Project's energy and capacity revenues as
illustrated in the chart below. The Partnership Guarantors are also entitled
to receive Royalties from the Partnership Projects as illustrated in the chart
below. Royalties are subject to netting and reduction from time to time to
reflect various operating costs, as reflected in the financial statements
herein. All such Royalties (other than the East Mesa Royalties) are payable
from revenues which will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities."
<TABLE>
<CAPTION>
ROYALITIES TO BE PAID TO ROYALTY ROYALTIES TO BE PAID TO
GUARANTOR PARTNERSHIP GUARANTORS(1)
-------------------------------- -------------------------
FACILITY % ENERGY % CAPACITY % ENERGY % CAPACITY
PROJECT CAPACIYTY REVENUES REVENUES REVENUES REVENUES
------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Del Ranch........................... 38 23.33 1.00 5.67 3.00
Elmore.............................. 38 23.33 1.00 5.67 3.00
Leathers............................ 38 21.50 0.00 7.50 3.00
Vulcan.............................. 34 0.00 0.00 4.17 0.00
East Mesa Sr. Royalty(2)............ 37 4.00 4.00 0.00 0.00
East Mesa Jr. Royalty(2)............ -- 10.00 10.00 0.00 0.00
---
Total.......................... 185
===
</TABLE>
- -----------------------
(1) CEOC is also entitled to receive Royalties as hereinafter described. See
"SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Partnership Project
Contracts." Such Royalties are payable from revenues that will constitute
Partnership Collateral. See "PROSPECTUS SUMMARY--Structure of and
Collateral for the Securities."
(2) The East Mesa Junior Royalties (which are due but have not been paid to
date), are junior to debt service of the East Mesa Project. The East
Mesa Senior Royalties are senior to debt service of the East Mesa
Project.
The East Mesa Project has executed long term power sales agreements
with SCE providing for fixed price capacity payments for the life of the
agreement and fixed price energy payments for the first 10 years. Thereafter,
the energy payments will be based on SCE's Avoided Cost of Energy. The fixed
price energy period for the East Mesa Project expires on December 31, 1999.
The East Mesa Project has been operating for over 5
18
<PAGE>
years. See "BUSINESS OF THE GUARANTORS--Royalty Project Contracts" and "SUMMARY
DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Royalty Project Contracts--East
Mesa Project Contracts."
19
<PAGE>
TERMS OF THE NEW SECURITIES AND THE OLD SECURITIES
The Exchange Offer applies to $135,000,000 aggregate principal amount
of the Old Securities. The New Securities will be obligations of the Funding
Corporation evidencing the same indebtedness as the Old Securities and will be
entitled to the benefits of the Indenture, which governs both the Old
Securities and the New Securities. The form and terms (including principal
amount, interest rate, maturity and ranking) of the New Securities are the
same as the form and terms of the Old Securities, except that (i) the New
Securities have been registered under the Securities Act and therefore will
not be subject to certain restrictions on transfer applicable to the Old
Securities and (ii) the New Securities will not provide for any increase in
the interest rate thereon. See "THE EXCHANGE OFFER" and "SUMMARY DESCRIPTION
OF PRINCIPAL FINANCING DOCUMENTS--Registration Rights Agreement." The Old
Series D Securities and the New Series D Securities are collectively referred
to herein as the "Series D Securities," and the Old Series E Securities and
the New Series E Securities are collectively referred to herein as the "Series
E Securities."
<TABLE>
<CAPTION>
THE SERIES D AND SERIES E SECURITIES:
<S> <C>
Issuer................................... Salton Sea Funding Corporation.
Guarantors............................... Salton Sea Guarantors, Partnership Guarantors and Royalty
Guarantor.
Guarantees............................... The Salton Sea Guarantors will guarantee payment of the Securities.
The Partnership Guarantors and the
Royalty Guarantor will guarantee,
to the extent of their respective
Available Cash Flow, payment of
the Securities.
Series D Securities...................... $70,000,000 7.02% Senior Secured Series D Notes due May 30, 2000.
Series E Securities...................... $65,000,000 8.30% Senior Secured Series E Bonds due May 30, 2011.
Interest Payment Dates................... May 30 and November 30, commencing November 30, 1996.
Ratings.................................. "Baa3" by Moody's Investors Service, Inc. ("Moody's") and "BBB-" by
Standard & Poor's Ratings Group ("S&P").
Denominations............................ The Old Securities have been sold initially in authorized
denominations of (i) if to Qualified Institutional Buyers, $100,000 or
any integral multiple of $1,000 in excess thereof and (ii) if to
Accredited Investors, $200,000 or any integral multiple of $1,000 in
excess thereof.
Initial Average Life..................... The initial average life of the Series D Securities is 2.01 years. The
initial average life of the Series E Securities is 10.01 years.
Scheduled Principal Payments............. The principal of the Series D Securities due May 30, 2000 will be
payable in semiannual installments, commencing May 30, 1997, as
follows:
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</TABLE>
<TABLE>
<CAPTION>
PERECENTAGE OF PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
------------ --------------
<S> <C>
May 30, 1997................... 18.4642857143%
November 30, 1997.............. 18.4642857143%
May 30, 1998................... 22.8571428571%
November 30, 1998.............. 22.8571428571%
May 30, 1999................... 7.6071428571%
November 30, 1999.............. 7.6071428571%
May 30, 2000................... 2.1428571430%
The principal of the Series E Securities due May 30, 2011
will be payable in semiannual installments, commencing
May 30, 1999, as follows:
</TABLE>
<TABLE>
<CAPTION>
PERECENTAGE OF PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
------------ --------------
<S> <C>
May 30, 1999................... 9.2907692308%
November 30, 1999.............. 9.2907692308%
May 30, 2000................... 3.0769230769%
November 30, 2000.............. 3.0769230769%
May 30, 2001................... 0.7692307692%
November 30, 2001.............. 0.7692307692%
May 30, 2002................... 1.2307692308%
November 30, 2002.............. 1.2307692308%
May 30, 2003................... 2.3076923077%
November 30, 2003.............. 2.3076923077%
May 30, 2004................... 2.5000000000%
November 30, 2004.............. 2.5000000000%
May 30, 2005................... 2.6923076923%
November 30, 2005.............. 2.6923076923%
May 30, 2006................... 1.9230769231%
November 30, 2006.............. 1.9230769231%
May 30, 2007................... 1.9230769231%
November 30, 2007.............. 1.9230769231%
May 30, 2008................... 2.6923076923%
November 30, 2008.............. 2.6923076923%
May 30, 2009................... 2.5000000000%
November 30, 2009.............. 2.5000000000%
May 30, 2010................... 10.3846153846%
November 30, 2010.............. 10.3846153846%
May 30, 2011................... 17.4184615384%
Priority of Payments..................... All revenues received by the Salton Sea Guarantors from the Salton
Sea Projects, all revenues received by the Partnership Project
Companies from the Partnership Projects, all Equity Cash Flows and
Royalties of the Initial Partnership Guarantors and all Royalties
received by the Royalty Guarantor shall be paid into the Revenue Fund
maintained by the Depositary. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities." Amounts
paid into the Revenue Fund shall be distributed in the
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<PAGE>
following order of priority: (a) to pay Operating and Maintenance Costs
of the Guarantors; (b) to pay certain administrative costs of the agents
for the Secured Parties under the Financing Documents; (c) to pay principal
of, premium (if any) and interest on the Securities and the Debt Service
Reserve Bonds, if any, and interest and certain fees payable to the Debt
Service Reserve LOC Provider; (d) to pay principal of Debt Service Reserve
LOC Loans and certain related fees and charges; (e) to replenish any shortfall
in the Debt Service Reserve Fund; (f) to pay certain breakage costs in respect
of Debt Service Reserve LOC Loans, and indemnification and other expenses to
the Secured Parties and (g) to the Distribution Fund or Distribution Suspense
Fund, as applicable.
Debt Service Reserve Fund................ A Debt Service Reserve Fund for the benefit of the Security Holders
and the Debt Service Reserve LOC Provider has been established
under the Depositary Agreement. The amounts available to be drawn
under the Debt Service Reserve Letter of Credit and all other amounts
held in the Debt Service Reserve Fund shall at all times (a) on or prior
to December 31, 1999, be required to equal the remaining maximum
semiannual scheduled principal and interest payments on the
Securities and (b) subsequent to December 31, 1999, be required to
equal the remaining maximum annual scheduled principal and interest
payments on the Securities. The Debt Service Reserve Letter of Credit
must be issued by a financial institution rated at least "A" by S&P and
"A2" by Moody's. Drawings on the Debt Service Reserve Letter of
Credit will be available to pay principal of and interest on the
Securities and interest on loans created by drawings on such Debt
Service Reserve Letter of Credit.
Optional Redemption...................... The Series E Securities are subject to optional redemption, in whole or
in part, pro rata at par plus accrued interest to the Redemption Date
plus a premium calculated to "make whole" to comparable U.S.
Treasury securities plus 50 basis points. The Series B Securities and
Series C Securities are subject to optional redemption, in whole or in
part, pro rata at par plus accrued interest to the Redemption Date plus
a premium calculated to "make whole" to comparable U.S. treasury
securities plus 50 basis points. The Series A Securities and Series D
Securities are not subject to optional redemption.
Mandatory Redemption..................... The Securities are subject to mandatory redemption, pro rata within
each maturity, at par plus accrued interest to the Redemption Date, (a)
if a Permitted Power Contract Buy-Out occurs unless the Rating
Agencies confirm the then current Rating of the Securities; (b) upon
the acceleration of a Project Note in an amount equal to the principal
amount of such note plus accrued interest; (c) upon the occurrence of
certain events of loss, condemnation, title defects or similar events
related to the Salton Sea Projects or the Partnership Projects or (d)
upon the foreclosure by the Collateral Agent of Collateral securing the
Guarantors' obligations under the Salton Sea Guarantee, the
Partnership Guarantee or Royalty Guarantee.
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<PAGE>
Distributions............................. Distributions may be made only from and to the extent of monies on deposit in
the Distribution Fund. Such distributions are subject to the prior satisfaction
of the following conditions:
(a) the amounts contained in the Principal Fund and the Interest Fund shall be
equal to or greater than the aggregate scheduled principal and interest
payments next due on the Securities;
(b) no Default or Event of Default under the Indenture shall have occurred and
be continuing;
(c) the Debt Service Coverage Ratio for the preceding four fiscal quarters,
measured as one annual period (or, with respect to any proposed distribution
date prior to the first anniversary of the Closing Date, using a combination
of historical and projected results, as provided in the Indenture), is equal
to or greater than 1.4 to 1, if such distribution date occurs prior to the
year 2000, and, if in or subsequent to the year 2000, is equal to or greater
than 1.5 to 1, as certified by an officer of the Funding Corporation;
(d) the projected Debt Service Coverage Ratio of the Securities for the
succeeding four fiscal quarters measured as one annual period is equal to or
greater than 1.4 to 1, if such distribution date occurs prior to the year
2000, and, if such distribution date occurs in or subsequent to the year 2000,
is equal to or greater than 1.5 to 1, as certified by an officer of the
Funding Corporation;
(e) the Debt Service Reserve Fund shall have a balance equal to or greater
than the Debt Service Reserve Fund Required Balance or the Debt Service
Reserve Letter (or Letters) of Credit shall be equal to or greater than
(collectively with the balance, if any, in the Debt Service Reserve Fund) the
Debt Service Reserve Fund Required Balance;
(f) an officer of the Funding Corporation provides a certificate (based on
customary assumptions) that there are sufficient geothermal resources to
operate the Salton Sea Projects and the Partnership Projects at contract
capacity through the Final Maturity Date; and
(g) Substantial Completion of the Salton Sea Expansion has occurred on or
prior to January 1, 1997; provided that, if such condition is not satisfied,
no distributions shall be made unless and until (i) Substantial Completion of
the Salton Sea Expansion occurs prior to January 1, 1998, or (ii) Series B
Securities and Series C Securities having an aggregate principal amount of
$150 million are redeemed or (iii) the Funding Corporation and the Guarantors
take such actions as the Rating Agencies require to confirm the Investment
Grade Rating of the Securities; provided further, that this condition to
distribution shall only apply after January 1, 1997, unless the Salton Sea
Guarantors have previously notified the Trustee that the Salton Sea Expansion
has been abandoned.
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<PAGE>
Ranking and Security for
the Securities.......................... The Securities shall be senior debt of the Funding Corporation.
Payment of the Securities is provided for by payments to be made by
the Guarantors under their Project Notes, and the Initial Securities and
the Series D and Series E Securities are secured by a pledge to the
Collateral Agent of all of the outstanding capital stock of the Funding
Corporation and the Guarantees.
Recourse Only to the Funding
Corporation and the Guarantors....... The obligations to pay principal, premium, if any, and interest on the
Securities are obligations solely of the Funding Corporation, secured
by a pledge of the capital stock of the Funding Corporation and
entitled to the benefits of the Guarantees. None of CalEnergy or
Magma (nor any stockholder, officer, director or employee thereof or
of the Funding Corporation, or of the Guarantors nor any affiliate
thereof other than the Guarantors pursuant to their Guarantees) will
guarantee the payment of the Securities or has any obligation with
respect to the payment of the Securities.
Incurrence of Additional Debt............ The Funding Corporation shall not incur any Debt other than
"Permitted Debt." "Permitted Debt" means:
(a) The Securities;
(b) Debt incurred to acquire the East Mesa Project in whole or in part;
provided that no such Debt may be incurred unless at the time of such
incurrence (i) no Default or Event of Default has occurred and is
continuing and (ii) the Rating Agencies confirm that the incurrence of
such Debt will not result in a Rating Downgrade;
(c) Debt incurred to develop, construct, own, operate or acquire
additional Permitted Facilities in the Imperial Valley ("Additional
Projects"); provided that no such debt may be incurred unless at the
time of such incurrence (i) no Default or Event of Default has occurred
and is continuing and (ii) the Rating Agencies confirm that the Securities
will maintain an Investment Grade Rating after giving effect to such Debt;
(d) Debt incurred to finance the making of capital improvements to the
Salton Sea Projects, the Partnership Projects or Additional Projects
required to maintain compliance with applicable law or anticipated changes
therein; provided that no such Debt may be incurred unless at the time
of such incurrence the Independent Engineer confirms as reasonable (i) a
certification by the Funding Corporation (containing customary
qualifications) that the proposed capital improvements are reasonably
expected to enable such Project to comply with applicable or anticipated
legal requirements and (ii) the calculations of the Funding Corporation
that demonstrate, after giving effect to the incurrence of such Debt, the
minimum projected Debt Service Coverage Ratio (x) for the next four
consecutive fiscal quarters, commencing with the quarter in which such
Debt is
24
<PAGE>
incurred, taken as one annual period, and (y) for each subsequent fiscal year
through the Final Maturity Date, will not be less than 1.2 to 1;
(e) Debt incurred to finance the making of capital improvements to the Salton
Sea Projects, the Partnership Projects or Additional Projects not required by
applicable law so long as after giving effect to the incurrence of such Debt
(i) no Default or Event of Default has occurred and is continuing, and (ii)
(A) the Independent Engineer confirms as reasonable (x) the calculations of
the Funding Corporation that demonstrate that the minimum projected Debt
Service Coverage Ratio for the next four consecutive quarters, taken as one
annual period, and each subsequent fiscal year, will not be less than 1.4 to
1, and (y) the calculations of the Funding Corporation that demonstrate the
average projected Debt Service Coverage Ratio for all succeeding fiscal years
until the Final Maturity Date will not be less than 1.7 to 1 or (B) the Rating
Agencies confirm that the incurrence of such Debt will not result in a Rating
Downgrade;
(f) Working Capital Debt in an aggregate amount not to exceed $15,000,000;
(g) Debt incurred under the Debt Service Reserve LOC Reimbursement Agreement;
(h) Debt incurred in connection with certain permitted interest rate swap
arrangements;
(i) Debt incurred by the Funding Corporation in an aggregate amount not to
exceed $30,000,000, in connection with the development, construction,
ownership, operation, maintenance or acquisition of Permitted Facilities;
(j) Subordinated Debt from Affiliates in an aggregate amount not to exceed
$200,000,000 which shall be used to finance capital, operating or other costs
with respect to the Projects or Additional Projects; and
(k) Debt incurred to support a Working Capital Facility.
All Permitted Debt incurred by the Funding Corporation shall be loaned to the
Guarantors and guaranteed by the Guarantors.
Principal Covenants...................... Principal covenants under the Indenture require the Funding
Corporation to agree, subject to certain exceptions and qualifications,
(a) not to exercise any remedies or waive any defaults under the Credit
Agreements and the Project Notes, except as otherwise permitted
under the Indenture; (b) not to incur (i) any Debt except Permitted
Debt or (ii) any Lien upon any of its properties
25
<PAGE>
except Permitted Liens; and (c) not to enter into any transaction of
merger or consolidation or change its form of organization or its
business. See "SUMMARY DESCRIPTION OF PRINCIPAL
FINANCING DOCUMENTS--Indenture."
Form..................................... The Series D and Series E Securities (other than those held by Persons
who request them in definitive form or those held by Accredited
Investors) will initially be issued in book-entry form through the
facilities of The Depository Trust Company ("DTC") which will act as
depositary for the Series D and Series E Securities. Such Securities
will be issued in global form ("DTC Securities"), and interests in DTC
Securities will be shown on, and transfers will be effected only
through, records maintained by DTC and its participants. See
"SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E
SECURITIES."
THE PROJECT NOTES:
Salton Sea Project Notes................. On the Initial Closing Date, the Salton Sea Guarantors jointly and
severally issued the Salton Sea Project Note in an initial principal
amount of $325,000,000, of which $310,670,000 remained
outstanding as of June 1, 1996.
Partnership Project Note................. On the Initial Closing Date, the Initial Partnership Guarantors jointly
and severally issued the Initial Partnership Project Note in an initial
principal amount of $75,000,000, of which $54,956,000 remained
outstanding as of June 1, 1996. On the Closing Date, all of the
Partnership Guarantors jointly and severally re-issued the Initial
Partnership Project Note in a principal amount of $54,956,000 and
issued the Additional Partnership Project Note in an initial principal
amount of $135,000,000.
Royalty Project Note..................... On the Initial Closing Date, the Royalty Guarantor issued the Royalty
Project Note in an initial principal amount of $75,000,000, of which
$62,409,000 remained outstanding as of June 1, 1996.
Ranking and Security for the Project
Notes and Guarantee Issued by the
Salton Sea Guarantors................... The Guarantee and the Project Note issued by the Salton Sea
Guarantors are senior secured Debt of the Salton Sea Guarantors.
Security for payment of the Guarantee and the Project Note issued by
the Salton Sea Guarantors includes: (a) an assignment of all revenues
received by the Salton Sea Guarantors from the Salton Sea Projects
which will be applied in accordance with the priorities of payment
established under the Depositary Agreement; (b) a Lien on
substantially all of the assets of each of the Salton Sea Guarantors and
the Salton Sea Projects; (c) a collateral assignment of certain material
contracts; (d) a pledge of the equity interests in the Salton Sea
Guarantors; and (e) a Lien on the Expansion Fund and any other funds
of the Salton Sea Guarantors on deposit under the Depositary
Agreement. The assets described in clauses (a) through (e) and any
other assets securing the Guarantee and Project Note issued by the
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<PAGE>
Salton Sea Guarantors at any time are collectively referred to herein as
the "Salton Sea Collateral."
Ranking and Security for the Project
Notes and Guarantee Issued by the
Partnership Guarantors................... The Guarantees and Project Notes issued by the Partnership
Guarantors are or will be senior secured Debt of the Partnership
Guarantors. Security for payment of the Guarantees and Project Notes
issued by the Partnership Guarantors includes: (a) an assignment of all
revenues received by the Partnership Project Companies from the
Partnership Projects and of all Equity Cash Flows and Royalties of the
Initial Partnership Guarantors which will be applied in accordance
with the priorities of payment established under the Depositary
Agreement; (b) a Lien on substantially all of the assets of each of the
Partnership Project Companies and the Partnership Projects; (c) a
collateral assignment of certain material contracts and payment rights;
(d) a pledge of the capital stock of (or other equity interests in) the
Partnership Guarantors; and (e) a Lien on the Capital Expenditure
Fund and any other funds of the Partnership Guarantors on deposit
under the Depositary Agreement. The assets described in clauses (a)
through (e) and any other assets securing the Guarantee and the
Project Notes issued by the Partnership Guarantors at any time are
collectively referred to herein as the "Partnership Collateral." See
"PROSPECTUS SUMMARY--Structure of and Collateral for the
Securities" for a description of certain aspects of the relationship
between the Additional Partnership Collateral and Additional
Partnership Revenue Deposits and the other Partnership Collateral.
Ranking and Security for the Project
Note and Guarantee Issued by the
Royalty Guarantor....................... The Guarantee and Project Note issued or to be issued by the Royalty
Guarantor are senior secured Debt of the Royalty Guarantor. Security
for the payment of the Guarantee and Project Note or Notes issued by
the Royalty Guarantor includes: (a) an assignment of all Royalties paid
to the Royalty Guarantor which will be applied in accordance with the
priorities of payment established under the Depositary Agreement; (b)
a collateral assignment of certain material contracts; (c) a pledge of
the capital stock of the Royalty Guarantor; and (d) a Lien on any funds
of the Royalty Guarantor on deposit under the Depositary Agreement.
The assets described in clauses (a) through (d) and any other assets
securing the Guarantee and Project Note issued by the Royalty
Guarantor at any time are collectively referred to herein as the
"Royalty Collateral." See "PROSPECTUS SUMMARY--Structure of
and Collateral for the Securities" for a description of certain aspects of
the relationship between the Additional Partnership Collateral and
Additional Partnership Revenue Deposits and such Royalty Collateral.
Principal Covenants...................... Principal covenants under the Credit Agreements require each
Guarantor to agree, subject to certain exceptions and qualifications, (a)
not to enter into any transaction of merger or consolidation,
27
<PAGE>
change its form of organization, liquidate, wind-up or dissolve itself; (b)
not to enter into non-arm's length transactions or agreements with Affiliates;
(c) not to incur (i) any Debt except Permitted Guarantor Debt and (ii) any
Liens except for Permitted Liens; (d) not to engage in any business other than
as contemplated by the respective Credit Agreement; and (e) not to amend,
terminate or otherwise modify certain of the Project Documents to which they
are a party except as permitted under the respective Credit Agreements. In
addition to these principal covenants, in the Salton Sea Credit Agreement and
the Partnership Credit Agreement, the Salton Sea Guarantors and the
Partnership Guarantors have agreed (a) not to sell, lease or transfer any
property or assets material to the Salton Sea Projects or the Partnership
Projects, as applicable, except in the ordinary course of business; and (b) to
maintain insurance as is generally carried by companies engaged in similar
businesses and owning similar properties. See "SUMMARY DESCRIPTION OF
PRINCIPAL FINANCING DOCUMENTS--Salton Sea Credit Agreement"; "--Partnership
Credit Agreement"; and "--Royalty Credit Agreement."
28
</TABLE>
<PAGE>
INDEPENDENT ENGINEER'S REPORT
Stone & Webster Engineering Corporation (referred to herein as "Stone
& Webster" or the "Independent Engineer") has prepared the Independent
Engineer's Report concerning certain technical, environmental and economic
aspects of the Projects. The Independent Engineer's Report was prepared in
June 1996 in connection with the offering of the Old Securities and is
attached as Appendix B to this Prospectus. Stone & Webster is an engineering
consulting firm which provides services related to the technical,
environmental and economic aspects of power projects. The Independent
Engineer's Report includes, among other things, the operating history and
performance of the Projects, a review of the material Project Documents, and
projections, adopted by Stone & Webster of annual revenues, expenses and debt
service coverage for the Funding Corporation and the Guarantors for the term
of the Securities (the "Projections"). For purposes of preparing such
projections, Stone & Webster relied on certain assumptions regarding material
contingencies and several other matters that are not within the control of the
Funding Corporation, the Guarantors, Stone & Webster or any other Person.
Subject to the information contained, and the assumptions made, in
the Independent Engineer's Report, Stone & Webster expressed the opinions
that:
OPERATIONS AND PERFORMANCE
o The Projects use commercially proven technology and are operated in
accordance with recognized utility industry practices.
o The Projects can be expected to operate commercially beyond the final
maturity of the Securities.
o Principal project participants possess the necessary experience to
successfully fulfill their project obligations.
o Operating plant capacity factors used in the Projections are
reasonable based on actual performance for the operating years
commencing in 1991.
o The Salton Sea Projects and Partnership Projects should continue to
operate in accordance with all relevant current permit conditions and
environmental laws.
FINANCIAL PROJECTIONS
o Stone & Webster's economic/financial analysis reasonably represents
projected performance. The assumptions underlying the
economic/financial model are reasonable, and the projected operating
results reasonably represent the future financial profile.
o The projected operating and maintenance costs and capital expenditures
for major maintenance are reasonable and representative of the
planned operations of the Salton Sea and Partnership Projects.
o Basecase Projections indicate that revenues are adequate to pay
operations and maintenance expenses and provide sufficient cash flow
available for debt service with base case debt service coverage
ratios of 1.57 minimum and 2.04 average.
o The Projections remain stable across a wide range of sensitivities and
avoided cost assumptions.
SALTON SEA EXPANSION
o The recently completed Salton Sea Expansion technology is proven and
reliable.
29
<PAGE>
o The Salton Sea Expansion meets expected performance criteria and
should comply with all applicable environmental regulations.
o All necessary discretionary permit approvals were obtained for the
completion of the Salton Sea Expansion.
o The pH Modification technology is proven and reliable. It has been
installed and has operated successfully for six years at Salton Sea
Unit II and is operating successfully at the Region I plants. As
proven by the operating history at Salton Sea Unit II, the pH
Modification program as installed should increase availability and
decrease costs consistent with assumptions in the Projections.
PROJECT CONTRACTS
o Major project contracts for the Salton Sea Projects and Partnership
Projects, including power purchase agreements and related contracts
for transmission system interconnection appear reasonable from a
technical perspective and are consistent with the Projections.
o Power purchase agreements and transmission contract terms extend well
beyond the term of the Securities.
30
<PAGE>
RISK FACTORS
Holders of the Old Securities should carefully consider the following
risk factors, as well as other information set forth in this Prospectus,
before tendering their Old Securities in the Exchange Offer. The risk factors
set forth below (other than "Consequences of Exchange and Failure to Exchange"
and "Absence of Public Market") are generally applicable to the Old Securities
as well as the New Securities.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Securities who do not exchange their Old Securities
for New Securities pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Securities as set forth in the
legend thereon as a consequence of the issuance of the Old Securities pursuant
to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Securities may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Funding Corporation does not currently anticipate that it will
register the Old Securities under the Securities Act. In addition, upon the
consummation of the Exchange Offer holders of Old Securities which remain
outstanding will not be entitled to any rights to have such Old Securities
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement. To the extent that Old Securities are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Securities could be adversely affected. The Old
Securities provide that if the Exchange Offer has not commenced by, nor a
shelf registration statement has been declared effective by, March 17, 1997,
the respective interest rates on the Old Securities will increase by 0.50% per
annum following March 17, 1997 until the Exchange Offer is commenced or the
shelf registration statement is declared effective. Upon consummation of the
Exchange Offer, the Old Securities will not be entitled to any increase in the
interest rate thereon. The New Securities are not entitled to any such
increase in the interest rate.
Based on interpretations by the Staff of the Commission, the Funding
Corporation believes that New Securities issued pursuant to the Exchange Offer
in exchange for Old Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) an "affiliate" of the Funding
Corporation within the meaning of Rule 405 under the Securities Act, (ii) the
Initial Purchaser to the extent it acquired Old Securities directly from the
Funding Corporation solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act or
(iii) a broker-dealer (which may include the Initial Purchaser) who acquired
Old Securities as a result of market-making or other trading activities)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Securities are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person
to participate, in a distribution (within the meaning of the Securities Act)
of such New Securities. Each broker-dealer that receives New Securities for
its own account as a result of market-making activities or other trading
activities pursuant to the Exchange Offer must acknowledge that it acquired
the Old Securities as the result of such activities and must agree that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Securities. Any holder that cannot rely
upon such interpretations must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction unless such sale is made pursuant to an exemption from such
requirements.
ABSENCE OF PUBLIC MARKET
The New Securities are being offered to the holders of the Old
Securities. There is no existing trading market for the New Securities and
there can be no assurance regarding the future development of such a market
for the New Securities or the ability of holders of the New Securities to sell
their New Securities or the price at which such holders may be able to sell
their New Securities. If such a market were to develop, future trading prices
will depend on many factors, including, among other things, prevailing
interest rates, the operating
31
<PAGE>
results of the Funding Corporation and the Guarantors, and the market for
similar securities. The Funding Corporation does not intend to apply for
listing or quotation of the New Securities on any securities exchange or stock
market.
NON-RECOURSE PROJECT FINANCING
The Funding Corporation is a special purpose finance subsidiary of
Magma. Its ability to make payments on the Securities will be entirely
dependent on the Guarantors' performance of their obligations under the
Project Notes and the Guarantees. As is common in non-recourse, project
finance structures, the assets and cash flows of the Guarantors are the sole
source of repayment of the Project Notes and the Guarantees. The Salton Sea
Guarantors conduct no other business and own no other significant assets
except those related to the ownership or operation of the Salton Sea Projects.
The Partnership Project Companies conduct no business and own no significant
assets except those related to the ownership or operation of the Partnership
Projects. The other Partnership Guarantors (CEOC, VPC, BNG, San Felipe, Conejo
and Niguel) conduct no business except those related to the ownership or
operation of the Partnership Projects and providing operation, maintenance,
administrative and technical services for Magma, the Salton Sea Projects and
the Partnership Projects. The Royalty Guarantor has been organized solely to
receive royalty payments owed by the Partnership Projects and the East Mesa
Project and conducts no other business and owns no other assets. In the event
of a default by any Guarantor under a Project Note, Credit Agreement or
Guarantee, there is no assurance that the exercise of remedies under such
Project Note, Credit Agreement or Guarantee, including foreclosure on the
assets of such Guarantor, would provide sufficient funds to pay such
Guarantor's obligation under the Project Notes and the Guarantees. Moreover,
unless such default causes a payment default under the Indenture (in which
case remedies may be exercised against the defaulting Guarantor's and, if
different, the Salton Sea Guarantors' assets), remedies may be exercised only
against the assets of the defaulting Guarantors. No shareholders, partners or
affiliates of the Funding Corporation (other than the Guarantors) and no
directors, officers or employees of the Funding Corporation or the Guarantors
will guarantee or be in any way liable for the payment of the Securities, the
Project Notes or the Guarantees. In addition, the obligations of the
Partnership Guarantors and the Royalty Guarantor under the Guarantees are
limited to the Available Cash Flow of such Guarantor. As a result, payment of
amounts owed pursuant to the Project Notes, the Guarantees and the Securities
is dependent upon the availability of sufficient revenues from the Guarantors'
businesses or holdings, after the payment of operating expenses and the
satisfaction of certain other obligations.
UNCERTAINTIES RELATING TO EXPLORATION AND DEVELOPMENT OF GEOTHERMAL ENERGY
RESOURCES
Geothermal exploration, development and operations are subject to
uncertainties which vary among different geothermal reservoirs and are 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 desired.
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 require 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.
RELIANCE ON SINGLE UTILITY CUSTOMER
Each of the Projects relies on an agreement with SCE to generate 100%
of its operating revenues. The payments under these agreements have
constituted 100% of the operating revenues of each Project since its
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inception, and are expected to continue to do so for the life of the
Securities. Any material failure of SCE to fulfill its contractual obligations
under the Power Purchase Agreements could have a material adverse effect on
the ability of the Funding Corporation to pay principal of and interest on the
Securities.
CONTRACT UNCERTAINTY; POTENTIAL IMPACT OF AVOIDED COST PRICING
The power purchase agreements pursuant to which all of the Projects
(other than Salton Sea Unit I and Salton Sea Unit IV) sell electricity to SCE
are SO4 Agreements. The SO4 Agreements provide for both capacity payments and
energy payments for a term of 30 years. While the basis for the capacity
payment of each SO4 Agreement is fixed for the entire 30-year term, the price
of energy payments is fixed only for the first ten years of the term (the
"Fixed Price Period"). Thereafter, the required energy payment converts to
SCE's Avoided Cost of Energy, as determined by the California Public Utility
Commission ("CPUC"). The Fixed Price Period expired in 1996 for Vulcan, and
will expire in 1999 for Salton Sea Unit III, Del Ranch and Elmore and in 2000
for Salton Sea Unit II, Leathers and East Mesa.
Estimates of SCE's future Avoided Cost of Energy vary substantially
from year to year. The Funding Corporation and the Guarantors cannot predict
the likely level of Avoided Cost of Energy prices under the 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
scheduled energy prices for the Fixed Price Periods under the 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 the
twelve-month period from January to December 1995, the time period weighted
average of SCE's Avoided Cost of Energy was 2.1 cents per kWh, compared to the
time period weighted average for the first quarter of 1996 scheduled energy
selling prices of approximately 11.2 cents per kWh, for the combined Salton
Sea and Partnership Projects. Thus, the revenues generated by each of the
Projects operating under SO4 Agreements are likely to decline significantly
after the expiration of the relevant Fixed Price Period.
UNCERTAINTIES ASSOCIATED WITH ENVIRONMENTAL, ENERGY AND OTHER REGULATIONS
The Guarantors 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 materials resulting from geothermal
reservoir production and the drilling and operation of new wells. Such laws
and regulations generally require the Guarantors to obtain and comply with a
wide variety of licenses, permits and other approvals. The Guarantors 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 Guarantors 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 the Public Utility
Regulatory Policies Act ("PURPA") and its implementation by utility
commissions in the various states. The structure of such federal and state
energy regulations has 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
challenges or restructuring proposals could result in the imposition of more
comprehensive or stringent requirements on the Guarantors, which would result
in increased compliance costs and could otherwise have an adverse effect on
the Guarantors' results of operations. See "BUSINESS OF THE
GUARANTORS--Regulatory and Environmental Matters."
UNCERTAINTIES ASSOCIATED WITH INSURANCE
The Salton Sea Projects and the Partnership Projects currently
possess property, business interruption, catastrophic and general liability
insurance. Proceeds of insurance received in connection with the Salton Sea
Projects and the Partnership Projects will be payable to the Depositary for
the account of the Salton Sea Guarantors and the Partnership Guarantors and
will be applied as required under the Financing Documents. See "BUSINESS OF
THE GUARANTORS--Insurance." There can be no assurance that such comprehensive
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insurance coverage will be available in the future at commercially reasonable
costs or terms or that the amounts for which the Salton Sea Guarantors and the
Partnership Guarantors are or will be insured will cover all potential losses.
Because geothermally active areas such as the area in which the
Projects are located are subject to frequent low-level seismic disturbances,
and serious seismic disturbances are possible, the power generating plants and
other facilities at the Projects are designed and built to withstand
relatively significant levels of seismic disturbance. However, there is no
assurance that seismic disturbances of a nature and magnitude so as to cause
material damage to the Projects or gathering systems or a material change in
the nature of the geothermal resource will not occur, that insurance with
respect to seismic disturbances will be maintained by or on behalf of all of
the Projects, that insurance proceeds will be adequate to cover all potential
losses sustained, or that insurance will continue to be available in the
future in amounts adequate to insure against such seismic disturbances.
CONSIDERATIONS REGARDING LIMITATION ON REMEDIES
At the time of the Initial Offering, a significant portion of the
proceeds of the Initial Offering were distributed to CalEnergy to repay
certain non-recourse indebtedness incurred by CalEnergy in connection with the
Magma Acquisition. At that time, the Royalty Guarantor also purchased an
assignment of the Royalties from Magma pursuant to the Magma Assignment
Agreement. Pursuant to such agreement, Magma agreed to make certain payments
to CEOC and to secure such payment obligation with a collateral assignment of
certain cash flows. At the time of the Initial Offering, the Initial
Guarantors also executed Guarantees with respect to the entire amount of the
Securities. In connection with the offering of the Old Securities, the
Additional Partnership Guarantors executed the Partnership Guarantee with
respect to the entire amount of Securities. Under certain circumstances
(including a proceeding under Title 11 of the United States Code or any
similar proceeding), it is possible that a creditor of a Guarantor or Magma
could make a claim, under federal or state fraudulent conveyance laws, that
the Funding Corporation's claims under the Credit Agreements, the Security
Holders' claims under the Guarantees, the Royalty Guarantor's interest
pursuant to the Magma Assignment Agreement or CEOC's rights under the Magma
Services Agreement should be subordinated or not enforced in accordance with
such instruments' terms or that payments thereunder (including payments to the
Holders of the Securities) should be recovered. In order to prevail on such a
claim, a claimant would have to demonstrate that the obligations incurred
under any Guarantor's Credit Agreement or Guarantee or the transfers made
under the Magma Assignment Agreement or the Magma Services Agreement were not
incurred in good faith or that any Guarantor or Magma did not receive fair
consideration in connection with such obligations and transfers, and that any
Guarantor or Magma was insolvent at the time of entering into the Credit
Agreement, Guarantee, the Magma Assignment Agreement and/or the Magma Service
Agreement or amending or otherwise increasing their obligations under the
Credit Agreement or Guarantee or that, at any such time, it did not have and
will not have sufficient capital for carrying on its business or was not and
will not be able to pay its debts as they mature.
UNCERTAINTIES REGARDING RELIANCE ON PROJECTIONS AND UNDERLYING ASSUMPTIONS
The Indenture, the Securities, the Project Notes, the Credit
Agreements and the Guarantees reflect certain assumptions with respect to the
Guarantors' and the Projects' revenue generating capacity and the costs
associated therewith over the term of the Securities. Stone & Webster has
evaluated and provided a report on the technical, environmental and economic
aspects of the Projects in the Independent Engineer's Report. The Independent
Engineer's Report also contains cash flow projections adopted by Stone &
Webster and a discussion of the many assumptions utilized in preparing these
projections, which investors should review carefully.
All projections of future operations and the economic results thereof
included in the Independent Engineer's Report have been adopted by Stone &
Webster. Deloitte & Touche LLP and Coopers & Lybrand L.L.P., the Funding
Corporation's and the Guarantors' independent auditors, have neither examined
nor compiled the projections and, accordingly, do not express an opinion or
any other form of assurance with
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respect thereto. None of the Funding Corporation, the Guarantors, Stone &
Webster or any other Person have any obligation to, nor do they intend to
provide the holders of the Securities with updated reports or revised
projections comparing the projections and actual operating results later
achieved by the Funding Corporation and the Guarantors.
For purposes of preparing the projections, certain assumptions were
made, of necessity, with respect to general business and economic conditions,
the revenues the Guarantors will earn in their respective businesses, the
Avoided Cost of Energy in the future and several other material contingencies
and other matters that are not within the control of the Guarantors and the
outcome of which cannot be predicted by the Funding Corporation, the
Guarantors, Stone & Webster or any other Person with any certainty of
accuracy. These assumptions and the other assumptions used in the projections
are inherently subject to significant uncertainties and actual results may
differ, perhaps materially, from those projected. None of the Funding
Corporation, the Guarantors, Stone & Webster or any other Person assumes any
responsibility for the accuracy of such projections. Therefore, no
representation is made or intended, nor should any be inferred, with respect to
the likely existence of any particular future set of facts or circumstances. If
actual results are less favorable than those shown or if the assumptions used
in formulating the projections prove to be incorrect, the Funding Corporation's
ability to make payments under the Securities and the Guarantors' ability to
make payments under the Project Notes and the Guarantees may be adversely
affected.
USE OF PROCEEDS
There will be no proceeds to the Funding Corporation from the
exchange pursuant to the Exchange Offer. The net proceeds received by the
Funding Corporation from the issuance of the Old Securities to the Initial
Purchaser (after deduction of certain transaction costs) was approximately
$134 million and was used for the following purposes: (a) approximately $96
million to refinance all of the existing project-level indebtedness under
credit agreements of the Partnership Project Companies; (b) approximately $15
million to fund the Capital Expenditure Fund to be used for certain capital
improvements to the Partnership Projects and the Salton Sea Projects; and (c)
approximately $23 million to fund a portion of the purchase price payable by
the Initial Partnership Guarantors for the Acquired Partnership Companies. See
"SUMMARY OF PRINCIPAL PROJECT CONTRACTS--Partnership Project Contracts--Elmore
Project--Credit Agreement", "--Leathers Project--Credit Agreement" and "--Del
Ranch Project--Credit Agreement" and "BUSINESS OF THE GUARANTORS-- Partnership
Projects--Recent Partnership Acquisition."
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Securities to the Initial
Purchasers on June 20, 1996, the Funding Corporation executed and delivered
for the benefit of the holders of the Old Securities the Registration Rights
Agreement. The Exchange Offer is being made by the Funding Corporation to
satisfy its obligations pursuant to the Registration Rights Agreement, which
requires the Funding Corporation to (i) use its reasonable best efforts to
cause the Registration Statement, of which this Prospectus is a part, relating
to the Exchange Offer to be declared effective by the Commission prior to
March 17, 1997, (ii) keep the Exchange Offer open for a period of not less
than the shorter of (A) the period ending when the last of the remaining Old
Securities is tendered into the Exchange Offer and (B) 30 days from the date
notice is mailed to holders of the Old Securities, and (iii) maintain the
Registration Statement continuously effective for a period of not less than
the longer of (A) the period until consummation of the Exchange Offer and (B)
120 days after effectiveness of the Registration Statement (subject to
extension under certain limited circumstances), provided that in the event
that all resales of New Securities covered by the Registration Statement has
been made, the Registration Statement need not remain continuously effective.
The Old Securities provide that under certain circumstances, including if the
Exchange Offer has not commenced by, nor a shelf registration statement has
been declared effective by, March 17, 1997, the respective interest rates on
the Old Securities will increase by 0.50% per annum following March 17, 1997
until the Exchange Offer is commenced. Upon consummation of the Exchange
Offer, holders of Old
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Securities will not be entitled to any increase in the rate of interest
thereon, but will be entitled to the benefits of the Indenture. See "SUMMARY
DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS--Registration Rights Agreement."
TERMS OF THE EXCHANGE
The Funding Corporation hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange (i) New Series D Securities for a like aggregate
principal amount of Old Series D Securities and (ii) New Series E Securities
for a like aggregate principal amount of Old Series E Securities, properly
tendered on or prior to the Expiration Date and not properly withdrawn in
accordance with the procedures described below. The Funding Corporation will
issue, promptly after the Expiration Date, the New Securities in exchange for
a like principal amount of outstanding Old Securities tendered and accepted in
connection with the Exchange Offer. Holders may tender their Old Securities in
whole or in part in a principal amount of $1,000 and integral multiples
thereof, provided that if any Old Securities are tendered for exchange in part,
the untendered principal amount thereof must be $100,000 or any integral
multiple of $1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum number of Old
Securities being tendered. As of the date of this Prospectus, $70,000,000
aggregate principal amount of the Old Series D Securities is outstanding and
$65,000,000 of the Old Series E Securities is outstanding.
If any tendered Old Securities are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein
or otherwise, certificates for any such unaccepted Old Securities will be
returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Old Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Securities in connection with the Exchange Offer. The
Funding Corporation will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the Exchange Offer. See
"--Solicitation of Tenders; Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE FUNDING CORPORATION NOR THE
FUNDING CORPORATION MAKES ANY RECOMMENDATION TO HOLDERS OF OLD SECURITIES AS
TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD
SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD SECURITIES MUST
MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND,
IF SO, THE AGGREGATE AMOUNT OF OLD SECURITIES TO TENDER AFTER READING THIS
PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS,
IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term
"Expiration Date" means 5:00 p.m., New York City time, on ____________, unless
the Funding Corporation in its sole discretion extends the period during which
the Exchange Offer is open, in which case the term "Expiration Date" means the
latest time and date to which the Exchange Offer is extended. The Funding
Corporation may extend the Exchange Offer at any time and from time to time by
giving oral or written notice to the Exchange Agent and by timely public
announcement. Without limiting the manner in which the Funding Corporation may
choose to make any public announcement and subject to applicable law, the
Funding Corporation shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency. During any extension of the Exchange
Offer, all Old Securities previously tendered pursuant to the Exchange Offer
will remain subject to the Exchange Offer.
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The Funding Corporation reserves the right (i) to delay accepting any
Old Securities, to extend the Exchange Offer or to terminate the Exchange
Offer and not accept Old Securities not previously accepted for any reason,
including if any of the events set forth herein under "--Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Funding Corporation, or (ii) to amend the terms of the Exchange Offer in any
manner, whether prior to or after the tender of any of the Old Securities. If
any such delay, extension, termination or amendment occurs, the Funding
Corporation will give oral or written notice to the Exchange Agent and will
either issue a public announcement or give notice to the holders of the Old
Securities as promptly as practicable.
If the Funding Corporation waives any material condition to the
Exchange Offer, or amends the Exchange Offer in any other material respect,
and if at the time that notice of such waiver or amendment is first published,
sent or given to holders of Old Securities in the manner specified above, the
Exchange Offer is scheduled to expire at any time earlier than the expiration
of a period ending on the fifth business day from, and including, the date
that such notice is first so published, sent or given, then the Exchange Offer
will be extended until the expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other
relevant materials will be mailed by the Funding Corporation to record holders
of Old Securities and will be furnished to brokers, banks and similar persons
whose names, or the names of whose nominees, appear on the lists of holders
for subsequent transmittal to beneficial owners of Old Securities.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and
date the Letter of Transmittal, or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof), have the signatures thereon guaranteed if required by the Letter of
Transmittal and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with any other required documents, or an Agent's Message
in case of book-entry delivery as described below, to the Exchange Agent prior
to the Expiration Date. In addition, either (i) certificates for such Old
Securities must be received by the Exchange Agent along with the Letter of
Transmittal on or prior to the Expiration Date, (ii) a timely confirmation of
a book-entry transfer (a "Book-Entry Confirmation") of such Old Securities, if
such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, along with the Letter of
Transmittal must be received by the Exchange Agent on or prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK
OF THE TENDERING HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL (RETURN
RECEIPT REQUESTED AND PROPERLY INSURED) OR AN OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO THE
FUNDING CORPORATION. To be tendered effectively, the Old Securities, Letter of
Transmittal and all other required documents, or, in the case of a participant
in the Book-Entry Transfer Facility, an Agent's Message, must be received by
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. Except in the case of a participant in the Book-Entry Transfer Facility
who transfers Securities by an Agent's Message, delivery of all documents must
be made to the Exchange Agent at its address set forth on the back of this
Prospectus. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
The tender by a holder of Old Securities will constitute an agreement
between such holder and the Funding Corporation in accordance with the terms
and subject to the conditions set forth herein and in the Letter of
Transmittal. If less than all of the Old Securities are tendered, a tendering
holder should fill in the amount of Old Securities being tendered in the
appropriate box on the Letter of Transmittal. The entire amount of Old
Securities delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
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Only a holder of Old Securities may tender such Old Securities in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Old Securities are registered on the books of the Funding
Corporation or any other person who has obtained a properly completed bond
power from the registered holder.
Any beneficial owner whose Old Securities are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial owner
wishes to tender on his own behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and delivering his Old
Securities, either make appropriate arrangements to register ownership of the
Old Securities in such owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by a firm (an "Eligible Institution") that
is a member of a recognized signature guarantee medallion program within the
meaning of Rule 17Ad-15 under the Exchange Act, unless the Old Securities
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Securities listed therein, such Old Securities
must be endorsed or accompanied by bond powers and a proxy which authorizes
such person to tender the Old Securities on behalf of the registered holder,
in each case as the name of the registered holder or holders appears on the
Old Securities. If the Letter of Transmittal or any Old Securities bond powers
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
unless waived by the Funding Corporation, evidence satisfactory to the Funding
Corporation of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time
of receipt) and withdrawal of the tendered Old Securities will be determined
by the Funding Corporation in its sole discretion, which determination will be
final and binding. The Funding Corporation reserves the absolute right to
reject any and all Old Securities not properly tendered or any Old Securities
which, if accepted by the Funding Corporation, would be unlawful. The Funding
Corporation also reserves the right to waive any irregularities or conditions
of tender as to particular Old Securities. The Funding Corporation's
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Old Securities must be cured within such time as the Funding
Corporation shall determine. None of the Funding Corporation, the Exchange
Agent or any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Securities, nor shall
any of them incur any liability for failure to give such notification. Tenders
of Old Securities will not be deemed to have been made until such
irregularities have been cured or waived. Any Old Securities received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been timely cured or waived will be returned without
cost to such holder by the Exchange Agent to the tendering holders of Old
Securities, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Funding Corporation reserves the right in its sole
discretion (i) to purchase or make offers for any Old Securities that remain
outstanding subsequent to the Expiration Date or, as set forth under "--
Conditions to the Exchange Offer," to terminate the Exchange Offer and (ii) to
the extent permitted by applicable law, to purchase Old Securities in the open
market, in privately negotiated transactions or otherwise. The Funding
Corporation has no present plan to acquire any Old Securities which are not
tendered in the Exchange Offer. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
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Book Entry Transfer. The Exchange Agent will make a request to
establish an account with respect to the Old Securities at the Book-Entry
Transfer Facility for purposes of the Exchange Offer within two business days
after the date of this Prospectus. Any financial institution that is a
participant in the Book-Entry Transfer Facility's systems may book-entry
deliver Old Securities by causing the Book-Entry Transfer Facility to transfer
such Old Securities into the Exchange Agent's account at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for transfer on or prior to the Expiration Date. A holder who is a
participant in the Book-Entry Transfer Facility and transfers the Securities
by an Agent's Message need not transmit the Letter of Transmittal to the
Exchange Agent to consummate the exchange.
The term "Agent's Message" means a message transmitted through
electronic means by a Book-Entry Transfer Facility to and received by the
Exchange Agent and forming a part of a book-entry confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Transfer Facility tendering the
Securities that such participant
has received and agrees to be bound by the Letter of Transmittal and/or the
Notice of Guaranteed Delivery (as discussed below), where applicable.
Guaranteed Delivery Procedures. If a registered holder of the Old
Securities desires to tender such Old Securities, and the Old Securities are
not immediately available, or time will not permit such holder's Old
Securities or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if (i) the tender is made through
an Eligible Institution, (ii) on or prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof, or in the case of a
participant in the Book-Entry Transfer Facility, an Agent's Message) and
Notice of Guaranteed Delivery, substantially in the form provided by the
Funding Corporation (by facsimile transmission, mail or hand delivery, or, in
the case of a participant in the Book-Entry Transfer Facility, by an Agent's
Message), setting forth the name and address of the holder of Old Securities
and the amount of Old Securities tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Securities, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Securities, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal are received by the Exchange
Agent within three NYSE trading days after the date of execution of the Notice
of Guaranteed Delivery.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Securities is received by the Exchange Agent, or in the
case of a participant in the Book-Entry Transfer Facility, as of the date when
an Agent's Message from the participant has been received by the Exchange
Agent. Issuances of New Securities in exchange for Old Securities tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) by an Eligible Institution
will be made only against deposit of the Letter of Transmittal (and any other
required documents) and the tendered Old Securities.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Securities for exchange (the "Transferor")
exchanges, assigns and transfers the Old Securities to the Funding Corporation
and irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact to cause the Old Securities to be
assigned, transferred and exchanged. The Transferor represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Securities and to acquire New Securities issuable upon the exchange of
such tendered Old Securities, and that, when the same are accepted for
exchange, the Funding Corporation will acquire good and
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unencumbered title to the tendered Old Securities, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The Transferor also warrants that it will, upon request, execute and deliver
any additional documents deemed by the Funding Corporation to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Securities. The Transferor further agrees that acceptance of any tendered Old
Securities by the Funding Corporation and the issuance of New Securities in
exchange therefor shall constitute performance in full by the Funding
Corporation of its obligations under the Registration Rights Agreement and that
the Funding Corporation shall have no further obligations or liabilities
thereunder (except in certain limited circumstances). All authority conferred
by the Transferor will survive the death or incapacity of the Transferor and
every obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By tendering Old Securities, the Transferor certifies that (i) it is
not an "affiliate" of the Funding Corporation within the meaning of Rule 405
under the Securities Act, that it is not a broker-dealer that owns Old
Securities acquired directly from the Funding Corporation, that it is
acquiring the New Securities offered hereby in the ordinary course of such
Transferor's business and that such Transferor has no arrangement with any
person to participate in the distribution of such New Securities or (ii) it is
an "affiliate" (as defined above) of the Funding Corporation or of the Initial
Purchaser and that it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable to it. Each broker-
dealer that receives New Securities as a result of market-making activities or
other trading activities must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. See "PLAN OF DISTRIBUTION."
WITHDRAWAL RIGHTS; NONEXCHANGED OLD SECURITIES
Old Securities tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Exchange Agent at its address set forth on the back of this Prospectus. Any
such notice of withdrawal must specify the name of the person having tendered
the Old Securities to be withdrawn, identify the Old Securities to be
withdrawn (including the principal amount of such Old Securities), and (where
certificates for Old Securities have been transmitted) specify the name in
which such Old Securities are registered if different from that of the
withdrawing holder, accompanied by evidence satisfactory to the Funding
Corporation that the person withdrawing the tender has succeeded to the
beneficial ownership of the Old Securities being withdrawn. If certificates
for Old Securities have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates, the withdrawing holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old
Securities have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Securities and otherwise comply with the procedures of such
facility. If any Old Securities are tendered for exchange but are not
exchanged for any reason, or if any Old Securities are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Securities will be returned to the holder thereof without
cost to such holder (or, in the case of Old Securities tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described above, such Old
Securities will be credited to an account maintained with such Book-Entry
Transfer Facility for the Old Securities) as soon as practicable after
withdrawal, rejection of tender, termination of the Exchange Offer or
submission of nonexchanged Old Securities. Withdrawals of tenders of Old
Securities may not be rescinded. Old Securities properly withdrawn will not be
deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "--Procedures for
Tendering."
40
<PAGE>
All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Funding
Corporation, in its sole discretion, whose determination shall be final and
binding on all parties. Neither the Funding Corporation, any affiliates or
assigns of the Funding Corporation, the Exchange Agent nor any other person
shall be under any duty to give any notification of any irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
INTEREST ON THE NEW SECURITIES
The New Series D Securities will bear interest at the rate of 7.02%
per annum from the most recent date to which interest has been paid on the Old
Series D Securities or, if no interest has been paid on the Old Series D
Securities, from June 20, 1996. The New Series E Securities will bear interest
at the rate of 8.30% per annum from the most recent date to which interest has
been paid on the Old Series E Securities or, if no interest has been paid on
the Old Series E Securities, from June 20, 1996. Interest on the New
Securities is payable semiannually on May 30 and November 30 of each year,
commencing on the first such date following the issuance of the New
Securities. Holders of Old Securities whose Old Securities are accepted for
exchange will not receive any payment in respect of accrued and unpaid
interest on such Old Securities.
ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer,
the Funding Corporation will exchange, and will issue to the Exchange Agent,
New Securities for Old Securities validly tendered and not withdrawn promptly
after the Expiration Date. For the purposes of the Exchange Offer, the Funding
Corporation shall be deemed to have accepted for exchange validly tendered Old
Securities when and if the Funding Corporation has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering holders of Old Securities for the purposes of receiving New
Securities from the Funding Corporation and causing the Old Securities to be
assigned, transferred and exchanged. Upon the terms and subject to the
conditions of the Exchange Offer, delivery of New Securities to be issued in
exchange for accepted Old Securities will be made by the Exchange Agent only
after timely receipt by the Exchange Agent of certificates for such Old
Securities or a timely Book-Entry Confirmation of such Old Securities into the
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents, or, in the case of a book-entry delivery, an Agent's Message.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Funding Corporation will not be required
to accept for exchange, or to exchange, any Old Securities for any New
Securities, and, as described below, may terminate the Exchange Offer (whether
or not any Old Securities have theretofore been accepted for exchange) or may
waive any conditions to or amend the Exchange Offer, if any of the following
conditions have occurred or exists or have not been satisfied: (a) the
Exchange Offer, or the making of any exchange by a holder, violates any
applicable law or any applicable interpretation of the Staff of the
Commission; (b) in the reasonable judgment of the Funding Corporation, there
shall be threatened, instituted or pending any action or proceeding before, or
any injunction, order or decree shall have been issued by, any court or
governmental agency or other governmental regulatory or administrative agency
or commission, (i) seeking to restrain or prohibit the making or consummation
of the Exchange Offer or any other transaction contemplated by the Exchange
Offer, (ii) assessing or seeking any damages as a result thereof, or (iii)
resulting in a material delay in the ability of the Funding Corporation to
accept for exchange or exchange some or all of the Old Securities pursuant to
the Exchange Offer; (c) any statute, rule, regulation, order or injunction
shall be sought, proposed, introduced, enacted, promulgated or deemed
applicable to the Exchange Offer or any of the transactions contemplated by
the Exchange Offer by any government or governmental authority, domestic or
foreign, or any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or foreign, that
in the reasonable judgment of the Funding Corporation might directly or
indirectly result in any of the consequences referred to in clauses (b)(i),
(ii) or (iii) above or, in the reasonable judgment of the Funding Corporation,
might result in the holders of New Securities having
41
<PAGE>
obligations with respect to resales and transfers of New Securities which are
greater than those described in the interpretations of the Staff referred to in
this Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; (d) there shall have occurred (i) any general suspension of
trading in, or general limitation on prices for securities on the New York
Stock Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of credit
to the Funding Corporation, or (iii) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving the
United States; or, in the case any of the foregoing exists at the time of
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or (e) a material adverse change shall have occurred or be threatened
in the business, condition (financial or otherwise), operations, stock
ownership or prospects of the Funding Corporation.
The foregoing conditions are for the sole benefit of the Funding
Corporation and may be asserted by it with respect to all or any portion of
the Exchange Offer regardless of the circumstances (including any action or
inaction by the Funding Corporation) giving rise to such condition or may be
waived by the Funding Corporation in whole or in part at any time or from time
to time in their sole discretion. The failure by the Funding Corporation at
any time to exercise any of the foregoing rights will not be deemed a waiver
of any such right, and each right will be deemed an ongoing right which may be
asserted at any time or from time to time. In addition, the Funding
Corporation has reserved the right, notwithstanding the satisfaction of each
of the foregoing conditions, to amend the Exchange Offer.
Any determination by the Funding Corporation concerning the
fulfillment or non-fulfillment of any conditions will be final and binding
upon all parties.
In addition, the Funding Corporation will not accept for exchange any
Old Securities tendered and no New Securities will be issued in exchange for
any such Old Securities, if at such time any stop order shall be threatened or
in effect with respect to (i) the Registration Statement of which this
Prospectus constitutes a part or (ii) the qualification of the Indenture under
the Trust Indenture Act of 1939.
EXCHANGE AGENT
Chemical Trust Company of California has been appointed as the
Exchange Agent for the Exchange Offer. Chemical Trust Company of California
also acts as trustee under the Indenture.
Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal, should be directed
to the Exchange Agent at its address and numbers set forth on the back of this
Prospectus. Except in the case of a participant in the Book-Entry Transfer
Facility who transfers Securities by an Agent's Message, delivery to an
address other than as set forth herein, or transmissions of instructions via a
facsimile or telex number other than to the Exchange Agent as set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Funding Corporation has not retained any dealer-manager or
similar agent in connection with the Exchange Offer and will not make any
payments to brokers, dealers or others for soliciting acceptances of the
Exchange Offer. The Funding Corporation will, however, pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for
reasonable out-of-pocket expenses in connection therewith. The Funding
Corporation will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Prospectus and related documents to the beneficial
owners of Old Securities, and in handling tenders for their customers. The
expenses to be incurred in connection with the Exchange Offer, including the
fees and expenses of the Exchange Agent and printing, accounting, and legal
fees, will be paid by the Funding Corporation and are estimated at
approximately $100,000.
42
<PAGE>
Holders who tender their Old Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Securities are to be delivered to, or are to be issued in the name of, any
person other than a registered holder of the Old Securities tendered, or if a
transfer tax is imposed for any reason other than the exchange of Old
Securities in connection with the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment
of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Funding Corporation. Neither the delivery of this Prospectus nor any exchange
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Funding Corporation since the
respective dates as of which information is given herein. The Exchange Offer
is not being made to (nor will tenders be accepted from or on behalf of)
holders of Old Securities in any jurisdiction in which the making of the
Exchange Offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction. However, the Funding Corporation may, at their
discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to holders of Old
Securities in such jurisdiction. In any jurisdiction the securities laws or
blue sky laws of which require the Exchange Offer to be made by a licensed
broker or dealer, the Exchange Offer is being made on behalf of the Funding
Corporation by one or more registered brokers or dealers which are licensed
under the laws of such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF OLD SECURITIES WILL NOT HAVE DISSENTERS' RIGHTS OR
APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Securities for New Securities by holders will not
be a taxable exchange for federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
43
<PAGE>
CAPITALIZATION
The following tables set forth the individual capitalization of the
Funding Corporation and the Guarantors and the combined capitalization of the
Guarantors, as adjusted to reflect the acquisition by the Initial Partnership
Guarantors of the 50% interest in each of the Partnership Projects previously
owned by a third party and to give effect to the issuance of the Project Notes
and the application of a portion of the proceeds thereof to refinance
outstanding project-level debt of the Partnership Project Companies. The
registration of the Series D and Series E Securities will have no effect on
the capitalization of the Funding Corporation and the Guarantors.
<TABLE>
<CAPTION> MARCH 31, 1996
-------------------------------
ACTUAL AS ADJUSTED
-------- -------------
(Dollars in Thousands)
<S> <C> <C>
CAPITALIZATION OF FUNDING CORPORATION:
Senior Secured Notes and Bonds (2).............................................. $ 452,088 $ 587,088
-------------- --------------
Total Indebtedness......................................................... 452,088 587,088
------------- -------------
CAPITAL:
Common Stock................................................................. -- --
Additional paid-in capital................................................... 5,554 6,254
Retained earnings............................................................ 2,020 2,020
----------- -----------
Total capital.............................................................. 7,574 8,274
----------- -----------
$ 459,662 $ 595,362
============== ==============
CAPITALIZATION OF SALTON SEA GUARANTORS:
Senior Secured Project Note (2)................................................. $ 321,500 $ 321,500
-------------- --------------
Total Indebtedness......................................................... 321,500 321,500
------------- -------------
CAPITAL:
Partners' capital............................................................... 174,460 174,460
------------- -------------
$ 495,960 $ 495,960
============== ==============
CAPITALIZATION OF PARTNERSHIP GUARANTORS:
Project Finance Bank Debt (1)................................................... $ 38,633 $ --
Senior Secured Project Note (2)................................................. 62,706 197,706
------------ -------------
Total Indebtedness......................................................... 101,339 197,706
------------- -------------
CAPITAL:
Common Stock................................................................. 3 3
Additional paid-in capital................................................... 375,593 445,593
Retained earnings............................................................ 17,782 17,782
------------ -------------
Total capital.............................................................. 393,378 463,378
------------- -------------
$ 494,717 $ 661,084
============= ==============
CAPITALIZATION OF ROYALTY GUARANTOR:
Senior Secured Project Note (2)................................................. $ 67,882 $ 67,882
------------- -------------
Total Indebtedness......................................................... 67,882 67,882
------------ ------------
CAPITAL:
Common Stock................................................................. -- --
Additional paid-in capital................................................... 19,182 19,182
Retained earnings............................................................ 4,338 4,338
----------- -----------
Total capital.............................................................. 23,520 23,520
----------- ------------
$ 91,402 $ 91,402
============= =============
COMBINED CAPITALIZATION OF THE GUARANTORS:
Project Finance Bank Debt (1)................................................... $ 38,633 $ --
Senior Secured Project Note (2)................................................. 452,088 587,088
----------- -------------
Total Indebtedness......................................................... 490,721 587,088
----------- -------------
CAPITAL:
Common Stock................................................................. 3 3
Additional paid-in capital................................................... 394,775 464,775
Retained earnings............................................................ 22,120 22,120
Partners' capital............................................................ 174,460 174,460
----------- -------------
Total capital.............................................................. 591,358 661,358
----------- -------------
$ 1,082,079 $ 1,248,446
============= =============
</TABLE>
- --------------------------
(1) See the notes to the respective Guarantors' financial statements for a
description of the terms of the debt.
(2) For terms of the Project Notes, see "Summary Descriptions of Principal
Financing Documents."
44
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING
DATA OF THE FUNDING CORPORATION
The following tables set forth selected historical financial and
operating data of the Funding Corporation. The historical summary statement of
operations data for the period from June 20, 1995 (inception date) through
December 31, 1995 and the historical balance sheet data as of December 31,
1995 and June 20, 1995 (inception date) have been derived from the audited
historical financial statements of the Funding Corporation. The historical
summary statement of operations for the three months ended March 31, 1996 and
the historical balance sheet data as of March 31, 1996 have been derived from
the unaudited historical financial statements of the Funding Corporation,
which in the opinion of management of the Funding Corporation, include all
adjustments (consisting only of recurring accruals) necessary to present
fairly the information set forth therein. The data should be read in
conjunction with the financial statements and related notes and other
financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FROM JUNE 20, 1995 (INCEPTION DATE) THREE MONTHS ENDED
THROUGH DECEMBER 31, 1995 MARCH 31, 1996(1)
---------------------------------- ------------------
(Dollars in Thousands)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenues....................................... $ 17,577 $ 9,041
General and administrative expenses.................. -- 181
Interest expense..................................... 15,022 7,990
Provision for income taxes........................... 1,048 357
Net income........................................... 1,507 513
Ratio of earnings to fixed charges (2)............... 1.15 1.11
OTHER FINANCIAL DATA:
EBITDA(3)............................................ 7,599 8,503
Ratio of combined EBITDA to fixed charges............ 1.17 1.06
</TABLE>
<TABLE>
<CAPTION>
JUNE 20, 1995
(INCEPTION DATE) DECEMBER 31, 1995 MARCH 31, 1996
---------------- ----------------- ----------------------------
Actual As Adjusted (4)
-------- ----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................. $ 3,267 $ 522,521 $ 523,293 $ 658,993
Senior secured notes and bonds........... -- 452,088 452,088 587,088
Total indebtedness....................... -- 452,088 452,088 587,088
Stockholders' equity..................... 3,267 6,950 7,574 8,274
</TABLE>
- ---------------
(1) The Funding Corporation has a one percent investment in the
Guarantors whose operations are seasonal in nature, with a
disproportionate percentage of 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) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of pretax income of the Funding Corporation plus fixed
charges, less capitalized interest. "Fixed Charges" represent
interest (whether expensed or capitalized) and amortization of
deferred financing fees.
(3) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is presented here not as a measure of operating results, but
rather as a measure of the Funding Corporation'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).
(4) The as adjusted amounts reflect the issuance of the Old Securities and
the Funding Corporation's equity interest in the Partnership
Acquisition.
45
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL AND
OPERATING DATA OF THE SALTON SEA GUARANTORS
The following tables set forth selected historical combined financial
and operating data of the Salton Sea Guarantors. The information contained
therein was extracted from certain historical information of Magma Power
Company and certain of its affiliates. The historical summary statement of
operations for 1995, 1994 and the nine months ended December 31, 1993 and the
historical balance sheet data as of December 31, 1995 and 1994 have been
derived from the audited historical financial statements of the Salton Sea
Guarantors. The historical summary statement of operations for the three
months ended March 31, 1996 and 1995 and the historical balance sheet data as
of March 31, 1996 have been derived from the unaudited historical financial
statements of the Salton Sea Guarantors which, in the opinion of management of
the Salton Sea Guarantors, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the information set forth
therein. The data should be read in conjunction with the financial statements
and related notes and other financial information appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED MARCH 31,(1)
---------------------- DECEMBER 31, --------------------
1995 1994 1993 1996 1995
---- ---- ----- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues..................... $71,605 $74,998 $60,158 $16,289 $15,611
Operating revenues................. 71,605 74,576 60,158 16,221 15,611
Operating, general administrative costs 26,096 24,766 19,335 5,789 5,488
Depreciation and amortization...... 10,556 10,049 7,425 2,682 3,043
Income from operations............. 34,953 40,183 33,398 7,818 7,080
Interest expense, net of capitalized
interest......................... 15,605 8,240 4,267 2,957 4,256
Net income(2)...................... 17,955 31,943 29,131 4,861 1,431
Ratio of earnings to fixed charges(3) 1.41 4.88 7.83 1.25 1.66
OTHER FINANCIAL DATA:
Capital expenditures............. 68,677 4,493 -- 30,623 16,380
Combined EBITDA(4)............... 45,509 50,232 40,823 10,500 10,123
Ratio of combined EBITDA to
combined fixed charges.......... 1.84 6.10 9.57 1.68 1.78
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- MARCH 31,
1995 1994 1993 1996
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Property, plant, contracts and equipment, net $417,287 $204,329 $211,409 $445,554
Total assets............................. 500,400 232,914 223,066 531,420
Senior secured project note.............. 321,500 -- -- 321,500
Project finance loans.................... -- 114,308 140,000 --
Total indebtedness....................... 321,500 114,308 140,000 321,500
Guarantors' equity....................... 169,599 117,978 82,500 174,460
</TABLE>
- -----------------
(1) The Salton Sea Guarantors' operations are seasonal in nature, with a
disproportionate percentage of 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) As described in Note 1 to the financial statements, the Salton Sea
Guarantors are comprised primarily of a combination of partnership
interests. The income or loss of each partnership for income tax
purposes, along with any associated tax credits, is the responsibility
of the individual partners. Accordingly, no recognition has been given
to federal or state income taxes in the combined historical financial
statements.
(3) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of pretax income of the Salton Sea Guarantors plus fixed
charges, less capitalized interest. "Fixed Charges" represent interest
(whether expensed or capitalized) and amortization of deferred
financing fees.
(4) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as
a measure of the Salton Sea Guarantors' 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).
46
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL AND
OPERATING DATA OF THE PARTNERSHIP GUARANTORS
The following tables set forth selected historical combined financial
and operating data and pro forma data of the Partnership Guarantors. The
information contained therein was extracted from certain historical
information of Magma Power Company and certain of its Affiliates. The
historical summary statement of operations for 1995, 1994, 1993, 1992 and 1991
and the historical balance sheet data as of December 31, 1995, 1994, 1993,
1992 and 1991 have been derived from the historical financial statements of
the Partnership Guarantors. The historical summary statement of operations for
the three months ended March 31, 1996 and 1995 and the historical balance
sheet data as of March 31, 1996 have been derived from the unaudited
historical financial statements of the Partnership Guarantors which, in the
opinion of management of the Partnership Guarantors, include all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
information set forth therein. The unaudited pro forma statement of operations
data reflects (i) the acquisition by the Initial Partnership Guarantors of the
50% interest in each of the Partnership Projects previously owned by a third
party as if it had occurred at the beginning of the period presented and has
been derived from pro forma condensed combined unaudited financial data
appearing elsewhere in this Prospectus and (ii) the application of a portion
of the Additional Partnership Project Note to refinance outstanding project
finance debt of the Partnership Project Companies. The data should be read in
conjunction with the financial statements and related notes, and other
financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA(5)
--------------
THREE
YEAR MONTHS
THREE MONTHS ENDED ENDED ENDED
YEAR ENDED DECEMBER 31, MARCH 31,(1) DECEMBER MARCH
--------------------------------------------------- --------------------- 31, 31,
1995 1994 1993 1992 1991 1996 1995 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues....... $87,483 $76,050 $70,057 $65,523 $61,056 $17,379 $18,033 $180,084 $36,019
Operating revenues.... 76,909 70,692 65,579 60,979 55,680 15,159 16,717 167,879 33,409
Operating, general
administrative costs 32,143 35,306 35,597 34,357 28,746 7,612 7,602 75,175 17,523
Depreciation and
amortization....... 18,958 9,037 9,249 8,597 8,427 4,373 2,438 37,226 8,204
Income from operations 36,382 31,707 25,211 22,569 23,883 5,394 7,993 67,683 10,292
Interest expense, net of
capitalized interest 8,826 3,285 3,712 4,782 6,374 -- 3,209 16,681 1,708
Provision for income
taxes(2)........... 11,492 11,284 8,405 6,973 3,082 2,249 1,885 21,501 3,579
Cumulative effect of
accounting change(2) -- -- -- (4,194) -- -- -- -- --
Net income............ 14,637 17,138 13,094 6,620 14,428 3,145 1,472 29,501 5,005
Ratio of earnings to fixed
charges(3)......... 2.18 9.88 7.00 4.88 3.87 2.69 2.49 2.66 2.58
OTHER FINANCIAL DATA:
Capital expenditures.. 4,066 10,495 4,852 6,802 4,584 3,736 1,051
Combined EBITDA(4).... 55,340 40,744 34,460 31,166 32,311 9,767 10,431
Ratio of combined
EBITDA to combined fixed
charges............. 3.31 12.40 9.28 6.52 5.07 4.87 3.25
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------------------------------------- ---------------------------
1995 1994 1993 1992 1991 ACTUAL AS ADJUSTED(5)
---- ---- ---- ---- ---- ------ --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Property, plant, contracts and
equipment, net .................. $298,956 $137,265 $138,664 $145,060 $149,756 $299,210 $377,196
Total assets ...................... 602,172 180,443 178,894 183,899 186,720 603,840 775,472
Project finance loans ............. 43,766 52,340 60,119 67,365 74,326 38,633 --
Senior secured project note ....... 62,706 -- -- -- -- 62,706 197,706
Total indebtedness ................ 106,472 52,340 60,119 67,365 74,326 101,339 197,706
Guarantors' equity ................ 373,732 106,395 103,387 105,707 106,888 393,378 463,378
</TABLE>
- ---------------
(1) The Partnership Guarantors' operations are seasonal in nature, with a
disproportionate percentage of 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) During the year ended December 31, 1991, the Partnership Guarantors
provided for income taxes based upon Magma's effective tax rate for the
year. Effective January 1, 1992, the Partnership Guarantors adopted the
provisions of Statement of Financial Accounting Standards 109,
Accounting for Income Taxes. The cumulative effect of the change was a
$4,194,000 charge to earnings during the year ended December 31, 1992.
(3) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represents
the aggregate of pretax income of the Partnership Guarantors plus fixed
charges, less capitalized interest. "Fixed Charges" represents interest
(whether expensed or capitalized) and amortization of deferred financing
fees. The deficiency in the pro forma ratio of earnings to fixed charges
for the year ended December 31, 1994 is $2,382.
(4) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as a
measure of the Partnership Guarantors' 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).
(5) The pro forma amounts of the Partnership Guarantors reflect the
Partnership Acquisition, the allocation of the Securities and the
repayment of all existing project-level debt at the beginning of each
period presented.
48
<PAGE>
SELECTED HISTORICAL FINANCIAL AND
OPERATING DATA OF THE ROYALTY GUARANTOR
The following tables set forth selected historical financial and
operating data of the Royalty Guarantor on the basis of the assignment in June
1995 of certain royalties and fees to the Royalty Guarantor by Magma;
accordingly, this presentation is a "carve out" of information from Magma and
certain of its affiliates. The information contained therein was extracted
from certain historical information of Magma Power Company and certain of its
Affiliates. The historical summary statements of operations for 1995, 1994,
1993, 1992 and 1991 and the historical balance sheet data as of December 31,
1995 have been derived from audited historical financial
statements of the Royalty Guarantor. The historical statement of operations
for the three months ended March 31, 1996 and 1995 and the historical balance
sheet data as of March 31, 1996 have been derived from the unaudited financial
statements of the Royalty Guarantor which, in the opinion of management of the
Royalty Guarantor, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the information set forth
therein. The data should be read in conjunction with the financial statements
and related notes and other financial information appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31,(2)(3) MARCH 31,(1)
----------------------------------------------- -------------------------
1995 1994 1993 1992 1991 1996(3) 1995(2)(3)
---- ---- ---- ---- ---- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues(2)................... $ 28,383 $29,410 $26,942 $29,355 $19,401 $ 6,941 $6,751
Operating revenues(2).............. 28,383 29,410 26,942 29,355 19,401 6,941 6,751
Operating, general administrative
costs (2)(6) ..................... 6,822 20,753 5,710 5,203 4,524 1,707 1,594
Amortization ....................... 11,239 N/A N/A N/A N/A 2,570 1,232
Income from operations(2)(6)........ 10,322 8,657 21,232 24,152 14,877 2,664 3,925
Interest expense.................... 4,757 -- -- -- -- 1,358 1,540
Provision for income taxes(3)....... 963 N/A N/A N/A N/A 478 830
Net income (2)(6) .................. 3,510 8,657 21,232 24,152 14,877 828 463
Ratio of earnings to fixed
charges(4) ....................... 2.17 N/A N/A N/A N/A 1.96 2.55
OTHER FINANCIAL DATA:
Capital expenditures................ -- N/A N/A N/A N/A -- --
EBITDA(5) ......................... 21,561 N/A N/A N/A N/A 5,234 5,157
Ratio of EBITDA to fixed charges.... 4.53 N/A N/A N/A N/A 3.85 3.35
MARCH 31,
1996
---------
BALANCE SHEET DATA (AT PERIOD END):
Royalty Stream ..................... $ 53,744 N/A N/A N/A N/A $ 51,401
Total assets ....................... 117,341 N/A N/A N/A N/A 114,424
Senior secured project note......... 67,882 N/A N/A N/A N/A 67,882
Total indebtedness ................. 67,882 N/A N/A N/A N/A 67,882
Guarantors' equity ................. 28,051 N/A N/A N/A N/A 23,520
</TABLE>
- -----------------
(1) The Royalty Guarantor operations are seasonal in nature, with a
disproportionate percentage of 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 historical summaries of revenues and related expenses for periods
prior to 1995, which were prepared on the basis described in Note 2 to
the financial statements appearing elsewhere herein, are not intended to
be a complete presentation of the predecessor's assets, liabilities,
revenues and expenses.
(3) For periods prior to 1995, the predecessor's summaries of revenues and
related expenses do not include a provision for income taxes; further,
there were no assets, liabilities or equity prior to 1995.
(4) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent the
aggregate of pretax income of the Royalty Guarantor plus fixed charges,
less capitalized interest. "Fixed Charges" represent interest (whether
expensed or capitalized) and amortization of deferred financing fees.
(Footnotes on following page)
49
<PAGE>
(footnotes continued)
(5) Earnings before interest, taxes, depreciation and amortization (EBITDA)
is presented here not as a measure of operating results, but rather as a
measure of the Royalty Guarantor'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).
(6) During 1994, the Royalty Guarantor charged off its entire outstanding
accrued Junior S04 royalty receivable from East Mesa. The charge
amounted to $14,502 and is included in operating expenses. Excluding the
one time charge, operating expenses would have been $6,251 and the
excess of revenues over expenses would have been $23,159.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS AFFECTING RESULTS OF OPERATIONS
The periodic results of operations for the Guarantors are influenced
to varying degrees by a number of factors, principally the level of revenues
received under the power purchase agreements, Project capacity utilization,
the level of operating expenses and capital expenditures requirements. See
"BUSINESS OF THE GUARANTORS--General Description of Projects" for a
description of the nature and business of the Guarantors and related Projects.
POWER PURCHASE AGREEMENTS
Each of the Projects sells electricity to SCE pursuant to a separate
SO4 Agreement or a negotiated power purchase agreement. Each power purchase
agreement is independent of the others, and performance requirements specified
within each such agreement apply only to the Project which is subject to that
agreement. The power purchase agreements provide for three basic types of
payments: energy payments, capacity payments and, in certain cases, capacity
bonus payments. Each type of payment is described more fully in the discussion
that follows. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS."
CAPACITY UTILIZATION
Each Project's revenue is influenced to the extent it can utilize its
maximum electricity production capacity. A Project's annual "Operating
Capacity Factor" is calculated by dividing the actual number of kWhs sold
during the course of a year by the product of (1) the Project's rated
operating capacity (which is greater than the Contract Capacity for such
Project, as stated in its related SO4 Agreement) and (2) the number of hours
in the year. For consistency in stating Operating Capacity Factors in the
table that follows, the Projects have utilized a rated operating capacity
equal to each facility's contract nameplate capacity. The operating capacity
factors have not been adjusted for scheduled maintenance. Each Project can
operate at Operating Capacity Factors in excess of 100% from time to time,
depending upon various operating conditions.
The following data includes the Operating Capacity Factors and
electricity production of Salton Sea Unit I, Salton Sea Unit II, Salton Sea
Unit III, and the operating Salton Sea Projects combined:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
----------------------- ----------- ------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Salton Sea Unit I:(1)
Operating Capacity Factor....... 67.3% 65.9% 70.9% 66.2% 56.0%
Contract Capacity (NMW)......... 10.0 10.0 10.0 10.0 10.0
kWh Produced (000's omitted).... 58,943 57,700 46,800 14,300 12,100
Salton Sea Unit II:
Operating Capacity Factor....... 84.6% 65.9% 91.1% 89.4% 75.2%
Contract Capacity (NMW)......... 20.0 10.0 20.0 20.0 20.0
kWh Produced (000's omitted).... 148,157 57,700 120,200 38,600 32,500
Salton Sea Unit III:
Operating Capacity Factor....... 91.1% 65.9% 100.1% 95.0% 97.6%
Contract Capacity (NMW)......... 49.8 10.0 49.8 49.8 49.8
kWh Produced (000's omitted).... 397,200 57,700 328,900 103,300 105,000
Combined:
Operating Capacity Factor....... 86.5% 65.9% 94.2% 89.6% 86.8%
Contract Capacity (NMW)......... 79.8 10.0 79.8 79.8 79.8
kWh Produced (000's omitted).... 604,300 57,700 495,900 156,200 149,600
</TABLE>
(Footnotes on following page)
51
<PAGE>
- -----------------------------
(1) For purposes of financial presentation, Salton Sea Unit I power
production results reflect increased parasitic load. Following the
expected mid-year 1996 completion of the Salton Sea Expansion,
management of the Salton Sea Guarantors expects Salton Sea Unit I's
operating capacity factor to approximate the combined Salton Sea
capacity factor.
The following data includes the full Operating Capacity Factors and
electricity production of Vulcan, Del Ranch, Elmore, Leathers, and the
Partnership Project Companies combined:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Vulcan:
Operating Capacity Factor................ 110.1% 102.2% 99.1% 104.1% 111.5%
Contract Capacity (NMW).................. 34.0 34.0 34.0 34.0 34.0
kWh Produced (000's omitted)............. 327,900 304,300 295,300 77,300 81,900
Del Ranch:
Operating Capacity Factor................ 103.6% 106.7% 100.5% 104.7% 89.4%
Contract Capacity (NMW).................. 38.0 38.0 38.0 38.0 38.0
kWh Produced (000's omitted)............. 345,000 355,100 334,600 86,900 73,400
Elmore: (1)
Operating Capacity Factor................ 106.2% 103.4% 102.7% 92.2% 105.5%
Contract Capacity (NMW).................. 38.0 38.0 38.0 38.0 38.0
kWh Produced (000's omitted)............. 353,400 344,300 342,000 76,500 86,600
Leathers: (1)
Operating Capacity Factor................ 104.2% 102.8% 100.3% 90.3% 103.8%
Contract Capacity (NMW).................. 38.0 38.0 38.0 38.0 38.0
kWh Produced (000's omitted)............. 347,010 342,300 333,800 74,900 85,200
Combined:
Operating Capacity Factor................ 105.9% 103.8% 100.7% 97.6% 102.3%
Contract Capacity (NMW).................. 148.0 148.0 148.0 148.0 148.0
kWh Produced (000's omitted)............. 1,373,310 1,346,000 1,305,700 315,600 327,100
</TABLE>
- ---------------------
(1) The lower production for the three months ended March 31, 1996, is a
result of scheduled overhauls for Elmore and Leathers.
52
<PAGE>
HISTORICAL FINANCIAL DATA AND COMBINED INFORMATION
The table includes selected historical financial data of the Salton
Sea Guarantors, the Initial Partnership Guarantors and the Royalty Guarantor,
separately and on a combined basis. The financial data presented on a combined
basis is the aggregate amount of each of the Guarantors to which no
adjustments for intercompany transactions have been made, accordingly, there
is no basis in Generally Accepted Accounting Principles for combining the
information, nor is such combined information intended to reflect the
financial condition or results of operations in accordance with Generally
Accepted Accounting Principles. The historical financial data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, (1)(2) MARCH 31,
----------------------------------- -----------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Sales of Electricity (3):
Salton Sea Guarantors............. $ 71,605 $ 74,576 $ 60,158 $ 16,221 $ 15,611
Partnership Guarantors............ 76,909 70,692 65,579 15,159 16,717
Royalty Guarantor................. N/A N/A N/A N/A N/A
----------- ------------ ----------- ----------- --------
Combined....................... 148,514 145,268 125,737 31,380 32,328
Royalty Income:
Salton Sea Guarantors............. N/A N/A N/A N/A N/A
Partnership Guarantors............ N/A N/A N/A N/A N/A
Royalty Guarantor................. 28,383 29,410 26,942 6,941 6,751
----------- ------------ ----------- ----------- --------
Combined....................... 28,383 29,410 26,942 6,941 6,751
Other Income:
Salton Sea Guarantors............. -- 422 N/A 68 --
Partnership Guarantors............ 10,574 5,358 4,478 2,220 1,316
Royalty Guarantor................. N/A N/A N/A N/A N/A
----------- ------------ ----------- ----------- --------
Combined....................... 10,574 5,780 4,478 2,288 1,316
Plant Royalties, Operations, General
& Administrative Expenses:
Salton Sea Guarantors............. 26,096 24,766 19,335 5,789 5,488
Partnership Guarantors............ 32,143 35,306 35,597 7,612 7,602
Royalty Guarantor (4)............. 6,822 20,753 5,710 1,707 1,594
----------- ------------ ----------- ----------- --------
Combined....................... 65,061 80,825 60,642 15,108 14,684
Income Before Depreciation,
Amortization, Interest & Taxes:
Salton Sea Guarantors............. 45,509 50,232 40,823 10,500 10,123
Partnership Guarantors............ 55,340 40,744 34,460 9,767 10,431
Royalty Guarantor (4)............. 21,561 8,657 21,232 5,234 5,157
----------- ------------ ----------- ----------- --------
Combined....................... 122,410 99,633 96,515 25,501 25,711
Depreciation and Amortization:
Salton Sea Guarantors............. 10,556 10,049 7,425 2,682 3,043
Partnership Guarantors............ 18,958 9,037 9,249 4,373 2,438
Royalty Guarantor................. 11,239 N/A N/A 2,570 1,232
----------- ------------ ----------- ----------- --------
Combined....................... 40,753 19,086 16,674 9,625 6,713
Interest Expense, net:
Salton Sea Guarantors............. 15,605 8,240 4,267 2,957 4,256
Partnership Guarantors............ 8,826 3,285 3,712 -- 3,209
Royalty Guarantor................. 4,757 N/A N/A 1,358 1,540
----------- ------------ ----------- ----------- --------
Combined....................... 29,188 11,525 7,979 4,315 9,005
Income before minority interest:
Salton Sea Guarantors............. 19,348 31,943 29,131 4,861 2,824
Partnership Guarantors............ 16,064 17,138 13,094 3,145 2,899
Royalty Guarantor................. 4,602 8,657 21,232 828 1,555
----------- ------------ ----------- ----------- --------
Combined....................... 40,014 57,738 63,457 8,834 7,278
Net Income (5):
Salton Sea Guarantors............. 17,955 31,943 29,131 4,861 1,431
Partnership Guarantors............ 14,637 17,138 13,094 3,145 1,472
Royalty Guarantor (4)............. 3,510 8,657 21,232 828 463
----------- ------------ ------------- ----------- --------
Combined....................... 36,102 57,738 63,457 8,834 3,366
</TABLE>
(Footnotes on following page)
53
<PAGE>
- --------------------------
(1) The historical summaries of revenues and related expenses for periods
prior to 1995, which were prepared on the basis described in Note 2 to
the financial statements appearing elsewhere herein, are not intended to
be a complete presentation of the predecessor's assets, liabilities,
revenues and expenses. The information of the Royalty Guarantor is
presented on the basis of the assignment in June 1995 of certain
royalties and fees to the Royalty Guarantor by Magma; accordingly, this
presentation is a "carve out" of information from Magma and certain of
its affiliates.
(2) For periods prior to 1995, the predecessor Royalty Guarantor summaries
of revenues and related expenses do not include a provision for income
taxes.
(3) Includes energy, capacity and bonus payments, and excludes interest
income.
(4) The 1994 income has been reduced for the establishment of a reserve in
the amount of $14,502 relating to earned but not yet collected East Mesa
Junior Royalties.
(5) Income taxes are provided for by the Guarantors which include corporate
entities. However, the corporate entities will be included with its
parent's tax return and affiliates and tax payments will be the parent's
responsibility. See the notes to the respective financial statements.
The following table sets forth selected historical financial data on
a cents-per-kWh basis for the Salton Sea Guarantors and the Partnership
Guarantors. The concept of cents-per-kWh is not applicable to the Royalty
Guarantor because it does not operate any electrical generating facilities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ------------------------
1995 1994 1993 1996 1995
---- ---- ---- ---- ----
(Cents Per KWH)
<S> <C> <C> <C> <C> <C>
Sales of Electricity:
Salton Sea Guarantors............ 11.85 11.74 12.13 10.38 10.44
Partnership Guarantors........... 13.21 12.43 11.88 11.32 12.02
Combined..................... 12.52 12.06 12.00 10.81 11.20
Other Income:
Salton Sea Guarantors............ -- 0.07 N/A -- --
Partnership Guarantors........... 1.82 0.94 0.81 1.66 0.95
Combined..................... 0.89 0.48 0.43 0.77 0.46
Plant Royalties, Operations, General
and Administrative Expenses:
Salton Sea Guarantors............ 4.32 3.90 3.90 3.66 3.67
Partnership Guarantors........... 5.52 6.21 6.45 5.68 5.47
Combined..................... 4.91 4.99 5.24 4.59 4.54
Income Before Depreciation,
Amortization, Interest and Taxes:
Salton Sea Guarantors............ 7.53 7.91 8.23 6.72 6.77
Partnership Guarantors........... 9.51 7.16 6.24 7.29 7.50
Combined..................... 8.50 7.56 7.19 6.98 7.12
Depreciation and Amortization:
Salton Sea Guarantors............ 1.75 1.58 1.50 1.72 2.03
Partnership Guarantors........... 3.26 1.59 1.68 3.26 1.75
Combined..................... 2.49 1.59 1.59 2.43 1.90
Interest Expense, net:
Salton Sea Guarantors............ 2.58 1.30 0.86 1.89 2.84
Partnership Guarantors........... 1.52 0.58 0.67 -- 2.31
Combined..................... 2.06 0.96 0.76 1.02 2.59
Income before minority interest:
Salton Sea Guarantors............ 3.20 5.03 5.87 3.11 1.89
Partnership Guarantors........... 2.76 3.01 2.37 2.35 2.09
Combined..................... 2.98 4.08 4.03 2.76 1.98
Net Income:
Salton Sea Guarantors............ 2.97 5.03 5.87 3.11 0.96
Partnership Guarantors........... 2.51 3.01 2.37 2.35 1.06
Combined..................... 2.75 4.08 4.03 2.76 1.50
</TABLE>
54
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Revenues. The Salton Sea Guarantors' sales of electricity increased
to $16,221 for the three months ended March 31, 1996 from $15,611 for the same
period of 1995. This 3.9% increase was due primarily to a 4.4% increase in
electric kWh sales to 156.2 million kWh from 149.6 million kWh.
The Initial Partnership Guarantors' sales of electricity decreased to
$15,159 for the three months ended March 31, 1996 from $16,717 for the same
period in 1995. This 9.3% decrease was due primarily to a 3.5% decrease in
electric kWh sales to 315.6 million kWh from 327.1 kWh and a decreased price
per kWh for the Vulcan project as a result of the expiration of the scheduled
price period on February 9, 1996.
The Royalty Guarantor's revenue increased to $6,941 for the three
months ended March 31, 1996 from $6,751 for the same period last year. This
2.8% increase was due primarily to higher energy sales at Del Ranch, Elmore
and Leathers during the three months ended March 31, 1996 compared to the same
period of 1995.
Expenses. The Salton Sea Guarantors' operating expenses, which
include royalty, operating, and general and administrative expenses, decreased
to $5,789, for the three months ended March 31, 1996 from $5,488 for the same
period in 1995.
The Initial Partnership Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses, increased to
$7,612 for the three months ended March 31, 1996 from $7,602 for the same
period in 1995.
The Royalty Guarantor's operating expenses increased to $1,707 for
the three months ended March 31, 1996 from $1,594 for the same period in 1995,
a 7.1% increase. This increase was due to a scheduled increase in third party
lessor royalties related to the increase in the Partnership Projects' sales of
electricity.
The Salton Sea Guarantors' depreciation and amortization decreased to
$2,682 for the three months ended March 31, 1996 from $3,043 for the same
period of 1995. This 11.9% decrease was due primarily to the allocation of
purchase accounting which related to the Magma Acquisition.
The Initial Partnership Guarantors' depreciation and amortization
increased to $4,373 for the three months ended March 31, 1996 from $2,438 for
the same period in 1995. This 79.4% increase was due primarily to the
allocation of purchase accounting which related to the Magma Acquisition.
The Royalty Guarantor's amortization increased to $2,570 for the
three months ended March 31, 1996 from $1,232 for the same period of 1995.
This 108.6% increase was due primarily to the allocation of purchase
accounting which related to the Magma Acquisition.
The Salton Sea Guarantors' interest expense, net of capitalized
amounts, decreased to $2,957 for the three months ended March 31, 1996 from
$4,256 for the same period in 1995. The 30.5% decrease was due primarily to
the capitalization of interest to projects under construction and development
partially offset by increased indebtedness from the issuance of the Salton Sea
Project Note.
The Initial Partnership Guarantors' interest expense, net of
capitalized amounts, decreased to $0 for the three months ended March 31, 1996
from $3,209 for the same period in 1995. The decrease is a result of reduced
indebtedness and capitalization of interest to properties under development.
The Royalty Guarantor's interest expense decreased to $1,358 for the
three months ended March 31, 1996 from $1,540 from the same period in 1995.
The decrease is a result of reduced indebtedness.
55
<PAGE>
Income Taxes. The Salton Sea Guarantors are comprised of partnerships
and one company which has a partial interest in the Salton Sea expansion.
Income taxes are the responsibility of the partners and Salton Sea Guarantors
have no obligation to provide funds to the partners for payment of any tax
liabilities. Accordingly, the Salton Sea Guarantors have no tax obligations.
The Initial Partnership Guarantors' income tax provision increased to
$2,249 for the three months ended March 31, 1996 from $1,885 for the same
period in 1995. This 19.3% increase was primarily due to a 12.8% increase in
income before income taxes. Income taxes will be paid by the parent of the
Partnership Guarantors, from distributions to the parent company by the
Guarantors which occur after operating expenses and debt service.
The Royalty Guarantor's income tax provision was $478 for the three
months ended March 31, 1996 compared to $830 for the same period in 1995.
Income taxes will be paid by the parent of the Royalty Guarantor from
distributions to the parent company which occur after operating expenses and
debt service.
Net Income. The Salton Sea Funding Corporation's net income for the
three months ended March 31, 1996 was $526 which primarily represented
interest income and expense, net of applicable tax, and the Salton Sea Funding
Corporation's 1% equity in earnings of the Guarantors. The Funding Corporation
was formed on June 20, 1995 for the sole purpose of acting as issuer of the
Securities.
The Salton Sea Guarantors' net income increased to $4,861 for the
three months ended March 31, 1996 compared to $1,431 for the same period of
1995.
The Initial Partnership Guarantors' net income increased to $3,145
for the three months ended March 31, 1996 compared to $1,472 for the same
period of 1995.
The Royalty Guarantor's net income increased to $828 for the three
months ended March 31, 1996 compared to $463 for the same period of 1995.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
Revenues. The Salton Sea Guarantors' sales of electricity decreased
to $71,605 for the year ended December 31, 1995 from $74,576 for the same
period last year, a 4.0% decrease. This was due to a 4.8% decrease in electric
kWh sales to 604.3 million kWh from 634.9 million kWh, which was a result of
the scheduled overhauls at Salton Sea Units I, II and III, partially offset by
an increase in the energy price for Salton Sea Unit I.
The Initial Partnership Guarantors' sales of electricity increased to
$76,909 for the year ended December 31, 1995 from $70,692 for the same period
in 1994, an 8.8% increase. This was due to a 2.0% increase in electric kWh
sales to 1,373.3 million kWh from 1,346.0 million kWh and an increased energy
price per kWh in accordance with the Power Purchase Agreements.
The Royalty Guarantor's revenue decreased to $28,383 for the year
ended December 31, 1995 from $29,410 for the same period in 1994. The decrease
in royalty revenue is the result of the Royalty Guarantor no longer recording
the earned but unpaid East Mesa Junior Royalties, which is a result of the
uncertainty related to the East Mesa Project obtaining the long-term financing
which is a prerequisite to the payment of these royalties. See "--Results of
Operations for the Years Ended December 31, 1994 and 1993" below for
additional analysis.
Interest and other income for the Initial Partnership Guarantors
increased to $10,574 for the year ended December 31, 1995 from $5,358 for the
same period in 1994. The increase was attributable to higher cash
56
<PAGE>
balances and the Magma Services Agreement which went into effect on July 20,
1995. Fee income related to the Magma Services Agreement for the year ended
December 31, 1995 was $4,457.
Expenses. The Salton Sea Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses, increased to
$26,096, or 4.32 cents per kWh, for the year ended December 31, 1995, from
$24,766 or 3.90 cents per kWh for the same period in 1994. The increase in
expenses was due to scheduled overhauls at Salton Sea Units I, II and III.
The Initial Partnership Guarantors' operating expenses, which include
royalty, operating and general and administrative expenses, decreased to
$32,143, or 5.52 cents per kWh, for the year ended December 31, 1995, from
$35,306 or 6.21 cents per kWh for the same period in 1994. The 9.0% decrease
in costs was primarily due to the implementation of certain cost savings
measures at the partnership level, including a reduction in labor costs at the
time of the Magma Acquisition.
The Royalty Guarantor's operating expenses increased to $6,822 for
the year ended December 31, 1995 from $6,251 for the same period of 1994, a
9.1% increase. This increase was due to a scheduled increase in third party
lessor royalties related to the increases in the Partnership Projects' sales
of electricity.
The Salton Sea Guarantors' depreciation and amortization increased to
$10,556 for the year ended December 31, 1995 from $10,049 for the year ended
December 31, 1994, an increase of 5.0%. Depreciation and amortization for the
year ended December 31, 1995 was 1.75 cents per kWh compared to 1.58 cents per
kWh in the year ended December 31, 1994.
The Initial Partnership Guarantors' depreciation and amortization
increased to $18,958 for the year ended December 31, 1995 from $9,037 for the
same period in 1994, a 110% increase. This increase was due to the Magma
Acquisition purchase accounting effect which results in the allocation of
goodwill, including amortization, and the additional depreciation due to the
excess of fair market value assigned to assets over the previous book value.
The Royalty Guarantor's amortization totaled $11,239 for the year
ended December 31, 1995 and represented amortization of the royalty stream and
goodwill.
The Salton Sea Guarantors' interest expense, net of capitalized
amounts, increased to $15,605 for the year ended December 31, 1995 from $8,240
for the same period in 1994. The increase is a result of increased
indebtedness from the issuance of the Salton Sea Project Note and the purchase
accounting allocation of the indebtedness incurred in conjunction with the
Magma Acquisition.
The Initial Partnership Guarantors' interest expense, net of
capitalized amounts, increased to $8,826 for the year ended December 31, 1995
from $3,285 for the same period in 1994. The increase is a result of increased
indebtedness from the issuance of the Partnership Project Note and the
purchase accounting allocation of the indebtedness incurred in conjunction
with the Magma Acquisition.
The Royalty Guarantor's interest expense for the year ended December
31, 1995 was $4,757 which related to the issuance of the Royalty Project Note
and the aforementioned allocation of indebtedness incurred in conjunction with
the Magma Acquisition.
Income Taxes. The Salton Sea Guarantors are comprised of partnerships
and one company which has a partial interest in the Salton Sea Expansion.
Income taxes are the responsibility of the partners and Salton Sea Guarantors
have no obligation to provide funds to the partners for payment of any tax
liabilities. Accordingly, the Salton Sea Guarantors have no tax obligations.
The Initial Partnership Guarantors' income tax provision increased to
$11,492 for the year ended December 31, 1995 from $11,284 for the same period
in 1994. The increase in the provision is a result of a
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slightly higher effective tax rate. Income taxes will be paid by the parent of
the Guarantors from distributions to the parent company by the Guarantors which
occur after operating expenses and debt service.
The Royalty Guarantor's income tax provision was $963 for the year
ended December 31, 1995. Income taxes will be paid by the parent of the Royalty
Guarantor from distributions to the parent company by the Royalty Guarantor
which occur after operating expenses and debt service.
Net Income. The Salton Sea Funding Corporation's net income for the
period June 20, 1995 (inception date) to December 31, 1995 was $1,507 which
represented interest income and expense, net of applicable tax, and the Salton
Sea Funding Corporation's 1% equity in earnings of the Guarantors.
The Salton Sea Guarantors' net income decreased to $17,955 for the
year ended December 31, 1995, compared to $31,943 for the year ended December
31, 1994 due primarily to increased interest expense and depreciation and
amortization resulting from the Magma Acquisition.
The Initial Partnership Guarantors' net income decreased to $14,637
for the year ended December 31, 1995, compared to $17,138 for the year ended
December 31, 1994 due primarily to increased interest expense and depreciation
and amortization resulting from the Magma Acquisition.
The Royalty Guarantor's net income decreased to $3,510 for the year
ended December 31, 1995, compared to $8,657 for the year ended December 31,
1994 due primarily to increased interest expense and amortization resulting
from the Magma Acquisition.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS)
Revenues. The Salton Sea Guarantors' sales of electricity increased
to $74,576 for the year ended December 31, 1994 from $60,158 in the year ended
December 31, 1993, a 24.0% increase. This increase is due to an increase in
electric kWh sales to 635.3 million kWh in 1994 from the 1993 partial year
level of 495.9 million kWh as the Salton Sea Projects were owned by the
Guarantors for nine months of 1993. The sales of electricity on a per kWh
decreased in 1994 to 11.74 cents per kWh from 12.13 cents per kWh. This was
because the 1993 nine month period included June through September, the period
when Salton Sea Guarantors earn significantly higher capacity payments,
compared to 1994 in which the higher capacity payments were averaged over
production for a full twelve months.
The Initial Partnership Guarantors' sales of electricity increased to
$70,692 in the year ended December 31, 1994 from $65,579 in the year ended
December 31, 1993, a 7.8% increase. This increase was due to a 3.0% increase
in electric kWh sales to 1,345.6 million kWh from 1,305.7 million kWh and an
increase in the energy price per kWh to 12.43 cents per kWh from 11.88 cents
per kWh. The increase in kWh sales was primarily due to the completion of new
production wells.
For the Salton Sea Guarantors and Initial Partnership Guarantors
combined, sales of electricity increased 15.5% to $145,268 in the year ended
December 31, 1994 from $125,737 in the year ended December 1993.
The Royalty Guarantor's revenues increased to $29,410 in 1994 from
$26,942 in 1993. Royalties included recognition of earned but unpaid East Mesa
Junior Royalties of $3,412 and $3,190 in 1994 and 1993, respectively. In 1994,
a reserve was established, and a related charge incurred, for the then entire
outstanding accrued Junior Royalties receivable. This charge amounted to
$14,502 and is included in "operating expenses." The charge was deemed
necessary due to the inability of the East Mesa Project to convert its
construction loans into term loans, which was expected to occur in 1994 and is
a prerequisite to the collection of the Junior Royalties. Since 1989, Magma
has received Senior Royalty payments from East Mesa on a current basis.
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Interest and other income for the Salton Sea Projects was $422 for
the year ended December 31, 1994 and $-0- for the year ended December 31,
1993. During 1993, all excess cash flows were utilized to finance plant
operations and service debt financing requirements during the interim
financing loan.
Interest and other income for the Initial Partnership Guarantors
increased for the year ended December 31, 1994 to $5,358 from $4,478 for the
year ended December 31, 1993. This increase was primarily due to higher cash
balances as a result of stronger operating results.
For the Salton Sea Guarantors and Initial Partnership Guarantors
combined, interest and other income for the year ended December 31, 1994 was
$5,780, compared with $4,478 for the year ended December 31, 1993.
Expenses. The increase in the Salton Sea Guarantors' royalty,
operating, and general and administrative expenses to $24,766 for the year
ended December 31, 1993 from $19,335 for the year ended December 31, 1994 was
primarily due to 1993 representing a nine month period of operation. These
costs on a per kWh basis were 3.9 cents for both periods.
The Initial Partnership Guarantors' royalties, operating, and general
and administrative expenses decreased to $35,306 for the year ended December
31, 1994 from $35,597 for the year ended December 31, 1993. The Partnership
Projects' royalties, operating and general and administrative expenses on a
per kWh basis decreased to 6.21 cents for the year ended December 31, 1994
from 6.45 cents for the year ended December 31, 1993.
The Royalty Guarantor's operating expenses increased to $20,753 for
the year ended December 31, 1994 from $5,710 for year ended 1993. The increase
is directly attributable to the aforementioned charge of $14,502 resulting
from the establishment of a reserve against previously recorded revenue for
the East Mesa Junior Royalty.
Combined, the Guarantors' royalties, operating, and general and
administrative expenses was $80,825 and $60,642 for 1994 and 1993,
respectively.
The Salton Sea Guarantors' depreciation and amortization increased to
$10,049 for the year ended December 31, 1994 from $7,425 for the year ended
December 31, 1993. The 1993 amount represents nine months of operations. On a
per kWh basis, the Salton Sea Guarantors' depreciation expense and
amortization increased to 1.58 cents for the year ended December 31, 1994 from
1.50 cents for the year ended December 31, 1993. The increase is a result of
(i) higher capital expenditures being incurred in 1994, and (ii) the operating
capacity factor being 90.9% for the twelve months in 1994 versus 94.2% for the
nine months in 1993 reflecting a lower average electrical production.
The Initial Partnership Guarantors' depreciation and amortization
decreased to $9,037 for the year ended December 31, 1994 from $9,249 for the
year ended December 31, 1993. The increase in 1993 depreciation and
amortization can be attributable to one-time charges for replacing a
production header at the Elmore Project. The Initial Partnership Guarantors'
depreciation and amortization on a per kWh basis for the years ended December
31, 1994 and 1993 was 1.59 cents and 1.68 cents, respectively.
Combined, the Guarantors' depreciation and amortization expense was
$19,086 and $16,674 in 1994 and 1993, respectively.
The Salton Sea Projects' interest expense increased to $8,240 for the
year ended December 31, 1994 from $4,267 for the year ended December 31, 1993.
Interest expense was 1.3 cents per kWh for the year ended December 31, 1994
compared to 0.86 cents per kWh for the year ended December 31, 1993. This
increase reflects higher interest rates on a greater loan balance.
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The Partnership Projects' interest expense decreased to $3,285 or
0.58 cents per kWh for the year ended December 31, 1994 from $3,712 or 0.67
cents per kWh for the year ended December 31, 1993. This decrease was due to
lower outstanding principal balances.
The Royalty Guarantor was unleveraged for the years ended December
31, 1994 and 1993.
In March 1993, the Salton Sea Guarantors' entered into a one-year term
loan with a variable interest rate of LIBOR plus .675%. In February 1994, this
loan was replaced by a secured credit agreement which provided for direct loans
at a variable interest rate of LIBOR plus 1.25%.
The Partnership Projects have issued commercial paper and medium term
notes, which are secured, in turn, by the project debt facility. The weighted
average effective interest rates for the outstanding borrowings was 6.3% in
1994, as compared to 5.6% for 1993.
Income Taxes. The Salton Sea Guarantors are comprised of partnerships
and one company which has a partial interest in the Salton Sea Expansion.
Income taxes are the responsibility of the partners. Accordingly the Salton
Sea Guarantors have no tax obligations.
The Initial Partnership Guarantors' income tax provision was $11,284
and $8,405 for 1994 and 1993, respectively. The increase in the provision was
a result of the higher income before taxes. Income taxes will be paid by the
parent of the Guarantors from distributions to the Parent company by the
Guarantors which occur after operating expenses and debt service.
Net Income. The Salton Sea Guarantors' net income was $31,943 for the
year ended December 31, 1994 compared to $29,131 for the nine month period
from date of acquisition to December 31, 1993.
The Initial Partnership Guarantors' net income was $17,138 for the
year ended December 31, 1994, compared with net income of $13,094 for 1993.
The Royalty Guarantor's net income was $8,657 and $21,232 for 1994
and 1993, respectively.
Combined net income for all Guarantors was $57,738 and $63,457 for
the years ended December 31, 1994 and 1993, respectively. The 1994 net income
reflects the charge in the amount of $14,502 resulting from the establishment
of a reserve against previously recorded East Mesa Junior royalties.
CAPITAL RESOURCES AND LIQUIDITY
Salton Sea Funding Corporation. The Funding Corporation was organized
for the purpose of issuing Securities, including $475 million aggregate
principal amount of the Initial Securities, consisting of $232,750, 6.69%
Senior Secured Series A Notes due May 30, 2000, $133,000 7.37% Senior Secured
Series B Bonds due May 30, 2005 and $109,250, 7.84% Senior Secured Series C
Bonds due May 30, 2010 initially issued on July 21, 1995, and $70,000, 7.02%
Senior Secured Series D Notes due May 30, 2000 and $65,000, 8.30% Senior
Secured Series E Bonds due May 30, 2011 initially issued on June 20, 1996.
Repayment of the Securities will be funded by repayments of the Guarantors'
Project Notes, payments under the Guarantees, amounts deposited in the Debt
Service Reserve Funds, and amounts paid by the Guarantors from time to time to
fund or replenish any shortfall in the Debt Service Reserve Funds from
Available Cash Flow. See "SUMMARY DESCRIPTION OF PRINCIPAL FINANCING
DOCUMENTS--The Security."
The Salton Sea Guarantors' only source of revenue is payments
received pursuant to long term power sales agreements with SCE, other than
interest earned on funds on deposit. The Partnership Guarantors' primary
source of revenue is payments received pursuant to long term power sales
agreements with SCE. The Partnership Guarantors also receive Royalties from
the Partnership Projects. The Royalty Guarantor's only source of revenue is
Royalties received pursuant to resource lease agreements with the Partnership
Projects and
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the East Mesa Project. With the exception of the East Mesa Royalties, such
Royalties are payable out of revenues that will constitute Partnership
Collateral. See "PROSPECTUS SUMMARY--Structure of and Collateral for the
Securities." These payments, for each of the Guarantors, are expected
to be sufficient to fund operating and maintenance expenses, payments of
interest and principal on the Securities, projected capital expenditures and
Debt Service Reserve Fund requirements.
All available cash of the Salton Sea Guarantors is transferred to the
Funding Corporation or Affiliates.
On February 28, 1994, the Salton Sea Guarantors secured a $130,000
non-recourse project-level term loan which is collateralized by substantially
all of the assets of the Salton Sea Projects. Proceeds from the Initial
Securities were utilized to repay the project loan.
The Salton Sea Guarantors commenced construction of an additional 40
net MW electric generating facility ("Salton Sea Unit IV") in 1995 pursuant to
an amended and restated 30-year power purchase agreement with SCE.
Construction of Salton Sea Unit IV is substantially complete at an estimated
capital construction cost of $135,000. As of March 31, 1996, the Salton Sea
Guarantors had invested $91,209 in Salton Sea Unit IV. The Depositary holds
the cash for the construction of Salton Sea Unit IV and as of March 31, 1996
the balance of this cash totaled $54,346.
The Initial Partnership Guarantors' cash and marketable securities
were $11,042 and $11,146 at March 31, 1996 and December 31, 1995,
respectively. In addition to these liquid instruments, the Initial Partnership
Guarantors recorded separately restricted cash of $10,576 and $9,859 at March
31, 1996 and December 31, 1995, respectively. Distributions out of the
Partnerships' project control accounts are made monthly for management fees,
Royalties, and reimbursement of operating costs and partnership distributions
for the Del Ranch, Elmore and Leathers Projects and quarterly for the Vulcan
Project.
As of March 31, 1996, the Initial Partnership Guarantors' share of
the Leathers, Del Ranch and Elmore project-level debt was $38,633.
CHANGING PRICES AND THE EFFECT OF INFLATION
The capacity and bonus payments the Guarantors receive for
electricity sold are fixed under the SO4 Agreements, and the energy payment
component of the SO4 Agreements are at a scheduled rate during the fixed price
period. As a result inflation has not had a significant effect on the
Guarantors' revenues. Although management of the Guarantors believe that
operating and management expenses may change over time in response to
inflation, generally, it is difficult to assess the impact of inflation over
the periods covered by this discussion since operating efficiencies generally
improve over time.
BUSINESS OF THE GUARANTORS
GEOTHERMAL ENERGY
Geothermal energy is a clean, renewable and generally sustainable
energy source that, because it does not utilize combustion in the production
of electricity, releases significantly lower levels of emissions than result
from energy generation based on the burning of fossil fuels. Geothermal energy
is derived from the natural heat of the earth when water comes sufficiently
close to hot molten rock to heat the water to temperatures of 400 degrees
Fahrenheit or more. The heated water then ascends toward the surface of the
earth where it, if geological conditions are suitable for its commercial
extraction, 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 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.
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
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long term to replenish the geothermal reservoir after the withdrawal
of geothermal fluids. Geothermal energy facilities typically have higher
capital costs (primarily as a result of wellfield development) but tend to
have significantly lower variable costs than fossil fuel based power plants.
THE SSKGRA GEOTHERMAL RESOURCE
The area in which the Salton Sea Projects and the Partnership
Projects are located has been designated as a "Known Geothermal Resource Area"
("KGRA") by the Bureau of Land Management pursuant to the Geothermal Steam Act
of 1970. Areas are designated as KGRAs when the Bureau of Land Management
determines that a commercially viable geothermal resource is likely to exist.
There are over 100 other KGRAs in the United States, which are predominately
located in the western states in tectonically active regions.
The Salton Sea KGRA ("SSKGRA") is located in Imperial County,
California, approximately 90 miles east of San Diego and is one of the world's
largest geothermal resource areas. The SSKGRA is a liquid-dominated geothermal
resource. The operations in the SSKGRA benefit from, among other things, the
relatively high temperature of the geothermal fluid, as well as relatively
high pressures which naturally force the geothermal fluid to flow up into the
Salton Sea Project plants and the Partnership Project plants without the
expense of pumping the geothermal fluid to the surface. The Funding
Corporation believes that such resources will be sufficient to operate the
Salton Sea Projects and the Partnership Projects at contract capacity under
their respective power purchase agreements through the Final Maturity Date.
GENERAL DESCRIPTION OF THE PROJECTS
Project Ownership. The Salton Sea Guarantors collectively own 100% of
four geothermal power plants, Salton Sea Units I, II, III and IV, and related
geothermal wells and gathering systems, which are all located in the SSKGRA.
Three of these plants have been in commercial operation for at least 5 years.
The fourth geothermal power plant, Salton Sea Unit IV, commenced operation in
May 1996 and has recently successfully completed the 30-day capacity
demonstration test required under the Salton Sea Unit IV PPA.
The Partnership Guarantors collectively own, or have the right to
receive all equity cash flow from, 100% of the equity interests in four
geothermal power plants (the Vulcan Project, the Elmore Project, the Leathers
Project and the Del Ranch Project) and related geothermal wells and gathering
systems in the SSKGRA. All four plants have been in commercial operation for
at least 5 years. Specifically, four of the Partnership Guarantors, Vulcan,
Elmore, Leathers and Del Ranch, own the Vulcan Project, Elmore Project,
Leathers Project and Del Ranch Project, respectively. Four of the other
Partnership Guarantors, CEOC, Niguel, San Felipe and Conejo, collectively own
90% of the partnership interests in each of Leathers, Del Ranch, and Elmore,
and Magma, an Affiliate of the Funding Corporation, owns the remaining 10%
limited partnership interest in each of these three partnerships. Magma has
agreed to pay to CEOC the partnership distributions it receives from its 10%
interest in each of these three partnerships and the special distributions of
4.5% of Leathers' energy revenues it receives under the Leathers Partnership
Agreement. Such payments will be made from revenues that will constitute
Partnership Collateral. See "PROSPECTUS SUMMARY--Structure of and Collateral
for the Securities." Two other Partnership Guarantors, VPC and BN Geothermal,
collectively own 100% of the fourth partnership, Vulcan/BN Geothermal Power
Company.
The East Mesa Project is owned by a third party unaffiliated with the
Funding Corporation and has been in commercial operation for at least 5 years.
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Production Process. The physical facilities and power generation
process used for geothermal energy production are similar at each of the Salton
Sea Projects and the Partnership Projects. The following diagram generally
illustrates the geothermal energy production process:
GRAPHIC OMITTED
Geothermal fluid is extracted from the underground reservoir by a
series of production wells and piped into the Projects. The geothermal fluids
produced at the wellhead consist of a mixture of hot brine and steam. The
heated mixture flows from the wellhead through a gathering system of insulated
steel pipes to separation vessels or separators. There, additional steam is
generated by converting liquid to steam via a pressure reduction process
(generally referred to as "flashing"). The steam is then separated from the
brine and is sent to a demister in the power plant, where any remaining water
droplets are removed. This produces a stream of dry steam, which is used by a
turbine generator to produce electricity. In some cases, the steam is used
again at a lower pressure to produce additional electricity.
The hot brine remaining after separation of steam is injected back
into the geothermal resource via a series of injection wells. Steam exhausted
from the steam turbine is passed to a surface condenser through which cold
water circulates. Moisture in the steam leaving the turbine generators
condenses on the tubes and after being cooled further in a cooling tower, is
used to provide cold circulating water for the condenser or injected back into
the geothermal resource.
The SSKGRA geothermal fluids contain a relatively high concentration
of total dissolved solids ("TDS"). As pressure is reduced in the flashing
process, solids tend to precipitate and cause scaling and mineral buildup
throughout the system. The Salton Sea Projects and the Partnership Projects
use certain processes to counteract the effects of such high TDS geothermal
fluid. The Partnership Projects currently use the "crystallizer/clarifier
process" ("CRC Process") developed by Magma in the late 1970's and early
1980's. The CRC Process removes solids from the geothermal brine, resulting in
a reduction in the amount of scale buildup in pipe and vessels and the
reduction of congestion within the reinjection wells. The Salton Sea Projects
use the alternative pH Modification Process to avoid scale buildup. This
process was developed by Union Oil Company of California ("Unocal") and is now
licensed to Magma. It inhibits precipitation of geothermal solids by modifying
the "pH" of the fluid. This process eliminates the need for crystalizers,
clarifiers and associated equipment and results in performance standards
similar to those achieved by the CRC Process at significantly reduced
operating costs.
Sale of Power. Each of the Projects sells its net electrical output
to SCE under a separate long-term power purchase agreement. These contracts
are similar to each other in many respects. Each of these contracts, except
for two (Salton Sea Unit I and Salton Sea Unit IV), are SO4 Agreements which
provide for fixed capacity payments over the term of the contracts, capacity
bonus payments and fixed escalating energy prices for the first 10 years of
each Project, after which energy payments are paid at SCE's Avoided Cost of
Energy.
Transmission. Except for Salton Sea Unit I, which delivers its power
to SCE at the Salton Sea Unit I site, the power sold to SCE by the Salton Sea
Projects and the Partnership Projects is delivered to SCE after
interconnection/wheeling over the local transmission system owned by the
Imperial Irrigation District, a public agency of the State of California
("IID"), pursuant to long-term transmission agreements and plant
interconnection agreements.
Operations, Maintenance and Administrative Services. Affiliates of
the Funding Corporation provide operations and maintenance services and
administrative services for the Salton Sea Projects and the Partnership
Projects pursuant to long-term operations and maintenance agreements and
administrative services agreements. These services include operations,
maintenance and testing of the plants, wells and gathering and reinjection
systems, the training of personnel, obtaining parts and supplies, preparing
reports for third parties, enforcing all warranties and claims and maintaining
compliance with permits, licensing and insurance standards.
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Geothermal Resources. Magma and other affiliates of the Funding
Corporation who are not Guarantors control the land on which the Salton Sea
Projects and the Partnership Projects are located and certain rights to
geothermal fluids in the SSKGRA through a combination of fee, leasehold and
royalty interests. The Salton Sea Projects and the Partnership Projects have
entered into long-term agreements with these affiliates to obtain the
necessary surface rights and geothermal resource rights necessary to operate
their projects. The Funding Corporation believes that these projects have the
rights to all of the geothermal resources necessary to operate those plants at
contract capacity until Final Maturity. Royalties received by Magma for
granting such rights to Elmore, Leathers and Del Ranch are paid to the Royalty
Guarantor.
Qualifying Facilities. Geothermal power plants in the United States
are eligible to be qualifying facilities ("QFs") under PURPA, which provides
for certain beneficial Federal regulatory treatment. All of the Salton Sea and
Partnership Projects are QFs.
SALTON SEA PROJECTS
The four Salton Sea Projects (Salton Sea Units I, II, III and IV) are
100% owned by the Salton Sea Guarantors collectively. The Salton Sea
Guarantors are wholly owned, directly and indirectly, by Magma.
Ownership. SSBP is a limited partnership, with Magma owning a 99%
limited partnership interest, and Salton Sea Power Company ("SSPC"), owning a
1% general partnership interest therein. SSPG is also a limited partnership,
with SSPC owning a 1% general partnership interest and SSBP owning a 99%
limited partnership interest therein. SSPC and Fish Lake are each 99% owned by
Magma and 1% owned by the Funding Corporation.
Salton Sea Units I, II and III were purchased by Magma on March 31,
1993 from Unocal. At the time of the acquisition, SSBP became the owner of the
wellfields and brine facilities associated with the Salton Sea Projects and
SSPG became the owner of all such geothermal power plants. Fish Lake and SSPG
own Salton Sea Unit IV.
Project Structure. CEOC operates and maintains the Salton Sea
Projects under an operating and maintenance agreement with the Salton Sea
Guarantors. Magma provides day-to-day administrative, management and technical
services under an administrative services agreement with the Salton Sea
Guarantors.
Magma Land, a wholly owned subsidiary of Magma, has granted SSBP the
right, under an easement grant deed and agreement regarding rights for
geothermal development, to extract and utilize, for purposes of power
production at the Salton Sea Projects, certain geothermal resources in the
SSKGRA which are believed to be sufficient to enable the Salton Sea Projects
to operate on a commercially viable basis at least through the term of their
respective power purchase agreements. SSBP extracts and sells brine and steam
for all of the Salton Sea Projects to SSPG under a geothermal sales agreement.
SSPG produces and sells electric capacity and energy from
Salton Sea Units I, II and III to SCE under three power purchase agreements
and, with Fish Lake, will sell Salton Sea Unit IV's capacity and energy to SCE
under a fourth power purchase agreement. The IID provides transmission
services under plant connection agreements and transmission service agreements
for Salton Sea Units II, III and IV. Salton Sea Unit I sells power to SCE at
the project site.
Desert Valley Company ("DVC"), a wholly owned subsidiary of Magma,
operates a storage and disposal site in Imperial County, California for
geothermal material. DVC has been granted a permit allowing the storage and
disposal of the Salton Sea Projects' non-hazardous geothermal materials.
SALTON SEA UNIT I
Salton Sea Unit I has been in service since 1982. Salton Sea Unit I
is nominally a 10 MW net output plant. SCE is required to purchase 10 MW of
capacity of, and the electricity delivered from, Salton Sea Unit I under a
30-year negotiated power purchase agreement (the "Salton Sea Unit I PPA").
Under the Salton Sea Unit
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I PPA, SCE pays SSPG a capacity payment and an energy payment. The contract
energy payment adjusts quarterly based on specified inflation-related indices.
The energy payment price was 4.7 cents per kWh in the first quarter of
1996. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea
Guarantor Project Contracts--Salton Sea Unit I--Salton Sea Unit I PPA."
The plant availability and Contract Capacity Factors for Salton Sea
Unit I have been in excess of 87% and 64%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for Salton Sea Unit I for such period have been 94% and 68%.
For additional information regarding the operating history of Salton Sea Unit
I, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
SALTON SEA UNIT II
Salton Sea Unit II has been in service since 1990. Salton Sea Unit II
is currently operating with the pH Modification Process. Salton Sea Unit II is
nominally a 20 MW net output plant. SCE is required to purchase 15 MW of
capacity of, and the electricity delivered from, Salton Sea Unit II under a
30-year SO4 power purchase agreement (the "Salton Sea Unit II PPA"). Under the
Salton Sea Unit II PPA, SCE pays SSPG a fixed price capacity payment, a
capacity bonus payment and an energy payment. The contract energy payment
price is levelized at a time period weighted average of 10.6 cents per kWh in
each year of the Fixed Price Period, which period expires on April 4, 2000.
Thereafter, the energy payments will be based on SCE's Avoided Cost of Energy.
See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea Guarantor
Project Contracts--Salton Sea Unit II--Salton Sea Unit II PPA."
The plant availability and Contract Capacity Factors of Salton Sea
Unit II have been in excess of 90% and 106%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for such period have been 96% and 112%, respectively. Salton
Sea Units I and II generated gross electricity revenues of $23.0 million in
1995. For additional information regarding the operating history of Salton Sea
Unit II, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
SALTON SEA UNIT III
Salton Sea Unit III has been in service since 1989. Salton Sea Unit
III is nominally a 49.8 MW net output plant. SCE is required to purchase 47.5
MW of capacity of, and the electricity delivered from, Salton Sea Unit III
under a 30-year SO4 power purchase agreement (the "Salton Sea Unit III PPA").
Under the Salton Sea Unit III PPA, SCE pays SSPG a fixed price capacity
payment, a capacity bonus payment and an energy payment. The contract energy
payment price is levelized at a time period weighted average of 9.8 cents per
kWh in each year of the Fixed Price Period, which period expires on February
13, 1999. Thereafter, the energy payment will be based on SCE's Avoided Cost
of Energy. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea
Guarantor Project Contracts--Salton Sea Unit III--Salton Sea Unit III PPA."
The plant availability and Contract Capacity Factors of Salton Sea
Unit III have been in excess of 92% and 95%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for such period have been 97% and 101%, respectively. In
1995, Salton Sea Unit III generated gross electricity revenues of $48.6
million. For additional information regarding the operating history of Salton
Sea Unit III, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
SALTON SEA EXPANSION
The Salton Sea Guarantors have recently (i) expanded the capacity of
the Salton Sea Projects through the construction of Salton Sea Unit IV at a
site adjacent to Salton Sea Unit III and (ii) incorporated the pH Modification
Process in Salton Sea Units I and III. Such pH Modification, together with the
construction of Salton Sea Unit IV, is referred to herein as the Salton Sea
Expansion.
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Salton Sea Unit IV. SSPG had an option to supply an additional 20 MW
of power to SCE under the Salton Sea Unit I PPA. Fish Lake acquired an SO4
Agreement (the "Fish Lake PPA") in 1992 to supply electric power to SCE from a
16 MW geothermal power plant proposed to be built at Fish Lake in Esmeralda
County, Nevada (the "Fish Lake Project"). The CPUC has approved the
restructuring of (i) the Salton Sea Unit I PPA and (ii) the Fish Lake PPA,
whereby the originally contemplated Fish Lake Project would not be
developed at its originally proposed site in Nevada and, instead, Salton Sea
Unit IV would be developed to generate and sell power to SCE under an amended
and restated 30-year power purchase agreement which combines and consolidates
the optional capacity in the Salton Sea Unit I PPA and the capacity in the
Fish Lake PPA.
The Salton Sea Unit IV PPA provides for contract capacity payments on
34 MW of capacity at two different rates based on the respective contract
capacities deemed attributable to the original Salton Sea Unit I PPA option
(20 MW) and to the original Fish Lake PPA (14 MW). The capacity payment price
for the 20 MW portion adjusts quarterly based upon specified indices and the
capacity payment price for the 14 MW portion is a fixed levelized rate. The
energy payment (for deliveries up to a rate of 39.6 MW) is at a fixed price
for 55.6% of the total energy delivered by Salton Sea Unit IV and is based on
an energy payment schedule for 44.4% of the total energy delivered by Salton
Sea Unit IV. The contract has a 30-year term but SCE is not required to
purchase the 20 MW of capacity and energy originally attributable to the
Salton Sea Unit I PPA option after June 30, 2017, the original termination
date of the Salton Sea Unit I PPA.
At the end of May 1996, construction of Salton Sea Unit IV was
substantially completed and the facility had commenced deliveries of
electrical energy to SCE. On May 24, 1996, Salton Sea Unit IV commenced its
30-day capacity demonstration test under the Salton Sea Unit IV PPA. The test
is proceeding without difficulties and the facility is currently producing in
excess of 40 MW. In addition, on June 6, 1996, the facility satisfactorily
completed its 24-hour reliability test. The 30-day test with respect to Salton
Sea Unit IV was completed by the end of June 1996, and, accordingly, under the
Salton Sea IV PPA, SCE is now obligated to pay full contract rates. The
Funding Corporation now plans to seek confirmation from the Independent
Engineer that Substantial Completion under the Indenture has occurred, which
will result in CalEnergy having no further obligation under the Cost Overrun
Commitment. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT DOCUMENTS--Salton
Sea Guarantor Project Contracts--Salton Sea Unit IV--Cost Overrun Commitment."
Salton Sea Unit IV employs the pH Modification Process. The necessary
permits for the construction and use of Salton Sea Unit IV have been issued or
are expected to be obtained in the ordinary course.
The Salton Sea Expansion includes, among other things, the
installation of three new production wells, four new injection wells,
associated production and injection pipelines, and a new 47.5 MW turbine. The
incorporation of the pH Modification Process (described below) in Salton Sea
Units I, III and IV is expected to reduce operating and maintenance costs and
increase unit availability. As part of the Salton Sea Expansion, IID
constructed a short (approximately 10 mile) transmission line and upgraded a
portion of its existing system to interconnect Salton Sea Unit IV to the IID
Midway substation, each of which are owned by IID.
pH Modification. The pH Modification Process at Salton Sea Unit II
has operated successfully since Salton Sea Unit II began operations in 1990.
The Salton Sea Guarantors believe that incorporating the pH Modification
Process will enable Salton Sea Units I, III and IV to achieve a reduction in
operating and maintenance costs and increased unit availability. The Funding
Corporation has estimated that operating and maintenance costs for plants
utilizing the pH Modification Process are approximately 50% less than for
plants utilizing the CRC Process.
The pH Modification Process was developed by Unocal and is licensed
to Magma. It lowers the pH of the geothermal resource by injection of a pH
modification agent into the liquid brine stream. As a result, solids largely
remain in solution, rather than precipitate out as in the CRC Process; scaling
is minimized, and the spent brine can be directly reinjected into the
reservoir. Significant overall operating and maintenance cost savings are
expected to be realized in the elimination of the CRC processing of the
resource and associated solids handling and disposal.
See "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
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The total budgeted cost of the Salton Sea Expansion is approximately
$135 million. For a further discussion and analysis of the Salton Sea
Expansion, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
PARTNERSHIP PROJECTS
The Partnership Projects are four geothermal power plants (the Vulcan
Project, the Elmore Project, the Leathers Project and the Del Ranch Project)
located in Imperial Valley, California, in the SSKGRA.
Ownership. The Partnership Guarantors collectively own 100% of the
partnership interests in the Vulcan Project and 90% of the partnership
interests in the three other Partnership Projects. Magma owns the remaining
10% limited partnership interests in such three Partnership Projects and has
agreed to pay to CEOC the partnership distributions it receives from such
partnership interests. Such payments are made from revenues that will
constitute Partnership Collateral. See "PROSPECTUS SUMMARY -- Structure of and
Collateral for the Securities."
The ownership structure of these projects is as follows:
(i) VULCAN PROJECT. Magma has a 99% ownership in VPC with the
Funding Corporation owning the remaining 1% interest. VPC owns a 50%
general partnership interest in Vulcan/BN Geothermal Power Company, a
Nevada general partnership ("Vulcan"), which is the owner of the Vulcan
Project. VPC, as of the Closing Date, will own BN Geothermal, which owns
the remaining 50% general partnership interest in Vulcan.
(ii) ELMORE PROJECT, LEATHERS PROJECT AND DEL RANCH PROJECT. CEOC
directly owns a 40% general partnership interest in each of Elmore, the
owner of the Elmore Project, Leathers, the owner of the Leathers Project
and Del Ranch, the owner of the Del Ranch Project. Magma owns a 10%
limited partnership interest in each of Elmore, Leathers and Del Ranch.
As of the Closing Date CEOC will own Niguel, San Felipe and Conejo, which
each own a 40% general partnership interest and a 10% limited partnership
interest in Elmore, Leathers and Del Ranch, respectively.
Recent Partnership Acquisition. On April 17, 1996, CalEnergy Imperial
Valley Company, Inc., a wholly-owned subsidiary of CalEnergy ("CE Imperial
Valley") acquired 100% of the capital stock of each of BNG, Niguel, San Felipe
and Conejo from Mission for an aggregate cash purchase price of $70,000,000.
At the time of such Partnership Acquisition, such acquired companies conducted
no business other than owning 40% general partnership interests and 10%
limited partnership interests (collectively, the "Mission Partnership Project
Interests") in each of Vulcan, Elmore, Leathers and Del Ranch, respectively.
On the Closing Date, CE Imperial Valley sold the stock of BNG to VPC and the
stock of Niguel, San Felipe and Conejo to CEOC for an aggregate consideration
of $70,000,000 payable in cash by VPC and CEOC. VPC and CEOC will use a
portion of the proceeds of the Offering to fund approximately $23,000,000 of
such acquisition price.
Project Structure. CEOC (or VPC, in the case of the Vulcan Project)
operates and maintains the Partnership Projects under operating and
maintenance agreements with the respective Partnership Project Companies, and
additionally provides day-to-day administrative, management and technical
services under administrative services agreements with the respective
Partnership Project Companies.
Vulcan owns the surface land on which the Vulcan Project is located.
Magma has granted to VPC the right to extract and utilize the resource for the
production of power by the Vulcan Project and VPC sells geothermal brine to
Vulcan for such power production purposes. With respect to the Leathers, Del
Ranch and Elmore Projects, Magma has granted to each such project the right
under resource easement agreements to extract and utilize the geothermal
resource for the production of power by their respective power projects, and
receives royalty payments from each such project. The Royalty payments to be
received by Magma have been
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assigned to the Royalty Guarantor. Such payments are payable from revenues that
will constitute Partnership Collateral. See "PROSPECTUS SUMMARY-- Structure of
and Collateral for the Securities."
VULCAN PROJECT
The Vulcan Project has been in service since 1986. The Vulcan Project
is nominally a 34 MW net output plant. SCE is required to purchase 29.5 MW of
capacity of, and the electricity delivered from, the Vulcan Project under a
30-year SO4 power purchase agreement (the "Vulcan PPA"). Under the Vulcan PPA,
SCE pays Vulcan a fixed price capacity payment, a capacity bonus payment and
an energy payment. The contract energy payment price increased each year of
the Fixed Price Period, which period expired on February 9, 1996. Since that
date, the energy payments have been based on SCE's Avoided Cost of Energy. The
energy payment price per kWh was 12.6 cents for 1996 (until February 9, 1996,
the date of termination of the Fixed Price Period). See "SUMMARY DESCRIPTION
OF PRINCIPAL PROJECT CONTRACTS--Partnership Project Contracts--Vulcan
Project--Vulcan PPA."
The plant availability and Contract Capacity Factors of the Vulcan
Project have been in excess of 91% and 104%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for such period have been 95% and 115%, respectively. In
1995, the Vulcan Project generated gross electricity revenues of $41.3
million. For additional information regarding the operating history of the
Vulcan Project, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
ELMORE PROJECT
The Elmore Project has been in service since 1989. The Elmore Project
is nominally a 38 MW net output plant. SCE is required to purchase 34 MW of
capacity of, and the electricity delivered from, the Elmore Project under a
30-year SO4 power purchase agreement (the "Elmore PPA"). Under the Elmore PPA,
SCE pays a fixed capacity payment, a capacity bonus payment and an energy
payment. The contract energy payment price increases each year of the Fixed
Price Period, which period expires on December 31, 1998. Thereafter, the
energy payments will be based on Avoided Cost of Energy. The energy payment
price per kWh is 12.6 cents for 1996, 13.6 cents for 1997 and 14.6 cents for
1998. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Partnership
Project Contracts--Elmore Project--Elmore PPA."
The plant availability and Contract Capacity Factors for the Elmore
Project have been in excess of 91% and 104%, respectively, for each of the
years 1991-1995. The average plant availability and the Contract Capacity
Factors for such period have been 96% and 112%, respectively. In 1995, the
Elmore Project generated gross revenues of $47.4 million. For additional
information regarding history of the Elmore Project, see "APPENDIX
B--INDEPENDENT ENGINEER'S REPORT."
LEATHERS PROJECT
The Leathers Project has been in service since 1990. The Leathers
Project is nominally a 38 MW net output plant. SCE is required to purchase 34
MW of capacity of, and the electricity delivered from, the Leathers Project
under a 30-year SO4 power purchase agreement (the "Leathers PPA"). Under the
Leathers PPA, SCE pays Leathers a fixed price capacity payment, a capacity
bonus payment and an energy payment. The contract energy payment price
increases each year of the Fixed Price Period, which period expires on
December 31, 1999. Thereafter, the energy payments will be based on SCE's
Avoided Cost of Energy. The energy payment price per kWh is 12.6 cents for
1996, 13.6 cents for 1997, 14.6 cents for 1998 and 15.7 cents for 1999. See
"SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Partnership Project
Contracts--Leathers Project--Leathers PPA."
The plant availability and Contract Capacity Factors of the Leathers
Project have been in excess of 94% and 108%, respectively, for each of the
operating years 1991-1995. The average plant availability and Contract
Capacity Factors for such period have been 97% and 115%, respectively. In 1995
the Leathers Project
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generated gross electricity revenues of $46.8 million. For additional
information regarding the operating history of the Leathers
Project, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
DEL RANCH PROJECT
The Del Ranch Project has been in service since 1989. The Del Ranch
Project is nominally a 38 MW net output plant. SCE is required to purchase 34
MW of capacity of, and the electricity generated by, the Del Ranch Project
under a 30-year SO4 power purchase agreement (the "Del Ranch PPA"). Under the
Del Ranch PPA, SCE pays Del Ranch a fixed price capacity payment, a capacity
bonus payment and an energy payment. The contract energy payment price
increases each year of the Fixed Price Period, which period expires on December
31, 1998. Thereafter, the energy payments will be based on SCE's Avoided Cost
of Energy. The energy payment price per kWh is 12.6 cents for 1996, 13.6 cents
for 1997 and 14.6 cents for 1998. See "SUMMARY DESCRIPTION OF PRINCIPAL
PROJECT CONTRACTS-- Partnership Project Contracts--Del Ranch Project--Del
Ranch PPA."
The plant availability and Contract Capacity Factors for the Del
Ranch Project have been in excess of 94% and 103%, respectively, for each of
the years 1991-1995. The average plant availability and the Contract Capacity
Factors for such period have been 96% and 112%, respectively. In 1995, the Del
Ranch Project generated gross electricity revenues of $46.4 million. For
additional information regarding the operating history of the Del Ranch
Project, see "APPENDIX B--INDEPENDENT ENGINEER'S REPORT."
ROYALTY PROJECTS
The Royalty Guarantor is a single purpose entity which was
established in connection with the Initial Offering to receive Royalties from
Magma. Magma owns 99% and the Funding Corporation owns 1% of the Royalty
Guarantor. Magma has assigned the Royalties it receives under the Leathers
Easement, the Del Ranch Easement, the Elmore Easement and the East Mesa
Assignment and Security Agreement (as modified by the East Mesa Master
Agreement) to the Royalty Guarantor. The East Mesa Junior Royalties payable to
the Royalty Guarantor (which are due but have not been paid to date), are
junior to the debt service of the East Mesa Project. The East Mesa Senior
Royalties payable to the Royalty Guarantor are senior to the debt service of
the East Mesa Project. The Royalties paid with respect to the Leathers
Easement, the Del Ranch Easement and the Elmore Easement are paid prior to the
operating and maintenance expenses of the respective Partnership Projects and
are payable from revenues which will constitute Partnership Collateral. See
"PROSPECTUS SUMMARY--Structure of and Collateral for the Securities."
Royalties paid with respect to the East Mesa Assignment and Security Agreement
are paid after the operating and maintenance expenses of the East Mesa
Project.
ROYALTIES OBTAINED FROM THE PARTNERSHIP PROJECTS
Pursuant to the Magma Assignment Agreement, the Royalty Guarantor
receives Royalties of an aggregate amount of 21.5% of the energy revenues of
Leathers and 23.333% of the energy revenues and 1% of the capacity revenues of
each of Del Ranch and Elmore. In addition, Magma receives a special
distribution of 4.5% of Leathers' energy revenues which it pays over to CEOC
pursuant to a data and services agreement with CEOC. Vulcan also receives
Royalties equal to 4.167% of the energy revenues of the Vulcan Project. CEOC
receives royalties on energy payments equal to 5.667%, 3.0%, and 5.667% for
Elmore, Leathers, and Del Ranch, respectively. CEOC also receives royalties
equal to 3% of capacity revenues for Elmore, Leathers, and Del Ranch. All of
the foregoing revenues and Royalties are paid from revenues that constitute
Partnership Collateral. See "--Partnership Projects," "SUMMARY DESCRIPTION OF
PRINCIPAL PROJECT CONTRACTS--Partnership Project Contracts--Royalty Project
Contracts--Partnership Royalty Contracts" and "PROSPECTUS SUMMARY--Structure
of and Collateral for the Securities."
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ROYALTIES OBTAINED FROM THE EAST MESA PROJECT
Pursuant to the Magma Assignment Agreement, the Royalty Guarantor
receives Royalties which Magma receives from East Mesa. East Mesa is a
California limited partnership owned by subsidiaries of Geothermal Resources
International, Inc. East Mesa owns and operates two geothermal power plants
(the "East Mesa Project") in East Mesa, Imperial Valley, California, with
total nominal net output of approximately 37 MW.
Under the East Mesa Assignment and Security Agreement, Magma has
leased land to East Mesa and assigned an SO4 Agreement (the "East Mesa PPA")
to East Mesa. SCE is required to purchase 25 MW of capacity of, and the
electricity delivered from, the East Mesa Project under the East
Mesa PPA which has a term of 30 years. Under the East Mesa PPA, SCE pays a
fixed capacity payment, a capacity bonus payment and an energy payment. The
contract energy payment price increases each year of the Fixed Price Period,
which expires on December 31, 1999. Thereafter, energy payments will be based
on Avoided Cost of Energy. The energy payment per kWh is 12.6 cents for 1996,
13.6 cents for 1997, 14.6 cents for 1998 and 15.7 cents for 1999.
Under the East Mesa Assignment and Security Agreement, as modified by
the East Mesa Master Agreement, Magma is entitled to 14% of East Mesa's
combined capacity and energy revenues. The royalties consist of "Senior
Royalties" (4% of combined capacity and energy revenue) and "Junior Royalties"
(10% of combined capacity and energy revenue). The Senior Royalties are paid
prior to East Mesa's debt service, but after operating expenses. The Junior
Royalties are paid after Senior Royalties and debt service. To date, no Junior
Royalties have been paid to Magma. In 1995, the royalties paid by East Mesa to
Magma amounted to $1.6 million. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT
CONTRACTS--Royalty Project Contracts--East Mesa Project Contracts."
BRPU AWARD
Pursuant to an order of the CPUC dated June 22, 1994 (confirmed on
December 21, 1994) (the "BRPU Award"), Magma was awarded 163 MW of power
production through a bidding process adopted by the CPUC under its 1992
Biennial Resource Plan Update ("BRPU"). According to the BRPU Award,
subsidiaries of Magma have the right to sell 69 MW to SCE and 94 MW to SDG&E,
with in-service dates in 1997 and 1998. The FERC has held that the BRPU Award
violates PURPA, and both SCE and SDG&E have to date challenged and may
continue to challenge the BRPU Award on both substantive and procedural
grounds. Accordingly, there can be no assurance that power purchase agreements
will be executed in respect of the BRPU Award or whether any of such projects
will be completed.
In light of the uncertainty concerning the BRPU Award, in March 1995,
Magma entered into a buyout and capacity option agreement with SCE regarding
the 69 MW of capacity awarded to Magma as a winning bidder in the BRPU
solicitation. The agreement (which is subject to CPUC approval) provides for
three lump sum termination payments by SCE in lieu of signing a power purchase
agreement 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 BRPU power purchase agreement.
The agreement also provides SCE with an option, which can be exercised at any
time prior to February 2, 2002 to negotiate with Magma a power purchase
agreement for 69 MW of geothermal capacity and energy on commercially
reasonable terms, without giving effect to the termination payments previously
paid.
INSURANCE
The Salton Sea Projects and the Partnership Projects are currently
insured under a corporate umbrella insurance program. The program consists of
$600 million for general property damage with broad form coverages. The
deductible is $25,000 per occurrence except for damage to a turbine generator
and machinery
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breakdown which is $500,000 per occurrence. Business interruption and
contingent business interruption coverages are included in the limits, subject
to a 25-day deductible. Catastrophic insurance (earthquake and flood) consists
of $200 million limits with a deductible that is the higher of: 5% of the loss
or $2.5 million per occurrence. General liability insurance consists of $51
million (occurrence based) with a broad based policy form and a deductible of
$20,000 per occurrence. Control of well insurance has a limit of $10 million
with a deductible of $25,000. The policies are issued by international and
domestic syndicates with each domestic company rated A minus or better by A.M.
Best Co. Inc.
Under the Salton Sea Credit Agreement and the Partnership Credit
Agreement, the Salton Sea Guarantors and the Partnership Guarantors are
obligated to maintain or cause to be maintained certain insurance with respect
to the Salton Sea Projects and the Partnership Projects, respectively. However
there can be no assurances that any specific insurance will continue to be
available in the future on commercially reasonable terms.
EMPLOYEES
Employees necessary for the operation of the Salton Sea Projects and
the Partnership Projects are provided by CEOC, under the operation and
maintenance agreements described below. As of March 31, 1996, CEOC employed
approximately 225 people at the Salton Sea Projects and the Partnership
Projects, collectively. CEOC employees are not covered by any collective
bargaining agreement. The Funding Corporation believes that CEOC's employee
relations are good. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT
CONTRACTS--Salton Sea Guarantor Project Contracts" and "--Partnership Project
Contracts."
CEOC maintains a qualified technical staff of approximately 45
people, covering a broad range of disciplines including geology, geophysics,
geochemistry, hydrology, volcanology, drilling technology, reservoir
engineering, plant engineering, construction management, maintenance services,
production management and electric power operation.
Administrative services for the Salton Sea Guarantors and the
Partnership Project Companies are provided pursuant to the administrative
services agreements described below. CalEnergy employees provide corporate
level managerial, financial, accounting, technical and other administrative
services and CEOC employees provide certain accounting, purchasing and payroll
services. See "SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS--Salton Sea
Guarantor Project Contracts" and "--Partnership Project Contracts."
LEGAL PROCEEDINGS
Currently, the Projects are parties to various minor items of
litigation, none of which, if determined adversely, would have a material
adverse effect on such Projects. Set forth below are descriptions of one
settled action with a pending regulatory proceeding and one pending action in
which the Partnership Project Companies are plaintiffs.
In May 1996, the Partnership Project Companies settled a lawsuit
against SCE relating to the rates to be paid under the SO4 Agreements for
deliveries over nameplate (Vulcan BN Geothermal Power Co., et al. v. Southern
California Edison Co. in the Superior Court for Los Angeles County,
California) (the "SCE Litigation"). Pursuant to the settlement, which is
subject to a confidentiality agreement, SCE paid the Partnership Project
Companies approximately $10 million in respect of claims for energy
underpayments for the period prior to January 1, 1996 and, subject to
obtaining CPUC approval, which the parties have agreed to jointly seek, SCE
has agreed to increase payments under the four Power Purchase Agreements to
which the Partnership Project Companies are parties for specified deliveries
above nameplate for each of the Partnership Projects from January 1, 1996
through the remainder of their respective 10-year initial fixed price periods
under the SO4 Agreements.
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In addition, the Partnership Project Companies are part of a larger
group of plaintiffs in a lawsuit against Irby Construction Co., Burns and
McDonnell Engineering and Hyundai Corporation (Red Hill Geothermal Inc. v.
Irby Constr., et al. in the Superior Court for Imperial County, California)
claiming damages relating to the transmission line that was constructed to
interconnect the Partnership Projects with SCE that occurred and which were
either rebuilt or repaired in 1992. The Partnership Projects' share of such
damage claim is currently approximately $17 million in property damage and
other historical repair costs and approximately $17 million for lost
historical profits. The case is still in the discovery phase and a trial date
has been scheduled for September, 1996. The Partnership Projects intend to
vigorously pursue this litigation.
REGULATORY AND ENVIRONMENTAL MATTERS
Permits and Approvals. Each of the Projects are subject to
environmental laws and regulations at the federal, state and local levels in
connection with the development, ownership and operation of the Projects.
These environmental laws and regulations generally require that a wide variety
of permits and other approvals be obtained for the construction and operation
of an energy-producing facility and that the facility then operate in
compliance with such permits and approvals. Failure to operate the facility in
compliance with applicable laws, permits and approvals could result in the
levy of fines or curtailment of Project operations by regulatory agencies.
The Funding Corporation believes that each of the Salton Sea
Guarantors and the Partnership Project Companies are in compliance in all
material respects with all applicable environmental regulatory requirements
and that maintaining compliance with current governmental requirements will
not require a material increase in capital expenditures or materially affect
any of such entity's financial condition or results of operations. It is
possible, however, that future developments, such as more stringent
requirements of environmental laws and enforcement policies thereunder, could
affect the costs of and the manner in which the Salton Sea Guarantors and the
Partnership Project Companies conduct their business.
Federal Energy Regulations/PURPA. Each of the Salton Sea Projects and
the Partnership Projects meets the requirements promulgated under PURPA to be
Qualifying Facilities. Qualifying Facility status under PURPA provides two
primary benefits. First, regulations under PURPA exempt Qualifying Facilities
from the Public Utility Holding Company Act of 1935 ("PUHCA"), most provisions
of the Federal Power Act (the "FPA") and state laws concerning rates of
electric utilities, and financial and organizational regulation of electrical
utilities. Second, regulations promulgated under PURPA require that electric
utilities purchase electricity generated by Qualifying Facilities,
construction of which commenced on or after November 9, 1978, at a price based
on the purchasing utility's avoided cost.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the current executive officers of the Funding
Corporation and the Guarantors and their positions with the Funding
Corporation and each of the Guarantors (or general partner thereof):
<TABLE>
<CAPTION>
EXECUTIVE OFFICER POSITION
- ----------------- --------
<S> <C>
David L. Sokol Director, Chairman of the Board and Chief Executive Officer
Thomas R. Mason Director, President and Chief Operating Officer
Gregory E. Abel Senior Vice President, Controller and Chief Accounting Officer
Edward F. Bazemore Vice President, Human Resources
Vincent R. Fesmire Vice President, Construction
Frederick L. Manuel Vice President, U.S. Operations
Steven A. McArthur Director, Senior Vice President, General Counsel and Secretary
Dale R. Schuster Vice President, Administration
John G. Sylvia Director, Senior Vice President, Chief Financial Officer and Treasurer
Jonathan M. Weisgall Vice President, Legislative & Regulatory Affairs
</TABLE>
DAVID L. SOKOL, 39. Mr. Sokol has been a director of CalEnergy since
March 1991 and is currently the Chairman and Chief Executive Officer of
CalEnergy, the Funding Corporation and each Guarantor (or general partner
thereof). Mr. Sokol also held the title of President of CalEnergy from April 19,
1993 until January 21, 1995. Mr. Sokol was Chairman, President and Chief
Executive Officer of CalEnergy from February 1991 until January 1992. Mr. Sokol
was the President and Chief Operating Officer of, and a director of, JWP, Inc.,
from January 27, 1992 to October 1, 1992. From November 1990 until February
1991, Mr. Sokol was the President and Chief Executive Officer of Kiewit Energy.
From 1983 to November 1990, Mr. Sokol was the President and Chief Executive
Officer of Ogden Projects, Inc.
THOMAS R. MASON, 52, President and Chief Operating Officer of
CalEnergy, the Funding Corporation and each Guarantor (or general partner
thereof). Mr. Mason joined CalEnergy in March 1991. From October 1989 to March
1991, Mr. Mason was Vice President and General Manager of Kiewit Energy Company.
Prior to that Mr. Mason was Director of Marketing for Energy Factors, Inc. (now
Sithe Energies U.S.A., Inc.), a non-utility developer of power facilities. Prior
to that Mr. Mason was a worldwide Market Manager of power generation for Solar
Gas Turbines, a gas turbine manufacturer.
GREGORY E. ABEL, 34, Senior Vice President, Controller and Chief
Accounting Officer of CalEnergy, the Funding Corporation and each Guarantor (or
general partner thereof). Mr. Abel joined CalEnergy in 1992. Mr. Abel is a
Chartered Accountant and from 1984 to 1992 he was employed by Price Waterhouse.
As a Manager in the San Francisco office of Price Waterhouse, he was responsible
for clients in the energy industry.
EDWARD F. BAZEMORE, 59, Vice President, Human Resources of CalEnergy,
the Funding Corporation and each Guarantor (or general partner thereof). Mr.
Bazemore joined CalEnergy in July 1991. From 1989 to 1991, he was Vice
President, Human Resources, at Ogden Projects, Inc. in New Jersey. Prior to
that, Mr. Bazemore was Director of Human Resources for Ricoh Corporation, also
in New Jersey. Previously, he was Director of Industrial Relations for Scripto,
Inc. in Atlanta, Georgia.
VINCENT R. FESMIRE, 55, Vice President, Construction of CalEnergy, the
Funding Corporation and each Guarantor (or general partner thereof). Mr. Fesmire
joined CalEnergy in October 1993. In January 1995 Mr. Fesmire's responsibilities
were realigned to provide a concentrated focus on the critical domestic
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development projects that were in part obtained with the Magma Acquisition.
Prior to joining CalEnergy, Mr. Fesmire was employed for 19 years with Stone &
Webster, an engineering firm, serving in various management level capacities
with an expertise in geothermal design engineering.
FREDERICK L. MANUEL, 38, Vice President, U.S. Operations. Mr. Manuel
joined CalEnergy in November 1991. From November 1991 to February 1995, Mr.
Manuel Held the positions of Manager of Operations, Acting General Manager and
General Manager at the Coso geothermal project. In February 1995, Mr. Manuel
was named Vice President and General Manager of CalEnergy's newly acquired
Salton Sea Projects and Partnership Projects and in July 1995 was named Vice
President, U.S. Operations. Prior to joining CalEnergy Mr. Manuel held various
engineering positions at Chevron Corporation.
STEVEN A. McARTHUR, 38, Senior Vice President, General Counsel and
Secretary of CalEnergy, the Funding Corporation and each Guarantor (or general
partner thereof). Mr. McArthur joined CalEnergy in February 1991. From 1988 to
1991 he was an attorney in the Corporate Finance Group at Shearman & Sterling
in San Francisco. From 1984 to 1988 he was an attorney in the Corporate
Finance Group at Winthrop, Stimson, Putnam & Roberts in New York.
DALE R. SCHUSTER, 44, Vice President, Administration of CalEnergy,
the Funding Corporation and each Guarantor (or general partner thereof). Mr.
Schuster joined CalEnergy in July 1994. From 1991 until joining CalEnergy he
was Senior Vice President and General Manager of AutoInfo, Inc., a software
development and information systems company, and prior to that, Vice President
and General Manager of ValCom, Inc.
JOHN G. SYLVIA, 38, Senior Vice President, Chief Financial Officer and
Treasurer of CalEnergy, the Funding Corporation and each Guarantor (or general
partner thereof). Mr. Sylvia joined CalEnergy in 1988. From 1985 to 1988, Mr.
Sylvia was a Vice President in the San Francisco office of the Royal Bank of
Canada, with responsibility for corporate and capital markets banking. From
1986 to 1990, Mr. Sylvia served as an Adjunct Professor of Applied Economics at
the University of San Francisco. From 1982 to 1985, Mr. Sylvia was a Vice
President with Bank of America.
JONATHAN M. WEISGALL, 47, Vice President, Legislative and Regulatory
Affairs of CalEnergy, the Funding Corporation and each Guarantor (or general
partner thereof). Mr. Weisgall joined CalEnergy in May, 1995 and is an
attorney in private practice with extensive energy and regulatory experience
and is Adjunct Professor of Energy Law at Georgetown University Law Center.
EXECUTIVE COMPENSATION
Individuals who were serving as executive officers of the Funding
Corporation as of the last day of 1995 were compensated by CalEnergy. The
Funding Corporation's and the Guarantors' executive officers will not receive
any additional remuneration for serving as executive officers of the Funding
Corporation and the Guarantors.
OWNERSHIP
DESCRIPTION OF CAPITAL STOCK
As of March 31, 1996, the authorized capital stock of the Funding
Corporation consisted of 1,000 shares of common stock, par value $.01 per
share (the "Common Stock"), of which 100 shares were outstanding. There is no
public trading market for the Common Stock. As of March 31, 1996, there was
one holder of record of the Common Stock. Holders of Common Stock are entitled
to one vote per share on any matter coming before the stockholders for a vote.
The Indenture contains certain restrictions on the payment of dividends with
respect to the Common Stock.
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PRINCIPAL HOLDERS
Since the formation of the Funding Corporation in June 1995, all of
the outstanding shares of Common Stock have been owned by Magma. Magma directly
or indirectly owns all of the capital stock of or partnership interests in the
Funding Corporation and the Guarantors. CalEnergy owns all of the capital
stock of Magma. CalEnergy's common stock is publicly traded on the New York,
Pacific and London Stock Exchanges, and approximately 34% of the common stock
is beneficially owned, on a fully-diluted basis through indirect subsidiaries,
by Kiewit.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
The Salton Sea Projects' and the Partnership Projects' geothermal
power plants are wholly-owned, administered and operated by Magma or
Subsidiaries of Magma. Geothermal fluid supplying these facilities is provided
from Magma's (or a subsidiary's) geothermal resource holdings in the SSKGRA.
In so providing rights to geothermal resources and/or geothermal
fluids for purposes of power production, administering and operating the
geothermal power plants, and disposing of solids from these facilities, Magma
(directly and through subsidiaries) receives certain royalties, cost
reimbursements and fees for its services and the rights it provides. See the
financial statements attached hereto.
The Funding Corporation believes that the transactions with related
parties described above, taking into consideration all of the respective terms
and conditions of each of the relevant contracts and agreements, are at least
as favorable to the Guarantors as those which could have been obtained from
unrelated parties in arms length negotiations. See "SUMMARY DESCRIPTION OF
PRINCIPAL PROJECT CONTRACTS."
RELATIONSHIP OF THE FUNDING CORPORATION AND THE GUARANTORS TO MAGMA AND
CALENERGY
The Funding Corporation is a wholly owned direct subsidiary of Magma
organized for the sole purpose of acting as issuer of Securities. The Funding
Corporation is restricted, pursuant to the terms of the Indenture, to acting
as issuer of Securities and other indebtedness as permitted under the
Indenture, making loans to the Guarantors pursuant to the Credit Agreements,
and transactions related thereto. The Funding Corporation and each of the
Guarantors (and, in the case of SSBP and SSPG, the general partners thereof)
have been organized and are operated as legal entities separate and apart from
CalEnergy, Magma and any other Affiliates of CalEnergy or Magma, and,
accordingly, the assets of the Funding Corporation and the Guarantors (and, in
the case of SSBP and SSPG, the general partners thereof) will not be generally
available to satisfy the obligations of CalEnergy, Magma or any other
Affiliates of CalEnergy or Magma; provided, however, that unrestricted cash of
the Funding Corporation and the Guarantors or other assets which are available
for distribution may, subject to applicable law and the terms of financing
arrangements of such parties, be advanced, loaned, paid as dividends or
otherwise distributed or contributed to CalEnergy, Magma or Affiliates
thereof. The Securities are non-recourse to CalEnergy or Magma. See "SUMMARY
DESCRIPTION OF THE SERIES D AND SERIES E SECURITIES--Nature of Recourse on the
Securities."
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SUMMARY DESCRIPTION OF PRINCIPAL PROJECT CONTRACTS
The following is a summary of selected provisions of certain
principal agreements related to the Projects and the business of the
Guarantors and is not considered to be a full statement of the terms of such
agreements. Accordingly, the following summaries are qualified by reference to
each agreement and are subject to the terms of the full text of each
agreement. Unless otherwise stated, any reference in this Prospectus to any
agreement shall mean such agreement and all schedules, exhibits and
attachments thereto as amended, supplemented or otherwise modified and in
effect as of the date hereof. Copies of all such agreements may be obtained
from the Funding Corporation (subject to certain confidentiality
restrictions).
STANDARD TERMS OF SO4 AGREEMENT
All of the power purchase agreements between the Project Companies
and SCE are SO4 Agreements, except the Salton Sea Unit I PPA and the Salton
Sea Unit IV PPA. Although such SO4 Agreements differ in certain respects from
the standard SO4 Agreement, many of the provisions in each Project Company's
power purchase agreement are the same as in the standard SO4 Agreement. Set
forth below is a summary of certain terms and provisions contained in each SO4
Agreement.
Term and Termination. Each of the Project Companies' SO4 Agreements
have contract terms of 30 years from the Firm Operation Date of such
agreements. Upon expiration of the contract term, the SO4 Agreement remains in
effect until either party terminates the agreement upon 90 days prior written
notice.
The Fixed Price Period is the first 10 years of the contract term.
The Avoided Cost of Energy Period begins upon expiration of the Fixed Price
Period and continues for the remainder of the contract term.
Construction, Design, Operation and Ownership of the Project. The SO4
Agreement sets forth terms for the construction, design, ownership, and
operation and maintenance of the relevant Project. In the SO4 Agreement, the
Project Company warrants that the Project will comply with applicable law and
meet the requirements of a Qualifying Facility as of the date of initial
delivery of energy and throughout the contract term. The Project Company
indemnifies SCE for any losses which SCE incurs due to the Project Company's
failure to maintain any necessary government approvals.
Power Purchase Provisions. The SO4 Agreement provides for (i)
capacity payments as described below and (ii) energy payments either at an
annually escalating rate or at a levelized rate for the Fixed Rate Period and
energy payments at SCE's Avoided Cost of Energy for the Avoided Cost of Energy
Period.
Capacity Payments. Under the SO4 Agreements, a Project must qualify
for a fixed annual capacity payment (the "Firm Capacity Payment") by meeting
specified performance requirements on a monthly basis during an approximately
four month on-peak period, during the months of June through September of each
year. The Project must deliver an average kWh output during specified on-peak
hours of each month in the on-peak period at a rate corresponding to at least
an 80% Contract Capacity Factor (the "Performance Requirement"). The "Contract
Capacity Factor" equals (i) a plant's actual electricity output, divided by
(ii) the product of the Project's "Contract Capacity," and the number of hours
in the measurement period (less applicable maintenance and curtailment hours).
If a Project maintains the required 80% Contract Capacity Factor during the
applicable reference period, then SCE must pay a Firm Capacity Payment equal
to the product of the Contract Capacity Price set forth in the agreement and
the Project's Contract Capacity. The Firm Capacity Payment is paid in monthly
installments, and the monthly installment of the Firm Capacity Payment may be
reduced if the relevant Project has a Contract Capacity Factor of less than
80% for such month. Capacity payments are weighted toward the on-peak months.
The Project Company is required to annually demonstrate its ability
to provide the specified Contract Capacity by satisfying the Performance
Requirement. If the Project Company does not satisfy the Performance
Requirement, it may be placed on probation for up to 15 months, and, if the
Project Company cannot satisfy the
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Performance Requirement during the probationary period, the Contract Capacity
will be reduced to a capacity equal to the greater of (i) what has been
delivered during the probationary period or (ii) what can reasonably be
delivered by the Project Company. Additionally, failure to satisfy the
Performance Requirement will subject the Project Company to the penalties
described below. However, if the Project Company's failure to meet the
Performance Requirement is due to a forced outage or a request by SCE to
reduce delivery, SCE must continue to pay the full Firm Capacity Payment. If
the Project Company is unable to provide Contract Capacity due to
Uncontrollable Forces, SCE must continue to pay the full Firm Capacity
Payments for 90 days from the occurrence of the Uncontrollable Force.
Capacity Bonus Payments. Under the SO4 Agreements, the Project
Companies are entitled to receive capacity bonus payments in an on-peak month
if the relevant Project operates at least at an 85% Contract Capacity Factor
during the on-peak hours of such on-peak month, and qualifies in respect of
non-peak months if the Contract Capacity Factors for all on-peak months have
been at least 85% and the Project operates at a Contract Capacity Factor of at
least 85% during on-peak hours of the relevant non-peak month.
Capacity bonus payments for each month increase with the level of
kWhs delivered between the 85% and 100% Contract Capacity Factor levels during
the month. The capacity bonus payment for each month is equal to a percentage
of the Firm Capacity Payment based on the Project's on-peak Contract Capacity
Factor (which percentage may not exceed 18% of one-twelfth of the Firm
Capacity Payment).
Changes in Contract Capacity. The Project Company may reduce Contract
Capacity if the Project Company gives SCE specified notice. The Project
Company must refund SCE an amount of money equal to the difference between the
accumulated monthly capacity payments paid by SCE prior to the receipt of the
reduction notice and the total monthly capacity payments SCE would have paid
based on the Adjusted Capacity Price, as well as interest at the prime rate on
such amount. If the Project Company fails to give notice, it can reduce
Contract Capacity, as long as the Project Company refunds said amount plus a
penalty equal to the product of (i) the Contract Capacity being reduced, (ii)
the difference between the Contract Capacity Price and the Adjusted Capacity
Price and (iii) the number of years and fractions thereof (not less than one
year) by which the Project Company has been deficient in giving prescribed
notice, but if the Adjusted Capacity Price is less than the Contract Capacity
Price, then no such penalty is due.
Energy Payments. In addition to capacity payments, each SO4 Agreement
provides that SCE must make monthly energy payments based on the number of kWh
of energy delivered by the relevant plant in such month.
Energy payments are weighted toward on-peak months and on-peak hours.
Annual Forecast Energy Payments. Under the East Mesa, Vulcan,
Leathers, Del Ranch and Elmore SO4 Agreements (the "Annual Forecast Energy
Payment SO4 Agreements"), during the Fixed Price Period, the Project Company
is paid a monthly energy payment (the "Annual Forecast Energy Payment") based
on the Forecast of Annual Marginal Cost of Energy Schedule as follows:
YEAR PRICE PER KWH
---- -------------
1996 12.6(cent)
1997 13.6(cent)
1998 14.6(cent)
1999 15.7(cent)
Levelized Energy Payments. Under the Salton Sea Unit II and Salton
Sea Unit III SO4 Agreements (the "Levelized Energy Payment SO4 Agreements"),
during the Fixed Price Period, the energy payments (the "Levelized Energy
Payments") are levelized to yield a time weighted average of 10.6 cents per
kWh for Salton Sea Unit II and 9.8 cents per kWh for Salton Sea Unit III.
During later years in the Fixed Price Period, when the Forecast of Annual
Marginal Cost of Energy price is greater than the Levelized Energy Payment
price, the relevant Project must deliver to SCE at least 70% of the average
annual kWh delivered to SCE during periods when the Levelized Energy Payment
Price was greater than the energy price in the Forecast of the Annual
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Marginal Cost of Energy Schedule. If the Project fails to satisfy this
performance obligation or fails to perform any other contract obligations
during the Fixed Price Period, and, at such time, the net present value of the
cumulative energy payments received exceeds the net present value of what the
Project Company would have been paid under the Annual Forecast Energy Payment
SO4 Agreements, the Project Company must refund the difference. The Project
Company must post a performance bond, guarantee, letter of credit or other
security to insure payment to SCE of any such refund. If the Project Company
fails to post such security or SCE deems the security inadequate, the Project
Company will be required to refund any difference immediately and accept
payment under the Forecast of Annual Marginal Cost of Energy Schedule until
the security is reinstated.
Avoided Cost of Energy Payments. During the Avoided Cost of Energy
Period, all of the Project Companies are paid a monthly energy payment at a
rate which equals SCE's Avoided Cost of Energy. SCE's Avoided Cost of Energy
is the product of SCE's incremental energy rate ("IER") (system efficiency)
and its avoided fuel rate, plus various additions that have been adopted by
the CPUC. The IER and the additions are determined yearly in SCE's energy cost
adjustment clause proceeding before the CPUC. SCE's avoided fuel and the
corresponding fuel rate are determined monthly by the CPUC. For most months,
SCE's avoided fuel has historically been gas, although in some winter months
the avoided fuel has been oil. When the avoided fuel is oil, SCE's fuel rate
is based on the actual average cost of the most recent period's oil purchase.
Consequently, during the Avoided Cost of Energy Period, energy payments under
the SO4 Agreements will fluctuate based on average fuel costs in the
California energy market.
The time period weighted average of SCE's Avoided Cost of Energy was
2.3 cents per kWh for the first quarter of 1996. In April 1995, SCE forecast
its future Avoided Cost of Energy as follows:
YEAR LOW MEDIAN HIGH
---- --- ------ ----
1995 2.41 2.41 2.41
1996 2.48 2.51 2.54
1997 2.55 2.60 2.68
1998 2.72 2.83 2.97
1999 2.91 2.99 3.28
2000 3.11 3.22 3.60
2001 3.30 3.46 3.91
2002 3.42 3.59 4.13
2003 3.52 3.72 4.36
2004 3.62 3.88 4.61
2005 3.72 4.11 4.86
2006 3.83 4.31 5.16
2007 3.95 4.44 5.48
2008 4.06 4.59 5.82
2009 4.18 4.74 6.19
2010 4.31 4.89 6.59
2011 4.43 5.06 7.07
2012 4.57 5.22 7.60
2013 4.70 5.40 8.16
2014 4.84 5.58 8.76
2015 4.99 5.76 9.41
Neither the Funding Corporation nor any Guarantor has prepared or
relied upon such forecast. The Funding Corporation and the Guarantors believe
that all forecasts of Avoided Cost of Energy are speculative in nature and
that there can be no assurance that SCE's actual future Avoided Cost of Energy
will be equal to any of the above forecasts. SCE's actual Avoided Cost of
Energy will be dependent upon, among other factors, SCE's future fuel costs,
system operation characteristics and regulatory action.
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Curtailment. SCE is not required to accept or purchase energy
generated by the Project, and may request the Project Company to discontinue
or reduce delivery of energy, for not more than 300 hours per year during
off-peak hours if either the purchase (i) would cost more than the costs SCE
would incur if it utilized energy from another source or (ii) would cause SCE
hydro-energy to be spilled under certain CPUC mandated conditions.
Abandonment of Project. The Project Company is deemed to have
abandoned the Project if it discontinues operation of the Project with the
intent to discontinue operation permanently. Such intent is conclusively
presumed if either the Project Company gives notice to SCE of such intent or
the Project Company operates the plant such that no energy is generated
therefrom for 200 consecutive days. However, if the Project is prevented from
generating energy due to an Uncontrollable Force, then such period is extended
for the duration of the Uncontrollable Force, not to exceed one year. If the
Project Company abandons the Project, SCE or any entity designated by SCE has
a right of first refusal to purchase the Project.
Insurance. The Project Company must obtain and maintain comprehensive
general liability insurance. If the Project Company fails to maintain such
insurance, it must indemnify SCE for any liabilities which would have been
covered by the insurance.
Uncontrollable Force. Each party is relieved from its obligations
under the SO4 Agreement, other than payment obligations, when and to the
extent that the failure of performance is caused by an Uncontrollable Force;
provided that the nonperforming party, within 2 weeks after the occurrence of
an Uncontrollable Force, gives the other party written notice describing the
particulars of the occurrence, and the nonperforming party uses its best
efforts to remedy its inability to perform.
Indemnification. Each party to the SO4 Agreement has indemnified the
other party for liability for property damage or personal injury arising out
of the indemnifying parties' operation, use or ownership of its facilities,
other than for liability resulting from the indemnified parties' sole
negligence or willful misconduct.
TRANSMISSION SERVICE AGREEMENTS
Salton Sea Unit I delivers electricity to SCE at the Salton Sea Unit
I site. Each of the other Salton Sea Projects and Partnership Projects
delivers electricity to SCE on transmission lines owned by IID. These
transmission lines interconnect the operating plants with SCE's transmission
system. Transmission service charges are paid monthly to IID pursuant to
Transmission Service Agreements, each of which has a termination date which
extends beyond the Final Maturity Date. Each Project which delivers
electricity on the IID transmission lines has a remaining credit against the
payment of its transmission service charge as consideration for its
contribution towards the construction of IID's transmission facilities.
SALTON SEA GUARANTOR PROJECT CONTRACTS
SALTON SEA UNIT I
SALTON SEA UNIT I PPA
Salton Sea Unit I sells electricity to SCE pursuant to a negotiated
power purchase agreement, dated May 8, 1987, between SCE and SSPG.
The Salton Sea Unit I PPA is not an SO4 Agreement, although as
described below it contains many of the provisions customarily found in an SO4
Agreement. See "--Standard Terms of SO4 Agreement" above. Certain specific
terms of the Salton Sea Unit I PPA and the primary differences between the
Salton Sea Unit I PPA and the terms of the standard SO4 Agreement are
described below.
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Terms. The contract term of the Salton Sea Unit I PPA is 30 years
from the Firm Operation Date of July 1, 1987. The Contract Capacity is 10 MW.
The Salton Sea Unit I PPA originally provided for the option to increase
contract capacity up to an additional 20 MW. However, this additional capacity
has effectively been transferred to the Salton Sea Unit IV PPA.
Capacity Payments. The Salton Sea Unit I PPA capacity payment is
based on a firm capacity price which adjusts quarterly based on various
inflation-related indices for the term of the agreement. Salton Sea Unit I
earns its minimum monthly contract capacity payment in each month of the year
if it is able to deliver 100% of the Contract Capacity set forth in the
agreement. If Salton Sea Unit I meets this performance requirement, Salton Sea
Unit I receives a monthly performance payment based on the agreement's then
current firm capacity price multiplied by the Contract Capacity and the energy
delivered from the Salton Sea Unit I Project up to the Contract Capacity.
Based on the current capacity price of $127.80 per kW-year, the annual maximum
capacity payment is $1,278,000. The Salton Sea Unit I PPA does not provide for
bonus capacity payments.
If Salton Sea Unit I does not meet the Salton Sea Unit I performance
requirement, SCE may, in its sole discretion, place the plant on probation for
a period not to exceed 15 months. If the Salton Sea Unit I performance
requirement is not met during the probationary period, SCE may derate the
Contract Capacity of the plant.
Energy Payments. Salton Sea Unit I receives a monthly energy payment
calculated using a Base Price (defined as the initial value of the energy
payment (4.056 cents per kWh)), which is subject to quarterly adjustments
based on various inflation-related indices. The time period weighted average
energy payment for Salton Sea Unit I was 5.4 cents per kWh in the first
quarter of 1996. The energy payments under the Salton Sea Unit I PPA never
revert to SCE's Avoided Cost of Energy.
SALTON SEA UNIT I GEOTHERMAL SALES CONTRACT
SSBP and SSPG are currently parties to a Geothermal Sales Contract,
dated as of September 6, 1988 (the "Salton Sea Units I and II Geothermal Sales
Contract"), which requires SSBP to supply geothermal energy to SSPG for Salton
Sea Unit I. The agreement has a term of 30 years, commencing on July 1, 1987.
SALTON SEA UNIT I GROUND LEASE
SSBP and SSPG entered into a Ground Lease with IID, dated as of
November 24, 1993 (the "Salton Sea Units I and II Ground Lease"). Pursuant to
the Salton Sea Units I and II Ground Lease, IID leases the real property on
which Salton Sea Units I and II are located, consisting of approximately 117
acres, to SSBP and SSPG for a period of 33 years. The Salton Sea Units I and
II Ground Lease is triple net with original base rental payments of $400 per
acre per annum. Every 5 years this per acre price may be adjusted based on
changes in the Consumer Price Index as specified in the lease.
The Salton Sea Units I and II Ground Lease permits improvements and
construction to increase capacity. The rights of SSBP and SSPG under the lease
are junior and subordinate to (i) the rights of Magma Land under the Amended
and Restated Geothermal Lease and Agreement dated as of November 24, 1993
between IID and Magma Land and (ii) the right, title and interest of Magma
Land and SSBP under the Salton Sea Resource Easement.
Defaults and Remedies. The following constitute material defaults
under the Salton Sea Units I and II Ground Lease: (i) failure to pay rent when
due where such failure continues for 30 business days after written notice;
(ii) failure to observe or perform any material covenants under the lease
where such failure continues for 60 days after written notice; and (iii)
either of SSBP or SSPG is adjudged bankrupt or insolvent, files a petition for
bankruptcy, discontinues business, makes a general arrangement for the benefit
of creditors or has substantially all of its assets attached for greater than
60 days. Upon the occurrence of any of the above, IID may terminate SSBP's and
SSPG's right to possession of the premises and the Salton Sea Units I and II
Ground
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Lease shall be terminated. IID is entitled to recover various damages
enumerated in the Salton Sea Units I and II Ground Lease in the event of early
termination of the lease.
SALTON SEA RESOURCE EASEMENT
SSBP and Magma Land entered into an Amended and Restated Easement
Grant Deed and Agreement Regarding Rights for Geothermal Development dated as
of February 23, 1994, and further amended as of July 21, 1995 (the "Salton Sea
Resource Easement"), pursuant to which Magma Land grants to SSBP a
first-priority, non-exclusive right to extract and utilize for power
production purposes the geothermal resource underlying specific properties in
the SSKGRA. These resources supply all of the geothermal energy requirements
that are used by Salton Sea Units I, II, III and IV. In the easement, Magma
Land has reserved the right to use any excess or unused geothermal resources,
including brine minerals.
Term. The Salton Sea Resource Easement became effective on February
23, 1994 and expires on November 24, 2026.
Obligations. SSBP must reimburse Magma Land for amounts Magma Land is
obligated to pay to those landowners who own the underlying rights to the
geothermal resources under various geothermal lease agreements. SSBP is
obligated to pay all costs and expenses associated with the maintenance,
repair and operation of the geothermal brine facilities. SSBP is required to
comply with all laws, pay utilities and all real and personal property taxes
and maintain insurance.
Termination. Magma Land may terminate the Salton Sea Resource
Easement if (i) SSBP fails to make a payment when due and fails to cure the
default within 5 days of receiving notice of such default or (ii) SSBP fails
to perform or observe any other material covenant under the Salton Sea
Resource Easement and such failure continues unremedied for a period of 30
days after notice thereof is given by Magma Land.
SALTON SEA O&M AGREEMENT
The Salton Sea Guarantors and CEOC entered into a Second Amended and
Restated Operating and Maintenance Agreement, dated as of July 15, 1995 (the
"Salton Sea O&M Agreement"), under which CEOC is responsible for the
day-to-day operations and maintenance of the Salton Sea Projects.
Term. The term of the Salton Sea O&M Agreement became effective on
July 15, 1995, and expires on July 15, 2028.
Obligations of CEOC. CEOC has agreed to provide and employ qualified
plant management personnel for the operation, maintenance and repair of the
Salton Sea Projects, and personnel for general administrative functions. CEOC
is authorized to collect revenues on behalf of the Salton Sea Guarantors and
make payments as specified in the Salton Sea O&M Agreement.
Reimbursement. The Salton Sea Guarantors pay CEOC for all actual
costs and expenses incurred by CEOC under the Salton Sea O&M Agreement. Actual
costs and expenses include, without limitation, (i) the actual costs to CEOC
of goods and materials, (ii) the cost to CEOC of providing labor or services
to the Salton Sea Projects which shall be computed as the total costs incurred
by CEOC in providing labor or services to the Projects apportioned, pro rata,
based on the number of MWs the Salton Sea Projects generate compared to the
total MWs of all Projects serviced by CEOC, (iii) the portion of the cost of
invested capital incurred by CEOC for the purchase of machinery and equipment
used in connection with services fairly allocable to the Salton Sea Projects
and (iv) the actual cost to CEOC of retaining subcontractors.
Indemnification. The Salton Sea Guarantors agree to defend, indemnify
and hold CEOC harmless against any and all liabilities, claims, damages,
losses and expenses arising out of the course of performance of the Salton Sea
O&M Agreement by CEOC.
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Force Majeure. Neither the Salton Sea Guarantors nor CEOC are liable
for any failure or inability to perform (other than to make payments due)
under the Salton Sea O&M Agreement due to the occurrence of an event of force
majeure. Events of force majeure are defined in the Salton Sea O&M Agreement
in a manner usual and customary for agreements of this type.
Termination. The Salton Sea O&M Agreement may be terminated (i) in
the event of a material default by either party that is not cured within 30
days after notice is given, or (ii) if the Salton Sea Guarantors are adjudged
bankrupt or insolvent, file a petition for bankruptcy or discontinue business.
Should any event of force majeure remain in existence for a period of 6
months, the agreement may be terminated upon the giving of written notice;
provided, however, that such 6-month period shall be extended for a reasonable
time so long as the party claiming suspension of the agreement has diligently
proceeded to terminate the event of force majeure and continues to do so
throughout such extension.
SALTON SEA ADMINISTRATIVE SERVICES AGREEMENT
The Salton Sea Guarantors and Magma entered into a Second Amended and
Restated Administrative Services Agreement, dated as of July 15, 1995 (the
"Salton Sea ASA"), whereby Magma agrees to provide administrative, management
and technical services with respect to the Salton Sea Projects.
Term. The term of the agreement is 33 years from July 15, 1995.
Obligations. Magma agrees to provide day-to-day administrative and
management services, including general bookkeeping and personnel
administration, and technical services such as structural engineering.
Disclaimer of Liability; Indemnity. Magma agrees to use its good
faith efforts to provide the services described in the agreement, but Magma
will not be liable to the Salton Sea Guarantors for damages arising out of the
performance of ordinary and extraordinary services or for consequential
damages under any circumstance. The Salton Sea Guarantors agree to defend,
indemnify and hold Magma harmless against any and all liabilities, arising out
of the course of performance of the agreement by Magma.
TECHNOLOGY TRANSFER AGREEMENT
SSBP and SSPG entered into a 33-year Technology Transfer Agreement,
dated as of March 31, 1993 (the "Salton Sea Technology Transfer Agreement")
with Magma pursuant to which Magma grants to the Salton Sea Guarantors the
right to use Magma's proprietary and non-proprietary technology, leases and
patents for the Salton Sea Projects. Magma has granted these rights to SSBP
and SSPG at no cost. The agreement also allows SSBP and SSPG to benefit from
improvements and modifications to the technology for the life of the
agreement.
SALTON SEA UNIT II
SALTON SEA UNIT II PPA
Salton Sea Unit II sells electricity to SCE pursuant to a modified
SO4 Agreement dated April 16, 1985 between SCE and SSPG. The standard and
principal terms which are generally contained in an SO4 Agreement are
described in "--Standard Terms of SO4 Agreement" above. Certain specific terms
of the Salton Sea Unit II PPA and the primary differences between the Salton
Sea Unit II PPA and the terms of the standard SO4 Agreement are described
below.
Terms. The contract term of the Salton Sea Unit II PPA is for 30
years from the Firm Operation Date of April 5, 1990. The Contract Capacity is
15 MW.
Capacity Payments. Salton Sea Unit II has a Contract Capacity Price
of $187 per kW-year and, based on the Contract Capacity of 15 MW, the annual
maximum capacity payment is $2,805,000.
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Energy Payments. The Salton Sea Unit II PPA is a Levelized Energy
Payment SO4 Agreement. The Fixed Price Period for Salton Sea Unit II expires
on April 4, 2000. During the Fixed Price Period, the energy payment is a time
weighted average of 10.6 cents per kWh. After the Fixed Price Period, energy
payments will be based on SCE's Avoided Cost of Energy. For the period from
April 1, 1994 through March 31, 2004, SCE is entitled to receive, at no cost,
5% of all energy delivered in excess of Contract Capacity.
SALTON SEA UNIT II GEOTHERMAL SALES CONTRACT
The sale of geothermal resources to Salton Sea Unit II is governed by
the Salton Sea Units I and II Geothermal Sales Contract. See "--Salton Sea
Unit I."
SALTON SEA UNIT II GROUND LEASE
The lease of real property by Salton Sea Unit II is governed by the
Salton Sea Units I and II Ground Lease. See "--Salton Sea Unit I."
SALTON SEA UNIT II RESOURCE EASEMENT
The right to use geothermal resources with respect to Salton Sea Unit
II is governed by the Salton Sea Resource Easement. See "--Salton Sea Unit I."
SALTON SEA UNIT II O&M AGREEMENT
The operation and maintenance of Salton Sea Unit II is governed by
the Salton Sea O&M Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT II ASA
The provision of administrative services to Salton Sea Unit II is
governed by the Salton Sea ASA. See "--Salton Sea Unit I."
SALTON SEA UNIT II TECHNOLOGY TRANSFER AGREEMENT
The right to use Magma's proprietary and non-proprietary technology
in Salton Sea Unit II is governed by the Salton Sea Technology Transfer
Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT III
SALTON SEA UNIT III PPA
Salton Sea Unit III sells electricity to SCE pursuant to a modified
SO4 Agreement dated April 16, 1985 between SCE and SSPG. The standard and
principal terms which are generally contained in an SO4 Agreement are
described in "--Standard Terms of SO4 Agreement" above. Certain specific terms
of the Salton Sea Unit III PPA and the primary differences between the Salton
Sea Unit III PPA and the terms of the standard SO4 Agreement are described
below.
Term. The contract term of the Salton Sea Unit III PPA is for 30
years from the Firm Operation Date of February 14, 1989.
Capacity Payments. Salton Sea Unit III has a Contract Capacity Price
of $175 per kW-year and, based on the Contract Capacity of 47.5 MW, the annual
maximum capacity payment is $8,312,500.
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Energy Payments. The Salton Sea Unit III PPA is a Levelized Energy Payment SO4
Agreement. The Fixed Price Period for Salton Sea Unit III expires on February
13, 1999. During the Fixed Price Period, the energy payment is a time weighted
average of 9.8 cents per kWh. After the Fixed Price Period, energy payments
will be based on SCE's Avoided Cost of Energy.
SALTON SEA UNIT III GEOTHERMAL SALES CONTRACT
SSBP and SSPG are currently parties to a Geothermal Sales Contract,
dated as of June 1, 1989 (the "Salton Sea Unit III Geothermal Sales
Contract"), which requires SSBP to supply geothermal energy to SSPG for Salton
Sea Unit III. The terms of the Salton Sea Unit III Geothermal Sales Contract
are identical in all material respects to the Salton Sea Units I and II
Geothermal Sales Contract. See "--Salton Sea Unit I."
SALTON SEA UNIT III GROUND LEASE
SSBP and SSPG are currently parties to a Ground Lease with Magma
Land, dated as of March 31, 1993 pursuant to which Magma Land leases the real
property on which Salton Sea Units III and IV are located to SSBP and SSPG
(the "Salton Sea Unit III Ground Lease"). Many of the terms of the lease are
substantially similar to the Salton Sea Units I and II Ground Lease. See
"--Salton Sea Unit I."
SALTON SEA UNIT III RESOURCE EASEMENT
The right to use geothermal resources with respect to Salton Sea Unit
III is governed by the Salton Sea Resource Easement. See "--Salton Sea Unit
I."
SALTON SEA UNIT III O&M AGREEMENT
The operation and maintenance of Salton Sea Unit III is governed by
the Salton Sea O&M Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT III ASA
The provision of administrative services to Salton Sea Unit III is
governed by the Salton Sea ASA. See "--Salton Sea Unit I."
SALTON SEA UNIT III TECHNOLOGY TRANSFER AGREEMENT
The right to use Magma's proprietary and non-proprietary technology
in Salton Sea Unit III is governed by the Salton Sea Technology Transfer
Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT IV
SALTON SEA UNIT IV PPA
Salton Sea Unit IV will sell electricity to SCE pursuant to a
negotiated SO4 Agreement, dated November 29, 1994 between SCE and SSPG. Many
of the terms of the Salton Sea Unit IV PPA are similar to those terms
customarily found in an SO4 Agreement. See "--Standard Terms of SO4 Agreement"
above. Certain specific terms of the Salton Sea Unit IV PPA and the primary
differences between the Salton Sea Unit IV PPA and the terms of the standard
SO4 Agreement are described below.
Terms. The contract term of the Salton Sea Unit IV PPA is 30 years
from the Firm Operation Date. Firm Operation is required to occur prior to
June 12, 1998. The Contract Capacity is 34 MW.
Ownership, Design and Construction. In addition to the standard terms
of the SO4 Agreement, the Salton Sea Unit IV PPA requires Salton Sea Unit IV
to maintain site control and file progress reports.
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Capacity Payments. Salton Sea Unit IV shall be paid a monthly
capacity payment for satisfying certain performance requirements. From the
Firm Operation Date through June 30, 2017 (the original termination date of
the Salton Sea Unit I PPA), Salton Sea Unit IV shall be paid under the Salton
Sea Unit IV PPA $121.72/kW-year plus quarterly inflation-related adjustments
for 58.8% (or 20/34ths) of the Contract Capacity delivered by Salton Sea Unit
IV which capacity was originally attributable to the Salton Sea Unit I PPA.
After June 30, 2017, SCE will not be obligated to purchase the 58.8% of
capacity which was originally attributable to the Salton Sea Unit I PPA. From
the Firm Operation Date until the end of the contract term, Salton Sea Unit IV
shall be paid $158/kW-year for 41.2% (or 14/34ths) of the Contract Capacity
delivered by Salton Sea Unit IV. Based on the prices set forth above and the
Contract Capacity of 34 MW, the first year's annual maximum capacity payment,
will be approximately $4,646,690. Capacity bonus payments may be earned based
on the same criteria set forth in the "--Standard Terms of the SO4 Agreement"
described above. The capacity bonus payment is based on a formula set forth in
the Salton Sea Unit IV PPA.
Energy Payments. Salton Sea Unit IV shall be paid a monthly energy
payment equal to the sum of the on-peak, mid-peak, off-peak and super-off-peak
period energy payments. From the Firm Operation Date until June 30, 2017, the
energy payments for 55.6% (or 20/36ths) of the total energy delivered by
Salton Sea Unit IV (up to 110% of nameplate capacity) will be calculated based
on a base price of 4.701 cents per kWh, adjusted pursuant to various
inflation-related indices. From the Firm Operation Date until the end of the
contract term, the energy payments for 44.4% (or 16/36ths) of the total energy
delivered will be calculated according to a Fixed Price, based on an energy
payment schedule, for the first 10 years, SCE's Avoided Cost of Energy plus a
predetermined spread per kWh for years 11 through 15 and SCE's Avoided Cost of
Energy thereafter. After June 30, 2017, all energy payments will be calculated
as provided in the chart below; however, SCE will not be obliged to purchase
any energy attributable to the 55.6% of Salton Sea Unit IV's capacity derived
from the Salton Sea Unit I PPA. The Fixed Price per year for the first 10
years depends upon the year in which the Firm Operation Date occurs. Assuming
Salton Sea Unit IV enters Commercial Operation in 1996, the energy payments
for such 44% portion of the agreement and, after June 30, 2017, all energy
delivered under the agreement, will be as follows:
<TABLE>
<CAPTION>
YEARS 1-10 -- FIXED ENERGY PAYMENTS: YEARS 11-15 -- FIXED ENERGY PAYMENT PLUS AVOIDED COST OF ENERGY:
- ------------------------------------ ----------------------------------------------------------------
YEAR ENERGY PAYMENT ((CENT)/KWH) YEAR ENERGY PAYMENT ((CENT)/KWH)
---- --------------------------- ---- ---------------------------
<S> <C> <C> <C> <C>
1996 8.8 2006 3.5+Avoided Cost of Energy
1997 9.4 2007 2.9+Avoided Cost of Energy
1998 10.1 2008 2.2+Avoided Cost of Energy
1999 10.7 2009 1.2+Avoided Cost of Energy
2000 10.9 2010 1.0+Avoided Cost of Energy
2001 11.2
2002 11.7
2003 12.1 YEARS 16-30 -- ENERGY PAYMENTS AT AVOIDED COST OF ENERGY:
2004 12.2 ---------------------------------------------------------
2005 12.4 YEAR ENERGY PAYMENT
---- --------------
2011-2025 Avoided Cost of Energy
</TABLE>
SALTON SEA UNIT IV GEOTHERMAL SALES CONTRACT
SSBP, SSPG and Fish Lake are currently parties to the Salton Sea Unit
IV Geothermal Sales Contract, dated February 5, 1996 (the "Salton Sea Unit IV
Geothermal Sales Contract"), which requires SSBP to supply geothermal energy
to SSPG and Fish Lake for Salton Sea Unit IV. The terms of the Salton Sea Unit
IV Geothermal Sales Contract are identical in all material respects to the
Salton Sea Units I and II Geothermal Sales Contract. See "--Salton Sea Unit I."
SALTON SEA UNIT IV GROUND LEASE
The lease of real property by Salton Sea Unit IV is provided by the
Salton Sea Unit III Ground Lease. See "--Salton Sea Unit I" and "--Salton Sea
Unit III."
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SALTON SEA UNIT IV RESOURCE EASEMENT
The right to use geothermal resources with respect to Salton Sea Unit
IV is governed by the Salton Sea Resource Easement. See "--Salton Sea Unit I."
SALTON SEA UNIT IV O&M AGREEMENT
The operation and maintenance of Salton Sea Unit IV is governed by
the Salton Sea O&M Agreement. See "--Salton Sea Unit I."
SALTON SEA UNIT IV ASA
The provision of administrative services to Salton Sea Unit IV is
governed by the Salton Sea ASA. See "--Salton Sea Unit I."
SALTON SEA UNIT IV TECHNOLOGY TRANSFER AGREEMENT
The right to use Magma's proprietary and non-proprietary technology
in Salton Sea Unit IV is governed by the Salton Sea Unit IV Technology
Transfer Agreement dated as of February 15, 1996, among Magma, SSBP, SSPG and
Fish Lake the terms of which are substantially similar to the Salton Sea
Technology Transfer Agreement. See "--Salton Sea Unit I."
COST OVERRUN COMMITMENT
CalEnergy has entered into a Cost Overrun Commitment with the Salton
Sea Guarantors for the construction of the Salton Sea Expansion. Under the
Cost Overrun Commitment, CalEnergy has agreed, in the event the $135 million
engineering, procurement, construction and resource development budget for
Salton Sea Expansion is insufficient, that it will fund or cause its
subsidiaries or Affiliates to fund all construction costs in excess of such
amount required to be incurred to cause Substantial Completion of the Salton
Sea Expansion to occur by mid-year 1996 or, if not by that date, before
January 1, 1998. The Cost Overrun Commitment is expected to be satisfied
shortly upon the Independent Engineer's confirming Substantial Completion of
Salton Sea Unit IV but, in any event, would expire on the earliest of (a)
January 1, 1998, (b) the earlier mandatory redemption (if any) of the Series B
and Series C Securities having a principal amount of $150 million or (c) under
certain circumstances involving a confirmation of the Investment Grade Rating
of the Securities. See "SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E
SECURITIES-Mandatory Redemption." The 30-day test with respect to Salton Sea
Unit IV was completed in June 1996 and, accordingly, the Company plans to seek
confirmation from the Independent Engineer under the Indenture, which is
expected shortly.
SUPPORT LETTER
Magma has issued a Support Letter in favor of the Guarantors and the
Funding Corporation pursuant to which Magma has agreed (a) not to develop new
geothermal energy facilities at the SSKGRA (except the Salton Sea Expansion)
if utilization of the geothermal resource for such facilities could reasonably
be expected to materially adversely impact the geothermal resource for the
Salton Sea Projects or the Partnership Projects, (b) not to sell, transfer,
lease, sublease, assign or otherwise dispose of any Royalty Document to which
it is a party, (c) not to create, incur, assume or permit to exist any lien,
pledge, security interest or encumbrance on any Royalty Document to which it
is a party, (d) not to amend, terminate, or consent to any waiver or
modification of, or otherwise modify, any Royalty Document, (e) not to sell,
transfer, assign, consign or dispose of any of its interest in the Partnership
Project Companies or the cash flows receivable therefrom and (f) to promptly
deposit or cause to be deposited in the Redemption Fund any net cash proceeds
actually received by Magma or any of its subsidiaries from any settlement or
buy-out of the BRPU Award or a lump sum settlement (whether payable in one
payment or a series of lump sum installments) of the SCE Litigation, provided
that no proceeds shall be deposited subsequent to the earlier of (i)
Substantial Completion of the Salton Sea Expansion or (ii) termination
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of the Cost Overrun Commitment; except, in the case of (b), (c), (d) or (e),
as contemplated by the Magma Assignment Agreement or the Financing Documents
and if the taking of such action could not reasonably be expected to result in
a Material Adverse Effect.
SSBP PARTNERSHIP AGREEMENT
Salton Sea Power Company holds a 1% general partnership interest and
Magma holds a 99% limited partnership interest in SSBP pursuant to a Limited
Partnership Agreement dated as of March 31, 1993, as amended.
SSPG PARTNERSHIP AGREEMENT
Salton Sea Power Company holds a 1% general partnership interest and
SSBP holds a 99% limited partnership interest in SSPG pursuant to a Limited
Partnership Agreement dated as of March 31, 1993, as amended.
PARTNERSHIP PROJECT CONTRACTS
ELMORE PROJECT
ELMORE PPA
Elmore sells electricity to SCE pursuant to an SO4 Agreement dated
June 15, 1984 between SCE and Elmore. The standard and principal terms which
are generally contained in an SO4 Agreement are described in "--Standard Terms
of SO4 Agreement" above. Certain specific terms of the Elmore PPA and the
primary differences between the Elmore PPA and the terms of the standard SO4
Agreement are described below.
Term. The contract term of the Elmore PPA is 30 years from the Firm
Operation Date of January 1, 1989.
Capacity Payments. Elmore has a Contract Capacity Price of $198 per
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,732,000.
Energy Payments. The Elmore PPA is an Annual Forecast Energy Payment
SO4 Agreement. The Fixed Price Period expires on December 31, 1998. After the
Fixed Price Period, energy payments will be based on SCE's Avoided Cost of
Energy.
GROUND LEASE
Elmore entered into a Ground Lease with Magma, dated as of March 14,
1988, as amended as of June 17, 1996 (the "Elmore Ground Lease"). Pursuant to
the Elmore Ground Lease, Magma leases the real property on which the Elmore
Project is located to Elmore for a period of 32 years.
Magma retains under the lease the right to use the land surface to
extract and develop geothermal brine and geothermal brine scale. This includes
the right to construct, operate and maintain pipelines, buildings, equipment
and other improvements to the land, including additional geothermal power
plants.
The lease permits minor alterations or additions to any improvements
on the land at a construction cost not exceeding $7,500,000. Additions or
improvements costing in excess of $7,500,000 require Magma's prior written
consent. Elmore is not permitted to assign, transfer, mortgage, sublet or
otherwise transfer or encumber any part of its interest in the lease or
premises without Magma's prior written consent, which shall not be
unreasonably withheld.
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CREDIT AGREEMENT
Elmore is party to a senior secured credit facility which provides
for the issuance of commercial paper and medium term notes, each to be
supported by letters of credit, in an aggregate amount not to exceed $66
million. The obligations of Elmore under the credit facility are secured by
substantially all of the assets of the Elmore Project. The credit facility is
scheduled to terminate on September 15, 2001. As of March 31, 1996, the
aggregate amount of commercial paper and medium term notes outstanding was
$25,010,000. Debt service payments by Elmore totaled $8,988,000 in 1995. A
portion of the proceeds of the Offering will be used to (i) effectively
defease approximately $12 million of such commercial paper and medium term
notes through the deposit of cash equivalents with a bank for payment at
maturity ($7 million on July 10, 1996 and $5 million on September 16, 1996)
and (ii) repay all of the balance of such outstanding indebtedness under such
credit agreement on the Closing Date, whereupon such credit agreement shall be
terminated and all liens thereunder released by the lenders. See "USE OF
PROCEEDS."
PARTNERSHIP AGREEMENT
CEOC and its wholly-owned subsidiary, Niguel Energy Company, each own
a 40% general partnership interest in, and Magma and Niguel Energy Company
each own a 10% limited partnership interest in, Elmore pursuant to the Amended
and Restated Limited Partnership Agreement, dated as of March 14, 1988, as
amended as of April 14, 1989 (the "Elmore Partnership Agreement"). See
"BUSINESS OF THE GUARANTORS--Description of the Projects--Partnership
Projects--Ownership." The term of the partnership agreement is 33 years.
On a monthly basis, an amount equal to 2.667% of all energy revenues
received under the Elmore PPA is required to be distributed to CEOC prior to
the payment of project-level debt service, if any (the "special
distribution"). Such special distribution is payable from revenues that
constitute collateral for the Partnership Project Note and Partnership
Guarantee. See "PROSPECTUS SUMMARY--Structure of and Collateral for the
Securities."
ADMINISTRATIVE SERVICES AGREEMENT
CEOC and Elmore have entered into an Amended and Restated
Administrative Services Agreement, dated as of June 17, 1996 (the "Elmore
ASA"), whereby CEOC agrees to provide day-to-day administrative, management
and technical services with respect to the Elmore Project.
Term. The term of the agreement is 32 years.
Compensation. Elmore is required to pay CEOC a monthly fee equal to
3% of combined capacity and energy revenues received under the Elmore PPA;
provided that such administration fee shall not be less than $800,000 per
year, as adjusted for inflation, as well as reimburse CEOC for any
extraordinary expenses incurred.
Other Principal Terms. CEOC has the right to subcontract with or
otherwise retain the services of other Persons to provide services under the
agreement. CEOC also agrees to perform other extraordinary services which may
be required, for which Elmore agrees to pay CEOC its actual costs and expenses
incurred plus a reasonable profit. In the event of a material default under
the agreement either party has the right to terminate the agreement upon 40
days prior written notice. CEOC can terminate the agreement immediately upon
the occurrence of certain events related to the bankruptcy or insolvency of
Elmore. Elmore agrees to defend, indemnify and hold CEOC harmless against any
and all liabilities arising out of the course of performance of the agreement
by CEOC.
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OPERATING AND MAINTENANCE AGREEMENT
The Amended and Restated Operating and Maintenance Agreement, dated
as of June 17, 1996 (the "Elmore O&M Agreement"), by and between CEOC and
Elmore, provides for the operation and maintenance of the Elmore Project.
Term. The term of the agreement is 32 years.
Obligations of CEOC. CEOC has agreed to provide all operations and
maintenance services associated with the Elmore Project, including the
supervision of any and all personnel and subcontractors necessary for the
continuous operation of the facility.
Compensation. Elmore pays CEOC for all actual costs and expenses
incurred by CEOC under the Elmore O&M Agreement. Actual costs include (i) the
actual cost to CEOC of goods and materials, (ii) cost to CEOC of providing
labor or services to the Elmore Project based, pro rata, on the number of MWs
the Elmore Project generates compared to the total MWs of all Projects
serviced by CEOC, (iii) the portion of the cost of invested capital incurred
by CEOC for the purchase of machinery and equipment used in connection with
the provision of services fairly allocable to Elmore and (iv) the actual cost
to CEOC of retaining subcontractors.
In addition, Elmore is required to pay a "guaranteed capacity
payment" to CEOC each year equal to the sum of (i) 10% of the combined
capacity and energy revenues received under the Elmore PPA in such year in
excess of a specified target level, plus (ii) 25% of the amount of combined
capacity and energy revenues received under the Elmore PPA in such year in
excess of a specified maximum target level.
Indemnification/Limitation on Liability/Arbitration. Each party to
the Elmore O&M Agreement has agreed to indemnify the other against any and all
liabilities arising out of the course of performance of the agreement,
provided that such liability is not attributable to the gross negligence or
willful misconduct of such party. All disputes arising under the Elmore O&M
Agreement shall be settled by arbitration.
Force Majeure. Neither CEOC nor Elmore is liable for any failure or
inability to perform (other than to make payments due) under the Elmore O&M
Agreement due to the occurrence of an event of force majeure. Events of force
majeure include those usual and customary for agreements of this type.
ELMORE EASEMENT
The Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of March 14, 1988, as amended as of June 17, 1996 (the
"Elmore Easement"), between Elmore and Magma, provides for royalty payments to
be paid by Elmore to Magma for the extraction and utilization of the
geothermal resource for power production purposes by the Elmore Project.
Description of Easement. Elmore has been granted by Magma a
non-exclusive right to use certain land and geothermal resources for the
purpose of producing geothermal energy from the Elmore Project. In the
easement, Magma has reserved the right to use any excess or unused geothermal
resources, including brine minerals.
Royalty. Elmore is obligated to pay Magma a royalty equal to 21.5% of
any energy (but not capacity) revenues it receives under the Elmore PPA. The
royalty consists of two components, the Grantors Fuel Charge which is 17.333%
of energy revenues and the Geothermal Lessor's Fee which is 4.167% of energy
revenues. In addition, Elmore must pay Magma a Resource Development Fee of 1%
of combined capacity and energy revenues and 0.833% of energy revenues. These
royalties are paid prior to the payment of project-level debt service
(including the Project Notes and the Guarantees) and are payable from revenues
that will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for Securities."
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Elmore is obligated to pay Magma the royalty regardless of whether
there is a defect in the Elmore Project, a defect in or lien on Magma's title
to the leased land or the Elmore Project, any claim by Elmore against Magma,
any failure by Magma to comply with the terms of the easement or any other
agreement, invalidity of the easement or force majeure.
Term and Termination. The Elmore easement has a term of 32 years.
Magma has the right to terminate the easement if (i) Elmore fails to make any
payments within 3 business days of being due and fails to cure such default
within 2 business days of notice thereof, (ii) during the last 5 years of the
term of the agreement, the Elmore Facility is damaged or destroyed, with
damages over $7,500,000 and Magma chooses to decommission the plant, or (iii)
Elmore fails to perform or observe any material covenant or condition in the
agreement and fails to remedy or commence to remedy such default within 30
days.
LEATHERS PROJECT
LEATHERS PPA
Leathers sells electricity to SCE pursuant to an SO4 Agreement which
is identical in all material respects to the Elmore PPA. Certain specific
terms of the Leathers PPA and the primary differences between the Leathers PPA
and the Elmore PPA are described as follows.
Term. The contract term of the Leathers PPA is 30 years from the Firm
Operation Date of January 1, 1990.
Capacity Payments. Leathers has a contract Capacity Price of $187
kW-year and, based on the Contract Capacity of 34 MW, the annual maximum
capacity payment is $6,358,000.
Energy Payments. The Leathers PPA is an Annual Forecast Energy
Payment SO4 Agreement. The Fixed Price Period expires on December 31, 1999.
After the Fixed Price Period, energy payments will be based on SCE's Avoided
Cost of Energy.
GROUND LEASE
Leathers entered into a Ground Lease, dated as of October 26, 1988,
as amended as of June 17, 1996 (the "Leathers Ground Lease"), with Magma.
Pursuant to the Leathers Ground Lease, Magma leases the real property on which
the Leathers Project is located from Magma to Leathers. The provisions of this
lease are identical in most material respects to the Ground Lease applicable
to the Elmore Project. See "--Elmore Project."
CREDIT AGREEMENT
Leathers is party to a senior secured credit facility. The credit
facility is scheduled to terminate on September 15, 2002. As of March 31,
1996, the aggregate amount of commercial paper and medium term notes
outstanding was $47,700,000. Debt service payments by Leathers under such
agreement totaled $11,880,000 in 1995. A portion of the proceeds of the
Offering will be used to (i) effectively defease $5 million of such medium
term notes through the deposit of cash equivalents with a bank for payment at
maturity on September 16, 1996 and (ii) repay all the balance of the
outstanding indebtedness under such credit agreement on the Closing Date,
whereupon such credit agreement shall be terminated and all liens thereunder
released by the lender. See "USE OF PROCEEDS."
PARTNERSHIP AGREEMENT
CEOC and its wholly-owned subsidiary, San Felipe Energy Company, each
own a 40% general partnership interest in, and Magma and San Felipe Energy
Company each own a 10% limited partnership
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interest in, Leathers pursuant to the Limited Partnership Agreement, dated as
of August 15, 1988, as amended as of April 14, 1989 (the "Leathers Partnership
Agreement"). See "BUSINESS OF THE GUARANTORS--General Description of the
Projects--Partnership Projects--Ownership." The term of the partnership
agreement is 33 years.
On a monthly basis, an amount equal to the sum of (i) 4.5% of all
energy revenues received under the Leathers PPA and (ii) 1% of the difference
between energy revenues received and specified energy revenues, is required to
be distributed to CEOC prior to the payment of project-level debt service, if
any (the "special distribution"). Such special distribution is payable from
revenues that will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities."
ADMINISTRATIVE SERVICES AGREEMENT
Leathers and CEOC have entered into an Amended and Restated
Administrative Services Agreement, dated as of June 17, 1996 (the "Leathers
ASA"), whereby CEOC agrees to provide day-to-day administrative, management
and technical services with respect to the Leathers Project. The term of this
agreement is 33 years. The provisions of this agreement are otherwise
identical in all material respects to the Administrative Services Agreement
applicable to the Elmore Project. See "--Elmore Project."
OPERATING AND MAINTENANCE AGREEMENT
Leathers and CEOC have entered into an Amended and Restated Operating
and Maintenance Agreement, dated as of June 17, 1996, (the "Leathers O&M
Agreement"), which provides for the operation and maintenance of the Leathers
Project. The provisions of this agreement are otherwise identical in all
material respects to the Elmore O&M Agreement. See "--Elmore Project."
LEATHERS EASEMENT
The Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of August 15, 1988, as amended as of June 17, 1996 (the
"Leathers Easement"), between Leathers and Magma, provides for royalty
payments to be paid by Leathers to Magma for the extraction and utilization of
the geothermal resource for power production purposes.
The provisions of this agreement are identical in all material
respects to those of the Elmore Easement, except that Leathers is not required
to pay Magma a continuing Resource Development Fee. Leathers is only obligated
to pay Magma 21.5% of its energy revenues, consisting of a Grantor's Fuel
Charge, which is 17.333% of energy revenues, and a Geothermal Lessor's Fee,
which is 4.167% of energy revenues.
DEL RANCH PROJECT
DEL RANCH PPA
Del Ranch sells electricity to SCE pursuant to an SO4 Agreement which
is identical in all material respects to the Elmore PPA. Certain specific
terms of the Del Ranch PPA and the primary differences between the Del Ranch
PPA and the Elmore PPA are described as follows.
Term. The Firm Operation Date of the Del Ranch Project was January 2,
1989.
Capacity Payments. Del Ranch has a Contract Capacity Price of $198
kW-year and, based on the Contract Capacity of 34MW, the annual maximum
capacity payment is $6,732,000.
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Energy Payments. The Del Ranch PPA is an Annual Forecast Energy
Payment SO4 Agreement. The Fixed Price Period expires on December 31, 1998.
After the Fixed Price Period, energy payments will be based on SCE's Avoided
Cost of Energy.
CREDIT AGREEMENT
Del Ranch is party to a senior secured credit facility. As of March
31, 1996, the aggregate amount of commercial paper and medium term notes
outstanding was $23,873,000. Debt service payments by Del Ranch totaled
$8,656,000 in 1995. A portion of the proceeds of the Offering will be used to
(i) effectively defease $5 million of such medium term notes through the
deposit of cash equivalents with a bank for payment at maturity on September
16, 1996 and (ii) repay all the balance of the outstanding indebtedness under
such credit agreement on the Closing Date, whereupon such credit agreement
shall be terminated and all liens thereunder released by the lender. See "USE
OF PROCEEDS."
GROUND LEASE
Del Ranch entered into a Ground Lease, dated as of March 14, 1988, as
amended as of June 17, 1996 (the "Del Ranch Ground Lease"), with Magma,
pursuant to which Del Ranch leases the real property on which the Del Ranch
Facility is located from Magma. The provisions of this lease are identical in
all material respects to the Ground Lease applicable to the Elmore Project.
See "--Elmore Project."
PARTNERSHIP AGREEMENT
General. CEOC and its wholly-owned subsidiary Conejo Energy Company,
each own a 40% general partnership interest in, and Magma and Conejo Energy
Company each own a 10% limited partnership interest in, Del Ranch pursuant to
the Amended and Restated Limited Partnership Agreement, dated as of March 14,
1988, as amended as of April 14, 1989 (the "Del Ranch Partnership Agreement").
See "BUSINESS OF THE GUARANTORS--General Description of the
Projects--Partnership Projects--Project Ownership." The term of the
partnership agreement is 33 years.
On a monthly basis, an amount equal to 2.667% of the energy revenues
received under the Del Ranch PPA is required to be distributed to CEOC prior
to the payment of project-level debt service, if any (the "special
distribution"). Such special distribution is payable from revenues that will
constitute Partnership Collateral. See "PROSPECTUS SUMMARY--Structure of and
Collateral for the Securities."
ADMINISTRATIVE SERVICES AGREEMENT
General. Del Ranch and CEOC have entered into an Amended and Restated
Administrative Services Agreement dated as of June 17, 1996 (the "Del Ranch
ASA"), whereby CEOC agrees to provide day-to-day administrative, management
and technical services with respect to the Del Ranch Project. The provisions
of this agreement are identical in all material respects to the Administrative
Services Agreement applicable to the Elmore Project. See "--Elmore Project."
OPERATING AND MAINTENANCE AGREEMENT
General. Del Ranch and CEOC have entered into an Amended and Restated
Operating and Maintenance Agreement, dated as of June 17, 1996 (the "Del Ranch
O&M Agreement"), which provides for the operation and maintenance of the Del
Ranch Project by CEOC. The provisions of this agreement are otherwise
identical in all material respects to the Elmore O&M Agreement. See "--Elmore
Project."
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DEL RANCH EASEMENT
The Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, dated as of March 14, 1988, as amended as of June 17, 1996 (the
"Del Ranch Easement"), between Del Ranch and Magma, provides for royalty
payments to be paid by Del Ranch to Magma for the extraction and utilization
of the geothermal resource for power production purposes. The provisions of
this agreement are identical in all material respects to those of the Elmore
Easement.
MAGMA SERVICES AGREEMENT
Pursuant to the Magma Services Agreement, Magma has agreed to pay
CEOC all Equity Cash Flows and certain Royalties payable by Elmore, Leathers
and Del Ranch in exchange for providing data and services to Magma. As
security for the obligations of Magma under the Magma Services Agreement,
Magma has collaterally assigned to CEOC its rights to such Equity Cash Flows
and certain Royalties. All such Equity Cash Flows and Royalties are payable
from revenues that will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities."
VULCAN PROJECT
VULCAN PPA
Vulcan sells electricity to SCE pursuant to an SO4 Agreement dated
March 1, 1984 between SCE and Vulcan. The standard and principal terms which
are generally contained in an SO4 Agreement are described in "--Standard Terms
of SO4 Agreement" above. Certain specific terms of the Vulcan PPA and the
primary differences between the Vulcan PPA and the terms of the standard SO4
Agreement are described below.
Term. The contract term of the Vulcan PPA is 30 years from the Firm
Operation Date of February 10, 1986.
Capacity Payments. Vulcan has a Contract Capacity Price of $158 per
kW-year and, based on the Contract Capacity of 29.5 MW, the annual maximum
capacity payment is $4,661,000.
Energy Payments. The Vulcan PPA is an Annual Forecast Energy Payment
SO4 Agreement. The Fixed Price Period expired on February 9, 1996. As a
result, energy payments for the balance of the contract term will be based on
SCE's Avoided Cost of Energy.
CONSTRUCTION, OPERATING AND ACCOUNTING AGREEMENT
The Construction, Operating and Accounting Agreement, dated as of
August 30, 1985, as amended as of June 17, 1996 (the "Vulcan Construction,
Operating and Accounting Agreement"), by and between VPC and Vulcan, provides
for the operation and maintenance of the Vulcan Project. VPC is designated as
the operator of the Vulcan Project with control over operation of the Vulcan
Project.
Term. The term of the agreement extends for an initial period of one
year, and thereafter from year to year, terminable by either VPC or Vulcan
upon 30 days' prior written notice.
Compensation. VPC is paid on a monthly basis for its actual and
allocated supervision and labor costs, including appropriate fringe costs, as
well as other additional actual and allocated costs or expenses.
ADMINISTRATIVE SERVICES AGREEMENT
CEOC and Vulcan have entered into an Administrative Services
Agreement, dated as of June 17, 1996 (the "Vulcan ASA"), whereby CEOC agrees
to provide day-to-day administrative, management and technical
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services with respect to the Vulcan Project. Vulcan pays CEOC the actual costs
and expenses incurred by CEOC under the Vulcan ASA. The provisions of this
agreement are otherwise similar in all material respects to the Elmore ASA.
BRINE SALES AGREEMENT
General. VPC entered into a Brine Sales Agreement with Vulcan, dated
as of August 30, 1985, as amended as of June 17, 1996 (the "Brine Sales
Agreement"), pursuant to which VPC has agreed to supply brine for
power production purposes to the Vulcan Project for a 30-year period. Vulcan
is required to operate and maintain pipelines and brine handling and
transportation facilities, and to transport spent brine from the Vulcan
Project to injection wells. Vulcan is required to supply whatever power is
required for handling and transporting the brine and to handle and dispose of
all mineral residue, sludge and waste produced.
Fees. Vulcan is required to pay VPC monthly fees equal to the sum of:
(i) 4.167% of the energy revenues received under the Vulcan PPA, (ii) all
actual charges for surface use of land and other payments to landowners under
applicable agreements and (iii) an administrative fee equal to the portion of
Magma's overhead costs attributable to the Vulcan Project. The fees referred
to in clauses (i), (ii) and (iii) above will be paid from the Additional
Partnership Revenue Deposits as Operating and Maintenance Costs and will not
constitute Collateral.
EASEMENT GRANT DEED
Rights to geothermal resources have been granted to VPC by Magma
pursuant to an Easement Grant Deed and Agreement Regarding Rights for
Geothermal Development, dated as of January 19, 1988, as amended as of June
17, 1996. Magma has reserved the right to use excess or unused geothermal
resources, including brine minerals.
ROYALTY PROJECT CONTRACTS
MAGMA
Magma receives certain Royalties from the Elmore Project, the
Leathers Project, the Del Ranch Project and the East Mesa Project in exchange
for leasing or subleasing certain of Magma's land and/or geothermal resources
to such entities for power production purposes and, in the case of the East
Mesa Project, licensing certain technology and assigning a power purchase
agreement.
In connection with the Initial Offering, Magma assigned such
Royalties to the Royalty Guarantor pursuant to the Magma Assignment Agreement.
However, all such Royalties (other than Royalties from the East Mesa Project)
will be made from revenues that will constitute Partnership Collateral. See
"PROSPECTUS SUMMARY--Structure of and Collateral for the Securities."
Such Royalties payable from the Elmore, Leathers and Del Ranch
Projects are payable pursuant to the Elmore Easement, the Leathers Easement
and the Del Ranch Easement. See "--Elmore Project," "--Leathers Project" and
"--Del Ranch Project." Set forth below is a description of each of the Royalty
Documents in respect of which the Royalty Guarantor receives an assignment of
such Royalties from the East Mesa Project.
EAST MESA PROJECT CONTRACTS
ASSIGNMENT AND SECURITY AGREEMENT
The Assignment and Security Agreement, dated as of May 12, 1988 (the
"East Mesa Assignment and Security Agreement"), between East Mesa and Magma
provides that, in exchange for, among other things, the assignment by Magma of
its rights in the East Mesa PPAs, East Mesa shall pay Magma a royalty of 14%
of
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combined capacity and energy revenues, received under the East Mesa PPAs (the
"East Mesa Royalty), regardless of whether such revenues are earned by the
East Mesa Project. The East Mesa Royalty is computed on the basis of gross
electricity revenues without deductions for expenses other than the cost of
electricity purchased by East Mesa in operating the East Mesa Project and any
ad valorem taxes on the geothermal resources allocable to the Project or the
sale of such resources. If there are insufficient revenues in a certain month
to pay the East Mesa Royalty after payment of royalties to senior lessors and
other operating expenses, East Mesa is not obligated to pay Magma in such
month. Any unpaid East Mesa Royalties accrue and are payable, plus interest
thereon, when sufficient revenues are available.
The obligation to pay East Mesa Royalties remains in effect for as
long as the East Mesa Project generates, or is capable of generating,
electricity and the East Mesa PPAs remain in effect. The obligations survive
any transfer of the plant or the East Mesa PPA.
Covenants. Any transferee of the East Mesa Project or the East Mesa
PPAs must assume East Mesa's obligations under the East Mesa Assignment and
Security Agreement. East Mesa must notify Magma if the East Mesa PPAs are to
be renewed, extended, terminated or otherwise modified. Magma has the right to
approve or disapprove modifications or terminations, but may not disapprove
any commercially reasonable modification, including any reasonable termination
of the East Mesa PPAs in the event that continued operations thereunder are
not commercially feasible. If East Mesa abandons the Project or terminates the
power purchase agreements, East Mesa must offer to transfer its interest in
the project or the agreements to Magma in exchange for the salvage value of
any property exchanged, whereupon the royalty obligations are terminated.
Security Agreement. East Mesa has also granted a security interest in
the East Mesa PPAs to Magma in order to secure its obligations to pay East
Mesa Royalties.
Modification. The East Mesa Assignment and Security Agreement has
been modified by the East Mesa Master Agreement, which will remain in effect
until a certain credit facility between East Mesa and Credit Suisse has
terminated. The Master Lease divides the East Mesa Royalties into a senior
payment of 4% (the "Senior Royalty") and a junior payment of 10% (the "Junior
Royalty"). The Senior Royalty is paid prior to East Mesa's debt service, but
after operating and maintenance expenses. The Junior Royalty is payable after
the Senior Royalty, operating and maintenance expenses and debt service. To
date, Junior Royalties are due but have not been paid.
EAST MESA PPA
East Mesa sells electricity to SCE pursuant to two SO4 Agreements
(the "East Mesa PPA"). The standard and principal terms which are generally
contained in an SO4 Agreement are described in "--Standard Terms of SO4
Agreement" above. Certain specific terms of the East Mesa PPA and the primary
differences between the East Mesa PPA and the terms of the standard SO4
Agreement are described below.
Term. The East Mesa PPA has a term of 30 years from the Firm
Operation Date of January 1, 1990.
Capacity Payments. East Mesa has a Contract Capacity Price of $187
per kW-year and, based on the Contract Capacity of 25 MW, an annual maximum
capacity payment of $4,675,000.
Energy Payments. The East Mesa PPA is an Annual Forecast Energy
Payment SO4 Agreement. The Fixed Price Period of the East Mesa PPA expires on
December 31, 1999. After the Fixed Price Period, energy payments will be based
on SCE's Avoided Cost of Energy.
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SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E SECURITIES
GENERAL
The New Securities will be, and the Initial Securities and the Old
Securities have been, issued under the Indenture. The following is a
description of certain provisions of the Series D and Series E Securities and,
to the extent indicated, the Initial Securities and does not purport to be
complete and is subject to, and qualified in its entirety by, reference to the
Series D and Series E Securities, the Initial Securities and the Indenture.
Unless otherwise specified, the description applies to all the Securities
(including, without limitation, the Series D and Series E Securities and the
Initial Securities.)
The Old Securities have been, and the New Securities will be, offered
in two series as set forth below. The Old Securities were issued in book-entry
form and, if to Qualified Institutional Buyers, in denominations of $100,000
and any integral multiple of $1,000 in excess thereof and, if to Accredited
Investors, in denominations of $200,000 or any integral multiple of $1,000 in
excess thereof.
The Indenture provides for the issuance of other series of senior
secured bonds or notes as from time to time may be authorized by the Funding
Corporation, subject to the limitations in the Indenture. See "SUMMARY
DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS--Indenture--Additional
Securities" and "--Amendments and Supplements."
The Securities are direct obligations of the Funding Corporation,
secured by the Funding Corporation Collateral and guaranteed by the Guarantors
pursuant to the Guarantees. The obligations of the Guarantors under the
Guarantees are secured by the Guarantors' Collateral.
At May 31, 1996, the Guarantors' proportionate share of project level
indebtedness was approximately $96.6 million, which indebtedness was
effectively senior to the Securities. A portion of the proceeds of the
offering of the Old Securities was used to repay all existing project-level
indebtedness for borrowed money incurred by the Partnership Project Companies
and it is not presently expected that any such project-level indebtedness will
be incurred in the future. See "USE OF PROCEEDS". The Funding Corporation has
not issued, and does not have any current firm arrangements to issue, any
significant indebtedness to which the Securities would be senior.
PRINCIPAL AMOUNT, INTEREST RATE, FINAL MATURITY AND PAYMENT
The Old Securities have been, and the New Securities will be, issued
in two series in the aggregate principal amount of $135,000,000, will bear
interest from their date of issuance at the rates per annum and have the final
maturities of principal as set forth below:
SERIES PRINCIPAL AMOUNT INEREST RATE FIANL MATURITY
------ ---------------- ------------ --------------
D $70,000,000 7.02% May 30, 2000
E $65,000,000 8.30% May 30, 2011
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PAYMENT OF PRINCIPAL AND INTEREST
The principal of the Series D Securities is payable in semiannual
installments, commencing May 30, 1997, as follows:
PERCENTAGE OF PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
------------ --------------
May 30, 1997 18.4642857143%
November 30, 1997 18.4642857143%
May 30, 1998 22.8571428571%
November 30, 1998 22.8571428571%
May 30, 1999 7.6071428571%
November 30, 1999 7.6071428571%
May 30, 2000 2.1428571430%
The principal of the Series E Securities is payable in semiannual
installments, commencing May 30, 1999, as follows:
PERCENTAGE OF PRINCIPAL
PAYMENT DATE AMOUNT PAYABLE
------------ --------------
May 30, 1999 9.2907692308%
November 30, 1999 9.2907692308%
May 30, 2000 3.0769230769%
November 30, 2000 3.0769230769%
May 30, 2001 0.7692307692%
November 30, 2001 0.7692307692%
May 30, 2002 1.2307692308%
November 30, 2002 1.2307692308%
May 30, 2003 2.3076923077%
November 30, 2003 2.3076923077%
May 30, 2004 2.5000000000%
November 30, 2004 2.5000000000%
May 30, 2005 2.6923076923%
November 30, 2005 2.6923076923%
May 30, 2006 1.9230769231%
November 30, 2006 1.9230769231%
May 30, 2007 1.9230769231%
November 30, 2007 1.9230769231%
May 30, 2008 2.6923076923%
November 30, 2008 2.6923076923%
May 30, 2009 2.5000000000%
November 30, 2009 2.5000000000%
May 30, 2010 10.3846153846%
November 30, 2010 10.3846153846%
May 30, 2011 17.4184615384%
Interest on the Series D and Series E Securities is payable
semiannually on each May 30 and November 30, commencing November 30, 1996, to
the registered owners thereof at the close of business on the May 15 and
November 15, as the case may be, preceding such Interest Payment Date.
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OPTIONAL REDEMPTION
The Series D and Series A Securities are not subject to optional
redemption.
The Series E Securities may be redeemed, in whole or in part on a pro
rata basis, prior to maturity, at the option of the Funding Corporation, at
par plus accrued interest to the Redemption Date plus a premium calculated to
"make-whole" to comparable U.S. treasury securities plus 50 basis points.
The Series B and Series C Securities may be redeemed, in whole or in
part on a pro rata basis, prior to maturity at the option of the Funding
Corporation, at par plus accrued interest to the Redemption Date plus a
premium calculated to "make whole" to comparable U.S. treasury securities plus
50 basis points.
MANDATORY REDEMPTION
The Series D and Series E Securities, as well as the Initial
Securities, are subject to mandatory redemption, in whole or in part, ratably
among each series (except as provided below in connection with a delay in
completing the Salton Sea Expansion) at a redemption price equal to the
principal amount thereof plus accrued interest to the Redemption Date, (a)
upon the receipt of Loss Proceeds or Eminent Domain Proceeds by the Salton Sea
Guarantors or the Partnership Project Companies if the Salton Sea Guarantors
or the Partnership Project Companies, as applicable, determine that (i) the
affected Salton Sea Project or Partnership Project cannot be rebuilt, repaired
or restored to permit operations on a commercially reasonable basis, or the
Salton Sea Guarantors or the Partnership Project Companies, as the case may
be, determine not to rebuild, repair or restore the affected Project, and the
Loss Proceeds or Eminent Domain Proceeds exceed $15 million, in which case the
amount of such Loss Proceeds or Eminent Domain Proceeds shall be available for
such redemption, or (ii) only a portion of the affected Salton Sea Project or
Partnership Project is capable of being rebuilt, repaired or restored and the
amount of Loss Proceeds or Eminent Domain Proceeds exceed the cost of
rebuilding, repair or replacement by more than $15 million, in which case only
the amount of such excess Loss Proceeds or Eminent Domain Proceeds shall be
made available for such redemption; (b) upon the receipt by the Salton Sea
Guarantors or the Partnership Project Companies of proceeds in connection with
a Title Event in excess of $5,000,000, in which case the amount of such Title
Event Proceeds shall be made available for such redemption, subject to
reduction by the costs expended in connection with collecting any Title Event
Proceeds and any additional costs or expenses not to exceed $25,000,000 that
the Salton Sea Guarantors or the Partnership Project Companies, as the case
may be, will be subject to as a result of the Title Event; (c) upon the
receipt by the Salton Sea Guarantors or Partnership Guarantors of net proceeds
realized in connection with a Permitted Power Contract Buy-Out, in which case
the amount of such proceeds shall be made available for such redemption,
unless the Rating Agencies confirm that such Permitted Power Contract Buy-Out
will not result in a Rating Downgrade; (d) upon the receipt by the Partnership
Guarantors of the proceeds of a borrowing by the Partnership Project Companies
which are used to fund an equity distribution, in which case the amount of
such proceeds received by the Partnership Guarantors shall be made available
for such redemption unless the Rating Agencies confirm that such borrowing and
distribution will not result in a Rating Downgrade; (e) upon the acceleration
of a Project Note, in an amount equal to the principal amount thereof plus
accrued interest and (f) upon the receipt of proceeds in excess of $5 million
arising out of foreclosure by the Collateral Agent of Collateral securing the
Guarantors' obligations under the Salton Sea Guarantee, the Royalty Guarantee
or Partnership Guarantee upon an event of default thereunder. The amounts
available for redemption described in clauses (a) through (d), and (f), above,
shall also be subject to reduction by the amount of certain fees and expenses,
the amount of any Senior Debt owed under the Working Capital Facility and the
pro rata amount of any obligations in favor of the Debt Service Reserve LOC
Provider and in respect of other Permitted Senior Debt as provided in the
Intercreditor Agreement. See "SUMMARY DESCRIPTION OF PRINCIPAL FINANCING
DOCUMENTS--Depositary Agreement--Redemption Fund."
In the event that Substantial Completion of the Salton Sea Expansion
has not occurred by January 1, 1998 or has been abandoned, the Funding
Corporation must redeem, on a pro rata basis, Series B and Series C Securities
having an aggregate principal amount of $150,000,000 for a redemption price
equal to the principal
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amount thereof plus accrued interest to the Redemption Date; provided that
such redemption will not be required if the Funding Corporation and the
Guarantors take such actions as the Rating Agencies require in order for the
Rating Agencies to confirm in writing that the Securities will maintain their
Investment Grade Rating notwithstanding such failure to achieve Substantial
Completion of the Salton Sea Expansion by January 1, 1998 or such abandonment
and the Rating Agencies issue such written confirmation.
RATINGS
Moody's Investors Service, Inc. and Standard & Poor's Ratings Group
have assigned the Series D and Series E Securities ratings of "Baa3" and
"BBB-," respectively. There is no assurance that any such credit rating will
remain in effect for any given period of time or that such rating will not be
lowered, suspended or withdrawn entirely by the applicable Rating Agency, if,
in such Rating Agency's judgment, circumstances so warrant. Any such lowering,
suspension or withdrawal of any rating may have a material adverse effect on
the market price or marketability of the Series D and Series E Securities.
NATURE OF RECOURSE ON THE SECURITIES
The Funding Corporation's obligations to make payments of principal
of, premium, if any, and interest on the Securities are obligations solely of
the Funding Corporation secured solely by the Funding Corporation Collateral
and guaranteed by the Guarantors pursuant to the Guarantees. Neither the
shareholders of the Funding Corporation nor any Affiliate, incorporator,
officer, director or employee thereof or of the Funding Corporation will
guarantee the payment of the Securities or has any obligation with respect to
the payment of the Securities (other than the Guarantors and with respect to
obligations of such Persons under the Transaction Documents they are parties
to).
SUMMARY DESCRIPTION OF PRINCIPAL FINANCING DOCUMENTS
The following summaries of certain provisions of the Depositary
Agreement, the Indenture, the Guarantees, the Credit Agreements and Project
Notes, the Debt Service Reserve LOC Reimbursement Agreement, the Security
Documents and the Intercreditor Agreement (collectively, with the Securities,
the Working Capital Facility, any Interest Rate Protection Agreements, the
Support Letter and the Cost Overrun Commitment, the "Financing Documents") do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions thereof, including definitions
therein of certain terms. Copies of each of the Financing Documents have been
or will be filed as exhibits to the Registration Statement of which this
Prospectus is a part and may be obtained from the Commission. See "AVAILABLE
INFORMATION." Capitalized terms used herein and not otherwise defined in this
Prospectus have the meanings ascribed to them in the Financing Documents.
DEPOSITARY AGREEMENT
The Collateral Agent, on behalf of the Secured Parties, has, pursuant
to the Depositary Agreement, appointed the Depositary as security agent for
the Secured Parties with respect to funds of the Guarantors in which the
Depositary has been granted a security interest. Pursuant to the terms of the
Depositary Agreement, the Depositary will hold, invest and disburse monies in
which the Depositary and/or the Collateral Agent, on behalf of the Secured
Parties and the Funding Corporation, has been granted a security interest.
Neither the Funding Corporation nor any Guarantor shall have any right of
withdrawal under any Fund except under circumstances to be established in the
Depositary Agreement.
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THE DEPOSITARY AGREEMENT FUNDS
The following funds (collectively, "Funds") have been established and
created with the Depositary and pledged as security for the benefit of the
Depositary and the Collateral Agent acting on behalf of all the Secured
Parties and the Funding Corporation:
(i) Capital Expenditure Fund
(ii) Expansion Fund
(iii) Revenue Fund
(iv) Principal Fund
(v) Interest Fund
(vi) Debt Service Reserve Fund
(vii) Distribution Fund
(viii) Distribution Suspense Fund
(ix) Redemption Fund
(x) Loss Proceeds Fund.
All amounts deposited with the Depositary, at the written request and
direction of the Funding Corporation, will be invested by the Depositary in
Permitted Investments. The Funds referred to in clauses (iv), (v), (vii) and
(viii) are not required to be separate accounts but may be maintained as
subaccounts of the Revenue Fund. To the extent the Debt Service Reserve Fund
is fully funded or the amounts in such Fund, together with the Debt Service
Reserve Letter of Credit, equal the Debt Service Reserve Fund Required
Balance, interest earned on the amount in other Funds shall be transferred to
the Revenue Fund.
CAPITAL EXPENDITURE FUND
The Capital Expenditure Fund was funded with $15,000,000 of the net
proceeds from the sale of the Old Securities.
Upon the Depositary's receipt of a complete and properly executed
requisition from an authorized officer of the relevant Partnership Guarantor
or Salton Sea Guarantor, the Depositary will apply the amounts in the Capital
Expenditure Fund to the payment, or reimbursement to the extent the same have
been paid or satisfied by such Partnership Guarantor or Salton Sea Guarantor,
of costs incurred or reasonably expected to be incurred during the subsequent
30 days, in connection with the modification, improvement, reworking,
maintenance and replacement from time to time of wells, pipelines, gathering
systems, equipment, facilities and other capital expenditures in connection
with or located at the Partnership Projects or the Salton Sea Projects
(collectively, the "Permitted Capital Expenditures"). Each requisition
certificate submitted by such an authorized officer shall include the
following:
(i) a statement specifying the costs that are due and payable or
that are reasonably expected to be due and payable within the next thirty
days;
(ii) a confirmation that no Default or Event of Default has occurred
and is continuing; and
(iii) a confirmation that such expenditures are Permitted Capital
Expenditures and are in accordance with the then current capital
expenditure budget.
Funds in the Capital Expenditure Fund must be used for Permitted Capital
Expenditures and, until all Securities are paid in full, cannot be transferred
to the Revenue Fund for distribution to other Funds.
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EXPANSION FUND
The Expansion Fund was funded with $115,000,000 of the net proceeds
from the sale of the Initial Securities.
Upon the Depositary's receipt of a complete and properly executed
requisition from an authorized officer of the relevant Salton Sea Guarantor,
the Depositary will apply the amounts in the Expansion Fund to the payment, or
reimbursement to the extent the same have been paid or satisfied by such
Salton Sea Guarantor, of costs incurred or reasonably expected to be incurred
during the subsequent 30 days, in connection with the Salton Sea Expansion.
Each requisition certificate submitted by such an authorized officer shall
include the following:
(i) a statement specifying the costs that are due and payable or
that are reasonably expected to be due and payable within the next thirty
days;
(ii) a confirmation that no Default or Event of Default has occurred
and is continuing; and
(iii) a confirmation that the construction activities are proceeding
in accordance with the then current expansion budget and schedule.
Following final completion, excess funds in the Expansion Fund shall be
transferred to the Revenue Fund for distribution to other Funds, as provided
below under "Revenue Fund; Priority of Payments."
REVENUE FUND; PRIORITY OF PAYMENTS
All revenues actually received by the Salton Sea Guarantors from the
Salton Sea Projects, all revenues actually received by the Partnership Project
Companies from the Partnership Projects (net of any Royalties paid to the
Royalty Guarantor), all Equity Cash Flows and Royalties of the Partnership
Guarantors other than the Partnership Project Companies, and all Royalties
received by the Royalty Guarantor shall be paid into the Revenue Fund
maintained by the Depositary for the account of each of the Guarantors. The
Guarantors will arrange for the direct payment of all such revenues into the
Revenue Fund, and no Guarantor shall have any right of withdrawal under the
Revenue Fund except pursuant to the priority of payments set forth below. All
such Equity Cash Flows and Royalties of the Partnership Guarantors and
Royalties received by the Royalty Guarantor (other than Royalties related to
the East Mesa Project) which are to be paid into the Revenue Fund are made
from revenues that will constitute Partnership Collateral. See "PROSPECTUS
SUMMARY--Structure of and Collateral for the Securities."
The Revenue Fund shall be funded:
(i) from all revenues actually received by the Salton Sea Guarantors
from the Salton Sea Projects;
(ii) from all revenues actually received by the Partnership Project
Companies from the Partnership Projects;
(iii) from all Equity Cash Flows and Royalties received by CEOC and
VPC;
(iv) to the extent not included in clause (iii), all Equity Cash
Flows and Royalties received by CEOC under the Magma Services Agreement
and by VPC in respect of the Vulcan Project;
(v) from all Royalties received by the Royalty Guarantor;
(vi) from the Expansion Fund, to the extent that, following final
completion of the Salton Sea Expansion, there are excess funds in the
Expansion Fund;
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(vii) to the extent the Debt Service Reserve Fund is fully funded or
the amounts in such Fund, together with the Debt Service Reserve Letter
of Credit, equal the Debt Service Reserve Fund Required Balance, any
income from the investment of monies in any of the Funds; and
(viii) from other Funds as required to be transferred to the Revenue
Fund pursuant to the Depositary Agreement.
Upon receipt of a certificate from the relevant Guarantor (or its
duly authorized agent for such purposes) detailing the amounts to be paid,
funds in the Revenue Fund shall be transferred via wire transfer by the
Depositary:
First, as and when required, to pay Operating and Maintenance Costs
(including Working Capital Debt and Debt incurred in connection with Interest
Rate Protection Agreements) of all the Guarantors and the Funding Corporation,
provided that, if the cumulative Operating and Maintenance Costs of the
Guarantors in any fiscal year exceed the projected Operating and Maintenance
Costs in the applicable annual Operating Budget of the Guarantors by more than
25%, then no amounts may be withdrawn on behalf of the Guarantors to pay
non-budgeted operating costs unless (a) the Guarantors certify that (i) such
additional non-budgeted costs are reasonably designed to permit the Guarantors
to satisfy their obligations in respect of the Project Notes and maximize
their revenue and net income and (ii) it is reasonable to expect that (A) a
Debt Service Coverage Ratio of at least 1.4 to 1 will be maintained for the
next 12-month period if such period ends prior to 2000 or (B) a Debt Service
Coverage Ratio of at least 1.5 to 1 will be maintained for the next 12-month
period if such period ends after January 1, 2000 or (b) the Independent
Engineer certifies that the additional cost is prudent and reasonable;
Second, on a monthly basis, to the Depositary, the Trustee, the Debt
Service Reserve LOC Provider agent, the Working Capital Facility agent, and
the Collateral Agent any amounts then due and payable to each of them as fees,
costs and expenses; provided, however, that if monies in the Revenue Fund are
insufficient on any date to make the payments specified in this paragraph
Second, distribution of monies shall be made ratably to the specified
recipients based on the respective amounts owed such recipients;
Third, on a monthly basis (i) to the Interest Fund an amount which,
together with the amount then in such fund, equals all of the interest due or
becoming due on the Securities and (without duplication) the Project Notes on
the next succeeding Interest Payment Date; (ii) to the Principal Fund an
amount which, together with the amount then in such fund, equals all of the
principal and, premium (if any) due or becoming due on the Securities and
(without duplication) the Project Notes on the next succeeding Principal
Payment Date; (iii) to the Debt Service Reserve LOC Provider an amount which
equals all of the commitment, letter of credit and fronting fees becoming due
and payable under the Debt Service Reserve LOC Reimbursement Agreement on the
next succeeding payment date; (iv) to a Debt Service Reserve sub-fund an
amount which, together with the amounts then in such sub-fund, equals all of
the interest due or becoming due on any Debt Service Reserve LOC Loans on the
next succeeding Interest Payment Date; and (v) to a Debt Service Reserve
sub-fund an amount which, together with the amounts then in such sub-fund,
equals all of the principal, premium (if any) and interest due or becoming due
under any Debt Service Reserve Bond on the next succeeding Principal Payment
Date; provided, however, that if monies in the Revenue Fund are insufficient
on any date to make the payments specified in this paragraph Third,
distribution of monies shall be made ratably to the specified recipients based
on the respective amounts owed such recipients;
Fourth, on a monthly basis,
(i) to a Debt Service Reserve sub-fund an amount which, together
with the amount then in such sub-fund, equals all of the principal and
certain related fees and charges related to tax gross-ups, capital
adequacy costs and certain breakage costs, in each case due or becoming
due on the next Principal Payment Date on any Debt Service Reserve LOC
Loans and
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(ii) if no Debt Service Reserve Letter of Credit is in place, to the
Debt Service Reserve Fund an amount as necessary to fund the Debt Service
Reserve Fund up to the Debt Service Reserve Fund Required Balance; and
Fifth, as and when required, (i) to the Debt Service Reserve LOC
Provider, or any other financial institution providing a Debt Service Reserve
LOC Loan, certain other breakage costs which are due and payable in connection
with Debt Service Reserve LOC Loans and (ii) any indemnification expenses or
other amounts not otherwise paid and required to be paid to any of the Secured
Parties;
Sixth, on a monthly basis, any remaining amounts to the Distribution
Fund; and
Seventh, any amounts in the Distribution Fund which cannot be
distributed because of the failure to satisfy certain conditions to
distributions, to the Distribution Suspense Fund.
However, in the event the Securities are accelerated and no
foreclosure occurs within 180 days thereafter, then principal of the Debt
Service Reserve LOC Loans shall be paid equally and ratably in priority Third
in lieu of priority Fourth above until such time as such foreclosure has
occurred or such acceleration has been rescinded or otherwise remedied.
Notwithstanding the foregoing provisions of priority Fourth above, if
the Debt Service Reserve Letter of Credit has not been renewed or reinstated
by a date 3.5 years prior to its stated expiration date, monies withdrawn and
transferred as specified in priority Fourth above for application in priority
Fourth shall, during such 3.5 year period and until either (i) the outstanding
amount of the Debt Service Reserve Letter of Credit is reduced to zero and no
Debt Service Reserve LOC Loans are outstanding or (ii) a replacement Debt
Service Reserve Letter of Credit issued by a Debt Service Reserve LOC Provider
is provided to the Trustee, be distributed ratably as follows: (a) to the Debt
Service Reserve LOC Loan principal sub-fund for application against the
principal on any Debt Service Reserve LOC Loans due or becoming due on the
next succeeding Principal Payment Date, and (b) to the Debt Service Reserve
Fund until the amount deposited therein equals the Debt Service Reserve Fund
Required Balance.
PRINCIPAL FUND AND INTEREST FUND
Funds in the Interest Fund and the Principal Fund shall be utilized
to make interest and principal payments on the Project Notes and the
Securities.
DEBT SERVICE RESERVE FUND
A Debt Service Reserve Fund for the benefit of the Holders has been
established under the Depositary Agreement and was funded on the Closing Date
with a letter of credit (the "Debt Service Reserve Letter of Credit") in an
amount of approximately $71,250,000 from Credit Suisse. The Debt Service
Reserve Letter of Credit was issued pursuant to a Debt Service Reserve LOC
Reimbursement Agreement which has terms substantially as described below. See
"--Debt Service Reserve LOC Reimbursement Agreement."
The Debt Service Reserve Fund may accumulate cash deposits from:
(i) the Revenue Fund, as provided above under "Revenue Fund;
Priority of Payments"; and
(ii) net interest earned on amounts deposited in the Debt Service
Reserve Fund.
The sum of amounts available to be drawn under the Debt Service Reserve Letter
of Credit and all cash and other Permitted Investments held in the Debt
Service Reserve Fund shall, at all times on or prior to December 31, 1999 be
required to equal the maximum semi-annual scheduled principal and interest
payments on the Securities and, at all times subsequent to December 31, 1999,
be required to equal the maximum annual
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scheduled principal and interest payments on the Securities (the "Debt Service
Reserve Fund Required Balance"). These deposits, in conjunction with the Debt
Service Reserve Letter of Credit, will be available in the event the Revenue
Fund, the Principal Fund and the Interest Fund lack sufficient funds on a
Payment Date to meet principal and interest payments on the Securities and
interest payments on Debt Service Reserve LOC Loans. Once the Debt Service
Reserve Fund Required Balance is reached, interest income in excess of such
amount shall be transferred to the Revenue Fund.
DISTRIBUTION FUND
The Distribution Fund will be funded from monies transferred from the
Revenue Fund, as specified in the Depositary Agreement, after all other then
required amounts have been paid as provided below under "Revenue
Fund; Priority of Payments." Distributions may be made only from and to the
extent of monies on deposit in the Distribution Fund. Such distributions are
subject to the prior satisfaction of the following conditions:
(i) the amounts deposited in the Principal and Interest Funds shall
be equal to or greater than the aggregate principal and interest payments
next due on the Securities and (without duplication) the Project Notes;
(ii) no Default or Event of Default has occurred and is continuing;
(iii) the Debt Service Coverage Ratio for the preceding four fiscal
quarters, measured as one annual period (with respect to any proposed
distribution date prior to the first anniversary of the Closing Date, for
the period commencing with the Closing Date and ending on the first
anniversary of the Closing Date, projected results for any portion of
such period (certified by an officer of the Funding Corporation) shall be
used when actual results are not available), is equal to or greater than
1.4 to 1, if such distribution date occurs prior to the year 2000, and,
if such distribution date occurs in or subsequent to the year 2000, is
equal to or greater than 1.5 to 1, as certified by an authorized officer
of the Funding Corporation;
(iv) the projected Debt Service Coverage Ratio for the succeeding
four fiscal quarters, taken as one annual period, is equal to or greater
than 1.4 to 1, if such distribution date occurs prior to the year 2000,
and, if such distribution date occurs in or subsequent to the year 2000,
is equal to or greater than 1.5 to 1, as certified by an authorized
officer of the Funding Corporation;
(v) the Debt Service Reserve Fund shall have a balance equal to or
greater than the Debt Service Reserve Fund Required Balance or a Debt
Service Reserve Letter or Letters of Credit at least equal to
(collectively with the balance, if any, then in such Debt Service Reserve
Fund) the Debt Service Reserve Fund Required Balance shall be
outstanding;
(vi) an officer of the Funding Corporation provides a certificate
(based on customary assumptions) stating that there are sufficient
geothermal resources to operate the Salton Sea Projects and the
Partnership Projects at contract capacity through the Final Maturity
Date; and
(vii) Substantial Completion of the Salton Sea Expansion has
occurred on or prior to January 1, 1997; provided that, if such condition
is not satisfied, no distributions shall be made unless and until (A)
Substantial Completion of the Salton Sea Expansion occurs prior to
January 1, 1998, as certified by an authorized officer of the Funding
Corporation, or (B)(1) Series B and Series C Securities having an
aggregate principal amount of $150,000,000 are redeemed for a redemption
price equal to the principal amount thereof plus accrued interest thereon
or (2) the Funding Corporation and the Guarantors take such actions as
the Rating Agencies require to confirm the Investment Grade Rating of the
Securities, notwithstanding the failure of Substantial Completion of the
Salton Sea Expansion to occur; provided, further, that this condition to
distribution shall only apply after January 1, 1997, unless the Salton
Sea Guarantors have previously notified the Trustee that the Salton Sea
Expansion has been abandoned.
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DISTRIBUTION SUSPENSE FUND
Funds in the Distribution Fund which may not be distributed because
of a failure to satisfy certain conditions to distributions will be
transferred to the Distribution Suspense Fund. Funds in the Distribution
Suspense Fund may be transferred back to the Distribution Fund and distributed
when (i) all conditions are satisfied and (ii) no Default or Event of Default
has occurred and is continuing. At any time that funds in the Revenue Fund are
not sufficient to pay any amounts which are due and payable and required to be
paid with proceeds of the Revenue Fund, then funds in the Distribution
Suspense Fund shall be transferred to the Revenue Fund for distribution as
required.
REDEMPTION FUND
A Redemption Fund will be established under the Depositary Agreement.
The Redemption Fund will be funded from (i) certain proceeds received in
connection with an Event of Loss, an Event of Eminent Domain or a Title Event,
(ii) proceeds realized in connection with a Permitted Power Contract Buy-Out,
(iii) net cash proceeds received from a settlement or buy-out of the BRPU
Award or a lump sum settlement (whether payable in one payment or a series of
lump sum installments) of the SCE Litigation which occurs prior to completion
of the Salton Sea Expansion and (iv) proceeds in excess of $5 million received
as a result of foreclosure by the Collateral Agent of the Collateral securing
the obligations of the Guarantors following a Trigger Event caused by an event
of default under the Salton Sea Guarantee, the Partnership Guarantee or the
Royalty Guarantee.
All proceeds received in connection with an Event of Loss or a Title
Event will be deposited in the Loss Proceeds Fund and proceeds in excess of
$15 million will be transferred to the Redemption Fund if not used to repair
or replace the affected project or remediate the title deficiency, as
permitted under the Indenture, and shall be distributed to the Collateral
Agent for distribution after giving effect to the provisions of the Indenture,
the Intercreditor Agreement and the Depositary Agreement with respect to such
proceeds. See "--Intercreditor Agreement" and "SUMMARY DESCRIPTION OF THE
SERIES D AND SERIES E SECURITIES--Mandatory Redemption."
The net lump sum proceeds received in connection with the May 1996
settlement of the SCE Litigation, of approximately $10 million have been
deposited in the Redemption Fund. Such proceeds will be transferred to the
Revenue Fund for distribution to other funds as described below upon
Substantial Completion of the Salton Sea Expansion; provided that, if
Substantial Completion of the Salton Sea Expansion does not occur by January
1, 1998 and, as a result thereof, Series B and Series C Securities are
required to be redeemed, then such proceeds shall be used to partially fund
such redemption. See "SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E
SECURITIES--Mandatory Redemption."
LOSS PROCEEDS FUND
All Loss Proceeds and Eminent Domain Proceeds received by the Salton
Sea Guarantors or the Partnership Guarantors shall be deposited in the Loss
Proceeds Fund subject to disbursement for repair or replacement of the assets
affected, or otherwise, as follows.
Upon the Depositary's receipt of a complete and properly executed
requisition from an authorized officer of the relevant Salton Sea Guarantor or
Partnership Guarantor and approved by the Independent Engineer, the Depositary
will apply the amounts in the Loss Proceeds Fund to the payment, or
reimbursement to the extent the same have been paid or satisfied by such
Salton Sea Guarantor or Partnership Guarantor, of the costs of repair or
replacement of the relevant Salton Sea Project or Partnership Project or any
part thereof that has been affected due to an Event of Loss or Event of
Eminent Domain; provided, however, that no such approval of the Independent
Engineer shall be required if less than $30 million in the aggregate for all
plants affected by such occurrence is requested pursuant to such requisition
or requisitions in any fiscal year.
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If the Salton Sea Guarantors or the Partnership Guarantors, as
applicable, determine that the affected Salton Sea Project or Partnership
Project is not capable of being rebuilt or replaced to permit operation on a
commercially reasonable basis, or determine not to rebuild, repair or restore
the affected Project (or the Loss Proceeds and Eminent Domain Proceeds,
together with any other amounts available to such Guarantors for such
rebuilding or replacement, are not sufficient to permit such rebuilding or
replacement), and the Loss Proceeds and Eminent Domain Proceeds exceed $15
million, the Depositary shall transfer the Loss Proceeds and Eminent Domain
Proceeds to the Collateral Agent for distribution to the Redemption Fund in
accordance with the Indenture, the Depositary Agreement and the Intercreditor
Agreement. If only a portion of the affected Project is capable of being
rebuilt or replaced, the Depositary shall transfer the Loss Proceeds and
Eminent Domain Proceeds in excess of the cost of repairing or replacing the
affected Project to the Redemption Fund in accordance with the Indenture, the
Depositary Agreement and the Intercreditor Agreement; provided that, such Loss
Proceeds and Eminent Domain Proceeds exceed the cost of such repair and
replacement by $15 million. If the Salton Sea Guarantors or the Partnership
Guarantors, as applicable, do not rebuild or replace the affected Project and
the Loss Proceeds and Eminent Domain Proceeds are equal to or are less than
$15 million or the excess Loss Proceeds and Eminent Domain Proceeds after
rebuilding and replacement of the affected Project are equal to or are less
than $15 million, funds in the Loss Proceeds Fund shall be transferred to the
Revenue Fund for distribution to other Funds, as provided below under "Revenue
Fund; Priority of Payments." See "--Intercreditor Agreement" and "SUMMARY
DESCRIPTION OF THE SERIES D AND SERIES E SECURITIES--Mandatory Redemption."
All Title Event Proceeds received by the Salton Sea Guarantors or the
Partnership Guarantors, as applicable, shall be deposited in the Loss Proceeds
Fund subject to disbursement in connection with remedying such Title Event in
an amount not to exceed $25,000,000 and for payment of expenses incurred in
collecting such proceeds. Any Title Event Proceeds not so expended shall be
transferred to the Redemption Fund, to the extent such proceeds exceed
$5,000,000. If such proceeds are equal to or are less than $5,000,000, then
such proceeds shall be transferred to the Revenue Fund.
INVESTMENT OF MONIES
Amounts deposited in the accounts and funds under the Depositary
Agreement, at the written request and direction of the Funding Corporation or
any Guarantor, shall be invested by the Depositary in Permitted Investments.
Such investments shall generally mature in such amounts and not later than
such times as may be necessary to provide monies when needed to make payments
from such monies as provided in the Depositary Agreement. Net interest or gain
received from such investments shall be applied as provided in the Depositary
Agreement. Absent written instructions from the Funding Corporation, the
Depositary shall invest the amounts held in the accounts and funds under the
Depositary Agreement in Permitted Investments described in clause (i) of such
definition. So long as an outstanding balance shall remain in any of the
accounts and funds under the Depositary Agreement, the Depositary shall
provide the Funding Corporation and the Guarantors with monthly statements
showing the amount of all receipts, the net investment income or gain received
and collected, all disbursements and the amount then available in each such
account and fund.
INDENTURE
GENERAL
The New Securities and Additional Securities, if any, will be, and
the Initial Securities and Old Securities have been, issued under the
Indenture between the Funding Corporation and the Trustee. The Funding
Corporation has issued and will issue the Securities in its individual
capacity as principal and as agent on behalf of the Guarantors. The Securities
will be issued in series pursuant to one or more supplemental indentures which
will set forth the terms of such series including (i) the title of such
series, (ii) any limit on the aggregate principal amount of such series that
may be authenticated and delivered under the Indenture, (iii) the dates on
which the principal of the Securities of such series is payable and the amount
of principal payable on such dates, (iv) the interest rate on such series and
the dates interest will accrue and be payable, (v) the place where
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payments under such series will be payable, (vi) the terms of any redemption
provisions related to such series and (vii) other terms of such series.
ADDITIONAL SECURITIES
The Indenture provides that Additional Securities may be issued
thereunder subject to the satisfaction of certain conditions set forth in the
Indenture. All Additional Securities (as well as the Initial Securities) shall
rank pari passu with the Series D and Series E Securities, shall be secured by
the Funding Corporation Collateral and guaranteed pursuant to the Guarantees
and shall have such terms, be in such form and be issued at such prices as
shall be approved in writing by the Funding Corporation. No Additional
Securities (other than those used to finance certain capital improvements in
certain circumstances when required for the Salton Sea Projects, the
Partnership Projects or Additional Projects to maintain compliance with
applicable law) may be issued at any time if a Default or Event of Default
shall result from such issuance. All net proceeds of Additional Securities
must be loaned to the Guarantors and must be utilized by the Guarantors for
one or more of the purposes for which Permitted Debt may be incurred.
CERTAIN COVENANTS
Actions with Respect to Credit Agreements
The Funding Corporation will enforce all of its rights under the
Credit Agreements and the Project Notes for the benefit of the Trustee and the
Security Holders. The Funding Corporation will not grant any consents or
waivers thereunder, amend or modify any provisions thereof or otherwise modify
the Credit Agreements or the Project Notes, except as provided below. See
"--Amendment of Credit Agreements and Project Notes."
Limitations on Debt/Liens
The Funding Corporation will not create or incur or suffer to exist
any Debt except Permitted Debt. The Funding Corporation will not grant,
create, incur or suffer to exist any Liens upon any of its properties except
for Permitted Liens.
Limitations on Guarantees
The Funding Corporation will not contingently or otherwise be or
become liable in connection with any guarantee, except for endorsements and
similar obligations in the ordinary course of business.
Restricted Payments
The Funding Corporation shall not make any Restricted Payments or
direct any Restricted Payments to be made on behalf of any Guarantor except
for payments permitted under the Depositary Agreement.
Prohibitions on Other Obligations or Assignments
The Funding Corporation may not assign any of its rights or
obligations under any Financing Document, and may not enter into additional
contracts if it would be reasonably expected to cause a Material Adverse
Effect and otherwise only as contemplated under the Indenture.
Prohibitions on Fundamental Changes
The Funding Corporation may not enter into any transaction of merger
or consolidation, change its form of organization or its business, liquidate,
wind-up or dissolve itself or discontinue its business, except as may be
contemplated by the Financing Documents. The Funding Corporation is also
restricted from engaging in
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any business other than in connection with the issuance of the Securities, the
incurrence of Permitted Debt and the performance of its obligations under the
Transaction Documents. The Funding Corporation may not lease (as lessor) or
sell, transfer, assign, hypothecate, pledge or otherwise dispose of any of its
property or assets, except as may be contemplated by the Financing Documents.
ADDITIONAL COVENANTS
In addition to the covenants described above, the Indenture also
contains covenants of the Funding Corporation regarding (i) maintenance of
existence, (ii) payment of taxes, (iii) maintenance of books and records, (iv)
compliance with laws, (v) delivery to the Trustee of compliance certificates
and of notices of Credit Agreement Events of Default and Guarantee Events of
Default, (vi) delivery to the Trustee of unaudited quarterly reports of the
Funding Corporation and the Guarantors for the first three quarters of each
fiscal year containing condensed financial information and audited annual
reports of the Funding Corporation and the Guarantors, and (vii) delivery to
the Trustee of all other information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act in order to permit compliance by a Holder
with Rule 144A in connection with the resale of the Securities.
REDEMPTION OF SECURITIES; NOTICE
Notice to Trustee
The election or requirement of the Funding Corporation to redeem any
Securities will be evidenced by a written request of the Funding Corporation
(a "Funding Order"). If the Funding Corporation determines or is required to
redeem any Securities, the Funding Corporation will, at least 30 days prior to
the date upon which notice of redemption is required to be given to the
Holders (or such shorter period as may be agreed by the Trustee), deliver to
the Trustee a Funding Order specifying the date on which such redemption will
occur (the "Redemption Date"), the series and principal amount of Securities
to be redeemed.
Notice of Redemption
Notice of redemption will be given to the Holders of Securities of
such series to be redeemed at least 30 days but not more than 60 days prior to
the Redemption Date. All notices of redemption will state the Redemption Date,
the premium payable on redemption, if any, the portion of the principal amount
of each Security of such series to be redeemed, that on the Redemption Date
interest thereon will cease to accrue on and after said date, the place of
payment where such Securities are to be surrendered for payment of the amount
in respect of such redemption, and that the availability in the Mandatory
Redemption Fund of an amount of immediately available funds to pay the
Securities to be redeemed in full is a condition precedent to the redemption.
Securities Payable on Redemption Date
The Securities or portions thereof to be redeemed will, on the
Redemption Date, become due and payable, and from and after such date such
Securities or portions thereof will cease to bear interest. Upon surrender of
any such Security for redemption, an amount in respect of such Security or
portion thereof will be paid as provided therein; provided, however, that any
payment of interest on any Security the scheduled payment date of which is on
or prior to the Redemption Date will be payable to the Holder of such
Security, at the close of business on the record date according to the terms
of such Security and the Indenture.
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EVENTS OF DEFAULT
Certain Events
The following events constitute "Events of Default" under the
Indenture:
(a) Failure to pay any principal, interest or other amounts owed on
any Security when the same becomes due and payable, whether by scheduled
maturity or required prepayment or redemption or by acceleration or otherwise,
and such failure continues for 15 days or more following the due date for
payment;
(b) A Credit Agreement Event of Default or a Guarantee Event of
Default has occurred and is continuing (other than a Credit Agreement Event of
Default related to failure to pay Project Notes or a Guarantee Event of
Default related to failure to make payments owed under the Guarantees);
(c) Any representation or warranty made by the Funding Corporation in
the Indenture or in any other Financing Document or any representation,
warranty or statement in any certificate, financial statement or other
document furnished to the Trustee or any other Person by or on behalf of the
Funding Corporation proves to have been untrue or misleading in any material
respect as of the time made, confirmed or furnished and the fact, event or
circumstance that gave rise to such inaccuracy has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect and that fact,
event or circumstance continues uncured for 30 or more days from the date a
Responsible Officer of the Funding Corporation obtains actual knowledge
thereof; provided that, if the Funding Corporation commences and diligently
pursues efforts to cure such fact, event or circumstance within such 30-day
period and delivers written notice to the Trustee thereof, the Funding
Corporation may continue to effect such cure, and such misrepresentation shall
not be deemed an "Event of Default" for an additional 60 days so long as the
Funding Corporation is diligently pursuing such cure;
(d) The Funding Corporation fails to perform or observe any covenant
or agreement contained in the Indenture regarding maintenance of existence or
restrictions on Debt, Liens, Restricted Payments, guarantees, disposition of
assets, amendments to Credit Agreements or Project Notes or taking of actions
thereunder as directed by the Required Holders, fundamental changes or nature
of business and such failure continues uncured for 30 or more days from the
date a Responsible Officer of the Funding Corporation obtains actual knowledge
thereof;
(e) The Funding Corporation fails to perform or observe any of its
covenants contained in the Indenture (other than those contained in (d) above)
and such failure continues uncured for 60 or more days from the date a
Responsible Officer of the Funding Corporation obtains actual knowledge of
such failure; provided that if the Funding Corporation commences and
diligently pursues efforts to cure such default within such 60-day period, the
Funding Corporation may continue to effect such cure of the default and such
default will not be deemed an "Event of Default" for an additional 30 days so
long as the Funding Corporation is diligently pursuing such cure;
(f) Certain events involving the bankruptcy, insolvency, receivership
or reorganization of the Funding Corporation;
(g) The Funding Pledge Agreement ceases to be in full force and
effect or there is a Material Adverse Effect on the Lien purported to be
granted in the Funding Pledge Agreement such that it ceases to be a valid and
perfected Lien in favor of the Collateral Agent for the benefit of the Secured
Parties on the Funding Corporation Collateral described therein with the
priority purported to be created thereby; provided, however, that the Funding
Corporation has 10 days to cure any such cessation, if curable, or to furnish
to the Collateral Agent all documents or instruments required to cure any such
cessation, if curable;
(h) Any event of default under any Permitted Debt of Funding
Corporation which results in Permitted Debt in excess of $10,000,000 becoming
due and payable prior to its stated maturity;
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(i) CalEnergy fails to perform or breaches any of its obligations
under the Cost Overrun Commitment and such failure or breach continues for 15
days or more;
(j) Magma fails to perform or breaches its obligations under the
Support Letter and such failure or breach continues for 15 days or more; or
(k) CalEnergy fails to maintain direct or indirect beneficial
ownership of (i) 100% of CEOC and VPC or (ii) at least 51% of each of the
Salton Sea Guarantors and the Partnership Project Companies.
Control By Holders
The Holders of not less than a majority (the "Required Holders") in
aggregate principal amount of the Outstanding Securities have the right to
direct the time, place and method of conducting any proceeding for any right
or remedy available to the Trustee or exercising any trust or power conferred
on the Trustee in the Indenture. The Required Holders, acting through the
Trustee, have the right to direct the time, place and method for exercising
any right or remedy available to the Funding Corporation under the Credit
Agreements and the Project Notes; provided that upon the occurrence of an
Event of Default related to failure to make payments on the Securities,
Holders of 33 1/3 % in aggregate principal amount of the Outstanding
Securities have the right to cause the acceleration of any Project Note
pursuant to which a payment default related to such Event of Default has
occurred.
Subject to the above paragraph, if an Event of Default has occurred
and is continuing and as a result thereof or in connection therewith or
pursuant to an acceleration of the Securities arising therefrom, payments on
the Securities are not made when due, the Trustee is required to enforce the
Guarantees and the rights of the Security Holders thereunder.
Enforcement of Remedies
(a) If one or more Events of Default have occurred and are
continuing, then:
(i) in the case of an Event of Default described in clause
(f) above, the entire principal amount of the Securities Outstanding,
all interest accrued and unpaid thereon, and all premium and other
amounts payable under the Securities and the Indenture, if any, will
automatically become due and payable without presentment, demand,
protest or notice of any kind; or
(ii) in the case of an Event of Default described in clause
(b) above relating to certain events involving the bankruptcy,
insolvency, receivership or reorganization of any of the Guarantors,
a principal amount of the Securities Outstanding (on a pro rata
basis) which is equal to the principal amount of the Project Notes
automatically accelerated in connection with such Event of Default
under the Credit Agreements, all interest accrued and unpaid thereon,
and all premium and other amounts payable under the Securities and
the Indenture, if any, will automatically become due and payable
without presentment, demand, protest or notice of any kind; or
(iii) in the case of an Event of Default described in:
(A) clause (a) above, upon the direction of the
Holders of no less than 33 1/3 % in aggregate principal
amount of the Outstanding Securities, the Trustee will, by
notice to the Funding Corporation, declare the entire
principal amount of the Securities Outstanding, all interest
accrued and unpaid thereon, and all premium and other
amounts payable under the Securities and the Indenture, if
any, to be due and payable,
(B) clause (b) above (except as described in clause
(ii) immediately above), upon the direction of the Holders
of no less than 50% in aggregate principal amount of the
Outstanding Securities, the Trustee will, by notice to the
Funding Corporation, declare a principal amount
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of the Securities Outstanding which is equal to the
principal amount of the Project Notes related to such
Credit Agreement to be accelerated in connection with such
Credit Agreement Event of Default, all interest accrued
and unpaid thereon, and all premium and other amounts
payable under the Securities and the Indenture, if any, to
be due and payable, or
(C) clauses (c), (d), (e), (g), (h), (i), (j), or
(k) above, upon the direction of the Holders of no less than
50% in aggregate principal amount of the Outstanding
Securities, the Trustee will, by notice to the Funding
Corporation, declare the entire principal amount of the
Securities Outstanding, all interest accrued and unpaid
thereon, and all premium and other amounts payable under the
Securities and the Indenture, if any, to be due and payable.
If an Event of Default occurs and is continuing and is known to the
Trustee, the Trustee will mail to each Holder notice of the Event of Default
within 30 days after the occurrence thereof. Except in the case of an Event of
Default in payment of principal of or interest on any Security, the Trustee
may withhold the notice to the Holders if the Trustee in good faith determines
that withholding the notice is in the interest of the Holders.
If an Event of Default relating to failure to pay amounts owed on the
Securities has occurred and is continuing, the Trustee may declare the
principal amount of the Securities Outstanding, all interest accrued and
unpaid thereon, and all premium and other amounts payable under the Securities
and the Indenture, if any, to be due and payable notwithstanding the absence
of direction from Holders of at least 33 1/3 % in aggregate principal amount
of the Securities Outstanding directing the Trustee to accelerate the maturity
of the Securities unless Holders of more than 66 2/3 % in aggregate principal
amount of the Securities Outstanding direct the Trustee not to accelerate the
maturity of such Securities, if in the good faith exercise of its discretion
the Trustee determines that such action is necessary to protect the interests
of the Holders.
If an Event of Default relating to a Credit Agreement Event of
Default or a Guarantee Event of Default (other than a Credit Agreement Event
of Default related to failure to pay Project Notes or a Guarantee Event of
Default related to failure to make payments under the Guarantees) has occurred
and is continuing, the Trustee may declare the principal amount of the
Securities Outstanding referred to in clause (iii)(B) immediately above, all
interest accrued and unpaid thereon, and all premium and other amounts payable
under the Securities and the Indenture, if any, to be due and payable
notwithstanding the absence of direction from Holders of at least 50% in
aggregate principal amount of the Securities Outstanding directing the Trustee
to accelerate the maturity of such amount of Securities unless Holders of more
than 50% in aggregate principal amount of the Securities Outstanding direct
the Trustee not to accelerate the maturity of such Securities, if in the good
faith exercise of its discretion the Trustee determines that such action is
necessary to protect the interests of the Holders.
In addition, if one or more of the Events of Default referred to in
clause (iii)(C) immediately above has occurred and is continuing, the Trustee
may declare the entire principal amount of the Securities outstanding, all
interest accrued and unpaid thereon, and all premium and other amounts payable
under the Securities and the Indenture, if any, to be due and payable
notwithstanding the absence of direction from the Holders of at least 50% in
aggregate principal amount of the Securities Outstanding directing the Trustee
to accelerate the maturity of the Securities unless Holders of more than 50%
in aggregate principal amount of the Securities Outstanding direct the Trustee
not to accelerate the maturity of the Securities if in the good faith exercise
of its discretion the Trustee determines that such action is necessary to
protect the interests of the Holders.
(b) At any time after the principal of the Securities has become due
and payable upon a declared acceleration, and before any judgment or decree
for the payment of the money so due, or any portion thereof, has been entered,
the Holders of not less than a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Funding Corporation and the
Trustee, may rescind and annul such declaration and its consequences if:
(i) there has been paid to or deposited with the Trustee a
sum sufficient to pay
(A) all overdue interest on the Securities,
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(B) the principal of and premium, if any, on any
Securities that have become due (including overdue
principal) other than by such declaration of acceleration
and interest thereon at the respective rates provided in the
Securities for overdue principal,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the respective
rates provided in the Securities for overdue interest, and
(D) all sums paid or advanced by the Trustee and
the reasonable compensation, expenses, disbursements, and
advances of the Trustee, its agents and counsel, and
(ii) all Events of Default, other than the nonpayment of the
principal of the Securities that has become due solely by such
acceleration, have been cured or waived in accordance with the
Indenture.
(c) If an Event of Default relating to failure to pay amounts owed on
the Securities has occurred and is continuing and an acceleration has
occurred, the Trustee may (as the Holders of 33 1/3 % in aggregate principal
amount of the Securities Outstanding request) direct the Collateral Agent to
take possession of all Collateral pledged to secure the Project Notes to be
accelerated in connection with such Event of Default and all Collateral
pledged to secure any Guarantee under which a payment default has occurred in
connection with such failure to pay amounts owed on the Securities and,
pursuant to the Intercreditor Agreement, to sell pursuant to the procedures
contained in the Intercreditor Agreement, such Collateral, as and to the
extent permitted under the Intercreditor Agreement.
(d) If an Event of Default relating to a Credit Agreement Event of
Default or a Guarantee Event of Default (other than a Credit Agreement Event
of Default related to failure to pay Project Notes or a Guarantee Event of
Default related to failure to pay amounts owed on the Securities) has occurred
and is continuing and an acceleration has occurred, the Trustee may (as the
Holders of 50% in aggregate principal amount of the Securities Outstanding
request) direct the Collateral Agent to take possession of all Collateral
pledged to secure the Project Note or Project Notes to be accelerated in
connection with such Event of Default and all Collateral pledged to secure any
Guarantee pursuant to which such Guarantee Event of Default has occurred and,
pursuant to the Intercreditor Agreement, to sell pursuant to the procedures
contained in the Intercreditor Agreement, such Collateral, as and to the
extent permitted under the Intercreditor Agreement.
(e) If an Event of Default other than those referred to in clauses
(c) and (d) above has occurred and is continuing and an acceleration has
occurred, the Trustee may (as the Holders of 50% in aggregate principal amount
of the Securities Outstanding request) direct the Collateral Agent to take
possession of all Collateral and Funding Corporation Collateral and, pursuant
to the Intercreditor Agreement, to sell pursuant to the procedures contained
in the Intercreditor Agreement, the Collateral and Funding Corporation
Collateral, as and to the extent permitted under the Intercreditor Agreement.
(f) If one or more Guarantee Events of Default shall have occurred
and be continuing under the Royalty Guarantee or the Partnership Guarantee,
the Trustee may (as the Holders of a majority in aggregate principal amount of
the Securities Outstanding request) direct the Collateral Agent to take
possession of all Collateral pledged to secure the obligations of the
defaulting Guarantor under the Royalty Guarantee or the Partnership Guarantee
in connection with such Guarantee Event of Default and, pursuant to the
Intercreditor Agreement, to sell such Collateral, as and to the extent
permitted under the Intercreditor Agreement. Pursuant to the Intercreditor
Agreement, all monies received by the Trustee resulting from such sale shall
be made available for redemption of Securities.
Application of Monies Collected by Trustee
Any money collected or to be applied by the Trustee after an Event of
Default in respect of the Securities will be applied to amounts owed with
respect to all Securities on a pro rata basis and, in respect of Securities of
a series, will be applied ratably to the Holders of Securities in the
following order from time to time, on the date or dates fixed by the Trustee:
(i) first, to the payment of all amounts due to the Trustee or any
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predecessor Trustee under the Indenture; (ii) second, (A) in case the unpaid
principal amount of the Outstanding Securities of such series has not become
due, to the payment of any overdue interest, in the order of the maturity of
the payments thereof, with interest at the rates specified in the respective
Securities of such series in respect of overdue interest, (B) in case the
unpaid principal amount of a portion of the Outstanding Securities of such
series has become due, first to the payment of accrued interest on all
Outstanding Securities of such series in the order of the maturity of the
payments thereof, with interest at the respective rates specified in the
Securities of such series for overdue principal, premium, if any, and overdue
interest, and next to the payment of the overdue principal on all Securities
of such series then due or (C) in case the unpaid principal amount of all the
Outstanding Securities of such series has become due, first to the payment of
the whole amount then due and unpaid upon the Outstanding Securities of such
series for principal, premium, if any, and interest, together with interest at
the respective rates specified in the Securities of such series for overdue
principal, premium, if any, and overdue interest; and (iii) third, in case the
unpaid principal amount of all the Outstanding Securities of such series has
become due, and all of the outstanding principal, premium, if any, interest
and other amounts owed in connection with Securities of such series have been
fully paid, any surplus then remaining will be paid to the Funding
Corporation, or to whomsoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct.
AMENDMENTS AND SUPPLEMENTS
The Funding Corporation and the Trustee may amend or supplement the
Indenture without the consent of the Security Holders (i) to add additional
covenants of the Funding Corporation, to surrender rights conferred upon the
Funding Corporation, or to confer additional benefits upon the Security
Holders, (ii) to increase the assets securing the Funding Corporation's
obligations under the Indenture, (iii) to provide for the issuance of
Additional Securities on the conditions described herein, (iv) for any purpose
not inconsistent with the terms of the Indenture or to cure any ambiguity,
defect or inconsistency or (v) to reflect any amendments required by a Rating
Agency in circumstances where confirmation of the Ratings is required or
permitted under the Indenture.
The Indenture may be otherwise amended or supplemented by the Funding
Corporation and the Trustee with the consent of Holders of not less than 51%
in aggregate principal amount of the Securities then Outstanding; provided
that no such amendment or supplement may, without the consent of all Holders
of Outstanding Securities, modify: (i) the principal, premium (if any) or
interest payable upon any Securities, (ii) the dates on which interest or
principal on any Securities is paid, (iii) the dates of maturity of any
Securities, and (iv) the procedures for amendment by a supplemental indenture.
AMENDMENT OF CREDIT AGREEMENTS AND PROJECT NOTES
The Funding Corporation and the Trustee may, without the consent of
or notice to the Security Holders, consent to any amendment or modification of
any Credit Agreements or Project Notes (i) as permitted by the provisions of
such Credit Agreements, Project Notes or the Indenture, (ii) to cure any
ambiguity or formal defect, (iii) to add additional rights in favor of the
Funding Corporation, or (iv) in connection with any other amendment to the
Credit Agreements or Project Notes, including any amendment required by a
Rating Agency in circumstances where confirmation of the Ratings are required
or permitted under the Indenture or the Credit Agreements. Except as described
above, neither the Funding Corporation nor the Trustee shall consent to any
other amendment or modification of a Credit Agreement or Project Note or grant
any waiver or consent thereunder without the consent of the Holders of not
less than 51% in aggregate principal amount of the Securities then
Outstanding. An amendment to a Credit Agreement or Project Note which changes
the amounts of payments due thereunder, the Person to whom such payments are
to be made or the dates on which such payments are to be made shall not be
made without the unanimous consent of the Security Holders.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Funding Corporation may terminate the Indenture and the
Guarantees by delivering all Outstanding Securities to the Trustee for
cancellation and by paying all other sums payable under the Indenture.
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Legal and covenant defeasance shall be permitted upon terms and
conditions customary for transactions of this nature.
TRUSTEE
There shall at all times be a Trustee under the Indenture, which
shall be a corporation having either (a) a combined capital and surplus of at
least $50 million, or (b) having a combined capital and surplus of at least
$10,000,000 and being a wholly owned subsidiary of a corporation having a
combined capital and surplus of at least $50,000,000, in each case subject to
supervision or examination by a Federal or State or District of Columbia
authority and having a corporate trust office in New York, New York and
California, to the extent there is such an institution eligible and willing to
serve. The Funding Corporation agrees to indemnify and hold harmless the
Trustee in connection with the performance of its duties under the Indenture,
except for liability which results from the gross negligence, bad faith or
willful misconduct of the Trustee.
The Trustee may resign at any time by giving written notice thereof
to the Funding Corporation. The Trustee may be removed at any time by act of
the Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Funding Corporation. The Funding
Corporation shall give notice of each resignation and removal of the Trustee
and each appointment of a successor Trustee to all Security Holders.
INFORMATION AVAILABLE TO SECURITY HOLDERS
Pursuant to the Indenture, the Funding Corporation has agreed to
provide to Security Holders and owners of beneficial interests in Securities
in global form, upon written request, such information as is appropriate under
Rule 144A(d)(4) under the Securities Act to enable resales of the Securities
to be made pursuant to Rule 144A, including, but not limited to, the quarterly
and the audited annual financial reports for the Funding Corporation and for
each Guarantor.
AGENT RELATIONSHIP
Each of the Guarantors has designated the Funding Corporation as its
agent under the Indenture for the sole purpose of (i) issuing the Securities
to the extent of each such Guarantor's obligations thereunder and (ii)
otherwise carrying out each Guarantor's obligations and duties and exercising
each Guarantor's rights and privileges under the Indenture. Each Guarantor
will indemnify Funding Corporation against all claims arising in connection
with the Funding Corporation's performance of its obligations.
GUARANTEES
GUARANTEE OF THE SALTON SEA GUARANTORS
Pursuant to the Guarantee issued by the Salton Sea Guarantors in
favor of the Collateral Agent for the benefit of the Secured Parties, the
Salton Sea Guarantors have each, on a joint and several basis, unconditionally
and irrevocably guaranteed the payment of principal of, premium, if any, and
interest on the Securities and the other Senior Debt. Such Guarantee is a
guarantee of payment and the Trustee and the Collateral Agent shall be
entitled to make demands for payment thereunder at any time that amounts due
and payable on the Senior Debt have not been paid.
Under the Salton Sea Guarantee, the Salton Sea Guarantors each have
agreed to be bound by and to perform all of their obligations under covenants
contained in the Salton Sea Credit Agreement in favor of the Trustee and the
Collateral Agent from and after the date that the Salton Sea Project Note is
repaid in full. Failure to perform such covenants will result in a Guarantee
Event of Default, after the expiration of any applicable grace period.
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GUARANTEE OF THE PARTNERSHIP GUARANTORS
Pursuant to the Guarantee issued by the Partnership Guarantors in
favor of the Collateral Agent for the benefit of the Secured Parties, each of
the Partnership Guarantors, on a joint and several basis, unconditionally and
irrevocably have guaranteed the payment of principal of, premium, if any, and
interest on the Securities and the other Senior Debt; provided that each
Partnership Guarantor shall only be required to make payments under such
Guarantee in amounts which do not exceed the Available Cash Flow of such
Guarantor. Such Guarantee is or will be a guarantee of payment and the Trustee
and the Collateral Agent shall be entitled to make demands for payment
thereunder at any time that amounts due and payable on the Senior Debt have
not been paid.
Under the Partnership Guarantee, the Partnership Guarantors each have
agreed or will agree to be bound by and to perform all of their obligations
under covenants contained in the Partnership Credit Agreement in favor of the
Trustee and the Collateral Agent from and after the date that the Partnership
Project Note is repaid in full. Failure to perform such covenants will result
in a Guarantee Event of Default, after the expiration of any applicable grace
period.
GUARANTEE OF THE ROYALTY GUARANTOR
Pursuant to a Guarantee issued by the Royalty Guarantor on the
Initial Closing Date in favor of the Collateral Agent for the benefit of the
Secured Parties, the Royalty Guarantor has unconditionally and irrevocably
guaranteed the payment of principal of, premium, if any, and interest on the
Securities and the other Senior Debt; provided that the Royalty Guarantor
shall only be required to make payments under such Guarantee in amounts which
do not exceed the Available Cash Flow of the Royalty Guarantor. Such Guarantee
is a guarantee of payment and the Trustee and the Collateral Agent shall be
entitled to make demands for payment thereunder at any time that amounts due
and payable on the Senior Debt have not been paid.
Under the Royalty Guarantee, the Royalty Guarantor has agreed to be
bound by and to perform all of its obligations under covenants contained in
the Royalty Credit Agreement in favor of the Trustee and the Collateral Agent
from and after the date that the Royalty Project Note is repaid in full.
Failure to perform such covenants will result in a Guarantee Event of Default,
after the expiration of any applicable grace period.
SALTON SEA CREDIT AGREEMENT
GENERAL
Pursuant to the Credit Agreement, dated as of the Initial Closing
Date, between the Salton Sea Guarantors and the Funding Corporation (the
"Salton Sea Credit Agreement"), the Salton Sea Guarantors have issued the
Salton Sea Project Note payable to the Funding Corporation and have agreed to
make payments on the Salton Sea Project Note in amounts which, when aggregated
together with the other Project Notes, are sufficient to enable the Funding
Corporation to pay scheduled principal of, and interest on, the Securities.
The Salton Sea Guarantors have absolutely and unconditionally agreed
to make payments on the Salton Sea Project Note in scheduled installments and
to pay interest, in arrears, on the unpaid principal amount of each
installment. If the proceeds received from the issuance of Additional
Securities by the Funding Corporation are loaned to the Salton Sea Guarantors,
then an additional Salton Sea Project Note having a principal amount equal to
the amount of such proceeds so loaned to the Salton Sea Guarantors shall be
issued by the Salton Sea Guarantors and such principal shall be payable in
scheduled installments which correspond to the repayment of principal of such
Additional Securities. The Salton Sea Guarantors' obligations to make payments
on the Salton Sea Project Note are joint and several with respect to each
Salton Sea Guarantor.
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OPTIONAL PREPAYMENT
Optional prepayment of the Salton Sea Project Note shall be permitted
so long as the proceeds thereof are utilized by the Funding Corporation to
ratably redeem Series B or C Securities or in connection with the defeasance
of the Securities.
MANDATORY PREPAYMENT
The Salton Sea Guarantors are required to prepay the Salton Sea
Project Note or Notes with proceeds received by the Salton Sea Guarantors in
connection with an Event of Loss, a Title Event, an Event of Eminent Domain, a
Permitted Power Contract Buy-Out or a settlement or buy-out of the BRPU Award,
as and to the extent the Securities are required to be redeemed in connection
with the receipt of such proceeds in an amount as provided in the
Intercreditor Agreement. See "--Depositary Agreement," "--Intercreditor
Agreement" and "SUMMARY DESCRIPTION OF THE SERIES D AND SERIES E
SECURITIES--Mandatory Redemption."
CERTAIN COVENANTS
Set forth below are certain covenants of the Salton Sea Guarantors
contained in the Salton Sea Credit Agreement.
Reporting Requirements. The Salton Sea Guarantors shall provide to
the Funding Corporation (i) unaudited quarterly reports for the first three
quarters of each fiscal year containing condensed financial information and
audited annual reports, (ii) all other information in respect of the Salton
Sea Guarantors or Salton Sea Projects requested by the Funding Corporation to
enable the Funding Corporation to meet its obligations under the Indenture,
(iii) copies of material notices delivered in connection with any Salton Sea
Project Documents, and (iv) written notice of any Credit Agreement Default or
Event of Default under the Salton Sea Credit Agreement or any event or
condition that could reasonably be expected to result in a Material Adverse
Effect.
Sale of Assets. Except as contemplated by the Salton Sea Project
Documents, none of the Salton Sea Guarantors shall sell, lease (as lessor) or
transfer (as transferor) any property or assets material to the operation of
the Salton Sea Projects except in the ordinary course of business to the
extent that such property is no longer useful or necessary in connection with
the operation of the Salton Sea Projects; provided, however, that the Salton
Sea Guarantors shall be allowed to loan useful spare parts to the Partnership
Project Companies for use in the Partnership Projects.
Insurance. The Salton Sea Guarantors have the benefit of the
insurance in effect with respect to the Salton Sea Projects and as is
generally carried by companies engaged in similar businesses and owning
similar properties in the same general areas and financed in a similar manner.
The Salton Sea Guarantors have business interruption insurance, casualty
insurance, including flood and earthquake coverage, and primary and excess
liability insurance, as well as customary worker's compensation and automobile
insurance. The Salton Sea Guarantors shall not reduce or cancel insurance
coverages (or permit any such coverages to be reduced or cancelled) if the
Insurance Consultant determines that such reduction or cancellation would not
be reasonable under the circumstances and the insurance coverages sought to be
reduced or cancelled are available on commercially reasonable terms or that
another level of coverage greater than that proposed by the Salton Sea
Guarantors is available on commercially reasonable terms (in which case such
coverage may be reduced to the higher of such available levels).
QF Status. The Salton Sea Guarantors shall operate and maintain the
Salton Sea Projects as Qualifying Facilities unless the failure to so operate
and maintain such Projects as Qualifying Facilities would not cause or result
in (i) a breach of the power purchase agreements that the Salton Sea
Guarantors are party to or (ii) an adverse effect on the revenues to be
received under such power purchase agreements.
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Governmental Approvals; Title. Each of the Salton Sea Guarantors
shall at all times (i) obtain and maintain in full force and effect all
material Governmental Approvals and other consents and approvals required at
any time in connection with its business and (ii) preserve and maintain good
and valid title to its properties and assets (subject to no Liens other than
Permitted Liens), except in each case where the failure to do so in clause (i)
or (ii) could not reasonably be expected to have a Material Adverse Effect.
Nature of Business. Neither of the Salton Sea Guarantors shall engage
in any business other than their existing businesses and the development,
acquisition, construction, operation and financing of the Salton Sea Projects
as contemplated by the Transaction Documents; provided, however, that the
Salton Sea Guarantors may engage in Permitted Facilities at the SSKGRA (a) (i)
for which Permitted Debt may be incurred and (ii) if the Independent Engineer
certifies that such other projects could not reasonably be expected to have an
adverse impact on the geothermal resources for the Salton Sea Projects or the
Partnership Projects or (b) if the Funding Corporation and the Guarantors take
such action as the Rating Agencies require to confirm the Investment Grade
Rating of the Securities.
Compliance with Laws. Each of the Salton Sea Guarantors shall comply
with all applicable laws, except where non-compliance could not reasonably be
expected to have a Material Adverse Effect.
Prohibition on Fundamental Changes. None of the Salton Sea Guarantors
shall enter into any transaction of merger or consolidation, change its form
of organization or its business, liquidate or dissolve itself (or suffer any
liquidation or dissolution); provided that any Guarantor shall be able to
merge with or into any other Guarantor so long as no Default or Event of
Default exists or will occur as a result thereof and subject to the
satisfaction of other customary conditions. None of the Salton Sea Guarantors
shall purchase or otherwise acquire all or substantially all of the assets of
any other Person; provided however, that the Salton Sea Guarantors may engage
in Permitted Facilities at the SSKGRA (a)(i) for which Permitted Debt may be
incurred and (ii) if the Independent Engineer certifies that such other
projects could not reasonably be expected to have an adverse impact on the
geothermal resource for the Salton Sea Projects or the Partnership Projects or
(b) if the Funding Corporation and the Guarantors take such action as the
Rating Agencies require to confirm the Investment Grade Rating of the
Securities.
Revenue Fund. The Salton Sea Guarantors shall take all actions as may
be necessary to cause all revenues of the Salton Sea Guarantors to be
deposited in the Revenue Fund.
Transactions with Affiliates. None of the Salton Sea Guarantors shall
enter into any transaction or agreement with any Affiliate of the Salton Sea
Guarantors other than (i) as contemplated under the Transaction Documents or
(ii) transactions in the ordinary course of business and on terms no less
favorable to the Salton Sea Guarantors than the Salton Sea Guarantors would
obtain in an arms length transaction with a Person that is not an Affiliate of
the Salton Sea Guarantors.
Restricted Payments. The Salton Sea Guarantors shall not make any
Restricted Payments, except as permitted under the Depositary Agreement.
Exercise of Rights Under Project Documents. None of the Salton Sea
Guarantors shall exercise, or fail to exercise, their rights under the Salton
Sea Project Documents in a manner which could reasonably be expected to result
in a Material Adverse Effect.
Amendments to Contracts. None of the Salton Sea Guarantors shall
terminate, amend, replace or modify (other than immaterial amendments or
modifications as certified by the Salton Sea Guarantors) any of the Salton Sea
Project Documents to which it is a party unless (i) (A) such Salton Sea
Guarantor certifies that such termination, amendment, replacement or
modification could not reasonably be expected to have a Material Adverse
Effect and (B) in the case of any amendment, termination or modification of a
Salton Sea Project Power Purchase Agreement which affects the revenues derived
by any of the Salton Sea Guarantors, the Independent Engineer certifies that
such amendment, termination or modification could not reasonably be
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expected to have a Material Adverse Effect or (ii) the Salton Sea Guarantors
provide a letter from the Rating Agencies confirming that such amendment,
termination or modification will not result in a Rating Downgrade.
Limitations on Debt/Liens. The Salton Sea Guarantors shall not create
or incur or suffer to exist any Debt except Permitted Guarantor Debt. The
Salton Sea Guarantors shall not grant, create, incur or suffer to exist any
Liens upon any of their properties, except for Permitted Liens.
Books and Records. The Salton Sea Guarantors shall maintain their
books and records and give the Funding Corporation, the Trustee, the
Collateral Agent and the Independent Engineer inspection rights.
Additional Project Documents. The Salton Sea Guarantors shall perform
and observe their respective covenants and obligations under all of the Salton
Sea Project Documents in all material respects, except where the failure to do
so could not reasonably be expected to result in a Material Adverse Effect.
The Salton Sea Guarantors shall not be permitted to enter into any Additional
Project Documents if entering into such document would result in a Material
Adverse Effect.
Additional Covenants. In addition to the covenants described above,
the Salton Sea Credit Agreement also contains covenants of the Salton Sea
Guarantors regarding (i) maintenance of existence, (ii) payment of taxes and
claims unless being contested in good faith and (iii) the preservation and
maintenance of Liens on the Collateral and the priority thereof.
EVENTS OF DEFAULT
The following events constitute "Credit Agreement Events of Default"
under the Salton Sea Credit Agreement:
(a) the failure by the Salton Sea Guarantors to pay or cause to be
paid any principal of, premium, if any, or interest, fees or any other
obligations on the Salton Sea Project Note for 15 or more days after the same
becomes due and payable, whether by scheduled maturity or required prepayment
or by acceleration or otherwise, or the failure by the Funding Corporation to
pay or cause to be paid any principal of, premium, if any, or interest on the
Securities for 15 or more days after the same becomes due and payable, whether
by scheduled maturity or required prepayment or by acceleration or otherwise;
(b) any representation or warranty made by the Salton Sea Guarantors
under the Salton Sea Credit Agreement shall prove to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy could
reasonably be expected to result in a Material Adverse Effect and such fact,
event or circumstance shall continue to be uncured for 30 or more days from
the date a Responsible Officer of the Salton Sea Guarantors has actual
knowledge thereof; provided that if the Salton Sea Guarantors commence efforts
to cure such fact, event or circumstance within such 30-day period, the Salton
Sea Guarantors may continue to effect such cure and such misrepresentation
shall not be deemed a Credit Agreement Event of Default for an additional 60
days so long as the Salton Sea Guarantors are diligently pursuing such cure;
(c) the failure by any of the Salton Sea Guarantors to perform or
observe any covenant under the Salton Sea Credit Agreement relating to
maintenance of existence, Debt, Permitted Liens, Restricted Payments,
guarantees, disposition of assets, maintenance of insurance, amendments to the
Salton Sea Project Documents, fundamental changes, or nature of business and
such failure shall continue uncured for 30 or more days after a Responsible
Officer of the Salton Sea Guarantors has actual knowledge of such failure;
(d) the failure by the Salton Sea Guarantors to perform or observe
any of the other covenants contained in the Salton Sea Credit Agreement or in
the other Financing Documents the Salton Sea Guarantors are party to (other
than such failures described in clause (c) above) and such failure shall
continue uncured for 60 or more days after a Responsible Officer of the Salton
Sea Guarantors has actual knowledge of such failure;
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provided that if the Salton Sea Guarantors commence and diligently pursue
efforts to cure such default within such 60-day period, the Salton Sea
Guarantors may continue to effect such cure of the default and such default
will not be deemed a "Credit Agreement Event of Default" for an additional 30
days so long as the Salton Sea Guarantors are diligently pursuing such cure;
(e) certain events involving the bankruptcy, insolvency, receivership
or reorganization of either of the Salton Sea Guarantors;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $10,000,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against the Salton
Sea Guarantors, which remain unpaid or unstayed for a period of 90 or more
consecutive days;
(g) an event of default under any Permitted Guarantor Debt of the
Salton Sea Guarantors in excess of $10,000,000 becomes due and payable prior
to its stated maturity;
(h) the Salton Sea Guarantors fail to perform any of their respective
payment obligations under the Salton Sea Guarantee for 15 or more days after
the same becomes due and payable;
(i) any Governmental Approval required for the operation of a Project
owned by the Salton Sea Guarantors is revoked, terminated, withdrawn or ceases
to be in full force and effect if such revocation, termination, withdrawal or
cessation could reasonably be expected to have a Material Adverse Effect and
such revocation, termination, withdrawal or cessation is not cured for 60 days
following the occurrence thereof;
(j) any Salton Sea Project Document ceases to be valid and binding
and in full force and effect other than as a result of an amendment,
termination or Permitted Power Contract Buy-Out permitted under the Salton Sea
Credit Agreement, or any third party thereto fails to perform its material
obligations thereunder or makes any material misrepresentation thereunder and
any such event results in a Material Adverse Effect; provided that no such
event shall be a Credit Agreement Event of Default if within 180 days from the
occurrence of any such event, the Salton Sea Guarantors (i) cause the third
party to resume performance or cure such misrepresentation or (ii) enter into
an Additional Project Document in replacement thereof, as permitted under the
Salton Sea Credit Agreement;
(k) the failure of each of the Salton Sea Guarantors or any other
party to perform or observe any of its covenants or obligations contained in
any of the Salton Sea Project Documents to which it is a party if such failure
shall result in the receipt of a notice of termination of such Salton Sea
Project Document or otherwise result in a Material Adverse Effect;
(l) any of the Salton Sea Security Documents ceases to be effective
or any Lien granted therein ceases to be a valid and perfected Lien in favor
of the Collateral Agent on the Collateral described therein with the priority
purported to be created thereby; provided, however, that the Salton Sea
Guarantors shall have 10 days to cure any such cessation or to furnish to the
Trustee, the Collateral Agent or the Depositary all documents or instruments
required to cure any such cessation; or
(m) an Event of Default described under clauses (c), (d), (e), (f),
(g), (h), (i), (j) or (k) of the summary of the Event of Default provisions of
the Indenture occurs. See "--Indenture--Events of Default."
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ENFORCEMENT OF REMEDIES
(a) If one or more Credit Agreement Events of Default under the
Salton Sea Credit Agreement have occurred and are continuing, then:
(i) in the case of a Credit Agreement Event of Default under the
Salton Sea Credit Agreement described in clause (e) above the entire
outstanding principal amount of the Salton Sea Project Note or Notes, all
interest accrued and unpaid thereon, and all premium and other amounts payable
under such Salton Sea Project Note or Notes and the Salton Sea Credit
Agreement, if any, will automatically become due and payable without
presentment, demand, protest or notice of any kind; or
(ii) in the case of a Credit Agreement Event of Default described
in:
(A) clauses (a) and (h) above, upon the direction of the
Holders of no less than 33 1/3 % in aggregate principal amount of the
Outstanding Securities, the Funding Corporation will declare the
outstanding principal amount of the Salton Sea Project Note to be
accelerated and due and payable and all interest accrued and unpaid
thereon, and all premium and other amounts payable under the Salton
Sea Credit Agreement, if any, to be due and payable; or
(B) clauses (b), (c), (d), (f), (g), (i), (j), (k), (l) and
(m) above, upon the direction of the Holders of no less than 50% in
aggregate principal amount of the Outstanding Securities, the Funding
Corporation will declare the outstanding principal amount of the
Salton Sea Project Note or Notes to be accelerated and due and
payable and all interest accrued and unpaid thereon, and all premium
and other amounts payable under the Salton Sea Credit Agreement, if
any, to be due and payable.
PARTNERSHIP CREDIT AGREEMENT
GENERAL
Pursuant to the Credit Agreement between the Partnership Guarantors
and the Funding Corporation, as amended on the Closing Date (the "Partnership
Credit Agreement"), (i) the Initial Partnership Guarantors issued the
Partnership Project Note on the Initial Closing Date, payable to the Funding
Corporation, which such note will be amended and restated and issued by all of
the Partnership Guarantors on the Closing Date, (ii) the Partnership
Guarantors will issue the Additional Partnership Project Note on the Closing
Date, payable to the Funding Corporation, and (iii) the Partnership Guarantors
have agreed to make payments on the Partnership Project Note in
amounts which, when aggregated together with the other Project Notes, are
sufficient to enable the Funding Corporation to pay scheduled principal of and
interest on the Securities.
The Partnership Guarantors have absolutely and unconditionally agreed
to make payments on the Partnership Project Note in scheduled installments and
to pay interest, in arrears, on the unpaid principal amount of each
installment. If the proceeds received from the issuance of Additional
Securities by the Funding Corporation are loaned to the Partnership
Guarantors, then an additional Partnership Project Note having a principal
amount equal to the amount of such proceeds so loaned to the Partnership
Guarantors shall be issued by the Partnership Guarantors and such principal
shall be payable in scheduled installments which correspond to the repayment
of principal of such Additional Securities. The Partnership Guarantors'
obligations to make payments on the Partnership Project Note are joint and
several with respect to each Partnership Guarantor.
OPTIONAL PREPAYMENT
Optional prepayment of the Additional Partnership Project Note shall
be permitted so long as the proceeds thereof are utilized by the Funding
Corporation to ratably redeem the Series E Securities or in connection with
the defeasance of the Securities. Optional prepayment of the Initial
Partnership Project Note
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shall be permitted so long as the proceeds thereof are utilized by the Funding
Corporation to ratably redeem Series B or C Securities or in connection with
the defeasance of the Securities.
MANDATORY PREPAYMENT
The Partnership Guarantors are required to prepay the Partnership
Project Note with proceeds received by the Partnership Guarantors in
connection with an Event of Loss, a Title Event, an Event of Eminent Domain, a
Permitted Power Contract Buy-Out, a settlement or buy-out of the BRPU Award,
or the incurrence of Debt by Partnership Project Companies in order to fund
equity distributions to the Partnership Guarantors, as and to the extent the
Securities are required to be redeemed in connection with the receipt of such
proceeds in an amount as provided in the Intercreditor Agreement. See
"--Depositary Agreement", "--Intercreditor Agreement" and "SUMMARY DESCRIPTION
OF THE SERIES D AND SERIES E SECURITIES--Mandatory Redemption."
CERTAIN COVENANTS
Set forth below are certain covenants of the Partnership Guarantors
contained in the Partnership Credit Agreement.
Reporting Requirements. Each of the Partnership Guarantors shall
provide to the Funding Corporation (i) unaudited quarterly reports for the
first three quarters of each fiscal year containing condensed financial
information and audited annual reports, (ii) all other information in respect
of the Partnership Guarantors requested by the Funding Corporation to enable
the Funding Corporation to meet its obligations under the Indenture, (iii)
copies of material notices delivered in connection with any Partnership
Project Documents and (iv) written notice of any Credit Agreement Default or
Event of Default under the Partnership Credit Agreement or any event or
condition that could reasonably be expected to result in a Material Adverse
Effect.
Sale of Assets. Except as contemplated by the Partnership Project
Documents, none of the Partnership Project Companies shall sell, lease (as
lessor) or transfer (as transferor) any property or assets material to the
operation of the Partnership Projects except in the ordinary course of
business to the extent that such property is no longer useful or necessary in
connection with the operation of the Partnership Projects; provided, however,
that the Partnership Guarantors shall be allowed to loan useful spare parts to
the Salton Sea Guarantors for use in the Salton Sea Projects.
Sale of Partnership Interests. Neither of the Initial Partnership
Guarantors shall sell, transfer or convey any of their partnership interests
in the Partnership Project Companies.
Insurance. The Partnership Project Companies shall maintain or cause
to be maintained insurance as is generally carried by companies engaged in
similar businesses and owning similar properties in the same general areas and
financed in a similar manner. The Partnership Project Companies have business
interruption insurance, casualty insurance, including flood and earthquake
coverage, and primary and excess liability insurance, as well as customary
worker's compensation and automobile insurance. The Partnership Project
Companies shall not reduce or cancel insurance coverages (or permit any such
coverages to be reduced or cancelled) if the Insurance Consultant determines
that such reduction or cancellation would not be reasonable under the
circumstances and the insurance coverages sought to be reduced or cancelled
are available on commercially reasonable terms or that another level of
coverage greater than that proposed by the Partnership Project Companies is
available on commercially reasonable terms (in which case such coverage may be
reduced to the higher of such available levels).
QF Status. The Partnership Project Companies shall operate and
maintain the Partnership Projects as Qualifying Facilities unless the failure
to so operate and maintain such Projects as Qualifying Facilities would not
cause or result in (i) a breach of the power purchase agreements that the
Partnership Project Companies are party to or (ii) an adverse effect on the
revenues to be received under such power purchase agreements.
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Governmental Approvals; Title. Each of the Partnership Guarantors
shall at all times (i) obtain and maintain in full force and effect all
material Governmental Approvals and other consents and approvals required at
any time in connection with its business and (ii) preserve and maintain good
and valid title to its properties and assets (subject to no liens other than
Permitted Liens), except in each case where the failure to do so in clause (i)
or (ii) could not reasonably be expected to have a Material Adverse Effect.
Nature of Business. None of the Partnership Guarantors shall engage
in any business other than their existing businesses and, in the case of the
Additional Partnership Guarantors, the development, acquisition, construction,
operation and financing of the Partnership Projects as contemplated by the
Transaction Documents, provided, however, that (i) CEOC shall be permitted to
enter into agreements to provide operating and maintenance services,
administrative services or technical services for Permitted Facilities owned
in whole or in part by CalEnergy (directly or indirectly) and located in
Imperial County, California and (ii) the Additional Partnership Guarantors may
engage in Permitted Facilities at the SSKGRA (a)(1) for which Permitted Debt
may be incurred and (2) if the Independent Engineer certifies that such other
projects could not reasonably be expected to have an adverse impact on the
geothermal resources for the Salton Sea Projects or the Partnership Projects
or (b) if the Funding Corporation and the Guarantors take such action as the
Rating Agencies require to confirm the Investment Grade Rating of the
Securities.
Compliance with Laws. Each of the Partnership Guarantors shall comply
with all applicable laws, except where non-compliance could not reasonably be
expected to have a Material Adverse Effect.
Prohibition on Fundamental Changes. None of the Partnership
Guarantors shall enter into any transaction of merger or consolidation, change
its form of organization or its business, liquidate or dissolve itself (or
suffer any liquidation or dissolution); provided that any Guarantor shall be
able to merge with or into any other Guarantor so long as no Default or Event
of Default exists or will occur as a result thereof and subject to the
satisfaction of other customary conditions. None of the Partnership Guarantors
shall purchase or otherwise acquire all or substantially all of the assets of
any other Person, except for the purchase or acquisition by any of the
Partnership Guarantors of the partnership interests or assets of the
Partnership Projects not currently owned by such Partnership Guarantors.
Revenue Fund. Each of the Partnership Guarantors shall take all
actions as may be necessary to cause all revenues of the Partnership
Guarantors to be deposited in the Revenue Fund to the extent required by the
Depositary Agreement.
Transactions with Affiliates. None of the Partnership Guarantors
shall enter into any transaction or agreement with any Affiliate of the
Partnership Guarantors other than (i) as contemplated under the Transaction
Documents or (ii) transactions in the ordinary course of business and on terms
no less favorable to the Partnership Guarantors than the Partnership
Guarantors would obtain in an arms length transaction with a Person that is
not an Affiliate of the Partnership Guarantors.
Restricted Payments. Neither of the Partnership Guarantors shall make
any Restricted Payments, except as permitted under the Depositary Agreement.
Exercise of Rights Under Partnership Agreements. None of the
Partnership Guarantors shall exercise, or fail to exercise, their rights under
the Partnership Agreements or any of the Partnership Project Documents in a
manner which could reasonably be expected to result in a Material Adverse
Effect.
Amendments to Contracts. Neither of the Partnership Guarantors shall
terminate, amend, replace or modify (other than immaterial amendments or
modifications as certified by the Partnership Guarantors) any of the
Partnership Agreements or Partnership Project Documents to which it is a party
unless (i)(A) such Partnership Guarantor certifies that such termination,
amendment, replacement or modification could not reasonably be expected to
have a Material Adverse Effect and (B) in the case of any amendment,
termination or modification of a Partnership Project Power Purchase Agreement
which affects the revenues derived by any of the Partnership Guarantors, the
Independent Engineer certifies that such amendment, termination or
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modification could not reasonably be expected to have a Material Adverse
Effect or (ii) the Partnership Guarantors provide a letter from the Rating
Agencies confirming that such amendment, termination or modification will not
result in a Rating Downgrade.
Limitations on Debt/Liens. None of the Partnership Guarantors shall
create or incur or suffer to exist any Debt except Permitted Guarantor Debt or
Debt of the Partnership Project Companies in existence on the Closing Date
that has been effectively defeased in connection with the Offering. None of
the Partnership Guarantors shall grant, create, incur or suffer to exist any
Liens upon any of its properties, except for Permitted Liens.
Books and Records. The Partnership Guarantors shall maintain their
books and records and give the Funding Corporation, the Trustee, the
Collateral Agent and the Independent Engineer inspection rights.
Additional Project Documents. The Partnership Guarantors shall
perform and observe their respective covenants and obligations under all of
the Partnership Project Documents in all material respects, except where the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect. The Partnership Guarantors shall not be permitted to enter
into any Additional Project Documents if entering into such document would
result in a Material Adverse Effect.
Additional Covenants. In addition to the covenants described above,
the Partnership Credit Agreement also contains covenants of the Partnership
Guarantors regarding (i) maintenance of existence, (ii) payment of taxes and
claims unless being contested in good faith and (iii) preservation and
maintenance of Liens on the Collateral and the priority thereof.
EVENTS OF DEFAULT
The following events constitute "Credit Agreement Events of Default"
under the Partnership Credit Agreement:
(a) the failure by the Partnership Guarantors to pay or cause to be
paid any principal of, premium, if any, or interest, fees or any other
obligations on the Partnership Project Note for 15 or more days after the same
becomes due and payable, whether by scheduled maturity or required prepayment
or by acceleration or otherwise;
(b) any representation or warranty made by the Partnership Guarantors
under the Partnership Credit Agreement shall prove to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy could
reasonably be expected to result in a Material Adverse Effect and such fact,
event or circumstance shall continue to be uncured for 30 or more days from
the date a Responsible Officer of the Partnership Guarantors has actual
knowledge thereof; provided that if the Partnership Guarantors commence
efforts to cure such fact, event or circumstance within such 30-day period,
the Partnership Guarantors may continue to effect such cure and such
misrepresentation shall not be deemed a Credit Agreement Event of Default for
an additional 60 days so long as the Partnership Guarantors are diligently
pursuing such cure;
(c) the failure by any of the Partnership Guarantors to perform or
observe any covenant under the Partnership Credit Agreement relating to
maintenance of existence, Debt, Permitted Liens, Restricted Payments,
guarantees, disposition of assets, maintenance of insurance, amendments to the
Partnership Project Documents, fundamental changes, or nature of business and
such failure shall continue uncured for 30 or more days after a Responsible
Officer of either of the Partnership Guarantors has actual knowledge of such
failure;
(d) the failure by any of the Partnership Guarantors to perform or
observe any of the other covenants under the Partnership Credit Agreement or
in the other Financing Documents the Partnership Guarantors are party to
(other than such failures described in clause (c) above) and such failure
shall continue
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uncured for 60 or more days after a Responsible Officer of the Partnership
Guarantors has actual knowledge of such failure; provided that if the
Partnership Guarantors commence efforts to cure such default within such
60-day period, the Partnership Guarantors may continue to effect such cure of
the default and such default shall not be deemed a Credit Agreement Event of
Default for an additional 30 days so long as the Partnership Guarantors are
diligently pursuing such cure;
(e) certain events involving the bankruptcy, insolvency, receivership
or reorganization of any of the Partnership Guarantors;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $10,000,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against either of
the Partnership Guarantors, which remain unpaid or unstayed for a period of 90
or more consecutive days;
(g) any event of default under any Permitted Guarantor Debt of the
Partnership Guarantors in excess of $10,000,000 becomes due and payable prior
to its stated maturity;
(h) the Partnership Guarantors fail to perform any of their
respective payment obligations under the Partnership Guarantee for 15 or more
days after the same becomes due and payable;
(i) any Governmental Approval required for the operation of a Project
owned by the Partnership Guarantors is revoked, terminated, withdrawn or
ceases to be in full force and effect if such revocation, termination,
withdrawal or cessation could reasonably be expected to have a Material
Adverse Effect and such revocation, termination, withdrawal or cessation is
not cured for 60 days following the occurrence thereof;
(j) any Partnership Project Document ceases to be valid and binding
and in full force and effect other than as a result of an amendment,
termination or Permitted Power Contract Buy-Out permitted under the
Partnership Credit Agreement or any third party thereto fails to perform its
material obligations thereunder or makes any material misrepresentation
thereunder and such event results in a Material Adverse Effect; provided that
no such event shall be a Credit Agreement Event of Default if within 180 days
from the occurrence of any such event, the Partnership Guarantors (i) cause
the third party to resume performance or cure such misrepresentation or (ii)
enter into an Additional Project Document in replacement thereof, as permitted
under the Partnership Credit Agreement;
(k) the failure of the Partnership Guarantors or any other party to
perform or observe any of its covenants or obligations contained in any of the
Partnership Project Documents to which it is a party if such failure shall
result in the termination of such Partnership Project Document or otherwise
result in a Material Adverse Effect; provided, however, that such event shall
not be a Credit Agreement Event of Default if within one hundred eighty (180)
days from the occurrence of any such event, the Partnership Guarantors enter
into an Additional Project Document in replacement thereof as permitted under
the Partnership Credit Agreement;
(l) any of the Partnership Security Documents ceases to be effective
or any Lien granted therein ceases to be a valid and perfected Lien in favor
of the Collateral Agent on the Collateral described therein with the priority
purported to be created thereby; provided, however, that the Partnership
Guarantors shall have 10 days to cure any such cessation or to furnish to the
Trustee, the Collateral Agent or the Depositary all documents or instruments
required to cure any such cessation; or
(m) an Event of Default described under clauses (c), (d), (e), (f),
(g), (h), (i), (j) or (k) of the summary of the Event of Default provisions of
the Indenture occurs. See "--Indenture--Events of Default."
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ENFORCEMENT OF REMEDIES
If one or more Credit Agreement Events of Default under the
Partnership Credit Agreement have occurred and are continuing, then:
(i) in the case of a Credit Agreement Event of Default
under the Partnership Credit Agreement described in clause (e) above,
the entire outstanding principal amount of the Partnership Project
Note issued under the Partnership Credit Agreement, all interest
accrued and unpaid thereon, and all premium and other amounts payable
under the Partnership Project Note and Partnership Credit Agreement,
if any, will automatically become due and payable without
presentment, demand, protest or notice of any kind; or
(ii) in the case of a Credit Agreement Event of Default
described in:
(A) clause (a) and (h) above, upon the direction
of the Holders of no less than 33 1/3 % in aggregate
principal amount of the Outstanding Securities, the Funding
Corporation will declare the outstanding principal amount of
the Partnership Project Note to be accelerated and due and
payable and all interest accrued and unpaid thereon, and all
premium and other amounts payable under the Partnership
Credit Agreement, if any, to be due and payable; or
(B) clauses (b), (c), (d), (f), (g), (i), (j),
(k), (l) and (m) above, upon the direction of the Holders of
no less than 50% in aggregate principal amount of the
Outstanding Securities, the Funding Corporation will declare
the outstanding principal amount of the Partnership Project
Note to be accelerated and due and payable and all interest
accrued and unpaid thereon, and all premium and other
amounts payable under the Partnership Credit Agreement, if
any, to be due and payable.
ROYALTY CREDIT AGREEMENT
GENERAL
Pursuant to the Credit Agreement, dated as of the Initial Closing
Date between the Royalty Guarantor and the Funding Corporation (the "Royalty
Credit Agreement"), the Royalty Guarantor has issued the Royalty Project Note
payable to the Funding Corporation and has agreed to make payments on such
Royalty Project Note in amounts which, when aggregated with the other Project
Notes, are sufficient to enable the Funding Corporation to pay scheduled
principal of and interest on the Securities.
The Royalty Guarantor has absolutely and unconditionally agreed to
make payments on the Royalty Project Note in scheduled installments and to pay
interest in arrears, on the unpaid principal amount of each installment. If
the proceeds received from the issuance of Additional Securities by the
Funding Corporation are loaned to the Royalty Guarantor, then an additional
Royalty Project Note having a principal amount equal to the amount of such
proceeds so loaned to the Royalty Guarantor shall be issued by the Royalty
Guarantor and such principal shall be payable in scheduled installments which
correspond to the repayment of principal of such Additional Securities.
OPTIONAL PREPAYMENT
Optional prepayment of the Royalty Project Note shall be permitted so
long as the proceeds thereof are utilized by the Funding Corporation to
ratably redeem Series B Securities or in connection with defeasance of the
Securities.
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MANDATORY PREPAYMENT
The Royalty Project Note is not subject to mandatory prepayment,
except in connection with an acceleration of the maturity thereof.
CERTAIN COVENANTS
Set forth below are certain covenants of the Royalty Guarantor
contained in the Royalty Credit Agreement.
Reporting Requirements. The Royalty Guarantor shall provide to the
Funding Corporation (i) unaudited quarterly reports for the first three
quarters of each fiscal year containing condensed financial information and
audited annual reports, (ii) all other information in respect of the Royalty
Guarantor requested by the Funding Corporation to enable the Funding
Corporation to meet its obligations under the Indenture and (iii) written
notice of any Credit Agreement Default or Event of Default or any event or
condition that could reasonably be expected to result in a Material Adverse
Effect.
Governmental Approvals; Title. The Royalty Guarantor shall at all
times (i) obtain and maintain in full force and effect all material
Governmental Approvals (including, without limitation, maintaining compliance
with Environmental Requirements) and other consents and approvals required at
any time in connection with its business and (ii) preserve and maintain good
and valid title to its properties and assets (subject to no liens other than
Permitted Liens); except in each case where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
Nature of Business. The Royalty Guarantor shall not engage in any
business other than its existing business.
Compliance with Laws. The Royalty Guarantor shall comply with all
applicable laws, except where non-compliance could not reasonably be expected
to have a Material Adverse Effect.
Prohibition on Fundamental Changes. The Royalty Guarantor shall not
enter into any transaction of merger or consolidation, change its form of
organization or its business, liquidate, dissolve itself (or suffer any
liquidation or dissolution) or purchase or otherwise acquire all or
substantially all of the assets of any other Person; provided that any
Guarantor shall be able to merge with or into any other Guarantor so long as
no Default or Event of Default exists or will occur as a result thereof and
subject to the satisfaction of other customary conditions.
Revenue Fund. The Royalty Guarantor shall take all actions as may be
necessary to cause all revenues of the Royalty Guarantor to be deposited in
the Revenue Fund.
Transactions with Affiliates. The Royalty Guarantor shall not enter
into any transaction or agreement with any Affiliate of the Royalty Guarantor
other than (i) as contemplated under the Transaction Documents or (ii)
transactions in the ordinary course of business and on terms no less favorable
to the Royalty Guarantor than the Royalty Guarantor would obtain in an arms
length transaction with a Person that is not an Affiliate of the Royalty
Guarantor.
Restricted Payments. The Royalty Guarantor shall not make any
Restricted Payments, except as permitted under the Depositary Agreement.
Amendments to Contracts. The Royalty Guarantor shall not terminate,
amend, replace or modify (other than immaterial amendments or modifications as
certified by the Royalty Guarantor) any of the Royalty Project Documents to
which it is a party unless (i) the Royalty Guarantor certifies that such
termination, amendment, replacement or modification could not reasonably be
expected to have a Material Adverse Effect or (ii) the
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Royalty Guarantor provides a letter from the Rating Agencies confirming that
such amendment, termination or modification will not result in a Rating
Downgrade. Notwithstanding the foregoing, in the case of any amendment,
termination or modification of the Magma Assignment Agreement which affects
the revenues derived by the Royalty Guarantor, no amendment, termination or
modification shall be permitted if such amendment, termination or modification
could reasonably be expected to have a Material Adverse Effect on the Royalty
Guarantor's ability to meet its obligations under the Royalty Project Note or
Notes or the Royalty Guarantee. The Royalty Guarantor shall not sell, transfer
or assign any of its rights under any of the Royalty Project Documents.
Limitations on Debt/Liens. The Royalty Guarantor shall not create or
incur or suffer to exist any Debt other than Permitted Guarantor Debt. The
Royalty Guarantor shall not grant, create, incur or suffer to exist any Liens
upon any of its properties other than Permitted Liens.
Additional Covenants. In addition to the covenants described above,
the Royalty Credit Agreement also contains covenants of the Royalty Guarantor
regarding (i) maintenance of existence, (ii) payment of taxes and claims
unless being contested in good faith and (iii) preservation and maintenance of
Liens on the Collateral and the priority thereof.
EVENTS OF DEFAULT
The following events constitute "Credit Agreement Events of Default"
under the Royalty Credit Agreement:
(a) the failure by the Royalty Guarantor to pay or cause to be paid
any principal of, premium, if any, or interest, fees or any other obligations
on the Royalty Project Note for 15 or more days after the same becomes due and
payable, whether by scheduled maturity or required prepayment or by
acceleration or otherwise;
(b) any representation or warranty made by the Royalty Guarantor
under the Royalty Credit Agreement shall prove to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy could
reasonably be expected to result in a Material Adverse Effect and such fact,
event or circumstance shall continue to be uncured for 30 or more days from
the date a Responsible Officer of the Royalty Guarantor has actual knowledge
thereof; provided that if the Royalty Guarantor commences efforts to cure such
fact, event or circumstance within such 30-day period, the Royalty Guarantor
may continue to effect such cure and such misrepresentation shall not be
deemed a Credit Agreement Event of Default for an additional 90 days so long
as the Royalty Guarantor is diligently pursuing such cure;
(c) the failure by the Royalty Guarantor to perform or observe any
covenant under the Royalty Credit Agreement relating to maintenance of
existence, Debt, Liens, Restricted Payments, guarantees, disposition of
assets, amendments to the Magma Assignment Agreement, fundamental changes or
nature of business and such failure shall continue uncured for 30 or more days
after a Responsible Officer of the Royalty Guarantor has actual knowledge of
such failure;
(d) the failure by the Royalty Guarantor to perform or observe any of
the other covenants contained in the Royalty Credit Agreement or in the other
Financing Documents the Royalty Guarantor is party to (other than such
failures described in clause (c) above) and such failure shall continue
uncured for 60 or more days after the Royalty Guarantor has actual knowledge
of such failure; provided that if the Royalty Guarantor commences efforts to
cure such default within such 60 day period, the Royalty Guarantor may
continue to effect such cure of the default and such default shall not be
deemed a Credit Agreement Event of Default for an additional 30 days so long
as the Royalty Guarantor is diligently pursuing such cure;
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(e) certain events involving the bankruptcy, insolvency, receivership
or reorganization of the Royalty Guarantor;
(f) the entry of one or more final and non-appealable judgment or
judgments for the payment of money in excess of $10,000,000 (exclusive of
judgment amounts fully covered by insurance or indemnity) against the Royalty
Guarantor, which remain unpaid or unstayed for a period of 90 or more
consecutive days;
(g) the Royalty Guarantor fails to perform any of its payment
obligations under the Royalty Guarantee for 15 or more days after the same
becomes due and payable;
(h) any Royalty Project Document ceases to be valid and binding and
in full force and effect, other than as a result of an amendment or
termination permitted under the Royalty Credit Agreement and such event
results in a Material Adverse Effect; provided that such event shall not be a
Credit Agreement Event of Default if within 180 days from the occurrence of
such event, the Royalty Guarantor enters into an Additional Project Document
in replacement thereof, as permitted under the Royalty Credit Agreement;
(i) any of the Royalty Security Documents ceases to be effective or
any Lien granted therein ceases to be a valid and perfected Lien to the
Collateral Agent on the Collateral described therein with the priority
purported to be created thereby; provided, however, that the Royalty Guarantor
shall have 10 days to cure any such cessation or to furnish to the Trustee,
the Collateral Agent or the Depositary all documents or instruments required
to cure any such cessation; or
(j) an Event of Default described under clauses (c), (d), (e), (f),
(g), (h), (i), (j) or (k) of the summary of the Event of Default provisions of
the Indenture occurs. See "--Indenture--Events of Default."
ENFORCEMENT OF REMEDIES
If one or more Credit Agreement Events of Default under the Royalty
Credit Agreement have occurred and are continuing, then:
(i) in the case of a Credit Agreement Event of Default
described in clause (e) above, the entire outstanding principal
amount of the Royalty Project Note or Notes, all interest accrued and
unpaid thereon, and all premium and other amounts payable under the
Royalty Project Note or Notes and the Royalty Credit Agreement, if
any, will automatically become due and payable without presentment,
demand, protest or notice of any kind; or
(ii) in the case of a Credit Agreement Event of Default
described in:
(A) clauses (a) and (g) above, upon the direction
of the Holders of no less than 33 1/3 % in aggregate
principal amount of the Outstanding Securities, the Funding
Corporation will declare the outstanding principal amount of
the Royalty Project Note or Notes to be accelerated and all
interest accrued and unpaid thereon, and all premium and
other amounts payable under the Royalty Credit Agreement, if
any, to be due and payable; or
(B) clauses (b), (c), (d), (f), (h), (i) and (j)
above upon the direction of the Holders of no less than 50%
in aggregate principal amount of the Outstanding Securities
the Funding Corporation will declare the outstanding
principal amount of the Royalty Project Note or Notes to be
accelerated and all interest accrued and unpaid thereon, and
all premium and other amounts payable under the Royalty
Credit Agreement, if any, to be due and payable.
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DEBT SERVICE RESERVE LOC REIMBURSEMENT AGREEMENT
The Debt Service Reserve LOC Provider, pursuant to a Debt Service
Reserve Letter of Credit and Reimbursement Agreement (the "Debt Service
Reserve LOC Reimbursement Agreement"), will provide a Debt Service Reserve
Letter of Credit, for use by the Funding Corporation in funding the Debt
Service Reserve Fund.
On the Initial Closing Date, the Debt Service Reserve LOC Provider
issued a Debt Service Reserve Letter of Credit for the account of the Funding
Corporation in the amount of $50,000,000 in favor of the Depositary, as
security agent for the Secured Parties. On the Closing Date, the Debt Service
Reserve Letter of Credit Provider issued a replacement Debt Service Reserve
Letter of Credit for the account of the Funding Corporation in the amount of
approximately $71,250,000 in favor of the Depositary, as security agent for
the Secured Parties.
The Depositary may make drawings under any Debt Service Reserve
Letter of Credit upon the occurrence of the following events: (i) there being
insufficient monies in the Interest or Principal Fund on any Payment Date to
pay interest or principal then due on the Securities (after application of
funds from the Debt Service Reserve Fund); (ii) upon failure of the Funding
Corporation to provide a substitute letter of credit from another letter of
credit provider within at least 45 days after receipt of a notice from the
Debt Service Reserve Letter of Credit Provider that the long-term debt of such
Debt Service Letter of Credit Provider is less than "A" as determined by S&P
or "A2" as determined by Moody's; (iii) upon receipt of a notice from the Debt
Service Reserve LOC Provider that such Debt Service Reserve Letter of Credit
will be terminated prior to its stated expiration date; (iv) upon failure of
the Funding Corporation to obtain an extension or provide a replacement Debt
Service Reserve Letter of Credit at least 45 days before the expiration of
such Debt Service Reserve Letter of Credit; and (v) upon receipt of a notice
from the Debt Service Reserve LOC Provider that interest is due and payable,
but unpaid, with respect to outstanding Debt Service Reserve LOC Loans
(provided that the drawing pursuant to this clause (v), together with all
other drawings under the Debt Service Reserve Letter of Credit in the same
fiscal year, does not exceed $5,000,000 in the aggregate). The Depositary will
apply the proceeds of each such drawing: (x) in the case of clauses (i), and
(v) of the preceding sentence, to payment of the relevant obligation, and (y)
in the case of clauses (ii), (iii) and (iv) of the preceding sentence, to the
Debt Service Reserve Fund until there shall be deposited therein an aggregate
amount equal to the Debt Service Reserve Fund Required Balance.
The amount available for drawing under the Debt Service Reserve
Letter of Credit will be reduced upon (i) the making of draws thereunder, (ii)
the reduction of the Debt Service Reserve Fund Required Balance and (iii) upon
certain deposits of cash in the Debt Service Reserve Fund.
DEBT SERVICE RESERVE LOC LOANS
Each drawing on the Debt Service Reserve Letter of Credit submitted
by the Trustee shall be converted into a loan (each converted drawing, a "Debt
Service Reserve LOC Loan").
Each Debt Service Reserve LOC Loan will be evidenced by a note (each,
a "Debt Service Reserve LOC Note") and will mature on the later of (i) 10
years from the Initial Closing Date or (ii) 5 years from the drawing giving
rise to such Debt Service Reserve LOC Loan. The Funding Corporation shall
repay the principal amount of each Debt Service Reserve LOC Loan as, when, and
to the extent monies are made available from the Revenue Fund pursuant to the
Depositary Agreement.
CONVERSION TO DEBT SERVICE RESERVE BOND
Notwithstanding the foregoing, if (i) 50% or more of the principal
amount of any Debt Service Reserve LOC Loan remains outstanding on or after 5
years from the drawing giving rise to such loans or (ii) the principal amount
of any Debt Service Reserve LOC Loan under the Debt Service Reserve Letter of
Credit
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remains outstanding on or after 10 years from the Initial Closing Date the
Debt Service Reserve LOC Provider may, upon 30 days' prior written notice to
the Funding Corporation and the Trustee, convert any such Debt Service Reserve
LOC Loan into a substitute loan (such converted loan, a "Debt Service Reserve
Bond"). Each Debt Service Reserve Bond shall amortize on a basis which results
in levelized payment of the principal of and interest on such Debt Service
Reserve Bond to and including the maturity date applicable to such Debt
Service Reserve Bond, which shall be the Final Maturity Date of the Securities
and shall bear interest at a fixed rate equal to the higher of (x) the
interest rate last applicable to the Debt Service Reserve LOC Loan converted
into such Debt Service Reserve Bond and (y) the then current (at the time of
conversion of the Debt Service Reserve LOC Loan into such Debt Service Reserve
Bond) rate of interest on United States Treasury Notes with an average life
most comparable to the average life of the Securities plus the higher of (A)
2.50% and (B) the spread over U.S. Treasury Notes applicable to the Securities
on the Closing Date. The Funding Corporation shall pay interest and principal
on each Debt Service Reserve Bond on each Principal Payment Date on a pro rata
basis with payments of interest and principal on the Securities.
EVENTS OF DEFAULT
The following events constitute "Reimbursement Agreement Events of
Default" under the Debt Service Reserve LOC Reimbursement Agreement:
(i) the Funding Corporation fails to pay any principal, interest or
other amounts due under or in connection with the Debt Service Reserve LOC
Reimbursement Agreement or any Debt Service Reserve LOC Bond within 15 days
after its due date (in the case of principal and interest) and, in the case of
the failure to pay fees, costs or expenses, 15 days or more following delivery
of notice thereof to the Funding Corporation;
(ii) any representation or warranty made by or on behalf of the
Funding Corporation in the Debt Service Reserve LOC Reimbursement Agreement
(including by incorporation by reference) shall prove to have been untrue or
misleading in any material respect as of the time made, confirmed or furnished
and the fact, event or circumstance that gave rise to such inaccuracy has
resulted in or could reasonably be expected to have a Material Adverse Effect
and the fact, event or circumstance continues to be uncured for 30 or more
days from the date a Responsible Officer of the Funding Corporation obtains
actual knowledge thereof; provided that, if the Funding Corporation commences
and diligently pursues efforts to cure such fact, event or circumstance or
such Material Adverse Effect within such 30 day period, the Funding
Corporation may continue to effect such cure and such misrepresentation shall
not be deemed a Reimbursement Agreement Event of Default for an additional 60
days so long as the Funding Corporation is diligently pursuing such cure;
(iii) any provision of the Indenture, the Depositary Agreement, the
Deeds of Trust, the Guarantees, or any Security Documents is terminated,
amended or otherwise modified without the prior written approval of the LOC
Banks (as defined herein) holding at least 66 2/3 % of the obligations due
thereunder and/or the commitments thereunder if such termination, amendment or
other modification would affect the priority of payments from the Revenue Fund
under the Depositary Agreement in a manner adverse to the agent under the Debt
Service Reserve LOC Reimbursement Agreement (the "LOC Agent") or any bank
party to the Debt Service Reserve LOC Reimbursement Agreement (each, an "LOC
Bank"), increase the interest rate on the Securities other than in accordance
with the Indenture, amend the Principal Payment Dates of the Securities in a
manner adverse to the LOC Agent or any LOC Bank, or change the voting
requirements under the Intercreditor Agreement in a manner adverse to the LOC
Agent or any LOC Bank; provided that the same shall continue uncured for 60 or
more days after an authorized officer of the Funding Corporation has actual
knowledge of the same; and provided further that, if the Funding Corporation
commences and diligently pursues efforts to cure such default within such
60-day period, the Funding Corporation may continue to effect such cure of the
default, and such default shall not be deemed an "Event of Default" under the
Debt Service Reserve LOC Reimbursement Agreement for an additional 30 days so
long as the Funding Corporation is diligently pursuing such cure; or
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(iv) the Funding Corporation shall fail to perform certain covenants
of the Indenture incorporated by reference in the Debt Service Reserve LOC
Reimbursement Agreement, and such failure continues for 30 days after
knowledge by an Authorized Officer of the Funding Corporation at any time
after all outstanding amounts due in respect of the Securities shall have been
paid in full and the Indenture is no longer in effect;
(v) the Funding Corporation fails to perform or observe certain of
its covenants contained (including by incorporation by reference) in any other
provision of the Debt Service Reserve LOC Reimbursement Agreement and such
failure continues for 60 or more days after the Funding Corporation has actual
knowledge of such failure; provided that if the Funding Corporation commences
and diligently pursues efforts to cure such default within such 60-day period,
the Funding Corporation may continue to effect such cure of the default and
such default will not be deemed an "Event of Default" for an additional 30
days so long as the Funding Corporation is diligently pursuing such cure;
(vi) an Event of Default as described under clauses (c), (d), (e),
(f), (g), (h), (i), (j), (k) or (l) of the summary of Event of Default
provisions of the Indenture occurs and is continuing until the earlier of the
expiration of 30 days or an acceleration under the Indenture. See
"--Indenture--Events of Default";
(vii) a Credit Agreement Event of Default or a Guarantee Event of
Default shall occur and be continuing after all outstanding amounts due in
respect of the Securities shall have been paid in full and the Indenture is no
longer in effect.
REMEDIES
Upon the occurrence of a Reimbursement Agreement Event of Default,
the Debt Service Reserve LOC Provider may terminate the Debt Service Reserve
Letter of Credit following notice as provided in the Debt Service Reserve
Letter of Credit (in which case the Depositary may draw the full amount
available thereunder), accelerate any outstanding Debt Service Reserve LOC
Loans or Debt Service Reserve Bonds and terminate its commitment.
GUARANTEES
Pursuant to the Guarantees in favor of the Trustee and the Collateral
Agent for the benefit of the Secured Parties, the Guarantors each, on a joint
and several basis, unconditionally and irrevocably guarantee the payment of
all amounts owed by the Funding Corporation under the Debt Service Reserve LOC
Reimbursement Agreement; provided that the Partnership Guarantors and the
Royalty Guarantor shall only be required to make payments under such guarantee
in amounts from their Available Cash Flow. Such guarantees are guarantees of
payment and the Collateral Agent shall be entitled to make demand for payments
thereunder at any time that amounts which are due and payable have not been
paid under the Debt Service Reserve LOC Reimbursement Agreement. See
"--Guarantees."
THE SECURITY
SHARING OF SECURITY
The Trustee, the Collateral Agent, the Depositary, the Debt Service
Reserve LOC Provider, the Guarantors and the Funding Corporation have entered
into the Intercreditor Agreement designating the Collateral Agent as the agent
for each of the Secured Parties and the Funding Corporation and describing,
inter alia, (i) the preservation and administration of the Funding Corporation
Collateral and the Collateral and (ii) the disposition of the Funding
Corporation Collateral and the Collateral among the Secured Parties upon
acceleration and foreclosure. The Collateral shall be shared among the Secured
Parties as provided in the Intercreditor Agreement and the Depositary
Agreement. See "--Depositary Agreement" and "--Intercreditor Agreement." Any
entity that becomes a bank providing for working capital loans pursuant to the
Working
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Capital Facility or enters into an Interest Rate Protection Agreement with the
Funding Corporation must agree to be bound by the terms of the Intercreditor
Agreement.
The Funding Corporation has procured title insurance in the amount of
$332 million and shall at all times maintain title insurance in such amount or
the outstanding principal amount of the Securities, if lower. Title insurance
proceeds shall be shared among the Secured Parties as provided in the
Intercreditor Agreement and the Depositary Agreement.
FUNDING CORPORATION COLLATERAL
Pursuant to the Funding Pledge Agreement, Magma assigned and pledged
to the Collateral Agent, a security interest in all of the capital stock of
the Funding Corporation (the "Funding Corporation Collateral") now owned by
Magma 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 Funding Corporation Collateral is a
first priority security interest. However, absent any Trigger Event, Magma
will be able to vote, in its sole discretion, the capital stock of the Funding
Corporation; provided that no vote may be cast, and no consent, waiver or
ratification given or action taken, which would violate any provision of the
Indenture, the Securities or the Credit Agreements.
Upon satisfaction by the Funding Corporation of the conditions to
discharge the Indenture and all Senior Debt, the Lien of the Collateral Agent
on all the Funding Corporation Collateral will terminate and all the Funding
Corporation Collateral will be released without any further action by the
Collateral Agent or any other Person.
DESCRIPTION OF COLLATERAL
SALTON SEA GUARANTORS
DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING
On the Initial Closing Date, the Salton Sea Guarantors, as
co-grantees or lessees, entered into a Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing and related security documents with the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation providing for the grant of a lien on and a security interest in
all of the Salton Sea Guarantors' material real and personal property,
including, but not limited to, all real property interests (including fee
interests, leasehold interests and easement interests) of the Salton Sea
Guarantors held in the Salton Sea Project sites and all fixtures, equipment
and improvements thereon, all of the Salton Sea Guarantors' rights under the
Salton Sea Project Documents, all of the Salton Sea Guarantors' equipment,
receivables, insurance proceeds, rights pursuant to any assignable
governmental approval and funds and accounts established pursuant to the
Depositary Agreement (to be held by the Depositary as agent for the Collateral
Agent) including all proceeds thereon and all documents evidencing all funds
and investments held therein.
PARTNERSHIP INTEREST PLEDGE AGREEMENTS
On the Initial Closing Date, each of Magma and SSPC entered into a
Partnership Interest Pledge Agreement with the Collateral Agent for the
benefit of the Secured Parties providing for the grant of a security interest
in 100% of the partnership interests of SSBP, the right to receive
distributions thereon and the right to receive any other proceeds therefrom.
At such time, each of SSPC and SSBP also entered into a Partnership Interest
Pledge Agreement with the Collateral Agent for the benefit of the Secured
Parties, providing for the grant of a security interest in 100% of the
partnership interests of SSPG, the right to receive distributions thereon and
the right to receive any other proceeds therefrom.
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PLEDGE AGREEMENT
Pursuant to a pledge agreement, on the Initial Closing Date, Magma
and the Funding Corporation assigned and pledged to the Collateral Agent for
the benefit of the Secured Parties, a security interest in all of the capital
stock of Fish Lake Power Company 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 exchange for
any of the foregoing.
PARTNERSHIP GUARANTORS
ADDITIONAL DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE
FILING
On the Closing Date, the Partnership Project Companies, as
co-grantees or lessees, will enter into a Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing and related security documents with the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation providing for the grant of a lien on and a security interest in
all of the Partnership Project Companies' material real and personal property,
including, but not limited to, all real property interests (including fee
interests, leasehold interests and easement interests) of the Partnership
Project Companies held in the Partnership Project sites and all fixtures,
equipment and improvement thereon, all of the Partnership Project Companies'
rights under the Partnership Project Documents, all of the Partnership Project
Companies' equipment, receivables, insurance proceeds, rights pursuant to any
assignable governmental approval and funds and accounts established pursuant
to the Depositary Agreement (to be held by the Depositary as agent for the
Collateral Agent) including all proceeds thereon and all documents evidencing
all funds and investments held therein.
ADDITIONAL PARTNERSHIP INTEREST PLEDGE AGREEMENTS
On the Closing Date, each of Magma and the Partnership Guarantors
other than the Partnership Project Companies will enter into an Additional
Partnership Interest Pledge Agreement with the Collateral Agent for the
benefit of the Secured Parties providing for the grant of a security interest
in 100% of the partnership interests in Del Ranch, Elmore, Leathers and
Vulcan, the right to receive distributions thereon and the right to receive
any other proceeds therefrom.
PLEDGE AGREEMENTS
Pursuant to a pledge agreement, Magma and the Funding Corporation
have assigned and pledged to the Collateral Agent for the benefit of the
Secured Parties, a security interest in all of the capital stock of the
Initial Partnership Guarantors now owned or hereafter acquired by such pledgor
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. In addition, pursuant to a pledge
agreement, CEOC and VPC have assigned and pledged to the Collateral Agent for
the benefit of the Secured Parties, a security interest in all of the
outstanding capital stock of BNG, Conejo, Niguel and San Felipe, now owned or
hereafter acquired by such pledgor 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.
CEOC and VPC entered into a Security Agreement with the Collateral
Agent for the benefit of the Secured Parties and the Funding Corporation
providing for the grant of a security interest in all of CEOC's and VPC's
respective rights to receive payments made with respect to Equity Cash Flows
and Royalties.
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ROYALTY GUARANTOR
SECURITY AGREEMENT
On the Initial Closing Date, the Royalty Guarantor entered into a
Security Agreement with the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation providing for the grant of a security
interest in all of the Royalty Guarantor's rights to receive Royalties.
PLEDGE AGREEMENT
Pursuant to a pledge agreement, on the Initial Closing Date, Magma
and the Funding Corporation assigned and pledged to the Collateral Agent for
the benefit of the Secured Parties, a security interest in 100% of the capital
stock of the Royalty Guarantor 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.
Pursuant to each of the Security Documents, the Collateral Agent may,
upon the occurrence of a Trigger Event and satisfaction of certain conditions
contained in the Intercreditor Agreement discussed below, take possession of
all Collateral and Funding Corporation Collateral (other than the Funds being
held by the Depositary) except as remedies may be limited with respect to
certain Collateral and Funding Corporation Collateral in connection with
payment defaults and Credit Agreement Event of Defaults. Such repossessed
collateral may, subject to applicable contract terms or laws (in the case of
governmental approvals and permits), be sold, leased or otherwise disposed of
by the Collateral Agent. The proceeds of such sale, lease or disposition shall
be applied to the payment of costs and expenses of the Collateral Agent
incurred in connection therewith and to the payment of Secured Obligations
pursuant to the Intercreditor Agreement.
INTERCREDITOR AGREEMENT
The Secured Parties, the Guarantors, the Funding Corporation, the
Depositary and the Collateral Agent have entered into the Intercreditor
Agreement designating the Collateral Agent the agent for each of the Secured
Parties and the Funding Corporation. The affirmative vote of Secured Parties
holding at least 33 1/3 % of the Combined Exposure (the "Required Secured
Parties") shall be sufficient to direct certain actions of the Collateral
Agent, including the exercise of remedies following a Trigger Event (as
defined herein); provided that, for purposes of directing such actions, (i)
the Funding Corporation shall convey, transfer and assign its right to vote on
all matters under the Intercreditor Agreement to the Trustee and (ii) the
Trustee shall be entitled to vote on all matters under the Intercreditor
Agreement according to the aggregate principal amount of the Securities
Outstanding subject, however, in all events to the terms and provisions of the
Indenture. Each Person replacing any of the Secured Parties and each Person
(or trustee or agent thereof) providing Senior Debt to the Funding Corporation
will be required to become a party to the Intercreditor Agreement, which shall
be amended to the extent necessary to accommodate the replacement or addition
of such Persons.
APPLICATION OF LOSS PROCEEDS AND OTHER EXTRAORDINARY PROCEEDS
The Intercreditor Agreement provides that the Collateral Agent shall
instruct the Depositary to allocate, to the extent such funds may be
allocated, after giving effect to the limitations and deductions permitted
under the Indenture and the Depositary Agreement with respect to such
proceeds, all Loss Proceeds, Eminent Domain Proceeds, Title Event Proceeds and
proceeds received in connection with a Permitted Power Contract Buy-Out, in
each case received by the Depositary, in the following order of priorities
pursuant to an Allocation Certificate: first, to the Collateral Agent, the
Debt Service Reserve LOC Provider agent, the Trustee and the Depositary,
ratably, in an amount equal to the amounts due in respect of administrative
fees and expenses due and payable as of the date of such distribution; second,
to the banks providing for working capital loans pursuant to the Working
Capital Facility, if any, an amount equal to the unpaid Senior Debt
constituting principal, interest and commitment fees due and owing under the
Working Capital Facility; third, to the Secured Parties,
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ratably, an amount equal to the unpaid amount of all Senior Debt constituting
principal, interest and premium (if any) due and owing to such Secured Parties
and commitment fees and fronting fees, if any, due and owing in respect of the
Debt Service Reserve Letter of Credit; fourth, to the Secured Parties,
ratably, an amount equal to all other unpaid amounts then due and payable in
respect of all Senior Debt due and owing to such Secured Parties; fifth to the
holders of Subordinated Debt, an amount equal to the unpaid amount of all
Subordinated Debt due and owing to such holders, if any; and sixth, to the
Funding Corporation or its successors or assigns or to whomever may be
lawfully entitled to receive the same or as a court of competent jurisdiction
may direct, any surplus then remaining from such proceeds. See "DESCRIPTION OF
THE SERIES D AND SERIES E SECURITIES--Mandatory Redemption."
At the time the Collateral Agent is to make a distribution pursuant
to clause third in the immediately preceding paragraph, and with the same
priority as such distribution, the Collateral Agent shall deposit into a
separate interest-bearing trust account to be maintained by the Collateral
Agent an amount up to the amount equal to the then outstanding amount of the
Debt Service Reserve Letter of Credit (which outstanding amount of Debt
Service Reserve Letter of Credit shall be calculated after giving effect to
the redemption of Securities from such distribution in clause third above).
The Collateral Agent shall hold the monies in such account until receipt of a
written notice or notices from the Debt Service Reserve LOC Provider to the
effect that either (x) the Depositary has made a drawing on the Debt Service
Reserve Letter of Credit, which notice shall specify the amount or amounts of
such drawings or (y) the Debt Service Reserve Letter of Credit has expired or
terminated. Upon receipt of a notice specified in (x) above, the Collateral
Agent shall distribute to the Debt Service Reserve LOC Provider the amount
equal to such drawing's proportionate share of the Debt Service Reserve Letter
of Credit collateralized by such account specified in the notice. Upon receipt
of a notice specified in (y) above, the Collateral Agent shall distribute from
the relevant separate account (in accordance with clauses third, fourth, fifth
and sixth above and without regard to this paragraph) to the appropriate
Persons an amount equal to the balance in such account.
TRIGGER EVENTS
Each of the following shall be an event of default (a "Trigger
Event") under the Intercreditor Agreement: (i) an "Event of Default" under the
Indenture and an acceleration of all or a portion of the indebtedness issued
thereunder; (ii) an "Event of Default" under the Debt Service Reserve LOC
Reimbursement Agreement and an acceleration of the indebtedness incurred
thereunder; (iii) an "Event of Default" under a Senior Debt instrument and an
acceleration of all or a portion of the Debt issued thereunder in an aggregate
amount in excess of $10,000,000; and (iv) certain Guarantee Events of Default
under the Salton Sea Guarantee, the Partnership Guarantee or the Royalty
Guarantee; and, in each case, the Collateral Agent shall have, upon direction
from the Required Secured Parties, declared such event to be a Trigger Event.
If a Trigger Event shall have occurred and be continuing, and only in
such event, upon the written request of the Required Secured Parties (subject
to the requirement that the Collateral Agent shall have given written notice
of the occurrence of such Trigger Event to the Funding Corporation and
provided the Funding Corporation a period of 60 days from its receipt of such
notice to cure such Trigger Event), the Collateral Agent shall be authorized
to take any and all actions and to exercise any and all rights, remedies and
options which it may have under the Security Documents; provided, however,
that, if a bankruptcy event in respect of the Funding Corporation has caused
the Trigger Event, the Collateral Agent shall automatically be authorized to
take such action without the written request of the Required Secured Parties;
and provided further that, if such Trigger Event relates to a payment default
on the Securities or a Credit Agreement Event of Default which is not a
payment default which has resulted in an acceleration of a portion of the
Securities or a comparable Guarantee Event of Default, the Collateral Agent
shall be authorized only to take such actions and exercise such rights,
remedies and options under the Security Documents which relate to the Project
Note or Notes which have or could have been automatically accelerated or
requested by the Trustee to be accelerated in connection with such default or
such Credit Agreement Event of Default or the Guarantee pursuant to which such
Guarantee Event of Default has occurred.
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EXERCISE OF REMEDIES AND APPLICATION OF PROCEEDS
Upon a foreclosure or other exercise of remedies following a Trigger
Event, the proceeds of any sale, disposition or other realization upon any or
all of the Collateral and Funding Corporation Collateral shall be distributed
in the following order of priority (except for amounts held under the
Indenture which shall be distributed to the Trustee): first, to the Trustee,
the Collateral Agent, any Debt Service Reserve LOC Provider and the
Depositary, ratably, all administrative fees, costs and expenses due and owing
to such parties under the Financing Documents and the Intercreditor Agreement;
second, to the Secured Parties, ratably, an amount equal to the unpaid amount
of all Senior Debt constituting principal, interest, premium (if any) and
certain fees due and owing to such Secured Parties (including commitment fees
and fronting fees, if any, owed in respect of the Debt Service Reserve Letter
of Credit and commitment fees due and owing in respect of the Working Capital
Facility) by the Funding Corporation and the Guarantors; third, to the Secured
Parties, ratably, an amount equal to all other unpaid amounts then due and
payable in respect of all Senior Debt owed to such Secured Parties; fourth to
the holders of Subordinated Debt, an amount equal to the unpaid amount of all
Subordinated Debt due and owing to such holders; and fifth, to the Funding
Corporation (or its successors or assigns) or to whomever a court of competent
jurisdiction may direct, any surplus remaining after giving effect to clauses
first, second, third, and fourth above. At the time the distribution is to be
made pursuant to clause second above, the Collateral Agent will set aside
available monies (on a ratable basis with such distribution) in a separate
interest-bearing trust account in an amount up to the then outstanding amount
of the Debt Service Reserve Letter of Credit (which outstanding amount of Debt
Service Reserve Letter of Credit shall be calculated after giving effect to
the redemption of Securities from such distribution in clause second above).
Upon a subsequent draw on the Debt Service Reserve Letter of Credit, the
Collateral Agent will transfer monies from the separate account to the Debt
Service Reserve LOC Provider up to the amount so drawn on such Debt Service
Letter of Credit. Upon an expiration or termination of the Debt Service Letter
of Credit, monies in such separate account collateralizing such Debt Service
Reserve Letter of Credit shall be released and applied as set forth in clauses
second, third, fourth and fifth above.
The proceeds of any sale, disposition or other realization with
respect to Collateral or Funding Corporation Collateral held for the benefit
of some but not all of the Secured Parties shall be applied to the payment of
obligations owed to the parties for whose benefit the specific Collateral or
Funding Corporation Collateral was held.
REGISTRATION RIGHTS AGREEMENT
In connection with the sale of the Old Securities to the Initial
Purchaser, the Funding Corporation executed and delivered for the benefit of
the holders of the Old Securities the Registration Rights Agreement, which
provides that the Funding Corporation will file and cause to become effective,
at its cost, a registration statement with respect to a registered offer to
exchange the Old Securities for two series of debt securities of the Funding
Corporation (the "New Securities") which are in all material respects
identical to the Old Series D Securities and Old Series E Securities,
respectively. Upon such registration statement being declared effective, the
Funding Corporation agreed to offer the New Securities in return for surrender
of the Old Securities. The Exchange Offer is being made by the Funding
Corporation to satisfy its obligations pursuant to the Registration Rights
Agreement, which also requires the Funding Corporation to (i) use its
reasonable best efforts to cause the Registration Statement, of which this
Prospectus is a part, relating to the Exchange Offer to be declared effective
by the Commission prior to March 17, 1997, (ii) keep the Exchange Offer open
for a period of not less than the shorter of (A) the period ending when the
last of the remaining Old Securities is tendered into the Exchange Offer and
(B) 30 days from the date notice is mailed to holders of the Old Securities,
and (iii) maintain the Registration Statement continuously effective for a
period of not less than the longer of (A) the period until consummation of the
Exchange Offer and (B) 120 days after effectiveness of the Registration
Statement (subject to extension under certain limited circumstances), provided
that in the event that all resales of New Securities covered by the
Registration Statement has been made, the Registration Statement need not
remain continuously effective. For each Old Security surrendered to the
Funding Corporation under the Exchange Offer, the Holder will receive New
Securities of the appropriate series aggregating an equal principal
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amount. Interest on each New Security shall accrue from the last Interest
Payment Date on which interest was paid on the Old Security so surrendered or,
if no interest has been paid, since June 20, 1996.
In the event that the Funding Corporation determines in good faith
that applicable interpretations of the Staff of the Commission or other
circumstances specified in the Registration Rights Agreement do not permit the
Funding Corporation to effect the Exchange Offer, the Funding Corporation has
agreed to use its reasonable best efforts (subject to customary
representations and agreements of the Holders) to have a shelf registration
statement covering resale of the Old Securities declared effective and kept
effective until three years after the Closing Date, subject to certain
exceptions. In addition, the Funding Corporation may postpone or suspend the
filing or the effectiveness of any registration statement if such action is
taken by the Funding Corporation in good faith and for valid business reasons,
including the acquisition or divestiture of assets, other pending corporate
developments, public filings with the Commission or other similar events. The
Funding Corporation has agreed to, in the event of such a shelf registration,
provide to each Security Holder copies of the prospectus, notify each such
Holder when a registration statement for the Old Securities had become
effective and take certain other actions as are appropriate to permit such
resales of the Old Securities.
In the event that the Exchange Offer has not commenced or such
registration statement has not been declared effective within 270 days
following the Closing Date, the respective interest rates on the Old
Securities shall increase by one-half of one percent per annum (50 basis
points) effective on the 271st day following the Closing Date until the date
on which the Exchange Offer is commenced or such registration statement shall
have become effective. If a registration statement has not been declared
effective within two years after the Closing Date, such increase in interest
rates will become permanent.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all provisions of the Registration Rights
Agreement, a copy of which has been or will be filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
as a result of market-making activities or other trading activities in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by Participating Broker-Dealers during the period referred to below in
connection with resales of New Securities received in exchange for Old
Securities if such Old Securities were acquired by such Participating
Broker-Dealers for their own accounts as a result of such activities. The
Funding Corporation has agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of such New Securities for a period ending 120 days
after the Registration Statement of which this Prospectus is a part has been
declared effective (subject to extension under certain limited circumstances)
or, if earlier, when all such New Securities have been disposed of by the
Participating Broker-Dealer. See "THE EXCHANGE OFFER--Resales of New
Securities" and "SUMMARY DESCRIPTION OF PRINCIPAL FINANCING
DOCUMENTS--Registration Rights Agreement."
The Funding Corporation will not receive any proceeds from the
issuance of the New Securities offered hereby. New Securities received by
broker-dealers for their own accounts in connection with the Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Securities or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Securities. Any
broker-dealer that resells New Securities that were received by it for its own
account in connection with the Exchange Offer and any broker or dealer that
participates in a distribution of
137
<PAGE>
such New Securities may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any such resale of New Securities and
any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is a "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Securities will be
passed upon for the Funding Corporation and the Guarantors by Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York and
by Steven A. McArthur, Senior Vice President and General Counsel of the
Funding Corporation.
EXPERTS
The combined predecessor balance sheet of Partnership Guarantors as
of December 31, 1994, and the related combined predecessor statements of
operations, guarantors' equity, and cash flows for each of the two years in
the period ended December 31, 1994; the combined predecessor balance sheet of
Salton Sea Guarantors as of December 31, 1994 and the related combined
predecessor statements of operations, guarantors' equity and cash flows for
the year ended December 31, 1994 and for the nine month period from April 1,
1993 (date of acquisition) to December 31, 1993; and the predecessor summaries
of revenues and related expenses of Salton Sea Royalty Company for each of the
two years of the period ended December 31, 1994 on the basis of presentation
described in the notes thereto, all of which are included in this Prospectus,
have been included 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.
The balance sheets of Salton Sea Funding Corporation as of June 20,
1995 (inception date) and December 31, 1995 and the related statements of
operations, stockholder's equity and cash flows for the period from June 20,
1995 through December 31, 1995 and the balance sheets as of December 31, 1995
of each of the Salton Sea Guarantors, the Partnership Guarantors and the
Salton Sea Royalty Company and the related statements of operations, equity
and cash flows for the year then ended which are included herein have been
audited by Deloitte & Touche LLP independent accountants, as stated in their
reports appearing in this Prospectus given on the authority of that firm as
experts in accounting and auditing.
With respect to the unaudited interim financial information for the
three months ended March 31, 1996 and 1995 for each of the Salton Sea
Guarantors, the Partnership Guarantors, and Salton Sea Royalty Company, and
the three months ended March 31, 1996 for the Salton Sea Funding Corporation
which are included herein, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included herein for the three
months ended March 31, 1996, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act
for their reports on the unaudited interim financial information because those
reports are not "reports" or a "part" of a registration statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the
Securities Act.
The balance sheets of BN Geothermal Inc., Conejo Energy Company, San
Felipe Energy Company and Niguel Energy Company as of December 31, 1995 and
December 31, 1994 and the related statements of operations, shareholder's
equity and cash flows for the three years ended December 31, 1995,
incorporated by reference into this Registration Statement on Form S-4, have
been audited by Arthur Andersen LLP, independent public accountants, as stated
in their reports, and have been referred to herein in reliance upon the
authority of said firm as experts in giving said reports.
138
<PAGE>
INDEPENDENT ENGINEER
Stone & Webster Engineering Corporation, 7677 East Berry Avenue,
Englewood, Colorado has prepared the Independent Engineer's Report dated June
17, 1996, included as Appendix B to this Prospectus. The Independent
Engineer's Report should be read in its entirety by all investors for
information with respect to the Projects and the related subjects discussed
therein. The Independent Engineer's Report has been included in this
Prospectus in reliance upon the conclusions therein of Stone & Webster
Engineering Corporation and upon such firm's experience in preparing
independent engineer's reports for independent power projects.
139
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
SALTON SEA FUNDING CORPORATION FINANCIAL STATEMENTS
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-3
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-4
Balance Sheets as of June 20, 1995 (inception date), December 31, 1995 and March 31, 1996
(unaudited) ................................................................................ F-5
Statements of operations for the period from June 20, 1995 (inception date) through
December 31, 1995 and for the three month period ended March 31, 1996 (unaudited) ......... F-6
Statement of stockholder's equity for the period from June 20, 1995 (inception date)
through December 31, 1995 and for the three month period ended March 31, 1996 (unaudited) .. F-7
Statements of cash flows for the period from June 20, 1995 (inception date) through
December 31, 1995 and for the three month period ended March 31, 1996 (unaudited) ......... F-8
Notes to financial statements ............................................................... F-9
SALTON SEA GUARANTORS--COMBINED FINANCIAL STATEMENTS
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-11
Report of Independent Accountants--Coopers & Lybrand L.L.P. ................................. F-12
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-13
Combined predecessor balance sheets as of December 31, 1994, and successor as of December
31, 1995 and March 31, 1996 (unaudited) .................................................... F-14
Combined predecessor statements of operations for the year ended December 31, 1994 and for
the nine month period from April 1, 1993 (date of acquisition) to December 31, 1993, and
successor for the year ended December 31, 1995 and three months ended March 31, 1996 and
1995 (unaudited) ........................................................................... F-15
Combined predecessor statement of Guarantors' equity for the year ended December 31, 1994
and for the nine month period from April 1, 1993 (date of acquisition) to December 31,
1993, and successor for the year ended December 31, 1995 and for the three months ended
March 31, 1996 (unaudited) ................................................................. F-16
Combined predecessor statements of cash flows for the year ended December 31, 1994 and for
the nine months from April 1, 1993 (date of acquisition) to December 31, 1993 and successor
for the year ended December 31, 1995 and for the three months ended March 31, 1996 and 1995
(unaudited) ................................................................................ F-17
Notes to combined financial statements ...................................................... F-18
PARTNERSHIP GUARANTORS--COMBINED FINANCIAL STATEMENTS
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-25
Report of Independent Accountants--Coopers & Lybrand L.L.P. ................................. F-26
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-27
Combined predecessor balance sheets as of December 31, 1994 and successor as of
December 31, 1995 and March 31, 1996 (unaudited) ........................................... F-28
Combined predecessor statements of operations for the years ended December 31, 1994 and
1993 and successor for the year ended December 31, 1995 and for the three months ended
March 31, 1996 and 1995 (unaudited) ........................................................ F-29
Combined predecessor statement of Guarantor's equity for the years ended December 31, 1994
and 1993 and successor for the year ended December 31, 1995 and the three months ended
March 31, 1996 (unaudited) ................................................................. F-30
Combined predecessor statements of cash flows for the years ended December 31, 1994 and
1993 and successor for the year ended December 31, 1995 and for the three months ended
March 31, 1996 and 1995 (unaudited) ........................................................ F-31
Notes to combined financial statements ...................................................... F-32
SALTON SEA ROYALTY COMPANY--SUCCESSOR FINANCIAL STATEMENTS
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-42
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Independent Accountants' Report--Deloitte & Touche LLP ...................................... F-43
Balance sheets as of December 31, 1995 and March 31, 1996 (unaudited) ....................... F-44
Statements of operations for the year ended December 31, 1995 and for the three months
ended March 31, 1996 and 1995 (unaudited) .................................................. F-45
Statement of equity for the year ended December 31, 1995 and the three months ended March
31, 1996 (unaudited) ....................................................................... F-46
Statements of cash flows for the year ended December 31, 1995 and for the three months
ended March 31, 1996 and 1995 (unaudited) .................................................. F-47
Notes to combined financial statements ...................................................... F-48
SALTON SEA ROYALTY COMPANY--PREDECESSOR FINANCIAL STATEMENTS
Report of Independent Accountants--Coopers & Lybrand L.L.P. ................................. F-52
Predecessor summaries of revenues and related expenses for the years ended December 31,
1994 and 1993 .............................................................................. F-53
Notes to summaries of revenues and related expenses ......................................... F-54
</TABLE>
F-2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have audited the accompanying balance sheets of Salton Sea Funding
Corporation (the "Company") as of December 31, 1995 and June 20, 1995
(inception date) and the related statements of operations, Stockholder's
equity and cash flows for the period from June 20, 1995 through December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Salton Sea Funding Corporation as of
December 31, 1995 and June 20, 1995 and the results of its operations and its
cash flows for the period from June 20, 1995 through December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
F-3
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have reviewed the accompanying balance sheet of the Salton Sea Funding
Corporation ("the Company") as of March 31, 1996, and the related statements
of operations, stockholder's equity and cash flows for the three-month period
ended March 31, 1996. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such financial statements for them to be in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 25, 1996
F-4
<PAGE>
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 JUNE 20, 1995
----------- -------------- --------------
(INCEPTION
(UNAUDITED) DATE)
<S> <C> <C> <C>
ASSETS
Cash ............................................. $ 10,130 $ 4,393 $ --
Restricted cash .................................. 44,216 57,256 --
Prepaid expenses and other assets ................ 10,945 3,070 --
Notes receivables from affiliates ................ 452,088 452,088 --
Investment in 1% of net assets of Guarantors .... 5,914 5,714 3,267
----------- -------------- --------------
$523,293 $522,521 $ 3,267
=========== ============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities ............................. $ 10,831 $ 3,889 $ --
Due to affiliates ............................... 52,800 59,594 --
Senior secured notes and bonds .................. 452,088 452,088 --
----------- -------------- --------------
Total liabilities .............................. 515,719 515,571 --
Stockholder's Equity:
Common stock--authorized 1,000 shares, par value
$.01 per share; issued and outstanding 100
shares ......................................... -- -- --
Additional paid-in capital ...................... 5,554 5,443 3,267
Retained Earnings ............................... 2,020 1,507 --
----------- -------------- --------------
Total Stockholder's equity ..................... 7,574 6,950 3,267
----------- -------------- --------------
$523,293 $522,521 $ 3,267
=========== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FROM JUNE 20, 1995
THREE MONTHS (INCEPTION DATE)
ENDED MARCH THROUGH DECEMBER
31, 1996 31, 1995
-------------- ------------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Interest income .................... $8,953 $17,306
Equity in earnings of subsidiaries 88 271
-------------- ------------------
9,041 17,577
Expenses:
General and administrative expenses 181 --
Interest expense ................... 7,990 15,022
-------------- ------------------
Total expenses ..................... 8,171 15,022
-------------- ------------------
Income before income taxes .......... 870 2,555
Income tax expense .................. 357 1,048
-------------- ------------------
Net income ......................... $ 513 $ 1,507
============== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Issuance of $.01 par value per share common stock 100 $ -- $ -- $ -- $ --
Investment in 1% of net assets of Guarantors at
inception ........................................ -- -- 3,267 -- 3,267
-------- -------- ------------ ---------- --------
Balance, June 20, 1995 (inception date) .......... 100 -- 3,267 -- 3,267
Adjustments resulting from capital transactions of
Guarantors ....................................... -- -- 2,176 -- 2,176
Net income ........................................ -- -- -- 1,507 1,507
-------- -------- ------------ ---------- --------
Balance, December 31, 1995 ........................ 100 -- 5,443 1,507 6,950
Adjustments resulting from capital transactions of
Guarantors (unaudited) ........................... -- -- 111 -- 111
Net income (unaudited) ............................ -- -- -- 513 513
-------- -------- ------------ ---------- --------
Balance, March 31, 1996 (unaudited) ............... 100 $ -- $5,554 $2,020 $7,574
======== ======== ============ ========== ========
</TABLE>
The accompanying notes are in integral part of these financial statements.
F-7
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FROM JUNE 20, 1995
THREE MONTHS (INCEPTION DATE)
ENDED MARCH 31, TO DECEMBER 31,
1996 1995
--------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................. $ 513 $ 1,507
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in earnings of subsidiaries ......................... (88) (271)
Changes in assets and liabilities:
Prepaid expenses and other assets ......................... (7,875) (3,070)
Accrued liabilities ....................................... 6,942 3,889
--------------- ------------------
Net cash flows from operating activities .................. (508) 2,055
--------------- ------------------
Cash flows from investing activities:
Restricted cash ............................................ 13,040 (57,256)
Secured project notes of Guarantors ........................ -- (475,000)
Principal repayments of secured project notes of Guarantors -- 22,912
--------------- ------------------
Net cash flows from investing activities ................... 13,040 (509,344)
--------------- ------------------
Cash flows from financing activities:
Proceeds from offering of senior project notes and bonds .. -- 475,000
Repayments of senior secured project notes and bonds ...... -- (22,912)
Due to affiliates .......................................... (6,795) 59,594
--------------- ------------------
Net cash flows from financing activities .................. (6,795) 511,682
--------------- ------------------
Net change in cash ........................................ 5,737 4,393
Cash at the beginning of period ............................. 4,393 --
--------------- ------------------
Cash at the end of period ................................... $10,130 $ 4,393
=============== ==================
Non-cash investing and financing activities:
Adjustments resulting from capital transactions of
Guarantors ................................................ $ 111 $ 2,176
=============== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996)
1. THE PURPOSE AND BUSINESS OF SALTON SEA FUNDING CORPORATION
Salton Sea Funding Corporation (the "Company"), which was formed on June
20, 1995, is a special purpose Delaware Corporation and a wholly-owned,
special purpose finance subsidiary of Magma Power Company, which in turn is
wholly-owned by CalEnergy Company, Inc. The Company was organized for the
sole purpose of acting as issuer of Senior Secured Notes and
Bonds (collectively, the "Securities").
The Securities are payable from the proceeds of payments made of principal
and interest on the Senior Secured Notes and Bonds by the Guarantors, as
defined, to the Company. The Securities are guaranteed on a joint and several
basis by the Salton Sea Guarantors, the Partnership Guarantors and Salton Sea
Royalty Company ("Guarantors"). The guarantees of the Partnership Guarantors
and Salton Sea Royalty Company are limited to available cash flow. The
Company does not conduct any operations apart from issuing the Securities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 1996 and the results of operations and cash flows for the three
months ended March 31, 1996.
The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
Investment in Guarantors
Since the Company has the ability to assert significant influence over the
operations of the Guarantors, it accounts for its one percent investment in
the Guarantors using the equity method of accounting.
Income Taxes
The Company will be included in the consolidated income tax returns with
its parent and affiliates. Income taxes are provided on a separate return
basis in accordance with the requirements of Statement of Financial
Accounting Standards No. 109, however, tax obligations of the Company will be
remitted to the parent only to the extent of cash flows available after
operating expenses and debt service.
Fair Values of Financial Instruments
Fair values have been estimated based on quoted market prices for debt
issues listed on exchanges. Fair values of financial instruments that are not
actively traded are based on market prices of similar instruments and/or
valuation techniques using market assumptions. Unless otherwise noted, the
estimated fair value amounts do not differ significantly from recorded
values. Although management uses its best judgment in estimating the fair
value of these financial instruments, there are inherent limitations in any
estimation technique. Therefore, the fair value estimates presented herein
are not necessarily indicative of the amounts which the Company could realize
in a current transaction.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-9
<PAGE>
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. SENIOR SECURED NOTES AND BONDS
On July 21, 1995, the Company issued $475 million of Senior Secured Notes
and Bonds, consisting of $232,750,000, 6.69% Senior Secured Series A Notes,
due May 30, 2000, $133,000,000, 7.37% Senior Secured Series B Bonds, due May
30, 2005 and $109,250,000, 7.84% Senior Secured Series C Bonds, due May 30,
2010.
Principal maturities of the Senior Secured Notes and Bonds are as follow
(dollars in thousands):
1996 .................................. $ 48,106
1997 .................................. 64,378
1998 .................................. 74,938
1999 .................................. 35,108
2000 .................................. 19,572
Thereafter ........................... 209,986
---------
$452,088
=========
The estimated fair value of the Senior Secured Notes and Bonds was
$459,629,000 at December 31, 1995.
4. SUBSEQUENT EVENT (UNAUDITED)
On June 20, 1996, the Company issued $135 million of Senior
Secured Notes and Bonds, consisting of $70,000,000, 7.02% Senior
Secured Series D Notes, due May 30, 2000, and $65,000,000, 8.30%
Senior Secured Series E Bonds, due May 30, 2011, with maturities
of $25,850,000, $32,000,000, $22,728,000, $5,500,000, $1,000,000
and $47,922,000 for 1997, 1998, 1999, 2000, 2001 and thereafter,
respectively.
F-10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined successor balance sheet of the
Salton Sea Guarantors as of December 31, 1995, and the related combined
successor statements of operations, Guarantors' equity and cash flows for the
year ended December 31, 1995. These financial statements are the
responsibility of the Salton Sea Guarantors' management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such combined successor financial statements present fairly,
in all material respects, the financial position of the Salton Sea Guarantors
as of December 31, 1995 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined predecessor balance sheet of Salton
Sea Guarantors (the "Guarantors") as of December 31, 1994 and the related
combined predecessor statements of operations, Guarantors' equity and cash
flows for the year ended December 31, 1994 and for the nine month period from
April 1, 1993 (date of acquisition) to December 31, 1993. These combined
financial statements are the responsibility of the Guarantors' management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Salton
Sea Guarantors as of December 31, 1994 and the combined results of its
operations and its cash flows for the year ended December 31, 1994 and for
the nine month period from April 1, 1993 (date of acquisition) to December
31, 1993, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995
F-12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined successor balance sheet of the
Salton Sea Guarantors as of March 31, 1996, and the related combined
successor statements of operations and cash flows for the three-month periods
ended March 31, 1996 and 1995 and Guarantors' equity for the three-month
period ended March 31, 1996. These financial statements are the
responsibility of the Salton Sea Guarantors' management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such combined successor financial statements for them to be
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 25, 1996
F-13
<PAGE>
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------- --------------
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash .............................................. $ -- $ 454 || $ 4,215
Restricted cash and short term ||
investments ...................................... -- -- || 3,400
Marketable securities ............................. -- -- || 4,988
Accounts receivable ............................... 16,245 10,436 || 10,605
Prepaid expenses and other assets ................. 17,853 20,129 || 4,978
Due from affiliates ............................... -- -- || 399
Property, plant, contracts and equipment, net .... 445,554 417,287 || 204,329
Goodwill, net ..................................... 51,768 52,094 || --
----------- --------------||--------------
$531,420 $500,400 || $232,914
=========== ==============||==============
||
LIABILITIES AND GUARANTORS' EQUITY ||
Liabilities: ||
Accounts payable ................................. $ 841 $ 939 || $ 273
Accrued liabilities .............................. 12,137 4,043 || 355
Due to affiliates ................................ 22,482 4,319 || --
Loan payable ..................................... -- -- || 114,308
Senior secured project note ...................... 321,500 321,500 || --
----------- --------------||--------------
Total liabilities ................................ 356,960 330,801 || 114,936
Commitments and contingencies (Notes 2, 3, 6 and ||
7) ||
Total Guarantors' equity .......................... 174,460 169,599 || 117,978
----------- --------------||--------------
$531,420 $500,400 || $232,914
=========== ==============||==============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-14
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------------ ------------------------------
THREE MONTHS ENDED NINE MONTHS
MARCH 31, YEAR ENDED YEAR ENDED ENDED
---------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
--------- --------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales of Electricity ........... $16,221 $15,611 $71,605 || $74,576 $60,158
Interest and other income ..... 68 -- -- || 422 --
--------- --------- --------------||-------------- --------------
16,289 15,611 71,605 || 74,998 60,158
--------- --------- --------------||-------------- --------------
Costs and expenses: ||
Operating, general and ||
administrative costs .......... 5,789 5,488 26,096 || 24,766 19,335
Depreciation and amortization . 2,682 3,043 10,556 || 10,049 7,425
Interest expense ............... 6,257 5,668 15,605 || 8,240 4,267
Less capitalized interest ..... (3,300) (1,412) -- || -- --
--------- --------- --------------||-------------- --------------
Total expenses ................ 11,428 12,787 52,257 || 43,055 31,027
--------- --------- --------------||-------------- --------------
Income before minority interest 4,861 2,824 19,348 || 31,943 29,131
Minority interest .............. -- 1,393 1,393 || -- --
--------- --------- --------------||-------------- --------------
Net income ...................... $ 4,861 $ 1,431 $17,955 || $31,943 $29,131
========= ========= ==============||============== ==============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-15
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF GUARANTORS' EQUITY
(DOLLARS IN THOUSANDS)
Predecessor:
Balance, April 1, 1993, date of acquisition ........ $ --
Net contributions ................................... 81,250
Cash distributions .................................. (27,881)
Net income, nine month period ended December 31,
1993 ............................................... 29,131
----------
Balance, December 31, 1993 .......................... 82,500
Net contributions ................................... 12,285
Cash distributions .................................. (8,750)
Net income, year ended December 31, 1994 ............ 31,943
----------
Balance, December 31, 1994 .......................... 117,978
Net income in 1995 prior to acquisition (Note 2) ... 1,393
Successor:
Net contributions ................................... 10,606
Cash distributions .................................. (5,000)
Purchase accounting push-down adjustment, net ...... 26,667
Net income .......................................... 17,955
----------
Balance, December 31, 1995 .......................... 169,599
Net income (unaudited) .............................. 4,861
----------
Balance, March 31, 1996 (unaudited) ................. $174,460
==========
The accompanying notes are an integral part of the combined financial
statements.
F-16
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------------------- ---------------------------
THREE MONTHS ENDED YEAR ENDED NINE MONTHS
MARCH 31, DECEMBER 31, YEAR ENDED ENDED
----------------------- ------------- DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
---- ---- ---- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income .......................... $ 4,861 $ 1,431 $ 17,955 || $ 31,943 $ 29,131
---------- ----------- --------------||------------ -------------
Adjustments to reconcile net income ||
to net cash provided by operating ||
activities: ||
Minority interest .................. -- 1,393 1,393 || -- --
Depreciation and amortization ..... 2,682 3,043 10,556 || 10,049 7,425
Changes in assets and liabilities: ||
Accounts receivable ............... (5,809) 106 169 || (993) (9,613)
Prepaid expenses and other assets 2,276 (4,758) (19,236) || (1,706) (2,044)
Due to (from) affiliates .......... 18,163 2,241 4,718 || (399) --
Accounts payable and accrued ||
liabilities ...................... 7,996 2,105 4,354 || 62 566
Other ............................. -- -- -- || 51 --
---------- ----------- --------------||------------ -------------
Net cash flows from operating ||
activities ....................... 30,169 5,561 19,909 || 39,007 25,465
---------- ----------- --------------||------------ -------------
Cash flows from investing activities: ||
Acquisition of assets from Unocal .. -- -- -- || -- (218,834)
Purchase of Guarantors by CalEnergy, ||
net of cash ........................ -- (167,240) (171,964) || -- --
Capital expenditures ................ (30,623) (16,380) (68,677) || (4,493) --
Net decrease (increase) in ||
marketable securities .............. -- 4,988 4,988 || (4,945) --
Restricted cash ..................... -- 2,501 3,400 || (3,400) --
Other ............................... -- -- -- || 203 --
---------- ----------- --------------||------------ -------------
Net cash flows from investing ||
activities ........................ (30,623) (176,131) (232,253) || (12,635) (218,834)
---------- ----------- --------------||------------ -------------
Cash flows from financing activities: ||
Repayments on loans payable ......... -- (12,536) (302,172) || (155,692) --
Loan proceeds ....................... -- 179,640 509,364 || 130,000 140,000
Contributions ....................... -- 11,776 10,606 || 12,285 81,250
Cash distributions .................. -- (5,000) (5,000) || (8,750) (27,881)
---------- ----------- --------------||------------ -------------
Net cash flows from financing ||
activities ........................ -- 173,880 212,798 || (22,157) 193,369
---------- ----------- --------------||------------ -------------
Net change in cash ................. (454) 3,310 454 || 4,215 --
Cash at beginning of period .......... 454 -- -- || -- --
---------- ----------- --------------||------------ -------------
Cash at end of period ................ $ -- $ 3,310 $ 454 || $ 4,215 $ --
========== =========== ==============||============ =============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-17
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
1. ORGANIZATION AND OPERATIONS
Salton Sea Guarantors (the "Guarantors") (not a legal entity) is comprised
of 100% interests in three geothermal electric power generating plants
("Salton Sea Units I, II and III") and a fourth plant ("Salton Sea Unit IV"
or the "Salton Sea Expansion") which is under construction (collectively, the
"Salton Sea Projects"). All three plants and the expansion facility are
located in the Imperial Valley of California. The Salton Sea Projects will
serve to guarantee loans from Salton Sea Funding Corporation, an indirect
wholly-owned subsidiary of CalEnergy Company, Inc. ("CECI"). (See Note 3).
The combined financial statements consist of the combination of (1) Salton
Sea Brine Processing, L.P., a California limited partnership between Magma
Power Company ("Magma"), as a 99% limited partner and Salton Sea Power
Company ("SSPC"), a wholly-owned subsidiary of Magma, as a 1% general
partner, (2) Salton Sea Power Generation, L.P., a California limited
partnership between Salton Sea Brine Processing, L.P., as a 99% limited
partner, and Salton Sea Power Company, as a 1% general partner and (3) assets
and liabilities attributable to Salton Sea Unit IV which are held 59% by
Salton Sea Power Generation, L.P. and 41% by Fish Lake Power Company
("FLPC"). Effective in June of 1995, 1% interests in SSPC and FLPC were
transferred to Funding Corporation. All of the entities in the combination
are affiliates of Magma.
Salton Sea Unit IV was created upon combining and consolidating the Salton
Sea Unit I power purchase agreement and the Fish Lake modified SO4. Salton
Sea Unit IV is presently expected to be completed by mid-year 1996. Failure
to complete the construction of Salton Sea Unit IV by June 12, 1998 could
result in the Salton Sea Unit IV power purchase agreement being terminated by
Southern California Edison Company ("SCE"). Engineering and construction
services have been contracted to date on a cost reimbursable and time and
materials basis. CECI has provided a cost overrun commitment to fund any
costs of construction in excess of certain budgeted amounts.
During the year ended December 31, 1994 and the nine month period ended
December 31, 1993, the three plants and the expansion facility currently held
by CECI were held, directly or indirectly by Magma. In February 1995, CECI
completed its acquisition of Magma, which is currently a wholly-owned
subsidiary of CECI (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the combined accounts of the
Salton Sea Projects described above. All significant intercompany
transactions and accounts have been eliminated.
In the opinion of management of the Guarantors, the accompanying unaudited
combined financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and the results of operations and cash flows for the
three months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
The December 31, 1995 successor financial statements reflect the
acquisition of Magma (see Note 3), the resulting push down to the Guarantors
of the accounting as a purchase business combination and minority interest
for the non-owned periods consisting of 100% for the period January 1-9, 1995
and 49% for the period January 10, 1995-February 23, 1995.
Due to the restrictions on cash distributions resulting from the Secured
Credit Agreement (see Note 5), all amounts due to and from the partners as of
February 28, 1994 were offset to the respective Guarantors' equity account as
a net contribution from partners in the accompanying combined historical
statements of Guarantors' equity.
F-18
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable with
respect to their three operating facilities from sales of electricity to SCE
on an accrual basis using stated contract prices under its two Interim
Standard Offer No. 4 power purchase agreements ("ISO4s") for Salton Sea Units
II and III and its negotiated contract for Salton Sea Unit I. The ISO4s and
the negotiated contract provide for the payment of both capacity payments and
energy payments for a 30-year term. SCE is the sole customer of the
Guarantors.
The capacity payments for the ISO4s are a fixed amount for the entire
30-year contract and are based on the plant's contract capacity, as specified
in the agreement. The Guarantors earn the maximum contract capacity payment
in each month of the year they are able, after excluding scheduled
maintenance hours, to deliver 80% of its contract capacity. In addition, the
Guarantors are eligible to earn a monthly bonus capacity payment if they
operate at levels in excess of capacity levels specified in their ISO4s.
Under the negotiated contract, the capacity payment adjusts quarterly based
on a basket of indices for the term of the agreement. For the period from
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 on Salton
Sea Unit III.
The Guarantors earn energy payments based on kilowatt hours ("kWhs") of
energy provided to SCE. During the first 10 years, the Guarantors earn
payments for energy as scheduled in their ISO4s. After the 10-year scheduled
payment period has expired (in 1999 for Salton Sea Unit III and 2000 for
Salton Sea Unit II), the energy payment per kWh throughout the remainder of
the contract period will be at SCE's Avoided Cost of Energy. For the year
ended December 31, 1995, SCE's average Avoided Cost of Energy was 2.1 cents
per kWh which is substantially below the contract energy prices earned in
1995. Estimates of SCE's future Avoided Cost of Energy vary substantially
from year to year. The Guarantors cannot predict the likely level of Avoided
Cost of Energy prices under the ISO4s at the expiration of the scheduled
payment periods. The revenues generated by each of the units operating under
ISO4s could decline significantly after the expiration of the relevant
scheduled payment period. Under the negotiated contract, the energy payment
is calculated using a base price, as defined, which is subject to quarterly
adjustments based on a basket of indices for the term of the agreement.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less
accumulated depreciation. The Guarantors follow the full cost method of
accounting for costs incurred in connection with the exploration and
development of geothermal resources. The Guarantors provide depreciation and
amortization of property, plants, contracts and equipment upon the
commencement of revenue production over the estimated useful life of the
assets and periodically assess the carrying value of such assets for possible
impairment in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
F-19
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciable lives for the periods through 1994 were as follows:
Plant and plant equipment ............. 20 years
Office furniture and equipment ....... 5-10 years
Other equipment ....................... 7-10 years
Exploration and development costs .... 20 years
Power purchase contracts were amortized on the straight line method over
20 years which is the lesser of the remaining life of the contract or the
remaining useful life of plant and plant equipment.
As a result of the purchase business combination, the assets and
liabilities were adjusted to fair value and are depreciated over the
remaining useful lives. See Note 2, "Purchase Accounting," and Note 4,
"Property, Plant, Contracts and Equipment."
When plant and equipment is sold or abandoned, the cost and related
accumulated depreciation/ amortization are removed from the accounts and the
resulting gain or loss is recognized.
On January 1, 1996, the Guarantor adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The adoption
of SFAS 121 did not have material effect on the Guarantor's financial
statements.
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted
for on a push down basis by the Guarantors during the year ended December 31,
1995, all identifiable assets and liabilities were stated at fair value.
The fair value of property and equipment, net of salvage value, and
exploration and development costs is depreciated on the straight line method
over the remaining portion (approximately 23 years) of the original 30 year
life.
Power sale agreements have been assigned values separately for each of (1)
the remaining portion of the scheduled price periods of the power sales
agreements and (2) the 20 year avoided cost periods of the power sales
agreements and are being amortized separately over such periods using the
straight line method; and (3) the 163 net MW BRPU Award for which the related
plants will either be constructed or the contract rights will be bought out;
amortization of such values has been deferred until the plants have been
constructed and production commences or the buyout proceeds have been applied
against such values.
The Salton Sea reservoir contains commercial quantities of extractable
minerals. The fair value allocated to mineral extraction was based on the
estimated net cash flows generated from producing such minerals. The fair
value assigned to the mineral reserves will be amortized on the units of
production method upon commencement of commercial production.
Fair value has been assigned to a contract for which the plant is
presently under construction and energy production is not expected to
commence before mid-year 1996. Accordingly, revenues, period operating costs,
depreciation of future costs to be incurred for the completion of such
facility and amortization of this allocation of acquisition costs are not
presently included in the Salton Sea Guarantor statements of operations.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired are amortized over a 40-year period using the straight line
method. Deferred finance costs are amortized using the level yield method
over the term of the related debt.
F-20
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Guarantors are comprised of a combination of partnership interests and
one company. The income or loss of each partnership for income tax purposes,
along with any associated tax credits, is the responsibility of the
individual partners. The company is currently constructing its project and
has no tax obligations. Accordingly, no recognition has been given to federal
or state income taxes in the accompanying combined financial statements.
Restricted Cash, Short-term Investments and Marketable Securities
At December 31, 1994, the Guarantors adopted the provisions of Statements
of Financial Accounting Standards No. 115 ("SFAS 115") "Accounting for
Certain Investments in Debt and Equity Securities." Adoption of SFAS 115 had
no material effect on the Guarantor's financial position or results of
operation. In accordance with the provisions of SFAS 115, debt securities
that the Guarantors have the positive intent and ability to hold to maturity
are classified as held-to-maturity securities and reported at amortized cost.
As of December 31, 1995, all of the Guarantors' investments were classified
as held-to-maturity.
The restricted cash and investments balance represents primarily a debt
reserve fund which is legally restricted as to its use and which requires the
maintenance of a specified minimum balance. The Guarantors invest in
commercial paper with a rating of A1 or better and generally having
maturities of three months or less.
Statements of Cash Flows
For purposes of the statements of cash flows, the Guarantors consider only
demand deposits at banks to be cash. Cash paid for interest during the years
ended December 31, 1995 and 1994 and the period from April 1, 1993 (date of
acquisition) to December 31, 1993, was $4,716,000, $7,163,000 and $4,265,000
respectively. Cash paid for interest for the three months ended March 31,
1996 and 1995 was $4,716,000 and $5,663,000, respectively.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are
based on market prices of similar instruments and/or valuation techniques
using market assumptions. Unless otherwise noted, the estimated fair value
amounts do not differ significantly from recorded values. Although management
uses its best judgment in estimating the fair value of these financial
instruments, there are inherent limitations in any estimation technique.
Therefore, the fair value estimates presented herein are not necessarily
indicative of the amounts which the Guarantors could realize in a current
transaction.
The Guarantors assume that the carrying amount of short-term financial
instruments approximates their fair value. For these purposes, short-term is
defined as any item that matures, reprices, or represents a cash transaction
between willing parties within six months or less of the measurement date.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-21
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
3. PURCHASE OF MAGMA POWER COMPANY
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 (the "Magma Tender Offer") and completed the Magma acquisition
on February 24, 1995 by acquiring approximately 49% of the outstanding shares
of Magma Common Stock not owned by CECI through a merger.
Magma is engaged in independent power operations similar to those of CECI.
The transaction was accounted for as a purchase business combination.
Unaudited pro forma combined revenue and net income of the Guarantors on a
purchase, push down basis of accounting, for the year ended December 31,
1995, as if the acquisition had occurred at the beginning of the period after
giving effect to certain pro forma adjustments related to the acquisition,
were $71,605,000 and $18,465,000, respectively, compared to $74,998,000 and
$21,281,000, respectively, for the year ended December 31, 1994.
The adjustments which have been made to the net assets of the Guarantors
to reflect the effect of the acquisition of Magma accounted for as a purchase
business combination pushed down to the Guarantors are as follows (dollars in
thousands):
Property, plant, contracts and equipment .... $ 153,660
Goodwill ..................................... 53,271
Deferred financing cost ...................... 6,412
Severance, relocation and litigation reserve (2,312)
Debt ......................................... (184,364)
-----------
Net increase in assets ....................... $ 26,667
===========
4. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------- --------------
MARCH 31, DECEMBER 31, DECEMBER 31,
----------- -------------- --------------
1996 1995 1994
----------- -------------- --------------
<S> <C> <C> <C>
Plant and equipment ............................ $174,030 $173,509 $186,119
Salton Sea Unit 4 .............................. 137,119 108,632 --
Power sale agreements .......................... 64,609 64,609 --
Mineral extraction ............................. 61,680 60,577 --
Exploration and development costs .............. 18,305 17,793 35,649
----------- -------------- --------------
455,743 425,120 221,768
Less accumulated depreciation and amortization (10,189) (7,833) (17,439)
----------- -------------- --------------
$445,554 $417,287 $204,329
=========== ============== ==============
</TABLE>
5. LOANS PAYABLE
On April 1, 1993, the Guarantors entered into a one-year, $140,000,000
note agreement with Magma (the "Magma Loan") to finance the acquisition of
Salton Sea Units I, II and III from Unocal. The interest terms of the note,
LIBOR plus .675%, are identical to the terms of a $140,000,000 secured credit
agreement between Magma and Morgan Guaranty Trust Company of New York dated
March 19, 1993.
In February 1994, the Guarantors replaced the Magma Loan with a
$130,000,000 non-recourse project-level term loan which is collateralized by
substantially all the assets of Salton Sea Units I, II and
F-22
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
5. LOANS PAYABLE (CONTINUED)
III. A secured agreement (the "Secured Credit Agreement") with a group of
international banks, with Credit Suisse as the agent bank, provides for
direct loans at LIBOR plus 1.25%.
In June 1994, a cash distribution of $8,750,000 was made which represented
a portion of January and February 1994 electricity sales collected from SCE
subsequent to February 28, 1994. The cash collected was for operational
activity occurring prior to the consummation of the Secured Credit Agreement
and the distribution was approved by the creditors.
The Guarantors repaid the loans with proceeds from the offering of
investment grade securities (see Note 6).
6. SENIOR SECURED PROJECT NOTE
The Guarantors assumed their proportionate share of the secured bank
financing incurred in connection with the purchase of Magma (see Note 3). On
July 21, 1995, CECI recapitalized Magma and the related Merger Facilities
from proceeds received through a $200 million high yield offering and a $475
million investment grade offering of the Salton Sea Funding Corporation.
Proceeds from the offering of Salton Sea Funding Corporation investment grade
securities were used to repay certain loans of the Guarantors. The Guarantors
issued a project note in the amount of $325 million payable to Salton Sea
Funding Corporation with interest rates ranging from 6.69% to 7.84%, and
guaranteed the investment grade securities. The guarantee issued is
collateralized by a lien on substantially all the assets of and a pledge of
the equity interests in the Guarantors.
Principal maturities of the Senior Secured Project Notes are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................................... $ 21,660
1997 ................................... 33,632
1998 ................................... 39,450
1999 ................................... 16,076
2000 ................................... 9,737
Thereafter ............................ 200,945
---------
$321,500
=========
</TABLE>
The estimated fair value of the Senior Secured Project Notes was
$326,337,000 at December 31, 1995.
7. RELATED PARTY TRANSACTIONS
The Guarantors entered into the following agreements:
o Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated April 1, 1993, as amended, whereby the Guarantors
acquired from Magma Land I, a wholly- owned subsidiary of Magma,
rights to extract geothermal brine from the geothermal lease rights
property which is necessary to operate the Salton Sea Power Generation,
L.P. facilities in return for 5% of all electricity revenues received by
the Guarantors. The amount expensed for the periods ended December 31,
1995, 1994 and 1993 was $3,579,000, $3,732,000 and $3,008,000,
respectively. The amount expensed for the three months ended March 31,
1996 and 1995 was $812,000 and $777,000, respectively.
o Administrative Services Agreement dated April 1, 1993, as amended, with
Magma, whereby Magma will provide to the Guarantors administrative and
management services. The amount expensed for the periods ended December
31, 1995 and 1994 was $2,153,000 and $2,239,000,
F-23
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
respectively, and $1,805,000 for the nine months ended December 31,
1993. The amount expensed for the three months ended March 31, 1996
and 1995 was $488,000 and $466,00, respectively.
o Operating and Maintenance Agreement dated April 1, 1993, as amended,
with California Energy Operating Company ("CEOC") (formerly Magma
Operating Co.), whereby the Guarantors retain CEOC to operate the
Salton Sea facilities for a period of 32 years. Payment is made to
CEOC in the form of reimbursements of expenses incurred. The Guarantors
in 1995, 1994 and 1993 reimbursed CEOC for expenses of $6,939,000,
$5,973,000 and $4,474,000, respectively. The amount reimbursed for the
three months ended March 31, 1996 and 1995 was $1,344,000 and $2,093,000,
respectively.
8. ACQUISITION
In December 1992, Magma signed a definitive agreement with Unocal to
purchase all of Unocal's geothermal interests in the Imperial Valley of
California, including Salton Sea Units, I, II and III and certain geothermal
leases. On March 31, 1993, the Guarantors consummated their acquisition of
the Imperial Valley geothermal interest. Total cost includes (i) payments to
Unocal consisting of the purchase price of $224,000,000, working capital of
$7,300,000 and an interest charge of $3,500,000, and (ii) advisory fees and
transaction costs totaling $3,400,000. The total cost of the acquisition
attributable to the Guarantors is allocated as follows (dollars in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Land .............................. $ 383
Property, plant and equipment .... 142,188
Exploration and development costs 46,514
Power purchase contracts .......... 22,217
Transmission line credits ......... 6,254
Other ............................. 1,278
---------
$218,834
=========
</TABLE>
In addition to the initial acquisition price, the Company will make
payments to Unocal contingent on future development of new power generating
capacity.
F-24
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined successor balance sheet of the
Partnership Guarantors as of December 31, 1995, and the related combined
successor statements of operations, Guarantors' equity and cash flows for the
year ended December 31, 1995. These financial statements are the
responsibility of the Guarantors' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such combined successor financial statements present fairly,
in all material respects, the financial position of the Partnership
Guarantors as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined predecessor balance sheet of
Partnership Guarantors (the "Guarantors") as of December 31, 1994 and the
related combined predecessor statements of operations, Guarantors' equity and
cash flows for each of the two years in the period ended December 31, 1994.
These combined financial statements are the responsibility of the Guarantors'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined historical financial position
of Partnership Guarantors at December 31, 1994 and the combined historical
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995
F-26
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined successor balance sheet of the
Partnership Guarantors as of March 31, 1996, and the related combined
successor statements of operations and cash flows for the three-month periods
ended March 31, 1996 and 1995 and Guarantors' equity for the three-month
period ended March 31, 1996. These financial statements are the
responsibility of the Guarantors' management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such combined successor financial statements for them to be
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 25, 1996
F-27
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------- --------------
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash ............................................... $ 11,042 $ 11,146 || $ 5,661
Restricted cash and short-term investments ........ 10,576 9,859 || 8,653
Marketable securities .............................. -- -- || 7,457
Accounts receivable ................................ 9,615 11,841 || 10,848
Prepaid expenses and other assets .................. 12,077 9,651 || 6,451
Due from affiliates ................................ 55,863 54,949 || 4,108
Property, plant, contracts and equipment, net ..... 299,210 298,956 || 137,265
Management fee ..................................... 64,098 63,520 || --
Goodwill, net ...................................... 141,359 142,250 || --
----------- --------------||--------------
$603,840 $602,172 || $180,443
=========== ==============||==============
LIABILITIES AND GUARANTOR'S EQUITY ||
Liabilities: ||
Accounts payable .................................. $ 3,167 $ 3,566 || $ 2,679
Accrued liabilities ............................... 8,560 19,995 || 5,522
Loans payable ..................................... 38,633 43,766 || 52,340
Deferred income taxes ............................. 97,396 98,407 || 13,507
Senior secured project note ....................... 62,706 62,706 || --
----------- --------------||--------------
Total liabilities ................................. 210,462 228,440 || 74,048
Commitments and contingencies (Notes 2, 3, 6 and 7) ||
Guarantors' Equity: ||
Common stock ...................................... 3 3 || 3
Additional paid-in capital ........................ 375,593 359,092 || 106,392
Retained earnings ................................. 17,782 14,637 || --
----------- --------------||--------------
Total Guarantors' equity .......................... 393,378 373,732 || 106,395
----------- --------------||--------------
$603,840 $602,172 || $180,443
=========== ==============||==============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-28
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------------------------------ --------------------
THREE MONTHS ENDED YEAR ENDED YEAR ENDED DECEMBER
MARCH 31, DECEMBER 31, 31,
-------------------- -------------- --------------------
1996 1995 1995 1994 1993
--------- --------- -------------- --------- ---------
(UNAUDITED)
REVENUES:
<S> <C> <C> <C> <C> <C>
Sales of electricity ..................... $15,159 $16,717 $76,909 || $70,692 $65,579
Interest and other income ................ 2,220 1,316 10,574 || 5,358 4,478
--------- --------- --------------||--------- ---------
17,379 18,033 87,483 || 76,050 70,057
Costs and expenses: ||
Operating general and administrative ||
costs ................................... 7,612 7,602 32,143 || 35,306 35,597
Depreciation and amortization ............ 4,373 2,438 18,958 || 9,037 9,249
Interest expense ......................... 2,007 3,209 16,726 || 3,285 3,712
Less capitalized interest ................ (2,007) -- (7,900) || -- --
--------- --------- --------------||--------- ---------
Total expenses .......................... 11,985 13,249 59,927 || 47,628 48,558
--------- --------- --------------||--------- ---------
Income before income taxes ................ 5,394 4,784 27,556 || 28,422 21,499
Provision for income taxes ............... 2,249 1,885 11,492 || 11,284 8,405
--------- --------- --------------||--------- ---------
Income before minority interest ........... 3,145 2,899 16,064 || 17,138 13,094
Minority interest ......................... -- 1,427 1,427 || -- --
--------- --------- --------------||--------- ---------
Net income ................................ $ 3,145 $ 1,472 $14,637 || $17,138 $13,094
========= ========= ==============||========= =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-29
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENT OF GUARANTORS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance, January 1, 1993 .......... 3 $ 3 $102,103 $ 3,597 $105,703
Cash distributions to Magma ...... -- -- -- (12,600) (12,600)
Other distributions ............... -- -- (3,862) (4,091) (7,953)
Contribution for income taxes .... -- -- 5,143 -- 5,143
Net income, 1993 .................. -- -- -- 13,094 13,094
------ ------ ------------ ---------- --------
Balance, December 31, 1993 ....... 3 3 103,384 -- 103,387
Cash distributions to Magma ...... -- -- (1,062) (17,138) (18,200)
Other distributions ............... -- -- (3,315) -- (3,315)
Contribution for income taxes .... -- -- 7,385 -- 7,385
Net income, 1994 .................. -- -- -- 17,138 17,138
------ ------ ------------ ---------- --------
Balance, December 31, 1994 ....... 3 3 106,392 -- 106,395
Net income in 1995 prior to
acquisition (Note 2) ............. -- -- -- 1,427 1,427
SUCCESSOR:
Purchase accounting push-down
adjustment, net .................. -- -- 68,617 (1,427) 67,190
Distributions ..................... -- -- (13,860) -- (13,860)
Contributions ..................... -- -- 197,943 -- 197,943
Net income ........................ -- -- -- 14,637 14,637
------ ------ ------------ ---------- --------
Balance, December 31, 1995 ....... 3 3 359,092 14,637 373,732
Contributions (unaudited) ......... -- -- 16,501 -- 16,501
Net income (unaudited) ............ -- -- -- 3,145 3,145
------ ------ ------------ ---------- --------
Balance, March 31, 1996
(unaudited) ...................... 3 $ 3 $375,593 $ 17,782 $393,378
====== ====== ============ ========== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-30
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------------------------------- ----------------------
THREE MONTHS YEAR ENDED YEAR ENDED DECEMBER
ENDED MARCH 31, DECEMBER 31, 31,
----------------------- ----------------------
1996 1995 1995 1994 1993
---------- ----------- -------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................... $ 3,145 $ 1,472 $ 14,637 || $ 17,138 $ 13,094
---------- ----------- --------------||---------- ----------
Adjustments to reconcile net income to ||
net cash provided by operating ||
activities: ||
Minority interests ................... -- 1,427 1,427 || -- --
Depreciation and amortization ....... 4,373 2,438 18,958 || 9,037 9,249
Deferred taxes ....................... -- -- 1,011 || 3,899 3,262
Other, net ........................... -- (8,966) -- || 8,251 417
Changes in assets and liabilities: ||
Accounts receivable ................. 2,226 4,355 (993) || (3,103) 2,517
Amounts due affiliates .............. (914) 3,264 (50,841) || 4,077 (5,066)
Prepaid expenses and other assets .. (3,004) 1,066 (5,779) || 178 (508)
Accounts payable and accrued ||
liabilities ........................ (12,845) 2,365 12,047 || 2,421 1,275
---------- ----------- --------------||---------- ----------
Net cash flows from operating ||
activities ....................... (7,019) 7,421 (9,533) || 41,898 24,240
---------- ----------- --------------||---------- ----------
Cash flows from investing activities: ||
Capital expenditures ................. (3,736) (1,051) (4,066) || (10,495) (4,852)
Purchase of Guarantors by CalEnergy, ||
net of cash ......................... -- (116,290) (197,810) || -- --
Net (increase) decrease in marketable ||
securities .......................... -- 4,729 7,457 || (4,826) (2,980)
Restricted cash ...................... (717) (133) (1,206) || (3,058) 2,988
Management fee ....................... -- -- (30,485) || -- --
---------- ----------- --------------||---------- ----------
Net cash flows from investing ||
activities ....................... (4,453) (112,745) (226,110) || (18,379) (4,844)
---------- ----------- --------------||---------- ----------
Cash flows from financing activities: ||
Loan repayments ...................... (5,133) (4,437) (225,479) || (7,779) (7,223)
Loan proceeds ........................ -- 127,773 288,185 || -- --
Net contribution (distribution) ..... 16,501 (9,850) 184,083 || (18,200) (12,600)
---------- ----------- --------------||---------- ----------
Net cash flows from financing ||
activities ....................... 11,368 113,486 246,789 || (25,979) (19,823)
---------- ----------- --------------||---------- ----------
Net change in cash ................ (104) 8,162 11,146 || (2,460) (427)
Cash at beginning of period ........... 11,146 -- -- || 8,121 8,548
---------- ----------- --------------||---------- ----------
Cash at the end of period ............. $ 11,042 $ 8,162 $ 11,146 || $ 5,661 $ 8,121
========== =========== ==============||========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-31
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
1. ORGANIZATION AND OPERATIONS
Partnership Guarantors (the "Guarantors") (not a legal entity) consists of
the combination of Vulcan Power Company ("VPC") and California Energy
Operating Company ("CEOC"), both 99% owned by Magma Power Company ("Magma")
and 1% owned by Salton Sea Funding Corporation (the "Funding Corporation").
VPC's and CEOC's principal assets are interests in certain partnerships which
are engaged in the operation of geothermal power plants in the Imperial
Valley of California. The Guarantors will serve to guarantee loans to such
partnerships from Salton Sea Funding Corporation, a wholly-owned subsidiary
of CalEnergy Company, Inc. ("CECI"). VPC holds a 50% interest in Vulcan/BN
Geothermal Power Company, a Nevada general partnership, and CEOC holds a 40%
general partner interest in Leathers, L.P., a California limited partnership,
Del Ranch, L.P., a California limited partnership and Elmore, L.P. a
California limited partnership (collectively, the "Partnerships"). Magma owns
a 10% limited partnership interest in each of Leathers L.P., Elmore L.P. and
Del Ranch L.P. and has entered into an agreement to pay to the Guarantors the
distributions it receives related to such 10% interests, in addition to a
special distribution equal to 4.5% of total energy sales from the Leathers
Project.
The remaining 50% interest in the Partnerships is owned indirectly by
Mission Energy Company ("Mission") (See Note 10--Subsequent Event). Mission
is a wholly-owned subsidiary of SCE Corporation ("SCEcorp"). Southern
California Edison Company ("SCE") is the sole customer of the Partnerships
and is an affiliate of SCEcorp.
In February 1995, CECI completed its acquisition of Magma, which is
currently a wholly-owned subsidiary of CECI (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Guarantors present the
accounts of CEOC, VPC and their pro rata share of the accounts of the
Partnerships as described above on a combined basis. All significant
intercompany balances and transactions have been eliminated.
In the opinion of management of the Guarantors, the accompanying unaudited
combined financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and the results of operations and cash flows for three
months ended March 31, 1996 and 1995. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of the results to
be expected for the full year.
The December 31, 1995 successor financial statements reflect the
acquisition of Magma (see Note 3), the resulting push down to the Guarantors
of the accounting as a purchase business combination and minority interest
for the non-owned periods consisting of 100% for the period January 1-9, 1995
and 49% for the period January 10, 1995--February 23, 1995.
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable from
sales of electricity on an accrual basis using stated contract prices under
their Interim Standard Offer No. 4 power purchase agreements ("ISO4s") with
SCE. The ISO4s provide for the payment of both capacity payments and energy
payments for a 30-year term.
The capacity payments for the ISO4s are a fixed amount for the entire
30-year contract period and are based on the plant's contract capacity, as
specified in the agreement. The Guarantors earn their
F-32
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maximum contract capacity payment in each month of the year they are able,
after excluding scheduled maintenance hours, to deliver 80% of its contract
capacity. In addition, the Guarantors are eligible to earn a monthly bonus
capacity payment if they operate at levels in excess of capacity levels
specified in their ISO4s.
The Guarantors earn energy payments based on kilowatt hours ("kWhs") of
energy provided to SCE. During the first 10 years, the Guarantors earn
payments for energy as scheduled in their ISO4s. After the 10-year scheduled
payment period has expired (on February 9, 1996 for Vulcan, in 1998 for Del
Ranch and Elmore and in 1999 for Leathers), the energy payment per kWh
throughout the remainder of the contract period will be at SCE's Avoided Cost
of Energy. For the year ended December 31, 1995, SCE's average Avoided Cost
of Energy was 2.1 cents per kWh which is substantially below the contract
energy prices earned in 1995. Estimates of SCE's future Avoided Cost of
Energy vary substantially from year to year. The Guarantors cannot predict
the likely level of Avoided Cost of Energy prices under the ISO4s at the
expiration of the scheduled payment periods. The revenues generated by each
of the projects operating under ISO4s could decline significantly after the
expiration of the relevant scheduled payment periods.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less
accumulated depreciation. The Guarantors follow the full cost method of
accounting for costs incurred in connection with the exploration and
development of geothermal resources. The Guarantors provide depreciation and
amortization of property, plants, contracts and equipment upon the
commencement of revenue production over the estimated useful life of the
assets and periodically assess the carrying value of such assets for possible
impairment in accordance with the provisions of Statement of Financial
Accounting Standards No. 121.
Depreciable lives for the periods through 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Plant and plant equipment ............. 20 years
Office furniture and equipment ....... 5-10 years
Other equipment ....................... 7-10 years
Exploration and development costs .... 20 years
</TABLE>
Power purchase contracts were amortized on the straight line method over
20 years which is the lesser of the remaining life of the contract or the
remaining useful life of plant and plant equipment.
As a result of the purchase business combination, the assets and
liabilities were adjusted to fair value and are depreciated over the
remaining useful lives. See Note 2, "Purchase Accounting", and Note 4,
"Property, Plant, Contracts and Equipment." When plant and equipment is sold
or abandoned, the cost and related accumulated depreciation amortization are
removed from the accounts and the resulting gain or loss is recognized.
On January 1, 1996, the Guarantor adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption
of SFAS 121 did not have a material effect on the Guarantor's financial
statements.
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted
for on a push down basis by the Guarantors during the year ended December 31,
1995, all identifiable assets and liabilities were stated at fair value.
F-33
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair value of property and equipment, net of salvage value, and
exploration and development costs is being depreciated using the straight
line method over the remaining portion (approximately 23 years) of the
original 30-year life.
Power sale agreements have been assigned values separately for each of (1)
the remaining portion of the scheduled price periods of the power sales
agreements and (2) the 20 year avoided cost periods of the power sales
agreements and are being amortized separately over such periods using the
straight line method.
The Salton Sea reservoir contains commercial quantities of extractable
minerals. The fair value allocated to mineral extraction was based on the
estimated net cash flows generated from such production. The fair value
assigned to the mineral reserves will be amortized using the units of
production method commencing in 1998 which is the date upon which the benefit
of this item is anticipated to commence.
A process license was allocated fair value which represents the economic
benefits expected to be realized from the installation of the license and
related technology at the Imperial Valley. The fair value assigned to the
process license is amortized using the straight-line method over the
remaining estimated useful life of the license.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired is being amortized over a 40 year period using the straight
line method. Deferred financing costs are amortized using the level yield
method over the term of the related debt.
Income Taxes
The entities comprising the Guarantors will be included in consolidated
income tax returns with their parent and affiliates. Tax obligations of the
Guarantors will be remitted to the parent only to the extent of cash flows
available after operating expenses and debt service.
Restricted Cash, Short-term Investments and Marketable Securities
At December 31, 1994, the Guarantors adopted the provisions of Statements
of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for
Certain Investments in Debt and Equity Securities." Adoption of SFAS 115 had
no material effect on the partnership's financial position or results of
operation. In accordance with the provisions of SFAS 115, debt securities
that the Guarantors have the positive intent and ability to hold to maturity
are classified as held-to-maturity securities and reported at amortized cost.
As of December 31, 1995, all of the Guarantors' investments were classified
as held-to-maturity.
The restricted cash and investments balance represents primarily a debt
reserve fund which is legally restricted as to its use and which requires the
maintenance of a specified minimum balance. The Guarantors invest in
commercial paper with a rating of A1 or better and generally having
maturities of three months or less.
Management Fee
Pursuant to the Magma Services Agreement. Magma has agreed to pay CEOC all
equity cash flows and certain royalties payable by the Guarantors in exchange
for providing data and services to Magma.
Statements of Cash Flows
For purposes of the statement of cash flows, the Guarantors consider only
demand deposits at banks to be cash. Cash paid for interest during 1995, 1994
and 1993 was $3,235,000, $2,949,000 and $3,453,000, respectively. Cash paid
for interest for the three months ended March 31, 1996 and 1995 was $839,000
and $1,087,000, respectively.
F-34
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are
based on market prices of similar instruments and/or valuation techniques
using market assumptions. Unless otherwise noted, the estimated fair value
amounts do not differ significantly from recorded values. Although management
uses its best judgment in estimating the fair value of these financial
instruments, there are inherent limitations in any estimation technique.
Therefore, the fair value estimates presented herein are not necessarily
indicative of the amounts which the Guarantors could realize in a current
transaction.
The Guarantors assume that the carrying amount of short-term financial
instruments approximates their fair value. For these purposes, short-term is
defined as any item that matures, reprices, or represents a cash transaction
between willing parties within six months or less of the measurement date.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PURCHASE OF MAGMA POWER COMPANY
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 (the "Magma Tender Offer") and completed the Magma acquisition
on February 24, 1995 by acquiring approximately 49% of the outstanding shares
of Magma Common Stock not owned by CECI through a merger. Magma is engaged in
independent power operations similar to those of CECI. The transaction was
accounted for as a purchase business combination.
Unaudited pro forma combined revenue and net income of the Guarantors on a
purchase, push down basis of accounting, for the year ended December 31,
1995, as if the acquisition had occurred at the beginning of the period after
giving effect to certain pro forma adjustments related to the acquisition,
were $87,483,000 and $15,099,000, respectively, compared to $76,050,000 and
$2,312,000, respectively, for the year ended December 31, 1994.
F-35
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
3. PURCHASE OF MAGMA POWER COMPANY (CONTINUED)
The adjustments which have been made to the net assets of the Guarantors
to reflect the effect of the acquisition of Magma accounted for as a purchase
business combination pushed down to the Guarantors are as follows (dollars in
thousands):
Property, plant, contracts and equipment .... $ 214,513
Goodwill ..................................... 145,487
Deferred financing cost ...................... 9,714
Other assets ................................. (2,137)
Severance, relocation and litigation reserve.. (3,313)
Deferred income taxes ........................ (83,889)
Debt ......................................... (213,185)
-----------
Net increase in assets ....................... $ 67,190
===========
4. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment assets consisted of the following
(dollars in thousands):
<TABLE>
<CAPTION>
SUCCESSOR || PREDECESSOR
-------------------------- ||--------------
MARCH 31, DECEMBER 31, || DECEMBER 31,
1996 1995 || 1994
----------- --------------||--------------
<S> <C> <C> ||<C>
Plant and equipment ............................ $ 58,489 $ 58,532 || $164,830
Power sale agreements .......................... 44,966 44,966 || --
Process license ................................ 46,290 46,290 || --
Mineral reserves ............................... 114,357 112,350 || --
Exploration and development costs .............. 55,221 53,449 || 44,276
----------- --------------||--------------
319,323 315,587 || 209,106
Less accumulated depreciation and amortization (20,113) (16,631) || (71,841)
----------- --------------||--------------
$299,210 $298,956 || $137,265
</TABLE>
5. LOANS PAYABLE
Loans payable include the Guarantors' pro rata share of the debt of the
Del Ranch, Elmore and Leathers partnerships which is non-recourse, but
collateralized by substantially all the assets of these partnerships. A
secured credit agreement with a group of international banks provides for
direct bank loans at specified premiums over a choice of either the bank's
prime rate, the London Interbank Offered Rate ("LIBOR") or the CD Base rate.
As an alternative, each partnership may elect to issue commercial paper
and medium-term notes supported by letters of credit issued by Fuji Bank,
Limited, which are collateralized, in turn, by the project debt facility with
the banks. The fair value of the commercial paper and medium-term notes
approximates their carrying value.
The Partnerships had no direct bank borrowings at December 31, 1995 and
1994. The weighted average effective interest rates of the commercial paper
and medium-term notes outstanding at December 31 was 6.4% in 1995 and 6.6% in
1994. During 1995, 1994 and 1993, the Guarantors' pro rata share of the
Partnership's weighted average borrowings was $48,053,000, $55,039,000 and
$62,093,000, respectively, with weighted average effective interest rates of
6.3%, 6.3% and 5.6% for the corresponding periods.
F-36
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
5. LOANS PAYABLE (CONTINUED)
The loans are reduced by 25 semi-annual principal payments in March and
September of each year.
The Guarantors' annual maturities of project debt for the five years
beginning January 1, 1996, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................................ $10,265
1997 ................................ 10,678
1998 ................................ 10,678
1999 ................................ 6,862
Thereafter ......................... 5,283
---------
$43,766
=========
</TABLE>
Provisions of the Guarantors' Secured Credit Agreements require the
maintenance of minimum working capital requirements of $720,000, $880,000 and
$880,000 and specific debt reserves of $3,320,000, $2,660,000 and $2,640,000,
on Leathers, Del Ranch and Elmore respectively, that must be maintained
before cash distributions can be paid to the Partners.
6. SENIOR SECURED PROJECT NOTE
The Guarantors assumed their proportionate share of the secured bank
financing incurred in connection with the purchase of Magma (see Note 3). On
July 21, 1995, CECI recapitalized Magma and the related Merger Facilities
from proceeds received through a $200 million high yield offering and a $475
million investment grade offering of Salton Sea Funding Corporation. The
Guarantors issued a project note in the amount of $75 million payable to
Salton Sea Funding Corporation at an interest rate of 6.69%, and guaranteed,
to the extent of available cash flow, the investment grade securities. The
guarantee is collateralized by a lien on the available cash flow of and a
pledge of stock in the Guarantors.
Principal maturities of the senior secured project note at December 31,
1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ................................ $15,502
1997 ................................ 12,744
1998 ................................ 19,762
1999 ................................ 9,636
2000 ................................ 5,062
---------
$62,706
=========
</TABLE>
The estimated fair value of the Senior Secured Project Note was
$64,348,000 at December 31, 1995.
7. RELATED PARTY TRANSACTIONS
The Guarantors are party to a 30-year brine supply agreement through the
Vulcan/BN Geothermal Power Company partnership and a technology license
agreement for the rights to use the technology necessary for the construction
and operation of the Vulcan Plant. Under the brine supply agreement, the
Guarantors will pay VPC 4.167% of the contract energy component of the price
of electricity provided by the Vulcan Plant. In addition, VPC has been
designated as operator of the Vulcan Plant and receives agreed-upon
compensation for such services.
Charges to the Guarantors related to the brine supply agreement and
operator's fees on a pro rata basis amounted to $745,000 and $620,000,
respectively, for the year ended December 31, 1995, $516,000
F-37
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
and $438,000, respectively, for the year ended December 31, 1994, $474,000
and $408,000, respectively, for the year ended December 31, 1993; $107,000
and $84,000, respectively, for the three months ended March 31, 1996 and
$186,000 and $141,000, respectively, for the three months ended March 31,
1995.
Leathers, L.P., Del Ranch, L.P. and Elmore, L.P. have entered into the
following agreements:
o Easements Grants Deeds and Agreements Regarding Rights for Geothermal
Development, whereby these partnerships acquired from Magma rights to
extract geothermal brine from the geothermal lease rights property which
is necessary to operate the Leathers, Del Ranch and Elmore Plants in
return for 17.333%, on a pro rata basis, of all energy revenues received
by each plant. Amounts expensed under these agreements for 1995, 1994
and 1993 were $8,115,000, $7,488,000 and $6,806,000, respectively, and
for the three months ended March 31, 1996 and 1995 were $2,001,000 and
$1,955,000, respectively.
o Ground Leases dated March 15 and August 15, 1988 with Magma whereby
these partnerships lease from Magma for 32 years the surface of the land
as described in the Imperial County Assessor's official records. Amounts
expensed under the ground leases were $30,000 in each of 1995, 1994 and
1993, and for the three months ended March 31, 1996 and 1995 were $8,000
each.
o Administrative Services Agreements whereby CEOC will provide to these
partnerships administrative and management services for a period of 32
years through 2020. Fees payable to CEOC amount to the greater of 3% of
total electricity revenues or $67,000 per month. The minimum monthly
payments for years subsequent to 1989 are increased based on the
consumer price index of the Bureau of Labor and Statistics. Amounts
expensed related to these agreements for 1995, 1994 and 1993 amounted to
$1,687,000, $1,573,000 and $1,457,000, respectively, and for the three
months ended March 31, 1996 and 1995 were $371,000 and $361,000,
respectively.
o Operating and Maintenance Agreements whereby these partnerships retain
CEOC to operate the plants for a period of 32 years through 2020.
Payment is made to CEOC in the form of reimbursements of expenses
incurred and a guaranteed capacity payment ranging from 10% to 25% of
energy revenues over stated amounts. The Guarantors in 1995, 1994 and
1993 reimbursed CEOC for expenses of $4,471,000, $2,391,000 and
$3,074,000, respectively, and accrued a guaranteed capacity payment of
$1,731,000, $1,548,000 and $1,273,000 at December 31, 1995, 1994 and
1993, respectively, and for the three months ended March 31, 1996 and
1995, reimbursed $1,317,000 and $966,000, respectively, and at March 31,
1996 accrued a guaranteed capacity payment of $372,000.
F-38
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
8. CONDENSED FINANCIAL INFORMATION
Condensed balance sheet information of the Guarantors' pro rata interest
in the respective entities as of March 31, 1996, December 31, 1995 and 1994
is as follows (dollars in thousands):
<TABLE>
<CAPTION>
VULCAN VULCAN ADJUSTMENTS/ COMBINED
POWER CEOC ELMORE DEL RANCH LEATHERS BNG ELIMINATIONS TOTAL
--------- ---------- --------- --------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, 1996 SUCCESSOR
Assets:
Cash and marketable securities $ -- $ -- $ 5,820 $ 7,098 $ 5,339 $ 3,361 $ -- $ 21,618
Accounts receivable and other 45,358 29,193 5,114 4,474 4,316 5,380 (16,280) 77,555
Property, plant, contracts and
equipment, net ............... 258 1,850 27,468 25,033 32,777 28,589 183,235 299,210
Management fee ................ -- -- -- -- -- -- 64,098 64,098
Goodwill, net ................. -- -- -- -- -- -- 141,359 141,359
Investments in Partnerships .. 37,059 76,820 -- -- -- -- (113,879) --
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$82,675 $107,863 $38,402 $36,605 $42,432 $37,330 $ 258,533 $603,840
========= ========== ========= ========= ========== ========= ============== ==========
Liabilities and equity:
Accounts payable and accrued
liabilities .................. $ 467 $ 4,145 $ 434 $ 832 $ 720 $ 271 $ 102,254 $109,123
Project loans ................. -- -- 10,004 9,549 19,080 -- -- 38,633
Other debt .................... -- -- -- -- -- -- 62,706 62,706
--------- ---------- --------- --------- ---------- --------- -------------- ----------
Total liabilities ............ 467 4,145 10,438 10,381 19,800 271 164,960 210,462
Guarantors' equity ............ 82,208 103,718 27,964 26,224 22,632 37,059 93,573 393,378
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$82,675 $107,863 $38,402 $36,605 $42,432 $37,330 $ 258,533 $603,840
========= ========== ========= ========= ========== ========= ============== ==========
DECEMBER 31, 1995 SUCCESSOR
Assets:
Cash and investments .......... $ -- $ -- $ 7,060 $ 6,896 $ 6,772 $ 277 $ -- $ 21,005
Accounts receivable and other -- 792 4,899 4,951 5,631 6,826 (1,607) 21,492
Due from affiliates ........... (232) 71,976 (988) (763) (1,066) 116 (14,094) 54,949
Property, plant, contracts and
equipment, net ............... 265 1,294 27,744 25,508 32,466 29,224 182,455 298,956
Management fee ................ -- -- -- -- -- -- 63,520 63,520
Goodwill, net ................. -- -- -- -- -- -- 142,250 142,250
Investments in partnerships .. 36,074 73,455 -- -- -- -- (109,529) --
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$36,107 $147,517 $38,715 $36,592 $43,803 $36,443 $ 262,995 $602,172
========= ========== ========= ========= ========== ========= ============== ==========
Liabilities and Equity:
Accounts payable and accrued
liabilities .................. $ 369 $ 8,557 $ 443 $ 794 $ 652 $ 369 $ 110,784 $121,968
Project loans ................. -- -- 11,450 10,930 21,386 -- -- 43,766
Other debt .................... -- -- -- -- -- -- 62,706 62,706
--------- ---------- --------- --------- ---------- --------- -------------- ----------
Total liabilities ............ 369 8,557 11,893 11,724 22,038 369 173,490 228,440
Guarantors' equity ............ 35,738 138,960 26,822 24,868 21,765 36,074 89,505 373,732
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$36,107 $147,517 $38,715 $36,592 $43,803 $36,443 $ 262,995 $602,172
========= ========== ========= ========= ========== ========= ============== ==========
F-39
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
8. CONDENSED FINANCIAL INFORMATION (CONTINUED)
</TABLE>
<TABLE>
<CAPTION>
VULCAN VULCAN ADJUSTMENTS/ COMBINED
POWER CEOC ELMORE DEL RANCH LEATHERS BNG ELIMINATIONS TOTAL
--------- ---------- --------- --------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1994 PREDECESSOR
Assets:
Cash and marketable securities $ (4) $ (822) $ 6,566 $ 6,320 $ 8,677 $ 1,034 $ -- $ 21,771
Accounts receivable and other . 166 2,001 3,989 4,130 4,097 3,675 (759) 17,299
Due from affiliates ........... 55 5,995 -- -- -- -- (1,942) 4,108
Property, plant and equipment,
net .......................... 123 9,917 30,816 28,319 34,139 33,951 -- 137,265
Investments in Partnerships .. 33,602 71,428 -- -- -- -- (105,030) --
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$33,942 $88,519 $41,371 $38,769 $46,913 $38,660 $(107,731) $180,443
========= ========== ========= ========= ========== ========= ============== ==========
Liabilities and equity:
Accounts payable and accrued
liabilities .................. $ 4,676 $14,907 $ 331 $ 345 $ 1,017 $ 432 $ -- $ 21,708
Amounts due affiliates ........ -- -- 158 671 764 349 (1,942) --
Loans payable ................. -- -- 14,210 13,564 24,566 -- -- 52,340
--------- ---------- --------- --------- ---------- --------- -------------- ----------
Total liabilities ............ 4,676 14,907 14,699 14,580 26,347 781 (1,942) 74,048
Guarantors' equity ............ 29,266 73,612 26,672 24,189 20,566 37,879 (105,789) 106,395
--------- ---------- --------- --------- ---------- --------- -------------- ----------
$33,942 $88,519 $41,371 $38,769 $46,913 $38,660 $(107,731) $180,443
========= ========== ========= ========= ========== ========= ============== ==========
</TABLE>
Condensed combining statements of operations including information of the
Guarantors' pro rata interest in the respective entities for the three months
ended March 31, 1996 and years ended December 31, 1995, 1994 and 1993 is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
VULCAN VULCAN COMBINED
POWER CEOC ELMORE DEL RANCH LEATHERS BNG ELIMINATIONS TOTAL
--------- --------- --------- --------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, 1996
SUCCESSOR
Revenues ........ $ 1,369 $ 5,800 $ 4,049 $ 4,554 $ 4,055 $ 2,816 $ (5,264) $17,379
Expenses ........ 228 -- 2,908 3,198 3,188 1,831 2,881 14,234
--------- --------- --------- --------- ---------- --------- -------------- ----------
Net income ..... $ 1,141 $ 5,800 $ 1,141 $ 1,356 $ 867 $ 985 $ (8,145) $ 3,145
========= ========= ========= ========= ========== ========= ============== ==========
DECEMBER 31, 1995
SUCCESSOR
Revenues ........ $15,634 $24,121 $19,336 $18,941 $19,101 $20,878 $(30,528) $87,483
Expenses ........ 1,547 -- 12,866 12,523 14,161 7,974 23,775 72,846
--------- --------- --------- --------- ---------- --------- -------------- ----------
Net income ..... $14,087 $24,121 $ 6,470 $ 6,418 $ 4,940 $12,904 $(54,303) $14,637
========= ========= ========= ========= ========== ========= ============== ==========
DECEMBER 31, 1994
PREDECESSOR
Revenues ........ $10,423 $19,290 $17,611 $18,116 $17,538 $18,430 $(25,358) $76,050
Expenses ........ 4,901 7,674 12,973 12,908 14,241 10,395 (4,180) 58,912
--------- --------- --------- --------- ---------- --------- -------------- ----------
Net income ..... $ 5,522 $11,616 $ 4,638 $ 5,208 $ 3,297 $ 8,035 $(21,178) $17,138
========= ========= ========= ========= ========== ========= ============== ==========
DECEMBER 31, 1993
PREDECESSOR
Revenues ........ $ 8,298 $14,385 $16,689 $16,424 $15,987 $17,079 $(18,805) $70,057
Expenses ........ 3,959 5,630 13,662 13,408 13,173 10,986 (3,855) 56,963
--------- --------- --------- --------- ---------- --------- -------------- ----------
Net income ..... $ 4,339 $ 8,755 $ 3,027 $ 3,016 $ 2,814 $ 6,093 $(14,950) $13,094
========= ========= ========= ========= ========== ========= ============== ==========
</TABLE>
F-40
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
9. INCOME TAXES
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993 consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS) CURRENT DEFERRED TOTAL
--------- ---------- ---------
<S> <C> <C> <C>
SUCCESSOR:
1995
- ----
Federal ............. $ 6,697 $ 2,264 $ 8,961
State ............... 3,784 (1,253) 2,531
--------- ---------- ---------
Total ............... $10,481 $ 1,011 $11,492
========= ========== =========
PREDECESSOR:
1994
- ----
Federal ............. $ 6,277 $ 3,314 $ 9,591
State ............... 1,108 585 1,693
--------- ---------- ---------
Total ............... $ 7,385 $ 3,899 $11,284
========= ========== =========
1993
- ----
Federal ............. $ 4,372 $ 2,773 $ 7,145
State ............... 771 489 1,260
--------- ---------- ---------
Total ............... $ 5,143 $ 3,262 $ 8,405
========= ========== =========
</TABLE>
Deferred tax liabilities and assets at December 31, 1995 and 1994, as
calculated in accordance with SFAS 109, consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1995 1994
----------- -------------
(SUCCESSOR) (PREDECESSOR)
<S> <C> <C>
Deferred Liabilities:
Depreciation and amortization $106,238 $28,037
Deferred Assets:
Tax credits ................... 7,831 14,530
----------- -------------
Net deferred tax liability .... $ 98,407 $13,507
=========== =============
</TABLE>
The effective tax rate differs from the federal statutory tax rate due
primarily to amortization, depreciation and the realization for income tax
purposes of certain tax credits.
10. SUBSEQUENT EVENTS (UNAUDITED)
On April 17, 1996 CECI completed the acquisition of Edison Mission
Energy's partnership interests in the Vulcan, Hoch (Del Ranch), Leathers and
Elmore geothermal operating facilities. Wholly-owned subsidiaries of CECI
operate these facilities and owns the remaining 50% interest in these
facilities of which 40% of this interest related to Del Ranch, Leathers and
Elmore and 50% of this interest related to Vulcan is assigned to the
Partnership Guarantors.
On June 20, 1996, the Guarantors issued $135 million of Senior Secured
Project Notes consisting of $70,000,000, 7.02% Senior Secured Notes, due May
30, 2000 and $65,000,000, 8.30% Senior Secured Notes, due May 30, 2011, with
maturities of $25,850,000, $32,000,000, $22,728,000, $5,500,000, $1,000,000
and $47,922,000 for 1997, 1998, 1999, 2000, 2001 and thereafter,
respectively.
Proceeds from these Senior Secured Project Notes were used to repay
approximately $96,000,000 in existing project level loans of the Guarantors,
provide approximately $15,000,000 to fund the Capital Expenditure Fund and
provide approximately $23,000,000 of the cost of the acquisition of Edison
Mission Energy's partnership interests described above.
F-41
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying successor balance sheet of the Salton Sea
Royalty Company (the "Company") as of December 31, 1995, and the related
successor statements of operations, equity and cash flows for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on those
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such successor financial statements present fairly, in all
material respects, the financial position of the Salton Sea Royalty Company
as of December 31, 1995 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
F-42
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying successor balance sheet of the Salton Sea
Royalty Company as of March 31, 1996, and the related successor statements of
operations and cash flows for the three-month periods ended March 31, 1996
and 1995 and equity for the three-month period ended March 31, 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such successor financial statements for them to be in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 25, 1996
F-43
<PAGE>
SALTON SEA ROYALTY COMPANY
SUCCESSOR BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Due from affiliates .............................. $ 24,985 $ 25,110
Royalty stream, net .............................. 51,401 53,744
Goodwill, net .................................... 35,685 35,912
Prepaid expenses and other assets ................ 2,353 2,575
------------ --------------
$114,424 $117,341
============ ==============
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities ............................. $ 8,593 $ 5,948
Senior secured project note ..................... 67,882 67,882
Deferred income taxes ........................... 14,429 15,460
------------ --------------
Total liabilities .............................. 90,904 89,290
------------ --------------
Commitments and Contingencies (Notes 2, 3, and 4)
Guarantor's equity:
Common stock .................................... -- --
Additional paid-in capital ...................... 19,182 24,541
Retained earnings ............................... 4,338 3,510
------------ --------------
Total Guarantor's equity ......................... 23,520 28,051
------------ --------------
$114,424 $117,341
============ ==============
</TABLE>
The accompanying notes are an integral part of the combined successor
financial statements.
F-44
<PAGE>
SALTON SEA ROYALTY COMPANY
SUCCESSOR STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
------------------------ DECEMBER 31,
1996 1995 1995
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Royalty income ............................. $6,941 $6,751 $28,383
Expenses:
Operating expenses ......................... 1,707 1,594 6,822
Amortization of royalty stream and goodwill 2,570 1,232 11,239
Interest expense ........................... 1,358 1,540 4,757
-------- -------- --------------
Total expenses ............................ 5,635 4,366 22,818
-------- -------- --------------
Income before income taxes .................. 1,306 2,385 5,565
Income tax expense .......................... 478 830 963
-------- -------- --------------
Income before minority interest ............. 828 1,555 4,602
Minority interest ........................... -- 1,092 1,092
-------- -------- --------------
Net income ................................ $ 828 $ 463 $ 3,510
======== ======== ==============
</TABLE>
The accompanying notes are an integral part of the combined successor
financial statements.
F-45
<PAGE>
SALTON SEA ROYALTY COMPANY
STATEMENT OF EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- --------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Predecessor:
Balance, January 1, 1995 ......................... -- $-- $ 5,300 $ -- $ 5,300
Net income in 1995 prior to acquisition (Note 2) -- -- -- 1,092 1,092
Successor:
Purchase accounting push-down adjustment, net ... -- -- 38,043 (1,092) 36,951
Distribution to parent ........................... -- -- (20,501) -- (20,501)
Contribution from parent ......................... -- -- 1,699 -- 1,699
Issuance of $.01 par value per share common stock 100 -- -- -- --
Net income ....................................... -- -- 3,510 3,510
-------- -------- ------------ ---------- ----------
Balance, December 31, 1995 ....................... 100 -- 24,541 3,510 28,051
Distributions (unaudited) ........................ -- -- (5,359) -- (5,359)
Net income (unaudited) ........................... -- -- -- 828 828
-------- -------- ------------ ---------- ----------
Balance, March 31, 1996 (unaudited) .............. 100 $-- $ 19,182 $ 4,338 $ 23,520
======== ======== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined successor
financial statements.
F-46
<PAGE>
SALTON SEA ROYALTY COMPANY
SUCCESSOR STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
-------------------------- DECEMBER 31,
1996 1995 1995
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income ......................................... $ 828 $ 463 $ 3,510
Adjustments to reconcile net income to cash flow
from operating activities:
Minority interest ................................. -- 1,092 1,092
Amortization of royalty stream and goodwill ...... 2,570 1,232 11,239
Deferred income taxes ............................. -- -- (4,581)
Changes in assets and liabilities:
Prepaid expenses and other assets ................. 222 -- (2,575)
Accrued liabilities ............................... 1,614 (1,413) 5,948
--------- ---------- --------------
Net cash flows from operating activities ............ 5,234 1,374 14,633
--------- ---------- --------------
Net cash flow from investing activities:
Purchase of Company by CalEnergy, net of cash ..... -- (79,239) (38,603)
--------- ---------- --------------
Net cash flows from investing activities ............ -- (79,239) (38,603)
--------- ---------- --------------
Net cash flows from financing activities:
Proceeds from issuance of debt ..................... -- 83,022 115,446
Increase in due from affiliates .................... 125 -- (25,110)
Distribution to parent ............................. (5,359) (5,157) (21,436)
Capital contributions .............................. -- -- 2,634
Loan repayments .................................... -- -- (47,564)
--------- ---------- --------------
Net cash flows from financing activities ............ (5,234) 77,865 23,970
--------- ---------- --------------
Net change in cash .................................. -- -- --
Cash at beginning of period ......................... -- -- --
--------- ---------- --------------
Cash at end of period ............................... $ -- $ -- $ --
========= ========== ==============
</TABLE>
The accompanying notes are an integral part of the combined successor
financial statements.
F-47
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
1. ORGANIZATION
Salton Sea Royalty Company (the "Company") is a single-purpose entity, 99%
owned by Magma Power Company ("Magma") and 1% owned by Salton Sea Funding
Corporation (the "Funding Corporation"). Effective February 24, 1995, Magma
became a wholly-owned subsidiary of CalEnergy Company, Inc. ("CECI") (see
Note 3).
In June 1995, the Company received an assignment of royalties and certain
fees paid by three partnership projects, Del Ranch, Elmore and Leathers
(collectively, the "Partnership Projects"). Magma and its affiliates have a
50% interest in the Partnership Projects. In addition, the Company has
received an assignment of certain resource-related royalties and contract
assignment royalties payable by the geothermal power plant located in
Imperial Valley, California which is owned by an unaffiliated third party
(East Mesa, together with the Partnership Projects, the "Projects"). All of
the Projects are engaged in the operation of geothermal power plants in the
Imperial Valley in Southern California. Substantially all of the assigned
royalties are based on a percentage of energy and capacity revenues of the
Projects. With the exception of royalties from East Mesa, the royalties are
senior to debt service and are pari passu with other operating and
maintenance expenses of the Projects.
All of the Projects have executed long-term Interim Standard Offer No. 4
power purchase agreements ("ISO4s") providing for capacity and energy sales
to Southern California Edison Company ("SCE"). Each of these agreements
provides for fixed price capacity payments for the life of the contract.
The Projects earn energy payments based on kilowatt hours ("kWhs") of
energy provided to SCE. During the first 10 years of the agreement, the
Projects earn payments for energy as scheduled in the ISO4s. After the
10-year scheduled payment period has expired (1998 for Del Ranch and Elmore;
1999 for Leathers and East Mesa), the energy payment per kWh throughout the
remainder of the contract period will be at SCE's Avoided Cost of Energy. For
the year ended December 31, 1995, SCE's average Avoided Cost of Energy was
2.1 cents per kWh which is substantially below the contract energy prices
earned in 1995. Estimates of SCE's future Avoided Cost of Energy vary
substantially from year to year. The Company cannot predict the likely level
of Avoided Cost of Energy prices under the ISO4s at the expiration of the
scheduled payment periods. SCE's Avoided Cost of Energy as determined by the
CPUC is currently substantially below the scheduled energy prices for the
scheduled payment period under the respective ISO4s and may remain so over at
least the near term. The revenues generated by each of the units operating
under ISO4s could decline significantly after the expiration of the relevant
scheduled payment period.
As discussed above, all revenues except those derived from East Mesa are
from, and all operating expenses are paid by, related parties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited statement of operations presents revenues and
expenses for the period indicated which have been assigned to the Company
under the arrangements described above on the accrual method of accounting.
This presentation is a "carve out" of information from Magma and certain of
its affiliates. Such revenues, net of related expenses, will serve to
guarantee loans from Salton Sea Funding Corporation, a wholly-owned
subsidiary of CECI.
In the opinion of management of the Company, the accompanying unaudited
combined financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position
as of March 31, 1996 and the results of operations and cash flows for the
three months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
F-48
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted
for on a push down basis by the Company during the year ended December 31,
1995, the royalty stream was stated at fair value.
The Guarantors' policy is to provide depreciation and amortization expense
beginning upon the commencement of revenue production over the estimated
remaining useful life of the identifiable assets.
The royalty streams have been assigned values separately for each of (1)
the remaining portion of their scheduled price periods and (2) the 20 year
avoided cost periods and are being amortized separately over such periods
using the straight line method.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired is being amortized over a 40 year period using the straight
line method. Deferred financing costs are amortized using the level yield
method over the term of the related debt.
Income Taxes
The Company will be included in consolidated income tax returns with its
parent and affiliates. Income taxes are provided on a separate return basis
in accordance with the requirements of Statement of Financial Accounting
Standards No. 109, however, tax obligations of the Company will be remitted
to the parent only to the extent of cash flows available after operating
expenses and debt service.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are
based on market prices of similar instruments and/or valuation techniques
using market assumptions. Unless otherwise noted, the estimated fair value
amounts do not differ significantly from recorded values. Although management
uses its best judgment in estimating the fair value of these financial
instruments, there are inherent limitations in any estimation technique.
Therefore, the fair value estimates presented herein are not necessarily
indicative of the amounts which the company could realize in a current
transaction.
SFAS 121
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". The adoption of SFAS 121
did not have a material effect on the Company's financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PURCHASE OF MAGMA POWER COMPANY
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 (the "Magma Tender Offer") and
F-49
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
3. PURCHASE OF MAGMA POWER COMPANY (CONTINUED)
completed the Magma acquisition on February 24, 1995 by acquiring
approximately 49% of the outstanding shares of Magma Common Stock not owned
by CECI through a merger. Magma is engaged in independent power operations
similar to those of CECI. The transaction was accounted for as a purchase
business combination.
Unaudited pro forma revenue and net income of the Company on a purchase,
push down basis of accounting, for the year ended December 31, 1995, as if
the acquisition had occurred at the beginning of the period after giving
effect to certain pro forma adjustments related to the acquisition, were
$28,383,000 and $3,753,000, respectively, compared to $29,410,000 and
$7,532,000 (pre-tax), respectively, for the year ended December 31, 1994.
The adjustments which have been made to the net assets of the Company to
reflect the effect of the acquisition of Magma accounted for as a purchase
business combination pushed down to the Company are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Royalty stream ........... $ 64,155
Goodwill ................. 36,740
Deferred financing costs 1,843
Deferred income taxes ... (25,341)
Debt ..................... (40,446)
----------
Net increase in assets $ 36,951
==========
</TABLE>
4. SENIOR SECURED PROJECT NOTE
The Company assumed its proportionate share of the secured bank financing
incurred in connection with the purchase of Magma (see Note 3). On July 21,
1995, CECI recapitalized Magma and the related Merger Facilities from
proceeds received through a $200 million high yield offering and a $475
million investment grade offering of the Salton Sea Funding Corporation. The
Company issued a project note in the amount of $75 million payable to Salton
Sea Funding Corporation at interest rates ranging from 6.69% to 7.37%, and
guaranteed to the extent of available cash flow, the investment grade
securities. The guarantee issued is collateralized by a lien on substantially
all the assets of and a pledge of stock in the Guarantor.
Principal maturities of the senior secured project note at December 31,
1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 ......... $10,946
1997 ......... 18,001
1998 ......... 15,726
1999 ......... 9,396
2000 ......... 4,773
Thereafter .. 9,040
---------
$67,882
=========
</TABLE>
The estimated fair value of the senior secured project note was
$68,944,000 at December 31, 1995.
F-50
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED AS TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995)
5. INCOME TAXES
The provision for income taxes for the year ended December 31, 1995,
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ---------- -------
<S> <C> <C> <C>
Federal .. $4,323 $(3,644) $679
State ..... 1,221 (937) 284
--------- ---------- -------
Total ..... $5,544 $(4,581) $963
========= ========== =======
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate due primarily to percentage depletion in excess of cost depletion
and goodwill amortization.
Deferred tax liabilities and assets at December 31, 1995, consisted of the
following (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred liabilities:
Depreciation and amortization $20,760
Deferred assets:
Jr. SO4 royalty receivable .. 5,300
---------
Net deferred tax liability .... $15,460
=========
</TABLE>
F-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying Predecessor Summaries of Revenues and
Related Expenses (the "Predecessor Summaries") of Salton Sea Royalty Company
(the "Company") for each of the two years in the period ended December 31,
1994. The Predecessor Summaries are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Predecessor
Summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Predecessor Summaries are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Predecessor Summaries.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the Predecessor Summaries. We believe that our audits provide
a reasonable basis for our opinion.
The accompanying Predecessor Summaries were prepared for inclusion in the
Prospectus of Salton Sea Funding Corporation on the basis of presentation as
described in Note 2, and are not intended to be a complete presentation of the
Company's assets, liabilities, revenues and expenses.
In our opinion, the Predecessor Summaries referred to above present fairly,
in all material respects, the revenues and related expenses described in
Notes 1 and 2 of the Company for each of the two years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995
F-52
<PAGE>
SALTON SEA ROYALTY COMPANY
PREDECESSOR SUMMARIES OF REVENUES AND RELATED EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
Royalty Income ................... $29,410 $26,942
Operating expenses ............... 20,753 5,710
--------- ---------
Excess of revenues over expenses $ 8,657 $21,232
========= =========
</TABLE>
F-53
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO PREDECESSOR SUMMARIES OF REVENUES
AND RELATED EXPENSES
1. ORGANIZATION
Salton Sea Royalty Company (the "Company") is a newly formed
single-purpose entity, 99% owned by Magma Power Company ("Magma") and 1%
owned by Salton Sea Funding Corporation (the "Funding Corporation").
Effective February 24, 1995, Magma became a wholly-owned subsidiary of
CalEnergy Company, Inc. ("CECI") (see Note 3).
In June 1995, the Company received an assignment of royalties and certain
fees paid by three partnership projects, Del Ranch, Elmore and Leathers
(collectively, the "Partnership Projects"). Magma and its affiliates have a
50% interest in the Partnership Projects. In addition, the Company has
received an assignment of certain resource-related royalties and contract
assignment royalties payable by the geothermal power plant located in
Imperial Valley, California which is owned by an unaffiliated third party
(East Mesa, together with the Partnership Projects, the "Projects"). All of
the Projects are engaged in the operation of geothermal power plants in the
Imperial Valley in Southern California. Substantially all of the assigned
royalties are based on a percentage of energy and capacity revenues of the
Projects. With the exception of royalties from East Mesa (Note 2), the
royalties are senior to debt service and are pari passu with other operating
and maintenance expenses of the Projects.
All of the Projects have executed long-term Interim Standard Offer No. 4
power purchase agreements ("ISO4s") providing for capacity and energy sales
to Southern California Edison Company ("SCE"). Each of these agreements
provides for fixed price capacity payments for the life of the contract.
The Projects earn energy payments based on kilowatt hours ("kWhs") of
energy provided to SCE. During the first 10 years of the agreement, the
Projects earn payments for energy as scheduled in their ISO4s. After the
10-year scheduled payment period has expired (1998 for Del Ranch and Elmore;
1999 for Leathers and East Mesa), the energy payment per kWh throughout the
remainder of the contract period will be at SCE's Avoided Cost of Energy. For
the year ended December 31, 1994, SCE's average Avoided Cost of Energy was
2.5 cents per kWh which is substantially below the contract energy prices
earned in 1994. Estimates of SCE's future Avoided Cost of Energy vary
substantially from year to year. The Company cannot predict the likely level
of Avoided Cost of Energy prices under the ISO4s at the expiration of the
scheduled payment periods. The revenues generated by each of the units
operating under ISO4s could decline significantly after the expiration of the
relevant scheduled payment period.
As discussed above, all revenues except those derived from East Mesa are
from or through related parties.
2. BASIS OF PRESENTATION
The accompanying Predecessor Summaries of Revenues and Related Expenses
present predecessor revenues and expenses for the periods indicated which
have been assigned to the Company under the arrangements described above on
the accrual method of accounting. This presentation is a "carve out" of
historical information from Magma and certain of its affiliates. The basis of
presentation described herein is not intended to be a complete presentation
of the Company's assets, liabilities, revenues and expenses. Such revenues,
net of related expenses, will serve to guarantee loans from Salton Sea
Funding Corporation, a wholly-owned subsidiary of CECI (see Note 4).
During 1994, the entire $14,502,000 balance due from junior royalties from
East Mesa was written off due to uncertainty as to their collectibility. The
write-off was considered necessary due to the inability of the East Mesa
plant to convert its construction loans to term loans as had been expected
during 1994. The timing of such conversion, which is a prerequisite to the
collection of the junior royalties, is uncertain. Revenues related to the
East Mesa junior royalties for the years ended December 31, 1994 and 1993
were $3,412,000 and $3,190,000, respectively.
F-54
<PAGE>
SALTON SEA ROYALTY COMPANY
NOTES TO PREDECESSOR SUMMARIES OF REVENUES
AND RELATED EXPENSES -- (CONTINUED)
3. PURCHASE OF MAGMA POWER COMPANY (UNAUDITED)
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 (the "Magma Tender Offer") and completed the Magma acquisition
on February 24, 1995 by acquiring approximately 49% of the outstanding shares
of Magma Common Stock not owned by CECI through a merger. Magma is engaged in
independent power operations similar to those of CECI. The transaction was
accounted for as a purchase business combination.
F-55
<PAGE>
INDEX TO PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Pro Forma Condensed Combined Unaudited Balance Sheet:
Partnership Guarantors as of March 31, 1996 ............................. P-3
Pro Forma Condensed Combined Unaudited Statements of Earnings:
Partnership Guarantors for the Year Ended December 31, 1995 ............ P-4
Partnership Guarantors for the Three Months Ended March 31, 1996 ....... P-5
Notes to Pro Forma Condensed Combined Unaudited Financial Data of the
Partnership Guarantors ................................................. P-6
</TABLE>
P-1
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
The following Pro Forma Condensed Combined Unaudited Balance Sheet as of
March 31, 1996 and the Pro Forma Condensed Combined Unaudited Statements of
Earnings for the year ended December 31, 1995 and the three months ended
March 31, 1996 of the Partnership Guarantors combine the historical
consolidated balance sheets of the Partnership Guarantors and Mission
Edison's interest in Vulcan, Del Ranch, Elmore and Leathers (the "Mission
Edison interests") acquired by CalEnergy Company, Inc. ("CalEnergy") as if
the acquisition had been effected on March 31, 1996 and the historical
statements of income as if the acquisition had been effected at the beginning
of each of the periods presented. The acquisition of Mission Edison's
interest in Vulcan, Del Ranch, Elmore and Leathers by CalEnergy is recorded
under the purchase method of accounting, pushed down to the Partnership
Guarantors after giving effect to the pro forma adjustments and assumptions
described in the accompanying notes. 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 Partnership
Guarantors, included in this document.
CalEnergy has completed its preliminary assessment of the fair values of
Mission Edison's interest in Vulcan's, Del Ranch's, Elmore's and Leathers'
assets and liabilities. CalEnergy expects to finalize its fair value
assessment in 1996. 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 BALANCE SHEET
PARTNERSHIP GUARANTORS
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PARTNERSHIP ADJUSTMENTS PRO FORMA
GUARANTORS (2A & B) COMBINED
------------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and short term investments .............. $ 11,042 $ 12,962 $ 24,004
Restricted cash and short term investments .. 10,576 13,220 23,796
Accounts receivable -- trade and other ...... 9,615 11,736 21,351
Prepaid expenses and other assets ............ 12,077 8,572 20,649
Due from affiliates .......................... 55,863 47,156 103,019
Property, plant, contracts and equipment, net 299,210 77,986 377,196
Management fee ............................... 64,098 -- 64,098
Goodwill ..................................... 141,359 -- 141,359
------------- ------------- -----------
Total Assets ............................... $603,840 $171,632 $775,472
============= ============= ===========
LIABILITIES AND GUARANTORS' EQUITY
LIABILITIES
Accounts payable ............................. $ 3,167 $ 1,062 $ 4,229
Accrued liabilities .......................... 8,560 4,203 12,763
Project loans ................................ 38,633 (38,633) --
Senior secured project note .................. 62,706 135,000 197,706
Deferred income taxes ........................ 97,396 -- 97,396
------------- ------------- -----------
Total liabilities .......................... 210,462 101,632 312,094
Equity ....................................... 393,378 70,000 463,378
------------- ------------- -----------
Total liabilities and guarantors' equity .. $603,840 $171,632 $775,472
============= ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-3
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENTS OF EARNINGS
THE PARTNERSHIP GUARANTORS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PARTNERSHIP ADJUSTMENT PRO FORMA
GUARANTORS (2C) COMBINED
------------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Sales of electricity and steam .... $76,909 $90,970 $167,879
Interest and other income .......... 10,574 1,631 12,205
------------- ------------ -----------
Total revenue .................... 87,483 92,601 180,084
------------- ------------ -----------
COSTS AND EXPENSES:
Plant operations ................... 32,143 43,032 75,175
Depreciation and amortization ..... 18,958 18,268 37,226
Interest expense ................... 16,726 8,231 24,957
Less interest capitalized .......... (7,900) (867) (8,767)
------------- ------------ -----------
Total costs and expenses ......... 59,927 68,664 128,591
------------- ------------ -----------
INCOME BEFORE INCOME TAXES .......... 27,556 23,937 51,493
PROVISION FOR INCOME TAXES .......... 11,492 10,214 21,706
------------- ------------ -----------
NET INCOME BEFORE MINORITY INTEREST 16,064 13,723 29,787
MINORITY INTEREST ................... 1,427 (1,427) --
------------- ------------ -----------
NET INCOME .......................... $14,637 $15,150 $ 29,787
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-4
<PAGE>
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENTS OF EARNINGS
THE PARTNERSHIP GUARANTORS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PARTNERSHIP ADJUSTMENT PRO FORMA
GUARANTORS (2C) COMBINED
------------- ------------ -----------
<S> <C> <C> <C>
REVENUES:
Sales of electricity and steam $15,159 $18,250 $33,409
Interest and other income ..... 2,220 390 2,610
------------- ------------ -----------
Total revenue ................. 17,379 18,640 36,019
------------- ------------ -----------
COSTS AND EXPENSES:
Plant operations ............... 7,612 9,911 17,523
Depreciation and amortization . 4,373 3,831 8,204
Interest expense ............... 2,007 1,862 3,869
Less interest capitalized ..... (2,007) (277) (2,284)
------------- ------------ -----------
Total costs and expenses ..... 11,985 15,327 27,312
------------- ------------ -----------
INCOME BEFORE INCOME TAXES ..... 5,394 3,313 8,707
PROVISION FOR INCOME TAXES ..... 2,249 1,381 3,630
------------- ------------ -----------
NET INCOME ...................... $ 3,145 $ 1,932 $ 5,077
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-5
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED UNAUDITED
FINANCIAL DATA
PARTNERSHIP GUARANTORS
(TABLES IN THOUSANDS)
On April 17, 1996, a subsidiary of CalEnergy acquired all of the stock of
BN Geothermal, Inc. ("BNG"), Niguel Energy Company ("Niguel"), San Felipe
Energy Company ("San Felipe") and Conejo Energy Company from Edison Mission
Energy ("Mission") for $70 million. Such acquired companies owned 50%
partnership interests in each of the Partnership Projects. The Partnership
Acquisition has been accounted for as a purchase business combination
pursuant to the principles of APB Opinion No. 16, "Business Combinations."
The purchase accounting adjustments have been pushed down to the Partnership
Guarantors. In applying APB No. 16, all identifiable assets acquired and
liabilities assumed are assigned a portion of the cost of acquiring the
acquired companies, equal to their fair values at the date of the
acquisition. The net cash flow projections used for determining the fair
values in the purchase accounting were those used for the acquisition as
prepared by CalEnergy and reflect estimated cost reductions which were not
necessarily considered by the independent engineer whose independent
evaluation is included in Exhibit B of this Offering Circular. The resulting
purchase accounting adjustments are based on the historical financial
statements of the acquired companies.
The Pro Forma Condensed Combined Unaudited Financial Data are based on the
following assumptions:
1. The Acquisition and the resulting push down to the Partnership
Guarantors of the accounting as a purchase business combination
occurred at the beginning of the periods presented for statements
of earnings purposes.
2. 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 the
Partnership Guarantors to reflect the effect of the Partnership
acquisition accounted for as a purchase business combination
pushed down to the Partnership Guarantors follow:
<TABLE>
<CAPTION>
PROPERTY AND PLANT .......... $(101,999)
<S> <C>
Power sale agreements ....... 44,797
Other assets and liabilities (4,882)
------------
Net decrease in assets ..... $ (62,084)
============
</TABLE>
B. The Securities being offered by this Offering Circular were
issued and all existing project-level debt was paid off at the
date of the pro forma balance sheet.
C. The pro forma adjustments to the Pro Forma Condensed Combined
Unaudited Statements of Earnings of the Guarantors are as
follows:
i. Reflect the operating income and expenses of the acquired
companies.
ii. Provide depreciation and amortization of the fair values
assigned to all identifiable assets as described below and
capitalize interest on costs allocated to projects under
development and construction. The Guarantors' policy is to
provide depreciation and amortization expense upon the
commencement of revenue production over the estimated remaining
useful life of the identifiable assets and to periodically
assess the carrying value of such assets for possible
impairment in accordance with the provisions of Statement of
Financial Accounting Standards No. 121.
The fair value of property and equipment, net of salvage value,
and exploration and development cost is depreciated using the
straight line method over the remaining portion (approximately
23 years) of the original 30-year life.
P-6
<PAGE>
Power sales agreements have been assigned values separately for
each of (1) the remaining portion of the scheduled price
periods of the power sales agreements and (2) the 20 year
avoided cost periods of the power sales agreements and are
being amortized separately over such periods using the straight
line method.
iii. Increase interest expense relating to the allocation of the
Securities and the repayment of all existing project-level
debt.
iv. For the year ended December 31, 1995, reflect the Magma
Acquisition and the resulting push down to the Guarantors of
the accounting as a purchase business combination beginning
January 1, 1995.
v. Change in income tax expense as a result of pro forma
adjustments which affect taxable income.
P-7
<PAGE>
APPENDIX A
GLOSSARY OF DEFINED TERMS
Unless the context requires otherwise, any reference in this
Prospectus to any agreement shall mean such agreement and all schedules,
exhibits and attachments thereto as amended, supplemented or otherwise
modified and in effect as of the date of this Prospectus, and as the same may
thereafter be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and of the Transaction Documents. All terms
defined herein used in the singular shall have the same meanings when used in
the plural and vice versa.
CERTAIN TERMS DEFINED BELOW ARE SUMMARIES OF TERMS DEFINED IN, AND
ARE DEFINED MORE SPECIFICALLY IN, THE PROJECT DOCUMENTS AND THE FINANCING
DOCUMENTS. SUCH SUMMARIES DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO,
AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, ALL OF THE PROVISIONS OF
THE PROJECT DOCUMENTS AND THE FINANCING DOCUMENTS.
"ACCREDITED INVESTOR" means an institutional "accredited investor"
within the meaning of Subparagraph (a)(1), (2), (3) or (7) of Rule 501 under
the Securities Act.
"ACQUIRED PARTNERSHIP COMPANIES" means BNG, Conejo, Niguel and San
Felipe.
"ADDITIONAL PARTNERSHIP COLLATERAL" means the revenues and assets
pledged as collateral by the Partnership Project Companies in connection with
the Offering.
"ADDITIONAL PARTNERSHIP GUARANTORS" means BNG, Conejo, Niguel, San
Felipe and the Partnership Project Companies.
"ADDITIONAL PARTNERSHIP PROJECT NOTE" means the promissory note in
the initial principal amount of $135,000,000 issued by the Partnership
Guarantors in favor of the Funding Corporation under the Partnership Credit
Agreement on the Closing Date.
"ADDITIONAL PARTNERSHIP REVENUE DEPOSITS" means the revenues of the
Partnership Project Companies that are deposited in the Revenue Fund pursuant
to the Depositary Agreement.
"ADDITIONAL PROJECT DOCUMENT" means (a) any contract or undertaking
relating to the purchase or sale of electricity from the Projects entered into
by the Guarantors after the Closing Date, (b) any consent or security
instrument entered into by the Guarantors or any other relevant party in
connection with an Additional Project Document, or (c) any contract or
undertaking to which Funding Corporation or any Guarantor is a party entered
into after the Closing Date, relating to (i) the supply, procurement, handling
or transportation of brine to the Projects, or (ii) the design, construction,
operation or maintenance of the Projects; in each case which is material to
the applicable Project.
"ADDITIONAL PROJECTS" means Permitted Facilities, developed, owned,
operated, acquired or constructed after the Initial Closing Date as may be
permitted in accordance with the terms of the Financing Documents.
"ADDITIONAL SECURITIES" means any Securities issued pursuant to the
Indenture, other than the Initial Securities, the Old Securities and the New
Securities.
"ADJUSTED CAPACITY PRICE" means the capacity payment per kWh for a
Project which has changed its Contract Capacity in accordance with the terms
of its respective Power Purchase Agreement.
A-1
<PAGE>
"AFFILIATE" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such first Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"AGENT'S MESSAGE" means a message transmitted through electronic
means by a Book-Entry Transfer Facility to and received by the Depositary and
forming a part of a book-entry confirmation, which states that such Book-Entry
Transfer Facility has received an express acknowledgment from the participant
in such Book-Entry Transfer Facility tendering the Securities that such
participant has received and agrees to be bound by the Letter of Transmittal.
"ALLOCATION CERTIFICATE" means each certificate provided by the
Funding Corporation or one of the Guarantors or, pursuant to the Intercreditor
Agreement, the Required Secured Parties (as defined in the Intercreditor
Agreement), as applicable, setting forth the allocation of Loss Proceeds,
Eminent Domain Proceeds, Title Event Proceeds, or cash proceeds resulting from
liquidation of the Collateral and Funding Corporation Collateral, as the case
may be, among the Secured Parties (to the extent the Secured Obligations of
such Secured Parties may be redeemed or prepaid under the applicable Financing
Documents).
"ANNUAL FORECAST ENERGY PAYMENT" means an energy payment based on
predetermined, escalating energy prices as set forth in the Forecast of Annual
Marginal Cost of Energy.
"ANNUAL FORECAST ENERGY PAYMENT SO4 AGREEMENTS" means an SO4
Agreement pursuant to which the respective Project Company receives Annual
Forecast Energy Payments from SCE.
"AVAILABLE CASH FLOW" means, for any period and (a) for the Initial
Partnership Guarantors and the Royalty Guarantor, as applicable, the total
Equity Cash Flows and Royalties received by such Guarantor, minus, without
duplication, (i) any Royalties paid, (ii) all Operating and Maintenance Costs,
(iii) all capital expenditures for such Guarantor and its respective Projects
and (iv) debt service; all as computed by such Guarantor for such period and
(b) for the Additional Partnership Guarantors, as applicable, the total
revenues received by such Guarantor, minus, without duplication, (i) any
Royalties paid, (ii) all Operating and Maintenance Costs, (iii) all capital
expenditures for such Guarantor and its respective Projects and (iv) debt
service; all as computed by such Guarantor for such period.
"AVOIDED COST OF ENERGY" means SCE's then-current, published,
short-run avoided cost of energy.
"AVOIDED COST OF ENERGY PERIOD" means the last 20-year period of the
SO4 Agreements to which the Project Companies are parties, during which the
Project Companies receive energy payments based on SCE's Avoided Cost of
Energy.
"BASE PRICE" means the initial value of the energy payment price
(4.056 cents per kWh) in the Salton Sea Unit I PPA. The Base Price is adjusted
quarterly pursuant to various indices to determine the energy payment price
under the Salton Sea Unit I PPA.
"BNG" means BN Geothermal Inc., a Delaware corporation.
"BOARD OF DIRECTORS," when used with respect to a corporation, means
either the board of directors of such corporation or any committee of that
board duly authorized to act for that board.
"BRINE SALES AGREEMENT" means the Brine Sales Agreement, dated August
30, 1985 as amended as of June 17, 1996, between VPC and Vulcan.
"BRPU" means the "Biennial Resource Plan Update" established by
the CPUC.
A-2
<PAGE>
"BRPU AWARD" means the order of CPUC, dated June 22, 1994 (confirmed on
December 21, 1994), awarding Magma the right to enter into a contract to sell
69 MW of power to SCE and 94 MW of power to SDG&E.
"CALENERGY" means CalEnergy Company, Inc., a Delaware corporation.
"CAPITAL EXPENDITURE FUND" means the fund of such name created under
the Depositary Agreement.
"CE" means the symbol for CalEnergy's publicly-traded common stock on
the New York, Pacific and London Stock Exchanges.
"CEDEL" means Cedel Bank, Societe Anonyme.
"CEOC" means CalEnergy Operating Company, a Delaware corporation.
"CEOC AGREEMENTS" means, collectively, the Del Ranch Agreements, the
Elmore Agreements and the Leathers Agreements.
"CLOSING DATE" means June 20, 1996, the date of issuance and delivery
of the Old Securities.
"COLLATERAL" means the Salton Sea Collateral, the Partnership
Collateral and the Royalty Collateral.
"COLLATERAL AGENT" means Chemical Trust Company of California, as
collateral agent for the benefit of the Secured Parties and Funding
Corporation under the Intercreditor Agreement, together with its successors
and assigns.
"COMBINED EXPOSURE" means, as of any date of calculation, the sum
(calculated without duplication) of the following, to the extent the same is
held by or represented by a Secured Party: (i) the aggregate principal amount
of all Outstanding Securities, (ii) the aggregate principal amount of all
Permitted Debt outstanding (other than Subordinated Debt), (iii) the aggregate
amount of all available undrawn financing commitments under the documents
governing the Permitted Debt which the creditors party to such documents have
no right to terminate, (iv) the maximum amount available to be drawn under the
Debt Service Reserve Letter of Credit issued pursuant to the Debt Service
Reserve LOC Reimbursement Agreement (if any) and (v) the termination payment
due and owing as of such calculation date or which the Permitted Counterparty
thereunder has a right to cause to be due and owing as of such calculation
date under any Interest Rate Protection Agreement.
"COMMERCIAL OPERATION" means, in connection with any Project, the
achievement by the Project of certain operational criteria under the relevant
Power Purchase Agreement and the capability of such Project of delivering
electricity in accordance therewith.
"COMMISSION" means the United States Securities and Exchange
Commission.
"CONEJO" means Conejo Energy Company, a California corporation.
"CONSUMER PRICE INDEX" means the Consumer Price Index published by
the Bureau of Labor Statistics of the Department of Labor or, in the event
that the publication of the Consumer Price Index shall be transferred to any
other governmental agency or shall be discontinued, then the index most nearly
the same as the Consumer Price Index, as determined in good faith by IID.
"CONTRACT CAPACITY" means the electric power producing capability of
the relevant Project which is committed to SCE on a firm basis under its Power
Purchase Agreement.
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<PAGE>
"CONTRACT CAPACITY FACTOR" means, with respect to a particular Project,
(i) the Project's actual electricity output divided by (ii) the product of the
Project's Contract Capacity and the number of hours in the measurement period
(less applicable maintenance hours).
"CONTRACT CAPACITY PRICE" means the particular capacity payment price
per kWh stated in the relevant SO4 Agreement.
"COST OVERRUN COMMITMENT" means the Cost Overrun Commitment, dated as
of the Closing Date, by CalEnergy in favor of the Salton Sea Guarantors.
"CPUC" means the California Public Utilities Commission.
"CRC PROCESS" means the "crystallizer/clarifier" process developed by
Magma to counteract the effects of high TDS geothermal fluid and decrease
scaling and mineral buildup in the geothermal resource gathering system, which
process uses seed crystals to promote crystal growth and precipitate solids in
crystallizer reactors.
"CREDIT AGREEMENT EVENT OF DEFAULT" means an "Event of Default" as
defined in a Credit Agreement.
"CREDIT AGREEMENTS" means the Salton Sea Credit Agreement, the
Partnership Credit Agreement and the Royalty Credit Agreement.
"CUSTODIAN" means, initially, the Trustee, and its successors and
assigns or any other custodian performing similar functions.
"DEBT" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments
(excluding "deposit only" endorsements on checks payable to the order of such
Person), (iii) all obligations of such Person to pay the deferred purchase
price of property or services (except accounts payable and similar obligations
arising in the ordinary course of business shall not be included herein), (iv)
all obligations of such Person as lessee under capital leases to the extent
required to be capitalized on the books of such Person in accordance with GAAP
and (v) all obligations of others of the type referred to in clause (i)
through (iv) above guaranteed by such Person, whether or not secured by a lien
or other security interest on any asset of such Person.
"DEBT SERVICE COVERAGE RATIO" means for any period, without
duplication, the ratio of (i) (A) the sum of all revenues (including interest
and fee income but excluding any insurance proceeds and other similar
non-recurring receipts) of the Guarantors for such period, minus (B) the
aggregate amount of Operating and Maintenance Costs of the Guarantors for such
period to (ii) the sum of (A) all principal, premium (if any) and interest
payable with respect to Permitted Debt outstanding (other than Subordinated
Debt) for such period, plus (B) the aggregate amount of overdue principal,
premium (if any) and interest payments owed with respect to Permitted Debt
outstanding (other than Subordinated Debt) from previous periods; all as
determined on a cash basis in accordance with GAAP.
"DEBT SERVICE RESERVE BOND" means a bond substituted for a Debt
Service Reserve LOC Loan, which bond is amortized to result in levelized
payment of the principal of and interest on such bond to and including the
Final Maturity Date, and which bears interest at a fixed rate equal to the
higher of (a) the interest rate applicable to the Debt Service Reserve LOC
Loan converted into the Debt Service Reserve Bond; and (b) the then-current
(at the time of conversion) rate of interest on United States Treasury Notes
with an average life most comparable to the average life of the Securities
plus the higher of (i) 2.50% and (ii) the spread over U.S. Treasury Notes
applicable to the Securities on the Closing Date.
"DEBT SERVICE RESERVE FUND" means the fund of such name created under
the Depositary Agreement.
A-4
<PAGE>
"DEBT SERVICE RESERVE FUND REQUIRED BALANCE" means (i) at any given
time, on or prior to December 31, 1999, an amount equal to the maximum
semiannual scheduled payment of principal, premium (if any) and interest due on
the Securities Outstanding and (ii) at any given time subsequent to December 31,
1999, an amount equal to the maximum annual scheduled payment of principal,
premium (if any) and interest due on the Securities outstanding, in each case
as set forth in Schedule I to the Depositary Agreement.
"DEBT SERVICE RESERVE LETTER OF CREDIT" means one or more
irrevocable, direct pay letters of credit issued by the Debt Service LOC
Provider in favor of the Depositary.
"DEBT SERVICE RESERVE LOC LOAN" means each loan made by a Debt
Service Reserve LOC Provider to the Funding Corporation pursuant to the Debt
Service Reserve LOC Reimbursement Agreement.
"DEBT SERVICE RESERVE LOC NOTE" means the promissory note issued by
the Funding Corporation pursuant to the Debt Service Reserve LOC Reimbursement
Agreement.
"DEBT SERVICE RESERVE LOC PROVIDER" means the commercial bank(s) or
financial institution(s) issuing the Debt Service Reserve Letter of Credit.
"DEBT SERVICE RESERVE LOC REIMBURSEMENT AGREEMENT" means the Credit
and Reimbursement Agreement, dated as of the Initial Closing Date, as amended
and restated as of the Closing Date, between the Funding Corporation and the
Debt Service Reserve LOC Provider.
"DEEDS OF TRUST" means, collectively, the Salton Sea Deed of Trust,
the Partnership Project Deed of Trust, and the Royalty Deed of Trust.
"DEFAULT" means an event or condition that, with the giving of
notice, lapse of time or failure to satisfy certain specified conditions, or
any combination thereof, would become an Event of Default.
"DEFINITIVE SECURITIES" means definitive Securities, without coupons,
issued to Holders of Securities or their nominees.
"DEL RANCH" means Del Ranch, L.P., a California limited partnership.
"DEL RANCH AGREEMENTS" means, collectively, the Del Ranch ASA, the
Del Ranch Operating and Maintenance Agreement, the Del Ranch PPA, the Del
Ranch Transmission Service Agreement, the Del Ranch Easement, the Del Ranch
Ground Lease, the Del Ranch Partnership Agreement and any Additional Project
Document entered into by CEOC or Del Ranch with respect to the Del Ranch
Project.
"DEL RANCH ASA" means the Administrative Services Agreement, dated as
of March 14, 1988, as amended as of June 17, 1996, between CEOC and Del Ranch.
"DEL RANCH CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement, dated April 18, 1990, among Del Ranch, the financial institutions
party thereto and Morgan Guaranty Trust Company, as agent.
"DEL RANCH EASEMENT" means the Easement Grant Deed and Agreement
Regarding Rights for Geothermal Development, dated March 14, 1988, as amended
as of June 17, 1996, between Del Ranch and Magma.
"DEL RANCH GROUND LEASE" means the Ground Lease, dated as of March
14, 1988, as amended as of June 17, 1996, between Magma and Del Ranch.
"DEL RANCH O&M AGREEMENT" means the Operating and Maintenance
Agreement, dated March 14, 1988, as amended as of June 17, 1996, between Del
Ranch and CEOC.
A-5
<PAGE>
"DEL RANCH PARTNERSHIP AGREEMENT" means the Amended and Restated
Limited Partnership Agreement of Del Ranch, L.P., dated as of March 14, 1988, as
amended as of April 14, 1989, between CEOC, Magma and Conejo.
"DEL RANCH PPA" means the Long Term Power Purchase Agreement, dated
February 22, 1984, as amended, between SCE and Del Ranch, as successor to
Magma.
"DEL RANCH PROJECT" means the 38 MW contract nameplate geothermal
power plant, owned by Del Ranch, located in the SSKGRA.
"DEL RANCH TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement, dated as of August 2, 1988, between Del Ranch and IID.
"DEPOSITARY" means Chemical Trust Company of California, as
depositary under the Depositary Agreement.
"DEPOSITARY AGREEMENT" means the Deposit and Disbursement Agreement,
dated as of the Initial Closing Date, between the Funding Corporation, the
Collateral Agent, the Depositary and the Initial Guarantors as amended by
Amendment No. 1 thereto, dated the Closing Date, between the Funding
Corporation, the Collateral Agent, the Depositary and the Guarantors.
"DISTRIBUTION FUND" means the fund of such name created under the
Depositary Agreement.
"DISTRIBUTION SUSPENSE FUND" means the fund of such name created
under the Depositary Agreement.
"DOW" means Dow Engineering Company, a Delaware corporation.
"DTC" means The Depository Trust Company, having a principal office
at 55 Water Street, New York, New York, 10041-0099, together with any Person
succeeding thereto by merger, consolidation or acquisition of all or
substantially all of its assets, including substantially all of its securities
payment and transfer operations.
"DTC PARTICIPANTS" means the securities brokers and dealers, banks,
trust companies and clearing corporations who participate in DTC.
"DTC SECURITIES" means the Securities represented by the Global
Security held in book-entry form by DTC.
"DVC" means the Desert Valley Company, a California corporation.
"EAST MESA" means Geo East Mesa, L.P, a California limited partnership.
"EAST MESA ASSIGNMENT AND SECURITY AGREEMENT" means the Assignment
and Security Agreement, dated May 12, 1988, between East Mesa and Magma.
"EAST MESA MASTER AGREEMENT" means the Master Agreement, dated May 12,
1988, among Geothermal Resources International, Inc., Geo East Mesa, Inc.,
Geo East Mesa No. 3, Inc., East Mesa, Magma, Pacificorp Credit, Inc. and
Credit Suisse.
"EAST MESA PPAS" means one or more power purchase agreements between
SCE and East Mesa.
"EAST MESA PROJECT" means the 37 MW nameplate geothermal power plant
owned by East Mesa.
A-6
<PAGE>
"EAST MESA ROYALTY" is the payment owed to Magma by East Mesa pursuant
to the East Mesa Assignment and Security Agreement which payment amounts to 14%
of East Mesa's combined capacity and energy revenues.
"ELMORE" means Elmore L.P., a California limited partnership.
"ELMORE AGREEMENTS" means, collectively, the Elmore ASA, the Elmore
Operating and Maintenance Agreement, the Elmore PPA, the Elmore Transmission
Service Agreement, the Elmore Easement, the Elmore Ground Lease, the Elmore
Partnership Agreement and any Additional Project Document entered into by CEOC
or Elmore with respect to the Elmore Project.
"ELMORE ASA" means the Administrative Services Agreement, dated as of
March 14, 1988, as amended as of June 17, 1996, between CEOC and Elmore.
"ELMORE CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement, dated as of April 18, 1990, among Elmore, the financial
institutions party thereto and Morgan Guaranty Trust Company, as agent.
"ELMORE EASEMENT" means the Easement Grant Deed and Agreement
Regarding Rights for Geothermal Development, dated March 14, 1988, as amended
as of June 17, 1996, between Elmore and Magma.
"ELMORE GROUND LEASE" means the Ground Lease, dated March 14, 1988,
as amended as of June 17, 1996, between Elmore and Magma.
"ELMORE O&M AGREEMENT" means the Operating and Maintenance Agreement,
dated March 14, 1988, as amended as of June 17, 1996, between CEOC and Elmore.
"ELMORE PARTNERSHIP AGREEMENT" means the Amended and Restated Limited
Partnership Agreement, dated March 14, 1988, as amended as of April 14, 1989,
between CEOC, Niguel Energy Company and Magma.
"ELMORE PPA" means the Long Term Power Purchase Agreement, dated June
15, 1984, as amended, between SCE and Elmore, as successor to Magma.
"ELMORE PROJECT" means the 38 MW contract nameplate geothermal power
plant owned by Elmore, located in the SSKGRA.
"ELMORE TECHNOLOGY TRANSFER AGREEMENT" means the Technology Transfer
Agreement, dated March 14, 1988, between Elmore and Magma.
"ELMORE TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement, dated August 2, 1988, between IID and Elmore.
"EMINENT DOMAIN PROCEEDS" means all amounts and proceeds (including
instruments) received (to the extent, if any, in the case of a Partnership
Guarantor other than a Partnership Project Company, as Equity Cash Flows) in
respect of any Event of Eminent Domain, after deducting all reasonable
expenses incurred in litigating, arbitrating, compromising, settling or
consenting to the settlement of any claims against the appropriate
Governmental Authority.
"ENGINEERING SERVICES AGREEMENT" means the Engineering Services
Agreement, dated February 17, 1994, between Magma and Dow.
"EQUITY CASH FLOWS" means, with respect to the Initial Partnership
Guarantors, the cash flow available to such Guarantor from equity
distributions made by the Partnership Project Companies and not otherwise
A-7
<PAGE>
required to be used (x) for Operating and Maintenance Costs or (y) otherwise
pursuant to a Partnership Project project document or financing document.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System, or any successor to Morgan
Guaranty Trust Company of New York, Brussels office, as operator thereof.
"EURODOLLAR RATE" means the rate of interest per annum equal to the
quotient (rounded upward, if necessary, to the nearest one-sixteenth of one
percent (0.0625%)) of (i) the rate of interest equal to the arithmetic average
(rounded upward, if necessary to the next higher 1/100 of 1%) of the rates at
which deposits in dollars are offered by reference banks to prime banks in the
London interbank market two banking days before the first day of the
applicable interest period for a period equal to such interest period and in
an amount as to each reference bank substantially equal to the Eurodollar Rate
loan of such reference bank divided by (ii) a percentage equal to 100% minus
the eurodollar rate reserve percentage for such interest period.
"EVENT OF DEFAULT" means the occurrence of an event of default under
the Indenture.
"EVENT OF EMINENT DOMAIN" means any compulsory transfer or taking or
transfer under threat of compulsory transfer or taking of any material part of
the Collateral or Projects by any Governmental Authority.
"EVENT OF LOSS" means an event which causes all or a portion of a
Project to be damaged, destroyed or rendered unfit for normal use for any
reason whatsoever, other than an Event of Eminent Domain or a Title Event.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the terms and conditions set forth in the
Letter of Transmittal and the Prospectus.
"EXPANSION FUND" means the fund of such name created under the
Depositary Agreement.
"EXISTING PARTNERSHIP COLLATERAL" means the Royalties and Equity Cash
Flows received by CEOC, VPC and the Royalty Guarantor from the Partnership
Project Companies.
"EXISTING PARTNERSHIP CASH FLOW DEPOSITS" means the Royalties and
Equity Cash Flows received by CEOC, VPC and the Royalty Guarantor from the
Partnership Project Companies and deposited into the Revenue Fund pursuant to
the Depositary Agreement.
"FACILITY GROSS CAPACITY" means, with respect to a Project, the gross
electric output of such facility prior to subtraction of the parasitic load.
"FERC" means the United States Federal Energy Regulatory Commission,
or any successor thereto.
"FINAL MATURITY DATE" means the latest stated maturity date of any
series of the Securities.
"FINANCING DOCUMENTS" means, collectively, the Credit Agreements, the
Guarantees, the Indenture, the Project Notes, the Registration Rights
Agreement, the Depositary Agreement, any Interest Rate Protection Agreements,
the Intercreditor Agreement, the Securities, the Debt Service Reserve LOC
Reimbursement Agreement, the Working Capital Facility, the Security Documents,
the Support Letter and the Cost Overrun Commitment.
A-8
<PAGE>
"FIRM CAPACITY PAYMENT" means an annual capacity payment which is equal
to the product of the relevant Project's Contract Capacity Price and Contract
Capacity as set forth in such Project's Power Purchase Agreement.
"FIRM OPERATION" means, with respect to a Project, that such Project
has been determined to be a reliable source of generation, and that such
Project can be reasonably expected to operate continuously at its effective
rating.
"FIRM OPERATION DATE" means the date a Project achieves Firm
Operation.
"FISH LAKE" means Fish Lake Power Company, a Delaware corporation.
"FISH LAKE PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated
as of the Initial Closing Date, by Magma and the Funding Corporation, pledging
the stock of Fish Lake, in favor of the Collateral Agent for the benefit of
the Secured Parties and the Funding Corporation.
"FISH LAKE PPA" means the Fish Lake contract, dated June 6, 1991,
among SCE, Geo-Energy Partners-1993 Ltd., Geothermal Drilling, Ltd., and Steam
Reserve Corporation.
"FISH LAKE PROJECT" means the geothermal power plant proposed to be
built at Fish Lake in Esmeralda County, Nevada.
"FIXED PRICE PERIOD" means the initial ten-year period of the SO4
Agreements to which the Project Companies are parties during which the Project
Companies receive either Annual Forecast Energy Payments or Levelized Energy
Payments, as applicable.
"FORECAST OF ANNUAL MARGINAL COST OF ENERGY SCHEDULE" means the
schedule of such name prepared by SCE in the Annual Forecast Energy Payment
SO4 Agreements which provides that the energy payment price payable by SCE per
kWh is equal to:
<TABLE>
<CAPTION>
YEAR PRICE PER KWH
- ---- --------------
<S> <C>
1996.......................................................... 12.6 cents
1997.......................................................... 13.6 cents
1998.......................................................... 14.6 cents
1999.......................................................... 15.7 cents
</TABLE>
"FPA" means the Federal Power Act (the Public Utility Act of 1935),
as amended.
"FUNDING CORPORATION" means Salton Sea Funding Corporation, a
Delaware corporation.
"FUNDING CORPORATION COLLATERAL" means the pledge of the capital
stock of the Funding Corporation.
"FUNDING ORDER" means a written request of the Funding Corporation to
redeem any Securities, whether by optional or mandatory redemption, in
accordance with the Indenture.
"FUNDING PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated as
of the Initial Closing Date, by Magma, pledging the stock of the Funding
Corporation, in favor of the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation.
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<PAGE>
"FUNDS" means the funds established under the Depositary Agreements.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"GEOTHERMAL LESSOR'S FEE" means the charge of such name payable under
each of the Vulcan Easement, the Elmore Easement, the Leather's Easement and
the Del Ranch Easement, which charge amounts to 4.167% of the relevant
Project's energy revenues.
"GLOBAL SECURITIES" means, collectively, in respect of each series of
Securities, (a) the single global Security in registered form for each series
of Securities issued to QIBs and (b) the Regulation S Global Security.
"GOVERNMENTAL APPROVALS" means all governmental approvals,
authorizations, consents, decrees, permits, waivers, privileges and filings
with all Governmental Authorities required to be obtained by a Project Company
for construction, operation and maintenance of a Project.
"GOVERNMENTAL AUTHORITY" means the government of any federal, state,
municipal or other political subdivision in which the Projects are located,
and any other government or political subdivision thereof exercising
jurisdiction over the Projects or any party to any of the Project Documents,
including all agencies and instrumentalities of such governments and political
subdivisions.
"GRANTOR'S FUEL CHARGE" means the charge of such name payable under
each of the Elmore Easement, the Leather's Easement and the Del Ranch
Easement, which charge amounts to 17.333% of the relevant Project's energy
revenues.
"GUARANTEE EVENT OF DEFAULT" means an "Event of Default" under and as
defined in a Guarantee.
"GUARANTEES" means, collectively, the Salton Sea Guarantee, the
Partnership Guarantee and the Royalty Guarantee.
"GUARANTORS" means, collectively, the Salton Sea Guarantors, the
Partnership Guarantors and the Royalty Guarantor.
"HOLDER" means the registered holder of any Security from time to
time.
"IER" means SCE's incremental energy rate.
"IID" means the Imperial Irrigation District, a public agency of the
State of California.
"INDENTURE" means the Trust Indenture, dated as of the Initial
Closing Date, as supplemented by the First Supplemental Indenture thereto
dated as of October 18, 1995 and as further supplemented by the Supplemental
Indenture, dated as of the Closing Date, each by and among the Funding
Corporation and the Trustee.
"INDEPENDENT ENGINEER" means Stone & Webster Engineering Corporation
or another widely recognized independent engineering firm or engineer retained
as independent engineer by the Funding Corporation.
"INDEPENDENT ENGINEER'S REPORT" means the Independent Engineer's
Report prepared by Stone & Webster Engineering Corporation and attached to
this Prospectus as Appendix B.
"INDIRECT PARTICIPANTS" means banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant either directly or indirectly.
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<PAGE>
"INITIAL GUARANTORS" means, collectively, the Salton Sea Guarantors,
the Initial Partnership Guarantors and the Royalty Guarantor.
"INITIAL OFFERING" means the offering and sale of the Unregistered
Initial Securities to CS First Boston and Lehman Brothers Inc., as initial
purchasers, on the Initial Closing Date.
"INITIAL CLOSING DATE" means July 21, 1995.
"INITIAL EXCHANGE OFFER PROSPECTUS" means the Prospectus, dated
January 10, 1996, included in the Initial Registration Statement.
"INITIAL PARTNERSHIP CREDIT AGREEMENT" means the credit agreement,
dated as of the Initial Closing Date, between the Funding Corporation and the
Initial Partnership Guarantors.
"INITIAL PARTNERSHIP GUARANTORS" means CEOC and VPC.
"INITIAL PARTNERSHIP PROJECT NOTE" means the promissory note in the
initial principal amount of $75,000,000 issued by the Initial Partnership
Guarantors in favor of the Funding Corporation under the Partnership Credit
Agreement on the Initial Closing Date, and reissued by the Partnership
Guarantors on the Closing Date.
"INITIAL PURCHASER" means CS First Boston Corporation.
"INITIAL REGISTRATION STATEMENT" means the registration statement on
Form S-4, which includes all amendments, exhibits, annexes and schedules
thereto, pursuant to the Securities Act and the rules and regulations
promulgated thereunder, covering the Registered Initial Securities.
"INITIAL SECURITY" or "INITIAL SECURITIES" means any Registered
Initial Security or any Unregistered Initial Security.
"INSURANCE CONSULTANT" means Sedgwick James of Tennessee, Inc. or
another widely recognized insurance consulting firm retained as insurance
consultant by the Funding Corporation.
"INTERCREDITOR AGREEMENT" means the Collateral Agency and
Intercreditor Agreement, dated as of the Initial Closing Date, among the
Collateral Agent, the Depositary, the Secured Parties, the Funding
Corporation and the Initial Guarantors, as amended pursuant to Amendment
No. 1 thereto, dated as of the Closing Date, among the Collateral Agent,
the Depositary, the Secured Parties, the Funding Corporation and the
Guarantors.
"INTEREST FUND" means the fund of such name created under the
Depositary Agreement.
"INTEREST PAYMENT DATE" means with respect to (i) any Initial
Security, each May 30th and November 30th, commencing November 30, 1995 and
concluding on the Final Maturity Date of such Initial Securities, (ii) any
Series D and Series E Security, each May 30th and November 30th, commencing
November 30, 1996 and concluding on the Final Maturity Date of such Series D
and Series E Securities and (iii) any Debt Service Reserve LOC Loan or Debt
Service Reserve Bond, each regularly scheduled date on which interest is due
and payable, as such date may be established from time to time, commencing on
the first such date after the applicable drawing, and any date on which
interest of such Debt Service Reserve LOC Loan or Debt Service Reserve Bond
becomes due and payable at redemption, the final maturity date or declaration
of acceleration, or otherwise.
"INTEREST RATE PROTECTION AGREEMENTS" means any agreements providing
for swaps, ceiling rates, ceiling and floor rates, contingent participation or
other hedging mechanisms with respect to the payment of interest.
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"INVESTMENT GRADE RATING" means a rating of "BBB-" or higher from
S&P and "Baa3" or higher from Moody's (or an equivalent rating by another
nationally recognized credit rating agency if none of such corporations is
rating the Securities).
"JUNIOR ROYALTY" is the payment owed to Magma by East Mesa pursuant
to the East Mesa Assignment and Security Agreement, as modified by the East
Mesa Master Agreement, which is paid after East Mesa's debt service, which
payment amounts to 10% of East Mesa's combined capacity and energy revenues.
"KGRA" means a known geothermal resource area designated by the
Bureau of Land Management.
"KW" means a unit of electrical energy equal to one thousand watts
of power.
"KWH" means a unit of electrical energy equal to one kW of power
supplied or taken from an electric circuit steadily for one hour.
"LEATHERS" means Leathers, L.P., a California limited partnership.
"LEATHERS AGREEMENTS" means, collectively, the Leathers ASA, the
Leathers Operating and Maintenance Agreement, the Leathers PPA, the Leathers
Transmission Service Agreement, the Leathers Easement, the Leathers Ground
Lease, the Leathers Partnership Agreement and any Additional Project Document
entered into by CEOC or Leathers with respect to the Leathers Project.
"LEATHERS ASA" means the Administrative Services Agreement, dated as
of August 15, 1988, between CEOC and Leathers.
"LEATHERS CREDIT AGREEMENT" means the Amended and Restated Credit
Agreement, dated April 18, 1990, as amended as of June 17, 1996, among
Leathers, the financial institutions party thereto and Morgan Guaranty Trust
Company, as agent.
"LEATHERS EASEMENT" means the Easement Grant Deed and Agreement
Regarding Rights for Geothermal Development, dated August 15, 1988, as amended
as of June 17, 1996, between Leathers and Magma.
"LEATHERS GROUND LEASE" means the Ground Lease, dated October 26,
1988, as amended as of June 17, 1996, between Magma and Leathers.
"LEATHERS O & M AGREEMENT" means the Operating and Maintenance
Agreement, dated August 15, 1988, as amended as of June 17, 1996, between
Leathers and CEOC.
"LEATHERS PARTNERSHIP AGREEMENT" means the Limited Partnership
Agreement of Leathers, L.P., dated August 15, 1988, as amended as of April 14,
1989, among CEOC, Magma and San Felipe.
"LEATHERS PPA" means the Long Term Power Purchase Agreement, dated as
of April 16, 1985, as amended, between SCE and Leathers, as successor to
Magma.
"LEATHERS PROJECT" means the 38 MW contract nameplate geothermal
power plant owned by Leathers, located in the SSKGRA.
"LEATHERS TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement, dated as of October 3, 1989, between Leathers and IID.
"LETTER OF TRANSMITTAL" means the letter of transmittal which
accompanies the Prospectus and which is filed as an exhibit to the
Registration Statement.
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"LEVELIZED ENERGY PAYMENT" means a monthly energy payment based on a
predetermined, levelized energy price, which price equals 10.6 cents per kWh
for the Salton Sea Unit II PPA and 9.8 cents per kWh for the Salton Sea Unit
III PPA.
"LEVELIZED ENERGY PAYMENT SO4 AGREEMENT" means an SO4 Agreement
pursuant to which the respective Project Company receives Levelized Energy
Payments from SCE.
"LIENS" means any mortgage, pledge, hypothecation, assignment,
mandatory deposit arrangement with any Person owning Debt of such Person,
encumbrance, lien (statutory or other), preference, priority or other security
agreement of any kind or nature whatsoever which has the substantial effect of
constituting a security interest, including, without limitation, any
conditional sale or other title retention agreement, any financing lease
having substantially the same effect as any of the foregoing and the filing of
any financing statement or similar instrument under the Uniform Commercial
Code or comparable law of any jurisdiction, domestic or foreign.
"LOC AGENT" means the agent bank under the Debt Service Reserve LOC
Reimbursement Agreement.
"LOC BANK" means any bank or financial institution party to the Debt
Service Reserve LOC Reimbursement Agreement.
"LOSS PROCEEDS" means all net proceeds from an Event of Loss,
including, without limitation, insurance proceeds or other amounts actually
received (to the extent, in the case of an Initial Partnership Guarantor or
BNG, Conejo, Niguel and San Felipe, received in the form of Equity Cash
Flows), except proceeds of delayed opening or business interruption insurance,
on account of an event which causes all or a substantial portion of the
relevant Project to be damaged, destroyed or rendered unfit for normal use.
"LOSS PROCEEDS FUND" means the fund of such name created under the
Depositary Agreement.
"MAGMA" means Magma Power Company, a Nevada corporation.
"MAGMA ACQUISITION" means the acquisition of Magma by CalEnergy in
February 1995 for $957 million, including expenses.
"MAGMA ASSIGNMENT AGREEMENT" means the Assignment Agreement, dated as
of June 30, 1995, by Magma in favor of the Royalty Guarantor.
"MAGMA LAND" means the Magma Land Company I, a Nevada corporation.
"MAGMA SERVICES AGREEMENT" means the Services Agreement, dated as of
the Initial Closing Date, between Magma and CEOC.
"MANDATORY REDEMPTION FUND" means the fund of such name created under
the Indenture.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
financial position or results of operation of the Funding Corporation and the
Salton Sea Guarantors, taken as a whole, (ii) the validity or priority of the
Liens on the Collateral and the Funding Corporation Collateral, (iii) the
ability of the Funding Corporation to perform its material obligations under
the Indenture, the Securities or any of the Financing Documents to which it is
a party, (iv) the ability of the Trustee to enforce any of the payment
obligations of the Funding Corporation under the Indenture or the Securities,
or (v) the ability of the Guarantors to perform any of their material
obligations under their respective Project Notes or the Financing Documents to
which they are a party.
"MISSION" means Edison Mission Energy, a California corporation, and
an Affiliate of SCE.
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"MOODY'S" means Moody's Investors Service, Inc., a corporation
organized and existing under the laws of the State of Delaware, its
successors and assigns.
"MW" means a unit of electrical energy equal to one million watts
of power.
"NEW SECURITY" or "NEW SECURITIES" means any of the New Series D
Securities and the New Series E Securities, issued by the Funding Corporation
pursuant to this Prospectus.
"NEW SERIES D SECURITY" or "NEW SERIES D SECURITIES" means any of the
$70,000,000 7.02% Series D Senior Secured Notes due May 30, 2000, issued by
the Funding Corporation pursuant to this Prospectus.
"NEW SERIES E SECURITY" or "NEW SERIES E SECURITIES" means any of the
$65,000,000 8.30% Series E Senior Secured Bonds due May 30, 2011, issued by
the Funding Corporation pursuant to this Prospectus.
"NIGUEL" means Niguel Energy Company, a California corporation.
"OLD SECURITY" or "OLD SECURITIES" means any of the Old Series D
Securities and Old Series E Securities, initially issued by the Funding
Corporation to the Initial Purchaser on the Closing Date.
"OLD SERIES D SECURITY" or "OLD SERIES D SECURITIES" means any of the
$70,000,000 7.02% Series D Senior Secured Notes due May 30, 2000, initially
issued by the Funding Corporation to the Initial Purchaser on the Closing
Date.
"OLD SERIES E SECURITY" or "OLD SERIES E SECURITIES" means any of the
$65,000,000 8.30% Series E Senior Secured Bonds due May 30, 2011, initially
issued by the Funding Corporation to the Initial Purchaser on the Closing
Date.
"OPERATING AND MAINTENANCE COSTS" means all amounts disbursed by or
on behalf of the Guarantors for operation, maintenance, repair, or improvement
of their Projects, including, without limitation, premiums on insurance
policies, property and other taxes, and payments under the relevant operating
and maintenance agreements, leases, royalty and other land use agreements, and
any other payments required under the Project project documents.
"OPERATING BUDGET" means a budget of Operating and Maintenance Costs,
and a long-term maintenance program with respect to the Guarantors and the
Projects owned and operated by the Guarantors for any given fiscal year, or
part thereof, and prepared on the basis of estimated requirements, showing
such costs by category for such fiscal year.
"OPERATING COSTS" means, with respect to a Guarantor, for any period,
the operating and maintenance costs of its respective Projects for such
period, calculated on a cash basis in accordance with GAAP, both paid or
required to be paid during such period.
"OUTSTANDING," in connection with Securities, means, as of the time
in question, all Securities authenticated and delivered under the Indenture,
except (i) Securities theretofore cancelled or required to be cancelled under
the Indenture; (ii) Securities for which provision for payment shall have been
made in accordance with the Indenture; and (iii) Securities in substitution
for which other Securities have been authenticated and delivered pursuant to
the Indenture.
"OWNERS" means, with respect to DTC Securities, the beneficial owners
of such Securities.
"PARTNERSHIP ACQUISITION" means the acquisition by a subsidiary of
CalEnergy of all the stock of BNG, Niguel, San Felipe and Conejo from Mission
for $70 million. Such acquired companies own 50% partnership interests in each
of the Partnership Projects.
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"PARTNERSHIP AGREEMENTS" means the Del Ranch Partnership Agreement,
the Elmore Partnership Agreement, the Leathers Partnership Agreement and the
Vulcan Partnership Agreement.
"PARTNERSHIP COLLATERAL" means (i) an assignment of all Equity Cash
Flows and Royalties of CEOC, VPC and all revenues of the Partnership Project
Companies which will be applied in accordance with the priorities of payment
established under the Depositary Agreement, (ii) a deed of trust on
substantially all of the assets of each of the Partnership Project Companies,
(iii) a collateral assignment of certain material contracts of each of the
Partnership Guarantors, (iv) a pledge of the capital stock of the Partnership
Guarantors (other than the Partnership Project Companies), (v) a pledge of the
partnership interests in the Partnership Project Companies, (vi) a Lien on the
Capital Expenditure Fund and any other funds of the Partnership Guarantors on
deposit under the Depositary Agreement and (vii) a collateral assignment of
CEOC's rights to receive payments under the Magma Services Agreement.
"PARTNERSHIP CREDIT AGREEMENT" means the amended Credit Agreement,
dated as of the Closing Date, between the Funding Corporation and the
Partnership Guarantors.
"PARTNERSHIP DEED OF TRUST" means the Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing, dated as of the Closing Date, by
the Partnership Project Companies in favor of the Collateral Agent for the
benefit of the Secured Parties.
"PARTNERSHIP EASEMENTS" means the Del Ranch Easement, the Elmore
Easement and the Leathers Easement.
"PARTNERSHIP GUARANTEE" means the Guarantee by the Initial
Partnership Guarantors and the Additional Partnership Guarantors in favor of
the Trustee and the Collateral Agent for the benefit of the Secured Parties.
"PARTNERSHIP GUARANTORS" means, collectively, the Initial Partnership
Guarantors and the Additional Partnership Guarantors.
"PARTNERSHIP GUARANTORS PLEDGE AGREEMENTS" means (i) the Stock Pledge
Agreement, dated as of the Initial Closing Date, by Magma and the Funding
Corporation, pledging the stock of CEOC, in favor of the Collateral Agent for
the benefit of the Secured Parties and Funding Corporation, (ii) the Stock
Pledge Agreement, dated as of the Initial Closing Date, by Magma and Funding
Corporation, pledging the stock of VPC, in favor of the Collateral Agent for
the benefit of the Secured Parties and Funding Corporation, (iii) the Stock
Pledge Agreement, dated as of the Closing Date, by VPC, pledging the stock of
BNG in favor of the Collateral Agent for the benefit of the Secured Parties
and Funding Corporation, (iv) the Stock Pledge Agreement, dated as of the
Closing Date, by CEOC pledging the stock of Conejo, Niguel and San Felipe in
favor of the Collateral Agent for the benefit of the Secured Parties and
Funding Corporation, (v) the Partnership Interest Pledge Agreement, dated as
of the Closing Date, by VPC and BNG pledging the partnership interests in
Vulcan in favor of the Collateral Agent for the benefit of the Secured Parties
and Funding Corporation and (vi) the Partnership Interest Pledge Agreement,
dated as of the Closing Date, by and among Magma, CEOC and each of Conejo,
Niguel and San Felipe, respectively, pledging the partnership interests in Del
Ranch, Elmore and Leathers, respectively, in favor of the Collateral Agent for
the benefit of the Secured Parties and Funding Corporation.
"PARTNERSHIP GUARANTORS SECURITY AGREEMENT" means the Partnership
Guarantors Security Agreement and Assignment of Revenues, dated as of the
Initial Closing Date, by CEOC and VPC.
"PARTNERSHIP PROJECT COMPANIES" means, collectively, Del Ranch,
Elmore, Leathers and Vulcan.
"PARTNERSHIP PROJECT DOCUMENTS" means, collectively, the Vulcan
Agreements and the CEOC Agreements.
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"PARTNERSHIP PROJECT NOTE" means the Initial Partnership Project Note
and the Additional Partnership Project Note.
"PARTNERSHIP PROJECTS" means, collectively, the Del Ranch Project,
the Elmore Project, the Leathers Project and the Vulcan Project.
"PARTNERSHIP SECURITY DOCUMENTS" means the Partnership Deed of Trust,
the Partnership Guarantors Security Agreement, the Partnership Guarantors
Pledge Agreements, and all other Security Documents securing the obligations
of the Partnership Guarantors under the Partnership Guarantee and the
Partnership Project Note.
"PAYMENT DATE" means any Interest Payment Date or Principal Payment
Date.
"PERFORMANCE REQUIREMENT" means, with respect to a Project, the
average kWh output (equal to at least an 80% Contract Capacity Factor) during
specified on-peak hours that the Project must deliver under Firm Capacity
Payment SO4 Agreements.
"PERMITTED CAPITAL EXPENDITURES" means expenditures in connection
with the modification, improvement, reworking, maintenance and replacement
from time to time of wells, pipelines, gathering systems, equipment and
facilities and other capital expenditures in connection with or located at the
Partnership Projects or the Salton Sea Projects.
"PERMITTED COUNTERPARTY" means, in connection with an Interest Rate
Protection Agreement, a financial institution whose long-term senior debt is
rated at least "BBB+" by S&P and "Baa1" by Moody's or the equivalent by the
Rating Agencies.
"PERMITTED DEBT" means: (a) the Securities; (b) Debt incurred to
acquire the East Mesa Project in whole or in part; provided that no such Debt
may be incurred unless at the time of such incurrence (i) no Default or Event
of Default has occurred and is continuing and (ii) the Rating Agencies confirm
that the incurrence of such Debt will not result in a Rating Downgrade; (c)
Debt incurred to develop, construct, own, operate or acquire Permitted
Facilities in the Imperial Valley of California; provided that no such debt
may be incurred unless at the time of such incurrence (i) no Default or Event
of Default has occurred and is continuing and (ii) the Rating Agencies confirm
that the Securities will maintain an Investment Grade Rating after giving
effect to such Debt; (d) Debt incurred to finance the making of capital
improvements to the Salton Sea Projects, the Partnership Projects or
Additional Projects required to maintain compliance with applicable law or
anticipated changes therein; provided that no such Debt may be incurred unless
at the time of such incurrence the Independent Engineer confirms as reasonable
(i) a certification by the Funding Corporation (containing customary
qualifications) that the proposed capital improvements are reasonably expected
to enable such Project to comply with applicable or anticipated legal
requirements and (ii) the calculations of the Funding Corporation that
demonstrate, after giving effect to the incurrence of such Debt, the minimum
projected Debt Service Coverage Ratio (x) for the next four consecutive fiscal
quarters, commencing with the quarter in which such Debt is incurred, taken as
one annual period, and (y) for each subsequent fiscal year through the Final
Maturity Date, will not be less than 1.2 to 1; (e) Debt incurred to finance
the making of capital improvements to the Salton Sea Projects, the Partnership
Projects or Additional Projects not required by applicable law so long as
after giving effect to the incurrence of such Debt (i) no Default or Event of
Default has occurred and is continuing, and (ii) (A) the Independent Engineer
confirms as reasonable (x) the calculations of the Funding Corporation that
demonstrate that the minimum projected Debt Service Coverage Ratio for the
next four consecutive quarters, taken as one annual period, and each
subsequent fiscal year, will not be less than 1.4 to 1, and (y) the
calculations of the Funding Corporation that demonstrate that the average
projected Debt Service Coverage Ratio for all succeeding fiscal years until
the Final Maturity Date will not be less than 1.7 to 1 or (B) the Rating
Agencies confirm that the incurrence of such Debt will not result in a Rating
Downgrade; (f) Working Capital Debt in an aggregate amount not to exceed
$15,000,000, (g) Debt incurred under the Debt Service Reserve LOC
Reimbursement Agreement (or a replacement therefor on substantially similar
terms and amounts); (h) Debt incurred in connection with certain permitted
interest rate swap arrangements; (i) Debt
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incurred by the Funding Corporation in an aggregate amount not to exceed
$30,000,000, in connection with the development, construction, ownership,
operation, maintenance or acquisition of Permitted Facilities; (j)
Subordinated Debt from Affiliates in an aggregate amount not to exceed
$200,000,000, which shall be used to finance capital, operating or other
costs with respect to the Projects or Additional Projects; and (k) Debt
incurred to support a Working Capital Facility.
"PERMITTED FACILITY" means (i) an electric power or thermal energy
generation or cogeneration facility or related facilities (including residual
waste management and facilities that use thermal energy from a cogeneration
facility), and its or their related electric power transmission, fuel supply
and fuel transportation facilities, together with its or their related power
supply, thermal energy and fuel contracts and other facilities, services or
goods that are ancillary, incidental, necessary or reasonably related to the
marketing, development, construction, management, servicing, ownership or
operation of the foregoing, owned by a utility or otherwise, as well as other
contractual arrangements with customers, suppliers and contractors or (ii) any
infrastructure facilities related to (A) the treatment of water for municipal
and other uses, (B) the treatment and/or management of waste water, (C) the
treatment, management and/or remediation of waste, pollution and/or potential
pollutants and (D) any other process or environmental purpose.
"PERMITTED GUARANTOR DEBT" means (a) proceeds of Permitted Debt
loaned to Guarantors by the Funding Corporation, (b) guarantees by one or more
of the Guarantors of Permitted Debt, (c) the Guarantees and (d) the Project
Notes.
"PERMITTED INVESTMENTS" means investments in securities that are: (i)
direct obligations of the United States, or any agency thereof; (ii)
obligations fully guaranteed by the United States or any agency thereof; (iii)
certificates of deposit or bankers acceptances issued by commercial banks
(including the Trustee or any of its Affiliates) organized under the laws of
the United States or of any political subdivision thereof or under the laws of
Canada, Japan, Switzerland or any country that is a member of the European
Economic Community having a combined capital and surplus of at least $250
million and having long-term unsecured debt securities then rated "A" or
better by S&P or "A-2" or better by Moody's (but at the time of investment not
more than $25,000,000 may be invested in such certificates of deposit from any
one bank); (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (i) and (ii)
above, entered into with any financial institution meeting the qualifications
specified in clause (iii) above; (v) open market commercial paper of any
corporation incorporated or doing business under the laws of the United States
or of any political subdivision thereof having a rating of at least "A-1" from
S&P and "P-1" from Moody's (but at the time of investment not more than
$25,000,000 may be invested in such commercial paper from any one company);
(vi) 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) or (vii)
investments in money market funds or money market mutual funds sponsored by
any securities broker dealer of recognized national standing (or an Affiliate
thereof), having an investment policy that requires substantially all the
invested assets of such fund to be invested in investments described in any
one or more of the foregoing clauses having a rating of "A" or better by S&P
or "A-2" or better by Moody's (including money market funds for which the
Depositary Agent in its individual capacity or any of its affiliates is
investment manager or adviser).
"PERMITTED LIEN" means, collectively, (i) Liens specifically
permitted, required by or created by, any Security Document; (ii) Liens to
secure Permitted Debt and Permitted Guarantor Debt (other than Subordinated
Debt); (iii) Liens for taxes, assessments or governmental charges which are
either not yet due or which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves are established in
accordance with GAAP; (iv) any exceptions to title which are contained in the
Title Policy delivered to the Collateral Agent; (v) Liens in connection with
workmen's compensation, unemployment insurance or other social security or
pension obligations; (vi) mechanic's, workmen's, materialmen's, supplier's,
construction or other like Liens arising in the ordinary course of business or
incident to the construction of the Salton Sea Expansion or any other
Permitted Facilities permitted to be developed or
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expanded under the Transaction Documents; (vii) servitudes, easements,
rights-of-way, restrictions, minor defects or irregularities in title and
such other encumbrances or charges against real property or interests
therein as are of a nature generally existing with respect to properties
of a similar character and which do not in any material way interfere in
any material way with the use thereof in the business of the Guarantors;
and (viii) other Liens incidental to the conduct of the Guarantors'
business or the ownership of properties and assets which were not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than vendor's liens for accounts payable in the ordinary
course of business), and which do not in the aggregate materially impair
the use thereof in the operation of their business.
"PERMITTED POWER CONTRACT BUY-OUT" means the termination of a Power
Purchase Agreement or the negotiated reduction of capacity and energy to be
sold under a Power Purchase Agreement other than pursuant to such agreement's
terms and the payment by SCE made in connection therewith.
"PERSON" means any individual, sole proprietorship, corporation,
partnership, joint venture, limited liability partnership, limited liability
corporation, trust, unincorporated association, institution, Governmental
Authority or any other entity.
"PH" means the negative logarithm of the effective hydrogen-ion
concentration or hydrogen-ion activity in gram equivalents per liter used in
expressing both acidity and alkalinity on a scale whose values run from 0 to
14 with 7 representing neutrality, numbers less than 7 increasing acidity and
numbers greater than 7 increasing alkalinity.
"PH MODIFICATION" means the construction of facilities to implement
the pH Modification Process at Salton Sea Units I and III.
"PH MODIFICATION PROCESS" means the proprietary process owned by
Unocal and licensed to Magma whereby the pH of liquid brine is reduced by
injection of a pH modification agent into the liquid brine. The pH
Modification Process results in decreased scaling and mineral buildup because
solids in the more acidic liquid brine remain in solution rather than
precipitating out, as occurs if the brine is untreated.
"POWER PURCHASE AGREEMENTS" means the Del Ranch PPA, the East Mesa
PPA, the Elmore PPA, the Leathers PPA, the Salton Sea Unit I PPA, the Salton
Sea Unit II PPA, the Salton Sea Unit III PPA, the Salton Sea Unit IV PPA and
the Vulcan PPA.
"PRINCIPAL FUND" means the fund of such name created under the
Depositary Agreement.
"PRINCIPAL PAYMENT DATE" when used with respect to (i) any Security
means the date on which all or a portion of the principal of such Security
becomes due and payable as provided therein or in the Indenture, whether on a
scheduled date for payment of principal at a Redemption Date, the Final
Maturity Date, a date of declaration of acceleration, or otherwise, (ii) any
Debt Service Reserve Bond means each May 30th and November 30th, commencing on
the first such date after the relevant conversion, and the date on which all
or a portion of the principal of such Debt Service Reserve Bond becomes due
and payable at redemption, the final maturity date or declaration of
acceleration, or otherwise or (iii) any Debt Service Reserve LOC Loan means
each regularly scheduled date on which principal is due and payable, as such
date may be established from time to time, commencing on the first such date
after the applicable drawing, and any date on which principal of such Debt
Service Reserve LOC Loan becomes due and payable at redemption, the final
maturity or declaration of acceleration, or otherwise.
"PROJECT" means the respective generating facility and
interconnection facilities, associated materials, equipment, structures and
systems required to produce electric power for sale.
"PROJECT COMPANIES" means, collectively, the Salton Sea Guarantors,
the Partnership Project Companies and East Mesa.
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"PROJECT DOCUMENTS" means, collectively, the Partnership Project
Documents, the Salton Sea Project Documents and the Magma Assignment Agreement.
"PROJECT NOTES" mean the Partnership Project Note, the Royalty Project
Note and the Salton Sea Project Note and any additional notes issued under the
Partnership Credit Agreement, the Royalty Credit Agreement or the Salton Sea
Credit Agreement.
"PROJECTIONS" means projections, adopted by Stone & Webster, of
annual revenues, expenses and debt service coverage for the Funding
Corporation and the Guarantors for the term of the Series D and Series E
Securities.
"PROJECTS" means, individually or collectively, the Del Ranch
Project, the East Mesa Project, the Elmore Project, the Leathers Project,
Salton Sea Unit I, Salton Sea Unit II, Salton Sea Unit III, Salton Sea Unit
IV, the Vulcan Project and any other power plant or power plants the
acquisition, construction, operation or maintenance of which is financed in
whole or in part with Permitted Debt.
"PROSPECTUS" means this document in its entirety.
"PUHCA" means the Public Utilities Holding Company Act of 1935, as
amended.
"PURCHASE AGREEMENT" means the Purchase Agreement, entered into on or
about the Closing Date, between the Initial Purchaser and the Funding
Corporation, providing for the sale of the Old Securities to the Initial
Purchaser.
"PURPA" means the Public Utility Power Regulatory Policies Act
of 1978.
"QF" or "QUALIFYING FACILITY" means a "small power production
facility" or a "qualifying cogeneration facility" in accordance with PURPA and
the rules and regulations of FERC under PURPA relating thereto.
"QUALIFIED INSTITUTIONAL BUYERS" means "qualified institutional
buyers" as defined in Rule 144A of the Securities Act.
"RATING" means the rating of the Securities by the Rating Agencies.
"RATING AGENCY" means any of Moody's and S&P.
"RATING DOWNGRADE" means a lowering by the Rating Agencies of the
then current credit ratings of the Securities.
"REDEMPTION DATE" means the date on which Funding Corporation redeems
or shall redeem any Securities in accordance with the Indenture.
"REDEMPTION FUND" means the fund of such name created under the
Depositary Agreement.
"REGISTERED INITIAL SECURITY" or "REGISTERED INITIAL SECURITIES"
means any of the Registered Series A Securities, the Registered Series B
Securities and the Registered Series C Securities, issued by the Funding
Corporation pursuant to the Initial Exchange Offer Prospectus.
"REGISTERED SERIES A SECURITY" or "REGISTERED SERIES A SECURITIES"
means any of the $232,750,000 6.69% Series A Senior Secured Notes due May 30,
2000, issued by the Funding Corporation pursuant to the Initial Exchange Offer
Prospectus.
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"REGISTERED SERIES B SECURITY" or "REGISTERED SERIES B SECURITIES"
means any of the $133,000,000 7.37% Series B Senior Secured Bonds due May 30,
2005, issued by the Funding Corporation pursuant to the Initial Exchange Offer
Prospectus.
"REGISTERED SERIES C SECURITY" or "REGISTERED SERIES C SECURITIES" means
any of the $109,250,000 7.84% Series C Senior Secured Bonds due May 30, 2010,
issued by the Funding Corporation pursuant to the Initial Exchange Offer
Prospectus.
"REGISTRATION RIGHTS AGREEMENT" means the Exchange and Registration
Rights Agreement dated, as of the Closing Date, between the Funding
Corporation and the Initial Purchaser for the benefit of the Holders of the
Old Securities.
"REGULATION S" means Regulation S under the Securities Act.
"REGULATION S GLOBAL SECURITY" means a single global security in
registered form for each series of Securities representing all or a portion of
such series of Securities sold in reliance on Regulation S under the
Securities Act.
"REGISTRATION STATEMENT" means the registration statement on Form
S-4, which includes all amendments, exhibits, annexes and schedules thereto,
pursuant to the Securities Act and the rules and regulations promulgated
thereunder, covering the New Securities.
"REIMBURSEMENT AGREEMENT EVENT OF DEFAULT" means an "Event of
Default" as defined in the Debt Service Reserve LOC Reimbursement Agreement.
"REQUIRED HOLDERS" means those Holders holding at least 50% in an
aggregate principal amount of the Outstanding Securities.
"REQUIRED SECURED PARTIES" means, at any time, Persons that at such
time hold at least 33 1/3 % of the Combined Exposure.
"RESOURCE DEVELOPMENT FEE" means the charge of such name payable
under each of the Elmore Easement and the Del Ranch Easement, which charge
amounts to 1% of the relevant Project's combined capacity and energy revenues
and .833% of the relevant Project's energy revenues.
"RESPONSIBLE OFFICER" means, with respect to knowledge of any default
under the Indenture or any of the Credit Agreements, the chief executive
officer, president, chief financial officer, general counsel, principal
accounting officer, treasurer, or any vice president of the Funding
Corporation or a Guarantor, as applicable, or other officer of such
corporation who in the normal performance of his or her operational duties
would have knowledge of the subject matter relating to such default.
"RESTRICTED PAYMENT" means, with respect to any Person, (i) the
declaration and payment of distributions, dividends or any other payment made
in cash, property, obligations or other securities, (ii) any payment of the
principal of or interest on any Subordinated Debt, or (iii) the making of any
loans or advances to any Affiliate (other than Permitted Debt); in each case
from cash, investments, securities or other funds from time to time in the
Distribution Suspense Fund or Distribution Fund.
"REVENUE FUND" means the fund of such name created under the
Depositary Agreement.
"ROYALTIES" means (i) with respect to the Royalty Guarantor, any and
all royalties received by Magma pursuant to the Partnership Easements and the
East Mesa Assignment and Security Agreement, in each case, to the extent not
otherwise required to be used for Operating and Maintenance Costs and (ii)
with respect to the Initial Partnership Guarantors, certain royalties, fees
and other payments received by VPC under the Brine Sales
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Agreement and by CEOC under the Leathers Agreements, Del Ranch Agreements and
Elmore Agreements to the extent not otherwise required to be used for (A)
Operating and Maintenance Costs or (B) pursuant to a Partnership Project
document or financing document.
"ROYALTY COLLATERAL" means (i) an assignment of all Royalties paid to of
the Royalty Guarantor which will be applied in accordance with the priorities of
payment established under the Depository Agreement, (ii) a collateral
assignment of certain material contracts of the Royalty Guarantor, (iii) a
pledge of the capital stock of the Royalty Guarantor, and (iv) a Lien on any
funds of the Royalty Guarantor on deposit under the Depositary Agreement.
"ROYALTY CREDIT AGREEMENT" means the Credit Agreement, dated as of
the Initial Closing Date, between Funding Corporation and the Royalty
Guarantor.
"ROYALTY DEED OF TRUST" means the Deed of Trust and Assignment of
Rents, dated as of the Initial Closing Date, by the Royalty Guarantor in favor
of the Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation.
"ROYALTY DOCUMENTS" means, collectively, the Leathers Easement, the
Del Ranch Easement, the Elmore Easement, and the East Mesa Assignment and
Security Agreement.
"ROYALTY GUARANTEE" means the Guarantee by the Royalty Guarantor in
favor of the Trustee and the Collateral Agent for the benefit of the Secured
Parties.
"ROYALTY GUARANTOR" means Salton Sea Royalty Company, a Delaware
corporation.
"ROYALTY PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated as
of the Initial Closing Date, by Magma and the Funding Corporation, pledging
the stock of the Royalty Guarantor, in favor of the Collateral Agent for the
benefit of the Secured Parties and the Funding Corporation.
"ROYALTY PROJECT NOTE" means the promissory note in the principal
amount of $75,000,000 issued by the Royalty Guarantor in favor of the Funding
Corporation under the Royalty Credit Agreement on the Initial Closing Date.
"ROYALTY SECURITY AGREEMENT" means the Security Agreement and
Assignment of Revenues, dated as of the Initial Closing Date, by the Royalty
Guarantor in favor of the Collateral Agent for the benefit of the Secured
Parties and the Funding Corporation.
"ROYALTY SECURITY DOCUMENTS" means the Royalty Deed of Trust, the
Royalty Security Agreement, the Royalty Pledge Agreement, and all other
Security Documents securing the obligations of the Royalty Guarantor under the
Royalty Guarantee and the Royalty Project Note.
"RULE 144A" means Rule 144A under the Securities Act.
"RULES" means the rules, regulations and procedures creating and
affecting DTC and its operations.
"S&P" means Standard & Poor's Rating Group, a corporation organized
and existing under the laws of the State of New York, its successors and
assigns.
"SALTON SEA ASA" means the Second Amended and Restated Administrative
Services Agreement, dated as of July 15, 1995, among Magma, SSPG, SSBP and
Fish Lake.
"SALTON SEA COLLATERAL" means (i) an assignment of all Salton Sea
Guarantor revenues which will be applied in accordance with the priorities of
payment established under the Depositary Agreement, (ii) a deed of
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<PAGE>
trust on substantially all of the assets of each of the Salton Sea Guarantors
and the Salton Sea Projects, (iii) a collateral assignment of certain material
contracts of each of the Salton Sea Guarantors, (iv) a pledge of the
partnership interests in the Salton Sea Guarantors, and (v) a Lien on the
Expansion Fund and any other funds of the Salton Sea Guarantors on deposit
under the Depositary Agreement.
"SALTON SEA COLLATERAL ASSIGNMENTS" means the Collateral Assignment
(IID Agreements), dated as of the Initial Closing Date, by SSPG in favor of the
Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation; the Collateral Assignment (SCE Agreements), dated as of the
Initial Closing Date, by SSPG in favor of the Collateral Agent for the benefit
of the Secured Parties and the Funding Corporation; and the Collateral
Assignment, dated as of the Closing Date, by SSBP, SSPG and Fish Lake in favor
of the Collateral Agent for the benefit of the Secured Parties and the Funding
Corporation.
"SALTON SEA CREDIT AGREEMENT" means the Credit Agreement, dated as of
the Initial Closing Date, between the Salton Sea Guarantors and the Funding
Corporation.
"SALTON SEA DEED OF TRUST" means the Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing, dated as of the Initial Closing
Date, by the Salton Sea Guarantors in favor of the Collateral Agent for the
benefit of the Secured Parties.
"SALTON SEA EXPANSION" means, collectively, (i) the construction of
Salton Sea Unit IV and (ii) the pH Modification.
"SALTON SEA GEOTHERMAL SALES CONTRACTS" means, collectively, the
Salton Sea Units I and II Geothermal Sales Contract, the Salton Sea Unit III
Geothermal Sales Contract and any similar geothermal sales contract among
SSBP, SSPG and Fish Lake, relating to Salton Sea Unit IV.
"SALTON SEA GUARANTEE" means the Guarantee, dated as of the Initial
Closing Date, by the Salton Sea Guarantors in favor of the Trustee and the
Collateral Agent for the benefit of the Secured Parties.
"SALTON SEA GUARANTORS" means SSPG, SSBP and Fish Lake.
"SALTON SEA O&M AGREEMENT" means the Second Amended and Restated
Operating and Maintenance Agreement, dated as of July 15, 1995, between the
Salton Sea Guarantors and CEOC.
"SALTON SEA PARTNERSHIP INTEREST PLEDGE AGREEMENTS" means (i) the
Partnership Interest Pledge Agreement, dated as of the Initial Closing Date,
by Magma and SSPC, pledging the partnership interests in SSBP, in favor of the
Collateral Agent for the benefit of the Secured Parties and Funding
Corporation, and (ii) the Partnership Interest Pledge Agreement, dated as of
the Initial Closing Date, by SSPC and SSBP, pledging the partnership interests
in SSPG, in favor of the Collateral Agent for the benefit of the Secured
Parties and Funding Corporation.
"SALTON SEA POWER COMPANY" means Salton Sea Power Company, a Nevada
corporation.
"SALTON SEA PROJECT DOCUMENTS" means the Engineering Services
Agreement, the Salton Sea Geothermal Sales Contracts, the Salton Sea O&M
Agreement, the Salton Sea Resource Easement, the Salton Sea Technology
Transfer Agreement, the Salton Sea ASA, the Salton Sea Unit I and Unit II
Ground Lease, the Salton Sea Unit III Ground Lease, the Salton Sea Unit I PPA,
the Salton Sea Unit II PPA, the Salton Sea Unit III PPA, the Salton Sea Unit
IV PPA, the SSBP Partnership Agreement, the SSPG Partnership Agreement, the
SSPG Unit III Transmission Service Agreement, the SSPG Unit II Transmission
Service Agreement, the Waste Disposal Agreement, the Salton Sea Unit IV
Transmission Service Agreement and any Additional Project Document entered
into with respect to the Salton Sea Projects.
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"SALTON SEA PROJECT NOTE" means the promissory note in the principal
amount of $325,000,000 issued by the Salton Sea Guarantors in favor of the
Funding Corporation under the Salton Sea Credit Agreement on the Initial
Closing Date.
"SALTON SEA PROJECTS" means, collectively, Salton Sea Unit I, Salton
Sea Unit II, Salton Sea Unit III and Salton Sea Unit IV.
"SALTON SEA RESOURCE EASEMENT" means the Amended and Restated
Easement Grant Deed and Agreement Regarding Rights for Geothermal Development,
dated as of February 23, 1994 between SSBP and Magma Land, as further amended.
"SALTON SEA SECURITY DOCUMENTS" means the Salton Sea Deed of Trust,
the Salton Sea Collateral Assignments, the Salton Sea Partnership Interest
Pledge Agreements, the Fish Lake Pledge Agreement, and all other Security
Documents securing the obligations of the Salton Sea Guarantors under the
Salton Sea Guarantee and the Salton Sea Project Note.
"SALTON SEA TECHNOLOGY TRANSFER AGREEMENT" means the Technology
Transfer Agreement, dated March 31, 1993, between SSBP, SSPG and Magma.
"SALTON SEA UNIT I" means the 10 MW nameplate geothermal power plant
100% owned by SSBP and SSPG, located in SSKGRA.
"SALTON SEA UNIT I PPA" means the Amended and Restated Power Purchase
Agreement, dated May 8, 1987, between SSPG and SCE.
"SALTON SEA UNIT II" means the 20 MW nameplate geothermal power plant
100% owned by SSBP and SSPG, located in the SSKGRA.
"SALTON SEA UNIT II PPA" means the Power Purchase Agreement, dated
April 16, 1985, between SSPG and SCE.
"SALTON SEA UNIT III" means the 50 MW contract nameplate geothermal
power plant 100% owned by SSBP and SSPG, located in the SSKGRA.
"SALTON SEA UNIT III GEOTHERMAL SALES CONTRACT" means the Geothermal
Sales Contract dated as of June 1, 1989, between SSBP and SSPG.
"SALTON SEA UNIT III GROUND LEASE" means the Ground Lease, dated
March 31, 1993, between SSBP, SSPG and Magma Land.
"SALTON SEA UNIT III PPA" means the Power Purchase Agreement, dated
April 16, 1985, between SCE and SSPG.
"SALTON SEA UNIT IV" means the geothermal power plant currently under
construction in the SSKGRA to be 100% owned by the Salton Sea Guarantors.
"SALTON SEA UNIT IV GEOTHERMAL SALES CONTRACT" means the Geothermal
Sales Contract, dated February 15, 1996, between SSBP and SSPG.
"SALTON SEA UNIT IV PPA" means the Consolidated, Amended and Restated
Power Purchase Agreement, dated November 29, 1994, among SCE, Fish Lake Power
and SSPG.
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"SALTON SEA UNITS I AND II GEOTHERMAL SALES CONTRACT" means the
Geothermal Sales Contract dated as of September 6, 1988, between SSBP and
SSPG.
"SALTON SEA UNITS I AND II GROUND LEASE" means the Salton Sea Units I
and II Ground Lease, dated November 24, 1993, between SSBP, SSPG and IID.
"SALTON SEA UNIT IV TRANSMISSION SERVICE AGREEMENT" means the
Transmission Service Agreement, dated as of July 14, 1995, among IID, SSPG and
Fish Lake.
"SAN FELIPE" means San Felipe Energy Company, a California corporation.
"SCE" means Southern California Edison Company, a California
corporation.
"SCE ELECTRIC SYSTEM INTEGRITY" means the operation of SCE's electric
system in a manner which is deemed to minimize the risk of injury to persons
and/or property consistent with California utility standards and good
engineering practice.
"SCE LITIGATION" means the Vulcan/BN Geothermal Power Co., et al. v.
Southern California Edison Co. case pending in the Superior Court for
Los Angeles, California.
"SDG&E" means San Diego Gas and Electric, a California corporation.
"SECURED OBLIGATIONS" means all indebtedness, liabilities and
obligations, of whatsoever nature and howsoever evidenced (including, but not
limited to, principal, interest, fees, reimbursement obligations, penalties,
indemnities and legal and other expenses, whether due after acceleration or
otherwise), to the Secured Parties, in each case, direct or indirect, primary
or secondary, fixed or contingent, now or hereafter arising.
"SECURED PARTIES" means the Trustee, the Collateral Agent, the
Depositary, the Debt Service Reserve LOC Provider, any party that becomes a
Permitted Counterparty under an Interest Rate Protection Agreement, any party
that becomes the Working Capital Facility Agent and any other Person that
becomes a Secured Party under any Financing Document.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY" or "SECURITIES" means any of the Initial Securities, the
Old Securities, the New Securities and any Additional Securities issued
pursuant to the Indenture.
"SECURITY DOCUMENTS" means, collectively, the Depositary Agreement,
the Funding Pledge Agreement, the Intercreditor Agreement, the Partnership
Security Documents, the Royalty Security Documents, the Salton Sea Security
Documents and any other document providing for any lien, pledge, encumbrance,
mortgage or security interest on any or all of the Collateral or Funding
Corporation Collateral.
"SENIOR DEBT" means all of the Permitted Debt of Funding Corporation
other than the Subordinated Debt.
"SENIOR ROYALTY" is the payment owed to Magma by East Mesa pursuant
to the East Mesa Assignment and Security Agreement, as modified by the East
Mesa Master Agreement, which is paid prior to East Mesa's debt service, which
payment amounts to 4% of East Mesa's combined capacity and energy revenues.
"SERIES A SECURITY" means any Registered Series A Security or any
Unregistered Series A Security.
"SERIES B SECURITY" means any Registered Series B Security or any
Unregistered Series B Security.
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<PAGE>
"SERIES C SECURITY" means any Registered Series C Security or any
Unregistered Series C Security.
"SERIES D SECURITY" means any Old Series D Security or New Series D
Security.
"SERIES E SECURITY" means any Old Series E Security or New Series E
Security.
"SO4 AGREEMENT" means an Interim Standard Offer No. 4 long-term power
purchase agreement or a modified Interim Standard Offer No. 4 long-term power
purchase agreement.
"SSBP" means Salton Sea Brine Processing L.P, a California limited
partnership.
"SSBP PARTNERSHIP AGREEMENT" means the Limited Partnership Agreement,
dated March 31, 1993, between SSPC and Magma.
"SSKGRA" means the Salton Sea KGRA.
"SSPC" means Salton Sea Power Company, a Nevada corporation.
"SSPG" means Salton Sea Power Generation L.P., a California limited
partnership.
"SSPG PARTNERSHIP AGREEMENT" means the Limited Partnership Agreement,
dated March 31, 1993, between SSPC and SSBP.
"SSPG UNIT II TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement dated October 3, 1989 between SSPG and IID.
"SSPG UNIT III TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement dated August 2, 1988 between SSPG and IID.
"STANDARD OFFER NO. 1 CAPACITY PAYMENT SCHEDULE" means such schedule
as approved and published by CPUC from time to time.
"SUBORDINATED DEBT" means Debt (and the note or other instrument
evidencing the same) which has been subordinated, on terms and conditions
substantially the same as those permitted under the Indenture, to the prior
payment of amounts owing under the Indenture and the Securities.
"SUBSTANTIAL COMPLETION" occurs upon the Funding Corporation's
determination that (i) the Salton Sea Expansion (including, without
limitation, the pH Modification) is substantially complete in accordance with
the construction contracts and all applicable laws and permits, (ii) all
services and equipment required to be furnished by the contractors are
substantially completed and all material equipment has been delivered and
properly incorporated, (iii) all necessary performance and start up testing
and other pre commissioning activities has been conducted, (iv) a punchlist of
items to be finished or completed has been prepared, and (v) all events
necessary to allow Commercial Operation to be declared have been met.
"SUPPORT LETTER" means the letter agreement, dated as of the Initial
Closing Date, among Magma, the Funding Corporation and the Initial Guarantors.
"TDS" means total dissolved solids.
"TIC" means The Industrial Company.
"TITLE EVENT" means the existence of any defect of title or lien or
encumbrance on a Salton Sea Project or a Partnership Project (in each case,
other than certain permitted liens) in effect on the Initial Closing Date or
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<PAGE>
the Closing Date, as applicable, that entitles the Collateral Agent to make a
claim under the policy or policies of title insurance required pursuant to the
Financing Documents.
"TITLE EVENT PROCEEDS" means all amounts and proceeds (including
instruments) in respect of any Title Event.
"TITLE POLICY" means the policy or policies of title insurance
required pursuant to the Credit Agreements.
"TRANSACTION DOCUMENTS" means the Project Documents and the Financing
Documents.
"TRANSMISSION SERVICE AGREEMENTS" means, collectively, the Del Ranch
Transmission Service Agreement, the Elmore Transmission Service Agreement, the
Leathers Transmission Service Agreement, the Vulcan Transmission Service
Agreement, the SSPG Unit II Transmission Service Agreement and the SSPG Unit
III Transmission Service Agreement and the Salton Sea Unit IV Transmission
Service Agreement.
"TRIGGER EVENT" means (i) an "Event of Default" under the Indenture
and an acceleration of all or a portion of the indebtedness issued thereunder,
(ii) an "Event of Default" under the Debt Service Reserve LOC Reimbursement
Agreement and an acceleration of the indebtedness incurred thereunder, (iii)
an "Event of Default" under a Senior Debt instrument and an acceleration of
all or a portion of the Debt issued thereunder in an aggregate principal
amount in excess of $10,000,000 and (iv) certain Guarantee Events of Default
under the Salton Sea Guarantee, the Partnership Guarantee or the Royalty
Guarantee; and, in each case, the Collateral Agent shall have, upon direction
from the Required Secured Parties, declared such event to be a Trigger Event.
"TRUSTEE" means Chemical Trust Company of California, as trustee
under the Indenture, together with its successors and assigns.
"UNCONTROLLABLE FORCE," with respect to any Power Purchase Agreement,
means any occurrence beyond the control of a party which causes that party to
be unable to perform its obligations under the relevant agreement and which a
party has been unable to overcome by the exercise of due diligence, including
but not limited to flood, drought, earthquake, storm, fire, pestilence,
lightning and other natural catastrophes, epidemic, war, riot, civil
disturbance or disobedience, strike, labor dispute, action or inaction of
government or other proper authority which may conflict with the terms of the
agreement, or failure, threat of failure or sabotage of facilities which have
been maintained in accordance with good engineering and operating practices in
California. The failure of the interconnecting utility to deliver electrical
energy generated by a Project to the point of interconnection is not
considered an Uncontrollable Force under the relevant Power Purchase
Agreement.
"UNOCAL" means Union Oil Company of California, a California
corporation.
"UNREGISTERED INITIAL SECURITY" or "UNREGISTERED INITIAL SECURITIES"
means any of the Unregistered Series A Securities, Unregistered Series B
Securities and Unregistered Series C Securities, initially issued by the
Funding Corporation to CS First Boston and Lehman Brothers Inc., as initial
purchasers in the Initial Offering.
"UNREGISTERED SERIES A SECURITY" or "UNREGISTERED SERIES A
SECURITIES" means any of the $232,750,000 6.69% Series A Senior Secured Notes
due May 30, 2000, initially issued by the Funding Corporation to the initial
purchasers in the Initial Offering.
"UNREGISTERED SERIES B SECURITY" or "UNREGISTERED SERIES B
SECURITIES" means any of the $133,000,000 7.37% Series B Senior Secured Bonds
due May 30, 2005, initially issued by the Funding Corporation to the initial
purchasers in the Initial Offering.
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"UNREGISTERED SERIES C SECURITY" or "UNREGISTERED SERIES C
SECURITIES" means any of the $109,250,000 7.84% Series C Senior Secured Bonds
due May 30, 2010, initially issued by the Funding Corporation to the initial
purchasers in the Initial Offering.
"VPC" means Vulcan Power Company, a Nevada corporation.
"VULCAN AGREEMENTS" means, collectively, the Brine Sales Agreement,
the Vulcan Transmission Service Agreement, the Vulcan Construction, Operating
and Accounting Agreement, the Vulcan Partnership Agreement, the Vulcan PPA and
any Additional Project Document entered into by VPC or Vulcan with respect to
the Vulcan Project.
"VULCAN" means Vulcan/BN Geothermal Power Company, a Nevada general
partnership.
"VULCAN CONSTRUCTION, OPERATING AND ACCOUNTING AGREEMENT" means the
Construction, Operating and Accounting Agreement dated as of August 30, 1985,
as amended as of June 17, 1996, between VPC and Vulcan.
"VULCAN PARTNERSHIP AGREEMENT" means the Partnership Agreement, dated
as of August 30, 1985, as amended as of December 15, 1988, between VPC and
BNG.
"VULCAN PPA" means the Long Term Power Purchase Agreement, dated
March 1, 1984, as amended, between SCE and Vulcan, as successor to Magma
Electric Company, a Nevada corporation.
"VULCAN PROJECT" means the 34 MW contract nameplate geothermal power
plant 50% owned by VPC, located in the SSKGRA.
"VULCAN TRANSMISSION SERVICE AGREEMENT" means the Transmission
Service Agreement, dated as of December 1, 1988, between VPC and IID.
"WASTE DISPOSAL AGREEMENT" means the Second Amended and Restated
Waste Disposal Agreement, dated as of July 15, 1995, among SSBP, SSPG, Fish
Lake and DVC.
"WORKING CAPITAL DEBT" means the working capital loans provided under
the Working Capital Facility in an aggregate principal amount not to exceed
$15,000,000.
"WORKING CAPITAL FACILITY" means any agreement or agreements from
time to time in effect among Funding Corporation and banks providing for the
availability of working capital loans to the Funding Corporation and the
Guarantors.
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APPENDIX B
INDEPENDENT ENGINEER'S REPORT
ANALYSIS OF SALTON SEA GUARANTORS, PARTNERSHIP GUARANTORS
AND ROYALTY GUARANTOR
PREPARED FOR
SALTON SEA FUNDING CORPORATION
JUNE 17, 1996
COPYRIGHT 1996
STONE & WEBSTER ENGINEERING CORPORATION
DENVER, COLORADO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
<S> <C> <C>
1.0 Executive Summary and Conclusions .......................... B-1
1.1 Executive Summary .......................................... B-1
1.2 Scope of Work .............................................. B-3
1.3 Conclusions ................................................ B-3
2.0 Project Overview ........................................... B-4
2.1 General Description of Magma Projects and Processes ....... B-4
2.2 Management and Organization ................................ B-5
2.3 Salton Sea Projects ........................................ B-5
2.4 Partnership Projects ....................................... B-6
2.5 Royalty Projects ........................................... B-7
3.0 Salton Sea Expansion ....................................... B-8
3.1 Capacity Expansion ......................................... B-8
3.2 pH Modification Process .................................... B-8
4.0 Project Operations ......................................... B-9
4.1 Salton Sea Projects ........................................ B-10
4.2 Partnership Projects ....................................... B-11
5.0 Project Contracts .......................................... B-13
5.1 Power Purchase Agreements and Related Agreements .......... B-13
5.2 Geothermal Sales Contracts ................................. B-17
5.3 Solids Disposal Agreements ................................. B-18
5.4 Operating and Maintenance and Administration Agreements ... B-18
6.0 Funding Corporation Affiliates and Participants ........... B-19
6.1 CalEnergy Company, Inc. (CalEnergy) ........................ B-19
6.2 Magma Power Company (Magma) ................................ B-20
6.3 Southern California Edison (SCE) ........................... B-20
7.0 Permitting and Environmental ............................... B-20
7.1 Operating Plants ........................................... B-20
7.2 Salton Sea Expansion ....................................... B-20
8.0 Assessment of Financial Projections ........................ B-20
8.1 Base Case Assumptions ...................................... B-20
8.2 Base Case Financial Projections ............................ B-21
8.3 Sensitivity Analysis ....................................... B-25
</TABLE>
i
<PAGE>
ATTACHMENTS
<TABLE>
<CAPTION>
NO. TITLE
--- -----
<S> <C>
1 Assumptions and Documents Reviewed
2 Financial Projections
</TABLE>
ii
<PAGE>
SECTION 1.0
EXECUTIVE SUMMARY AND CONCLUSIONS
1.1 EXECUTIVE SUMMARY
Presented herein are the review and analyses (the Report) by Stone &
Webster Engineering Corporation (Stone & Webster) for the proposed issuance
of securities by Salton Sea Funding Corporation (Funding Corporation or
Company). Magma Power Company (Magma), a wholly owned subsidiary of CalEnergy
Company, Inc. (CalEnergy), has established Funding Corporation to issue notes
and bonds to investors guaranteed by, and to make loans to, each of the
Salton Sea Guarantors, the Partnership Guarantors, and the Royalty Guarantor
(Guarantors) secured by assets relating to eight operating power plants
consisting of the following:
o The Salton Sea Units I, II, III and IV (Salton Sea Projects, or
Region I),
o The Vulcan, Del Ranch, Elmore, and Leathers Projects (the
Partnership Projects, or Regions II and III), and
o Royalty and other payments received through Magma, Vulcan Power
Company, and CalEnergy Operating Company (CEOC) from the Vulcan,
Del Ranch, Elmore, Leathers, and East Mesa Projects (the Royalty
Projects). The Salton Sea Projects, Partnership Projects and the
Royalty Projects are collectively referred to herein as the
Projects.
The Salton Sea Units I, II and III are owned by Salton Sea Power
Generation L.P. (SSPG) and purchase geothermal brine and steam from Salton
Sea Brine Processing L.P. (SSBP). SSPG and Fish Lake Power Company (FLPC) are
owners of the Salton Sea Unit IV Project. SSPG, SSBP and FLPC are referred to
collectively as the "Salton Sea Guarantors." Magma owns a 99 percent limited
partnership interest in SSBP and the Salton Sea Power Company (SSPC) owns a
one percent general partnership interest in each of SSBP and SSPG. SSBP owns
a 99 percent limited partnership interest in SSPG.
The Partnership Guarantors are Vulcan Power Company, CEOC, Vulcan/BN
Geothermal Power Company, Elmore L.P., Leathers L.P., Del Ranch L.P., BN
Geothermal Inc., Niguel Energy Company (Niguel), San Felipe Energy Company
(San Felipe) and Conejo Energy Company (Conejo). Vulcan Power Company is 99
percent owned by Magma and 1 percent owned by the Funding Corporation and
together with its wholly owned subsidiary BN Geothermal Power Company, own
100% of the partnership interest in Vulcan/BN Geothermal Power Company (the
Vulcan Project). CEOC which is 99 percent owned by Magma and 1 percent owned
by Funding Corporation, together with its wholly-owned subsidiaries, Niguel,
San Felipe, and Conejo collectively own 90% of the partnership interests in
each of Elmore L.P. (the Elmore Project), Leathers L.P. (the Leathers
Project), and Del Ranch L.P. (the Del Ranch Project). Magma owns all of the
remaining 10 percent partnership interests in each of Elmore, Leathers and
Del Ranch.
Salton Sea Royalty Company, the Royalty Guarantor, is 99 percent owned by
Magma and 1 percent owned by the Funding Corporation. The Royalty Guarantor
will receive royalties and other payments from each of the Royalty Projects,
except Vulcan.
Funding Corporation intends to issue $135 million of senior secured notes
and bonds (Securities). The net proceeds of the Securities will be used to
(i) refinance all existing project-level indebtedness of the Partnership
Projects, (ii) fund certain capital improvements to the Partnership Projects,
and (iii) fund a portion of the purchase price for the recent acquisition by
the Initial Guarantors of the 50% interest in each of the Partnership
Projects previously owned by a third party.
The Salton Sea Projects and the Partnership Projects are located in
Imperial County, California in the Salton Sea area and sell power to Southern
California Edison Company (SCE) in accordance with power purchase contracts
and related agreements for transmission system interconnection (see Project
Contracts). A map showing the location of the Salton Sea and Partnership
Projects is provided in Figure 1-1 and an overview of the Projects is
presented in Table 1-1. The pH modification plan (pH Modification),
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<PAGE>
which was recently completed as part of the Salton Sea Expansion, enables
Magma to reduce operating and maintenance costs and increase unit
availability at the Salton Sea Projects. Dow Engineering Company (Dow) is the
engineering, procurement, and construction management contractor for the
Salton Sea Expansion. The Salton Sea Expansion is nearly complete. The 30-day
reliability test commenced on May 24, 1996, and the 24-hour capacity test was
completed on June 6, 1996. The Salton Sea Projects and Partnership Projects
are operated by CEOC and have been in commercial operation for several years
using brine purchased in accordance with certain geothermal sales contracts.
The Salton Sea Projects were originally developed, owned, and operated by
Union Oil Company of California (Unocal) and were commissioned in 1982, 1990,
and 1989 respectively.
The Salton Sea Expansion includes a new Salton Sea Unit IV which enables
Magma to sell an additional 39.6 MW of power to SCE under a 30 year power
purchase agreement (Salton Sea Unit IV PPA).
The commercial operation dates for the Partnership Projects range from
1986 to 1990. The Partnership Projects pay royalties to third parties that
own interests in the geothermal resources for the Partnership Projects and to
Magma. Magma also receives royalty revenues from the East Mesa Project.
Royalty payments are based on each Project's revenues.
TABLE 1-1
OVERVIEW OF THE PROJECTS TABLE 1-1
<TABLE>
<CAPTION>
FACILITY NET
NET OWNERSHIP YEARS OF
CAPACITY INTEREST COMMERCIAL CONTRACT CONTRACT POWER
(IN MW) (IN MW) OPERATION EXPIRATION TYPE PURCHASE
---------- ----------- ------------ --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
SALTON SEA PROJECTS
Salton Sea I ........ 10 10 9 6/2017 Negotiated SCE
Salton Sea II ....... 20 20 6 4/2020 SO4 SCE
Salton Sea III ...... 49.8 49.8 7 2/2019 SO4 SCE
Salton Sea IV ....... 39.6 39.6 0 (est.)6/2026 Negotiated SCE
---------- -----------
Subtotal ......... 119.4 119.4
PARTNERSHIP PROJECTS
Elmore .............. 38 38 7 12/2018 SO4 SCE
Del Ranch ........... 38 38 7 12/2018 SO4 SCE
Leathers ............ 38 38 6 12/2019 SO4 SCE
Vulcan .............. 34 34 10 2/2016 SO4 SCE
---------- -----------
Subtotal ......... 148 148
THIRD PARTY ROYALTY CO+30 SO4 SCE
East Mesa ........... 37 0 7
---------- -----------
Total ............... 304.4 267.4
========== ===========
</TABLE>
B-2
<PAGE>
1.2 SCOPE OF WORK
Stone & Webster has reviewed certain technical, environmental and economic
aspects of the Projects as listed below:
o Status of environmental permitting and compliance
o Plant design
o Plant performance
o Operations and maintenance
o Financial projections
o Plant management
o Contracts
o Salton Sea Expansion construction and performance
Stone & Webster conducted this analysis and prepared this report utilizing
reasonable care and skill in applying methods of analysis consistent with
normal industry practice. In the preparation of this report and the opinions
expressed, Stone & Webster has made certain assumptions with respect to
conditions which may exist or events which may occur in the future.
Assumptions and documentation relied upon by Stone & Webster in the
preparation of this report are provided in Attachment 1.
1.3 CONCLUSIONS
Based on our review of generally available information and additional
information presented by Funding Corporation, we have reached the following
conclusions:
Operations and Performance
o The Projects use commercially proven technology and are operated in
accordance with recognized utility industry practices.
o The Projects can be expected to operate commercially beyond the
final maturity of the Securities.
o Principal project participants possess the necessary experience to
successfully fulfill their project obligations.
o Operating plant capacity factors used in the Projections are
reasonable based on actual performance for the operating years
commencing in 1991.
o The Salton Sea Projects and Partnership Projects should continue to
operate in accordance with all relevant current permit conditions
and environmental laws.
Financial Projections
o Stone & Webster's economic/financial analysis reasonably represents
projected performance. The assumptions underlying the
economic/financial model are reasonable, and the projected
operating results reasonably represent the future financial
profile.
o The projected operating and maintenance costs and capital
expenditures for major maintenance are reasonable and
representative of the planned operations of the Salton Sea and
Partnership Projects.
o Base case Projections indicate that revenues are adequate to pay
operations and maintenance expenses and provide sufficient cash
flow available for debt service with base case debt service
coverage ratios of 1.57 minimum and 2.04 average.
o The Projections remain stable across a wide range of sensitivities
and avoided cost assumptions.
B-3
<PAGE>
Salton Sea Expansion
o The recently completed Salton Sea Expansion technology is proven
and reliable.
o The Salton Sea Expansion meets expected performance criteria and
should comply with all applicable environmental regulations.
o All necessary discretionary permit approvals were obtained for the
completion of the Salton Sea Expansion.
o The pH Modification technology is proven and reliable. It has been
installed and has operated successfully for six years at Salton Sea
Unit II and is operating successfully at the Region I plants. As
proven by the operating history at Salton Sea Unit II, the pH
Modification program as installed should increase availability and
decrease costs consistent with assumptions in the Projections.
Project Contracts
o Major project contracts for the Salton Sea Projects and Partnership
Projects, including power purchase agreements and related contracts
for transmission system interconnection appear reasonable from a
technical perspective and are consistent with the Projections.
o Power purchase agreements and transmission contract terms extend
well beyond the term of the Securities.
SECTION 2.0
PROJECT OVERVIEW
2.1 GENERAL DESCRIPTION OF MAGMA PROJECTS AND PROCESSES
The Salton Sea and Partnership Projects are located in the Salton Sea
Known Geothermal Resource Area (SSKGRA) and are within a central radius of
approximately five miles. A map showing plant locations is provided in Figure
1-1.
Hot brine from a geothermal resource is flashed into high pressure,
standard pressure, and low pressure steam which is expanded through steam
turbine generators to produce electric power. The steam is condensed and then
used for cooling tower make-up. Excess condensate is injected back into the
geothermal reservoir. Noncondensible gases are removed from the condenser and
dispersed to the atmosphere through the cooling tower plume. Brine from the
steam flash process is further processed to remove solids or maintain them in
solution and is injected back into the geothermal reservoir. The Salton Sea
and Partnership Projects employ proven geothermal resource flash technology
which has been commercially operated worldwide for over 30 years.
Plant design and operation are affected by the geothermal resource which,
in the SSKGRA, is relatively high in solids content at approximately 250,000
to 300,000 parts per million. With the exception of the Region I plants, the
operating plants utilize the crystallizer reactor clarifier (CRC) process to
control scaling and to remove solids. The majority of the solids are disposed
of in a landfill and the remainder are recycled to the crystallizers to
promote crystal growth ("seeding") to control scaling on vessel walls. The
Region I Plants utilize the pH Modification resource production process to
control scaling. This process involves injection of a pH modification agent
into the liquid brine resource to maintain solids in solution so that the
brine may be injected directly into the reservoir without removal of the
solids.
Noncondensable gases from the Salton Sea and Partnership Projects are
removed from the condensers for efficient power generation and turbine
operation using a combination of steam jet ejectors and vacuum pumps. Systems
for abatement of hydrogen sulfide present in the noncondensable gases have
not been required for the Salton Sea and Partnership Projects since ambient
hydrogen sulfide
B-4
<PAGE>
concentrations are at acceptable levels. However, due to additional resource
required by the Salton Sea Expansion, the Authority to Construct Permits
require hydrogen sulfide abatement systems for Salton Sea Units I, II, III
and IV which were installed as part of the Salton Sea Expansion. The
technology for such abatement systems is proven and reliable.
The cooling systems for all operating projects consist of surface
condensers and wet mechanical draft cooling towers. Balance-of-plant systems
are provided to support each operating plant. The necessary fire protection
systems are provided, including cooling tower wetdown systems which keep the
tower wet during shutdown periods, and fire monitors which are provided at
grade around the perimeter of each tower. Brine is injected into the
reservoir with injection pumps after solids processing. Brine ponds are
provided at each plant for temporary storage of brine during startup/shutdown
periods and for emergency use, with the exception of Salton Sea IV, which
uses an abandoned clarifier tank at Salton Sea III for temporary brine
storage. Standby diesel generators are available to support plant safety
systems during shutdowns.
2.2 MANAGEMENT AND ORGANIZATION
A Manager of Operations is responsible for the overall operation of the
Salton Sea Projects and the Partnership Projects. The Salton Sea Projects
have an Operations Supervisor, a lab technician administratively reporting to
the Central Lab but on-site full time, and a secretary. There are two sets of
four operating crews, one set operating Salton Sea Units I and II, and one
set operating Salton Sea Units III and IV. Each set consists of four rotating
shifts comprised of a Control Operator and three plant outside operators. A
reduction in total plant operating personnel for these plants will occur by
the end of 1996 as a result of the Salton Sea Expansion Project.
Maintenance for the four units comprising the Salton Sea Projects is
performed by the Central Maintenance department. A maintenance supervisor is
responsible for coordinating all maintenance activities at those units. These
organizations and staffings are typical of efficiently operated plants of
these types.
All of the plants utilize the same organizational structure. There is an
ongoing effort to standardize plant staffing and operations. As part of this
plan, maintenance and spare parts were optimized in April 1995 to reduce
cost.
Stone & Webster considers the overall operating and maintenance
organization adequate to support operation of the Salton Sea and Partnership
Projects. The regional concept appears to be effective and should continue to
provide operating and maintenance cost reductions. The Computerized
Maintenance Management System (CMMS), implemented in 1995, allowed work order
control and inventory control to be further optimized resulting in reduced
costs.
2.3 SALTON SEA PROJECTS
All Salton Sea plants operate with steam produced by the pH Modification
process (see Section 3.2). Salton Sea Unit I has been in service since 1982.
Power generation equipment consists of a 10 MW Fuji steam turbine operating
with standard pressure (SP) steam. The generation voltage of 13.8 kV is
stepped up to 34.5 kV providing electrical power to SCE.
Salton Sea Unit II was placed in service in 1990. A total of three steam
turbines produce electrical power. A 4 MW Rotoflow turbine utilizes HP steam
and exhausts to the SP steam header. In addition, an 11 MW Mitsubishi turbine
operates on SP steam, and a 5 MW steam turbine utilizes LP steam from an LP
extraction point on the Salton Sea IV turbine. The Mitsubishi
turbine-generator produces electrical power at 4160 volts which is stepped-up
to 13.8 kV; the other generators produce power at 13.8 kV. One transformer
steps-up power from these three generators to 92 kV for transmission by the
Imperial Irrigation District (IID) to the Rancho Mirage substation for sale
to SCE.
Salton Sea Unit III is a 49.8 MW plant with a Mitsubishi turbine that
operates on SP and LP steam. The turbine is a 5-stage, dual flow, condensing
turbine. Three stages of steam jet air ejectors remove noncondensible gases
from the steam. Operational flexibility is provided by steam jet air ejector
trains
B-5
<PAGE>
used to respond to varying non-condensible gas content. Commercial operation
was declared on February 14, 1989. Power is stepped up to 92 kV for
transmission by the IID to the Rancho Mirage substation for sale to SCE.
Salton Sea Unit IV is a 39.6 MW plant with a General Electric turbine that
operates on HP steam. This unit is a single inlet, dual extraction turbine
that provides SP and LP steam to Units I, II, and III. The power from Unit IV
is transmitted by the IID to Rancho Mirage substation for sale to SCE.
Start-up testing to establish capacity and the firm operation date began on
May 24, 1996.
Salton Sea Units I, II, III, and IV are managed by a Region Supervisor.
The operations programs include safety, training, and operating procedures.
Maintenance programs include a CMMS, training, and spare parts inventory
control.
Safety
CEOC, the Operator of the Salton Sea Projects and the Vulcan, Del Ranch,
Elmore, and Leathers Projects, has an established safety program based on a
corporate safety manual. Several safety procedures were reviewed and found to
be consistent with general industry practices. CEOC utilizes a "Safe Work
Permit" that must be obtained by maintenance personnel prior to starting any
work and a plant lockout/tagout procedure for isolating systems for
maintenance and personnel protection.
Training
The Salton Sea Projects have a comprehensive training and operator
certification program. There are four classifications of operators: 1, 2, 3,
and control operator. Each classification has a Certification Manual. The
manual, tests, and information are developed according to the organizational
structure of the individual plant. The program includes tests conducted by a
training department and plant walk-through test conducted by the Training
Review Board. In Stone & Webster's opinion, the program is generally better
than that found in most plants.
Operating Procedures
Operating Procedures are in place for the Salton Sea Projects. They
included step-by-step methods for startup, normal operation, and shutdown of
the Projects. Stone & Webster's review determined that the operating
procedures were satisfactory.
Maintenance Programs
Maintenance at each plant is supervised by a Maintenance Supervisor. The
maintenance is performed by the centralized maintenance shop. The Salton Sea
Projects have already begun using the CMMS which is improving management of
plant maintenance activities.
Stone & Webster's review of the plants during a site walk-through found
the plants to be well maintained. Plant personnel indicated that spare parts
were available when required. Spare parts tracing is further improved with
the CMMS.
Salton Sea Units I and II are located adjacent to the Salton Sea; the
shoreline has appropriate dikes and levies (installed and maintained jointly
by the project operating company and the Imperial Irrigation District) to
protect these units from increases in the Salton Sea water level. The dikes
are adequately maintained. Salton Sea Units III and IV are located
approximately 0.5 miles from the Salton Sea.
2.4 PARTNERSHIP PROJECTS
The Vulcan Project was commissioned in February 1986. An HP and LP turbine
generate electrical power for transmission to SCE via IID lines.
Noncondensible gases are directed to the cooling tower using two stages of
steam jet air ejectors and one vacuum pump. Each of these components has at
least one spare. A standby diesel generator is available to provide emergency
power. Solids precipitated from the CRC process are monitored for metals
concentrations and hauled by truck to a permitted landfill. Covered storage
on a concrete slab is provided on-site.
B-6
<PAGE>
Electrical power is generated at 14.4 kV and is transmitted to SCE over
92 kV IID lines. The Del Ranch and the Vulcan Projects are connected via an
electrical tie-line.
The Vulcan Project operating and maintenance programs, safety program,
training program, and operating procedures are similar to those programs and
procedures in place at the Salton Sea Projects. There is an ongoing effort to
centralize and optimize all plant spare parts and control inventory with the
CMMS. Consumable spares such as pipe fittings, nuts and bolts are currently
stored on-site. Plans to implement centralized spare parts storage are in
progress which should result in significant cost savings.
Outage planning for major overhauls is performed by central maintenance
and operations under the direction of a major overhaul project planner. Major
overhauls are scheduled every two years with mini-outages (three to five
days) scheduled each spring in preparation for the summer peak runs.
Specialized maintenance such as electrical protective relay calibration is
done by local contractors. The plant operates reliably primarily as a result
of this preventative maintenance program and overhaul scheduling practice.
The Del Ranch Project achieved commercial operation in October 1988. The
plant is very similar to the Vulcan Project. A dual pressure 9 stage Fuji
turbine produces electrical power for transmission to SCE via IID. A heat
recovery system is employed in the steam production cycle which utilizes
steam from the initial flash of the resource as the heat source to a reboiler
which, in turn, produces clean HP steam from condensate. This clean HP steam
is combined with HP steam from the HP crystallizer and is directed to the
turbine. LP steam is also produced from the LP crystallizer. Steam scrubbers
are used for both the HP and the LP steam supplies to the turbine to ensure a
clean, dry supply of steam. Noncondensible gases are removed from the
condenser by one steam jet air ejector followed by a vacuum pump and are
dispersed to the atmosphere by the cooling tower plume. Spare non-condensible
gas removal equipment is available. Solids are handled in a similar manner to
the Vulcan Project. One 480 volt and one 4160 volt diesel generator are
available to provide emergency power and black start capabilities.
Stone & Webster reviewed the safety program, training program, operating
procedures, and maintenance programs and found them to be similar to those
implemented at the Vulcan Project.
Commercial operation was achieved at the Elmore Project in December 1988
and at the Leathers Project in January 1990. These two plants are identical
in all major design respects to the Del Ranch Project, including the main
turbine. Three spare turbine rotors and two spare sets of diaphragms are
stored for the Del Ranch, Elmore, and Leathers Projects.
The safety programs, training programs, and operating procedures at both
plants are also similar to the Salton Sea Projects. Stone & Webster considers
these programs satisfactory and supportive of prudent plant operations.
The Elmore Project is the first of the Partnership Projects to use a
computer based system for preventative and routine maintenance planning. This
system and knowledge base are now utilized by all plants providing for
increased efficiency and resource utilization resulting in reduced costs.
2.5 ROYALTY PROJECTS
Magma receives royalties, fees and other payments ("Royalties") from the
Leathers, Del Ranch and Elmore Projects based on a percentage of each
project's annual revenue, which have been assigned to the Royalty Guarantor.
Total Royalties from these Partnership Projects payable to the Royalty
Guarantor annually are projected to be $43,775,000 in 1996 increasing to
$48,960,000 in 1999. Thereafter Royalties are projected to step-down as
revenues from the three Partnership Projects experience avoided cost pricing.
The Royalties from the Leathers, Del Ranch and Elmore Projects are included
in the Projections.
Magma also receives Royalties based on a percentage of revenue from the
East Mesa Project. Royalties from the East Mesa Project paid to Magma
annually are projected to be $1,229,000 in 1996 increasing to $1,465,000 in
1998. Thereafter Royalties are projected to step-down as variable energy
revenues from the East Mesa Project experience avoided cost pricing.
B-7
<PAGE>
SECTION 3.0
SALTON SEA EXPANSION
3.1 CAPACITY EXPANSION
A new steam turbine generator was recently installed near the Salton Sea
Unit III site to provide additional capacity of 39.6 MW pursuant to the
combined Salton Sea Unit IV PPA. The new steam turbine generator is located
near the Salton Sea Unit III site in order to optimize the capacity expansion
design. The capacity expansion design is based on the use of HP, SP, and LP
steam for electrical power production. In addition to the installation of new
steam and brine process equipment, piping, wells, and power generation
equipment, the capacity expansion involved modification of existing steam and
brine processing equipment, piping, and control systems at Salton Sea Units
I, II, and III and interconnection of various steam lines.
Three new resource wells, three new brine injection wells, and associated
piping were installed to provide additional HP and SP steam and brine
injection capability to support the installation of the new turbine
generator. Modifications to existing steam and brine injection systems at
Salton Sea Units I, II, and III were made to provide two HP and SP steam
processing and brine injection trains that were designed to accommodate pH
Modification of the brine prior to injection back into the geothermal
resource. The pH Modification process is described in Section 3.2.
The pH Modification process was installed in conjunction with the capacity
expansion and together required the installation of the following major
equipment and systems:
o New steam plant including a 47.5 MW gross steam turbine generator,
cooling tower, condenser, pumps, air ejector system, hydrogen
sulfide abatement system, and associated piping and valves.
o Electrical interconnection equipment including a new transformer,
switchgear building, and electrical switchyard.
o Three new resource wells, three new brine injection wells, pumps,
and associated piping, and separator vessels.
o Corrosion resistant piping, tanks, pumps, and injection system for
brine pH Modification.
o Instrumentation and control systems.
o Equipment foundations and process piping.
Performance data for the capacity expansion was reviewed to ensure that
contract capacity can be achieved given adequate geothermal resource. The
results support the capacity levels used in the Projections.
Train 1 consists of a new resource well and associated piping, the three
existing HP steam separator vessels and a new SP steam separator vessel.
Train 2 consists of two new resource wells and associated piping, new brine
injection piping, a new HP steam separator vessel, and a new SP steam
separator vessel.
The capacity expansion geothermal processes and power generation
technology for the capacity expansion are well proven. The General Electric
turbine generator, balance-of-plant equipment, and process equipment selected
for the capacity expansion is of a type used successfully in geothermal and
industrial applications and the overall design is satisfactory.
The technology for the new noncondensable gas hydrogen sulfide removal
system for Salton Sea Units I, II, III, and IV required by the capacity
expansion permits was selected as part of the Salton Sea Expansion.
3.2 PH MODIFICATION PROCESS
The pH Modification process originally used at Salton Sea Unit II lowers
the pH of the geothermal resource by injection of a pH modification agent
into the liquid brine stream. As a result, solids remain
B-8
<PAGE>
in solution rather than precipitate out of solution as in the CRC process
used at the Partnership Projects. Therefore, scaling is minimized and solids
in solution can be injected into the reservoir. The process is a proprietary
process developed by Unocal and subsequently purchased by Magma. The pH
Modification process was part of Unocal's original design of Unit II and has
been operating successfully since 1990. The pH Modification process has been
installed at the Salton Sea Expansion, and is operating successfully for all
the Salton Sea plants.
The geothermal resource at the Salton Sea Projects and the Partnership
Projects is unique in that it contains high solids as compared to other
geothermal resources. Consequently, the concept of reducing brine pH to a
level where solids remain in solution reduces operating costs at these plants
since this entire solution can be injected back into the resource as brine,
significantly reducing precipitated solids handling costs. The process has
been developed specifically for application at the Salton Sea and Partnership
Projects and has been successfully demonstrated and operated reliably at
Salton Sea Unit II, and more recently at Salton Sea III. Significant benefits
in the form of operating and maintenance savings are realized as a result of
pH Modification in the elimination of equipment associated with the
processing of the resource and solid waste handling and disposal. Projected
operating and maintenance costs for the pH Modification process are
approximately half that of the CRC process. pH Modification also has the
following impacts:
a. The process must inject brine at a higher temperature to ensure
that solids remain in solution; therefore, less heat energy is
available for conversion to electricity thus decreasing overall
plant thermal efficiency.
b. The design must provide for adequate LP steam for existing plants.
c. The process results in increased plant availability realized
through elimination of CRC downtime.
d. Piping and equipment materials associated with pH Modification must
be corrosion resistant. Use of titanium piping in the new wells is
planned. Liquid brine piping will be cement lined steel.
Cost versus benefits analyses support installation of the pH Modification
process for the Salton Sea Projects. The process is proven and reliable and
is operating successfully at the Salton Sea Projects.
SECTION 4.0
PROJECT OPERATIONS
The Salton Sea and Partnership Projects use proven technology and have
operated reliably since commercial operation. The most significant operating
and maintenance activities for the Salton Sea and Partnership Projects are
caused by geothermal resource corrosion and production of solids in the
geothermal resource processing systems. These activities at the Salton Sea
Projects have been reduced by the implementation of the pH Modification
program.
The tables in the following sections summarize the operating history for
each of the Salton Sea and Partnership Projects. Two capacity factor values
are reported in the operating summaries for each plant. One expresses
production relative to the Contract Capacity and the other expresses
production relative to the plants' nominal capacity. The nominal capacity
factors were used in the Projections.
B-9
<PAGE>
4.1 SALTON SEA PROJECTS
Salton Sea Unit I Performance Summary
Salton Sea Unit I is nominally a 10 megawatt (MW) net output plant. Salton
Sea Unit I entered commercial operation in 1982 and is not able to produce
power at the 100 percent power purchase contract power output level because
of steam limitations and an increase in house power load. The capacity factor
for Salton Sea Unit I should increase after completion of new brine
facilities and pH modification. The Salton Sea Unit I operating history is
summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO SCE MW TO SCE (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1986 89,208 10.38 84,066 9.78 98.08 95.97 119.96
1987 67,824 9.34 63,744 8.78 82.89 82.26 90.96
1988 89,604 10.63 84,164 9.98 95.99 96.29 120.10
1989 69,354 10.50 65,171 9.87 75.38 75.17 93.00
1990 83,160 9.93 60,766 7.26 95.56 69.36 86.71
1991 82,962 10.86 61,667 8.07 87.20 70.78 87.61
1992 90,270 10.46 66,540 7.71 98.20 75.75 94.95
1993 78,515 9.96 55,707 7.07 89.98 64.13 79.48
1994 83,844 9.59 57,637 6.59 99.82 65.81 82.24
1995 83,696 10.2 56,998 6.90 93.73 65.07 81.33
</TABLE>
- ------------
* Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
The plant availability for Salton Sea Unit I for the last five years of
operation has been in the 87 to 99 percent range.
Salton Sea Unit II Performance Summary
Salton Sea Unit II is nominally a 20 MW net output plant. Salton Sea Unit
II first went into commercial operation in 1990 and is meeting power purchase
contract power output requirements. The Salton Sea Unit II operating history
is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 106,509 16.30 106,506 16.30 101,447 74.59 77.20 64.34
1991 146,090 18.40 143,910 18.13 138,729 90.63 106.06 87.98
1992 156,897 17.97 155,892 17.85 150,710 99.42 114.38 95.58
1993 152,673 18.63 152,130 18.56 147,314 93.57 112.46 93.43
1994 157,593 18.07 150,868 17.30 150,914 99.55 114.85 95.71
1995 155,859 18.7 155,024 18.6 148,056 95.22 112.68 93.90
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract are shown. The difference
between the energy delivered to IID and the energy delivered to
SCE account for the transmission line losses in the IID
distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
The plant availability and power purchase contract capacity factors since
commercial operations have averaged 91.6 percent and 105 percent,
respectively.
B-10
<PAGE>
Salton Sea Unit III Performance Summary
Salton Sea Unit III is nominally a 49.8 MW net output plant. Salton Sea
Unit III first went into commercial operation in February 1989 and is meeting
power purchase contract output requirements. The Salton Sea Unit III
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 405,792 50.13 388,342 47.98 377,407 92.40 90.83 86.51
1991 463,372 53.03 444,392 50.86 430,614 99.74 103.49 98.71
1992 433,152 52.91 414,322 50.61 402,211 93.47 96.53 92.20
1993 470,304 54.04 448,694 51.56 435,247 99.34 104.60 99.77
1994 462,912 53.11 438,324 50.29 426,911 99.49 102.60 97.86
1995 433,440 53.4 407,476 50.2 397,178 92.65 95.45 91.04
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract payments are shown. The
difference between the energy delivered to IID and the energy
delivered to SCE accounts for the transmission line losses in
the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
The plant availability and contract capacity factors have averaged 97
percent and 99 percent respectively since 1990.
4.2 PARTNERSHIP PROJECTS
Vulcan Project Performance Summary
The Vulcan Project is nominally a 34 MW net output plant. The Vulcan
Project first went into commercial operation in February 1986 and is meeting
the power purchase contract power output requirements. The Vulcan Project
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 325,732 37.2 287,952 32.9 279,788 89.94 NA 93.94
1991 313,394 39.2 279,442 35.0 270,736 91.21 104.77 90.89
1992 335,842 40.2 300,684 36.0 292,066 95.13 112.71 97.8
1993 334,919 40.8 303,392 37.0 295,308 93.70 114.27 99.15
1994 342,371 40.1 310,656 36.4 304,325 97.55 117.76 102.18
1995 366,670 42.4 334,700 38.7 327,454 98.68 126.71 109.94
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract payments are shown. The
difference between the energy delivered to IID and the energy
delivered to SCE accounts for the transmission line losses in
the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
Plant availability and contract capacity factors have averaged 94 percent
and 115 percent respectively since commercial operation.
B-11
<PAGE>
Del Ranch Project Performance Summary
The Del Ranch Project is nominally a 38 MW net output plant. The Del Ranch
Project first went into commercial operation in January 1989 and is meeting
the power purchase contract power output requirements. The Del Ranch Project
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 359,775 42.9 327,050 39.0 318,391 95.73 106.90 95.65
1991 349,574 41.5 316,572 37.6 307,051 96.22 103.09 92.24
1992 375,290 44.2 338,680 39.9 329,075 96.60 110.19 98.6
1993 380,439 46.0 343,704 41.5 334,589 94.44 112.34 100.51
1994 398,665 46.2 362,472 42.0 355,088 98.43 119.22 106.67
1995 386,155 46.1 352,752 42.1 344,975 95.62 115.83 103.63
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract payments are shown. The
difference between the energy delivered to IID and the energy
delivered to SCE accounts for the transmission line losses in
the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
Plant availability and contract capacity factors have averaged 95 percent
and 109 percent respectively since commercial operation.
Elmore Project Performance Summary
The Elmore Project is nominally a 38 MW net output plant. The Elmore
Project first went into commercial operation in January 1989 and is meeting
the power purchase contract power output requirements. The Elmore Project
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 359,882 43.6 331,744 40.2 323,228 94.31 108.5 97.10
1991 369,459 42.0 336,144 39.7 326,379 96.56 109.6 97.73
1992 352,363 40.1 319,990 36.4 311,255 90.86 104.2 93.32
1993 384,539 43.9 351,166 40.1 341,979 97.04 114.8 102.73
1994 385,503 46.4 350,526 42.2 344,338 94.75 115.61 103.44
1995 393,584 45.6 358,658 41.6 350,941 98.46 117.83 105.43
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the
basis for power purchase contract payments are shown. The
difference between the energy delivered to IID and the energy
delivered to SCE accounts for the transmission line losses in
the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary
from time to time based on operating conditions.
Plant availability and capacity factors have averaged 95 percent and 111
percent respectively since commercial operation.
B-12
<PAGE>
Leathers Project Performance Summary
The Leathers Project is nominally a 38 MW net output plant. The Leathers
Project first went into commercial operation in January 1990 and is meeting
the power purchase contract power output requirements. The Leathers Project
operating history is summarized below:
<TABLE>
<CAPTION>
NOMINAL
GROSS MW MW HRS MW HRS AVAIL CONTRACT CAPACITY
HRS AVG. MW DELIVERED AVG. NET DELIVERED FACTOR CAPACITY FACTOR
YEAR GENERATED GENERATED TO IID** MW TO IID TO SCE* (%) FACTOR (%) (%)*
- ------ ----------- ----------- ----------- ---------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 358,046 44.4 330,076 40.9 321,000 92.11 111.8 96.43
1991 352,707 42.7 324,629 39.3 315,710 94.20 108.8 94.84
1992 377,770 44.6 349,824 41.3 340,785 96.79 118.0 102.10
1993 371,821 44.8 342,129 41.2 333,794 99.53 117.1 100.27
1994 377,550 44.1 349,740 40.9 342,247 97.69 114.91 102.81
1995 386,488 45.3 354,646 41.6 347,493 97.35 116.67 104.39
</TABLE>
- ------------
* The megawatt hours delivered to the SCE substation which is the basis for
power purchase contract payments are shown. The difference between the energy
delivered to IID and the energy delivered to SCE accounts for the
transmission line losses in the IID distribution system.
** Nominal capacity is calculated after parasitic load and may vary from time
to time based on operating conditions.
Plant availability and contract capacity factors have averaged 96 percent
and 115 percent respectively since commercial operation.
SECTION 5.0
PROJECT CONTRACTS
5.1 POWER PURCHASE AGREEMENTS AND RELATED AGREEMENTS
Stone & Webster reviewed technical adequacy of the contracts and
agreements discussed below. Stone & Webster is of the opinion that Funding
Corporation affiliates are capable of satisfying their contractual
obligations which set forth the requirements for operation of the Salton Sea
and Partnership Projects. The pertinent technical obligations of the
contracts are presented in this section.
5.1.1 OPERATING PLANTS
Each of the operating Salton Sea and Partnership Projects is subject to
terms and conditions as specified in its associated power purchase agreement.
All of the contracts include a number of identical conditions related to
operation, maintenance, metering, and other commercial terms which are
reasonable and consistent with the Projections assumptions for the respective
power plants. Each contract is unique in certain aspects, such as contract
capacity, payments, or contract term. Tables 5-1A and 5-1B provide a summary
of Magma's ownership interest and contractual terms for each power plant.
These are accurately included in the Projections.
Based upon the capacity and energy payment rates summarized in Tables 5-1A
and 5-1B, actual billing rates for some plants are calculated for On-Peak,
Mid-Peak, Off-Peak, and Super Off-Peak for Summer and Winter seasons as
defined by Time of Use Schedules published by the California Public Utilities
Commission (CPUC). These billing rates provide for higher payments than shown
on the Projections during Summer Peak, Summer Mid-Peak and Winter Mid-Peak
periods, which total 3465 hours per year and lower payments than shown during
Winter Super Off-Peak which total 1434 hours per year. Payment rates during
Summer and Winter Off-Peak periods, which include 3861 hours, equal or are
close to the rates shown in Tables 5-1A and 5-1B. Average energy rates
received in any year could vary below the Projections assumptions if the
capacity factor of the power plants were significantly reduced during the
Summer Period between June 1 and October 1, when energy payments equal or
exceed the average rates shown on Tables 5-1A and 5-1B.
B-13
<PAGE>
The Projections include energy payments during Phase I as specified in
Table 5-1A for energy generated up to the nameplate capacity. Payment for
energy generated at capacity in excess of nameplate capacity is included
based on compensation at avoided cost which is conservative since facilities
owned by others with similar contracts reportedly are paid full contract
energy rates rather than avoided cost energy rates by SCE. Magma and SCE are
currently attempting to resolve this issue.
Capacity payments specified in Tables 5-1A and 5-1B are included in the
Projections. Capacity factors for Salton Sea Unit III and the Partnership
Projects have been well in excess of the contractual requirements. Salton Sea
Units I and II should meet 100 percent of their respective power purchase
contract power requirements since pH Modification and brine processing
expansion projects were recently completed.
Stone & Webster has reviewed Salton Sea Unit I performance summary
statistics for 1994. The unit generated 4,180,000 kWh during the Summer Peak
period, which corresponds to 80.1 percent of the contract capacity during
those hours. Accordingly, Salton Sea Unit I met the performance requirements.
The Salton Sea Expansion increased brine processing capabilities thereby
providing further assurance that contract capacity requirements can be met in
the future.
Salton Sea Unit II is capable of meeting its contract capacity requirement
taking into account the 20 percent allowance for forced outages. The Salton
Sea Expansion has increased brine processing capabilities thereby providing
assurance that contract capacity requirements can be met in the future.
TABLE 5-1A
SUMMARY OF TERMS -- POWER PURCHASE CONTRACT
SALTON SEA PROJECTS
<TABLE>
<CAPTION>
UNIT 1 UNIT 2 UNIT 3 UNIT 4
------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Contract Capacity (kW) 10,000 15,000 47,500 34,000
As Available Capacity Not Applicable 0 0 2,000
Capacity Payment ($/kW-year) 121.71 (1) 187 175 (7)
Capacity Bonus ($/kW-year) (2) (6) (6) (7)
As Available Capacity Not Applicable Not Applicable Not Applicable Not Applicable
Payment ($/kW-yr)
Energy Payment ($/kWh) 0.04701 (3) 0.106 (Phase 1) 0.098 (Phase 1) (7)
(4)(Phase 2) (4) (Phase 2)
Dispatchability Price Not Applicable (5) Not Applicable Not Applicable
Adjustment
Contract Term July 2017 April 2000 January 1999 May 2026 (Est.)
(Phase 1) (Phase 1)
April 2020 January 2019
(Phase 2) (Phase 2)
</TABLE>
B-14
<PAGE>
NOTES:
1. Capacity payment as of 2nd Quarter 1992, subject to quarterly
adjustments based on Bureau of Labor Statistics.
2. Payment for capacity in excess of contract capacity is based on as
available capacity price in Standard Offer No. 1 Capacity Payment
Schedule. Pro forma does not include bonus payments.
3. Energy payment as of 2nd Quarter 1992, subject to quarterly adjustments
based on Bureau of Labor Statistics, Rate applies to all energy
delivered at specified point of delivery.
4. Energy payments in Phase 2 to be equal to 100% of Tariff Schedule No.
TOU-8 published avoided cost of energy rates as periodically updated.
5. Utility receives 5% of all kWh delivered in excess of 80% of Contract
Capacity at no cost which is appropriately accounted for in pro forma.
6. For capacity factors greater than 85%, monthly payment = [(1.2 X On
Peak Capacity Factor) - 1.02] [Capacity Payment] [Contract Capacity]
[1/12]. Pro formas appropriately indicate bonuses of 18% of capacity
payment.
7. See "Summary Description of Principal Project Contracts" in the
Confidential Offering Circular.
TABLE 5-1B
SUMMARY OF TERMS -- POWER PURCHASE CONTRACT
PARTNERSHIP PROJECTS
<TABLE>
<CAPTION>
VULCAN DEL RANCH ELMORE LEATHERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Contract Capacity (kW) 29,500 34,000 34,000 34,000
As Available Capacity 4,500 4,000 4,000 4,000
Capacity Payment ($/kW-year) 158 198 198 187
Capacity Bonus ($/kW-year) (2) (2) (2) (2)
As Available Capacity Payment 8 8 8 8
($/kW-yr)
Energy Payment ($/kWh) 0.109-0.126 0.109-0.146 0.109-0.146 0.109-0.156
(Phase 1)(1) (Phase 1)(1) (Phase 1)(1) (Phase 1)(1)
(Phase 2) (Phase 2) (Phase 2) (Phase 2)
Dispatchability Price Not Applicable Not Applicable Not Applicable Not Applicable
Adjustment
Contract Term February 1996 January 1999 Janaury 1999 January 2000
(Phase 1) (Phase 1) (Phase 1) (Phase 1)
February 2016 January 2019 January 2019 January 2020
(Phase 2) (Phase 2) (Phase 2) (Phase 2)
<FN>
NOTES:
1. Energy payments in Phase 2 to be equal to 100% of Tariff Schedule No.
TOU-8 published avoided cost of energy rates as periodically updated.
2. For capacity factors greater than 85%, monthly payment = [(1.2 X On
Peak Capacity Factor) - 1.02][Capacity Payment][Contract Capacity]
[1/12]. Pro formas appropriately indicate bonuses of 18% of capacity
payment.
3. Expected annual production is not a contract limit.
</TABLE>
B-15
<PAGE>
5.1.2 SALTON SEA CAPACITY EXPANSION
Under the existing Salton Sea Unit I power purchase agreement, Magma was
entitled to add 20,000 kW of generating capacity. Magma, through its
subsidiary, Fish Lake Power Company, had also executed a power purchase
agreement for the 16,000 kW Fish Lake project in Nevada. On November 29,
1994, Fish Lake Power Company and another Magma subsidiary, the Salton Sea
Power Generation L.P., which were signatories to the Fish Lake power purchase
agreement and Salton Sea Unit I power purchase agreements, respectively,
executed a consolidated power purchase agreement with SCE (the Salton Sea IV
PPA). This contract consolidates the allowable capacity increase at Salton
Sea Unit I of 20,000 kW and the Fish Lake project capacity of 16,000 kW into
a single contract which provides for a contract capacity of 34,000 kW and an
as available capacity of 2000 kW to be added at the Salton Sea Unit III site
for a total of 36,000 kW. Contract capacity must be demonstrated annually.
The Salton Sea IV PPA was approved by the CPUC on April 26, 1995. The
contract term is 30 years commencing on the Firm Operation Date.
The Salton Sea IV PPA provides for capacity payments for firm and
as-available capacity. Payments for 20,000 kW corresponding to all of the
capacity of the Salton Sea Unit I addition are $121.72/kW-year adjusted
quarterly based on Bureau of Labor Statistics using the second quarter of
1992 as reference. The capacity payments continue until June 30, 2017. As of
the first quarter 1996, these payments had been escalated to $132.85/kW-year
based on these indices. Payments for 14,000 kW corresponding to most of the
16,000 kW capacity of the Fish Lake project are set at $158/kW-year with no
adjustment. Payments for additional capacity (including the 2000 kW of
as-available capacity) will be calculated based on SCE's published avoided
cost of energy as periodically revised.
The Salton Sea IV PPA provides for energy payments for all energy
delivered to SCE up to 110 percent of the nameplate rating of 36,000 kW.
Energy payments are calculated by blending rates associated with generation
of 20,000 kW corresponding to the Salton Sea Unit I addition and 16,000 kW
corresponding to the Fish Lake project. The energy payments associated with
the Salton Sea Unit I addition continue until June 30, 2017, and are
established using a base rate of 4.701 cents/kWh as of the second quarter of
1992 and escalated quarterly based on Bureau of Labor Statistics. As of the
first quarter 1995, these payments had been escalated to 4.90 cents/kWh based
on these indices. The energy payments associated with the Fish Lake project
continue for the contract term of 30 years and range from 8.8 in 1996 to 12.4
cents/kWh through 2005, and are based on SCE's published avoided cost
thereafter with an incremental addition of from 1.0 to 3.5 cents/kWh between
2006 and 2010, and no additional increment thereafter. Energy in excess of
110 percent of nameplate rating prior to June 30, 2017 and in excess of 110
percent of 16/36 of nameplate rating thereafter through the term of the
contract will be priced at SCE's published avoided cost of energy.
5.1.3 TRANSMISSION INTERCONNECTION AGREEMENTS
Transmission lines owned and operated by IID are used to interconnect each
of the Partnership Projects and the Salton Sea Projects except Salton Sea
Unit I with SCE. Salton Sea Unit I delivers power directly to SCE which uses
the IID transmission lines. The durations of the interconnection agreements
differ from those of the power purchase agreements, although interconnection
agreements are in place for the term of the proposed financing.
The capacity increase associated with project development at Salton Sea
Unit IV, described in Section 5.1.2 herein, is interconnected through a
transmission line owned by IID. An agreement to acquire transmission
entitlement has been executed with IID and an interconnection and
transmission agreement has been executed. Transmission service charges are
included in the Projections.
A portion of the construction cost of the transmission line was paid for
each power plant except Salton Sea Unit I in accordance with the Funding and
Construction Agreement of June 29, 1987 and separate agreements for each of
the plants with IID. (SCE is responsible for the Salton Sea Unit I
transmission cost on the IID lines.) Magma currently has transmission line
entitlements for 288.6 MW on this line, which is in excess of existing
combined capacity of 244 MW for the Salton Sea Units I, II, III, and IV,
Vulcan, Del Ranch, Elmore, and Leathers operating power plants. The Funding
and Construction
B-16
<PAGE>
Agreement provides for credits equal to contributions and other financing
costs to be applied against Transmission Service Agreement charges. These
credits are included in the Projections. SCE is responsible for transmission
of power from Salton Sea Unit I.
5.2 GEOTHERMAL SALES CONTRACTS
5.2.1 SALTON SEA UNITS I, II, III, AND IV
Magma Land Company I provides to Salton Sea Brine Processing L.P. the
right to extract and utilize geothermal resources for the Salton Sea Units
pursuant to an Amended and Restated Easement Grant Deed, dated as of February
23, 1994, as further amended.
The geothermal royalties to be paid to Magma Land Company I for such
rights as a percentage of the energy revenues of the Salton Sea Units are
summarized below.
<TABLE>
<CAPTION>
YEAR TOTAL
---- -----
<S> <C>
1994 .......................... 3.9338%
1995 .......................... 4.0139%
1996 .......................... 4.0959%
1997 .......................... 4.2362%
1998 .......................... 4.2643%
1999 .......................... 4.4076%
2000 .......................... 4.5245%
2001 .......................... 4.6531%
2002 .......................... 4.6074%
thereafter ................... N/A*
<FN>
- ------------
* The percentage royalty payments will increase by approximately 1.75% per
annum.
The payments do not include additional non-material payments to be made by
Magma Land Company I (e.g., surface rentals and rent for undeveloped
parcels). All payments are included in the Projections.
5.2.2 VULCAN PROJECT
Geothermal energy sales for the Vulcan Project are subject to terms and
conditions as specified in the Brine Sales Agreement dated August 30, 1985,
as amended as of June 17, 1996, between Vulcan Power Company and Vulcan/BN
Geothermal Power Company. Vulcan Power Company provides resources as
specified in the Brine Sales Agreement and receives in return 4.167 percent
of the energy component of the price of electricity sold in accordance with
the power purchase agreement and an Administrative Fee which is subject to
negotiation at unspecified intervals. The Projections include the 4.167
percent royalty and include an Administrative Fee.
Pursuant to underlying resource documents Magma pays a royalty to resource
owners equal to 4.167 percent of energy revenues. There are also other
payments for use of surface rights and leases for the plants. These royalty
payments are included in the Projections.
5.2.3 DEL RANCH, ELMORE, AND LEATHERS PROJECTS
Del Ranch, L.P., Elmore, L.P. and Leathers, L.P. have each entered into an
Easement Grant Deed and Agreement with Magma. These agreements provide for
sale of geothermal energy for use by the Del Ranch, Elmore, and Leathers
Projects. Magma receives as payment a Grantors Fuel Charge equal to 17.333
percent of all energy revenues received by the facilities pursuant to the
power purchase agreements and a Geothermal Lessor's Fee equal to 4.167
percent of all energy revenues received by the facilities. Magma also
receives a Resource Development Fee equal to 0.833 percent of all energy
revenues for the Del Ranch and Elmore Projects, but not for the Leathers
Project. The Projections accurately include these payments based on projected
energy sales.
B-17
<PAGE>
Pursuant to underlying resource documents Magma pays a royalty to
resource owners equal to 4.167 percent of energy revenues. There are also
other payments for use of surface rights and leases for the plants. These
royalty payments are included in the Projections.
5.3 SOLIDS DISPOSAL AGREEMENTS
Solid geothermal end products are disposed of in the Magma owned Desert
Valley Company monofill in accordance with the Amended and Restated Waste
Disposal Agreement of February 23, 1994. Contract term is 10 years. Tipping
fees were set at $51.50 per ton subject to annual adjustment based on
specified indices.
Other solid geothermal scale, pipe, filter cake, and other materials which
are characterized as hazardous waste are transported and disposed of by
Laidlaw Environmental Services in accordance with an Environmental Services
Agreement in effect through March 31, 1996. This contract will be extended to
allow disposal until the pH Modification project is complete. Costs for
disposal of bulk solids requiring no treatment range from $77 to $100 per ton
depending on quantity. Disposal costs for wastes requiring solidification
range from $145 to $185 per ton. Disposal cost for wastes requiring
stabilization range from $175 to $215 per ton. An additional 10 percent
county tax and transportation costs of $14 per ton are also assessed.
In 1994, 21,613 tons of solids were disposed of with Laidlaw, of which
8,143 tons were attributable to non-routine facility cleanout operations.
Approximately 14,000 tons/year of solids would normally be disposed of with
Laidlaw at an average cost of $80/ton subject to escalation. The appropriate
portion of these costs is allocated in the Projections for Vulcan, Del Ranch,
Elmore, and Leathers Projects. The Projections do not include significant
solids disposal costs for Salton Sea Units I, II, and III, since solids
generation has been significantly reduced by implementation of the pH
Modifications. Approximately 33,000 tons of filter cake were disposed of at
Desert Valley in 1994 at rates as specified in the Waste Disposal Agreement
from all plants excluding Salton Sea Unit II, which incorporates pH
Modification in its design to eliminate precipitation and disposal of brine
solids. The Projections for the Vulcan, Del Ranch, Elmore, and Leathers
Projects include their portion of these costs for disposal based on the
specified tipping fee. Costs for filter cake disposal for Salton Sea Units I
and III are not included since the pH Modification program has been
implemented.
5.4 OPERATING AND MAINTENANCE AND ADMINISTRATION AGREEMENTS
5.4.1 SALTON SEA UNITS I, II, III, AND IV
An Amended and Restated Operating and Maintenance Agreement was executed
on of July 15, 1995, between CEOC, Salton Sea Power Generation L.P., and
Salton Sea Brine Processing L.P. The Operating and Maintenance Agreement
provides for CEOC to perform or, when necessary, subcontract the performance
of all necessary operations, maintenance, and repairs, with specific
responsibilities comprehensively described. The agreement also provides for
performance of administrative services and maintenance of specified reserve
accounts. The term of the agreement is 33 years. CEOC is reimbursed for
actual incurred costs and expenses, which are included as part of operating
expenses in the Projections. The agreement does not provide for any
additional fees. Administrative services for the Salton Sea Projects are
provided pursuant to an Administrative Services Agreement between Magma and
the Salton Sea Guarantors.
5.4.2 VULCAN PROJECT
A Construction, Operating, and Accounting Agreement was executed on August
30, 1985, as amended as of June 17, 1996, between Vulcan/BN Geothermal Power
Company and Vulcan Power Company. The agreement is similar to the Operating
and Maintenance Agreement for Del Ranch, Elmore, and Leathers. Vulcan Power
Company is reimbursed for actual incurred costs and expenses which are
included as part of operating expenses in the Projections. The agreement does
not provide for any additional fees. Administration services and costs are
covered by an Administrative Services Agreement between CEOC and Vulcan.
B-18
<PAGE>
5.4.3 DEL RANCH, ELMORE, AND LEATHERS PROJECTS
Del Ranch, L.P., Elmore L.P., and Leathers, L.P. entered into Operating
and Maintenance Agreements with CEOC. The agreements provide for operation of
the Del Ranch, Elmore, and Leathers Projects. The agreements, as amended, are
all very similar to each other and provide for CEOC to perform or, when
necessary, subcontract the performance of all necessary operations,
maintenance, and repairs. Included in the scope of work are budget
development, implementation of preventive maintenance, safety and loss
prevention, and spare parts programs. Also included are performance of
administrative functions including billing, revenue collection and
disbursement, and maintenance of working capital and reserve accounts. The
term of the contract is 32 years.
CEOC is reimbursed for actual costs and expenses incurred. In addition,
the contracts provide for payments to CEOC of a Guaranteed Capacity Payment
and Special Priority Distribution pursuant to the applicable Limited
Partnership Agreements. The Projections include these base and incentive
payments based on projected energy sales.
A separate Administrative Services Agreement between the same parties has
been entered into for each facility. The term of each contract is 32 years.
Each agreement provides that CEOC will perform administrative and management
activities not covered by the respective Operating and Maintenance Agreement
for the facility. The contracts provide for payment of an Administration Fee
equal to three percent of total electricity revenues, but in no event less
than a floor amount of $800,000 per year per facility which is subject to
escalation based on the Consumer Price Index based on its value in August
1988. These fees are included in the Projections.
SECTION 6.0
FUNDING CORPORATION AFFILIATES AND PARTICIPANTS
6.1 CALENERGY COMPANY, INC. (CALENERGY)
CalEnergy Company, Inc. formerly known as California Energy Company, Inc.
(the Company), was founded in 1971 and is primarily engaged in the
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.
The Company is the largest independent geothermal power producer in the
world (on the basis of the Company's estimate of the aggregate megawatts (MW)
of electric generating capacity in operation and under construction). The
Company has an aggregate net ownership interest of 432 MW of electric
generating capacity in power production facilities in the United States
having an aggregate net capacity of 575 MW. All of these facilities are
managed and operated by the Company and are principally located in Southern
California. In addition to the electricity sales revenue earned from its net
ownership position in such facilities, the Company receives significant fee
and royalty income from operating such plants and certain power plants which
are owned by unaffiliated third parties and from managing the production from
the geothermal resources for such facilities. Additionally, the Company has
an aggregate net ownership interest of 449 MW of electric generating capacity
in four geothermal power projects in the Philippines and the United States,
having an aggregate net capacity of 540 MW, and has a net ownership interest
of 52 MW of electric generating capacity in a hydroelectric power project in
the Philippines, having an aggregate net capacity of 150 MW, which projects
are financed and under construction. Recently a notice to proceed was issued
with respect to construction of a 55 net MW geothermal project in Indonesia
in which the Company has an aggregate net ownership interest of 26 MW of
electric generating capacity. 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 760 MW in these development projects
(which represent an aggregate net capacity of 1,423 MW of additional
potential electric generating capacity). Substantial contingencies exist with
respect to development projects, including, without limitation, the need to
obtain financing, permits and licenses and the satisfactory completion of
construction.
B-19
<PAGE>
6.2 MAGMA POWER CORPORATION (MAGMA)
Magma, prior to its acquisition by CalEnergy, was a U.S. based independent
power producer specializing in geothermal energy. Magma was in the business
of generating electricity from seven operating geothermal power plants, and
acquiring, exploring, and developing geothermal resources. Magma was a
successor to a business founded in 1954 that pioneered geothermal development
at the Geysers in Northern California, which is the largest geothermal
development in the U.S.
6.3 SOUTHERN CALIFORNIA EDISON (SCE)
SCE is a public utility regulated by the California Public Utilities
Commission. SCE's service area includes approximately 50,000 square miles
with a population of more than 11 million.
SCE added approximately 30,000 customer accounts in 1994, compared with
about 10,000 new accounts in 1993. This brings the total number of customer
accounts served to 4.15 million. SCE's customer base has grown by
approximately three percent or 0.75 percent per year, over the past four
years. Customer growth in the near term is expected to increase reflecting
the projected expansion of California's population. Peak system demand in
1994 was 18,044 MW and system generating capacity was 20,615 MW. According to
its 1994 Annual Report, SCE's energy mix in 1994 consisted of 20 percent
nuclear, 26 percent gas, 13 percent coal, 4 percent hydro, and 37 percent
purchased power. The majority of power purchased by SCE comes from
non-utility generators.
SECTION 7.0
PERMITTING AND ENVIRONMENTAL
7.1 OPERATING PLANTS
Stone & Webster discussed permit status with Magma's Environmental Manager
during the site visit. He indicated that all permits are in good standing for
the plants. It appears that project operations are conducted in compliance in
all material respects with applicable environmental regulations.
The Desert Valley Monofill Operating Permit issued by the Integrated Solid
Waste Management Board is current, and the plan for closing one of the two
Monofill storage cells has been submitted to the Board for review. The
Monofill can be expanded if necessary to provide additional waste storage
capacity.
7.2 SALTON SEA EXPANSION
Amendments to the Conditional Use Permits for Salton Sea Units I, II, and
III were approved by the Imperial County Planning Commission on November 23,
1994. These amendments provide county authorization for installation of the
pH Modification and construction of Salton Sea Unit IV. Authority to
Construct Permits were issued by the Imperial County Air Pollution Control
District on April 10, 1995 will be closed out after startup when the
Operating Permit is issued.
The Authority to Construct Permit required reduction of hydrogen sulfide
emissions for Salton Sea Units I and II from non-condensable gases by 90
percent or to a maximum of 0.95 lbs/hr. Salton Sea Unit III similarly is
required to reduce emissions in accordance with the Authority to Construct
Permit by 90 percent or maximum of 7.2 lbs/hr. These reductions should be
readily achievable using the recently installed hydrogen sulfide abatement
technology. The Salton Sea and Partnership Projects currently comply and
should continue to comply with applicable Authority to Construct permit
emission limits.
SECTION 8.0
ASSESSMENT OF FINANCIAL PROJECTIONS
8.1 BASE CASE ASSUMPTIONS
Stone & Webster conducted a financial analysis using projections provided
by Funding Corporation. Stone & Webster reviewed the projections and
confirmed the results (the "Projections"). The assumptions and data used in
the Projections are consistent with Project documents and data provided by
Funding Corporation.
B-20
<PAGE>
Stone & Webster's review is based on the following project structure and
financial details, as described by Funding Corporation.
o Funding Corporation is wholly-owned by Magma.
o Magma indirectly owns the Salton Sea Projects, the Royalty
Guarantor, and the Partnership Projects.
o The Salton Sea Guarantors receive project cash flows from the
Salton Sea Projects. The Partnership Guarantors receive project
cash flows and equity distributions from the Partnership Projects,
royalties and other payments, if any, which are received by Vulcan
Power Company and CEOC from the Partnership Projects, and the
Royalty Guarantor receives royalties and other payments which have
been assigned to the Royalty Guarantor by Magma from the Royalty
Projects and East Mesa Project except Vulcan.
o The $135 million investment-grade bonds will be obligations of
Funding Corporation guaranteed by each of the Salton Sea
Guarantors, the Partnership Guarantors, and the Royalty Guarantor.
o The $135 million proceeds will be used to (i) refinance all
existing project-level indebtedness of the Partnership Projects,
(ii) fund certain capital improvements to the Partnership Projects,
and (iii) fund a portion of the purchase price for the acquisition
of the 50% interest in each of the Partnership Projects previously
owned by a third party.
Beginning with 1996 and continuing through 2012, the Projections forecast
revenues and expenses, assuming certain operating conditions, maintenance
schedules, O&M costs, and escalation rates. The base case Projections
indicate that the Project revenues from the sale of electrical energy and
capacity pursuant to the terms of the power purchase agreements for the
Salton Sea and Partnership Projects, and royalties from the Royalty Projects
are adequate to pay for the annual operating expenses, and debt service of
the investment-grade bonds. The average debt service coverage ratio is 2.04
and the minimum debt service coverage ratio is 1.57.
8.2 BASE CASE FINANCIAL PROJECTIONS
Power Production
The Projections were modeled using a total annual energy production of
1,959 GWh from Salton Sea Units I, II, and III, and the Partnership Plants,
based on the average production for the period 1992 through 1995. The Salton
Sea Expansion (Salton Sea IV) project adds 39.6 MW of production capacity at
an assumed 95 percent capacity factor. These values have been proven to be
technically feasible and are consistent with the power purchase agreements.
Capacity factors based on nominal plant capacity for the Salton Sea and
Partnership Projects were based on historical data and are shown in Table
8-1.
TABLE 8-1
CAPACITY FACTORS
</TABLE>
<TABLE>
<CAPTION>
DEL
SS#I SS#II SS#III SS#IV VULCAN RANCH ELMORE LEATHERS
------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nominal Capacity
Factor 86.07 93.17 97.13 95.0 102.37 102.42 101.46 102.43
Nominal Capacity
(kW) 8,000 18,000 49,800 39,600 34,000 38,000 38,000 38,000
</TABLE>
With the exception of Salton Sea IV, the plants have proven operating
history. Stone & Webster believes that these levels of capacity and energy
production of the plants can be maintained, provided that adequate resource
is available.
B-21
<PAGE>
Revenues
SCE is obligated to pay energy payments and capacity payments pursuant to
the power purchase agreements as summarized in Table 5-1A and 5-1B. The power
contracts for Salton Sea Units II, III, and IV and the Partnership Projects
also specify bonus capacity payments if the capacity factors during peak
periods exceed 85 percent.
The energy payments for Salton Sea Unit I are based on the actual billing
rate of 4.79 cents/kWh in 1994, escalating at an assumed rate of 3.5 percent.
Energy payments for Salton Sea Units II and III and Partnership Projects are
based on a defined schedule of rates for the first ten years (Phase I) of
each project's life, then at SCE's avoided cost of energy. A portion of the
energy payments for Unit IV are based on the Unit I formula with the
remainder based on a formula similar to Units II and III. The projected
energy payments during Phase I are consistent with the power purchase
agreements and the capacities of the plants. During Phase II, the revenues
are less certain because future avoided costs are unknown. SCE's avoided cost
of energy was based on an SCE forecast published in 1995. A sensitivity
analysis to 1996 avoided costs was performed to assess the impact on debt
service coverage (see Section 8.3).
The capacity payments are comprised of firm capacity payments and, in some
cases, as-available capacity payments and bonus capacity payments. The fixed
capacity payments and as-available capacity payments are calculated as the
product of the appropriate capacity rate defined in the power purchase
agreements and the respective contract capacity or as-available capacity. The
bonus capacity is available for all of the plants except Salton Sea Unit I,
and is based on the on peak capacity factor for each plant. The capacity
payments are consistent with the power purchase agreements and the
capabilities of the plants.
Magma owns the Desert Valley Landfill Company, which is used for disposal
of filter cake. Magma pays fees to that company and receives its net
proceeds.
Partnership Royalty Revenues
Each of the Initial Partnership Guarantors and the Royalty Guarantor will
receive Royalties from the Partnership Projects. These Royalties are paid by
each partnership under various easement and operating agreements. The
Royalties are calculated as a function of revenues as summarized below. These
royalties do not impact the cash flows available for debt service. These
percentages all apply to energy payments except the administration fees and
total revenue royalties, which are based on total revenues.
<TABLE>
<CAPTION>
ROYALTY VULCAN DEL RANCH ELMORE LEATHERS
------- ------ --------- ------ --------
<S> <C> <C> <C> <C>
Brine Fee ............ 0.0% 17.333% 17.333% 17.333%
Priority Distribution 0.0% 2.667% 2.667% 4.5%
Administration Fee .. 3.0% 3.0% 3.0% 3.0%
Priority Payment .... 0.0% 0.0% 0.0% 1.0%
Lessor Fee ........... 0.0% 4.167% 4.167% 4.167%
Total Revenue ........ 0.0% 1.0% 1.0% 0.0%
Energy ............... 0.0% 0.83% 0.83% 0.0%
</TABLE>
Other Royalty Revenues
Magma is entitled to a royalty payment from the East Mesa Project, in
which Magma does not have an ownership interest. Magma has assigned the
royalties it is entitled to receive to the Royalty Guarantor. These are
determined as 4.0 percent of the capacity and energy payments of the East
Mesa Project and are included in the Projections.
Capital Costs
The plants require ongoing capital expenditures to maintain the brine
supply and handling systems, replace components, and make improvements. The
Salton Sea Projects are expected to require approximately $1.1 million
annually for capital expenditure in 1996 dollars, escalating at 3.0 percent
per year. This reflects the implementation of pH Modification at those
plants.
B-22
<PAGE>
Approximately $8.6 million is allocated in 1996 in the pro forma for
capital expenditures at the Partnership plants plus the Funding Corporation
has stated that $15 million of the proceeds from the bond offering will be
used to fund capital expenditures. Funding Corporation anticipates that the
capital expenditures at the Partnership Projects will include installation of
cement-lined brine pipe on brine production piping of the Region II plants
and titanium well liners at selected wells. These improvements should reduce
O&M costs by reducing the periodic replacement of carbon steel piping and
well liners.
The Projections assume that the capital expenditures will escalate at 3.0
percent per year.
Operating Expenses
Stone & Webster reviewed Funding Corporation's operating cost projections
for the Salton Sea and Partnership Projects in its report dated July 18,
1995, as described therein. That report is incorporated in the Funding
Corporation's Offering Circular of the same date. Since the acquisition of
Magma by CalEnergy in February 1995, operations and maintenance functions for
the Salton Sea and Partnership Projects have been consolidated, redundant
personnel have been eliminated and procedures have been streamlined to
improve efficiency and reduce overall operating costs.
Due to the cost savings reflected in the Salton Sea and Partnership
Projects' accounting reports and achieved through major changes in operating
practices and management and administrative structures, project costs prior
to 1995 do not necessarily represent a base for future cost estimates. Stone
& Webster has not prepared an analysis to reconcile 1995 actual costs with
1994 or prior years' actual costs. Thus, Stone & Webster has relied upon 1995
actual costs, as reflected in the Salton Sea and Partnership Projects'
accounting reports, discussions with project operating and management
personnel, its review of the condition of the plants and present operating
procedures, and an O&M sensitivity analysis to evaluate the projects future
operating costs.
The projected 1996 operating and maintenance costs reviewed by Stone &
Webster represent a 23 percent real cost reduction relative to 1995 actual
costs as a result of staff reductions achieved through consolidation and
integration of facility operations and other changes in operations and
maintenance procedures. Funding Corporation expects to realize additional
real cost reductions of 14 percent by 1999 by making further improvements in
operations and additional capital investments.
These operational improvements and capital investments will address the
specific characteristics of the brine fluids, and the requirements for their
production since the SSKGRA is unique in the combination of high temperature
and its concentration of dissolved solids. Brine processing costs at the
SSKGRA are generally higher and not directly comparable to other geothermal
fields with lower concentrations of dissolved solids. Therefore, the cost
reductions which are shown in the Projections are based upon both the further
utilization of special brine processing materials and the continued
implementation of CalEnergy's operating procedures, which prior to 1995 had
not been utilized at the Salton Sea Projects and the Partnership Projects,
but had been utilized at CalEnergy's Coso geothermal projects since 1991. The
cost reductions are intended to be achieved in the following ways:
o Maintaining optimal and efficient staffing and wage levels.
o Consolidating control rooms at Region II
o Obtaining quantity discounts on material purchases by combining
purchases with purchases by other CalEnergy-owned or operated
plants.
o Reducing turbine overhaul frequency on the Salton Sea plants as a
result of converting to the pH Modification system
o Reducing cooling tower chemical consumption
o Reducing waste disposal cost by controlling plant processes to
minimize precipitation of heavy metals
o Aggressively controlling operating and maintenance expenses and
capital expenditures
o Utilization of titanium well liners in selected wells to reduce
well downtime and workover costs
B-23
<PAGE>
o Replacing certain steel pipe with cement-lined pipe to reduce
downtime and maintenance and scale disposal cost.
The annual per-well capital expenditures for titanium well liners and
cement-lined brine piping and the attendant savings will depend upon the
specific per-well estimates and installation schedule. Based upon advances in
metallurgy and actual experience of the Salton Sea plants with titanium well
liner and cement-lined brine piping, the Company believes that titanium well
liners and cement-lined pipe should result in less scale that is also easier
and less costly to remove. This is because steel in the well casings and
brine piping has been found to promote the rapid formation of very hard scale
that adheres strongly to the steel. Therefore, the effort and cost required
for scale removal and disposal should be reduced. In addition, certain
minerals in the brine are corrosive to steel, requiring periodic repair, and
eventual replacement every two to six years of steel well liners or brine
piping. Repairs not only take time and materials, but cooling during the
required plant outage can cause scale to separate from the steel piping and
vessels and accumulate or prevent normal operation of the CRC systems,
thereby increasing downtime and costs. By reducing downtime, the proposed
improvements of replacing steel pipe with cement-lined pipe and using
titanium rather than steel well liners could thereby increase revenues, but
that was not taken into account in the Projections.
The Partnership Plants, which utilize the CRC process, require major
maintenance every two years, so the turbines are overhauled during those
outages. In 1995 CEOC overhauled turbines representing approximately 122 MW
of capacity. Thus far in 1996 overhauls have been performed on turbines with
approximately 84 MW of capacity with another 38 MW anticipated during the
remainder of 1996. Since the Salton Sea turbines are no longer supplied by a
CRC system their overhaul interval is planned to be extended from two years
to four years, a schedule similar to that utilized by CalEnergy for the nine
turbines at the Coso plant. The turbines are equipped with water-wash systems
to remove scale deposits from the blading, which reduces the need for major
maintenance. Stone & Webster believes that this is a reasonable maintenance
plan which is not likely to be detrimental to the turbines.
The Company provided extensive accounting reports for the Partnership
Plants, including 1995 actual costs and 1996 budget and year-to-date
variances through April. The variances indicated that the plant costs are on
budget and the Company believes that the costs can be maintained on budget
for the remainder of 1996. The Company provided staffing levels at both the
start and end of 1995 as well as the current levels. Those numbers indicate
that the labor force has been reduced by 80 personnel from the beginning of
1995 to date. In comparing the 1995 actual labor costs to the 1996 budget, a
labor cost reduction of $5.1 million is expected.
Funding Corporation affiliates began to realize operating and maintenance
cost reductions in November 1995 associated with shutting down the CRC
process and using the pH Modification process at the Salton Sea Projects.
Sensitivity analyses were performed to determine sensitivity to operating and
maintenance costs (see Section 8.3).
Funding Corp. expects the cost of well workovers to decrease due to the
installation of titanium well casing in the future. GeothermEx, Inc., Funding
Corporation's resource consultant, has performed an initial review of Funding
Corporation's plans and costs associated with installing titanium well liners
and performing future workovers, with a preliminary conclusion that they are
reasonable and technically viable.
Funding Corporation Securities
The debt service coverage ratios for the Securities were calculated for
1996 through 2011. The ratio is calculated as the total revenues of each of
the Guarantors less the total expenses of each of the Guarantors (including
senior bond payments and necessary capital expenditures), divided by the debt
service of the Securities to be paid by Funding Corporation. The debt service
coverage ratios are calculated on an annual basis. Principal and interest
payments are made every six months based on interest rates and principal
amortization of the Securities as described in the Offering Circular. The
original outstanding balance is $135 million.
B-24
<PAGE>
The base case Projections result in debt service coverage ratios that
vary from 1.57 to 3.14, with an average of 2.04.
8.3 SENSITIVITY ANALYSIS
Stone & Webster assessed the sensitivity of the debt service coverage
ratios to a number of conditions which could affect project performance. The
sensitivity of the average debt service coverage ratios to the following
parameters was investigated using the base case Projections.
o Avoided cost
o Cost escalation rate
o Increased O&M costs
The results of the sensitivity analysis are shown in Table 8-2.
Avoided Cost Sensitivity
SCE's avoided cost of energy tends to track fuel prices, but can be
impacted by the efficiency of SCE's plants and changes in the methodology
approved by the CPUC for calculating the avoided cost. A sensitivity analysis
to an avoided cost of 2.2 cents/kWh (in 1995$) was performed to assess the
impact on debt service coverage ratios. At an escalation rate of 3.0 percent,
the average and minimum debt service coverage ratios for this case are 1.71
and 1.50 respectively. A sensitivity analysis to an avoided cost of 2.9
cents/kWh (which is comparable to the base case assumption for the initial
offering) with 3.0 percent escalation was also performed resulting in average
and minimum debt service coverage ratios of 2.13 and 1.59 respectively.
Finally, a "high" avoided cost sensitivity analysis to an avoided using the
"SCE Median Case" was also performed resulting in average and minimum debt
service coverage ratios of 2.21 and 1.58 respectively.
In addition to the above avoided cost sensitivity analysis, a "break-even"
avoided cost analysis was conducted, which solved for the avoided cost in
each year beyond 2000 which would yield a debt service coverage of 1.0x in
that year. The maximum of these break-even avoided costs is 1.98 cents/kWh in
2009 (or 1.31 cents/kWh in 1995$ using an escalation rate of 3%). The results
of this analysis containing the break-even avoided costs in then current year
and 1995$ are shown in Table 8-3.
Cost Escalation Sensitivity
A general cost escalation rate of 3.0 percent was used to escalate all
expenses except property tax. This rate was calculated as a percentage of
general inflation assumed to be 3.5 percent. A sensitivity analysis was
performed with a cost escalation rate of 4.0 percent, with resulting average
and minimum debt service coverage ratios of 1.88 and 1.55 respectively.
O&M Cost Increase Sensitivity
An O&M cost increase of 15 percent relative to the assumed cost
projections was investigated, with resulting average and minimum debt service
coverage ratios of 1.96 and 1.54 respectively.
Sensitivity Summary
The results from the sensitivity analyses that were conducted to determine
the susceptibility of the economics of the Projects to changes in future
avoided cost, operating and maintenance cost levels, and cost escalation
rates showed that revenues are more than adequate to pay operating and
maintenance costs and cover debt service.
B-25
<PAGE>
TABLE 8-2
SENSITIVITY ANALYSIS SUMMARY
<TABLE>
<CAPTION>
AVERAGE DEBT
MINIMUM DEBT SERVICE
SERVICE COVERAGE
SENSITIVITY PARAMETER COVERAGE RATIOS RATIOS
- --------------------- --------------- --------------
<S> <C> <C>
Base Case ..................... 1.57 2.04
Avoided Cost (2.2 cents/kWh) . 1.50 1.71
Avoided Cost (2.9 cents/kWh) . 1.59 2.13
Avoided Cost (SCE Median Case) 1.58 2.21
Cost Excalation 4.0% .......... 1.55 1.88
Increased Operating Costs .... 1.54 1.96
</TABLE>
TABLE 8-3
BREAK-EVEN AVOIDED COSTS ANALYSIS SUMMARY
<TABLE>
<CAPTION>
CURRENT YEAR
(CENTS/KWH) (1995$)
-------------- -------
<S> <C> <C>
MAX ........ 1.98 1.31
AVG ........ 1.66 1.22
2000 ...... 1.19 1.03
2001 ...... 1.47 1.23
2002 ...... 1.53 1.24
2003 ...... 1.55 1.23
2004 ...... 1.54 1.18
2005 ...... 1.55 1.16
2006 ...... 1.81 1.30
2007 ...... 1.86 1.31
2008 ...... 1.92 1.31
2009 ...... 1.98 1.31
2010 ...... 1.79 1.15
2011 ...... 1.85 1.15
</TABLE>
B-26
ATTACHMENT 1
ASSUMPTIONS AND DOCUMENTS REVIEWED
<PAGE>
ATTACHMENT 1
ASSUMPTIONS AND DOCUMENTS REVIEWED
The principal assumptions and considerations made by Stone & Webster in
developing the results and conclusions presented in this report include the
following:
o Only the power plants and above ground geothermal resource piping and
processing facilities were evaluated. The adequacy, reliability, and costs
of geothermal resources and wells were assessed by GeothermEx. Plant
performance data provided in the Report assume no decline in geothermal
resource production or injection capability from current levels.
o The estimated interest rates on the securities, estimated reinvestment
rates and the amortization schedule of the securities used in the debt
service coverage analysis have been provided to Stone & Webster.
o The avoided cost used in the base case Projections was based on SCE's
projections contained in the Confidential Offering Circular for the Initial
Offering.
o Stone & Webster personnel visited the operating plants on several occasions
in 1994 and 1995 to inspect the plants and obtain information.
o Stone & Webster personnel visited the operating plants on May 29 and 30,
1996 to assess current operating conditions and completion of the Salton
Sea Expansion. The Report addresses the condition of the plants based upon
this examination.
o Funding Corporation provided 1995 cost accounting information and future
cost projections.
o Certain other assumptions identified in the text, including paragraphs 8.1
and 8.3 thereof.
1-1
<PAGE>
DOCUMENTS REVIEWED
DATE
RECEIVED DOCUMENT
- ------------- ---------------------------------------------------------------
5/1/95 SCE statements for the last 12 months for Units I, II, and III
5/1/95 Historical 1993 Monthly Income Statements for Units I and II,
and III (April through December).
5/1/95 Historical 1994 Monthly Income Statements for Units I and II,
and III
5/1/95 Detail on Transmission Credits
5/1/95 Engineering Services Agreement between Magma Power Company and
Dow Engineering dated February 1994
5/1/95 Consolidated and Amended PPA among Southern California Edison
Company, Fish Lake Power Company, and Salton Sea Power
Generation L.P.
5/1/95 Approval Order directed to the PUC by SCE
5/1/95 Salton Sea and Partnership Projects Power Purchase Agreements
5/1/95 Transmission Service Agreements
5/1/95 Salton Sea and Partnership Projects Geothermal Sales Contracts
5/1/95 Waste Disposal Agreement
5/1/95 Operation and Maintenance and Administration Agreements
5/1/95 Plant Connection Agreements
5/5/95 Dow Schedule for Expansion Project
5/5/95 Expansion Turbine Specification
5/5/95 PUC Approval
5/5/95 Authority to Construct Permit
5/5/95 Dow Estimates for the pH Mod Conversion and the Expansion Plant
5/9/95 Transmission Line Credits
5/10/95 Complete Amortization Schedules for each of the Partnership
Project Loans
5/10/95 Sinking Fund Schedule for the Desert Valley Pollution Control
Bonds
5/10/95 Summary of Contingency Support for the Project Financing
5/10/95 1992 Costs by Unit
5/10/95 pH Mod Conversion Tie-in Description
5/10/95 Vulcan, Del Ranch, and Leathers Process Flow Diagrams
5/10/95 Leathers P&IDs
5/10/95 Vulcan P&IDs
5/10/95 Del Ranch P&IDs
5/10/95 Salton Sea Plants Process Flow Diagrams
5/10/95 Salton Sea Plants P&IDs
5/15/95 Elmore Process Flow Sheets
5/15/95 PUC Decision 95-04-057
5/19/95 Transmission Agreement Payment Acknowledgment
5/19/95 Combined Fish Lake and Salton Sea Power Purchase Agreement
5/19/95 Preliminary Drawings
o Expanded Master Development Plan, Salton Sea 1, 2, 3
o Overall Layout Plan & Project Notes
o Civil Grid Plan & General Notes
o Site Development Rough Grading Plan Expansion Area
o Site Layout Plan Expansion Area
5/19/95 Salton Sea and Partnership Projects Operating Data
5/30/96 Plant MVh production summaries and graphs
1-2
<PAGE>
6/6/96 Salton Sea Funding Corp II Cost Analysis
6/7/96 Capital expenditure estimates
6/7/96 Unit overhaul history and schedule
6/7/96 Faxes to SCE of May 22, 1996 and from SCE on 5/29/96 indicating
the start of the 30-day and 24-hour tests
(various) In addition, other information provided by the Company and
other information on file with Stone & Webster
1-3
<PAGE>
ATTACHMENT 2
FINANCIAL PROJECTIONS
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
CASH FROM PROJECTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I 2,216 4,578 4,739 4,904 5,086 5,254 5,438 5,628
Salton Sea Unit II 9,333 18,623 18,623 18,623 10,310 8,077 8,251 8,395
Salton Sea Unit III 25,725 51,336 51,336 21,303 23,023 23,792 24,301 24,725
Salton Sea Unit IV 8,578 30,617 32,110 33,473 33,864 34,617 35,896 37,045
Vulcan 8,199 13,317 13,836 14,415 15,051 15,604 15,970 16,275
Del Ranch 25,121 53,460 56,803 17,904 18,615 19,234 19,643 19,984
Elmore 25,079 53,376 56,713 17,808 18,513 19,126 19,531 19,869
Leathers 24,900 53,020 56,362 59,706 18,175 18,794 19,203 19,544
--------- --------- --------- --------- --------- --------- --------- ---------
Total Revenues 129,151 278,328 290,522 188,138 142,636 144,498 148,232 151,464
EXPENSES
Salton Sea Units I&II 3,820 6,917 7,122 7,419 7,604 7,729 7,967 8,214
Salton Sea Unit III 5,518 11,268 11,565 10,594 10,988 11,346 11,697 12,060
Salton Sea Unit IV 1,679 5,446 5,139 5,768 5,418 6,372 5,962 6,118
Vulcan 3,614 7,168 6,751 6,703 6,964 7,184 7,559 7,705
Del Ranch 5,173 10,457 9,828 7,649 7,958 8,213 8,666 8,825
Elmore 5,632 10,467 9,903 8,040 8,300 9,027 9,064 9,707
Leathers 5,631 10,209 9,709 9,583 8,075 8,561 9,179 9,946
--------- --------- --------- --------- --------- --------- --------- ---------
Total Expenses 31,068 61,931 60,018 55,757 55,306 58,433 60,095 62,575
Project Operating Income 98,083 216,397 230,504 132,381 87,330 86,065 88,137 88,890
PROJECT ROYALTY EXPENSES
(ROYALTIES TO MAGMA)
Vulcan 246 400 415 433 452 468 479 489
Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
--------- --------- --------- --------- --------- --------- --------- ---------
Royalty Expenses 20,738 44,335 47,495 25,753 13,314 13,971 14,465 14,904
Cash After Royalty Payments 77,345 172,062 183,009 106,628 74,016 72,094 73,671 73,986
CAPITAL EXPENDITURES
Salton Sea Units I, II & III 530 1,093 1,126 1,159 1,194 1,230 1,267 1,305
Salton Sea Unit IV 0 337 347 357 368 379 390 402
Vulcan 1,068 2,200 2,266 2,334 2,404 2,476 2,550 2,627
Del Ranch 1,061 2,185 2,251 2,319 2,388 2,460 2,534 2,610
Elmore 1,118 2,303 2,373 2,444 2,517 2,593 2,670 2,750
Leathers 1,061 2,185 2,251 2,319 2,388 2,460 2,534 2,610
--------- --------- --------- --------- --------- --------- --------- ---------
Total Capital Expenditures 4,838 10,304 10,613 10,931 11,259 11,597 11,945 12,303
OTHER
Interest Income 1,008 206 69 0 0 0 0 0
Changes in Working Capital (1,707) (1,881) (990) 8,837 3,623 (132) (355) (306)
--------- --------- --------- --------- --------- --------- --------- ---------
Total Other (699) (1,675) (921) 8,837 3,623 (132) (355) (306)
Cash Available for Debt Service 71,807 160,083 171,475 104,534 66,381 60,365 61,372 61,377
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
*Note: Six months ending December 31, 1996
2-1
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
CASH FROM PROJECTS 2004 2005 2006 2007 2008 2009 2010 2011
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Salton Sea Unit I 5,836 6,029 6,240 6,458 6,697 6,918 7,160 7,411
Salton Sea Unit II 8,554 8,684 8,843 9,016 9,191 9,349 9,536 9,710
Salton Sea Unit III 25,190 25,572 26,038 26,547 27,060 27,521 28,072 28,581
Salton Sea Unit IV 37,861 38,670 31,869 31,813 31,686 31,022 31,636 31,088
Vulcan 16,610 16,885 17,220 17,586 17,955 18,287 18,684 19,049
Del Ranch 20,359 20,666 21,041 21,450 21,863 22,234 22,677 23,087
Elmore 20,240 20,544 20,916 21,321 21,730 22,098 22,537 22,942
Leathers 19,919 20,226 20,601 21,010 21,423 21,794 22,238 22,647
--------- --------- --------- --------- --------- --------- --------- ---------
Total Revenues 154,569 157,276 152,768 155,202 157,606 159,223 162,541 164,515
EXPENSES
Salton Sea Units I&II 8,470 8,731 9,002 9,283 9,573 9,869 10,177 10,494
Salton Sea Unit III 12,435 12,818 13,216 13,628 14,053 14,488 14,940 15,404
Salton Sea Unit IV 5,983 7,324 5,373 5,691 5,733 6,811 5,822 5,808
Vulcan 8,021 8,258 8,683 8,853 8,931 9,391 9,474 9,962
Del Ranch 9,199 9,475 9,986 10,173 10,242 10,795 10,869 11,457
Elmore 9,748 10,562 10,612 10,518 10,979 10,869 11,198 11,535
Leathers 9,485 9,637 10,329 10,778 10,674 10,551 11,322 11,660
--------- --------- --------- --------- --------- --------- --------- ---------
Total Expenses 63,340 66,804 67,202 68,925 70,184 72,775 73,802 76,320
Project Operating Income 91,229 90,472 85,566 86,277 87,422 86,449 88,738 88,195
PROJECT ROYALTY EXPENSES
(ROYALTIES TO MAGMA)
Vulcan 499 507 517 528 539 549 561 572
Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
--------- --------- --------- --------- --------- --------- --------- ---------
Royalty Expenses 15,398 15,795 16,278 16,797 17,348 17,821 18,387 18,929
Cash After Royalty Payments 75,831 74,678 69,288 69,480 70,073 68,628 70,351 69,266
CAPITAL EXPENDITURES
Salton Sea Units I, II & III 1,344 1,384 1,426 1,469 1,513 1,558 1,605 1,653
Salton Sea Unit IV 414 426 439 452 466 480 494 509
Vulcan 2,706 2,787 2,871 2,957 3,045 3,137 3,231 3,328
Del Ranch 2,688 2,768 2,852 2,937 3,025 3,116 3,209 3,306
Elmore 2,833 2,918 3,006 3,096 3,189 3,284 3,383 3,484
Leathers 2,688 2,768 2,852 2,937 3,025 3,116 3,209 3,306
--------- --------- --------- --------- --------- --------- --------- ---------
Total Capital Expenditures 12,672 13,052 13,444 13,847 14,263 14,691 15,131 15,585
OTHER
Interest Income 0 0 0 0 0 0 0 0
Changes in Working Capital (286) (253) 547 (210) (203) (125) (302) (157)
--------- --------- --------- --------- --------- --------- --------- ---------
Total Other (286) (253) 547 (210) (203) (125) (302) (157)
Cash Available for Debt Service 62,872 61,372 56,391 55,423 55,608 53,812 54,919 53,524
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
2-2
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
MAGMA CASH FLOW STATEMENT 1996* 1997 1998 1999 2000 2001 2002 2003
-------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash From Projects 71,807 160,083 171,475 104,534 66,381 60,365 61,372 61,377
Monofill Revenues 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 246 400 415 433 452 468 479 489
Royalties from Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Royalties from Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Royalties from Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
Other Royalties 650 1,381 1,465 479 497 512 522 531
-------- --------- --------- --------- -------- -------- -------- --------
Total Magma Revenues 93,695 206,799 221,435 131,766 81,191 75,848 77,359 77,811
MAGMA EXPENSES/OBLIGATIONS
Pollution Control Debt Interest 153 305 237 164 85 0 0 0
Pollution Control Debt Principal 0 890 960 1,035 1,115 0 0 0
Installment Obligations 697 1,321 1,101 137 137 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
-------- --------- --------- --------- -------- -------- -------- --------
Total Magma Expenses/Obligations 1,090 3,219 3,001 2,038 2,039 703 703 703
Cash Available for Funding Corp
Debt 92,605 203,580 218,434 129,728 79,152 75,146 76,657 77,108
======== ========= ========= ========= ======== ======== ======== ========
</TABLE>
*Note: Six months ending December 31, 1996
2-3
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
MAGMA CASH FLOW STATEMENT 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAGMA REVENUES
Cash From Projects 62,872 61,372 56,391 55,423 55,608 53,812 54,919 53,524
Monofill Revenues 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 499 507 517 528 539 549 561 572
Royalties from Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Royalties from Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Royalties from Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
Other Royalties 540 547 557 567 577 586 597 607
-------- -------- -------- -------- -------- -------- -------- --------
Total Magma Revenues 79,810 78,714 74,226 73,787 74,533 73,219 74,903 74,060
MAGMA EXPENSES
Pollution Control Debt Interest 0 0 0 0 0 0 0 0
Pollution Control Debt Principal 0 0 0 0 0 0 0 0
Installment Obligations 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Magma Obligations 703 703 703 703 703 703 351 0
Cash Available for Funding Corp
Debt 79,108 78,012 73,523 73,084 73,830 72,516 74,551 74,060
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
2-4
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR
BOND PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 7,195 4,988 5,088 5,157
Salton Sea Unit III 19,941 39,522 39,208 10,129 11,438 11,831 11,970 12,012
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,078 27,866 29,544 30,526
Vulcan 3,523 3,601 4,420 4,945 5,231 5,475 5,381 5,455
Del Ranch 12,439 26,506 29,349 3,971 4,056 4,137 3,860 3,824
Elmore 11,903 26,337 29,109 3,405 3,531 3,134 3,267 2,742
Leathers 11,346 25,425 28,077 30,371 3,228 3,066 2,617 1,967
Changes in Working Capital (1,707) (1,881) (990) 8,837 3,623 (132) (355) (306)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 71,807 160,083 171,475 104,534 66,381 60,365 61,372 61,377
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 246 400 415 433 452 468 479 489
Royalties from Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Royalties from Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Royalties from Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
Other Royalties 650 1,381 1,465 479 497 512 522 531
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,888 46,716 49,960 27,232 14,811 15,483 15,988 16,434
OTHER EXPENDITURES
Installments/Pollution Control
Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt
Service 92,605 203,580 218,434 129,728 79,152 75,146 76,657 77,108
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.08 1.59 1.58 1.57 1.72 1.79 1.81 1.87
Minimum DCR 1.57
Average DCR 2.04
Maximum DCR 3.14
</TABLE>
*Note: Six months ending December 31, 1996
2-5
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
BASE CASE
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR
BOND PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 5,248 5,290 5,368 5,458 5,560 5,619 5,717 5,800
Salton Sea Unit III 12,083 12,062 12,109 12,184 12,251 12,255 12,330 12,351
Salton Sea Unit IV 31,464 30,920 26,057 25,670 25,488 23,731 25,320 24,771
Vulcan 5,385 5,333 5,150 5,248 5,440 5,210 5,418 5,188
Del Ranch 3,587 3,410 3,035 3,004 3,081 2,656 2,750 2,299
Elmore 2,832 2,110 2,190 2,433 2,112 2,344 2,175 1,968
Leathers 2,558 2,500 1,937 1,636 1,879 2,123 1,511 1,303
Changes in Working Capital (286) (253) 547 (210) (203) (125) (302) (157)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 62,872 61,372 56,391 55,423 55,608 53,812 54,919 53,524
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 499 507 517 528 539 549 561 572
Royalties from Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Royalties from Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Royalties from Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
Other Royalties 540 547 557 567 577 586 597 607
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 16,938 17,342 17,835 18,364 18,925 19,407 19,984 20,536
OTHER EXPENDITURES
Installments/Pollution Control
Debt Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt
Service 79,108 78,012 73,523 73,084 73,830 72,516 74,551 74,060
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.92 2.02 2.15 2.27 2.32 2.46 2.95 3.14
</TABLE>
2-6
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (2.2 CENTS/KWH) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 6,946 4,060 4,104 4,148
Salton Sea Unit III 19,941 39,522 39,208 9,171 9,168 9,110 9,084 9,053
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,064 27,812 29,487 30,467
Vulcan 3,251 2,989 3,526 3,717 3,643 3,570 3,359 3,380
Del Ranch 12,436 26,499 29,338 2,981 2,776 2,601 2,230 2,152
Elmore 11,900 26,333 29,102 2,408 2,244 1,588 1,626 1,058
Leathers 11,342 25,417 28,067 30,357 1,970 1,556 1,015 323
Changes in Working Capital (1,642) (1,874) (957) 9,216 4,058 128 (283) (273)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 71,591 159,460 170,586 100,726 58,869 50,426 50,623 50,306
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 237 380 386 393 401 407 414 422
Royalties from Del Ranch 6,695 14,354 15,378 3,549 3,673 3,777 3,897 4,020
Royalties from Elmore 6,675 14,314 15,338 3,510 3,633 3,736 3,854 3,976
Royalties from Leathers 7,110 15,243 16,328 17,415 3,909 4,017 4,142 4,270
Other Royalties 650 1,381 1,465 442 449 455 462 469
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,867 46,672 49,896 26,309 13,064 13,392 13,768 14,156
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt Service 92,367 202,914 217,481 124,997 69,894 63,116 63,688 63,760
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.07 1.58 1.57 1.51 1.52 1.50 1.51 1.54
Minimum DCR 1.50
Average DCR 1.71
Maximum DCR 2.39
</TABLE>
* Note: Six months ending December 31, 1996
2-7
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (2.2 CENTS/KWH) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 4,215 4,241 4,291 4,342 4,420 4,452 4,511 4,571
Salton Sea Unit III 9,052 8,986 8,950 8,913 8,909 8,833 8,790 8,746
Salton Sea Unit IV 31,404 30,859 24,891 24,461 24,252 22,464 24,009 23,434
Vulcan 3,258 3,172 2,929 2,946 3,086 2,798 2,920 2,641
Del Ranch 1,874 1,668 1,244 1,148 1,186 711 736 247
Elmore 1,107 357 387 565 204 387 148 (98)
Leathers 874 787 176 (189) 16 211 (469) (715)
Changes in Working Capital (254) (232) 710 (155) (169) (85) (244) (124)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 51,530 49,839 43,578 42,032 41,905 39,770 40,401 38,702
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 430 437 445 454 463 471 480 490
Royalties from Del Ranch 4,160 4,279 4,414 4,554 4,713 4,847 5,001 5,159
Royalties from Elmore 4,115 4,232 4,366 4,505 4,662 4,795 4,947 5,104
Royalties from Leathers 4,416 4,539 4,680 4,826 4,992 5,131 5,291 5,456
Other Royalties 476 483 490 498 507 514 523 531
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 14,598 14,970 15,397 15,837 16,337 16,759 17,242 17,741
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt Service 65,426 64,107 58,272 57,166 57,539 55,827 57,292 56,443
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.59 1.66 1.71 1.77 1.81 1.90 2.27 2.39
</TABLE>
2-8
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (2.9 CENTS/KWH) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 7,776 5,212 5,290 5,368
Salton Sea Unit III 19,941 39,522 39,208 12,363 12,460 12,489 12,562 12,632
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,112 27,879 29,555 30,538
Vulcan 4,166 5,091 5,691 5,947 5,946 5,936 5,796 5,890
Del Ranch 12,448 26,525 29,365 4,778 4,631 4,508 4,194 4,175
Elmore 11,908 26,349 29,119 4,218 4,111 3,508 3,604 3,095
Leathers 11,354 25,442 28,092 30,383 3,794 3,431 2,946 2,312
Changes in Working Capital (1,859) (1,905) (964) 8,426 3,714 53 (327) (318)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 72,321 161,597 172,812 108,992 70,544 63,016 63,621 63,691
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 267 448 456 465 475 483 493 503
Royalties from Del Ranch 6,710 14,385 15,411 4,306 4,457 4,581 4,724 4,873
Royalties from Elmore 6,685 14,333 15,357 4,255 4,404 4,526 4,668 4,815
Royalties from Leathers 7,126 15,276 16,362 17,449 4,743 4,873 5,023 5,178
Other Royalties 650 1,381 1,465 509 518 526 534 543
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,937 46,822 50,051 27,985 15,597 15,989 16,443 16,912
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt Service 93,167 205,201 219,862 134,938 84,102 78,303 79,362 79,900
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.09 1.60 1.59 1.63 1.82 1.86 1.88 1.93
Minimum DCR 1.59
Average DCR 2.13
Maximum DCR 3.33
</TABLE>
* Note: Six months ending December 31, 1996
2-9
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (2.9 CENTS/KWH) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 5,474 5,533 5,621 5,711 5,833 5,901 6,002 6,106
Salton Sea Unit III 12,746 12,777 12,851 12,927 13,052 13,084 13,164 13,247
Salton Sea Unit IV 31,478 30,934 26,331 25,944 25,784 24,037 25,629 25,103
Vulcan 5,850 5,835 5,671 5,771 6,004 5,795 6,007 5,821
Del Ranch 3,962 3,815 3,455 3,425 3,536 3,127 3,225 2,810
Elmore 3,209 2,518 2,613 2,857 2,569 2,818 2,653 2,482
Leathers 2,927 2,898 2,350 2,050 2,326 2,586 1,978 1,805
Changes in Working Capital (305) (276) 505 (211) (231) (139) (305) (187)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 65,340 64,033 59,397 58,476 58,872 57,210 58,353 57,187
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 514 523 534 545 557 568 580 592
Royalties from Del Ranch 5,043 5,183 5,346 5,514 5,706 5,865 6,049 6,239
Royalties from Elmore 4,983 5,122 5,283 5,449 5,639 5,796 5,978 6,166
Royalties from Leathers 5,356 5,503 5,673 5,848 6,049 6,216 6,408 6,606
Other Royalties 554 562 572 582 594 604 615 626
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 17,449 17,893 18,407 18,938 19,546 20,049 20,631 21,231
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt Service 82,087 81,224 77,102 76,711 77,716 76,556 78,632 78,418
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.99 2.11 2.26 2.38 2.44 2.60 3.11 3.33
</TABLE>
2-10
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (SCE MID) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND
PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 7,195 5,208 5,322 5,432
Salton Sea Unit III 19,941 39,522 39,208 10,129 11,884 12,478 12,657 12,820
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,078 27,879 29,557 30,542
Vulcan 3,561 3,742 4,731 5,172 5,544 5,928 5,862 6,021
Del Ranch 12,440 26,508 29,353 4,153 4,307 4,502 4,248 4,281
Elmore 11,903 26,339 29,111 3,588 3,785 3,501 3,657 3,201
Leathers 11,346 25,426 28,081 30,374 3,475 3,425 2,999 2,416
Changes in Working Capital (1,716) (1,889) (1,010) 8,805 3,518 (238) (373) (359)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 71,838 160,221 171,776 105,098 67,785 62,684 63,930 64,353
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 247 404 425 440 462 483 495 507
Royalties from Del Ranch 6,700 14,365 15,396 4,043 4,320 4,578 4,747 4,917
Royalties from Elmore 6,678 14,321 15,348 3,996 4,269 4,524 4,690 4,859
Royalties from Leathers 7,115 15,255 16,347 17,437 4,597 4,870 5,047 5,226
Other Royalties 650 1,381 1,465 486 506 525 536 547
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,891 46,726 49,982 27,402 15,154 15,980 16,516 17,056
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt
Service 92,638 203,729 218,758 130,462 80,900 77,962 79,743 80,706
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.08 1.59 1.58 1.58 1.75 1.86 1.89 1.95
Minimum DCR 1.58
Average DCR 2.21
Maximum DCR 3.66
</TABLE>
*Note: Six months ending December 31, 1996
2-11
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
AVOIDED COST (SCE MID) SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND
PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 5,607 5,826 6,027 6,130 6,288 6,385 6,510 6,661
Salton Sea Unit III 13,135 13,634 14,042 14,155 14,386 14,503 14,656 14,875
Salton Sea Unit IV 31,485 30,951 26,770 26,398 26,278 24,563 26,182 25,707
Vulcan 6,123 6,437 6,508 6,635 6,944 6,795 7,059 6,971
Del Ranch 4,182 4,300 4,130 4,122 4,293 3,934 4,073 3,737
Elmore 3,430 3,006 3,292 3,558 3,331 3,630 3,507 3,415
Leathers 3,143 3,375 3,014 2,735 3,071 3,379 2,812 2,717
Changes in Working Capital (392) (480) 312 (229) (282) (180) (340) (253)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 66,712 67,048 64,094 63,505 64,309 63,009 64,460 63,830
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 523 543 561 573 588 600 614 630
Royalties from Del Ranch 5,136 5,388 5,630 5,807 6,026 6,205 6,407 6,630
Royalties from Elmore 5,075 5,323 5,562 5,737 5,954 6,131 6,330 6,551
Royalties from Leathers 5,455 5,721 5,976 6,161 6,390 6,578 6,789 7,023
Other Royalties 562 580 597 608 622 633 646 660
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 17,749 18,554 19,326 19,886 20,580 21,147 21,786 22,493
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt
Service 83,759 84,900 82,718 82,688 84,186 83,454 85,895 86,324
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 2.03 2.20 2.42 2.56 2.64 2.84 3.40 3.66
</TABLE>
2-12
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
COST ESCALATION AT 4.0% SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND
PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,418 15,556 15,417 15,185 6,763 4,461 4,461 4,423
Salton Sea Unit III 19,882 39,281 38,858 9,660 10,844 11,104 11,100 10,991
Salton Sea Unit IV 6,899 24,817 26,594 27,303 28,019 27,792 29,453 30,418
Vulcan 3,533 3,544 4,284 4,729 4,920 5,062 4,860 4,819
Del Ranch 12,439 26,440 29,217 3,772 3,777 3,773 3,405 3,273
Elmore 11,903 26,269 28,973 3,202 3,243 2,754 2,790 2,161
Leathers 11,325 25,294 27,856 30,058 2,805 2,526 1,952 1,169
Changes in Working Capital (1,707) (1,881) (990) 8,837 3,623 (132) (355) (306)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 71,692 159,320 170,208 102,747 63,994 57,340 57,666 56,947
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 246 400 415 433 452 468 479 489
Royalties from Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Royalties from Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Royalties from Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
Other Royalties 650 1,381 1,465 479 497 512 522 531
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,888 46,716 49,960 27,232 14,811 15,483 15,988 16,434
OTHER EXPENDITURES
Installments/Pollution Control
Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC
Debt Service 92,490 202,817 217,167 127,941 76,766 72,121 72,951 72,679
--------- --------- --------- --------- -------- -------- -------- --------
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.07 1.58 1.57 1.55 1.67 1.72 1.73 1.76
Minimum DCR 0.00
Average DCR 1.88
Maximum DCR 2.63
</TABLE>
*Note: Six months ending December 31, 1996
2-13
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
COST ESCALATION AT 4.0% SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND
PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 4,400 4,321 4,270 4,224 4,182 4,088 4,025 3,936
Salton Sea Unit III 10,901 10,709 10,575 10,457 10,320 10,107 9,953 9,731
Salton Sea Unit IV 31,338 30,774 25,890 25,481 25,275 23,493 25,056 24,479
Vulcan 4,626 4,443 4,122 4,073 4,108 3,712 3,744 3,327
Del Ranch 2,932 2,645 2,153 1,999 1,945 1,380 1,326 718
Elmore 2,141 1,303 1,257 1,368 907 990 663 289
Leathers 1,619 1,410 687 217 280 333 (482) (904)
Changes in Working Capital (286) (253) 547 (210) (203) (125) (302) (157)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 57,672 55,352 49,501 47,609 46,813 43,977 43,982 41,420
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 499 507 517 528 539 549 561 572
Royalties from Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Royalties from Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Royalties from Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
Other Royalties 540 547 557 567 577 586 597 607
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 16,938 17,342 17,835 18,364 18,925 19,407 19,984 20,536
OTHER EXPENDITURES
Installments/Pollution Control Debt
Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt
Service 73,907 71,992 66,633 65,270 65,036 62,682 63,615 61,956
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.79 1.87 1.95 2.02 2.04 2.13 2.52 2.63
</TABLE>
2-14
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
INCREASED PLANT O&M SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 1996* 1997 1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 7,463 15,739 15,677 15,529 7,195 4,988 5,088 5,157
Salton Sea Unit III 19,941 39,522 39,208 10,129 11,438 11,831 11,970 12,012
Salton Sea Unit IV 6,899 24,835 26,624 27,348 28,078 27,866 29,544 30,526
Vulcan 3,211 2,990 3,821 4,359 4,627 4,853 4,740 4,794
Del Ranch 12,074 25,791 28,648 3,284 3,348 3,408 3,109 3,051
Elmore 11,518 25,584 28,371 2,681 2,786 2,366 2,476 1,928
Leathers 10,973 24,694 27,362 29,670 2,506 2,322 1,851 1,178
Changes in Working Capital (1,707) (1,881) (990) 8,837 3,623 (132) (355) (306)
--------- --------- --------- --------- -------- -------- -------- --------
Total Cash From Projects 70,374 157,274 168,722 101,836 63,602 57,502 58,423 58,340
OTHER REVENUE CASH FLOWS
Monofill Revenue 500 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 246 400 415 433 452 468 479 489
Royalties from Del Ranch 6,699 14,363 15,392 3,966 4,213 4,424 4,583 4,725
Royalties from Elmore 6,678 14,320 15,346 3,920 4,164 4,372 4,530 4,670
Royalties from Leathers 7,115 15,253 16,342 17,434 4,484 4,706 4,873 5,021
Other Royalties 650 1,381 1,465 479 497 512 522 531
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Revenues 21,888 46,716 49,960 27,232 14,811 15,483 15,988 16,434
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 849 2,516 2,298 1,335 1,337 0 0 0
Debt Service Reserve LC Fees 241 703 703 703 703 703 703 703
--------- --------- --------- --------- -------- -------- -------- --------
Total Other Expenditures 1,090 3,219 3,001 2,038 2,039 703 703 703
Net Cash Available for SSFC Debt Service 91,171 200,771 215,681 127,030 76,373 72,283 73,708 74,071
========= ========= ========= ========= ======== ======== ======== ========
Interest (Series A/B/C) 15,398 28,110 23,583 19,094 16,667 15,596 13,996 12,323
Principal (Series A/B/C) 24,054 64,378 74,938 35,108 19,573 21,377 22,698 22,237
Interest (Series D/E) 5,155 9,855 7,933 5,810 4,362 4,040 3,944 3,782
Principal (Series D/E) 0 25,850 32,000 22,728 5,500 1,000 1,600 3,000
--------- --------- --------- --------- -------- -------- -------- --------
Project Debt Service 44,606 128,194 138,453 82,740 46,102 42,012 42,238 41,343
========= ========= ========= ========= ======== ======== ======== ========
Project Debt Coverages 2.04 1.57 1.56 1.54 1.66 1.72 1.75 1.79
Minimum DCR 1.54
Average DCR 1.96
Maximum DCR 2.98
</TABLE>
* Note: Six months ending December 31, 1996
2-15
<PAGE>
SALTON SEA FUNDING CORPORATION
PRO FORMA FINANCIAL PROJECTIONS
INCREASED PLANT O&M SENSITIVITY
<TABLE>
<CAPTION>
CASH FLOWS AVAILABLE FOR BOND PAYMENTS 2004 2005 2006 2007 2008 2009 2010 2011
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM PROJECTS
Salton Sea Units I&II 5,248 5,290 5,368 5,458 5,560 5,619 5,717 5,800
Salton Sea Unit III 12,083 12,062 12,109 12,184 12,251 12,255 12,330 12,351
Salton Sea Unit IV 31,464 30,920 26,057 25,670 25,488 23,731 25,320 24,771
Vulcan 4,705 4,632 4,428 4,505 4,674 4,422 4,606 4,351
Del Ranch 2,791 2,590 2,190 2,134 2,185 1,733 1,799 1,320
Elmore 1,993 1,247 1,300 1,516 1,168 1,372 1,173 937
Leathers 1,746 1,662 1,074 748 964 1,181 540 304
Changes in Working Capital (286) (253) 547 (210) (203) (125) (302) (157)
-------- -------- -------- -------- -------- -------- -------- --------
Total Cash From Projects 59,745 58,150 53,073 52,005 52,087 50,186 51,184 49,677
OTHER REVENUE CASH FLOWS
Monofill Revenue 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Royalties from Vulcan 499 507 517 528 539 549 561 572
Royalties from Del Ranch 4,884 5,013 5,169 5,336 5,514 5,667 5,849 6,024
Royalties from Elmore 4,827 4,954 5,108 5,274 5,450 5,601 5,782 5,955
Royalties from Leathers 5,187 5,321 5,484 5,659 5,845 6,004 6,195 6,377
Other Royalties 540 547 557 567 577 586 597 607
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Revenues 16,938 17,342 17,835 18,364 18,925 19,407 19,984 20,536
OTHER EXPENDITURES
Installments/Pollution Control Debt Service 0 0 0 0 0 0 0 0
Debt Service Reserve LC Fees 703 703 703 703 703 703 351 0
-------- -------- -------- -------- -------- -------- -------- --------
Total Other Expenditures 703 703 703 703 703 703 351 0
Net Cash Available for SSFC Debt Service 75,980 74,790 70,205 69,666 70,310 68,890 70,816 70,213
======== ======== ======== ======== ======== ======== ======== ========
Interest (Series A/B/C) 10,626 8,471 7,150 5,462 3,766 2,041 377 0
Principal (Series A/B/C) 23,776 23,312 21,537 21,505 22,037 21,876 9,630 0
Interest (Series D) 3,528 3,253 2,984 2,776 2,548 2,263 1,780 470
Principal (Series D) 3,250 3,500 2,500 2,500 3,500 3,250 13,500 11,322
-------- -------- -------- -------- -------- -------- -------- --------
Project Debt Service 41,181 38,536 34,171 32,244 31,850 29,430 25,287 11,792
======== ======== ======== ======== ======== ======== ======== ========
Project Debt Coverages 1.85 1.94 2.05 2.16 2.21 2.34 2.80 2.98
</TABLE>
2-16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each of the Funding Corporation (a Delaware corporation),
Fish Lake (a Delaware corporation), CEOC (a Delaware corporation), the Royalty
Guarantor (a Delaware corporation) and BNG (a Delaware corporation) is
empowered by Section 145 of the Delaware General Corporation Law, subject to
the procedures and limitations stated therein, VPC (a Nevada corporation) is
empowered by Section 78.751 of the Nevada General Corporation Law, subject to
the procedures and limitations stated therein, and each of San Felipe (a
California corporation), Conejo (a California corporation), and Niguel (a
California corporation) is empowered by Section 317 of California
General Corporation Law, subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed
action, suit or proceeding in which such person is made a party by reason of
his being or having been a director, officer, employee or agent of the Funding
Corporation, Fish Lake, CEOC, the Royalty Guarantor, BNG or VPC, respectively.
The statutes provide that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors,
or otherwise. The Certificates of Incorporation and/or by-laws of the Funding
Corporation, Fish Lake, CEOC, the Royalty Guarantor and BNG provide for
indemnification of the directors and officers of such entities to the full
extent permitted by the Delaware General Corporation Law. The by-laws of VPC
provide for indemnification of the directors and officers of such entities to
the full extent permitted by the Nevada General Corporation Law. The
Certificates of Incorporation and/or by-laws of San Felipe, Conejo and Niguel
provide for indemnification of the directors and officers of such entities to
the full extent permitted by the California General Corporation Law. Section
15643 of the California Revised Limited Partnership Act empowers SSBP (a
California limited partnership), SSPG (a California limited partnership),
Leathers (a California limited partnership), Del Ranch (a California limited
partnership), and Elmore (a California limited partnership), to indemnify a
general partner who has paid more than his share of partnership obligations.
Section 87.180 of the Uniform Partnership Act of Nevada, absent an agreement to
the contrary, empowers Vulcan (a Nevada general partnership) to indemnify its
partners for acts or omissions taken in good faith. The general partnership
agreement of Vulcan does not contain provisions to the contrary.
Section 102(b)(7) of the Delaware General Corporation Law
permits a provision in the certificate of incorporation of each corporation
incorporated thereunder, such as the Funding Corporation, Fish Lake, CEOC, the
Royalty Guarantor and BNG, 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. The
Certificates of Incorporation of the Funding Corporation, Fish Lake, CEOC, the
Royalty Guarantor and BNG provide for eliminating the personal liability of
directors to the full extent permitted by the Delaware General Corporation
Law.
CalEnergy maintains an insurance policy providing for
indemnification of the officers and directors of its subsidiaries and certain
other persons against liabilities and expenses incurred by any of them in
certain stated proceedings and under certain stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
Exhibit No. DESCRIPTION OF EXHIBIT
3.1* Articles of Incorporation of the Funding Corporation.
II-1
<PAGE>
3.2* By-laws of the Funding Corporation.
3.3* Limited Partnership Agreement of SSBP.
3.4* Limited Partnership Agreement of SSPG.
3.5* Articles of Incorporation of Fish Lake.
3.6* By-laws of Fish Lake.
3.7* Articles of Incorporation of VPC.
3.8* By-laws of VPC.
3.9* Articles of Incorporation of CEOC.
3.10* By-laws of CEOC.
3.11* Articles of Incorporation of the Royalty Guarantor.
3.12* By-laws of the Royalty Guarantor.
3.13** Articles of Incorporation of BNG.
3.14** By-laws of BNG.
3.15** Articles of Incorporation of San Felipe.
3.16** By-laws of San Felipe.
3.17** Articles of Incorporation of Conejo.
3.18** By-laws of Conejo.
3.19** Articles of Incorporation of Niguel.
3.20** By-laws of Niguel.
3.21** General Partnership Agreement of Vulcan.
3.22** Limited Partnership Agreement of Leathers.
3.23** Amended and Restated Limited Partnership Agreement of Del
Ranch.
3.24** Amended and Restated Limited Partnership Agreement of Elmore.
4.1(a)* Indenture, dated as of July 21, 1995, between Chemical Trust
Company of California and the Funding Corporation.
II-2
<PAGE>
4.1(b)* First Supplemental Indenture, dated as of October 18, 1995,
between Chemical Trust Company of California and the
Funding Corporation.
4.1(c)** Second Supplemental Indenture, dated as of June 20, 1996,
between Chemical Trust Company of California and the
Funding Corporation.
4.1(d)** Third Supplemental Indenture, between Chemical Trust Company
of California and the Funding Corporation.
4.2* Salton Sea Secured Guarantee, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake in favor of Chemical Trust Company
of California.
4.3** Amended and Restated Partnership Guarantors Secured Limited
Guarantee, dated as of June 20, 1996, by CEOC, and VPC,
Conejo, Niguel, San Felipe, BNG, Del Ranch, Elmore, Leathers
and Vulcan in favor of Chemical Trust Company of California.
4.4* Royalty Guarantor Secured Limited Guarantee, dated as of
July 21, 1995, by the Royalty Guarantor in favor of Chemical
Trust Company of California.
4.5** Exchange and Registration Rights Agreement, dated June 20,
1996, by and between CS First Boston Corporation and the
Funding Corporation.
4.6(a)* Collateral Agency and Intercreditor Agreement, dated as of
July 21, 1995, by and among Credit Suisse, Chemical Trust
Company of California, the Funding Corporation and the
Initial Guarantors.
4.6(b)** First Amendment to the Collateral Agency and
Intercreditor Agreement, dated as of June 20, 1996,
by and among Credit Suisse, Chemical Trust Company of
California, the Funding Corporation and the
Guarantors.
4.7* Stock Pledge Agreement, dated as of July 21, 1995, by Magma
Power Company in favor of Chemical Trust Company of
California.
4.8** Purchase Agreement, dated June 17, 1996, by and among CS
First Boston Corporation, the Guarantors and the Funding
Corporation.
4.9* Support Letter, dated as of July 21, 1995, by and among
Magma Power Company, the Funding Corporation and the
Initial Guarantors.
4.10* Debt Service Reserve Letter of Credit and Reimbursement
Agreement, dated as of July 21, 1995, by and among the
Funding Corporation, certain banks and Credit Suisse, as
agent.
4.11* Revolving Credit Agreement, dated as of July 21, 1995, by
and among Credit Suisse and the Funding Corporation.
4.12* Salton Sea Credit Agreement, dated July 21, 1995, by and
among SSBP, SSPG, Fish Lake and the Funding Corporation.
4.13* Salton Sea Project Note, dated July 21, 1995, by SSBP,
SSPG and Fish Lake in favor of the Funding Corporation.
II-3
<PAGE>
4.14(a)* Deposit and Disbursement Agreement, dated as of July 21,
1995, by and among the Funding Corporation, Chemical Trust
Company of California and the Initial Guarantors.
4.14(b)** Amendment No. 1 to Deposit and Disbursement Agreement,
dated as of June 20, 1996, by and among the Funding
Corporation, Chemical Trust Company of California and the
Guarantors.
4.15* Partnership Interest Pledge Agreement, dated as of July 21,
1995, by Magma Power Company and Salton Sea Power Company
in favor of Chemical Trust Company of California.
4.16* Partnership Interest Pledge Agreement, dated as of July 21,
1995, by SSBP and Salton Sea Power Company in favor of
Chemical Trust Company of California.
4.17* Stock Pledge Agreement (Pledge of Stock of Fish Lake by
Magma Power Company and the Funding Corporation), dated as
of July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of
California.
4.18* Cost Overrun Commitment, dated as of July 21, 1995, between
CalEnergy, SSPG, SSBP and Fish Lake.
4.19** Amended and Restated Partnership Guarantors Credit
Agreement, dated June 20, 1996, by and among the
Partnership Guarantors and the Funding Corporation.
4.20* Partnership Guarantors Security Agreement and Assignment of
Rights, dated as of July 21, 1995, by CEOC and VPC in favor
of Chemical Trust Company of California.
4.21* Stock Pledge Agreement (Pledge of Stock of CEOC by Magma
Power Company and the Funding Corporation), dated as of
July 21, 1995, by Magma Power Company and Funding
Corporation in favor of Chemical Trust Company of
California.
4.22* Stock Pledge Agreement (Pledge of Stock of VPC by Magma
Power Company and the Funding Corporation), dated as of
July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of
California.
4.23* Royalty Guarantor Credit Agreement, among the Royalty
Guarantor and the Funding Corporation, dated as of July 21,
1995.
4.24* Royalty Project Note, dated as of July 21, 1995, by the
Royalty Guarantor in favor of the Funding Corporation.
4.25* Royalty Security Agreement and Assignment of Revenues,
dated as of July 21, 1995, by the Royalty Guarantor in
favor of Chemical Trust Company of California.
II-4
<PAGE>
4.26(a)* Royalty Deed of Trust, dated as of July 21, 1995, by the
Royalty Guarantor to Chicago Title Company for the use and
benefit of Chemical Trust Company of California.
4.26(b)* First Amendment to Royalty Deed of Trust dated as of June
20, 1996, by the Royalty Guarantor to Chicago Title Company
for the use and benefit of Chemical Trust Company of
California.
4.27* Stock Pledge Agreement (Pledge of Stock of Royalty
Guarantor by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power
Company and the Funding Corporation in favor of Chemical
Trust Company of California.
4.28* Collateral Assignment of the Imperial Irrigation District
Agreements, dated as of July 21, 1995, by SSBP, SSPG and
Fish Lake in favor of Chemical Trust Company of California.
4.29** Collateral Assignment of the Imperial Irrigation District
Agreements, dated as of June 20, 1996, by Vulcan, Elmore,
Leathers, VPC and Del Ranch in favor of Chemical Trust
Company of California.
4.30* Collateral Assignments of Certain Salton Sea Agreements,
dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in
favor of Chemical Trust Company of California.
4.31** Collateral Assignments of Certain Partnership Agreements,
dated as of June 20, 1996, by Vulcan, Elmore, Leathers and
Del Ranch in favor of Chemical Trust Company of California.
4.32** Debt Service Reserve Letter of Credit by Credit Suisse in
favor of Chemical Trust Company of California.
4.33** Partnership Project Note, dated June 20, 1996, by the
Partnership Guarantors in favor of the Funding Corporation
in the principal amount of $54,956,000.
4.34** Partnership Project Note, dated June 20, 1996, by the
Partnership Guarantors in favor of the Funding Corporation
in the principal amount of $135,000,000.
4.35** Deed of Trust, dated as of June 20, 1996, by Vulcan to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.36** Deed of Trust, dated as of June 20, 1996, by Elmore to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.37** Deed of Trust, dated as of June 20, 1996, by Leathers to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.38** Deed of Trust, dated as of June 20, 1996, by Del Ranch to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
II-5
<PAGE>
4.39** Stock Pledge Agreement, dated as of June 20, 1996, by CEOC,
pledging the stock of Conejo, Niguel and San Felipe in
favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation.
4.40** Stock Pledge Agreement, dated as of June 20, 1996, by VPC,
pledging the stock of BNG in favor of Chemical Trust
Company of California for the benefit of the Secured
Parties and the Funding Corporation.
4.41** Partnership Interest Pledge Agreement, dated as of June 20,
1996, by VPC and BNG, pledging the partnership interests in
Vulcan in favor of Chemical Trust Company of California for
the benefit of the Secured Parties and the Funding
Corporation.
4.42** Partnership Interest Pledge Agreement, dated as of June 20,
1996, by Magma, CEOC and each of Conejo, Niguel, San
Felipe, respectively, pledging the partnership interests in
Del Ranch, Elmore and Leathers, respectively, in favor of
Chemical Trust Company of California for the benefit of the
Secured Parties and the Funding Corporation.
4.43** Agreement regarding Security Documents, dated as of June
20, 1996, by and among the Initial Guarantors, Magma, SSPC,
the Funding Corporation and Chemical Trust Company of
California.
5.1** Opinion of Willkie Farr & Gallagher.
5.2** Opinion of Latham & Watkins.
5.3** Opinion of Lionel Sawyer & Collins.
10.1* Salton Sea Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake to Chicago Title Company for the
use and benefit of Chemical Trust Company of California.
10.2** First Amendment to Salton Sea Deed of Trust, Assignment of
Rents, Security Agreement and Fixed Filing, dated as of
June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title
Company for the use and benefit of Chemical Trust Company
of California.
10.3* Collateral Assignment of Southern California Edison Company
Agreements, dated as of July 21, 1995, by SSPG and Fish
Lake in favor of Chemical Trust Company of California.
10.4* Contract for the Purchase and Sale of Electric Power from
the Salton Sea Geothermal Facility, dated May 8, 1987 (the
"Unit 1 Power Purchase Agreement"), between Southern
California Edison Company and Earth Energy, Inc.
10.5* Amendment No. 1 to the Unit 1 Power Purchase Agreement,
dated as of March 30, 1993, between Southern California
Edison Company and Earth Energy, Inc.
II-6
<PAGE>
10.6* Amendment No. 2 to Unit 1 Power Purchase Agreement, dated
November 29, 1994, between Southern California Edison
Company and SSPG.
10.7* Contract for the Purchase and Sale of Electric Power, dated
April 16, 1985 (the "Unit 2 Power Purchase Agreement"),
between Southern California Edison Company and Westmorland
Geothermal Associates.
10.8* Amendment No. 1 to Unit 2 Power Purchase Agreement, dated
as of December 18, 1987, between Southern California Edison
Company and Earth Energy, Inc.
10.9* Power Purchase Contract, dated April 16, 1985 (the "Unit 3
Power Purchase Agreement"), between Southern California
Edison Company and Union Oil Company of California.
10.10* Power Purchase Contract (the "Unit 4 Power Purchase
Agreement"), dated November 29, 1994, between Southern
California Edison Company, SSPG and Fish Lake.
10.11* Plant Connection Agreement (Unit 2), dated October 3, 1989,
between the Imperial Irrigation District and Earth Energy,
Inc.
10.12* Plant Connection Agreement, dated August 2, 1988 (Unit 3),
between the Imperial Irrigation District and Desert Power
Company.
10.13* Imperial Irrigation District Funding and Construction
Agreements as amended (Units 2 and 3), dated as of June 29,
1987, among the Imperial Irrigation District, Earth Energy,
Inc., Chevron Geothermal Company of California, Geo East
Mesa No. 3, Inc., Magma Power Company, Desert Power
Company, Geo East Mesa No. 2, Inc., Heber Geothermal
Company, Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN
Geothermal Power Company, Union Oil Company of California,
Del Ranch L.P., Elmore L.P., Leathers L.P., Geo East Mesa
Limited Partnership and Imperial Resource Recovery
Associates, L.P.
10.14* Transmission Service Agreement, dated as of October 3, 1989
(Unit 2), between the Imperial Irrigation District and
Earth Energy, Inc.
10.15* Transmission Service Agreement, dated as of August 2, 1988
(Unit 3), between the Imperial Irrigation District and
Desert Power Company.
10.16* Plant Connection Agreement (Unit 4), dated as of July 14,
1995, by and between the Imperial Irrigation District, SSPG
and Fish Lake.
10.17* Letter Agreement, dated February 2, 1995, between Magma
Power Company and the Imperial Irrigation District.
10.18* Transmission Service Agreement (Unit 4), dated as of July
14, 1995, by and between the Imperial Irrigation District,
SSPG and Fish Lake.
10.19* Transmission Line Construction Agreement (Unit 4), dated
July 14, 1995, between the Imperial Irrigation District,
SSPG and Fish Lake.
II-7
<PAGE>
10.20* Funding Agreement, dated June 15, 1988 (Unit 2), between
Southern California Edison Company and Earth Energy, Inc.
10.21* Second Amended and Restated Administrative Services
Agreement, by and among CEOC, SSBP, SSPG and Fish Lake,
dated as of July 15, 1995.
10.22* Second Amended and Restated Operating and Maintenance
Agreement, dated as of July 15, 1995, by and among Magma
Power Company, SSBP, SSPG and Fish Lake.
10.23** Collateral Assignment of Southern California Edison Company
Agreements, dated as of June 20, 1996, by Vulcan, Elmore,
Leathers and Del Ranch in favor of Chemical Trust Company
of California.
10.24** Administrative Services Agreement, dated as of June 17,
1996, between CEOC and Vulcan.
10.25** Amended and Restated Construction, Operating and Accounting
Agreement, dated as of June 17, 1996, between VPC and
Vulcan.
10.26** Long Term Power Purchase Contract, dated March 1, 1984, as
amended, between SCE and Vulcan, as successor to Magma
Electric Company.
10.27** Transmission Service Agreement, dated as of December 1,
1988, between VPC and IID.
10.28** Plant Connection Agreement, dated as of December 1, 1988,
between VPC and IID.
10.29** Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Elmore.
10.30** Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Elmore.
10.31** Long Term Power Purchase Contract, dated June 15, 1984, as
amended, between SCE and Elmore, as successor to Magma
Electric Company.
10.32** Transmission Service Agreement, dated as of August 2, 1988,
as amended, between Elmore and IID.
10.33** Plant Connection Agreement, dated as of August 2, 1988,
between Elmore and IID.
10.34** Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Leathers.
10.35** Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Leathers.
10.36** Long Term Power Purchase Contract, dated August 16, 1985,
as amended, between SCE and Leathers, as successor to
Imperial Energy Corporation.
II-8
<PAGE>
10.37** Transmission Service Agreement, dated as of October 3,
1989, as amended, between Leathers and IID.
10.38** Plant Connection Agreement, dated as of October 3, 1989,
between Leathers and IID.
10.39** Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Del Ranch.
10.40** Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Del Ranch.
10.41** Long Term Power Purchase Contract, dated February 22, 1984,
as amended, between SCE and Del Ranch, as successor to
Magma.
10.42** Transmission Service Agreement, dated as of August 2, 1988,
as amended, between Del Ranch and IID.
10.43** Plant Connection Agreement, dated as of August 2, 1988,
between Del Ranch and IID.
10.44** Funding Agreement, dated May 18, 1990, between SCE and Del
Ranch.
10.45** Funding Agreement, dated May 18, 1990, between SCE and
Elmore.
10.46** Funding Agreement, dated June 15, 1990, between SCE and
Leathers.
10.47** Funding Agreement, dated May 18, 1990, between SCE and
Leathers.
10.48** Funding Agreement, dated May 18, 1990, between SCE and
Vulcan.
12.1 Statement regarding computation of Salton Sea Funding
Corporation ratio of earnings to fixed charges.
12.2 Statement regarding computation of Salton Sea Guarantors
ratio of earnings to fixed charges.
12.3 Statement regarding computation of Partnership Guarantors
ratio of earnings to fixed charges.
12.4 Statement regarding computation of Royalty Guarantor's
ratio of earnings to fixed charges.
15.1 Awareness letter of Deloitte & Touche LLP.
21.1** Subsidiaries of the Registrants.
23.1** Consent of Willkie Farr & Gallagher (included in their
opinion filed as Exhibit 5.1).
II-9
<PAGE>
23.2 Consent of Stone & Webster Engineering Corporation.
23.3 Consent of Coopers & Lybrand L.L.P., independent public
accountants.
23.4 Consent of Deloitte & Touche LLP, independent public
accountants.
23.5 Consent of Arthur Andersen LLP, independent public
accountants.
23.6** Consent of Latham & Watkins (included in their opinion
filed as Exhibit 5.2).
23.7** Consent of Lionel Sawyer & Collins (included in their
opinion filed as Exhibit 5.3).
24.1 Power of Attorney (included on signature page).
25.1 Statement on Form T-1 of Eligibility of Trustee.
27.1+ Financial Data Schedules relating to BNG, Niguel, San
Felipe and Conejo.
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
99.3** Letter to Clients.
99.4** Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees.
- -----------------------
* Incorporated by reference to the similarly described
exhibit filed as part of the Registration Statement on Form
S-4, Registration No. 33-95538, declared effective on
January 10, 1996.
** To be filed by amendment.
+ Incorporated by reference to the current Report on Form
8-K, File No. 001-0987, filed by CalEnergy with the
Commission on July 1, 1996.
II-10
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrants pursuant to the provisions described under Item 20 above,
or otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrants of expenses incurred or paid by a
director, officer or controlling person of the Registrants 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 Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
SALTON SEA FUNDING CORPORATION
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") in
connection with Salton Sea Funding Corporation's offer to exchange 7.02%
Senior Secured Series D Notes Due May 30, 2000 for any and all of its
outstanding 7.02% Senior Secured Series D Notes Due May 30, 2000; and offer to
exchange 8.30% Senior Secured Series E Bonds Due May 30, 2011 for any and all
of its outstanding 8.30% Senior Secured Series E Bonds Due May 30, 2011 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
II-12
<PAGE>
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
SALTON SEA BRINE PROCESSING L.P.
BY: Salton Sea Power Company
as its general partner
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
SALTON SEA POWER GENERATION L.P.
By: Salton Sea Power Company
as its general partner
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
FISH LAKE POWER COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
VULCAN POWER COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
CALENERGY OPERATING COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
SALTON SEA ROYALTY COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
BN GEOTHERMAL INC.
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
SAN FELIPE ENERGY COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
CONEJO ENERGY COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
NIGUEL ENERGY COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
VULCAN/BN GEOTHERMAL POWER COMPANY
By: Vulcan Power Company as its general partner
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
LEATHERS, L.P.
By: CalEnergy Operating Company
as its general partner
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
DEL RANCH, L.P.
By: CalEnergy Operating Company
as its general partner
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on July 2, 1996.
ELMORE, L.P.
By: CalEnergy Operating Company
as its general partner
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
The undersigned 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
this registration statement on Form S-4 (the "Registration Statement") 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, each thereunto duly authorized in the
City of Omaha, State of Nebraska, on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of Directors July 2, 1996
David L. Sokol and Chief Executive Officer
(Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, Chief July 2, 1996
John G. Sylvia Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Vice President, Controller and July 2, 1996
Gregory E. Abel and Chief Accounting Officer
(Principal Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating July 2, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General July 2, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
II-27
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
3.1* Articles of Incorporation of the Funding Corporation.
3.2* By-laws of the Funding Corporation.
3.3* Limited Partnership Agreement of SSBP.
3.4* Limited Partnership Agreement of SSPG.
3.5* Articles of Incorporation of Fish Lake.
3.6* By-laws of Fish Lake.
3.7* Articles of Incorporation of VPC.
3.8* By-laws of VPC.
3.9* Articles of Incorporation of CEOC.
3.10* By-laws of CEOC.
3.11* Articles of Incorporation of the Royalty Guarantor.
3.12* By-laws of the Royalty Guarantor.
3.13** Articles of Incorporation of BNG.
3.14** By-laws of BNG.
3.15** Articles of Incorporation of San Felipe.
3.16** By-laws of San Felipe.
3.17** Articles of Incorporation of Conejo.
3.18** By-laws of Conejo.
3.19** Articles of Incorporation of Niguel.
3.20** By-laws of Niguel.
3.21** General Partnership Agreement of Vulcan.
3.22** Limited Partnership Agreement of Leathers.
3.23** Amended and Restated Limited Partnership Agreement of Del
Ranch.
3.24** Amended and Restated Limited Partnership Agreement of Elmore.
4.1(a)* Indenture, dated as of July 21, 1995, between Chemical Trust
Company of California and the Funding Corporation.
4.1(b)* First Supplemental Indenture, dated as of October 18, 1995,
between Chemical Trust Company of California and the
Funding Corporation.
4.1(c)** Second Supplemental Indenture, dated as of June 20, 1996,
between Chemical Trust Company of California and the
Funding Corporation.
4.1(d)** Third Supplemental Indenture, between Chemical Trust Company
of California and the Funding Corporation.
4.2* Salton Sea Secured Guarantee, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake in favor of Chemical Trust Company
of California.
4.3** Amended and Restated Partnership Guarantors Secured Limited
Guarantee, dated as of June 20, 1996, by CEOC, and VPC,
Conejo, Niguel, San Felipe, BNG, Del Ranch, Elmore, Leathers
and Vulcan in favor of Chemical Trust Company of California.
4.4* Royalty Guarantor Secured Limited Guarantee, dated as of
July 21, 1995, by the Royalty Guarantor in favor of Chemical
Trust Company of California.
4.5** Exchange and Registration Rights Agreement, dated June 20,
1996, by and between CS First Boston Corporation and the
Funding Corporation.
4.6(a)* Collateral Agency and Intercreditor Agreement, dated as of
July 21, 1995, by and among Credit Suisse, Chemical Trust
Company of California, the Funding Corporation and the
Initial Guarantors.
4.6(b)** First Amendment to the Collateral Agency and
Intercreditor Agreement, dated as of June 20, 1996,
by and among Credit Suisse, Chemical Trust Company of
California, the Funding Corporation and the
Guarantors.
4.7* Stock Pledge Agreement, dated as of July 21, 1995, by Magma
Power Company in favor of Chemical Trust Company of
California.
4.8** Purchase Agreement, dated June 17, 1996, by and among CS
First Boston Corporation, the Guarantors and the Funding
Corporation.
4.9* Support Letter, dated as of July 21, 1995, by and among
Magma Power Company, the Funding Corporation and the
Initial Guarantors.
4.10* Debt Service Reserve Letter of Credit and Reimbursement
Agreement, dated as of July 21, 1995, by and among the
Funding Corporation, certain banks and Credit Suisse, as
agent.
4.11* Revolving Credit Agreement, dated as of July 21, 1995, by
and among Credit Suisse and the Funding Corporation.
4.12* Salton Sea Credit Agreement, dated July 21, 1995, by and
among SSBP, SSPG, Fish Lake and the Funding Corporation.
4.13* Salton Sea Project Note, dated July 21, 1995, by SSBP,
SSPG and Fish Lake in favor of the Funding Corporation.
4.14(a)* Deposit and Disbursement Agreement, dated as of July 21,
1995, by and among the Funding Corporation, Chemical Trust
Company of California and the Initial Guarantors.
4.14(b)** Amendment No. 1 to Deposit and Disbursement Agreement,
dated as of June 20, 1996, by and among the Funding
Corporation, Chemical Trust Company of California and the
Guarantors.
4.15* Partnership Interest Pledge Agreement, dated as of July 21,
1995, by Magma Power Company and Salton Sea Power Company
in favor of Chemical Trust Company of California.
4.16* Partnership Interest Pledge Agreement, dated as of July 21,
1995, by SSBP and Salton Sea Power Company in favor of
Chemical Trust Company of California.
4.17* Stock Pledge Agreement (Pledge of Stock of Fish Lake by
Magma Power Company and the Funding Corporation), dated as
of July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of
California.
4.18* Cost Overrun Commitment, dated as of July 21, 1995, between
CalEnergy, SSPG, SSBP and Fish Lake.
4.19** Amended and Restated Partnership Guarantors Credit
Agreement, dated June 20, 1996, by and among the
Partnership Guarantors and the Funding Corporation.
4.20* Partnership Guarantors Security Agreement and Assignment of
Rights, dated as of July 21, 1995, by CEOC and VPC in favor
of Chemical Trust Company of California.
4.21* Stock Pledge Agreement (Pledge of Stock of CEOC by Magma
Power Company and the Funding Corporation), dated as of
July 21, 1995, by Magma Power Company and Funding
Corporation in favor of Chemical Trust Company of
California.
4.22* Stock Pledge Agreement (Pledge of Stock of VPC by Magma
Power Company and the Funding Corporation), dated as of
July 21, 1995, by Magma Power Company and the Funding
Corporation in favor of Chemical Trust Company of
California.
4.23* Royalty Guarantor Credit Agreement, among the Royalty
Guarantor and the Funding Corporation, dated as of July 21,
1995.
4.24* Royalty Project Note, dated as of July 21, 1995, by the
Royalty Guarantor in favor of the Funding Corporation.
4.25* Royalty Security Agreement and Assignment of Revenues,
dated as of July 21, 1995, by the Royalty Guarantor in
favor of Chemical Trust Company of California.
4.26(a)* Royalty Deed of Trust, dated as of July 21, 1995, by the
Royalty Guarantor to Chicago Title Company for the use and
benefit of Chemical Trust Company of California.
4.26(b)* First Amendment to Royalty Deed of Trust dated as of June
20, 1996, by the Royalty Guarantor to Chicago Title Company
for the use and benefit of Chemical Trust Company of
California.
4.27* Stock Pledge Agreement (Pledge of Stock of Royalty
Guarantor by Magma Power Company and the Funding
Corporation), dated as of July 21, 1995, by Magma Power
Company and the Funding Corporation in favor of Chemical
Trust Company of California.
4.28* Collateral Assignment of the Imperial Irrigation District
Agreements, dated as of July 21, 1995, by SSBP, SSPG and
Fish Lake in favor of Chemical Trust Company of California.
4.29** Collateral Assignment of the Imperial Irrigation District
Agreements, dated as of June 20, 1996, by Vulcan, Elmore,
Leathers, VPC and Del Ranch in favor of Chemical Trust
Company of California.
4.30* Collateral Assignments of Certain Salton Sea Agreements,
dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in
favor of Chemical Trust Company of California.
4.31** Collateral Assignments of Certain Partnership Agreements,
dated as of June 20, 1996, by Vulcan, Elmore, Leathers and
Del Ranch in favor of Chemical Trust Company of California.
4.32** Debt Service Reserve Letter of Credit by Credit Suisse in
favor of Chemical Trust Company of California.
4.33** Partnership Project Note, dated June 20, 1996, by the
Partnership Guarantors in favor of the Funding Corporation
in the principal amount of $54,956,000.
4.34** Partnership Project Note, dated June 20, 1996, by the
Partnership Guarantors in favor of the Funding Corporation
in the principal amount of $135,000,000.
4.35** Deed of Trust, dated as of June 20, 1996, by Vulcan to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.36** Deed of Trust, dated as of June 20, 1996, by Elmore to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.37** Deed of Trust, dated as of June 20, 1996, by Leathers to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.38** Deed of Trust, dated as of June 20, 1996, by Del Ranch to
Chicago Title Company for the use and benefit of Chemical
Trust Company of California.
4.39** Stock Pledge Agreement, dated as of June 20, 1996, by CEOC,
pledging the stock of Conejo, Niguel and San Felipe in
favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation.
4.40** Stock Pledge Agreement, dated as of June 20, 1996, by VPC,
pledging the stock of BNG in favor of Chemical Trust
Company of California for the benefit of the Secured
Parties and the Funding Corporation.
4.41** Partnership Interest Pledge Agreement, dated as of June 20,
1996, by VPC and BNG, pledging the partnership interests in
Vulcan in favor of Chemical Trust Company of California for
the benefit of the Secured Parties and the Funding
Corporation.
4.42** Partnership Interest Pledge Agreement, dated as of June 20,
1996, by Magma, CEOC and each of Conejo, Niguel, San
Felipe, respectively, pledging the partnership interests in
Del Ranch, Elmore and Leathers, respectively, in favor of
Chemical Trust Company of California for the benefit of the
Secured Parties and the Funding Corporation.
4.43** Agreement regarding Security Documents, dated as of June
20, 1996, by and among the Initial Guarantors, Magma, SSPC,
the Funding Corporation and Chemical Trust Company of
California.
5.1** Opinion of Willkie Farr & Gallagher.
5.2** Opinion of Latham & Watkins.
5.3** Opinion of Lionel Sawyer & Collins.
10.1* Salton Sea Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of July 21, 1995, by
SSBP, SSPG and Fish Lake to Chicago Title Company for the
use and benefit of Chemical Trust Company of California.
10.2** First Amendment to Salton Sea Deed of Trust, Assignment of
Rents, Security Agreement and Fixed Filing, dated as of
June 20, 1996, by SSBP, SSPG and Fish Lake to Chicago Title
Company for the use and benefit of Chemical Trust Company
of California.
10.3* Collateral Assignment of Southern California Edison Company
Agreements, dated as of July 21, 1995, by SSPG and Fish
Lake in favor of Chemical Trust Company of California.
10.4* Contract for the Purchase and Sale of Electric Power from
the Salton Sea Geothermal Facility, dated May 8, 1987 (the
"Unit 1 Power Purchase Agreement"), between Southern
California Edison Company and Earth Energy, Inc.
10.5* Amendment No. 1 to the Unit 1 Power Purchase Agreement,
dated as of March 30, 1993, between Southern California
Edison Company and Earth Energy, Inc.
10.6* Amendment No. 2 to Unit 1 Power Purchase Agreement, dated
November 29, 1994, between Southern California Edison
Company and SSPG.
10.7* Contract for the Purchase and Sale of Electric Power, dated
April 16, 1985 (the "Unit 2 Power Purchase Agreement"),
between Southern California Edison Company and Westmorland
Geothermal Associates.
10.8* Amendment No. 1 to Unit 2 Power Purchase Agreement, dated
as of December 18, 1987, between Southern California Edison
Company and Earth Energy, Inc.
10.9* Power Purchase Contract, dated April 16, 1985 (the "Unit 3
Power Purchase Agreement"), between Southern California
Edison Company and Union Oil Company of California.
10.10* Power Purchase Contract (the "Unit 4 Power Purchase
Agreement"), dated November 29, 1994, between Southern
California Edison Company, SSPG and Fish Lake.
10.11* Plant Connection Agreement (Unit 2), dated October 3, 1989,
between the Imperial Irrigation District and Earth Energy,
Inc.
10.12* Plant Connection Agreement, dated August 2, 1988 (Unit 3),
between the Imperial Irrigation District and Desert Power
Company.
10.13* Imperial Irrigation District Funding and Construction
Agreements as amended (Units 2 and 3), dated as of June 29,
1987, among the Imperial Irrigation District, Earth Energy,
Inc., Chevron Geothermal Company of California, Geo East
Mesa No. 3, Inc., Magma Power Company, Desert Power
Company, Geo East Mesa No. 2, Inc., Heber Geothermal
Company, Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN
Geothermal Power Company, Union Oil Company of California,
Del Ranch L.P., Elmore L.P., Leathers L.P., Geo East Mesa
Limited Partnership and Imperial Resource Recovery
Associates, L.P.
10.14* Transmission Service Agreement, dated as of October 3, 1989
(Unit 2), between the Imperial Irrigation District and
Earth Energy, Inc.
10.15* Transmission Service Agreement, dated as of August 2, 1988
(Unit 3), between the Imperial Irrigation District and
Desert Power Company.
10.16* Plant Connection Agreement (Unit 4), dated as of July 14,
1995, by and between the Imperial Irrigation District, SSPG
and Fish Lake.
10.17* Letter Agreement, dated February 2, 1995, between Magma
Power Company and the Imperial Irrigation District.
10.18* Transmission Service Agreement (Unit 4), dated as of July
14, 1995, by and between the Imperial Irrigation District,
SSPG and Fish Lake.
10.19* Transmission Line Construction Agreement (Unit 4), dated
July 14, 1995, between the Imperial Irrigation District,
SSPG and Fish Lake.
10.20* Funding Agreement, dated June 15, 1988 (Unit 2), between
Southern California Edison Company and Earth Energy, Inc.
10.21* Second Amended and Restated Administrative Services
Agreement, by and among CEOC, SSBP, SSPG and Fish Lake,
dated as of July 15, 1995.
10.22* Second Amended and Restated Operating and Maintenance
Agreement, dated as of July 15, 1995, by and among Magma
Power Company, SSBP, SSPG and Fish Lake.
10.23** Collateral Assignment of Southern California Edison Company
Agreements, dated as of June 20, 1996, by Vulcan, Elmore,
Leathers and Del Ranch in favor of Chemical Trust Company
of California.
10.24** Administrative Services Agreement, dated as of June 17,
1996, between CEOC and Vulcan.
10.25** Amended and Restated Construction, Operating and Accounting
Agreement, dated as of June 17, 1996, between VPC and
Vulcan.
10.26** Long Term Power Purchase Contract, dated March 1, 1984, as
amended, between SCE and Vulcan, as successor to Magma
Electric Company.
10.27** Transmission Service Agreement, dated as of December 1,
1988, between VPC and IID.
10.28** Plant Connection Agreement, dated as of December 1, 1988,
between VPC and IID.
10.29** Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Elmore.
10.30** Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Elmore.
10.31** Long Term Power Purchase Contract, dated June 15, 1984, as
amended, between SCE and Elmore, as successor to Magma
Electric Company.
10.32** Transmission Service Agreement, dated as of August 2, 1988,
as amended, between Elmore and IID.
10.33** Plant Connection Agreement, dated as of August 2, 1988,
between Elmore and IID.
10.34** Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Leathers.
10.35** Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Leathers.
10.36** Long Term Power Purchase Contract, dated August 16, 1985,
as amended, between SCE and Leathers, as successor to
Imperial Energy Corporation.
10.37** Transmission Service Agreement, dated as of October 3,
1989, as amended, between Leathers and IID.
10.38** Plant Connection Agreement, dated as of October 3, 1989,
between Leathers and IID.
10.39** Amended and Restated Administrative Services Agreement,
dated as of June 17, 1996, between CEOC and Del Ranch.
10.40** Amended and Restated Operating and Maintenance Agreement,
dated as of June 17, 1996, between CEOC and Del Ranch.
10.41** Long Term Power Purchase Contract, dated February 22, 1984,
as amended, between SCE and Del Ranch, as successor to
Magma.
10.42** Transmission Service Agreement, dated as of August 2, 1988,
as amended, between Del Ranch and IID.
10.43** Plant Connection Agreement, dated as of August 2, 1988,
between Del Ranch and IID.
10.44** Funding Agreement, dated May 18, 1990, between SCE and Del
Ranch.
10.45** Funding Agreement, dated May 18, 1990, between SCE and
Elmore.
10.46** Funding Agreement, dated June 15, 1990, between SCE and
Leathers.
10.47** Funding Agreement, dated May 18, 1990, between SCE and
Leathers.
10.48** Funding Agreement, dated May 18, 1990, between SCE and
Vulcan.
12.1 Statement regarding computation of Salton Sea Funding
Corporation ratio of earnings to fixed charges.
12.2 Statement regarding computation of Salton Sea Guarantors
ratio of earnings to fixed charges.
12.3 Statement regarding computation of Partnership Guarantors
ratio of earnings to fixed charges.
12.4 Statement regarding computation of Royalty Guarantor's
ratio of earnings to fixed charges.
15.1 Awareness letter of Deloitte & Touche LLP.
21.1** Subsidiaries of the Registrants.
23.1** Consent of Willkie Farr & Gallagher (included in their
opinion filed as Exhibit 5.1).
23.2 Consent of Stone & Webster Engineering Corporation.
23.3 Consent of Coopers & Lybrand L.L.P., independent public
accountants.
23.4 Consent of Deloitte & Touche LLP, independent public
accountants.
23.5 Consent of Arthur Andersen LLP, independent public
accountants.
23.6** Consent of Latham & Watkins (included in their opinion
filed as Exhibit 5.2).
23.7** Consent of Lionel Sawyer & Collins (included in their
opinion filed as Exhibit 5.3).
24.1 Power of Attorney (included on signature page).
25.1 Statement on Form T-1 of Eligibility of Trustee.
27.1+ Financial Data Schedules relating to BNG, Niguel, San
Felipe and Conejo by CalEnergy
99.1** Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
99.3** Letter to Clients.
99.4** Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees.
- -----------------------
* Incorporated by reference to the similarly described
exhibit filed as part of the Registration Statement on Form
S-4, Registration No. 33-95538, declared effective on
January 10, 1996.
** To be filed by amendment.
+ Incorporated by reference to the current Report on Form
8-K, File No. 001-0987, filed by CalEnergy with the
Commission on July 1, 1996.
Exhibit 12.1
SALTON SEA FUNDING CORPORATION
Ratio of Earnings to Fixed Charges
(Amounts in Thousands, except ratio)
<TABLE>
<CAPTION>
From
June 20, 1995
(Inception Date)
Three Months through
Ended December 31,
March 31, 1996 1995
----------- -----------
<S> <C> <C>
Pre-tax income from continuing operations 870 2,555
Capitalized interest, net of amortization
----------- -----------
870 2,555
Fixed Charges:
Interest expense and amortization of
deferred finance charges on all
indebtedness 7,990 15,022
----------- -----------
Interest portion of lease rentals
Total fixed charges 7,990 15,022
----------- -----------
Earnings before income taxes, and
fixed charges 8,860 17,577
=========== ===========
Ratio of earnings to fixed charges 1.109 1.170
----------- -----------
</TABLE>
Exhibit 12.2
SALTON SEA GUARANTORS
Ratio of Earnings to Fixed Charges
(Amounts in Thousands, except ratio)
<TABLE>
<CAPTION>
NINE MONTHS
THREE MONTHS ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31,
------------------------- ------------------------ ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-tax income from
continuing operations 4,861 2,824 19,348 31,943 29,131
Capitalized interest, net of
amortization (3,300) (9,178)
------- ------- ------- ------- -------
1,561 2,824 10,170 31,943 29,131
Fixed Charges:
Interest expense and
amortization of deferred
finance charges on all
indebtedness 6,257 4,256 24,783 8,240 4,267
Interest portion of lease
rentals
------- ------- ------- ------- -------
Total fixed charges 6,257 4,256 24,783 8,240 4,267
------- ------- ------- ------- -------
Earnings before income
taxes, and fixed charges 7,818 7,080 34,953 40,183 33,398
======= ======= ======= ======= =======
Ratio of earnings to fixed
charges 1.249 1.664 1.410 4.877 7.827
</TABLE>
Exhibit 12.3
PARTNERSHIP GUARANTORS
Ratio of Earnings to Fixed Charges
(Amounts in Thousands, except ratio)
<TABLE>
<CAPTION>
Three Months
Ended Period Ended
March 31, December 31,
----------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ----- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations 5,394 4,784 27,556 28,422 21,499 17,787 17,510
Capitalized interest, net of
amortization (2,007) (7,900) 765 765 765 765
------- ------- ------- ------- ------- ------- -------
3,387 4,784 19,656 29,187 22,264 18,552 18,275
Fixed Charges:
Interest expense and amortization
of deferred finance charges on
all indebtedness 2,007 3,209 16,726 3,285 3,712 4,782 6,374
Interest portion of lease rentals
Total fixed charges 2,007 3,209 16,726 3,285 3,712 4,782 6,374
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes, and 5,394 7,993 36,382 32,472 25,976 23,334 24,649
======= ======= ======= ======= ======= ======= =======
fixed charges
Ratio of earnings to fixed charges 2.688 2.491 2.175 9.885 6.998 4.880 3.867
</TABLE>
Exhibit 12.4
SALTON SEA ROYALTY COMPANY
Ratio of Earnings to Fixed Charges
(Amounts in Thousands, except ratio)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended
---------------------------- December 31,
1996 1995 1995
------ ---- ------------
<S> <C> <C> <C>
Pre-tax income from continuing operations 1,306 2,385 5,565
Capitalized interest, net of amortization
-------- -------- --------
1,306 2,385 5,565
Fixed Charges:
Interest expense and amortization of
deferred finance charges on all indebtedness 1,358 1,540 4,757
Interest portion of lease rentals -------- -------- --------
Total fixed charges 1,358 1,540 4,757
-------- -------- --------
Earnings before income taxes, and fixed charges 2,664 3,925 10,322
======== ======== ========
Ratio of earnings to fixed charges 1.962 2.549 2.170
</TABLE>
Exhibit 15.1
Board of Directors and Stockholder
Magma Power Company
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 the Salton Sea Funding Corporation for the three
month period ended March 31, 1996 and the Salton Sea Guarantors, the
Partnership Guarantors, and the Salton Sea Royalty Company for the three month
periods ended March 31, 1996 and 1995, as indicated in our reports dated April
25, 1996; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our reports referred to above are being included in the
Prospectus which is part of this Registration Statement on Form S-4.
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 that Act.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 2, 1996
[LETTERHEAD OF STONE & WEBSTER ENGINEERING CORPORATION]
INDEPENDENT ENGINEER'S CONSENT
We consent to the incorporation in this Registration Statement of Salton Sea
Funding Corporation, Salton Sea Brine Processing, L.P., Salton Sea Power
Generation, L.P., Fish Lake Power Company, Vulcan Power Company, CalEnergy
Operating Company, Conejo Energy Company, Niguel Energy Company, San Felipe
Energy Company, BN Geothermal Inc., Elmore, L.P., Leathers, L.P., Del Ranch,
L.P., Vulcan/BN Geothermal Power Company, and Salton Sea Royalty Company on Form
S-4 of our report dated June 17, 1996 of our analysis of the Salton Sea Project
and Partnership Project facilities.
STONE & WEBSTER ENGINEERING CORPORATION
/s/ R.E. McDonald
- ----------------------
By: R.E. McDonald
Title: Project Manager
Denver, Colorado
July 3, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Salton Sea
Funding Corporation on Form S-4 of: (i) our report dated June 19, 1995 on our
audits of the combined predecessor financial statements of the Partnership
Guarantors as of December 31, 1994 and for each of the two years in the period
ended December 31, 1994, (ii) our report dated June 19, 1995 on our audits of
the combined predecessor financial statements of Salton Sea Guarantors as of
December 31, 1994 and for the year ended December 31, 1994 and for the nine
month period from April 1, 1993 (date of acquisition) to December 31, 1993 and
(iii) our report dated June 19, 1995 on our audits of the predecessor
summaries of revenues and related expenses of Salton Sea Royalty Company for
each of the two years in the period ended December 31, 1994 on the basis of
presentation described in the notes thereto.
We also consent to the reference to our Firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
San Diego, California
July 2, 1996
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Salton Sea Funding
Corporation on Form S-4 of the reports of Deloitte & Touche LLP dated January
26, 1996 relating to the balance sheets of Salton Sea Funding Corporation as
of June 20, 1995 (inception date) and December 31, 1995 and the related
statements of operations, stockholder's equity and cash flows for the period
from June 20, 1995 through December 31, 1995 and of Salton Sea Guarantors,
Partnership Guarantors and Salton Sea Royalty Company balance sheets as of
December 31, 1995 and the related statements of operations, stockholder's
equity and cash flows for the year ended December 31, 1995 appearing in the
Prospectus and to the reference to Deloitte & Touche LLP under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 2, 1996
Exhibit 23.5
We consent to the incorporation by reference in the Registration Statement of
Salton Sea Funding Corporation on Form S-4 of our reports dated June 7, 1996
on the financial statements of BN Geothermal, Inc., Conejo Energy Company, San
Felipe Energy Company and Niguel Energy Company incorporated by reference in
the Registration Statement and to all references to our Firm included in this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Orange County, California
July 2, 1996
-------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(B)(2)_________
---------------------------
CHEMICAL TRUST COMPANY OF CALIFORNIA
(formerly Manufacturers Hanover Trust Company of California)
(Exact name of trustee as specified in its charter)
CALIFORNIA 94-2926573
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
50 California Street
San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
---------------------------
SALTON SEA FUNDING CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 47-0790493
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
302 South 36th Street, Suite 400-A
Omaha, Nebraska 68131
(Address of principal executive offices) (Zip Code)
---------------------------
7.02% Senior Secured Series D Notes due May 30, 2000
8.30% Senior Secured Series E Bonds due May 30, 2011
(Title of the indenture securities)
----------------------------------
1
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Superintendent of Banks of the State of California,
235 Montgomery Street, San Francisco, California
94104-2980.
Board of Governors of the Federal Reserve System,
Washington, D.C. 20551
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES
a) Title of the securities outstanding under each such other
indenture.
$475,000,000 Series A Notes, B & C Bonds issued under
Indenture dated as of 7-21-95
b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section 310 (b) (1)
of the Act arises as a result of the trusteeship under any such other
indenture, including a statement as to how the indenture securities will rank
as compared with the securities issued under such other indenture.
The Trustee is not deemed to have a conflicting interest
within the meaning of Section 310 (b) (1) of the Act because (i) the indenture
securities referenced in (a) above (the "Prior Securities") are not in default
and (ii) proviso (i) under 310 (b) (1) is applicable and excludes the
operations of 310 (b) (1) as the indenture to be qualified and the indenture
entered into in connection with the Prior Securities (the "Prior Indenture")
are wholly unsecured and rank equally and the Prior Indenture is specifically
described in the indenture to be qualified.
ITEM 16. LIST OF EXHIBITS
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Incorporation of the Trustee as
now in effect, including the Restated Articles of Incorporation dated
December 23, 1986 and the Certificate of Amendment dated March 26, 1992 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No.
33-55136, which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to
Commence Business (See Exhibit 2 to Form T-1 filed in connection with
Registration Statement No. 33-55136, which is incorporated by reference).
3. Authorization to exercise corporate trust powers
(Contained in Exhibit 2).
2
<PAGE>
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4
to Form T-1 filed in connection with Registration Statement No. 33-55136,
which is incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 21(b) of the
Act (See Exhibit 6 to Form T-1 filed in connection with Registration Statement
No. 33-55136, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chemical Trust Company of California, a corporation organized and
existing under the laws of the State of California, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of San Francisco and State of
California, on the 2nd day of July, 1996.
CHEMICAL TRUST COMPANY OF CALIFORNIA
By /s/ Rose T. Maravilla
---------------------------------
ROSE T. MARAVILLA
Assistant Vice President
4
<PAGE>
EXHIBIT 7. Report of Condition of the Trustee.
- ----------------------------------------------------------------------------
5
<PAGE>
TRUST COMPANY
CONSOLIDATED REPORT OF CONDITION OF Chemical Trust Company of California
---------------------------------------
(Legal Title)
LOCATED AT San Francisco San Francisco CA 94111
--------------------------------------------------------------------
(City) (County) (State) (Zip)
AS OF CLOSE OF BUSINESS ON March 31, 1996 BANK NO. 1476
----------------------------------------------------
===============================================================================
===============================================================================
ASSETS DOLLAR AMOUNT IN THOUSANDS
1. Cash and due from banks 73
2. U.S. Treasury securities 10054
3. Obligations of other U.S. Government agencies and corporations
4. Obligations of States and political subdivisions
5. Other securities 11000
(a) Loans
(b) Less: Reserve for possible loan losses
(c) Loans (Net) 0
7. (a) Bank Premises, furniture and fixtures and other assets
representing bank premises 137
(b) Capital leases included in 7(a) above
8. Real estate owned other than bank premises
9. Investments in subsidiaries not consolidated
10. Other assets (complete schedule on reverse) 1352
11. TOTAL ASSETS 22616
=====
LIABILITIES
12. Liabilities for borrowed money
13. Mortage indebtedness
14. Other liabilities 3596
15. TOTAL LIABILITIES 3596
16. Capital notes and debentures 3596
=====
SHAREHOLDERS EQUITY
17. Preferred stock--
(a) Number shares outstanding
18. Common stock-- 10
(a) Number shares authorized 100
(b) Number shares outstanding 100
19. Surplus. 9990
20. TOTAL CONTRIBUTED CAPITAL 10000
21. Retained earnings and other capital reserves 9020
22. TOTAL SHAREHOLDERS EQUITY 19020
23. TOTAL LIABILITIES AND CAPITAL ACCOUNTS 22616
=====
6
<PAGE>
MEMORANDA
1. Assets deposited with State Treasurer to qualify for exercise of
fiduciary powers (market value) 626
- ------------------------------------------------------------------------------
The undersigned,
Frank J. Seidel Vice President & Manager
- --------------- ------------------------
Francis J. Farrell Vice President & Manager
- ------------------ ------------------------
(Name and Title)
of the above named trust company, each declares, for himself alone and not for
the other: I have a personal knowledge of the matters contained in this report
(including the reverse side hereof), and I believe that each statement in said
report is true. Each of the undersigned, for himself alone and not for the
other, certifies under penalty of perjury that the foregoing is true and
correct.
Executed on 4/29/96 at San Francisco , California
--------------------------------------------------- --------------
(Date) (City)
/s/ Frank J. Seidel /s/ Francis J. Farrell
---------------------- ----------------------
(Signature) (Signature)
SCHEDULE OF OTHER ASSETS
Accounts Receivable-Trade 655
Accounts Receivable-Chemical 0
Accrued Interest-Receivable 73
Deferred Taxes 396
Other 228
Total (same as Item 10) 1352
=======
SCHEDULE OF OTHER LIABILITIES
Accrued Income Tax 2472
Accrued Expenses & A/P 65
Accrued Inter company Exp/Pay 94
Other 965
Total (same as Item 14) 3596
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7
