<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1997
REGISTRATION NO. 333-30537
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CALENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 94-2213782
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
302 SOUTH 36TH STREET, SUITE 400
OMAHA, NE 68131
(402) 341-4500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
CALENERGY CAPITAL TRUST II
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE APPLIED FOR
(State or other jurisdiction (I.R.S. EMPLOYER
of incorporation or organization) IDENTIFICATION NO.)
</TABLE>
302 SOUTH 36TH STREET, SUITE 400
OMAHA, NE 68131
(402) 341-4500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
STEVEN A. MCARTHUR, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CALENERGY COMPANY, INC.
302 SOUTH 36TH STREET, SUITE 400
OMAHA, NE 68131
(402) 341-4500
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copy to:
PETER J. HANLON, ESQ.
WILLKIE FARR & GALLAGHER
ONE CITICORP CENTER
153 EAST 53RD STREET
NEW YORK, NY 10022
(212) 821-8000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
==============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 24, 1997
PROSPECTUS
[CALENERGY LOGO]
3,600,000 Trust Convertible Preferred Securities
CALENERGY CAPITAL TRUST II
6-1/4% Trust Convertible Preferred Securities
(Liquidation Preference $50 per Trust Convertible Preferred Security)
Guaranteed to the extent set forth herein by
and convertible into the Common Stock of
CALENERGY COMPANY, INC.
$50 per Trust Convertible Preferred Security
-------------------
This Prospectus relates to the 6-1/4% Trust Convertible Preferred
Securities (the "Convertible Preferred Securities") of CalEnergy Capital
Trust II, a statutory business trust formed under the laws of the State of
Delaware (the "Issuer" or the "Trust"), which represent undivided beneficial
ownership interests in the assets of the Trust, and the shares of the common
stock, par value $.0675 per share ("Common Stock"), of CalEnergy Company,
Inc., a Delaware corporation ("CalEnergy" or the "Company"), issuable upon
conversion of the Convertible Preferred Securities. The Convertible Preferred
Securities were issued and sold (the "Original Offering") on February 26,
1997 (the "Original Offering Date") to the Initial Purchasers (as defined
herein) and were simultaneously sold by the Initial Purchasers in
transactions exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), in the United States to persons
reasonably believed by the Initial Purchasers to be qualified institutional
buyers in reliance on Rule 144A under the Securities Act, to a limited number
of institutional "accredited investors" (as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) and outside the United States to persons
other than U.S. persons in reliance upon Regulation S under the Securities
Act. The Company directly or indirectly owns all of the common securities
issued by the Issuer (the "Common Securities" and together with the
Convertible Preferred Securities, the "Trust Securities"). The Issuer was
formed for the sole purpose of issuing the Trust Securities and using the
proceeds thereof to purchase from the Company its 6-1/4% Convertible Junior
Subordinated Debentures due 2012 (the "Convertible Junior Subordinated
Debentures") having the terms described herein. The holders of Convertible
Preferred Securities will have a preference with respect to cash
distributions and amounts payable upon liquidation, redemption or otherwise
over the holders of the Common Securities of the Issuer.
The Convertible Preferred Securities, the Convertible Junior Subordinated
Debentures and the Common Stock issuable upon conversion of the Convertible
Preferred Securities (the "Offered Securities") may be offered and sold from
time to time by the holders named herein or by their transferees, pledgees,
donees or their successors (collectively, the "Selling Holders") pursuant to
this Prospectus. The Offered Securities may be sold by the Selling Holders
from time to time directly to purchasers or, under certain circumstances,
through agents, underwriters or dealers. See "Plan of Distribution" and
"Selling Holders." If required, the names of any other Selling Holders,
agents or underwriters involved in the sale of the Offered Securities and the
applicable agent's commission, dealer's purchase price or underwriter's
discount, if any, will be set forth in an accompanying supplement to this
Prospectus (a "Prospectus Supplement"). The Selling Holders will receive all
of the proceeds from the sale of the Offered Securities and will pay all
underwriting discounts and selling commissions, if any, applicable to any
such sale. The Company is responsible for payment of all other expenses
incident to the offer and sale of the Offered Securities. The Selling Holders
and any broker-dealers, agents or underwriters which participate in the
distribution of the Offered Securities may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission received by them
and any profit on the resale of the Offered Securities purchased by them may
be deemed to be underwriting commissions or discounts under the Securities
Act. See "Plan of Distribution" for a description of indemnification
arrangements.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT PROSPECTIVE INVESTORS SHOULD CONSIDER PRIOR TO AN INVESTMENT IN THE
CONVERTIBLE PREFERRED SECURITIES.
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.
The date of this Prospectus is , 1997
<PAGE>
(continued from front cover)
Holders of the Convertible Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of 6-1/4% of the liquidation
preference of $50 per each of the Convertible Preferred Securities, accruing
from the date of original issuance and payable quarterly in arrears on each
March 1, June 1, September 1 and December 1, commencing June 1, 1997. See
"Description of the Convertible Preferred Securities--Distributions." The
distribution payable on June 1, 1997, which was calculated at the above rate
and based on a period that is longer than a full quarter, was in the amount
of $0.82465 per Convertible Preferred Security. The payment of distributions
and payments on liquidation of the Issuer or the redemption of Convertible
Preferred Securities, as described below (but only to the extent of funds of
the Issuer available therefor), are guaranteed by the Company to the extent
described herein (the "Guarantee"). The Company's obligations under the
Guarantee are subordinate and junior to all other liabilities of the Company,
except any liabilities that may be made pari passu expressly by their terms
and certain other guarantees, but are pari passu with the most senior
preferred stock issued, from time to time, if any, by the Company. See
"Description of the Guarantee." If the Company fails to make interest
payments on the Convertible Junior Subordinated Debentures, the Issuer will
have insufficient funds to pay distributions on the Convertible Preferred
Securities. The Guarantee does not cover payment of distributions when the
Issuer does not have sufficient funds to pay such distributions. The
Guarantee, when taken together with the Company's obligations under the
Convertible Junior Subordinated Debentures and the Indenture (as defined
herein) and its obligations under the Declaration (as defined herein),
including its obligation to pay costs, expenses, debts and other obligations
of the Issuer (other than with respect to the Trust Securities), provide a
full and unconditional guarantee of amounts due on the Convertible Preferred
Securities. The obligations of the Company under the Convertible Junior
Subordinated Debentures are subordinate and junior in right of payment to
Senior Indebtedness (as defined herein) of the Company. At March 31, 1997,
Senior Indebtedness consisting of borrowed money of the Company aggregated
approximately $953.8 million. See "Capitalization."
The Company has the right under the Indenture to defer the interest
payments due from time to time on the Convertible Junior Subordinated
Debentures for successive periods not exceeding 20 consecutive quarters for
each such period, and, as a consequence, quarterly distributions on the
Convertible Preferred Securities would be deferred by the Issuer (but would
continue to accumulate quarterly and accrue interest) until the end of any
such interest deferral period. See "Risk Factors--Option to Extend Interest
Payment Period; Tax Consequences," "Description of the Convertible Preferred
Securities--Distributions" and "Description of the Convertible Junior
Subordinated Debentures--Option to Extend Interest Payment Period."
Each of the Convertible Preferred Shares is convertible in the manner
described herein at the option of the holder into shares of Common Stock at
the rate of 1.1655 shares of the Common Stock for each of the Convertible
Preferred Securities (equivalent to a conversion price of $42.90 per share of
Common Stock), subject to adjustment in certain circumstances. See
"Description of the Convertible Preferred Securities--Conversion Rights." The
last reported sale price of the Common Stock (which is listed under the
symbol "CE" on the New York Stock Exchange) on July 23, 1997, was $37.5625
per share.
The Convertible Preferred Securities are effectively redeemable at the
option of the Company, in whole or in part, from time to time, after March 3,
2000, at the prices set forth herein, plus accrued and unpaid distributions
thereon to the date fixed for redemption (the "Redemption Price"). See
"Description of the Convertible Preferred Securities--Optional Redemption."
The Company therefore will be required to make twelve interest payments
before being able to redeem any Convertible Preferred Securities, other than
under certain circumstances following a Tax Event (as defined herein). Upon
the repayment of the Convertible Junior Subordinated Debentures at maturity
or upon any acceleration, earlier redemption, or otherwise, the proceeds from
such repayment will be applied to redeem the Convertible Preferred Securities
and the Common Securities on a pro rata basis. In addition, upon the
occurrence of certain events arising from a change in law or a change in
legal interpretation, the Company will liquidate the Issuer and cause to be
distributed to the holders of the Convertible Preferred Securities, on a pro
rata basis, Convertible Junior Subordinated Debentures or, in certain limited
circumstances, will cause the redemption of the Convertible Preferred
Securities in whole at the liquidation preference of $50 per each of the
Convertible Preferred Securities plus accrued and unpaid distributions. See
"Description of the Convertible Preferred Securities--Tax Event or Investment
Company Event Redemption or Distribution" and "Description of the Convertible
Junior Subordinated Debentures."
2
<PAGE>
In the event of the liquidation of the Issuer, the holders of the
Convertible Preferred Securities will be entitled to receive for each of the
Convertible Preferred Securities a liquidation preference of $50 plus accrued
and unpaid distributions thereon to the date of payment, unless, in
connection with such liquidation, Convertible Junior Subordinated Debentures
are distributed to the holders of the Convertible Preferred Securities. See
"Description of the Convertible Preferred Securities--Liquidation
Distribution Upon Dissolution."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy and
information statements and other information filed by the Company with the
SEC can be inspected and copied at the Public Reference Section of the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the SEC located at Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains a
Web site that contains reports, proxy and information statements and other
materials that are filed through the SEC's Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system. This Web site can be accessed at
http://www.sec.gov. Such reports, proxy and information statements and other
information can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the SEC a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
by this Prospectus. This Prospectus does not contain all of the information
set forth or incorporated by reference in the Registration Statement and the
exhibits and schedules related thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the SEC. For further
information with respect to the Company and the securities offered by this
Prospectus, reference is made to the Registration Statement and the exhibits
filed or incorporated as a part thereof. Statements contained in this
Prospectus as to the contents of any documents referred to are not
necessarily complete and, in each such instance, are qualified in all
respects by reference to the applicable documents filed with the SEC.
No separate financial statements of the Issuer have been included herein.
The Company does not consider that such financial statements would be
material to holders of the Convertible Preferred Securities because (i) all
of the voting securities of the Issuer will be owned, directly or indirectly,
by the Company, a reporting company under the Exchange Act, (ii) the Issuer
has no independent operations but exists for the sole purpose of issuing
securities representing undivided beneficial interests in the assets of the
Issuer and investing the proceeds thereof in Convertible Junior Subordinated
Debentures issued by the Company and (iii) the obligations of the Issuer
under the Trust Securities are fully and unconditionally guaranteed by the
Company to the extent that the Issuer has funds available to meet such
obligations. See "Description of the Convertible Junior Subordinated
Debentures" and "Description of the Guarantee."
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC (File No. 1-9874) are
incorporated by reference into this Prospectus:
(i) the Company's Annual Report on Form 10-K for the year ended December
31, 1996 (as amended by the Form 10-K/A filed on April 30, 1997);
(ii) the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997;
(iii) the Company's Current Reports on Form 8-K dated December 24, 1996
(as amended by Form 8-K/A filed on February 18, 1997), February 25, 1997,
February 26, 1997, March 28, 1997, May 7, 1997, May 19, 1997, July 7, 1997,
July 15, 1997 and July 22, 1997; and
(iv) the description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed under the Exchange Act and
any amendments or reports filed for the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the filing of a post-effective amendment which indicates the termination
of this offering shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein, or in any other subsequently
filed document which is also incorporated herein by reference, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Prospectus except as so modified
or superseded.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated into this Prospectus by
reference, other than exhibits to such documents. Requests for such copies
should be directed to Investor Relations, CalEnergy Company, Inc. 302 South
36th Street, Suite 400, Omaha, Nebraska 68131, telephone number (402)
341-4500.
No person is authorized to give any information or to make any
representations, other than those contained or incorporated by reference in
this Prospectus or a Prospectus Supplement, in connection with the offering
contemplated thereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or any underwriter, dealer or agent. This Prospectus and a Prospectus
Supplement do not constitute an offer to sell or a solicitation of an offer
to buy any Securities other than the Securities to which they relate and do
not constitute an offer to sell or a solicitation of an offer to buy any
Securities in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus or a Prospectus Supplement, nor any sale made thereunder, shall,
under any circumstances, create any implication that there has been no change
in the affairs of the Company since the date hereof or thereof or that the
information contained or incorporated by reference herein or therein is
correct as of any time subsequent to such date.
4
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the risk factors set forth
below, in addition to the other information appearing in or incorporated by
reference in this Prospectus. This Prospectus contains or incorporates by
reference forward-looking statements which involve risks and uncertainties.
The Company's actual results in the future could differ significantly from
the results discussed or implied in the forward-looking statements. Factors
that could cause or contribute to such a difference include, but are not
limited to the following risk factors. The term "Company" refers to CalEnergy
Company, Inc. and its operating subsidiaries and joint ventures and
"Northern" refers to Northern Electric plc and its operating subsidiaries,
unless the context otherwise requires.
SUBORDINATION OF GUARANTEE AND CONVERTIBLE JUNIOR SUBORDINATED
DEBENTURES. The Company's obligations under the Guarantee are subordinate and
junior in right of payment to all other liabilities of the Company, with
certain limited exceptions. The obligations of the Company under the
Convertible Junior Subordinated Debentures are subordinate and junior in
right of payment to Senior Indebtedness (as defined herein) of the Company.
No payment of principal (including redemption payments, if any), premium, if
any, or interest on the Convertible Junior Subordinated Debentures may be
made if (i) any Senior Indebtedness is not paid when due and any applicable
grace period with respect to such default has ended with such default not
having been cured or waived or ceasing to exist, or (ii) the maturity of any
Senior Indebtedness has been accelerated because of a default. At March 31,
1997, the Company had approximately $953.8 million principal amount of
borrowed money included in Senior Indebtedness. See "Capitalization." Neither
the Convertible Preferred Securities, the Convertible Junior Subordinated
Debentures nor the Guarantee limit the Company's ability to incur additional
indebtedness or liabilities, including indebtedness or liabilities that would
rank senior to the Convertible Junior Subordinated Debentures and the
Guarantee. See "Description of the Guarantee--Status of the Guarantee;
Subordination" and "Description of the Convertible Junior Subordinated
Debentures--Subordination." The Convertible Junior Subordinated Debentures
are also effectively subordinate to all existing and future liabilities,
including trade payables, of the Company's subsidiaries, joint ventures and
affiliates. See "Risk Factors--Holding Company Structure."
DEPENDENCE ON CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES PAYMENTS;
LEVERAGE. The ability of the Issuer to pay amounts due on the Convertible
Preferred Securities is wholly dependent upon the Company making payments on
the Convertible Junior Subordinated Debentures. The Company is substantially
leveraged. At March 31, 1997, the Company's total consolidated liabilities
were $4,685.8 million (excluding deferred income), its obligations in respect
of the Convertible Preferred Securities and its 6-1/4% Convertible Preferred
Securities Term Income Deferrable Equity Securities ("TIDES") were $283.9
million, its total consolidated assets were $6,138.1 million and its total
stockholders' equity was $876.4 million. The Company's substantial level of
debt presents the risk that the Company might not generate sufficient cash to
service the Company's indebtedness, including the Convertible Junior
Subordinated Debentures, or that its leveraged capital structure could limit
its ability to finance future acquisitions, develop additional projects,
compete effectively and operate successfully under adverse economic
conditions. See "Capitalization." If the Company were unable to make payments
on the Convertible Junior Subordinated Debentures or the Guarantee, the
Issuer would be unable to make payments on the Convertible Preferred
Securities as and when required. The Company is also a holding company which
derives substantially all of its operating income from its subsidiaries and
joint ventures. Distributions from such entities are restricted under various
covenants and conditions contained in financing documents by which they are
bound and the stock or assets of substantially all of such entities is
directly or indirectly pledged, to secure various of such financings or such
entities are otherwise subject to regulatory restrictions. See "Risk
Factors--Holding Company Structure."
HOLDING COMPANY STRUCTURE. As a holding company, the Company is dependent
on the earnings and cash flows of, and dividends from, its subsidiaries and
joint ventures to generate the funds necessary to meet its obligations,
including the payment of principal, interest and premium, if any, on the
Convertible Junior Subordinated Debentures. The availability of distributions
from the Company's subsidiaries and projects is subject to the satisfaction
of various covenants and conditions contained in the applicable subsidiaries'
and joint ventures' financing documents and to certain utility regulatory
5
<PAGE>
restrictions. Furthermore, the Company is structuring Philippine and
Indonesian project financing arrangements containing, and anticipates that
future project level financings will contain, certain conditions and similar
restrictions on the distribution of cash to the Company.
The Company's subsidiaries, partnerships and joint ventures are separate
and distinct legal entities and have no obligation, contingent or otherwise,
to pay any amounts due pursuant to the Convertible Junior Subordinated
Debentures or to make any funds available therefor, whether by dividends,
loans or other payments, and do not guarantee the payment of interest on,
premium, if any, or principal of the Convertible Junior Subordinated
Debentures. Any right of the Company to receive any assets of any of its
subsidiaries or other affiliates upon any liquidation or reorganization of
the Company (and the consequent right of the holders of the Convertible
Junior Subordinated Debentures to participate in the distribution of, or to
realize proceeds from, those assets) will be effectively subordinated to the
claims of any such subsidiary's or other affiliate's creditors (including
trade creditors and holders of debt issued by such subsidiary or other
affiliate). At March 31, 1997 the Company had approximately $3,228.6 million
of total consolidated indebtedness, which included approximately $2,274.8
million of the Company's proportionate share of joint venture and subsidiary
debt, which would be effectively senior to the Convertible Junior
Subordinated Debentures, substantially all of which is secured by the assets
of such joint ventures and subsidiaries, and $283.9 million of Convertible
Preferred Securities and TIDES. See "Description of the Convertible Junior
Subordinated Debentures--Subordination."
ACQUISITIONS. The Company's recent growth has been achieved, in part,
through strategic acquisitions in the energy industry which complement and
diversify the Company's existing business. The Company intends to continue to
pursue an aggressive acquisition strategy for the foreseeable future. The
Company has recently completed several major acquisitions, including the
acquisition of Magma Power Company ("Magma"), Falcon Seaboard Resources, Inc.
("Falcon Seaboard") and Northern Electric plc ("Northern"). The Company has
successfully integrated Magma and Falcon Seaboard and is in the process of
integrating Northern. See "The Company". On July 15, 1997, the Company
announced its intention to commence a cash tender offer for 9.9% of the
outstanding common stock of New York State Electric & Gas Corporation
("NYSEG") and its proposal to acquire 100% of the outstanding NYSEG common
stock. See the Company's Current Reports on Form 8-K dated July 15, 1997 and
July 22, 1997. The Company's ability to pursue acquisition opportunities
successfully will depend on many factors, including, among others, the
Company's ability to (i) identify suitable acquisition opportunities, (ii)
consummate the acquisition, including obtaining any necessary regulatory
approvals and financing, and (iii) successfully integrate acquired businesses.
The integration of acquired businesses entails numerous risks, including,
among others, the risk of diverting management's attention from the day-to-day
operations of the Company, the risk that the acquired businesses will require
substantial capital and financial investments and the risk that the
investments will fail to perform in accordance with expectations. There can
be no assurance that future acquisition opportunities, if any, can be
consummated on favorable terms or that the Company's integration efforts will
be successful.
NORTHERN'S REGULATORY ENVIRONMENT. Northern's electricity distribution and
supply are subject to extensive regulation in the United Kingdom.
Price Regulation of Distribution. Revenue from Northern's distribution
business is controlled by a formula (the "Distribution Price Control
Formula") which determines the maximum average price per unit of electricity
(expressed in kilowatt hours, a "unit") that a regional electricity company
(a "REC") in the United Kingdom may charge. The Distribution Price Control
Formula is expected to have a five year duration and is subject to review by
the Director General of Electricity Supply (the "Regulator") at the end of
each five-year period and at other times in the discretion of the Regulator.
At each review, the Regulator can propose adjustments to the Distribution
Price Control Formula. In July 1994, a review resulted in a 17% reduction in
allowed distribution income compared to the original formula, before allowing
for inflation, effective April 1, 1995. In July 1995, a further review of
distribution prices was concluded by the Regulator for fiscal years 1997 to
2000. As a result of this further review, Northern's allowed distribution
from income was reduced by a further 11%, before allowing for inflation,
effective April 1, 1996. There can be no assurance that any further price
reviews by the Regulator will not have a material adverse effect on
Northern's results of operations.
6
<PAGE>
Competition in Supply. Northern's supply business is also subject to price
control and is being progressively opened to competition. Northern currently
has an exclusive right, subject to price cap regulation, to supply customers
in its authorized area with a maximum demand of not more than 100 kW
("Franchise Supply Customers"). The market for customers with a maximum
demand above 1 megawatt ("MW") has been open to competition for suppliers of
electricity since privatization while the market for customers with a maximum
demand above 100 kW ("Non-Franchise Supply Customers") became competitive in
April 1994. The final stage of this process is expected to occur on March 31,
1998, when the exclusive right to supply Franchise Supply Customers is
scheduled to end. There can be no assurance that competition among suppliers
of electricity will not have a material adverse effect on the Company's
results of operations.
Pool Purchase Price Volatility. Northern's supply business to
Non-Franchise Supply Customers generally involves entering into fixed price
contracts to supply electricity to its customers. Northern obtains the
electricity to satisfy its obligations under such contracts primarily by
purchases from the wholesale trading market for electricity in England and
Wales (the "Pool"). Because the price of electricity purchased from the Pool
can be volatile, to the extent that Northern purchases electricity from the
Pool, Northern is exposed to risk arising from differences between the fixed
price at which it sells and the fluctuating prices at which it purchases
electricity, unless it can effectively hedge such exposure. Northern's
ability to manage such risk at acceptable levels will depend, in part, on the
specifics of the supply contracts that Northern enters into, Northern's
ability to implement and manage an appropriate hedging strategy and the
development of an adequate market for hedging instruments. There can be no
assurance that this risk will be effectively mitigated.
Change in Government Policy. In the general election held in the United
Kingdom on May 1, 1997, the Labour Party won a majority of seats in
Parliament. The Labour Party has made proposals for a windfall assessment
proposed to be levied on privatized utilities. See the Company's Current
Report on Form 8-K dated July 7, 1997. There can be no assurance that any
windfall assessement, if enacted, or other possible changes in utility
regulation by the United Kingdom government, by whichever party it is
controlled, would not cause a material adverse effect on Northern's results
of operations.
DEVELOPMENT UNCERTAINTY. The Company is actively seeking to develop,
construct, own and operate new power projects utilizing geothermal and other
technologies, both domestically and internationally, the completion of any of
which is subject to substantial risk. The Company has in development or under
construction projects representing an aggregate generating capacity in excess
of the generating capacity of those currently in operation. Development can
require the Company to expend significant sums for preliminary engineering,
permitting, fuel supply, resource exploration, legal and other expenses in
preparation for competitive bids which the Company may not win or before it
can be determined whether a project is feasible, economically attractive or
capable of being financed. Successful development and construction is
contingent upon, among other things, negotiation on terms satisfactory to the
Company of engineering, construction, fuel supply and power sales contracts
with other project participants, receipt of required governmental permits and
consents and timely implementation of construction. Further, there can be no
assurance that the Company, which is substantially leveraged, will obtain
access to the substantial debt and equity capital required to continue to
develop and construct electric power projects or to refinance projects. The
future growth of the Company is dependent, in large part, upon the demand for
significant amounts of additional electrical generating capacity and its
ability to obtain contracts to supply portions of this capacity. There can be
no assurance that development efforts on any particular project, or the
Company's efforts generally, will be successful. In this regard, reference is
made to certain uncertainties associated with the Company's Casecnan project,
as described in the Company's Current Report on Form 8-K dated May 20, 1997.
UNCERTAINTIES RELATED TO DOING BUSINESS OUTSIDE THE UNITED STATES. The
Company has various projects under construction outside the United States and
a number of projects under award outside the United States. The financing and
development of projects outside the United States entail significant
political and financial risks (including, without limitation, uncertainties
associated with privatization efforts in the countries involved, currency
exchange rate fluctuations, currency repatriation restrictions,
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changes in law, political instability, civil unrest and expropriation) and
other structuring issues that have the potential to cause substantial delays
in respect of or material impairment of the value of the project being
developed, which the Company may not be capable of fully insuring against.
The uncertainty of the legal environment in certain foreign countries in
which the Company is developing and may develop or acquire projects could
make it more difficult for the Company to enforce its rights under agreements
relating to such projects. In addition, the laws and regulations of certain
countries may limit the ability of the Company to hold a majority interest in
some of the projects that it may develop or acquire. The Company's
international projects may, in certain cases, be terminated by the applicable
foreign governments. Furthermore, the central bank of any such country may
have the authority in certain circumstances to suspend, restrict or otherwise
impose conditions on foreign exchange transactions or to approve
distributions to foreign investors. Although the Company may structure
certain power purchase agreements and other project revenue agreements to
provide for payments to be made in, or indexed to, United States dollars or a
currency freely convertible into United States dollars, there can be no
assurance that the Company will be able to achieve this structure in all
cases or that a power purchaser or other customer will be able to obtain
sufficient dollars or other hard currency or that available dollars will be
allocated to pay such obligations. In addition, the Company's investment in
Northern and any dividends or distributions of earnings in respect of such
investment, may be significantly affected by fluctuations in the exchange
rate between the United States dollar and the British pound. Although the
Company expects to enter into certain transactions to hedge risks associated
with exchange rate fluctuations, there can be no assurance that such
transactions will be successful in reducing such risks.
EXPLORATION, DEVELOPMENT AND OPERATION UNCERTAINTIES OF GEOTHERMAL
RESOURCES. Geothermal exploration, development and operations are subject to
uncertainties similar to those typically associated with oil and gas
exploration and development, including dry holes and uncontrolled releases.
Because of the geological complexities of geothermal reservoirs, the
geographic area and sustainable output of geothermal reservoirs can only be
estimated and cannot be definitively established. There is, accordingly, a
risk of an unexpected decline in the capacity of geothermal wells and a risk
of geothermal reservoirs not being sufficient for sustained generation of the
electrical power capacity desired. In addition, geothermal power production
poses unusual risks of seismic activity. Accordingly, there can be no
assurance that earthquake, property damage or business interruption insurance
will be adequate to cover all potential losses sustained in the event of
serious seismic disturbances or that such insurance will be available on
commercially reasonable terms. The success of a geothermal project depends on
the quality of the geothermal resource and operational factors relating to
the extraction of the geothermal fluids involved in such project. The quality
of a geothermal resource is affected by a number of factors, including the
size of the reservoir, the temperature and pressure of the geothermal fluids
in such reservoir, the depth and capacity of the production and injection
wells, the amount of dissolved solids and noncondensible gases contained in
such geothermal fluids, and the permeability of the subsurface rock
formations containing such geothermal resource, including the presence,
extent and location of fractures in such rocks. The quality of a geothermal
resource may decline as a result of a number of factors, including the
intrusion of lower-temperature fluid into the producing zone. An incorrect
estimate by the Company of the quality of a geothermal resource, or a decline
in such quality, could have a material adverse effect on the Company's
results of operations. In addition, both the cost of operations and the
operating performance of geothermal power plants may be adversely affected by
a variety of resource operating factors. Production and injection wells can
require frequent maintenance or replacement. Corrosion caused by
high-temperature and high-salinity geothermal fluids may compel the
replacement or repair of certain equipment, vessels or pipelines. New
production and injection wells may be required for the maintenance of
operating levels, thereby requiring substantial capital expenditures.
GENERAL OPERATING UNCERTAINTIES. The operation of a power plant involves
many risks, including the breakdown or failure of power generation equipment,
pipelines, transmission lines or other equipment or processes, fuel
interruption, and performance below expected levels of output or efficiency.
Each facility may depend on a single or limited number of entities to
purchase electricity or thermal energy, to supply water, to supply gas, to
transport gas, to dispose of wastes or to wheel electricity. The failure of
any such purchasing utility, steam host, water or gas supplier, gas
transporter, wheeling utility or other relevant project participant to
fulfill its contractual obligations could have a material adverse impact on
the Company.
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FUEL SUPPLY OPERATIONS. The primary fuel source for certain of the
Company's projects is natural gas and a substantial portion of the operating
expenses of such facilities consists of the costs of obtaining natural gas
through gas supply agreements and transporting that gas to the projects under
gas transportation agreements. Although the Company believes that it has
contracted for natural gas supply and transportation in sufficient quantities
to satisfy the needs of its projects, the gas suppliers are not required in
all cases to provide dedicated reserves in support of their contractual
obligations. Unless the gas projects were able to obtain substitute volumes
of natural gas, including the requisite transportation services, for such
volumes at a price not materially higher than the sum of the contract price
under the existing gas supply agreements and any damages paid by the supplier
for failure to deliver, the sustained failure of a supplier to comply with
its obligation to deliver natural gas in accordance with its gas supply
agreement could have a material adverse effect on the cash flows to the
Company. In addition, under certain gas supply contracts the Company is
obligated to pay for a certain minimum quantity of natural gas even if it
cannot utilize it. The Company intends to manage its requirements for
contract volumes under the gas supply agreements so as to meet the minimum
take requirements through a combination of utilization of nominated volumes
in operations and resales of the remainder of the volumes to third-party
customers, if necessary. Finally, the state, federal and Canadian regulatory
authorities that have jurisdiction over natural gas transportation have the
right to modify aspects of the rates, terms and conditions of those
contracts. It is possible that such a modification could materially increase
the fuel transportation costs of the projects or give the transporter a right
to terminate or suspend or decrease its performance under its contract.
PRESENT DEPENDENCE ON LARGE CUSTOMER; CONTRACT RISKS. The Company
currently relies on long-term power purchase "Standard Offer No. 4" contracts
(each, an "SO4 Agreement") with a large customer, Southern California Edison
Company ("Edison"), to generate a substantial portion of its operating
revenues. Any material failure by Edison to fulfill its contractual
obligations under such contracts is likely to have a material adverse effect
on the Company's results of operations. Each of the Company's SO4 Agreements
provides for both capacity payments and energy payments for a term of between
20 and 30 years. During the first ten years after achieving firm operation,
energy payments under each SO4 Agreement are based on a pre-set schedule.
Thereafter, while the basis for the capacity payment remains the same, the
required energy payment is Edison's then-current published avoided cost of
energy ("Avoided Cost of Energy") as determined by the California Public
Utility Commission ("CPUC"). The initial ten-year period expires in August
1997 for the Company's Navy I Project, March 1999 for its BLM Project and
January 2000 for its Navy II Project, three joint ventures which comprise the
Coso Project in California (the "Coso Project"). Such ten-year period expired
in 1996 with respect to one of the eight geothermal plants in the Imperial
Valley in California ("Imperial Valley Projects") and expires in 1999 for
three of its Imperial Valley Projects and in 2000 for the remaining two
Imperial Valley Projects that operate under SO4 Agreements.
Estimates of Edison's future Avoided Cost of Energy vary substantially in
any given year. The Company cannot predict the likely level of Avoided Cost
of Energy prices under its SO4 Agreements with Edison at the expiration of
the fixed-price periods. Edison's Avoided Cost of Energy as determined by the
CPUC is currently substantially below the current scheduled energy prices
under the Company's respective SO4 Agreements and is currently expected to
remain so. For the year ended December 31, 1996, the time period-weighted
average of Edison's Avoided Cost of Energy was 2.5 cents per kWh, compared to
the time period-weighted average for the year ended December 31, 1996 selling
prices for energy of approximately 11.3 cents per kWh for the Company. Thus,
the revenues generated by each of the Company's facilities operating under
SO4 Agreements are likely to decline significantly after the expiration of
the applicable fixed price period.
COMPETITION AND DOMESTIC DEREGULATION; INDUSTRY RESTRUCTURING. The
international power production market is characterized by numerous strong and
capable competitors, many of which have more extensive and more diversified
developmental or operating experience (including international experience)
and greater financial resources than the Company. Many of these competitors
also compete in the domestic market. Further, in recent years, the domestic
power production industry has been characterized by strong and increasing
competition with respect to the industry's efforts to obtain new power sales
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agreements, which has contributed to a reduction in prices offered to
utilities. In that regard, many utilities often engage in "competitive bid"
solicitations to satisfy new capacity demands. In the domestic market,
competition is expected to increase as the electric utility industry becomes
deregulated. In addition, recent deregulation and industry restructuring
activity may cause certain utilities or other contract parties to attempt to
renegotiate contracts or otherwise fail to perform their contractual
obligations, which in turn could adversely affect the Company's results of
operations. In particular, the state of California has adopted a bill to
restructure the electric industry by providing for a phased-in competitive
power generation industry, with a power pool and an independent system
operator, and for direct access to generation for all power purchasers
outside the power exchange under certain circumstances. Although the bill
contemplates that existing qualifying facility power sales contracts will be
honored, and all of the Company's California projects are qualifying
facilities, until the new system is fully implemented, it is impossible to
predict what impact, if any, it may have on the operations of those projects.
IMPACT OF ENVIRONMENTAL, ENERGY AND OTHER REGULATIONS. The Company is
subject to a number of environmental and other laws and regulations affecting
many aspects of its present and future operations, including the disposal of
various forms of waste, the construction or permitting of new facilities, and
the drilling and operation of new and existing wells. Such laws and
regulations generally require the Company to obtain and comply with a wide
variety of licenses, permits and other approvals. The Company also remains
subject to a number of complex and stringent laws and regulations that both
public officials and private individuals may seek to enforce. There can be no
assurance that existing regulations will not be revised or that new
regulations will not be adopted or become applicable to the Company which
could have an adverse impact on its operations. The implementation of
regulatory changes imposing more comprehensive or stringent requirements on
the Company, which would result in increased compliance costs, could have a
material adverse effect on the Company's results of operations. In addition,
regulatory compliance for the construction of new facilities is a costly and
time-consuming process, and intricate and rapidly changing environmental
regulations may require major expenditures for permitting and create the risk
of expensive delays or material impairment of project value if projects
cannot function as planned due to changing regulatory requirements or local
opposition.
The Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"),
and the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), are
two of the laws (including the regulations thereunder) that affect the
Company's operations. PURPA provides to qualifying facilities ("QFs") certain
exemptions from federal and state laws and regulations, including
organizational, rate and financial regulation. PUHCA regulates public utility
holding companies and their subsidiaries. The Company is not and will not be
subject to regulation as a holding company under PUHCA as long as the
domestic power plants it owns are QFs under PURPA or are exempted as exempt
wholesale generators ("EWGs"), and so long as its foreign utility operations
are exempted as EWGs or foreign utility companies or are otherwise exempted
under PUHCA. QF status is conditioned on meeting certain criteria, and would
be jeopardized, for example, in the case of the Company's cogeneration
facilities, by the loss of a steam customer or reduction of steam purchases
below the amount required by PURPA. The Company's four cogeneration
facilities have steam sales agreements with existing industrial hosts which
agreements must be maintained in effect or replaced in order to maintain QF
status. In the event the Company were unable to avoid the loss of such status
for one of its facilities, such an event could result in termination of a
given project's power sales agreement and a default under the project
subsidiary's project financing agreements. In connection with the Company's
recently announced proposal to acquire NYSEG, the Company would be required
to seek an exemption from regulation as a holding company under PUHCA, but
nevertheless would be required to make partial dispositions of certain of the
Company's independent generating facilities in order to maintain the QF
status of such facilities. See the Company's Current Reports on Form 8-K
dated July 15, 1997 and July 22, 1997.
RIGHTS UNDER THE GUARANTEE. The Guarantee Trustee (as defined herein)
holds the Guarantee for the benefit of the holders of the Convertible
Preferred Securities. The Guarantee guarantees to the holders of the
Convertible Preferred Securities the payment (but not the collection) of (i)
any accrued and unpaid distributions on the Convertible Preferred Securities
to the extent the Issuer has funds available
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therefor, (ii) the amount payable upon redemption, including all accrued and
unpaid distributions, of the Convertible Preferred Securities called for
redemption by the Issuer, to the extent the Issuer has funds available
therefor, and (iii) upon a voluntary or involuntary dissolution, winding up
or termination of the Issuer (other than in connection with a redemption of
all of the Convertible Preferred Securities), the lesser of (a) the aggregate
of the liquidation amount and all accrued and unpaid distributions on the
Convertible Preferred Securities to the date of payment to the extent the
Issuer has funds available therefor and (b) the amount of assets of the
Issuer remaining available for distribution to holders of the Convertible
Preferred Securities upon the liquidation of the Issuer. The holders of a
majority in liquidation amount of the Convertible Preferred Securities have
the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee or to direct the exercise
of any trust or power conferred upon the Guarantee Trustee under the
Guarantee. In the event of a payment default on the Convertible Preferred
Securities, any holder of Convertible Preferred Securities may institute a
legal proceeding directly against the Company to enforce such holder's rights
in respect thereof under the Guarantee without first instituting a legal
proceeding against the Issuer, the Guarantee Trustee, or any other person or
entity. If the Company were to default on its obligations under the
Convertible Junior Subordinated Debentures, the Issuer would lack available
funds for the payment of distributions or amounts payable on redemption of
the Convertible Preferred Securities or otherwise, and in such event, the
holders of the Convertible Preferred Securities would not be able to rely
upon the Guarantee for payment of such amounts. Instead, holders of the
Convertible Preferred Securities would rely on the enforcement (1) by the
Trustee (as defined herein) of its rights, as registered holder of the
Convertible Junior Subordinated Debentures, against the Company pursuant to
the terms of the Convertible Junior Subordinated Debentures or (2) by such
holder of its right of direct action against the Company to enforce payments
on the Convertible Junior Subordinated Debentures. See "Description of the
Guarantee--Status of the Guarantee; Subordination" and "Description of the
Convertible Junior Subordinated Debentures--Subordination" herein. The
Declaration provides that each holder of Convertible Preferred Securities by
acceptance thereof agrees to the provisions of the Guarantee (including the
subordination provisions thereof) and the Indenture.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES. The Company
has the right under the Indenture to defer interest payments from time to
time on the Convertible Junior Subordinated Debentures for successive periods
not exceeding 20 consecutive quarters for each such period. Upon the
termination of any Deferral Period and the payment of all amounts then due,
the Company may select a new Deferral Period, subject to the requirements
described herein. As a consequence, during any such Deferral Period,
quarterly distributions on the Convertible Preferred Securities would be
deferred (but would continue to accrue with interest thereon) by the Issuer.
In the event that the Company exercises this right, during such period the
Company (i) shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock (other than (A) purchases or
acquisitions of shares of Common Stock in connection with the satisfaction by
the Company of its obligations under any employee benefit plans, (B) as a
result of a reclassification of capital stock of the Company or the exchange
or conversion of one class or series of the Company's capital stock for
another class or series of capital stock of the Company, (C) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock of the Company or the
security being converted or exchanged or (D) stock dividends paid by the
Company which consist of stock of the same class as that on which the
dividend is being paid), (ii) shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company after the date of initial issuance of the
Convertible Junior Subordinated Debentures that rank pari passu with or
junior to the Convertible Junior Subordinated Debentures, and (iii) shall not
make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee). Prior to the termination of any such Deferral
Period, the Company may further extend the Deferral Period; provided that
such Deferral Period, together with all previous and further extensions
thereof, may not exceed 20 consecutive quarters and that such Deferral Period
may not extend beyond the maturity date of the Convertible Junior
Subordinated Debentures or any earlier redemption date. The Company has no
current intention of exercising its right to defer payments of interest by
extending the interest payment period on the Convertible Junior Subordinated
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Debentures. However, if the Company should determine to exercise its deferral
right in the future, the market price of the Convertible Preferred Securities
is likely to be adversely affected. See "Description of the Convertible
Preferred Securities--Distributions" and "Description of the Convertible
Junior Subordinated Debentures--Option to Extend Interest Payment Period."
Should a Deferral Period occur, a holder of Convertible Preferred
Securities will continue to accrue interest income for United States federal
income tax purposes. As a result, such a holder will be required to include
such interest in gross income for United States federal income tax purposes
in advance of the receipt of cash, and such holder will not receive the cash
from the Issuer related to such income if such holder disposes of or converts
its Convertible Preferred Securities prior to the record date for payment of
distributions. See "United States Taxation--Potential Extension of Interest
Payment Period and Original Issue Discount."
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION OR DISTRIBUTION. Upon the
occurrence of a Tax Event or Investment Company Event (both as defined
herein), the Company will, except in certain limited circumstances, cause the
Company Trustees (as defined herein) to liquidate the Issuer and cause
Convertible Junior Subordinated Debentures to be distributed pro rata to the
holders of Convertible Preferred Securities. In certain circumstances, the
Company will have the right to redeem the Convertible Junior Subordinated
Debentures, in whole (but not in part), at 100% of principal amount plus
accrued and unpaid interest, in lieu of a distribution of the Convertible
Junior Subordinated Debentures, in which event the Convertible Preferred
Securities will be redeemed in whole at the liquidation preference of $50 per
each of the Convertible Preferred Securities plus accrued and unpaid
distributions. In the case of a Tax Event, the Company may also elect to
cause the Convertible Preferred Securities to remain outstanding and pay
Additional Interest (as defined herein) on the Convertible Junior
Subordinated Debentures. See "Description of the Convertible Preferred
Securities--Tax Event or Investment Company Event Redemption or Distribution"
and "Description of the Convertible Junior Subordinated Debentures--General."
Under current United States federal income tax law, a distribution of the
Convertible Junior Subordinated Debentures would not be a taxable event to
holders of the Convertible Preferred Securities. However, if the relevant
Special Event (as defined herein) is a Tax Event which results in the Issuer
being treated as an association taxable as a corporation, the distribution
would likely constitute a taxable event to holders of the Convertible
Preferred Securities. See "United States Taxation--Receipt of Convertible
Junior Subordinated Debentures or Cash Upon Liquidation of the Issuer."
LIMITED VOTING RIGHTS. Except in the limited circumstances described
herein, holders of Convertible Preferred Securities will have no voting
rights. See "Description of the Convertible Preferred Securities--Voting
Rights."
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE. Pursuant to the Company's
1996 Stock Option Plan (the "1996 Plan"), as of March 31, 1997, the Company
had outstanding various options to its officers, directors and employees for
the purchase of 3,455,976 shares of Common Stock, of which all of the shares
of Common Stock issuable upon exercise of said options have been registered
pursuant to registration statements on Form S-8, and, when fully vested, are
available for immediate resale. Also as of March 31, 1997, there were
additional options outstanding to purchase 1,206,000 shares of Common Stock,
1,000,000 of which were granted to Peter Kiewit Sons', Inc. ("PKS"). As of
March 31, 1997, PKS has demand and piggyback registration rights with respect
to (i) approximately 19,231,065 shares of Common Stock (and any shares of
Common Stock subsequently held by PKS) and (ii) all of its options to
purchase shares of Common Stock (and the shares issuable upon exercise of
such options). Sales of substantial amounts of Common Stock or the
availability of Common Stock for sale, could have an adverse impact on the
market price of the Common Stock and on the Company's ability to raise
additional capital through the sale of Common Stock.
TRADING CHARACTERISTICS OF THE CONVERTIBLE PREFERRED SECURITIES. The
Convertible Preferred Securities may trade at a price that does not fully
reflect the value of accrued but unpaid distributions. A holder who disposes
of its Convertible Preferred Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest
on the Convertible Junior Subordinated
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Debentures through the date of disposition in income as ordinary income
(i.e., original issue discount), and to add such amount to its adjusted tax
basis in its pro rata share of the underlying Convertible Junior Subordinated
Debentures deemed disposed of. To the extent the selling price is less than
the holder's adjusted tax basis (which will include, in the form of original
issue discount, all accrued but unpaid interest), a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes. See "United States Taxation."
LACK OF PUBLIC MARKET FOR THE CONVERTIBLE PREFERRED SECURITIES. There is
no existing public trading market for the Convertible Preferred Securities,
and there can be no assurance regarding the future development of a market
for the Convertible Preferred Securities, or the ability of holders of the
Convertible Preferred Securities to sell their Convertible Preferred
Securities or the price at which such holders may be able to sell their
Convertible Preferred Securities. If such a market were to develop, the
Convertible Preferred Securities could trade at prices that may be higher or
lower than the Original Offering price depending on many factors, including
prevailing interest rates, the price of the Common Stock, the Company's
operating results and the market for similar securities. The Initial
Purchasers currently make a market in the Convertible Preferred Securities.
The Initial Purchasers are not obligated to do so, however, and any market
making with respect to the Convertible Preferred Securities may be
discontinued at any time without notice. Therefore, there can be no assurance
as to the liquidity of any trading market for the Convertible Preferred
Securities or that an active public market for the Convertible Preferred
Securities will develop. The Company does not intend to apply for listing or
quotation of the Convertible Preferred Securities on any securities exchange
or stock market; however, the Convertible Preferred Securities are eligible
for trading in the Private Offerings, Resale and Trading through Automated
Linkages (PORTAL) Market of the National Association of Securities Dealers,
Inc.
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CALENERGY CAPITAL TRUST II
CalEnergy Capital Trust II (the "Issuer" or the "Trust") is a statutory
business trust formed under Delaware law pursuant to (i) a declaration of
trust (the "Declaration") executed by the Company, as sponsor of the Trust,
and the trustees of the Issuer (the "Issuer Trustees") and (ii) the filing of
a certificate of trust with the Secretary of State of the State of Delaware.
The Company owns, directly or indirectly, Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer. The Common
Securities rank pari passu, and payment will be made thereon pro rata, with
the Convertible Preferred Securities, except that, upon the occurrence and
during the continuance of an event of default under the Declaration, the
rights of the holders of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Convertible Preferred
Securities. The assets of the Trust will consist principally of the
Convertible Junior Subordinated Debentures. The Issuer exists for the
exclusive purpose of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Convertible Junior Subordinated
Debentures and (iii) engaging in only those other activities necessary or
incidental thereto.
Pursuant to the Declaration, there are initially five Issuer Trustees.
Three of the Issuer Trustees (the "Company Trustees") are individuals who are
employees or officers of or who are affiliated with the Company.
The fourth trustee is a financial institution that is unaffiliated with
the Company (the "Trustee"). The fifth trustee is an entity which maintains
its principal place of business in the State of Delaware (the "Delaware
Trustee"). Initially, The Bank of New York, a New York banking corporation,
acts as Trustee and its affiliate, The Bank of New York (Delaware), a
Delaware banking corporation, acts as Delaware Trustee until, in each case,
removed or replaced by the holder of the Common Securities. The Bank of New
York also acts as indenture trustee under the Guarantee (the "Guarantee
Trustee") and under the Indenture (the "Indenture Trustee"). See "Description
of the Guarantee" and "Description of the Convertible Preferred Securities."
The Trustee holds title to the Convertible Junior Subordinated Debentures
for the benefit of the holders of the Trust Securities and the Trustee has
the power to exercise all rights, powers and privileges under the Indenture
(as defined herein) as the holder of the Convertible Junior Subordinated
Debentures. In addition, the Trustee maintains exclusive control of a
segregated non-interest bearing bank account (the "Property Account") to hold
all payments made in respect of the Convertible Junior Subordinated
Debentures for the benefit of the holders of the Trust Securities. The
Company, as the direct or indirect holder of all the Common Securities, has
the right to appoint, remove or replace any of the Issuer Trustees and to
increase or decrease the number of trustees, provided that the number of
trustees shall be at least three, a majority of which shall be Company
Trustees. The Company will pay all fees and expenses related to the Trust and
the offering of the Convertible Preferred Securities. See "Description of the
Convertible Junior Subordinated Debentures."
The rights of the holders of the Convertible Preferred Securities,
including economic rights, rights to information and voting rights, if any,
are as set forth in the Declaration and the Delaware Business Trust Act, as
amended (the "Trust Act"). See "Description of the Convertible Preferred
Securities." The Declaration, the Indenture and the Guarantee also
incorporate by reference the terms of the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Declaration, the Indenture and the
Guarantee will be qualified under the Trust Indenture Act. The place of
business and the telephone number of the Trust are the principal executive
offices and telephone number of the Company. See "The Company."
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THE COMPANY
GENERAL
CalEnergy Company, Inc. (the "Company") is a United States-based global
power company which generates, distributes and supplies electricity to
utilities, government entities, retail customers and other customers located
throughout the world. The Company was founded in 1971 and, through its
subsidiaries, is engaged in the development, ownership and operation of
environmentally responsible independent power production facilities worldwide
utilizing geothermal resources, natural gas and hydroelectric or other energy
sources, such as oil and coal. In addition, through its recently acquired
subsidiary, Northern, the Company is engaged in the distribution and supply
of electricity to approximately 1.5 million customers primarily in northeast
England as well as the generation and supply of electricity (together with
other related business activities) throughout England and Wales.
Over the last three years ended December 31, 1996, the Company has
experienced significant growth. The market capitalization of the Company has
risen at a compound annual rate of 48% from approximately $656 million in
1993 to approximately $2,140 million in 1996, the revenues of the Company
have risen at a compound annual rate of 57% from approximately $149 million
in 1993 to approximately $576 million in 1996 and net income available to
common stockholders has risen at a compound annual rate of 29% from
approximately $43 million in 1993 to approximately $92 million in 1996. This
significant growth has been achieved through: (i) acquisitions that
complement and diversify the Company's existing business, broaden the
geographic locations of its assets and enhance its competitive capabilities,
(ii) enhancement of the financial and technical performance of existing and
acquired projects, and (iii) development and construction of new plants
("greenfield development").
In the last two years, the Company has consummated several significant
acquisitions. In January 1995, the Company acquired Magma, a publicly-traded
United States independent power producer with 228 MW of aggregate net
operating capacity and 154 MW of aggregate net ownership capacity, for
approximately $958 million. The Magma acquisition, combined with the
Company's previously existing assets, made the Company the largest
independent geothermal power producer in the world today (based on the
Company's estimate of aggregate MW of electric generating capacity in
operation and under construction). In April 1996, the Company completed the
buy-out for approximately $70 million of its partner's interests in four
electric generating plants in Southern California, resulting in sole
ownership of the Imperial Valley Projects' 228 MW of aggregate net operating
capacity. In August 1996, the Company acquired Falcon Seaboard for
approximately $226 million, thereby acquiring significant ownership in 520 MW
of natural gas-fired electric production facilities located in New York,
Texas and Pennsylvania and a related gas transmission pipeline.
In March 1997, the Company completed the acquisition of Northern Electric
plc. Northern is one of the twelve RECs which came into existence as a result
of the restructuring and subsequent privatization of the electricity industry
in the United Kingdom in 1990. Northern is primarily engaged in the
distribution and supply of electricity. Northern was granted a Public
Electricity Supply ("PES") license under the Electricity Act 1989 to
distribute and supply electricity in its authorized area located in northeast
England. Northern's authorized area covers approximately 14,400 square
kilometers with a population of approximately 3.2 million people and includes
the counties of Northumberland, Tyne and Wear, Durham, Cleveland and North
Yorkshire. Northern distributes and supplies electricity outside its
authorized area pursuant to second tier PES licenses. The electricity
industry in Great Britain is overseen by the Office of Electricity Regulation
headed by the Regulator. The regulatory framework includes price controls
which limit the maximum average prices that Northern can charge for
distributing and supplying electricity.
Through its subsidiaries and joint ventures, the Company presently
operates 19 projects with an aggregate net capacity of 1,326 MW, in which it
has a net ownership interest of 1,107 MW of electric generating capacity.
This includes an aggregate net ownership interest of 916 MW in facilities
located in the United States (which facilities have an aggregate net capacity
of 1,135 MW, of which 570 MW are
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<PAGE>
fueled with natural gas and 565 MW are geothermal-fired). The remaining 191
MW are supplied by two geothermal power production facilities owned and
operated by the Company in the Philippines. Finally, the Company owns, but
does not operate, 202 net MW from the 1,875 MW Teesside Project in England.
With respect to power generation projects that are financed and under
construction, the Company has an aggregate net ownership interest of 270 MW
of electric generating capacity in two geothermal power projects and one
hydroelectric project in the Philippines, which collectively have an
aggregate net capacity of 459 MW. The Company is also currently constructing
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, as
the first phase of the Company's planned Indonesian geothermal project
development of approximately 1,000 MW under contract. The Company has
commenced construction of a 50 MW gas fired power project in England in which
the Company has net ownership interest of 18 MW. The Company expects that it
will operate all of these projects.
The Company is also currently developing six 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 573 MW in these development projects (which represent
an aggregate net capacity of 1,260 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. The Company expects that it will operate all of these projects.
The Common Stock is traded on the New York, Pacific and London Stock
Exchanges. As of December 31, 1996, PKS was an approximate 32% stockholder of
the Company (on a fully diluted basis). PKS is a large employee-owned
construction, mining and telecommunications company with approximately $3.0
billion in revenues in 1996. PKS is one of the largest construction companies
in North America and has been in the construction business since 1884.
STRATEGY
General. The Company's strategy remains focused upon continued growth in
its core power generation business through the development of new projects,
enhancement of existing and acquired assets' performance, and the acquisition
of companies and projects that diversify the Company's power generation
technologies and the geographic locations of its generation assets and
enhance its competitive capabilities. The Company also intends to pursue
strategic expansion into other aspects of the global power business,
including the distribution and supply of electricity, in order to diversify
its business and cash flows, develop and enhance its distribution, marketing
and power pool skills and increase its competitive capabilities. The
Company's acquisition of Northern was implemented in furtherance of this
aspect of its strategy. The Company believes that its existing assets,
strengths and skills, coupled with Northern's distribution and supply skills,
its experience in the largely deregulated United Kingdom power market and the
resulting diversification in the Company's assets and geographic location
will position the Company to maximize its ability to participate successfully
(by way of acquisition or otherwise) in opportunities expected to be created
in the next few years by restructurings in the United States and other global
energy markets. The Company's pending tender offer for 9.9% of the outstanding
NYSEG common stock and its proposal to acquire 100% of the outstanding NYSEG
common stock are intended to further this aspect of its strategy. The Company
also selectively will seek opportunities to expand beyond power generation,
distribution and supply in areas related to these core businesses, such as
power transmission and gas production and supply, if such opportunities will
enhance the Company's competitive capabilities and financial position.
Power Generation. The Company presently believes that the international
independent power market holds the majority of new opportunities for
financially attractive private power development in the next several years,
in large part because the demand for new generating capacity is growing more
rapidly in emerging nations than in the United States. In developing its
international strategy, the Company pursues development opportunities in
countries that it believes have an acceptable risk profile and where the
Company's resource development and operating experience, project development
and financing expertise or strategic relationship with PKS or local partners
are expected to provide it with a competitive advantage. Domestically, the
Company is focusing on environmentally responsible power generation
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<PAGE>
opportunities in which it believes it has relative competitive advantages due
to its technical, project management, project financing and operating
expertise. In the near term, the Company expects that its continued domestic
generation expansion will be accomplished primarily through selected
acquisitions, including acquisitions of partially developed or existing power
generating projects and contracts, although the Company will consider
appropriate domestic greenfield development opportunities if they arise. The
Company is also evaluating the potential opportunities of direct access and
power marketing through use of retail wheeling.
Distribution, Supply and Other Related Energy Businesses. The Company
believes that the power distribution and supply businesses present
significant investment and return opportunities at the present time in
selected foreign markets, such as the United Kingdom, and that power
distribution and supply skills will comprise a significant component of the
skill base required to compete effectively in the United States and other
global power markets once those markets are substantially deregulated and
competitive. The Company believes that the impending changes in the
regulation of the United States power markets will reflect many aspects of
the United Kingdom model for competitive generation, transmission,
distribution and supply of energy. Thus, the experience the Company will gain
through Northern's operations in the United Kingdom markets should strengthen
its ability to compete successfully as other markets are also deregulated.
The current effort to introduce broader wholesale and retail competition in
the United States is expected by the Company to result both in a continuing
trend toward consolidation among domestic utilities and independent power
producers and in the disaggregation (or unbundling) of vertically integrated
utilities into separate generation, transmission and distribution businesses.
While this may result in significant increased competition in each of these
businesses, the Company believes that the acquisition of Northern and the
experience to be gained by it in the competitive and substantially
deregulated United Kingdom market, coupled with the Company's existing
development and generation capabilities, will provide the Company with the
opportunity to capitalize on the opportunities and challenges of an
increasingly deregulated and competitive domestic market for the generation,
transmission, distribution and supply of energy. The Company's recently
proposed acquisition of NYSEG, if consummated, is believed by the Company to
represent such an opportunity in the United States markets. Similar
opportunities also are expected to occur in other countries as various
international markets undergo similar restructuring. The Company believes
that as the wholesale and retail energy markets become more competitive, the
principal factor determining success is likely to be price, and to a lesser
extent, reliability, availability of capacity and customer service.
Accordingly, its acquisitions of domestic utility assets in a deregulated
environment will have to meet defined criteria, including the potential to
lower costs, increase long-term efficiency and competitiveness and provide an
acceptable rate of return and benefit to the Company and its stockholders.
--------------------
The principal executive offices of the Company are located at 302 South
36th Street, Suite 400, Omaha, Nebraska 68131 and its telephone number is
(402) 341-4500. The Company was incorporated in 1971 under the laws of the
State of Delaware.
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<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratio of earnings to fixed
charges on a historical basis for each of the five years in the period ended
December 31, 1996 and for the three months ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges ...... 3.2 2.8 1.7 1.5 1.6 1.3 1.7
</TABLE>
For purposes of computing historical ratios of earnings to fixed charges,
earnings are divided by fixed charges. "Earnings" represent the aggregate of
(a) the pre-tax income of the Company, including its proportionate share of
the pre-tax income of the Coso Project and excluding the equity in loss of a
non-consolidated subsidiary, and (b) fixed charges, less capitalized
interest. "Fixed charges" represent interest (whether expensed or
capitalized), amortization of deferred financing and bank fees, the portion
of rentals considered to be representative of the interest factor (one-third
of lease payments) and preferred stock dividend requirements of majority
owned subsidiaries.
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<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the consolidated capitalization of the
Company at March 31, 1997. The table should be read in conjunction with the
Company's consolidated financial statements and notes thereto incorporated
herein by reference.
Indebtedness:
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
Parent company debt:
Senior discount notes ......................................................... $ 529,640
Limited recourse senior secured notes (1) ..................................... 200,000
Senior notes................................................................... 224,164
----------
953,804
Subsidiary and project debt (2):
Construction loans ............................................................ 403,417
Project finance loans ......................................................... 267,415
Salton Sea notes and bonds .................................................... 538,982
UK Credit Facility ............................................................ 633,518
Northern eurobonds ............................................................ 431,483
----------
2,274,815
----------
Total consolidated indebtedness .............................................. 3,228,619
Deferred income ................................................................ 23,647
Company-obligated mandatorily redeemable convertible preferred securities of
subsidiary trusts holding solely convertible debentures(3) .................... 283,930
Preferred securities of subsidiary ............................................. 89,040
Minority interest .............................................................. 179,293
Stockholders' equity:
Preferred stock, no par value, 2,000 shares authorized ........................ --
Common stock, $.0675 par value, 80,000 shares authorized, 63,733 shares
issued, 63,530 shares outstanding ............................................ 4,303
Additional paid-in capital ..................................................... 560,482
Retained earnings .............................................................. 324,968
Treasury stock, 203 common shares at cost ...................................... (5,933)
Unearned compensation--restricted stock ........................................ (5,089)
Cumulative effect of foreign currency translation adjustments .................. (2,367)
----------
Total stockholders' equity ................................................... 876,364
----------
Total capitalization ........................................................ $4,680,893
==========
</TABLE>
- ------------
(1) The Limited Recourse Senior Secured Notes are recourse to CalEnergy
Company, Inc. only to a limited extent, which is currently $0.
(2) Represents debt for which the repayment obligation is at the project or
subsidiary level.
(3) As described herein, the sole assets of the Issuer are the 6-1/4%
Convertible Junior Subordinated Debentures with an outstanding
principal amount of approximately $185.6 million, and upon redemption
or maturity of such debt, the Convertible Preferred Securities will be
mandatorily redeemable. In addition, the sole assets of the subsidiary
trust which issued $103.9 million in aggregate of the convertible
preferred securities (also sometimes referred to as "TIDES" or as
"Company-obligated mandatorily redeemable convertible preferred
securities of subsidiary trust holding solely convertible debentures")
outstanding on March 31, 1997 are the 6-1/4% convertible junior
subordinated debentures due 2016 of the Company with an outstanding
principal amount of approximately $107.0 million, and upon redemption
or maturity of such debt, such convertible preferred securities will be
mandatorily redeemable.
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<PAGE>
ACCOUNTING TREATMENT
The financial statements of the Issuer are reflected in the Company's
consolidated financial statements with the Convertible Preferred Securities
shown as Company-obligated mandatorily redeemable convertible preferred
securities of subsidiary trust holding solely approximately $185.6 million
principal amount of 6-1/4% Convertible Junior Subordinated Debentures due
2012 of the Company.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of the
Offered Securities. Neither the Company nor the Issuer will receive any
proceeds from the sale of the Offered Securities.
20
<PAGE>
DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The following summary of the material terms and provisions of the
Convertible Preferred Securities is subject to, and qualified in its entirety
by reference to, the Declaration. The Convertible Preferred Securities were
issued pursuant to the terms of the Declaration. The Declaration incorporates
by reference terms of the Trust Indenture Act. The Declaration will be
qualified under the Trust Indenture Act. The Bank of New York, as Trustee,
acts as indenture trustee for the Declaration for purposes of compliance with
the Trust Indenture Act. Capitalized terms not otherwise defined herein have
the meanings assigned to them in the Declaration.
GENERAL
The Convertible Preferred Securities were issued in fully registered form
without interest coupons. Bearer Convertible Preferred Securities were not
issued.
The Convertible Preferred Securities represent undivided beneficial
ownership interests in the assets of the Issuer and entitle the holders
thereof to a preference in certain circumstances with respect to
distributions and amounts payable on redemption or liquidation over the
Common Securities, as well as other benefits as described in the Declaration.
All of the Common Securities are owned, directly or indirectly, by the
Company. The Common Securities rank pari passu, and payments will be made
thereon pro rata, with the Convertible Preferred Securities except as
described under "--Subordination of Common Securities." The Convertible
Junior Subordinated Debentures are owned by the Trustee and held for the
benefit of the holders of the Trust Securities. The Declaration does not
permit the issuance by the Issuer of any securities other than the Trust
Securities or the incurrence of any indebtedness by the Issuer.
DISTRIBUTIONS
The distributions payable on each of the Convertible Preferred Securities
are fixed at a rate per annum of 6-1/4% of the stated liquidation preference
of $50 per each of the Convertible Preferred Securities. Deferred
distributions (and interest thereon) accrue interest (compounded quarterly)
at the same rate. The term "distributions" as used herein includes any such
distributions payable unless otherwise stated. The amount of distributions
payable for any period will be computed on the basis of a 360-day year of
twelve 30-day months.
Distributions on the Convertible Preferred Securities are cumulative,
accrue from the date of initial issuance and are payable quarterly in arrears
on each March 1, June 1, September 1 and December 1, commencing June 1, 1997,
when, as and if available. The distribution payable on June 1, 1997, which
was calculated at the above rate and based on a period that is longer than a
full quarter, was in the amount of $0.82465 per Convertible Preferred
Security. The Company has the right under the Indenture to defer interest
payments from time to time on the Convertible Junior Subordinated Debentures
for successive periods not exceeding 20 consecutive quarters for each such
period, and, as a consequence, quarterly distributions on the Convertible
Preferred Securities would be deferred by the Issuer (but would continue to
accrue with interest) during any such Deferral Period. In the event that the
Company exercises this right, during such period the Company (i) shall not
declare or pay dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of
its capital stock (other than (A) purchases or acquisitions of shares of
Common Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans, (B) as a result of a
reclassification of capital stock of the Company or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of capital stock of the Company, (C) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock of the Company or the
security being converted or exchanged or (D) stock dividends paid by the
Company which consist of stock of the same class as that on which the
dividend is being paid), (ii) shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company after the date of original issuance of the
Convertible Junior Subordinated Debentures that rank pari passu with or
junior to the Convertible Junior
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<PAGE>
Subordinated Debentures, and (iii) shall not make any guarantee payments with
respect to the foregoing (other than pursuant to the Guarantee). Prior to the
termination of any Deferral Period, the Company may further extend such
Deferral Period; provided that such Deferral Period together with all
previous and further deferrals thereof may not exceed 20 consecutive
quarters. Upon the termination of any Deferral Period, the Company is
required to pay all amounts then due and, upon such payment, the Company may
select a new Deferral Period, subject to the above requirements. In no event
shall any Deferral Period extend beyond the maturity of the Convertible
Junior Subordinated Debentures or any earlier Redemption Date. See
"Description of the Convertible Junior Subordinated Debentures--Interest" and
"--Option to Extend Interest Payment Period."
Distributions on the Convertible Preferred Securities must be paid
quarterly on the dates payable to the extent of funds of the Trust available
for the payment of such distributions. Amounts available to the Trust for
distribution to the holders of the Convertible Preferred Securities are
limited to payments under the Convertible Junior Subordinated Debentures in
which the Issuer will invest the proceeds from the issuance and sale of the
Trust Securities. See "Description of the Convertible Junior Subordinated
Debentures." The payment of distributions, to the extent of funds of the
Trust available therefor, is guaranteed by the Company, as set forth under
"Description of the Guarantee."
Distributions on the Convertible Preferred Securities are payable to the
holders thereof as they appear on the books and records of the Issuer on the
relevant record dates, which will be fifteen days prior to the relevant
payment dates. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described
under "--Payment and Paying Agency" below. In the event that any date on
which distributions are payable on the Convertible Preferred Securities is
not a Business Day, payment of the distribution payable on such date will be
made on the next succeeding day which is a Business Day (without any
distribution or other payment in respect of any such delay) except that, if
such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date. A "Business Day" shall mean any day
other than a day on which banking institutions in The City of New York or
Wilmington, Delaware are authorized or required by law to close.
CONVERSION RIGHTS
General. The Convertible Preferred Securities are convertible at any time
beginning 60 days following the first date of original issuance of the
Convertible Preferred Securities through the close of business on February
25, 2012 (except in the case of Convertible Preferred Securities called for
redemption which shall be convertible at any time prior to the close of
business on the Business Day prior to the Redemption Date), at the option of
the holder thereof and in the manner described below, into shares of the
Common Stock at an initial conversion rate of 1.1655 shares of Common Stock
for each of the Convertible Preferred Securities (equivalent to a conversion
price of $42.90 per share of Common Stock), subject to adjustment as
described under "Conversion Price Adjustments" below. The Issuer has
covenanted in the Declaration not to convert Convertible Junior Subordinated
Debentures held by it except pursuant to a notice of conversion delivered to
the Conversion Agent by a holder of Convertible Preferred Securities. A
holder of Convertible Preferred Securities wishing to exercise its conversion
right shall deliver an irrevocable conversion notice, together, if such
Convertible Preferred Securities is a Certificated Security (as defined
herein), with such Certificated Security, to the Conversion Agent which
shall, on behalf of such holder, exchange such of the Convertible Preferred
Securities for a portion of the Convertible Junior Subordinated Debentures
and immediately convert such Convertible Junior Subordinated Debentures into
Common Stock. Holders may obtain copies of the required form of the
conversion notice from the Conversion Agent.
Holders of Convertible Preferred Securities at the close of business on a
distribution record date will be entitled to receive the distribution payable
on such Convertible Preferred Securities on the corresponding distribution
payment date notwithstanding the conversion of such Convertible Preferred
Securities following such distribution record date but prior to such
distribution payment date. Except as provided in the immediately preceding
sentence, neither the Issuer nor the Company will make, or be required to
make, any payment, allowance or adjustment for accumulated and unpaid
distributions,
22
<PAGE>
whether or not in arrears, on converted Convertible Preferred Securities. The
Company will make no payment or allowance for distributions on the shares of
Common Stock issued upon such conversion, except to the extent that such
shares of Common Stock are held of record on the record date for any such
distributions, except in certain limited circumstances. Each conversion will
be deemed to have been effected immediately prior to the close of business on
the day on which the related conversion notice was received by the Issuer.
No fractional shares of the Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by the
Company in cash.
Conversion Price Adjustments--General. The conversion price will be
subject to adjustment in certain events including, without duplication: (a)
the issuance of shares of Common Stock as a dividend or a distribution with
respect to Common Stock, (b) subdivisions, combinations and reclassification
of Common Stock, (c) the issuance to all holders of Common Stock of rights or
warrants entitling them (for a period not exceeding 45 days) to subscribe for
shares of Common Stock at less than the current market price, (d) the
distribution to holders of Common Stock of evidences of indebtedness of the
Company, securities or capital stock, cash or assets (including securities,
but excluding those rights, warrants, dividends and distributions referred to
above and dividends paid exclusively in cash), (e) declaration and payment of
a cash dividend on the Common Stock in a per share amount which exceeds the
greater of (A) the per share amount of the immediately preceding quarterly
cash dividend on its Common Stock and (B) 15% of the current market price of
the Common Stock as of the trading day immediately preceding the date of
declaration of such dividend, and (f) payment to holders of Common Stock in
respect of a tender or exchange offer by the Company or any subsidiary for
Common Stock (other than an odd lot tender offer) at a price in excess of
110% of the current market price of Common Stock as of the trading day next
succeeding the last date tenders or exchanges may be made pursuant to such
tender or exchange offer.
The Company from time to time may reduce the conversion price of the
Convertible Junior Subordinated Debentures (and thus the conversion price of
the Convertible Preferred Securities) by any amount selected by the Company
for any period of at least 20 days, in which case the Company shall give at
least 15 days' notice of such reduction. The Company may, at its option, make
such reductions in the conversion price, in addition to those set forth
above, as the Company's Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. See "United States
Taxation--Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of
any shares of Common Stock pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on securities of the
Company and the investment of additional optional amounts in shares of Common
Stock under any such plan. No adjustment in the conversion price will be
required unless such adjustment would require a change of at least one
percent (1%) in the price then in effect; provided, however, that any
adjustment that would not be required to be made shall be carried forward and
taken into account in any subsequent adjustment. If any action would require
adjustment of the conversion price pursuant to more than one of the
provisions described above, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value to the holder of the Convertible Preferred Securities.
Conversion price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be
taxable as dividends to holders of the Convertible Preferred Securities or to
the holders of Company Common Stock. See "United States Taxation."
Conversion Adjustments--Merger, Consolidation or Sale of Assets of the
Company. In the event that the Company shall be a party to any transaction
(including, without limitation, and with certain exceptions), (a)
recapitalization or reclassification of the Common Stock, (b) consolidation
of the Company with, or merger of the Company into, any other person, or any
merger of another person into the Company, (c) any sale, transfer or lease of
all or substantially all of the assets of the Company or (d) any compulsory
share exchange) pursuant to which the Common Stock is converted into the
right to
23
<PAGE>
receive other securities, cash or other property (each of the foregoing being
referred to as a "Transaction"), then the holders of the Convertible
Preferred Securities then outstanding shall have the right to convert the
Convertible Preferred Securities into the kind and amount of securities, cash
or other property receivable upon the consummation of such Transaction by a
holder of the number of shares of Common Stock issuable upon conversion of
such Convertible Preferred Securities immediately prior to such Transaction.
In the case of a Transaction, each of the Convertible Preferred Securities
would become convertible into the securities, cash or property receivable by
a holder of the number of shares of the Common Stock into which such
Convertible Preferred Securities was convertible immediately prior to such
Transaction. This change could substantially lessen or eliminate the value of
the conversion privilege associated with the Convertible Preferred Securities
in the future. For example, if the Company were acquired in a cash merger,
each of the Convertible Preferred Securities would become convertible solely
into cash and would no longer be convertible into securities whose value
would vary depending on the future prospects of the Company and other
factors.
OPTIONAL REDEMPTION
The Company is permitted to redeem the Convertible Junior Subordinated
Debentures as described herein under "Description of the Convertible Junior
Subordinated Debentures--Optional Redemption," in whole or in part, from time
to time, after March 3, 2000, upon not less than 20 nor more than 60 days'
notice. The Company therefore will be required to make 12 interest payments
before being able to redeem any Convertible Junior Subordinated Debentures,
other than under certain circumstances following a Tax Event. See
"Description of the Convertible Junior Subordinated Debentures--Optional
Redemption." Upon any redemption in whole or in part of the Convertible
Junior Subordinated Debentures at the option of the Company, the Issuer will,
to the extent of the proceeds of such redemption, redeem Convertible
Preferred Securities and Common Securities at the Redemption Price. In the
event that fewer than all the outstanding Convertible Preferred Securities
are to be so redeemed, the Convertible Preferred Securities to be redeemed
will be selected as described under "--Form, Denomination and
Registration--Global Certificate; Book-Entry Form" below.
In the event of any redemption in part, the Trust shall not be required to
(i) issue, register the transfer of or exchange any of the Convertible
Preferred Securities during a period beginning at the opening of business 15
days before any selection for redemption of Convertible Preferred Securities
and ending at the close of business on the earliest date in which the
relevant notice of redemption is deemed to have been given to all holders of
Convertible Preferred Securities to be so redeemed and (ii) register the
transfer of or exchange any Convertible Preferred Securities so selected for
redemption, in whole or in part, except for the unredeemed portion of any
Convertible Preferred Securities being redeemed in part. See "--Redemption
Procedures."
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION OR DISTRIBUTION
If a Tax Event (as defined herein) shall occur and be continuing, the
Company shall cause the Company Trustees to dissolve and liquidate the Issuer
and cause Convertible Junior Subordinated Debentures, subject to the rights
of creditors under applicable law, to be distributed to the holders of the
Convertible Preferred Securities in liquidation of the Issuer within 90 days
following the occurrence of such Tax Event; provided, however, that such
liquidation and distribution shall be conditioned on (i) the Company
Trustees' receipt of an opinion of nationally recognized independent tax
counsel (reasonably acceptable to the Company Trustees) experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the
holders of the Convertible Preferred Securities will not recognize any
income, gain or loss for United States federal income tax purposes as a
result of such liquidation and distribution of Convertible Junior
Subordinated Debentures, and (ii) the Company being unable to avoid such Tax
Event within such 90-day period by taking some ministerial action or pursuing
some other reasonable measure that, in the sole judgment of the Company, will
have no adverse effect on the Issuer, the Company or the holders of the
Convertible Preferred Securities and will involve no material cost.
Furthermore, if (i) the Company has
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received an opinion (a "Redemption Tax Opinion") of nationally recognized
independent tax counsel (reasonably acceptable to the Company Trustees)
experienced in such matters that, as a result of a Tax Event, there is more
than an insubstantial risk that the Company would be precluded from deducting
the interest on the Convertible Junior Subordinated Debentures for United
States federal income tax purposes, even after the Convertible Junior
Subordinated Debentures were distributed to the holders of the Convertible
Preferred Securities upon liquidation of the Issuer as described above, or
(ii) the Company Trustees shall have been informed by such tax counsel that
it cannot deliver a No Recognition Opinion, the Company shall have the right,
upon not less than 30 nor more than 60 days' notice and within 90 days
following the occurrence of the Tax Event, to redeem the Convertible Junior
Subordinated Debentures, in whole (but not in part) for cash, at 100% of
principal amount thereof plus accrued and unpaid interest and, following such
redemption, all the Convertible Preferred Securities will be redeemed by the
Issuer at the liquidation preference of $50 per each of the Convertible
Preferred Securities plus accrued and unpaid distributions; provided,
however, that, if at the time there is available to the Company or the Issuer
the opportunity to eliminate, within such 90-day period, the Tax Event by
taking some ministerial action or pursuing some other reasonable measure
that, in the sole judgment of the Company, will have no adverse effect on the
Issuer, the Company or the holders of the Convertible Preferred Securities
and will involve no material cost, the Issuer or the Company will pursue such
measure in lieu of redemption. See "--Mandatory Redemption." In lieu of the
foregoing options, the Company will also have the option of causing the
Convertible Preferred Securities to remain outstanding and pay Additional
Interest (as defined herein) on the Convertible Junior Subordinated
Debentures. See "Description of the Convertible Junior Subordinated
Debentures--Additional Interest."
"Tax Event" means that the Company shall have obtained an opinion of
nationally recognized independent tax counsel (reasonably acceptable to the
Company Trustees) experienced in such matters to the effect that, as a result
of (a) any amendment to or change (including any announced prospective
change) in the laws (or any regulations thereunder) of the United States or
any political subdivision or taxing authority thereof or therein or (b) any
amendment to or change in an interpretation or application of such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority (including the enactment of any legislation and the publication of
any judicial decision or regulatory determination on or after the date of
this Prospectus), which amendment or change is effective, is enacted or which
interpretation or pronouncement is announced on or after the date of this
Prospectus (collectively, a "Change In Tax Law"), there is more than an
insubstantial risk that (i) the Issuer is or will be subject to United States
federal income tax with respect to interest received on the Convertible
Junior Subordinated Debentures, (ii) interest payable to the Issuer on the
Convertible Junior Subordinated Debentures is not or will not be deductible
for United States federal income tax purposes or (iii) the Issuer is or will
be subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges of whatever nature imposed by the
United States, or any other taxing authority. Notwithstanding anything in the
previous sentence to the contrary, a Tax Event shall not include any Change
in Tax Law that requires the Company for United States federal income tax
purposes to defer taking a deduction for any original issue discount ("OID")
that accrues with respect to the Convertible Junior Subordinated Debentures
until the interest payment related to such OID is paid by the Company in
money provided that such Change in Tax Law does not create more than an
insubstantial risk that the Company will be prevented from taking a deduction
for OID accruing with respect to the Convertible Junior Subordinated
Debentures at a date that is no later than the date the interest payment
related to such OID is actually paid by the Company in money.
If an Investment Company Event (as defined herein) shall occur and be
continuing, the Company shall cause the Company Trustees to dissolve and
liquidate the Issuer and cause the Convertible Junior Subordinated
Debentures, subject to the rights of creditors under applicable law, to be
distributed to the holders of the Convertible Preferred Securities in
liquidation of the Issuer within 90 days following the occurrence of such
Investment Company Event.
The distribution by the Company of the Convertible Junior Subordinated
Debentures will effectively result in the cancellation of the Convertible
Preferred Securities.
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"Investment Company Event" means the occurrence of a change in law or
regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law") to the effect that the Issuer is or
will be considered an "investment company" which is required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), which
Change in 1940 Act Law becomes effective on or after the date of this
Prospectus.
A "Special Event" means either an Investment Company Event or a Tax Event.
After the date fixed for any distribution of Convertible Junior
Subordinated Debentures (i) the Convertible Preferred Securities will no
longer be deemed to be outstanding, (ii) The Depository Trust Company ("DTC")
or its nominee, as the record holder of the Global Certificates, will receive
a registered global certificate or certificates representing the Convertible
Junior Subordinated Debentures to be delivered upon such distribution and
(iii) any certificates representing Convertible Preferred Securities not held
by DTC or its nominee will be deemed to represent Convertible Junior
Subordinated Debentures having a principal amount equal to the aggregate of
the stated liquidation preference of such Convertible Preferred Securities,
with accrued and unpaid interest equal to the amount of accrued and unpaid
distributions on such Convertible Preferred Securities, until such
certificates are presented to the Company or its agent for transfer or
reissuance.
MANDATORY REDEMPTION
The Convertible Junior Subordinated Debentures will mature on February 25,
2012, and may be redeemed, in whole or in part, at any time after March 3,
2000 or at any time in certain circumstances upon the occurrence of a Tax
Event. Upon the repayment or payment of the Convertible Junior Subordinated
Debentures, whether at maturity or upon redemption or otherwise, the proceeds
from such repayment or redemption shall simultaneously be applied to redeem
Trust Securities having an aggregate liquidation amount equal to the
Convertible Junior Subordinated Debentures so repaid or redeemed at the
applicable redemption price together with accrued and unpaid distributions
through the date of redemptions provided that holders of the Trust Securities
shall be given not less than 30 nor more than 60 days' notice of such
redemption. See "--Tax Event or Investment Company Event Redemption or
Distribution" and "Description of the Convertible Junior Subordinated
Debentures--General" and "--Optional Redemption." Upon the repayment of the
Convertible Junior Subordinated Debentures at maturity or upon any
acceleration, earlier redemption or otherwise, the proceeds from such
repayment will be applied to redeem the Convertible Preferred Securities and
Common Securities, in whole, upon not less than 30 nor more than 60 days'
notice.
REDEMPTION PROCEDURES
The Convertible Preferred Securities will not be redeemed unless all
accrued and unpaid distributions have been paid on all Convertible Preferred
Securities for all quarterly distribution periods terminating on or prior to
the date of redemption.
If the Issuer gives a notice of redemption in respect of Convertible
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York time, on the redemption date, the Issuer will irrevocably deposit
with DTC funds sufficient to pay the amount payable on redemption and will
give DTC irrevocable instructions and authority to pay such amount in respect
of Convertible Preferred Securities represented by the Global Certificates
and will irrevocably deposit with the paying agent for the Convertible
Preferred Securities funds sufficient to pay such amount in respect of any
Certificated Securities and will give such paying agent irrevocable
instructions and authority to pay such amount to the holders of Certificated
Securities upon surrender of their certificates. Notwithstanding the
foregoing, distributions payable on or prior to the redemption date for any
Convertible Preferred Securities called for redemption shall be payable to
the holders of such Convertible Preferred Securities on the relevant record
dates for the related distribution dates. If notice of redemption shall have
been given and funds are deposited as required, then upon the date of such
deposit, all rights of holders of such Convertible Preferred Securities so
called for redemption will cease, except the right of the holders of such
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Convertible Preferred Securities to receive the redemption price, but without
interest on such redemption price. In the event that any date fixed for
redemption of Convertible Preferred Securities is not a Business Day, then
payment of the amount payable on such date will be made on the next
succeeding day which is a Business Day (without any interest or other payment
in respect of any such delay), except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day. In the event that payment of the redemption price in respect of
Convertible Preferred Securities is improperly withheld or refused, and not
paid either by the Issuer or by the Company pursuant to the Guarantee
described under "Description of the Guarantee," distributions on such
Convertible Preferred Securities will continue to accrue at the then
applicable rate, from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the amount payable upon redemption
(other than for purposes of calculating any premium).
Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Company or its
subsidiaries may at any time and from time to time purchase outstanding
Convertible Preferred Securities by tender, in the open market or by private
agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of,
the Trust Securities, as applicable, shall be made pro rata based on the
liquidation preference of the Trust Securities; provided, however, that, if
on any distribution date or redemption date a Declaration Event of Default
(as defined below under "--Declaration Events of Default") under the
Declaration shall have occurred and be continuing, no payment of any
distribution on, or amount payable upon redemption of, any Common Security,
and no other payment on account of the redemption, liquidation or other
acquisition of Common Securities, shall be made unless payment in full in
cash of accumulated and unpaid distributions on all outstanding Convertible
Preferred Securities for all distribution periods terminating on or prior
thereto, or in the case of payment of the amount payable upon redemption of
the Convertible Preferred Securities, the full amount of such amount in
respect of all outstanding Convertible Preferred Securities, shall have been
made or provided for, and all funds available to the Trustee shall first be
applied to the payment in full in cash of all distributions on, or the amount
payable upon redemption of, Convertible Preferred Securities then due and
payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of
Default until all such Declaration Events of Default with respect to the
Convertible Preferred Securities have been cured, waived or otherwise
eliminated. Until any such Declaration Events of Default with respect to the
Convertible Preferred Securities have been so cured, waived or otherwise
eliminated, the Trustee shall act solely on behalf of the holders of the
Convertible Preferred Securities and not the holder of the Common Securities,
and only the holders of the Convertible Preferred Securities will have the
right to direct the Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding up or termination of the Issuer, the holders of the Convertible
Preferred Securities at the time will be entitled to receive out of the
assets of the Issuer available for distribution to holders of Trust
Securities after satisfaction of liabilities of creditors of the Trust,
before any distribution of assets is made to the holders of the Common
Securities, an amount equal to the aggregate of the stated liquidation
preference of $50 per each of the Convertible Preferred Securities and
accrued and unpaid distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such liquidation,
dissolution, winding up or termination, Convertible Junior Subordinated
Debentures in an aggregate principal amount equal to the Liquidation
Distribution have been distributed on a pro rata basis to the holders of the
Trust Securities.
Pursuant to the Declaration, the Issuer shall be dissolved and its affairs
shall be wound up upon the earliest to occur of the following: (i) February
13, 2022, the expiration of the term of the Issuer, (ii) the bankruptcy of
the Company, (iii) the filing of a certificate of dissolution or its
equivalent with respect to
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the Company or the approval of the filing of a certificate of cancellation
with respect to the Issuer, by the holders of at least a majority in
liquidation amount of the outstanding Convertible Preferred Securities as
described under "--Modification of the Declaration," or the revocation of the
Company's charter and the expiration of 90 days after the date of notice to
the Company of such revocation without a reinstatement of its charter, (iv)
the distribution of all the assets of the Issuer, (v) the entry of a decree
of a judicial dissolution of the Company, (vi) the redemption of all the
Trust Securities or (vii) the conversion of all outstanding Convertible
Preferred Securities into Common Stock.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE ISSUER
The Issuer may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity or person,
except as described below. The Issuer may, without the consent of the holders
of the Convertible Preferred Securities, consolidate, amalgamate, merge with
or into, or be replaced by, a trust organized as such under the laws of any
state of the United States of America; provided that (i) if the Issuer is not
the survivor, such successor entity either (x) expressly assumes all of the
obligations of the Issuer under the Convertible Preferred Securities or (y)
substitutes for the Convertible Preferred Securities other securities having
substantially the same terms as the Convertible Preferred Securities (the
"Successor Securities") as long as the Successor Securities rank the same as
the Convertible Preferred Securities with respect to distributions, assets
and payments upon liquidation, redemption and otherwise, (ii) the Company
expressly acknowledges a trustee of the successor entity that possesses the
same powers and duties as the Trustee as the holder of the Convertible Junior
Subordinated Debentures, (iii) the Convertible Preferred Securities or any
Successor Securities are listed, or any Successor Securities will be listed
upon notification of issuance, on any national securities exchange or other
organization on which the Convertible Preferred Securities are then listed,
(iv) such merger, consolidation, amalgamation or replacement does not cause
the Convertible Preferred Securities (including any Successor Securities) to
be downgraded by any nationally recognized statistical rating organization,
(v) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Convertible Preferred Securities (including any Successor Securities) in any
material respect, (vi) such successor entity has a purpose substantially
identical to that of the Issuer, (vii) the Company has provided a guarantee
to the holders of the Successor Securities with respect to such Successor
entity having substantially the same terms as the Guarantee, and (viii) prior
to such merger, consolidation, amalgamation or replacement, the Company has
received an opinion of nationally recognized independent counsel (reasonably
acceptable to the Trustee) to the Issuer experienced in such matters to the
effect that (x) such successor entity will be treated as a grantor trust for
United States federal income tax purposes, (y) following such merger,
consolidation, amalgamation or replacement, neither the Company nor such
successor entity will be required to register as an investment company under
the 1940 Act and (z) such merger, consolidation, amalgamation or replacement
will not adversely affect the rights, preferences and privileges of the
holders of the Convertible Preferred Securities in any material respect.
Notwithstanding the foregoing, the Issuer shall not, except with the consent
of holders of 100% in liquidation amount of the Common Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other
entity or permit any other entity to consolidate, amalgamate, merge with or
into, or replace it, if such consolidation, amalgamation, merger or
replacement would cause the Issuer or the Successor Entity to be classified
as other than a grantor trust for United States federal income tax purposes.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Event of Default") or a
default by the Company under the Guarantee constitutes an event of default
under the Declaration with respect to the Trust Securities (a "Declaration
Event of Default"); provided that, pursuant to the Declaration, the holder of
the Common Securities will be deemed to have waived any Declaration Event of
Default with respect to the Common Securities until all Declaration Events of
Default with respect to the Convertible Preferred Securities have been cured,
waived or otherwise eliminated. Until such Declaration Events of Default with
respect to the Convertible Preferred Securities have been so cured, waived or
otherwise eliminated,
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the Trustee will be deemed to be acting solely on behalf of the holders of
the Convertible Preferred Securities and only the holders of the Convertible
Preferred Securities will have the right to direct the Trustee with respect
to certain matters under the Declaration and, therefore, the Indenture.
If a Declaration Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Convertible Junior Subordinated Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, the
redemption date), then a holder of Convertible Preferred Securities may
directly institute a proceeding (a "Direct Action") for enforcement of
payment to such holder of the principal of or interest on the Convertible
Junior Subordinated Debentures having a principal amount equal to the
aggregate liquidation amount of the Convertible Preferred Securities of such
holder on or after the respective due date specified in the Convertible
Junior Subordinated Debentures. In addition, if the Trustee fails to enforce
its rights under the Convertible Junior Subordinated Debentures (other than
rights arising from a Declaration Event of Default described in the
immediately preceding sentence) after any holder of Preferred Securities
shall have made a written request to the Trustee to enforce such rights, such
holder of Convertible Preferred Securities may, to the fullest extent
permitted by law, thereafter institute a Direct Action to enforce the
Trustee's rights as holder of the Convertible Junior Subordinated Debentures,
without first instituting any legal proceeding against the Trustee or any
other person. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Convertible Preferred Securities
under the Declaration to the extent of any payment made by the Company to
such holder of Convertible Preferred Securities in such Direct Action. The
holders of Convertible Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Convertible Junior
Subordinated Debentures.
Upon the occurrence of a Declaration Event of Default, the Trustee as the
sole holder of the Convertible Junior Subordinated Debentures will have the
right under the Indenture to declare the principal of and interest on the
Convertible Junior Subordinated Debentures to be immediately due and payable.
The Company and the Trust are each required to file annually with the
Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of the Guarantee--Amendments and Assignments," and as
otherwise required by law and the Declaration, the holders of the Convertible
Preferred Securities will have no voting rights.
Subject to the requirement of the Trustee obtaining a tax opinion in
certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Convertible
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or direct
the exercise of any trust or power conferred upon the Trustee under the
Declaration including the right to direct the Trustee, as holder of the
Convertible Junior Subordinated Debentures, to (i) exercise the remedies
available under the Indenture with respect to the Convertible Junior
Subordinated Debentures, (ii) waive any past Event of Default that is
waiveable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Convertible Junior Subordinated
Debentures shall be due and payable or (iv) consent to any amendment,
modification, or termination of the Indenture or the Convertible Junior
Subordinated Debentures where such consent shall be required; provided,
however, that, where a consent or action under the Indenture would require
the consent or act of the holders of more than a majority of the aggregate
principal amount of Convertible Junior Subordinated Debentures affected
thereby, only the holders of the percentage of the aggregate stated
liquidation preference of the Convertible Preferred Securities which is at
least equal to the percentage required under the Indenture may direct the
Trustee to give such consent or take such action. If a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible Junior
Subordinated Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption on the redemption date), then a holder
of Convertible Preferred Securities may institute a Direct Action for
enforcement of payment to such holder of the principal of or interest on the
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Convertible Junior Subordinated Debentures having a principal amount equal to
the aggregate liquidation amount of the Convertible Preferred Securities of
such holder on or after the respective due date specified in the Convertible
Junior Subordinated Debentures. In addition, if the Trustee fails to enforce
its rights under the Convertible Junior Subordinated Debentures (other than
rights arising from a Declaration Event of Default described in the
immediately preceding sentence) after any holder of Preferred Securities
shall have made a written request to the Trustee to enforce such rights, such
holder of Convertible Preferred Securities may, to the fullest extent
permitted by law, thereafter institute a Direct Action to enforce the
Trustee's rights as holder of the Convertible Junior Subordinated Debentures,
without first instituting any legal proceeding against the Trustee or any
other person. The Trustee shall notify all holders of the Convertible
Preferred Securities of any notice of default received from the Indenture
Trustee with respect to the Convertible Junior Subordinated Debentures. Such
notice shall state that such Event of Default also constitutes a Declaration
Event of Default. Except with respect to directing the time, method and place
of conducting a proceeding for a remedy, the Trustee shall not take any of
the actions described in clause (i), (ii) or (iii) above unless the Trustee
has obtained an opinion of tax counsel to the effect that, as a result of
such action, the Issuer will not fail to be classified as a grantor trust for
United States federal income tax purposes.
In the event the consent of the Trustee, as the holder of the Convertible
Junior Subordinated Debentures, is required under the Indenture with respect
to any amendment, modification or termination of the Indenture, the Trustee
shall request the direction of the holders of the Trust Securities with
respect to such amendment, modification or termination and shall vote with
respect to such amendment, modification or termination as directed by a
majority in liquidation amount of the Trust Securities voting together as a
single class; provided, however, that, where a consent under the Indenture
would require the consent of the holders of more than a majority of the
aggregate principal amount of the Convertible Junior Subordinated Debentures,
the Trustee may only give such consent at the direction of the holders of at
least the same proportion in aggregate stated liquidation preference of the
Trust Securities. The Trustee shall not take any such action in accordance
with the directions of the holders of the Trust Securities unless the Trustee
has obtained an opinion of tax counsel to the effect that for the purposes of
United States federal income tax the Issuer will not be classified as other
than a grantor trust.
A waiver of an Event of Default under the Indenture will constitute a
waiver of the corresponding Declaration Event of Default.
Any required approval or direction of holders of Convertible Preferred
Securities may be given at a separate meeting of holders of Convertible
Preferred Securities convened for such purpose, at a meeting of all of the
holders of Trust Securities or pursuant to written consent. The Company
Trustees will cause a notice of any meeting at which holders of Convertible
Preferred Securities are entitled to vote, or of any matter upon which action
by written consent of such holders is to be taken, to be mailed to each
holder of record of Convertible Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a
description of any resolution proposed for adoption at such meeting on which
such holders are entitled to vote or of such matter upon which written
consent is sought; and (iii) instructions for the delivery of proxies or
consents. No vote or consent of the holders of Convertible Preferred
Securities will be required for the Issuer to redeem and cancel Convertible
Preferred Securities or distribute Convertible Junior Subordinated Debentures
in accordance with the Declaration.
Notwithstanding that holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described above,
any of the Convertible Preferred Securities that are owned at such time by
the Company or any entity directly or indirectly controlling or controlled
by, or under direct or indirect common control with, the Company, shall not
be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if such Convertible Preferred Securities were not
outstanding.
The procedures by which holders of Convertible Preferred Securities may
exercise their voting rights are described below. See "--Form, Denomination
and Registration--Global Certificate; Book-entry Form" below.
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Holders of the Convertible Preferred Securities will have no rights to
appoint or remove the Issuer Trustees, who may be appointed, removed or
replaced solely by the Company as the indirect or direct holder of all of the
Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Company
Trustees (and in certain circumstances the Trustee and the Delaware Trustee),
provided, that if any proposed amendment provides for, or the Company
Trustees otherwise propose to effect, (i) any action that would adversely
affect the powers, preferences or special rights of the Trust Securities,
whether by way of amendment to the Declaration or otherwise or (ii) the
dissolution, winding-up or termination of the Trust other than pursuant to
the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with
the approval of at least a majority in liquidation amount of the Trust
Securities affected thereby; provided, that if any amendment or proposal
referred to in clause (i) above would adversely affect only the Convertible
Preferred Securities or the Common Securities, then only the affected class
will be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of at least a
majority in liquidation amount of such class of Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust
to be classified for purposes of United States federal income taxation as
other than a grantor trust, (ii) reduce or otherwise adversely affect the
powers of the Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
REGISTRATION RIGHTS
In connection with the Original Offering, the Company entered into a
registration rights agreement dated February 26, 1997 (the "Registration
Rights Agreement") with the Initial Purchasers, for the benefit of the
holders of the Convertible Preferred Securities, pursuant to which the
Company would, at its cost, (a) file within 180 days after the Closing Date a
shelf Registration Statement on Form S-3 (a "Shelf Registration Statement")
covering resales of the Convertible Preferred Securities (together with the
Convertible Junior Subordinated Debentures, the Guarantee and the related
Common Stock, collectively, the "Registrable Securities"), under the
Securities Act, (b) use its reasonable best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act
within 270 days after the Closing Date and (c) use its reasonable best
efforts to keep the Shelf Registration Statement continuously effective until
two years after its effective date or such earlier date on which all
Registrable Securities held by persons that are not affiliates of the Company
and the Trust may be resold without registration pursuant to Rule 144(k)
under the Securities Act; in each case, subject to the terms and conditions
of the Registration Rights Agreement. The Company will, in the event a Shelf
Registration Statement is filed, among other things, provide to each holder
for whom such Shelf Registration Statement was filed copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of such
Securities. A holder selling such Securities pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
the provisions of the Registration Rights Agreement which are applicable to
such holder (including certain indemnification obligations).
If (i) within 180 days of the Closing Date the Shelf Registration
Statement has not been filed with the SEC, (ii) within 270 days of the
Closing Date the Shelf Registration Statement has not been declared effective
by the SEC, or (iii) after the Shelf Registration Statement has been declared
effective, such Registration Statement ceases to be effective or usable
(subject to certain exceptions) in connection with resales of Convertible
Preferred Securities in accordance with and during the periods specified in
the
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Registration Rights Agreement (each such event referred to in clauses (i)
through (iii) a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on the Convertible Junior Subordinated Debentures and,
accordingly, additional distributions will accrue on the Convertible
Preferred Securities, in each case from and including the day following the
Registration Default to but excluding the day on which such Registration
Default has been cured or has been deemed to have been cured. Liquidated
Damages will be paid quarterly in arrears, with the first quarterly payment
due on the first interest or distribution date, as applicable, following the
date on which such Liquidated Damages begin to accrue, and will accrue at a
rate per annum equal to an additional 0.25% of the principal amount or
liquidation amount, as applicable, to and including the 90th day following
such Registration Default and 0.50% thereof from and after the 91st day
following such Registration Default. Following the cure of a Registration
Default, Liquidated Damages will cease to accrue with respect to such
Registration Default. At all other times, interest will accrue on the
Convertible Junior Subordinated Debentures and distributions will accrue on
the Convertible Preferred Securities at a rate of 6-1/4% per annum.
The summary herein of certain provisions of the Registration Rights
Agreement is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement, a copy of which is
available upon request to the Company or the Initial Purchasers.
FORM, DENOMINATION AND REGISTRATION
The Convertible Preferred Securities are issued in fully registered form,
without coupons.
Global Certificate; Book-entry Form. Except as provided below, Convertible
Preferred Securities originally sold to "qualified institutional buyers," as
defined in Rule 144A under the Securities Act ("QIBs"), otherwise than
reliance on Regulation S, are evidenced by one or more global certificates
representing Convertible Preferred Securities (collectively, the "Restricted
Global Certificate"), which have been deposited with the Property Trustee as
custodian for DTC and registered in the name of Cede & Co. ("Cede") as DTC's
nominee. Convertible Preferred Securities originally sold to persons who
acquired such Convertible Preferred Securities in compliance with Regulation
S under the Securities Act ("Non-U.S. Persons") are evidenced by one or more
global certificates (collectively, the "Regulation S Global Certificate" and
together with the Restricted Global Certificate, the "Global Certificates" or
each individually, a "Global Certificate"), which have been registered in the
name of a nominee of DTC and deposited with the Property Trustee, for the
accounts of the Euroclear System ("Euroclear") or Cedel Bank, societe anonyme
("Cedel"). Except as set forth below, record ownership of a Global
Certificate may be transferred, in whole or in part, only to another nominee
of DTC or to a successor of DTC or its nominee.
A QIB may hold its interests in the Restricted Global Certificate directly
through DTC if such QIB is a participant in DTC, or indirectly through
organizations which are participants in DTC (the "Participants"). Transfers
between Participants will be effected in the ordinary way in accordance with
DTC rules and will be settled in same-day funds. The laws of some states
require that certain persons take physical delivery of securities in
definitive form. Consequently, the ability to transfer beneficial interest in
the Restricted Global Certificate to such persons may be limited.
Investors may hold their interests in the Regulation S Global Certificate
through Euroclear or Cedel, if they are participants in such systems, or
indirectly through organizations that are participants in such systems. After
the expiration of the Restricted Period (but not earlier), investors also may
hold such interests through organizations other than Euroclear or Cedel that
are Participants in DTC. Euroclear and Cedel will hold interests in the
Regulation S Global Certificate on behalf of their participants through
customers' securities accounts in their respective names on the books of
their respective depositaries, which in turn, will hold such interests in the
Regulation S Global Certificate in customers' securities accounts in the
depositaries' names on the books of DTC. All interests in a Global
Certificate, including those held through Euroclear or Cedel, may be subject
to the procedures and requirements of DTC. Those interests held through
Euroclear and Cedel also may be subject to the procedures and requirements of
such systems.
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QIBs and Non-U.S. Persons who are not Participants may beneficially own
interests in a Global Certificate held by DTC only through Participants,
including Euroclear and Cedel, or certain banks, brokers, dealers, trust
companies and other parties that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). So long as Cede, as the nominee of DTC, is the registered
owner of a Global Certificate, Cede for all purposes will be considered the
sole holder of such Global Certificate. Except as provided below, owners of
beneficial interests in a Global Certificate will not be entitled to have
certificates registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form, and will not be
considered holders thereof.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to owners of beneficial interests in the Global Certificate held
by DTC will be governed by arrangements among them, subject to any statutory
or regulatory requirements that may be in effect from time to time.
Redemption notices shall be sent to Cede. If less than all of the Convertible
Preferred Securities are being redeemed, DTC will reduce the amount of the
interest of each Participant in such Convertible Preferred Securities in
accordance with its procedures.
Although voting with respect to the Convertible Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede will
itself consent or vote with respect to Convertible Preferred Securities.
Under its usual procedures, DTC would mail an Omnibus Proxy to the Trust as
soon as possible after the record date. The Omnibus Proxy assigns Cede's
consenting or voting rights to those Participants to whose accounts the
Convertible Preferred Securities are credited on the record date (identified
in a listing attached to the Omnibus Proxy). The Company and the Trust
believe that the arrangements among DTC, Participants and Indirect
Participants, and owners of beneficial interests in the Global Certificate
held by DTC will enable such beneficial owners to exercise rights equivalent
in substance to the rights that can be directly exercised by a holder of a
beneficial interest in the Trust.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but neither the Company nor the Trust takes responsibility for the
accuracy thereof.
Distribution payments on the Global Certificates will be made to Cede, the
nominee for DTC, as the registered owner of the Global Certificates by wire
transfer of immediately available funds. Neither the Company, the Property
Trustee nor any paying agent will have any responsibility or liability for
any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Certificates or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company has been informed by DTC that, with respect to any
distribution payments on the Global Certificates, DTC's practice is to credit
Participants' accounts on the payment date therefor with payments in amounts
proportionate to their respective beneficial interests in the Convertible
Preferred Securities represented by a Global Certificate, as shown on the
records of DTC, unless DTC has reason to believe that it will not receive
payment on such payment date. Payments by Participants to owners of
beneficial interests in Convertible Preferred Securities represented by a
Global Certificate held through such Participants will be the responsibility
of such Participants, as is not the case with securities held for the
accounts of customers registered in "street name."
Holders who desire to convert their Convertible Preferred Securities into
Common Stock pursuant to the terms of the Convertible Preferred Securities
should contact their brokers or other Participants or Indirect Participants
to obtain information on procedures, including proper forms and cut-off
times, for submitting such requests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Convertible Preferred Securities represented
by a Global Certificate to pledge such interest to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect to
such interest, may be affected by the lack of a physical certificate
evidencing such interest.
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Neither the Company nor the Property Trustee (or any registrar, paying
agent or conversion agent under the Declaration) will have any responsibility
for the performance by DTC or its Participants or Indirect Participants of
their respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action
permitted to be taken by a holder of Convertible Preferred Securities
(including, without limitation, the presentation of Convertible Preferred
Securities for exchange as described below) only at the direction of one or
more Participants to whose account with DTC interests in the Global
Certificate are credited and only in respect of the number of Convertible
Preferred Securities represented by the Global Certificates as to which such
Participant or Participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities that its
Participants deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Participants in DTC include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. DTC is owned by a number of its Participants and by the NYSE,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. The rules applicable to DTC and its Participants are on file with
the SEC.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Global Certificates
among Participants of DTC, Euroclear and Cedel, they are under no obligation
to perform or continue to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or unable to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will cause the Convertible Preferred
Securities to be issued in definitive form in exchange for the Global
Certificates. None of the Company, the Property Trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear and Cedel, their Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records
relating to, or payments made on account or, beneficial ownership interests
in the Global Certificate.
Certificated Convertible Preferred Securities. Convertible Preferred
Securities originally sold to investors that are neither QIBs nor Non-U.S.
Persons were issued in definitive registered form in minimum denominations of
5,000 Convertible Preferred Securities and integral amounts in excess thereof
(the "Certificated Securities" or each a "Certificated Security"), and may
not be represented by the Global Certificate. In addition, QIBs and Non-U.S.
Persons may request that their Convertible Preferred Securities be issued in
certificated form, and may request at any time that their interest in a
Global Certificate be exchanged for Convertible Preferred Securities in
certificated form, upon compliance with certain procedures set forth in the
Declaration. Finally, Certificated Securities may be issued in exchange for
Convertible Preferred Securities represented by the Global Certificate if no
successor depositary is appointed by the Company as set forth above under
"--Global Certificate; Book-Entry Form" or in certain other circumstances set
forth in the Declaration, including the occurrence of a Declaration Event of
Default.
PAYMENT AND PAYING AGENCY
Payments in respect of the Convertible Preferred Securities shall be made
to DTC, which shall credit the relevant accounts at DTC on the applicable
distribution dates or, in the case of Certificated Securities, such payments
shall be made by check mailed to the address of the holder entitled thereto
as such address shall appear on the Register. The Paying Agent shall
initially be The Bank of New York. The Paying
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Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Issuer Trustees. In the event that The Bank of New York shall
no longer be the Paying Agent, the Trustee shall appoint a successor to act
as Paying Agent (which shall be a bank or trust company).
REGISTRAR, TRANSFER AGENT AND CONVERSION AGENT
The Bank of New York acts as registrar, transfer agent and Conversion
Agent for the Convertible Preferred Securities. Registration of transfers of
Convertible Preferred Securities will be effected without charge by or on
behalf of the Issuer, but upon payment (with the giving of such indemnity as
the Issuer or the Company may require) in respect of any tax or other
government charges which may be imposed in relation to it. The Issuer will
not be required to register or cause to be registered the transfer of
Convertible Preferred Securities after such Convertible Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE TRUSTEE
The Company and certain of its subsidiaries maintain deposit accounts and
conduct other banking transactions with the Trustee in the ordinary course of
their businesses.
MISCELLANEOUS
The Issuer Trustees are authorized and directed to conduct the affairs of
and to operate the Issuer in such a way that the Issuer will not be deemed to
be an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for federal income tax purposes
and so that the Convertible Junior Subordinated Debentures will be treated as
indebtedness of the Company for United States federal income tax purposes. In
this connection, the Issuer Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust or the Declaration
that the Issuer Trustees determine in their discretion to be necessary or
desirable for such purposes as long as such action does not adversely affect
the interests of the holders of the Convertible Preferred Securities.
Holders of the Convertible Preferred Securities have no preemptive rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee which
has been executed and delivered by the Company for the benefit of the holders
from time to time of Convertible Preferred Securities. The summary is subject
in all respects to the provisions of, and is qualified in its entirety by
reference to, the Guarantee. The Guarantee incorporates by reference the
terms of the Trust Indenture Act. The Guarantee will be qualified under the
Trust Indenture Act. The Bank of New York acts as trustee under the Guarantee
for purposes of the Trust Indenture Act. The Bank of New York, as the
Guarantee Trustee, holds the Guarantee for the benefit of the holders of the
Convertible Preferred Securities.
GENERAL
Pursuant to the Guarantee, the Company irrevocably and unconditionally
agrees, to the extent set forth herein, to pay in full, to the holders of the
Convertible Preferred Securities, the Guarantee Payments (as defined below),
as and when due, regardless of any defense, right of set off or counterclaim
which the Issuer may have or assert. The following payments with respect to
the Convertible Preferred Securities, to the extent not paid by the Issuer
(the "Guarantee Payments"), are subject to the Guarantee (without
duplication): (i) any accrued and unpaid distributions which are required to
be paid on the Convertible Preferred Securities to the extent of funds of the
Trust available therefor, (ii) the amount payable upon redemption of the
Convertible Preferred Securities, payable out of funds of the Trust available
therefor with respect to any Convertible Preferred Securities called for
redemption by the Issuer and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Issuer, other than in
connection with the distribution of Convertible Junior Subordinated
Debentures, the lesser of (a) the aggregate of the liquidation preference and
all accrued and unpaid dividends on the Convertible Preferred Securities to
the date of payment and (b) the amount of assets of the Issuer remaining
available for distribution to holders of Convertible Preferred Securities
upon the liquidation of the Issuer. The Company's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts
by the Company to the holders of Convertible Preferred Securities or by
causing the Issuer to pay such amounts to such holders.
If the Company fails to make interest payments on the Convertible Junior
Subordinated Debentures or pay amounts payable upon the redemption,
acceleration or maturity of the Convertible Junior Subordinated Debentures,
the Issuer will have insufficient funds to pay distributions on or to pay
amounts payable upon the redemption or repayment of the Convertible Preferred
Securities. The Guarantee does not cover payment of distributions or the
amount payable upon redemption or repayment in respect of the Convertible
Preferred Securities when the Issuer does not have sufficient funds to pay
such distributions or such amount.
In taking any action to enforce the Guarantee, holders of the Convertible
Preferred Securities may proceed directly against the Company as guarantor,
rather than having to proceed against the Issuer before attempting to collect
from the Company, and the Company waives any right or remedy to require that
any action be brought against the Issuer or any other person or entity before
proceeding against the Company. Such obligations will not be discharged
except by payment of the Guarantee Payments in full.
The Guarantee, when taken together with the Company's obligations under
the Convertible Junior Subordinated Debentures, and the Indenture and the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities)
provides a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the Convertible Preferred Securities issued by the
Trust.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities
(the "Common Securities Guarantee") to the same extent as the Guarantee,
except that upon the occurrence and during the continuation of a Declaration
Event of Default, holders of Convertible Preferred Securities shall have
priority over holders of Common Securities with respect to distributions and
payments on liquidation, redemption, or otherwise.
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CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company has covenanted that, so long as any
Convertible Preferred Securities remain outstanding, if at such time (a) the
Company has exercised its option to defer interest payments on the
Convertible Junior Subordinated Debentures and such deferral is continuing,
(b) the Company shall be in default with respect to its payment or other
obligations under the Guarantee or (c) there shall have occurred and be
continuing any event that, with the giving of notice or the lapse of time or
both, would constitute an Event of Default under the Indenture, then the
Company (i) shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock (other than (A) purchases or
acquisitions of shares of Common Stock in connection with the satisfaction by
the Company of its obligations under any employee benefit plans, (B) as a
result of a reclassification of capital stock of the Company or the exchange
or conversion of one class or series of the Company's capital stock for
another class or series of capital stock of the Company, (C) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock of the Company or the
security being converted or exchanged or (D) stock dividends paid by the
Company which consist of the stock of the same class as that on which the
dividend is being paid), (ii) shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company after the date of original issuance of the
Convertible Junior Subordinated Debentures that rank pari passu with or
junior to the Convertible Junior Subordinated Debentures, and (iii) shall not
make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee).
As part of the Guarantee, the Company has agreed that it will honor all
obligations described therein relating to the conversion of the Convertible
Preferred Securities into Common Stock as described in "Description of the
Convertible Preferred Securities--Conversion Rights."
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of Convertible Preferred Securities (in which
case no consent of holders will be required), the Guarantee may be changed
only with the prior approval of the holders of not less than a majority in
aggregate stated liquidation preference of the outstanding Convertible
Preferred Securities. The manner of obtaining any such approval of holders of
the Convertible Preferred Securities will be as set forth under "Description
of the Convertible Preferred Securities--Voting Rights." All guarantees and
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Convertible Preferred Securities then
outstanding. Except in connection with any permitted merger or consolidation
of the Company with or into another entity or any permitted sale, transfer or
lease of the Company's assets to another entity as described below under
"Description of the Convertible Junior Subordinated Debentures--Restrictions,"
the Company may not assign its rights or delegate its obligations under the
Guarantee without the prior approval of the holders of at least a majority of
the aggregate stated liquidation preference of the Convertible Preferred
Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Convertible Preferred
Securities and be of no further force and effect upon (a) full payment of the
applicable redemption price of such holder's Convertible Preferred
Securities, (b) the distribution of Common Stock to such holder in respect of
the conversion of such holder's Convertible Preferred Securities into Common
Stock or (c) the distribution of the Convertible Junior Subordinated
Debentures to the holders of all the Convertible Preferred Securities and
will terminate completely upon full payment of the amounts payable upon
liquidation of the Issuer. The Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of
Convertible Preferred Securities must restore payment of any sums paid under
such Convertible Preferred Securities or the Guarantee.
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STATUS OF THE GUARANTEE; SUBORDINATION
The Guarantee constitutes an unsecured obligation of the Company and ranks
(i) subordinate and junior in right of payment to all other liabilities of
the Company, except any liabilities that may be made pari passu expressly by
their terms, (ii) pari passu with the most senior preferred or preference
stock now or hereafter issued by the Company and with any guarantee now or
hereafter entered into by the Company in respect of any preferred or
preference stock or preferred securities of any affiliate of the Company and
(iii) senior to Common Stock. The Declaration provides that each holder of
Convertible Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Guarantee. Upon the
bankruptcy, liquidation or winding up of the Company, its obligations under
the Guarantee will rank junior to all its other liabilities (except as
aforesaid) and, therefore, funds may not be available for payment under the
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default, has
undertaken to perform only such duties as are specifically set forth in the
Guarantee and, after default with respect to the Guarantee, shall exercise
the same degree of care as a prudent individual would exercise in the conduct
of his or her own affairs. Subject to such provision, the Guarantee Trustee
is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Convertible Preferred Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
GOVERNING LAW
The Guarantee is governed by and construed in accordance with the laws of
the State of New York.
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DESCRIPTION OF THE CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Junior Subordinated Debentures in which the Issuer has invested the proceeds
of the issuance and sale of (i) the Convertible Preferred Securities and (ii)
the Common Securities. The following description is qualified in its entirety
by reference to the Indenture dated as of February 26, 1997 (the "Indenture")
between the Company and The Bank of New York, as trustee (the "Indenture
Trustee"). The Indenture will be qualified under the Trust Indenture Act.
Whenever particular provisions or defined terms in the Indenture are referred
to herein, such provisions or defined terms are incorporated by reference
herein.
Under certain circumstances involving the dissolution of the Issuer
following the occurrence of a Tax Event or Investment Company Event,
Convertible Junior Subordinated Debentures may be distributed to the holders
of the Convertible Preferred Securities in liquidation of the Issuer. See
"Description of the Convertible Preferred Securities--Tax Event or Investment
Company Event Redemption or Distribution."
GENERAL
The Convertible Junior Subordinated Debentures were issued under the
Indenture. The Convertible Junior Subordinated Debentures were limited in
aggregate principal amount to approximately $185.6 million, such amount being
the sum of the aggregate stated liquidation preference of the Convertible
Preferred Securities and the Common Securities.
The entire principal amount of the Convertible Junior Subordinated
Debentures will become due and payable, together with any accrued and unpaid
interest thereon, including Additional Interest, if any, on February 25,
2012.
The Convertible Junior Subordinated Debentures, if distributed to holders
of Convertible Preferred Securities in a dissolution of the Issuer, will
initially be issued as a global security to the extent of any Global
Certificates at the time representing any Convertible Preferred Securities
and otherwise in fully registered, certificated form. In the event that
Convertible Junior Subordinated Debentures are issued in certificated form,
such Convertible Junior Subordinated Debentures will be in denominations of
$50 and integral multiples thereof and may be transferred or exchanged at the
offices described below.
Payments on Convertible Junior Subordinated Debentures issued as a global
security will be made in immediately available funds to DTC, as the
depository for the Convertible Junior Subordinated Debentures. In the event
Convertible Junior Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Convertible
Junior Subordinated Debentures will be registrable and Convertible Junior
Subordinated Debentures will be exchangeable for Convertible Junior
Subordinated Debentures of other denominations of a like aggregate principal
amount at the corporate trust office of the Indenture Trustee in The City of
New York; provided that, unless the Convertible Junior Subordinated
Debentures are held by the Issuer or any successor permissible under
"Description of the Convertible Preferred Securities--Merger, Consolidation
or Amalgamation of the Issuer," payment of interest may be made at the option
of the Company by check mailed to the address of the persons entitled
thereto.
The Indenture does not contain any provisions that afford holders of
Convertible Junior Subordinated Debentures protection in the event of a
highly leveraged transaction involving the Company. The Convertible Junior
Subordinated Debentures are not entitled to the benefit of any sinking fund.
INTEREST
Each Convertible Junior Subordinated Debenture bears interest at the rate
of 6-1/4% per annum from the original date of issuance, payable quarterly in
arrears on March 1, June 1, September 1, and December 1 (each, an "Interest
Payment Date"), commencing June 1, 1997, to the person in whose name such
Convertible Junior Subordinated Debenture is registered at the close of
business on the fifteenth day immediately preceding such Interest Payment
Date. Interest compounds quarterly and accrues at the annual rate of 6-1/4%
on any interest installment not paid when due.
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The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date
on which interest is payable on the Convertible Junior Subordinated
Debentures is not a Business Day, then payment of the interest payable on
such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right at any time during the term of the Convertible
Junior Subordinated Debentures to defer interest payments from time to time
for successive periods not exceeding 20 consecutive quarters for each such
period. At the end of each Deferral Period (subject to extensions as provided
below), the Company shall pay all interest then accrued and unpaid (together
with interest thereon at the rate specified for the Convertible Junior
Subordinated Debentures to the extent permitted by applicable law). In no
event shall any Deferral Period extend beyond the maturity of the Convertible
Junior Subordinated Debentures or any earlier Redemption Date. During any
Deferral Period, the Company (i) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (A)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit
plans, (B) as a result of a reclassification of capital stock of the Company
or the exchange or conversion of one class or series of the Company's capital
stock for another class or series of capital stock of the Company, (C) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock of
the Company or the security being converted or exchanged or (D) stock
dividends paid by the Company which consist of the stock of the same class as
that on which the dividend is being paid), (ii) shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank pari passu with or junior to
the Convertible Junior Subordinated Debentures, and (iii) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the expiration of any such Deferral Period, the Company
may further extend such Deferral Period; provided that such Deferral Period
together with all previous and further extensions thereof may not exceed 20
consecutive quarters. Upon the expiration of any Deferral Period and the
payment of all amounts then due, the Company may select a new Deferral
Period, subject to the above requirements. No interest during a Deferral
Period, except at the end thereof, shall be due and payable. If the Issuer
shall be the sole holder of the Convertible Junior Subordinated Debentures,
the Company shall give the Issuer notice of its selection of such Deferral
Period at least one Business Day prior to the earlier of (i) the date the
distributions on the Convertible Preferred Securities are payable or (ii) the
date the Issuer is required to give notice to any applicable self-regulatory
organization or to holders of the Convertible Preferred Securities of the
record date or the date such distribution is payable, but in any event not
less than ten Business Days prior to such record date. The Company shall
cause the Issuer to give notice of the Company's selection of such Deferral
Period to the holders of the Convertible Preferred Securities. If the Issuer
shall not be the sole holder of the Convertible Junior Subordinated
Debentures, the Company shall give the holders of the Convertible Junior
Subordinated Debentures notice of its selection of such Deferral Period at
least ten Business Days prior to the earlier of (i) the Interest Payment Date
or (ii) the date the Company is required to give notice to any applicable
self-regulatory organization or to holders of the Convertible Junior
Subordinated Debentures of the record or payment date of such related
interest payment, but in any event not less than two Business Days prior to
such record date.
ADDITIONAL INTEREST
If the Issuer would be required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding, transfer or
stamp taxes) imposed by the United States, or any other taxing authority,
then, in any such case, the Company will pay as additional interest
("Additional Interest") such amounts as shall be required so that the net
amounts received and retained by the Issuer
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after paying any such taxes, duties, assessments or governmental charges will
be not less than the amounts the Issuer would have received had no such
taxes, duties, assessments or governmental charges been imposed.
CONVERSION OF THE CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES
The Convertible Junior Subordinated Debentures are convertible into Common
Stock at the option of the holders of the Convertible Junior Subordinated
Debentures at any time beginning 60 days following the first date of original
issuance of the Convertible Junior Subordinated Debentures prior to maturity
(except in the case of Convertible Preferred Securities called for redemption
which shall be convertible at any time prior to the close of business on the
Business Day prior to the redemption date) at the initial conversion price
set forth on the cover page of this Prospectus subject to the conversion
price adjustments described under "Description of the Convertible Preferred
Securities--Conversion Rights." The Issuer has covenanted not to convert
Convertible Junior Subordinated Debentures held by it except pursuant to a
notice of conversion delivered to the Conversion Agent by a holder of
Convertible Preferred Securities. Upon surrender of each $50 of liquidation
preference of Convertible Preferred Securities to the Conversion Agent for
conversion, the Issuer will distribute $50 principal amount of the
Convertible Junior Subordinated Debentures to the Conversion Agent on behalf
of the holder of the Convertible Preferred Securities so converted, whereupon
the Conversion Agent will convert such Convertible Junior Subordinated
Debentures to Common Stock on behalf of such holder. The Company's delivery
to the holders of the Convertible Junior Subordinated Debentures (through the
Conversion Agent) of the fixed number of shares of Common Stock into which
the Convertible Junior Subordinated Debentures are convertible (together with
the cash payment, if any, in lieu of fractional shares) will be deemed to
satisfy the Company's obligation to pay the principal amount of the
Convertible Junior Subordinated Debentures so converted, and the accrued and
unpaid interest thereon attributable to the period from the last date to
which interest has been paid or duly provided for; provided, however, that if
any Convertible Junior Subordinated Debenture is converted after a record
date for payment of interest, the interest payable on the related interest
payment date with respect to such Convertible Junior Subordinated Debenture
shall be paid to the Issuer (which will distribute such interest to the
converting holder) or other holder of Convertible Junior Subordinated
Debentures, as the case may be, despite such conversion.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Convertible Junior
Subordinated Debentures, in whole or in part, at any time or from time to
time on or after March 3, 2000, upon not less than 20 nor more than 60 days'
notice, at a redemption price equal to $51.00 per $50 principal amount of the
Convertible Junior Subordinated Debentures to be redeemed plus any accrued
and unpaid interest, including Additional Interest, if any, to the redemption
date, if redeemed before March 3, 2001; at a redemption price equal to $50.50
per $50 principal amount of Convertible Junior Subordinated Debentures to be
redeemed plus any accrued and unpaid interest, including Additional Interest,
if any, to the redemption date, if redeemed during the 12-month period
beginning March 3, 2001; and thereafter at $50 per $50 principal amount of
Convertible Junior Subordinated Debentures plus, in each case, accrued and
unpaid interest, including Additional Interest, if any, to the redemption
date.
In the event of any redemption in part, the Company shall not be required
to (i) issue, register the transfer of or exchange any Convertible Junior
Subordinated Debenture during a period beginning at the opening of business
15 days before any selection for redemption of Convertible Junior
Subordinated Debentures and ending at the close of business on the earliest
date on which the relevant notice of redemption is deemed to have been given
to all holders of Convertible Junior Subordinated Debentures to be so
redeemed and (ii) register the transfer of or exchange any Convertible Junior
Subordinated Debentures so selected for redemption, in whole or in part,
except the unredeemed portion of any Convertible Junior Subordinated
Debenture being redeemed in part.
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SUBORDINATION
The Indenture provides that the Convertible Junior Subordinated Debentures
are subordinate and junior in right of payment to all Senior Indebtedness of
the Company as provided in the Indenture. No payment of principal of
(including redemption payments), or interest on, the Convertible Junior
Subordinated Debentures may be made (i) if any Senior Indebtedness is not
paid when due, any applicable grace period with respect to such default has
ended and such default has not been cured or waived, or (ii) if the maturity
of any Senior Indebtedness has been accelerated because of a default. Upon
any distribution of assets of the Company to creditors upon any dissolution,
winding up, liquidation or reorganization, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, all
principal of, and premium, if any, and interest due or to become due on, all
Senior Indebtedness must be paid in full before the holders of the
Convertible Junior Subordinated Debentures are entitled to receive or retain
any payment. In the event that, notwithstanding the foregoing, any payment or
distribution of cash, property or securities shall be received or collected
by a holder of the Convertible Junior Subordinated Debentures in
contravention of the foregoing provisions, such payment or distribution shall
be held for the benefit of and shall be paid over to the holders of Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instrument evidencing Senior
Indebtedness may have been issued, as their respective interests may appear,
to the extent necessary to pay in full all Senior Indebtedness then due,
after giving effect to any concurrent payment to the holders of Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness, the
rights of the holders of the Convertible Junior Subordinated Debentures will
be subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions applicable to Senior Indebtedness until all amounts
owing on the Convertible Junior Subordinated Debentures are paid in full.
The term "Senior Indebtedness" shall mean in respect of the Company (i)
the principal, premium, if any, and interest in respect of (A) indebtedness
of such obligor for money borrowed and (B) indebtedness evidenced by
securities, convertible preferred securities, bonds or other similar
instruments issued by such obligor, (ii) all capital lease obligations of
such obligor, (iii) all obligations of such obligor issued or assumed as the
deferred purchase price of property, all conditional sale obligations of such
obligor and all obligations of such obligor under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type
referred to in clauses (i) through (iv) above of other persons for the
payment of which such obligor is responsible or liable as obligor, guarantor
or otherwise, and (vi) all obligations of the type referred to in clauses (i)
through (v) above of other persons secured by any lien on any property or
asset of such obligor (whether or not such obligation is assumed by such
obligor), except for (1) any such indebtedness issued after the date of
original issuance of the Convertible Junior Subordinated Debentures that is
by its terms subordinated to or pari passu with the Convertible Junior
Subordinated Debentures and (2) any indebtedness (including all other debt
securities and guarantees in respect of those debt securities) initially
issued to any other trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is, directly or indirectly, a
financing vehicle of the Company (a "Financing Entity") in connection with
the issuance by such Financing Entity of preferred securities or other
similar securities. Such Senior Indebtedness shall continue to be Senior
Indebtedness and entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term of such
Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
the Company may issue. At March 31, 1997, Senior Indebtedness consisting of
borrowed money of CalEnergy Company, Inc. aggregated approximately $953.8
million. See "Capitalization."
CERTAIN COVENANTS
If (a) there shall have occurred any event that would constitute an Event
of Default, (b) the Company shall be in default with respect to its payment
of any obligations under the Guarantee, or (c) the Company shall have given
notice of its election to defer payments of interest on the Convertible
Junior
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Subordinated Debentures by extending the interest payment period as provided
in the Indenture and such period, or any extension thereof, shall be
continuing, then the Company (i) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (A)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit
plans, (B) as a result of a reclassification of capital stock of the Company
or the exchange or conversion of one class or series of the Company's capital
stock for another class or series of capital stock of the Company, (C) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock of
the Company or the security being converted or exchanged or (D) stock
dividends paid by the Company which consist of stock of the same class as
that on which the dividend is being paid), (ii) shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company after the date of original issuance of
the Convertible Junior Subordinated Debentures that rank pari passu with or
junior to the Convertible Junior Subordinated Debentures, and (iii) shall not
make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee).
The Company has covenanted (a) to directly or indirectly maintain 100%
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of such Common Securities and (b) to use its reasonable
efforts to cause the Trust (x) to remain a statutory business trust, except
in connection with the distribution of Convertible Junior Subordinated
Debentures to the holders of Trust Securities in liquidation of the Trust,
the redemption of all of the Trust Securities of the Trust, or certain
mergers, consolidations or amalgamations, each as permitted by the
Declaration, and (y) to otherwise continue to be classified as a grantor
trust for United States federal income tax purposes.
RESTRICTIONS
The Indenture provides that the Company shall not consolidate with or
merge with or into any other corporation, or, directly or indirectly, convey,
sell, transfer or lease all or substantially all of the properties and assets
of the Company on a consolidated basis to any person, unless either the
Company is the continuing corporation or such corporation or person assumes
by supplemental indenture all the obligations of the Company under the
Indenture and the Convertible Junior Subordinated Debentures, no default or
Event of Default shall exist immediately after the transaction, and the
surviving corporation or such person is a corporation, partnership or trust
organized and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia.
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of
Default" with respect to the Convertible Junior Subordinated Debentures: (i)
failure for 30 days to pay interest on the Convertible Junior Subordinated
Debentures, including any Additional Interest in respect thereof, when due;
or (ii) failure to pay principal of or premium, if any, on the Convertible
Junior Subordinated Debentures when due whether at maturity, upon redemption,
by declaration or otherwise; or (iii) failure by the Company to deliver
shares of Common Stock upon an election by a holder of Convertible Preferred
Securities to convert such Convertible Preferred Securities; or (iv) failure
to observe or perform any other covenant contained in the Indenture for 90
days after notice; or (v) the dissolution, winding up or termination of the
Issuer, except in connection with the distribution of Convertible Junior
Subordinated Debentures to the holders of Convertible Preferred Securities in
liquidation of the Issuer and in connection with certain mergers,
consolidations or amalgamations permitted by the Declaration; or (vi) certain
events in bankruptcy, insolvency or reorganization of the Company.
The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Junior Subordinated
Debentures may declare the principal of and interest (including any
Additional Interest) on the Convertible Junior Subordinated Debentures due
and payable immediately on the occurrence of an Event of Default; provided,
however, that, after such acceleration, but
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before a judgment or decree based on acceleration, the holders of a majority
in aggregate principal amount of outstanding Convertible Junior Subordinated
Debentures may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of
accelerated principal, have been cured or waived as provided in the
Indenture. For information as to waiver of defaults, see "--Modification of
the Indenture."
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to
pay interest or principal on the Convertible Junior Subordinated Debentures
on the date such interest or principal is otherwise payable (or in the case
of any redemption, the redemption date), a holder of Convertible Preferred
Securities may institute a Direct Action for payment on or after the
respective due date (or redemption date) specified in the Convertible Junior
Subordinated Debentures. The Company may not amend the Indenture to remove
the foregoing right to bring a Direct Action without the prior written
consent of all the holders of Convertible Preferred Securities.
Notwithstanding any payment made to such holder of Convertible Preferred
Securities by the Company in connection with a Direct Action, the Company
shall remain obligated to pay the principal of or interest on the Convertible
Junior Subordinated Debentures held by the Issuer or the Trustee of the
Issuer and the Company shall be subrogated to the rights of the holder of
such Convertible Preferred Securities with respect to payments on the
Convertible Preferred Securities to the extent of any payments made by the
Company to such holder in any Direct Action. The holders of Convertible
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Convertible Junior Subordinated Debentures.
The Trustee is the initial holder of the Convertible Junior Subordinated
Debentures. However, while the Convertible Preferred Securities are
outstanding, the Trustee has agreed not to waive an Event of Default with
respect to the Convertible Junior Subordinated Debentures without the consent
of holders of a majority in aggregate liquidation preference of the
Convertible Preferred Securities then outstanding.
A default under any other indebtedness of the Company or any of its
subsidiaries or joint ventures or the Issuer would not constitute an Event of
Default under the Convertible Junior Subordinated Debentures.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default shall occur and be continuing,
the Indenture Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any
holders of Convertible Junior Subordinated Debentures, unless such holders
shall have offered to the Indenture Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Indenture Trustee, the holders
of a majority in aggregate principal amount of the Convertible Junior
Subordinated Debentures then outstanding will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Indenture Trustee, or exercising any trust or power conferred on the
Indenture Trustee.
No holder of any Convertible Junior Subordinated Debenture will have any
right to institute any proceeding with respect to the Indenture or for any
remedy thereunder, unless such holder shall have previously given to the
Indenture Trustee written notice of a continuing Event of Default and, if the
Issuer is not the sole holder of Convertible Junior Subordinated Debentures,
unless the holders of at least 25% in aggregate principal amount of the
Convertible Junior Subordinated Debentures then outstanding shall also have
made written request, and offered reasonable indemnity, to the Indenture
Trustee to institute such proceeding as Indenture Trustee, and the Indenture
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Convertible Junior Subordinated
Debentures a direction inconsistent with such request and shall have failed
to institute such proceeding within 60 days. However, such limitations do not
apply to a suit instituted by a holder of a Convertible Junior Subordinated
Debenture for enforcement of payment of the principal of or interest on such
Convertible Junior Subordinated Debenture on or after the respective due
dates expressed in such Convertible Junior Subordinated Debenture.
The holders of a majority in aggregate outstanding principal amount of all
series of the Convertible Junior Subordinated Debentures affected thereby
may, on behalf of the holders of all the Convertible
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Junior Subordinated Debentures of such series, waive any past default, except
a default in the payment of principal, premium, if any, or interest. The
Company is required to file annually with the Indenture Trustee and the
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants under the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Convertible Junior Subordinated Debentures, to modify
the Indenture or any supplemental indenture, provided that no such
modification may, without the consent of the holder of each outstanding
Convertible Junior Subordinated Debenture affected thereby, (i) extend the
fixed maturity of any Convertible Junior Subordinated Debentures of any
series, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any premium payable upon
the redemption thereof, or adversely affect the right to convert Convertible
Junior Subordinated Debentures, without the consent of the holder of each
Convertible Junior Subordinated Debenture so affected, or (ii) reduce the
percentage of Convertible Junior Subordinated Debentures, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of each Convertible Junior Subordinated Debenture then
outstanding and affected thereby.
In addition, the Company and the Indenture Trustee may execute, without
the consent of any holder of Convertible Junior Subordinated Debentures, any
supplemental indenture to cure any ambiguities, comply with the Trust
Indenture Act and for certain other customary purposes.
SETOFF
Notwithstanding anything contained to the contrary in the Indenture, the
Company has the right to set off any payment with respect to the Convertible
Junior Subordinated Debentures it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently
on the date of such payment making, a payment under the Guarantee.
GOVERNING LAW
The Indenture and the Convertible Junior Subordinated Debentures are
governed by, and construed in accordance with, the laws of the State of New
York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, has undertaken to perform only
such duties as are specifically set forth in the Indenture and, after
default, shall exercise the same degree of care as a prudent individual would
exercise in the conduct of his or her own affairs. Subject to such provision,
the Indenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of Convertible
Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Indenture Trustee is not required to expend or risk its own
funds or otherwise incur personal financial liability in the performance of
its duties if the Indenture Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it.
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EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Issuer is to
issue the Trust Securities and use the proceeds thereof to purchase from the
Company the Convertible Junior Subordinated Debentures.
As long as payments of interest and other payments are made when due on
the Convertible Junior Subordinated Debentures, such payments will be
sufficient to cover distributions and payments due on the Convertible
Preferred Securities primarily because (i) the aggregate principal amount of
Convertible Junior Subordinated Debentures will be equal to the sum of the
aggregate stated liquidation preference of the Convertible Preferred
Securities and the Common Securities; (ii) the interest rate and interest and
other payment dates on the Convertible Junior Subordinated Debentures will
match the distribution rate and distribution and other payment dates for the
Convertible Preferred Securities; (iii) the Indenture provides that the
Company, as originator, shall pay for all, and the Issuer shall not be
obligated to pay, directly or indirectly, for any, costs and expenses of the
Issuer; and (iv) the Declaration provides that the holders of Common
Securities and the Issuer Trustees shall not cause or permit the Issuer to,
among other things, engage in any activity that is not consistent with the
purposes of the Issuer.
If an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on
the Convertible Junior Subordinated Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, on the
redemption date), then a holder of Convertible Preferred Securities may
institute a Direct Action against the Company for payment on or after the
respective due date for payment (or redemption date). In addition, if the
Trustee fails to enforce its rights under the Convertible Junior Subordinated
Debentures (other than rights arising from a Declaration Event of Default
described in the immediately preceding sentence) after any holder of
Preferred Securities shall have made a written request to the Trustee to
enforce such rights, such holder of Convertible Preferred Securities may, to
the fullest extent permitted by law, thereafter institute a Direct Action to
enforce the Trustee's rights as holder of the Convertible Junior Subordinated
Debentures, without first instituting any legal proceeding against the
Trustee or any other person.
Payments of distributions and other payments due on the Convertible
Preferred Securities out of moneys held by the Issuer are guaranteed by the
Company to the extent set forth under "Description of the Guarantee." If the
Company fails to make payments under the Guarantee, a holder of any of the
Convertible Preferred Securities may institute a direct action against the
Company to enforce its rights under the Guarantee.
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UNITED STATES TAXATION
GENERAL
The following is a summary of certain of the material United States
federal income tax consequences of the purchase, ownership, disposition and
conversion of Convertible Preferred Securities. Unless otherwise stated, this
summary deals only with Convertible Preferred Securities held as capital
assets by holders and does not deal with special classes of holders such as
banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies,
tax-exempt investors, United States Alien Holders (as defined herein) engaged
in a trade or business within the United States, persons that will hold the
Convertible Preferred Securities as a position in a "straddle," as part of a
"synthetic security" or "hedge," or as part of a "conversion transaction" or
other integrated investment, or persons that will hold the Convertible
Preferred Securities as other than a capital asset. This summary also does
not address the tax consequences to persons that have a functional currency
other than the U.S. Dollar or the tax consequences to shareholders, partners
or beneficiaries of a holder of Convertible Preferred Securities. Further, it
does not include any description of any alternative minimum tax consequences
or the tax laws of any state or local government or of any foreign government
that may be applicable to the Convertible Preferred Securities. This summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis.
TREATMENT BY THE COMPANY
The Company intends to treat the Convertible Junior Subordinated
Debentures as debt for United States federal income tax purposes and each
holder of Convertible Preferred Securities as the owner of an undivided
interest in the Convertible Junior Subordinated Debentures. The Company and
the Trust will therefore report any payments on the Convertible Junior
Subordinated Debentures to the Internal Revenue Service in a manner
consistent with such characterization.
The remainder of this discussion assumes that the Convertible Junior
Subordinated Debentures will be classified as debt for United States federal
income tax purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Convertible Preferred Securities,
Willkie Farr & Gallagher, special counsel to the Company and the Trust,
rendered its opinion generally to the effect that, under then current law and
assuming full compliance with the terms of the Declaration and the
Convertible Junior Subordinated Debenture Indenture (and certain other
documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a
corporation. Accordingly, for United States federal income tax purposes, each
holder of Convertible Preferred Securities generally will be considered the
owner of an undivided interest in the Convertible Junior Subordinated
Debentures, and each holder will be required to include in its gross income
any original issue discount ("OID") accrued with respect to its allocable
share of those Convertible Junior Subordinated Debentures.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Because the Company has the option, under the terms of the Convertible
Junior Subordinated Debentures, to defer payments of interest by extending
interest payment periods for up to 20 quarters, all of the stated interest
payments on the Convertible Junior Subordinated Debentures will be treated as
"OID." Holders of debt instruments issued with OID must include that discount
in income on an economic accrual basis before the receipt of cash
attributable to the interest, regardless of their method of tax accounting.
Generally, all of a holder's taxable interest income with respect to the
Convertible Junior Subordinated Debentures will be accounted for as OID.
Actual payments and distributions of stated interest will not, however, be
separately reported as taxable income. The amount of OID that
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accrues in any quarter will approximately equal the amount of the interest
that accrues on the Convertible Junior Subordinated Debentures in that
quarter at the stated interest rate. In the event that the interest payment
period is extended, holders will continue to accrue OID approximately equal
to the amount of the interest payment due at the end of the extended interest
payment period on an economic accrual basis over the length of the extended
interest payment period.
Because income on the Convertible Preferred Securities will constitute
OID, corporate holders of Convertible Preferred Securities will not be
entitled to a dividends-received deduction with respect to any income
recognized with respect to the Convertible Preferred Securities.
MARKET DISCOUNT AND BOND PREMIUM
Holders of Convertible Preferred Securities other than a holder who
purchased the Convertible Preferred Securities upon original issuance may be
considered to have acquired their undivided interests in the Convertible
Junior Subordinated Debentures with market discount or acquisition premium as
such phrases are defined for United States federal income tax purposes. Such
holders are advised to consult their tax advisors as to the income tax
consequences of the acquisition, ownership and disposition of the Convertible
Preferred Securities.
RECEIPT OF CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES OR CASH UPON
LIQUIDATION OF THE ISSUER
Under certain circumstances, as described under the caption "Description
of the Convertible Preferred Securities--Tax Event or Investment Company
Event Redemption or Distribution," Convertible Junior Subordinated Debentures
may be distributed to holders in exchange for the Convertible Preferred
Securities and in liquidation of the Trust. Under current law, such a
distribution to holders, for United States federal income tax purposes, would
be treated as a nontaxable event to each holder, and each holder would
receive an aggregate tax basis in the Convertible Junior Subordinated
Debentures equal to such holder's aggregate tax basis in its Convertible
Preferred Securities. A holder's holding period in the Convertible Junior
Subordinated Debentures so received in liquidation of the Trust would include
the period during which the Convertible Preferred Securities were held by
such holder.
Under certain circumstances described herein (see "Description of the
Convertible Preferred Securities"), the Convertible Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Convertible Preferred
Securities. Under current law, such a redemption would, for United States
federal income tax purposes, constitute a taxable disposition of the redeemed
Convertible Preferred Securities, and a holder would recognize gain or loss
as if it sold such redeemed Convertible Preferred Securities for cash. See
"--Disposition of Convertible Preferred Securities."
DISPOSITION OF CONVERTIBLE PREFERRED SECURITIES
A holder that sells Convertible Preferred Securities will recognize gain
or loss equal to the difference between the amount realized on the sale of
the Convertible Preferred Securities and the holder's adjusted tax basis in
such Convertible Preferred Securities. A holder's adjusted tax basis in the
Convertible Preferred Securities generally will be its initial purchase price
increased by OID previously includible in such holder's gross income to the
date of disposition and decreased by payments received on the Convertible
Preferred Securities to the date of disposition. Such gain or loss will be a
capital gain or loss and will be a long-term capital gain or loss if the
Convertible Preferred Securities have been held for more than one year at the
time of sale.
The Convertible Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to
the underlying Convertible Junior Subordinated Debentures. A holder who
disposes of or converts his Convertible Preferred Securities between record
dates for payments of distributions thereon will be required to include in
income the OID on the Convertible Junior Subordinated Debentures through the
date of disposition, and to add such amount to his adjusted tax basis in his
pro rata share of the underlying Convertible Junior Subordinated Debentures
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deemed disposed of. To the extent the selling price is less than the holder's
adjusted tax basis (which basis will include, in the form of OID, all accrued
but unpaid interest), a holder will recognize a capital loss. Subject to
certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
CONVERSION OF CONVERTIBLE PREFERRED SECURITIES INTO COMMON STOCK
A holder of Convertible Preferred Securities will not recognize gain or
loss upon the exchange, through the Conversion Agent, of Convertible
Preferred Securities for a proportionate share of the Convertible Junior
Subordinated Debentures held by the Issuer.
A holder of Convertible Preferred Securities will not recognize income,
gain or loss upon the conversion, through the Conversion Agent, of
Convertible Junior Subordinated Debentures into the Common Stock. A holder of
Convertible Preferred Securities will, however, recognize gain upon the
receipt of cash in lieu of a fractional share of the Common Stock equal to
the amount of cash received less such holder's tax basis in such fractional
share. A holder of Convertible Preferred Securities' tax basis in the Common
Stock received upon exchange and conversion should generally be equal to such
holder's tax basis in the Convertible Preferred Securities delivered to the
Conversion Agent for exchange less the basis allocated to any fractional
share for which cash is received and a holder of Convertible Preferred
Securities' holding period in the Common Stock received upon exchange and
conversion should generally begin on the date such holder acquired the
Convertible Preferred Securities delivered to the Conversion Agent for
exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Convertible Preferred Securities as having received a constructive
distribution from the Company in the event the conversion ratio of the
Convertible Junior Subordinated Debentures were adjusted if (i) as a result
of such adjustment, the proportionate interest (measured by the quantum of
Common Stock into or for which the Convertible Junior Subordinated Debentures
are convertible or exchangeable) of the holders of the Convertible Preferred
Securities in the assets or earnings and profits of the Company were
increased, and (ii) the adjustment was not made pursuant to a bona fide,
reasonable antidilution formula. An adjustment in the conversion ratio would
not be considered made pursuant to such a formula if the adjustment was made
to compensate for certain taxable distributions with respect to the Common
Stock. Thus, under certain circumstances, a reduction in the conversion price
for the holders may result in a deemed distribution. The fair market value of
such distribution will be taxable as dividend income to holders to the extent
of the current or accumulated earnings and profits of the Company. Holders of
the Convertible Preferred Securities would be required to include their
allocable share of such deemed dividend income in gross income but will not
receive any cash related thereto.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of President Clinton's Budget Proposal for
Fiscal Year 1998, the Treasury Department proposed legislation (the "Proposed
Legislation") which, among other things, would generally treat as equity for
United States federal income tax purposes instruments with a maximum term of
more than 15 years and that are not shown as indebtedness on the separate
balance sheet of the issuer. The Proposed Legislation would be effective
generally for instruments issued on or after the date of the first committee
action. If the Proposed Legislation were enacted in the form proposed by the
Treasury Department, such legislation would not apply to the Convertible
Junior Subordinated Debentures. Furthermore, tax legislation proposed in June
1997 by the Chairmen of the House Committee on Ways and Means and the Senate
Finance Committee do not contain provisions similar to the Proposed
Legislation. There can be no assurances, however, that either the effective
date guidance or the maximum term requirements contained in the Proposed
Legislation will be incorporated into any enacted legislation or that other
legislation enacted after the date hereof will not otherwise adversely affect
the tax treatment of the Convertible Preferred Securities. If legislation is
enacted that adversely affects the tax treatment of the Convertible Preferred
Securities, such legislation could result in the
49
<PAGE>
distribution of the Convertible Preferred Securities to holders of the
Convertible Preferred Securities or, in certain limited circumstances, the
redemption of such securities by the Company and the distribution of the
resulting cash in redemption of the Convertible Preferred Securities. See
"Description of the Convertible Preferred Securities--Tax Event or Investment
Company Event Redemption or Distribution."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership, or a nonresident fiduciary of a foreign estate or trust.
Under present United States federal income tax law, (i) payments by the
Trust or any of its paying agents to any holder of Convertible Preferred
Securities who or which is a United States Alien Holder will not be subject
to withholding of United States federal income tax; provided that, (a) the
beneficial owner of the Convertible Preferred Securities does not actually or
constructively (including by virtue of its interest in the underlying
Convertible Junior Subordinated Debentures) own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote, (b) the beneficial owner of the Convertible Preferred Securities is not
a controlled foreign corporation that is related to the Company through stock
ownership, and (c) either (A) the beneficial owner of the Convertible
Preferred Securities certifies to the Trust or its agent, under penalties of
perjury, that it is not a United States holder and provides its name and
address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution"), and holds the Convertible
Preferred Securities in such capacity, that certifies to the Trust or its
agent, under penalties of perjury, that such statement has been received from
the beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Trust or its agent with a copy thereof;
and (ii) a United States Alien Holder of Convertible Preferred Securities
will not be subject to withholding of United States federal income tax on any
gain realized upon the sale or other disposition of the Convertible Preferred
Securities.
If a United States Alien Holder is treated as receiving a deemed dividend
as a result of an adjustment of the conversion price of the Convertible
Preferred Securities, as described above under "Adjustment of Conversion
Price," such deemed dividend will be subject to United States federal
withholding tax at a 30% (or lower treaty) rate.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Subject to the qualifications discussed below, income on the Convertible
Preferred Securities will be reported to holders on Forms 1099, which forms
should be mailed to holders of Convertible Preferred Securities by February
28 following each calendar year.
The Trust will be obligated to report annually to Cede & Co., as holder of
record of the Convertible Preferred Securities, the OID related to the
Convertible Preferred Securities that accrued during the year. The Trust
currently intends to report such information on Form 1099 prior to February
28 following each calendar year even though the Trust is not legally required
to report to record holders until April 15 following each calendar year. The
Placing Agents have indicated to the Trust that, to the extent that they hold
Convertible Preferred Securities as nominees for beneficial holders, they
currently expect to report to such beneficial holders on Forms 1099 by
February 28 following each calendar year. Under current law, holders of
Convertible Preferred Securities who hold as nominees for beneficial holders
will not have any obligation to report information regarding the beneficial
holders to the Trust. The Trust, moreover, will not have any obligation to
report to beneficial holders who are not also record holders. Thus,
beneficial holders of Convertible Preferred Securities who hold their
Convertible Preferred Securities through the Initial Purchaser will receive
Forms 1099 reflecting the income on their Convertible Preferred Securities
from such nominee holders rather than the Trust.
Payments made on, and proceeds from the sale of, the Convertible Preferred
Securities may be subject to a "backup" withholding tax of 31% unless the
holder complies with certain identification
50
<PAGE>
requirements. Any withheld amounts will be allowed as a credit against the
holder's United States federal income tax, provided the required information
is provided to the Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING
UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE CONVERTIBLE PREFERRED SECURITIES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"), or Section 4975 of the Code
("Plans"), may purchase Convertible Preferred Securities, subject to the
investing fiduciary's determination that the investment in Convertible
Preferred Securities satisfies ERISA's fiduciary standards and other
requirements applicable to investments by the Plan.
In any case, the Company and/or any of its affiliates may be considered a
"party in interest" (within the meaning of ERISA) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to certain
plans (generally, Plans maintained or sponsored by, or contributed to by, any
such persons). The acquisition and ownership of Convertible Preferred
Securities by a Plan (or by an individual retirement arrangement or other
Plans described in Section 4975(e)(i) of the Code) with respect to which the
Company or any of its affiliates is considered a party in interest or a
disqualified person, may constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code, unless such Convertible Preferred
Securities are acquired pursuant to and in accordance with an applicable
exemption.
Pursuant to an exception contained in a regulation issued by the U.S.
Department of Labor, the assets of the Trust would not be deemed to be "plan
assets" of investing Plans if, immediately after the most recent acquisition
of any equity interest in the Trust, less than 25% of the value of each class
of equity interests in the Trust were held by Plans, other employee benefit
plans not subject to ERISA or Section 4975 of the Code (such as governmental,
church and foreign plans), and entities holding assets deemed to be "plan
assets" of any Plan (collectively, "Benefit Plan Investors"). No monitoring
or other measures will be taken with respect to limiting the value of the
Convertible Preferred Securities held by Benefit Plan Investors to less than
25% of the total value of such Convertible Preferred Securities at the
completion of the Original Offering or thereafter. Thus, the conditions of
the exception may not be satisfied. All of the Common Securities will be
purchased and initially held by the Company.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
Convertible Preferred Securities. Any other Plans or other entities whose
assets include Plan assets subject to ERISA proposing to acquire Convertible
Preferred Securities should consult with their own ERISA counsel.
51
<PAGE>
SELLING HOLDERS
The Convertible Preferred Securities were originally issued by the Trust
and sold by Lehman Brothers Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchasers"), in a transaction exempt from the
registration requirements of the Securities Act, to persons reasonably
believed by such Initial Purchasers to be "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act), to a limited number of
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) and outside the United States to persons
other than U.S. persons in reliance upon Regulation S under the Securities
Act. The Selling Holders may from time to time offer and sell pursuant to
this Prospectus any or all of the Convertible Preferred Securities, any
Convertible Junior Subordinated Debentures and Common Stock issued upon
conversion of the
Convertible Preferred Securities. The term Selling Holder includes, without
duplication, the holders listed below and the beneficial owners of the
Convertible Preferred Securities and their transferees, pledgees, donees or
other successors.
The following table sets forth information with respect to the Selling
Holders of the Convertible Preferred Securities as of July 14, 1997, and has
been provided to the Trust and the Company by such Selling Holders.
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDER SECURITIES
- -------------- ----------
<S> <C>
General Motors Employees Domestic Group Trust (1) .................. 344,200
The Income Fund of America, Inc. (2) ............................... 270,000
Alpine Associates .................................................. 242,200
Vista Select Equity Income Fund .................................... 160,000
Capital Income Builder, Inc. (2) ................................... 130,000
Vista Growth & Income Fund ......................................... 86,000
Delta Air Lines Master Trust (3) ................................... 72,100
OCM Convertible Trust (4) .......................................... 71,300
Pacific Horizon Capital Income Fund ................................ 66,000
State of Oregon Equity (5) ......................................... 62,500
Argent Classic Convertible Arbitrage Fund L.P. ..................... 62,500
Colonial Global Utilities Fund ..................................... 60,000
President and Fellows of Harvard College (6) ....................... 60,000
Motors Insurance Company (7) ....................................... 56,350
Allstate Insurance Company ......................................... 50,000
Commonwealth Life Insurance (Teamsters--Camden--Non-Enhanced) (8) . 50,000
State of Connecticut Combined Investment Funds (4) ................. 49,400
Van Kampen American Capital Harbor Fund (9) ........................ 42,500
Oppenheimer Bond Fund for Growth ................................... 40,000
Merrill Lynch Convertible Holdings, Inc. ........................... 40,000
Carrigaholt Capital (Bermuda) L.P. (10) ............................ 39,200
The Class 1C Company, Ltd. ......................................... 36,500
Vanguard Convertible Securities Fund, Inc. (4) ..................... 34,600
PRIM Board (5) ..................................................... 33,500
California Public Employees' Retirement System ..................... 30,000
The Travelers Indemnity Company .................................... 30,000
The Travelers Insurance Company .................................... 30,000
TQA Leverage Fund L.P. (11) ........................................ 25,000
AIM Balanced Fund .................................................. 24,000
State of Delaware Retirement--Froley, Revy (5) ..................... 21,300
Hughes Aircraft Company Master Retirement Trust (4) ................ 20,700
The Dow Chemical Company Employees' Retirement Plan (12) .......... 20,600
Alexandra Global Investment Fund, I (13) ........................... 20,000
Merrill Lynch World Income Fund .................................... 20,000
Port Authority of Allegheny County Retirement and Disability
Allowance Plan for Employees represented by Local 85 of the
Amalgamated Transit Union (12) .................................... 17,900
(Footnotes appear on page 54.)
52
<PAGE>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDER SECURITIES
- -------------- ----------
TQA Vantage Plus Ltd. (11) ......................................... 16,000
State Employees' Retirement Fund of the State of Delaware (4) ..... 15,400
AIM Global Utilities Fund .......................................... 15,000
McMahan Securities Company, L.P. ................................... 15,000
Offshore Strategies Ltd. ........................................... 15,000
Champion International Corporation Master Retirement Trust (12) ... 14,800
RJR Nabisco, Inc. Defined Benefit Master Trust (12) ................ 13,500
Paloma Securities, L.L.C. (14) ..................................... 10,000
TQA Arbitrage Fund L.P. (11) ....................................... 10,000
TQA Vantage Fund Ltd. (11) ......................................... 10,000
The Travelers Life & Annuity Company ............................... 10,000
United Food and Commercial Workers Local 1262 and
Employers Pension Fund (12) ....................................... 10,000
General Motors Foundation Inc. (7) ................................. 9,450
Hillside Capital Incorporated Corporate Account (15) ............... 9,000
ICI American Holdings Pension Trust (5) ............................ 8,750
ZENECA Holdings Pension Trust (5) .................................. 8,750
San Diego County (16) .............................................. 7,800
Starvest Discretionary (5) ......................................... 7,750
Van Kampen American Capital Convertible Securities Fund (9) ....... 7,500
Black Diamond Limited (17) ......................................... 6,715
LDG Limited (11) ................................................... 6,600
Black Diamond Partners, L.P. (17) .................................. 6,470
Nicholas-Applegate Income & Growth Fund (16) ....................... 5,900
The Alpine Group (13) .............................................. 5,000
Associated Electric and Gas Insurance Services, LTD. (12) ......... 5,000
Bank of America Convertible Securities Fund ........................ 5,000
BNP Arbitrage SNC (18) ............................................. 5,000
Laterman Strategies 90's LLC ....................................... 5,000
Catholic Mutual Relief Society (19) ................................ 4,000
Genesee County Employees' Retirement System (12) ................... 4,000
Hermitage Insurance Company (20) ................................... 4,000
Vista Balanced Fund ................................................ 4,000
Unifi, Inc. Profit Sharing Plan and Trust (12) ..................... 3,500
Nalco Chemical Retirement Trust (5) ................................ 3,250
Island Insurance Convertible (5) ................................... 2,700
Bank of America Employee Benefit Convertible Securities Fund ...... 2,600
Greyhound Lines Pension Fund (11) .................................. 2,500
San Diego City Retirement (16) ..................................... 1,800
The Fondren Foundation (12) ........................................ 1,700
Kettering Medical Center Funded Depreciation Account (12) ......... 1,700
Wake Forest University (16) ........................................ 1,500
Pacific Innovation Trust Capital Income Fund ....................... 1,400
Worldwide Transactions Ltd. ........................................ 1,160
AIM VI Global Utilities Fund ....................................... 1,000
Silverton International Fund Limited ............................... 1,000
Summer Hill Global Partners, L.P. (15) ............................. 1,000
Engineers Joint Pension Fund (16) .................................. 900
Austin Firefighters (16) ........................................... 700
Highbridge Capital Corp. (17) ...................................... 655
Baptist Hospital (16) .............................................. 600
Occidental College (16) ............................................ 600
Boston Museum of Fine Arts (16) .................................... 200
Other Holders ...................................................... 870,800
-------------
Total ............................................................ 3,600,000
=============
(Footnotes appear on page 54.)
</TABLE>
53
<PAGE>
- ------------
(1) General Motors Investment Management Corporation may also be deemed
beneficial owner of 284,200 of these Convertible Preferred
Securities. Pecks Management Partners Ltd. may also be deemed
beneficial owner of 60,000 of these Convertible Preferred Securities.
(2) Capital Research & Management may also be deemed beneficial owner of
these Convertible Preferred Securities.
(3) Oaktree Capital Management, LLC, may also be deemed beneficial owner
of 38,600 of these Convertible Preferred Securities. Calamos Asset
Management, Inc. may also be deemed beneficial owner 33,500 of these
Convertible Preferred Securities.
(4) Oaktree Capital Management, LLC, may also be deemed beneficial owner
of these Convertible Preferred Securities.
(5) Froley, Revy Investment Company Inc. may also be deemed beneficial
owner of these Convertible Preferred Securities.
(6) Harvard Management Company, Inc. may also be deemed beneficial owner
of these Convertible Preferred Securities.
(7) General Motors Investment Management Corporation may also be deemed
beneficial owner of these Convertible Preferred Securities.
(8) Camden Asset Management LP may also be deemed beneficial owner of
these Convertible Preferred Securities.
(9) Van Kampen American Capital Asset Management, Inc. may also be deemed
beneficial owner of these Convertible Preferred Securities.
(10) Carrigaholt Holdings, Ltd. may also be deemed beneficial owner of
these Convertible Preferred Securities.
(11) TQA Investors LLC may also be deemed beneficial owner of these
Convertible Preferred Securities.
(12) Calamos Asset Management, Inc. may also be deemed beneficial owner of
these Convertible Preferred Securities.
(13) Alexandra Investment Management, Ltd. may also be deemed beneficial
owner of these Convertible Preferred Securities.
(14) Paloma Partners Management Company may also be deemed beneficial
owner of these Convertible Preferred Securities.
(15) Pecks Management Partners Ltd. may also be deemed beneficial owner of
these Convertible Preferred Securities.
(16) Nicholas-Applegate Capital Management may also be deemed beneficial
owner of these Convertible Preferred Securities.
(17) Carlson Capital, L.P. may also be deemed beneficial owner of these
Convertible Preferred Securities.
(18) BNP/Cooper Neff Advisors, Inc. may also be deemed beneficial owner of
these Convertible Preferred Securities.
(19) Asset Allocation Management Co. may also be deemed beneficial owner
of these Convertible Preferred Securities.
(20) Queensway Investment Counsel Limited may also be deemed beneficial
owner of these Convertible Preferred Securities.
None of the Selling Holders has, or within the past three years has had,
any position, office or other material relationship with the Trust or the
Company or any of their predecessors or affiliates. Because the Selling
Holders may, pursuant to this Prospectus, offer all or some portion of the
Convertible Preferred Securities, the Convertible Junior Subordinated
Debentures or the Common Stock issuable upon conversion of the Convertible
Preferred Securities, no estimate can be given as to the amount of the
Convertible Preferred Securities, the Convertible Junior Subordinated
Debentures or the Common Stock issuable upon conversion of the Convertible
Preferred Securities that will be held by the Selling Holders upon
termination of any such sales. In addition, the Selling Holders identified
above may have sold, transferred or otherwise disposed of all or a portion of
their Convertible Preferred Securities since the date on which they provided
the information regarding their Convertible Preferred Securities pursuant to
transactions exempt from the registration requirements of the Securities Act.
54
<PAGE>
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers
directly by the Selling Holders. Alternatively, the Selling Holders may from
time to time offer the Offered Securities to or through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders
or the purchasers of such securities for whom they may act as agents. The
Selling Holders and any underwriters, broker/dealers or agents that
participate in the distribution of Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated
prices. The sale of the Offered Securities may be effected in transactions
(which may involve crosses or block transactions) (i) on any national
securities exchange or quotation service on which the Offered Securities may
be listed or quoted at the time of sale, (ii) in the over-the-counter market,
(iii) in transactions otherwise than on such exchanges or in the
over-the-counter market or (iv) through the writing of options. At the time a
particular offering of the Offered Securities is made, a Prospectus
Supplement, if required, will be distributed which will set forth the
aggregate amount and type of Offered Securities being offered and the terms
of the offering, including the name or names of any underwriters,
broker/dealers or agents, any discounts, commissions and other terms
constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/dealers.
Pursuant to the Registration Rights Agreement, the Company is required to
use its reasonable best efforts to keep the Registration Statement
continuously effective for a period of two years from its effective date or
such shorter period that will terminate upon the earlier of the date on which
the Offered Securities shall have been sold pursuant to the Registration
Statement or the date on which the Offered Securities are permitted to be
freely sold or distributed to the public pursuant to any exemption from the
registration requirements of the Securities Act (including in reliance on
Rule 144(k) but excluding in reliance on Rule 144A under the Securities Act).
Notwithstanding the foregoing obligations, the Company may, under certain
circumstances, postpone or suspend the filing or the effectiveness of the
Registration Statement (or any amendments or supplements thereto) or the sale
of Offered Securities thereto.
To comply with the securities laws of certain jurisdictions, if
applicable, the Offered Securities will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions the Offered Securities may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is
available and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by
the Selling Holders. The foregoing may affect the marketability of such
securities.
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Offered Securities will be paid by the Company,
including, without limitation, SEC filing fees and expenses of compliance
with state securities or "blue sky" laws; provided, however, that the Selling
Holders will pay all underwriting discounts and selling commissions, if any.
The Selling Holders will be indemnified by the Company and the Trust, jointly
and severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith. The Company and the Trust will be indemnified by the
Selling Holders severally against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
55
<PAGE>
LEGAL MATTERS
Certain matters relating to the validity of the Convertible Preferred
Securities will be passed upon for the Issuer by Morris, Nichols, Arsht &
Tunnell. The validity of the Convertible Junior Subordinated Debentures, the
Guarantee and any Common Stock issuable upon conversion of such Convertible
Junior Subordinated Debentures will be passed upon for the Company and the
Issuer by Steven A. McArthur, Senior Vice President and General Counsel of
the Company, and by Willkie Farr & Gallagher. As of March 17, 1997, Mr.
McArthur beneficially owned 104,437 shares of Common Stock.
EXPERTS
The financial statements and the related financial statement schedules of
the Company and its subsidiaries incorporated in this Registration Statement
by reference to the Company's 1996 Form 10-K, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports which are
incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
With respect to the Company's unaudited interim financial information for
the three month periods ended March 31, 1997 and 1996, incorporated herein by
reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their report included in the Company's report on Form
10-Q for the quarter ended March 31, 1997 and incorporated by reference
herein, they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports
on such information should be restricted in light of the limited nature of
the review procedures applied. Deloitte & Touche LLP are not subject to the
liability provisions of Section 11 of the Securities Act for their reports on
the unaudited interim financial information because those reports are not
"reports" or a "part" of a registration statement prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Securities Act.
The consolidated financial statements of Northern Electric plc as of March
31, 1996 and 1995 and for each of the three years in the period ended March
31, 1996, appearing in the Company's Form 8-K/A dated February 18, 1997, have
been audited by Ernst & Young, chartered accountants, as stated in their
report which is included therein and incorporated herein by reference. Such
financial statements have been incorporated herein by reference in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
With respect to Northern's unaudited condensed consolidated financial
statements at September 30, 1996 and for the six months ended September 30,
1996 and 1995 incorporated by reference in this Prospectus, Ernst & Young
chartered accountants have reported that they have applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate report, included in the Company's Current Report on
Form 8-K/A dated February 18, 1997, and incorporated herein by reference,
states that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted considering the limited
nature of the review procedures applied. Ernst & Young are not subject to the
liability provisions of Section 11 of the Securities Act for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the Registration Statement prepared or certified by
them within the meaning of Sections 7 and 11 of the Securities Act.
The consolidated statements of operations, changes in stockholders'
equity, and cash flows of Magma Power Company, and subsidiaries for the year
ended December 31, 1994, incorporated by reference in this Prospectus, have
been incorporated herein in reliance on the reports of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
56
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE ISSUER OR ANY OF THEIR
AGENTS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THE ISSUER SINCE SUCH DATE.
-----------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information .................... 3
Incorporation of Certain Documents by
Reference ............................... 4
Risk Factors ............................. 5
CalEnergy Capital Trust II ............... 14
The Company .............................. 15
Ratio of Earnings to Fixed Charges ...... 18
Capitalization ........................... 19
Accounting Treatment ..................... 20
Use of Proceeds .......................... 20
Description of the Convertible Preferred
Securities .............................. 21
Description of the Guarantee ............. 36
Description of the Convertible Junior
Subordinated Debentures ................. 39
Effect of Obligations under the
Convertible Junior Subordinated
Debentures and the Guarantee ............ 46
United States Taxation ................... 47
ERISA Considerations ..................... 51
Selling Holders .......................... 52
Plan of Distribution ..................... 55
Legal Matters ............................ 56
Experts .................................. 56
</TABLE>
===============================================================================
===============================================================================
3,600,000 TRUST CONVERTIBLE
PREFERRED SECURITIES
CALENERGY CAPITAL TRUST II
6-1/4% TRUST CONVERTIBLE
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
AND CONVERTIBLE INTO
COMMON STOCK OF
[CALENERGY LOGO]
CALENERGY COMPANY, INC.
LIQUIDATION PREFERENCE
$50 PER
TRUST CONVERTIBLE
PREFERRED SECURITY
----------------
PROSPECTUS
----------------
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the
distribution of the securities being registered hereunder, other than
underwriting discounts and commissions.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
SEC registration fee ................................... $ 63,000
Printing, shipping and engraving expenses .............. 75,000
Legal fees and expenses ................................ 150,000
Accounting fees and expenses ........................... 75,000
Transfer Agent, Registrar and trustee fees and expenses 15,000
Miscellaneous expenses.................................. 22,000
--------
Total.................................................. $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
THE COMPANY
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation organized thereunder, such as the Company,
the power to indemnify its directors and officers against liabilities for
certain of their acts. Article EIGHTH of the Company's Restated Certificate
of Incorporation and Article V of the Company's By-Laws provides for
indemnification of directors and officers of the Company to the extent
permitted by the DGCL. Article V of the Company's By-Laws further provides
that the Registrant may enter into contracts providing indemnification to the
full extent authorized or permitted by the DGCL and that the Company may
create a trust fund, grant a security interest and/or use other means to
ensure the payment of such amounts as may become necessary to effect
indemnification pursuant to such contracts or otherwise.
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as the Company,
eliminating or limiting, with certain exceptions, the personal liability of a
director to the corporation or its stockholders for monetary damages for
certain breaches of fiduciary duty as a director. Article EIGHTH of the
Company's Restated Certificate of Incorporation eliminates the personal
liability of directors to the full extent permitted by the DGCL.
The foregoing statements are subject to the detailed provisions of
Sections 145 and 102(b)(7) of the DGCL, Article EIGHTH of the Company's
Restated Certificate of Incorporation and Article V of the Company's By-Laws.
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided that such officer or director acted in
good faith and in a manner reasonably believed to be in or not opposed to the
corporation's best interests, and, for criminal proceedings, had no
reasonable cause to believe his conduct was illegal. A Delaware corporation
may indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation in the performance of his duty. Where an officer
or director is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director actually and reasonably incurred.
II-1
<PAGE>
THE TRUST
The Declaration of Trust (the "Declaration") provides that no Trustee,
affiliate of any Regular Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives or agent of the Trust, or any
employee or agent of the trust or its affiliates (each an "Indemnified
Person") shall be liable, responsible or accountable in damages or otherwise
to the Trust or any employee or agent of the trust or its affiliates for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by the such Indemnified Person in good faith on behalf of the Trust
and in a manner such Indemnified Person reasonably believed to be within the
scope of the authority conferred on such Indemnified Person by the
Declaration or by law, except that an Indemnified Person shall be liable for
any such loss, damage or claim incurred by reason of such Indemnified
Person's gross negligence (or, in the case of the Trustee, negligence) or
willful misconduct with respect to such act or omissions. The Declaration
also provides that to the fullest extent permitted by applicable law, the
Company shall indemnify and hold harmless each Indemnified Person from and
against any loss, damage or claim incurred by such Indemnified Person by
reason of any act or omission performed or omitted by such Indemnified Person
in good faith on behalf of the Trust and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by the Declaration, except that no Indemnified Person
shall be entitled to be indemnified in respect of any loss, damage or claim
incurred by such Indemnified Person by reason of gross negligence (or, in the
case of the Trustee, negligence) or willful misconduct with respect to such
acts or omissions. The Declaration further provides that, to the fullest
extent permitted by applicable law, expenses (including legal fees) incurred
by an Indemnified Person in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding upon
receipt by or an undertaking by or on behalf of the Indemnified Person to
repay such amount if it shall be determined that the Indemnified Person is
not entitled to be indemnified for the underlying cause of action as
authorized by the Declaration. The directors and officers of the Company and
the Regular Trustees are covered by insurance policies indemnifying them
against certain liabilities, including certain liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), which might be
incurred by them in such capacities and against which they cannot be
indemnified by the Company or the Trust. The Selling Holders will be
indemnified by the Company and the Trust, jointly and severally, against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith. The Company
and the Trust will be indemnified by the Selling Holders severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
4.1 Certificate of Trust of CalEnergy Capital Trust II.*
4.2 Amended and Restated Declaration of Trust of CalEnergy Capital Trust II, dated as of February
26, 1997, among CalEnergy Company, Inc., as Sponsor, The Bank of New York, as Property Trustee,
The Bank of New York (Delaware), as Delaware Trustee and Steven A. McArthur, John G. Sylvia and
Gregory Abel, as Trustees.*
4.3 Indenture for the 6-1/4% Convertible Junior Subordinated Debentures, dated as of February 26,
1997, among CalEnergy Company, Inc., as Issuer, and The Bank of New York, as Trustee.**
4.4 Form of CalEnergy Company, Inc. Common Stock Certificate.***
4.5 Form of CalEnergy Capital Trust II 6-1/4% Convertible Preferred Securities.*
4.6 Form of CalEnergy Company, Inc. 6-1/4% Convertible Junior Subordinated Debentures .*
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.7 CalEnergy Company, Inc. Preferred Securities Guarantee, dated as of February 26, 1997, between
CalEnergy Company, Inc., as Guarantor, and The Bank of New York, as Preferred Guarantee
Trustee.*
4.8 CalEnergy Company, Inc. Common Securities Guarantee, dated as of February 26, 1997, by CalEnergy
Company, Inc., as Guarantor.*
5.1 Opinion of Willkie Farr & Gallagher as to the legality of the Convertible Junior Subordinated
Debentures and Preferred Securities Guarantee being registered hereby.
5.2 Opinion of Steven A. McArthur, General Counsel of CalEnergy Company, Inc., as to the legality of
the Common Stock of CalEnergy Company, Inc., being registered hereby.
5.3 Opinion of Morris, Nichols, Arsht & Tunnell as to the legality of the Trust Convertible
Preferred Securities being registered hereby.
8.1 Opinion of Willkie Farr & Gallagher as to certain tax matters.
10.1 Registration Rights Agreement, dated February 26, 1997, by and among CalEnergy Capital Trust II,
CalEnergy Company, Inc., Lehman Brothers Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation.*
12.1 Statement of Ratio of Earnings to Fixed Charges of CalEnergy Company, Inc.*
15.1 Letter of Deloitte & Touche LLP, regarding unaudited financial information.
15.2 Letter of Ernst & Young, chartered accountants, regarding unaudited financial information.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Coopers & Lybrand, L.L.P., independent accountants.
23.3 Consent of Ernst & Young, chartered accountants.
23.4 Consent of Willkie Farr & Gallagher (included as part of Exhibits 5.1 and 8.1).
23.5 Consent of Steven A. McArthur, General Counsel of CalEnergy Company, Inc. (included as part of
Exhibit 5.2).
23.6 Consent of Morris, Nichols, Arsht & Tunnell (included as part of Exhibit 5.3).
24.1 Powers of Attorney.*
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank
of New York, as Trustee under the 6-1/4% Convertible Junior Subordinated Debentures Indenture.*
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank
of New York, as Property Trustee under the Amended and Restated Declaration of Trust.*
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank
of New York, as Preferred Guarantee Trustee under the Preferred Securities Guarantee.*
</TABLE>
- ------------
* Previously filed.
** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
*** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
II-3
<PAGE>
B. Financial Statements and Schedules
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission either are not required under the related
instructions or the information required to be included therein has been
included in the financial statements and schedule of CalEnergy Company, Inc.
included in its Annual Report on Form 10-K for the year ended December 31,
1996.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act").
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Securities and Exchange Commission ("SEC") by such
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described in Item 15 or
otherwise, the Registrant has been advised that in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(d) The undersigned Registrant hereby undertakes that:
II-4
<PAGE>
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the SEC under Section 305(b)(2) of
the Trust Indenture Act.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, CalEnergy
Company, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Omaha, State of
Nebraska, on July 24, 1997.
CALENERGY COMPANY, INC.
By: /s/ Steven A. McArthur
-------------------------------
Steven A. McArthur
Senior Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board and
* Chief Executive Officer
- ------------------------------ (principal executive
David L. Sokol officer) July 24, 1997
* Vice President and Chief
- ------------------------------ Financial Officer (principal
Craig M. Hammett financial officer) July 24, 1997
*
- ------------------------------
Edgar D. Aronson Director July 24, 1997
- ------------------------------
Judith E. Ayres Director , 1997
*
- ------------------------------
James Q. Crowe Director July 24, 1997
*
- ------------------------------
Richard K. Davidson Director July 24, 1997
*
- ------------------------------
David H. Dewhurst Director July 24, 1997
*
- ------------------------------
Richard R. Jaros Director July 24, 1997
*
- ------------------------------
David R. Morris Director July 24, 1997
*
- ------------------------------
Bernard W. Reznicek Director July 24, 1997
*
- ------------------------------
Walter Scott, Jr. Director July 24, 1997
*
- ------------------------------
John R. Shiner Director July 24, 1997
II-6
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
*
- ------------------------------
Neville G. Trotter Director July 24, 1997
- ------------------------------
David E. Wit Director , 1997
*By:/s/ Steven A. McArthur
---------------------------
Steven A. McArthur
Attorney-in-fact
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, CalEnergy
Capital Trust II certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Omaha, State of
Nebraska, on July 24, 1997.
CALENERGY CAPITAL TRUST II
By: /s/ Steven A. McArthur
-------------------------------
Steven A. McArthur
Trustee
By: /s/ Douglas L. Anderson
-------------------------------
Douglas L. Anderson
Trustee
By: /s/ Gregory E. Abel
-------------------------------
Gregory E. Abel
Trustee
II-8
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
5.1 Opinion of Willkie Farr & Gallagher
5.2 Opinion of Steven A. McArthur
5.3 Opinion of Morris, Nichols, Arsht & Tunnell
8.1 Tax Opinion of Willkie Farr & Gallagher
15.1 Letter of Deloitte & Touche LLP
15.2 Letter of Ernst & Young
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ernst & Young
<PAGE>
Exhibit 5.1
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Telephone: (212) 821-8000
Facsimile: (212) 821-8111
July 24, 1997
CalEnergy Capital Trust II
c/o CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Re: CalEnergy Company, Inc.;
CalEnergy Capital Trust II;
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special counsel to CalEnergy Company, Inc., a Delaware
corporation (the "Company"), and CalEnergy Capital Trust II, a statutory
business trust formed under the laws of the State of Delaware (the "Trust"), in
connection with the preparation of a Registration Statement on Form S-3, as
filed by the Company and the Trust with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Act"), on
July 1, 1997, and Amendment No. 1 thereto, as filed with the Commission on the
date hereof (such registration statement, as so amended, being hereinafter
referred to as the "Registration Statement"), relating to the registration
under the Act of (i) 3,600,000 6-1/4% Trust Convertible Preferred Securities
(liquidation preference $50 per Trust Convertible Preferred Security) (the
"Convertible Preferred Securities") representing undivided beneficial ownership
interests in the assets of the Trust; (ii) the 6-1/4% Convertible Junior
Subordinated Debentures due 2012 (the "Convertible Junior Subordinated
Debentures") of the Company, which may be distributed under certain
circumstances to the holders of the Convertible Preferred Securities; (iii) the
shares of common stock, par value
<PAGE>
CalEnergy Capital Trust II
CalEnergy Company, Inc.
July 24, 1997
Page 2
$.0675 per share (the "Common Stock"), of the Company, issuable upon conversion
of the Convertible Preferred Securities and the Convertible Junior Subordinated
Debentures; and (iv) the Preferred Securities Guarantee of the Company (as
defined below).
The Convertible Preferred Securities were issued pursuant to an Amended and
Restated Declaration of Trust (the "Declaration"), dated as of February 26,
1997, among the Company, as sponsor, The Bank of New York, as property trustee
(the "Property Trustee"), The Bank of New York (Delaware), as Delaware trustee
(the "Delaware Trustee"), and Steven A. McArthur, John G. Sylvia and Gregory E.
Abel, as the initial regular trustees (together, the "Regular Trustees").
Capitalized terms used but not otherwise defined herein have the meanings
ascribed to them in the Registration Statement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the certificate
of trust (the "Certificate of Trust") filed by the Delaware Trustee and the
Regular Trustees with the Secretary of State of the State of Delaware on
February 13, 1997; (ii) a Declaration of Trust, dated as of February 13, 1997
(the "Original Declaration"); (iii) the Declaration (including the form of the
terms of the Convertible Preferred Securities annexed thereto); (iv) specimen
form of Convertible Preferred Security; (v) the preferred securities guarantee
agreement, dated as of February 26, 1997 (the "Preferred Securities
Guarantee"), between the Company and The Bank of New York, as trustee; (vi)
specimens of the Convertible Junior Subordinated Debentures, which were issued
pursuant to an indenture dated as of February 26, 1997 (the "Indenture"),
between the Company and The Bank of New York, as trustee; (vii) the Indenture;
and (viii) certain resolutions of the Board of Directors of the Company
relating to the issuance of the Convertible Junior Subordinated Debentures
and the shares of Common Stock issuable upon conversion thereof. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such other documents, certificates and records as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural persons,
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such copies. In making our examination of documents executed by
parties other than
<PAGE>
CalEnergy Capital Trust II
CalEnergy Company, Inc.
July 24, 1997
Page 3
the Trust and the Company, we have assumed that such parties had the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and that
such documents constitute valid and binding obligations of such parties. As to
any facts material to the opinions expressed herein which were not
independently established or verified, we have relied upon oral or written
statements and representations of officers, trustees and other representatives
of the Company, the Trust and others. We have further assumed for purposes of
this opinion (i) the due formation or organization, valid existence and good
standing of each entity other than the Company that is a party to any of the
documents reviewed by us under the laws of the jurisdiction of its respective
formation or orginization, (ii) that no event has occured subsequent to the
filing of the Certificate of Trust that would cause a dissolution or
liquidation of the Trust under the Original Declaration or the Declaration,
as applicable and (iii) that activities of the Trust have been and will be
conducted in accordance with the Original Declaration or the Declaration, as
applicable, and the Delaware Business Trust Act, 12 Del. C. Sections 3801 et
seq.
The opinions expressed herein are limited to the laws of the State of New York,
the General Corporation Law of the State of Delaware and the federal laws of
the United States of America, and we express no opinion with respect to the
laws of any other country, state or jurisdiction.
Based on and subject to the foregoing and to the other qualifications and
limitations set forth herein, we are of the opinion that:
1. The Preferred Securities Guarantee is a valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent that enforcement
thereof may be limited by (i) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
2. The Convertible Junior Subordinated Debentures are valid
and binding obligations of the Company, entitled to the benefits of
the Indenture and enforceable against the Company in accordance with
their terms, except to the extent that enforcement thereof may be
limited by (i) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity) and except to the
extent that the waiver of stay or extension laws contained in Section
515 of the Indenture may be unenforceable.
<PAGE>
CalEnergy Capital Trust II
CalEnergy Company, Inc.
July 24, 1997
Page 4
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the use of our name under the
heading "Legal Matters" in the Registration Statement and in the related
Prospectus. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Willkie Farr & Gallagher
Exhibit 5.2
CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Telephone: (402) 341-4500
Facsimile (402) 231-1598
July 24, 1997
CalEnergy Capital Trust II
c/o CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Ladies and Gentlemen:
I am the Senior Vice President and General Counsel of CalEnergy Company, Inc.,
a Delaware corporation (the "Company"). This opinion is being furnished in
connection with the registration under the Securities Act of 1933, as amended
(the "Act") of (i) 3,600,000 6-1/4% Trust Convertible Preferred Securities
(liquidation preference $50 per each of the Trust Convertible Preferred
Securities) (the "Convertible Preferred Securities") representing undivided
beneficial ownership interests in the assets of CalEnergy Capital Trust II, a
statutory business trust formed under the laws of the State of Delaware (the
"Trust"); (ii) the 6-1/4% Convertible Junior Subordinated Debentures due 2012
(the "Convertible Junior Subordinated Debentures") of the Company, which may be
distributed under certain circumstances to the holders of the Convertible
Preferred Securities; (iii) the shares of common stock, par value $.0675 per
share (the "Common Stock"), of the Company, issuable upon conversion of the
Convertible Preferred Securities and the Convertible Junior Subordinated
Debentures; and (iv) the Preferred Securities Guarantee of the Company (as
defined below).
The Convertible Preferred Securities were issued pursuant to an amended and
restated declaration of trust, dated as of February 26, 1997 (the
"Declaration") among the Company, as sponsor, Steven A. McArthur, John G.
Sylvia and Gregory E. Abel, as regular trustees, The Bank of New York
(Delaware), as Delaware trustee, and The Bank of New York, as property trustee,
and are guaranteed by the Company as to the payment of distributions and as to
payments on liquidation, redemption and otherwise pursuant to a Preferred
Securities Guarantee Agreement, dated as of February 26, 1997 (the "Preferred
Securities Guarantee"), between the Company and The Bank of New York, as
trustee. The proceeds from the sale by the Trust of the Convertible Preferred
Securities were invested in the Convertible Junior Subordinated
<PAGE>
CalEnergy Capital Trust II
CalEnergy Company, Inc.
July 24, 1997
Page 2
Debentures, which were issued pursuant to an Indenture, dated as of February
26, 1997 (the "Indenture"), between the Company and The Bank of New York, as
trustee.
In connection with this opinion, I have examined originals or copies, certified
or otherwise identified to my satisfaction, of (i) the Registration Statement
on Form S-3, as filed by the Company and the Trust with the Securities and
Exchange Commission (the "Commission") under the Act on July 1, 1997, and
Amendment No. 1 thereto, as filed with the Commission on the date hereof (such
registration statement, as so amended, being hereinafter referred to as the
"Registration Statement"), relating to the Convertible Preferred Securities,
the Preferred Securities Guarantee, the Convertible Junior Subordinated
Debentures and the Common Stock; (ii) an executed copy of the Declaration filed
as an exhibit to the Registration Statement; (iii) the form of the Common Stock
certificate filed as an exhibit to the Registration Statement and a specimen
certificate thereof; (iv) the Restated Certificate of Incorporation of the
Company as currently in effect; (v) the By-laws of the Company as currently in
effect; (vi) certain resolutions of the Board of Directors of the Company
relating to the issuance of the Convertible Junior Subordinated Debentures and
the shares of Common Stock issuable upon conversion; (vii) an executed copy of
the Preferred Securities Guarantee filed as an exhibit to the Registration
Statement; (viii) the form of Convertible Preferred Securities filed as an
exhibit to the Registration Statement and a specimen certificate thereof; (ix)
the designation of the terms of the Convertible Preferred Securities; (x) the
form of the Convertible Junior Subordinated Debentures filed as an exhibit to
the Registration Statement and a specimen certificate thereof; (xi) an executed
copy of the Indenture; and (xii) an executed copy of the Registration Rights
Agreement, dated February 26, 1997, by and among the Trust and Lehman Brothers
Inc. and Donaldson, Lufkin & Jenrette Securities Corporation, as initial
purchasers, filed as an exhibit to the Registration Statement.
In my examination, I have assumed the legal capacity of all natural persons,
the genuineness of all signatures, the authenticity of all documents submitted
to me as originals, the conformity to original documents of all documents
submitted to me as certified or photostatic copies and the authenticity of the
originals of such copies. In making my examination of documents executed by
parties other than the Company or the Trust, I have assumed that such parties
had the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such
documents and that such documents constitute valid and binding obligations of
such parties. In addition, I have assumed that the shares of Common Stock to be
issued upon conversion of the Convertible Preferred Securities and the
Convertible Junior
<PAGE>
CalEnergy Capital Trust II
CalEnergy Company, Inc.
July 24, 1997
Page 3
Subordinated Debentures, if any, will be in the form reviewed by me. As to any
facts material to the opinions expressed herein which were not independently
established or verified, I have relied upon oral or written statements and
representations of officers, trustees and other representatives of the Company,
the Trust and others.
The opinions expressed herein are limited to the Federal laws of the United
States of America, the laws of the State of New York and the General
Corporation Law of the State of Delaware, and I express no opinion with respect
to the laws of any other country, state or jurisdiction.
Based upon and subject to the foregoing, I am of the opinion that the shares of
Common Stock issuable upon conversion of the Convertible Preferred Securities
and the Convertible Junior Subordinated Debentures, have been duly authorized
and reserved for issuance upon conversion and, when certificates representing
the Common Stock in the form of the specimen certificate examined by me have
been manually signed by an authorized officer of the transfer agent and
registrar for the Common Stock and are issued upon conversion of the
Convertible Preferred Securities and the Convertible Junior Subordinated
Debentures, such shares of Common Stock will be validly issued, fully paid and
nonassessable.
This letter is being delivered to you in my capacity as the Senior Vice
President and General Counsel of the Company and addresses matters only as of
the date hereof and is solely for the benefit of the addressees hereof and may
not be relied upon in any manner by any other person without my prior written
consent. I hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and for no other purpose. I also
consent to the reference to me under the heading "Legal Matters" in the
Registration Statement and in the related Prospectus. In giving this consent,
I do not thereby admit that I am included in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Commission.
Sincerely,
/s/ Steven A. McArthur
Steven A. McArthur
Senior Vice President
and General Counsel
Exhibit 5.3
July 24, 1997
CalEnergy Capital Trust II
c/o CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, NE 68131
Re: CalEnergy Capital Trust II
Ladies and Gentlemen:
We have acted as special Delaware counsel to CalEnergy
Capital Trust II, a Delaware statutory business trust (the "Trust"), in
connection with certain matters of Delaware law relating to (i) the issuance of
the 6-1/4% Trust Convertible Preferred Securities (the "Preferred Securities")
to the several initial purchasers named in the Purchase Agreement (the "Initial
Purchasers") dated February 20, 1997 (the "Purchasers") dated February 20, 1997
(the "Purchase Agreement") among the Initial Purchasers, the Trust and
CalEnergy Company, Inc., a Delaware corporation (the "Company") and (ii) the
registration of 3,600,000 Preferred Securities pursuant to Registration
Statement No. 333-30537 on Form S-3 as filed by the Trust and the Company with
the Securities and Exchange Commission on July 1, 1997 and Pre-Effective
Amendment No. 1 thereto as filed on the date hereof (as so amended, the
"Registration Statement").
The Preferred Securities have been issued pursuant to the
Purchase Agreement and the Amended and Restated Declaration of Trust of the
Trust dated as of February 26, 1997 (the "Governing Instrument"). Capitalized
terms used herein and not otherwise herein defined are used as defined in the
Governing Instrument.
In rendering this opinion, we have examined and relied upon
copies of the following documents in the forms provided to us: the Certificate
of Trust of the Trust as filed in the Office of the Secretary of State of the
State of Delaware (the "State Office") on February 13, 1997 (the "Certificate");
a Declaration of Trust dated as of February 13, 1997 (the "Original Governing
Instrument"); the Governing Instrument; the form of Indenture dated as of
February 26, 1997 between the Company and The Bank of New York, as Trustee; the
Purchase Agreement; the Trust's Offering Memorandum dated February 20, 1997
relating to the Preferred Securities (the
<PAGE>
CalEnergy Capital Trust II
July 24, 1997
Page 2
"Memorandum"); the Registration Statement; the Registration Rights Agreement
dated February 26, 1997 among the Trust, the Company, Lehman Brothers Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation (the "Registration
Rights Agreement"); and a certificate of good standing of the Trust obtained
as of a recent date from the State Office. In such examinations, we have assumed
the genuineness of all signatures, the conformity to original documents of all
documents submitted to us as drafts or copies or forms of documents to be
executed and the legal capacity of natural persons to complete the execution of
documents. We have further assumed for purposes of this opinion: (i) the due
formation or organization, valid existence and good standing of each entity
other than the Trust that is a party to any of the documents reviewed by us
under the laws of the jurisdiction of its respective formation or organization;
(ii) the due authorization, execution and delivery by, or on behalf of, each of
the parties thereto of the above-referenced documents; (iii) that no event has
occurred subsequent to the filing of the Certificate that would cause a
dissolution or liquidation of the Trust under the Original Governing Instrument
or the Governing Instrument, as applicable; (iv) that the activities of the
Trust have been and will be conducted in accordance with the Original Governing
Instrument or the Governing Instrument, as applicable, and the Delaware Business
Trust Act, 12 Del. C. Sections 3801 et seq. (the "Delaware Act"); (v) that each
Holder of Preferred Securities has made payment of the required consideration
therefor and received a Preferred Securities Certificate in consideration
thereof in accordance with the terms and conditions of the Governing Instrument,
the Memorandum and the Purchase Agreement; (vi) that the Preferred Securities
have been issued and sold to, and held or transferred by, the Preferred
Securities Holders (and any subsequent transferee), and all transfers have been
made, in accordance with the terms, conditions, requirements and procedures set
forth in the Governing Instrument, the Memorandum, the Purchase Agreement and,
as applicable, the Registration Statement; (vii) that none of the Preferred
Securities has been called for redemption, redeemed, converted or canceled
(except in connection with a permitted transfer) and all of the Preferred
Securities remain outstanding; (viii) that the Sponsor has directed the Regular
Trustees to take the actions contemplated by Section 3.6(b) of the Governing
Instrument; and (ix) that the documents examined by us are in full force and
effect, express the entire understanding of the parties thereto with respect to
the subject matter thereof and have not been amended, supplemented or otherwise
modified, except as herein referenced. No opinion is expressed with respect to
the requirements of, or compliance with, federal or state securities or blue sky
laws. We have not participated in the preparation of the Memorandum, the
Registration Statement or any other offering materials relating to the
Securities and we assume no responsibility for their contents. As to any fact
material to our opinion, other than those assumed, we have relied without
independent investigation on the above-referenced
<PAGE>
CalEnergy Capital Trust II
July 24, 1997
Page 2
documents and on the accuracy, as of the date hereof, of the matters therein
contained.
Based on and subject to the foregoing, and limited in all
respects to matters of Delaware law, it is our opinion that the Preferred
Securities constitute validly issued and, subject to the qualifications set
forth below, fully paid and nonassessable beneficial interests in the assets of
the Trust. We note that pursuant to Section 11.04 of the Governing Instrument,
the Trust may withhold amounts otherwise distributable to a Holder and pay over
such amounts to the applicable jurisdictions in accordance with federal, state
and local law and any amount withheld will be deemed to have been distributed
to such Holder and that, pursuant to the Governing Instrument, Preferred
Security Holders may be obligated to make payments or provide indemnity or
security under the circumstances set forth therein.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the heading
"LEGAL MATTERS" in the Prospectus forming a part thereof. In giving this
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder. This opinion speaks only as of the date hereof and is based on our
understandings and assumptions as to present facts, and on our review of the
above-referenced documents and the application of Delaware law as the same
exist as of the date hereof, and we undertake no obligation to update or
supplement this opinion after the date hereof for the benefit of any person or
entity with respect to any facts or circumstances that may hereafter come to
our attention or any changes in facts or law that may hereafter occur or take
effect. This opinion is intended solely for the benefit of the addressee hereof
in connection with the matters contemplated hereby and may not be relied on by
any other person or entity or for any other purpose without our prior written
consent.
Very truly yours,
/s/ MORRIS, NICHOLS, ARSHT & TUNNELL
<PAGE>
Exhibit 8.1
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Telephone: (212) 821-8000
Facsimile: (212) 821-8111
July 24, 1997
CalEnergy Capital Trust II
c/o CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, Nebraska 68131
Re: CalEnergy Company, Inc.;
CalEnergy Capital Trust II;
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special counsel to CalEnergy Company, Inc., a Delaware
corporation (the "Company"), and CalEnergy Capital Trust II, a statutory
business trust formed under the laws of the State of Delaware (the "Trust"), in
connection with the preparation of a Registration Statement on Form S-3,
as filed by the Company and the Trust with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), on July 1, 1997, and Amendment No. 1 thereto, as filed with the
Commission on the date hereof (such registration statement, as so amended,
being hereinafter referred to as the "Registration Statement"), relating to the
registration under the Act of (i) 3,600,000 6-1/4% Trust Convertible Preferred
Securities (liquidation preference $50 per each of the Trust Convertible
Preferred Securities) (the "Convertible Preferred Securities") representing
undivided beneficial ownership interests in the assets of the Trust; (ii) the
6-1/4% Convertible Junior Subordinated Debentures due 2012 (the "Convertible
Junior Subordinated Debentures") of the Company, which may be distributed under
certain circumstances to the holders of the Convertible Preferred Securities;
(iii) the shares of common stock, par value $.0675 per share (the "Common
Stock"), of the Company, issuable upon conversion of the Convertible Preferred
Securities and the Convertible Junior Subordinated Debentures; and (iv) the
Preferred Securities
<PAGE>
CalEnergy Capital Trust II
CalEnergy Company, Inc.
July 24, 1997
Page 2
Guarantee of the Company (as defined in the Registration Statement).
We hereby confirm that, although the discussion set forth in the above captioned
registration statement under the heading "UNITED STATES TAXATION" does not
purport to discuss all possible United States federal income tax consequences of
the purchase, ownership and disposition of the Convertible Preferred Securities,
in our opinion such discussion constitutes, in all material respects, a fair and
accurate summary of the United States federal income tax consequences of the
purchase, ownership and disposition of the Convertible Preferred Securities
under current law. It is possible that contrary positions may be taken by the
Internal Revenue Service and that a court may agree with such contrary
positions.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the use of our name under the
heading "Legal Matters" in the Registration Statement and in the related
Prospectus. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
Exhibit 15.1
July 24, 1997
CalEnergy Company, Inc.
302 South 36th Street - Suite 400
Omaha, Nebraska 68131
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 CalEnergy Company, Inc. and subsidiaries for the periods ended
March 31, 1997 and 1996, as indicated in our report dated April 29, 1997;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, is being
used in this Amendment No. 1 to Registration Statement No. 333-30537 on
Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is 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.
DELOITTE & TOUCHE LLP
<PAGE>
Exhibit 15.2
24 July 1997
The Board of Directors
Northern Electric plc
Carliol House
Market Street
Newcastle Upon Tyne
NEI 6NE
Dear Sirs
We are aware of the incorporation by reference in Amendment No. 1 to the
Registration Statement (Form S-3 No. 333-30537) of CalEnergy Company, Inc.
and CalEnergy Capital Trust II for the registration of 3,600,000 6-1/4%
Trust Convertible Preferred Securities, $180,000,000 6-1/4% Convertible Junior
Subordinated Debentures of CalEnergy Company, Inc. and 4,195,800 shares of
Common Stock of CalEnergy Company, Inc. of our report dated November 29, 1996
relating to the unaudited condensed interim financial statements of Northern
Electric plc that are included in the Current Report on Form 8-K/A dated
February 18, 1997 of CalEnergy Company, Inc.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not part of
the registration statement prepared or certified by accountants within the
meeting of Sections 7 or 11 of the Securities Act of 1933.
Yours faithfully
ERNST & YOUNG
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-30537 of CalEnergy Company, Inc. on Form S-3
of our reports dated January 31, 1997 (February 27, 1997 as to Notes 6 and 20
to the consolidated financial statements), appearing in and incorporated by
reference in the Annual Report on Form 10-K of CalEnergy Company, Inc. for
the year ended December 31, 1996, and to the reference to us under the heading
"Experts" in the Prospectus, which is a part of this Registration Statement.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 24, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement of CalEnergy Company, Inc. (the "Company") and
CalEnergy Capital Trust II on Form S-3 of our report dated March 10, 1995
on our audit of the consolidated financial statements of Magma Power Company
and subsidiaries for the year ended December 31, 1994 which report is included
in the Company's Form 10-K for the year ended December 31, 1996. We also
consent to the reference to our Firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
San Diego, California
July 24, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-30537) of
CalEnergy Company, Inc. and CalEnergy Capital Trust II for the registration of
3,600,000 6-1/4% Trust Convertible Preferred Securities, $180,000,000 6-1/4%
Convertible Junior Subordinated Debentures of CalEnergy Company, Inc. and
4,195,800 shares of Common Stock of CalEnergy Company, Inc. and to the
incorporation by reference therein of our report dated 20 June 1996 with
respect to the consolidated financial statements of Northern Electric plc
included in the Current Report on Form 8-K/A dated February 18, 1997 of
CalEnergy Company, Inc. filed with the Securities and Exchange Commission.
ERNST & YOUNG
Chartered Accountants
Newcastle Upon Tyne
England
24 July 1997
