<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 24, 1997
------------------
CalEnergy Company, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9874 94-2213782
- -------- ------ ----------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
302 South 36th Street, Suite 400, Omaha, NE 68131
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (402) 341-4500
-------------
N/A
----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
On September 25, 1997, the Registrant filed a Preliminary Prospectus
Supplement with the Securities and Exchange Commission pursuant to Rule
424(b)(2) under the Securities Act of 1933, as amended, pursuant to which the
Registrant commenced the offering of 14,000,000 shares of its Common Stock,
par value $.0675 per share. Of the 14,000,000 shares of Common Stock being
offered, 8,400,000 shares are initially being offered in the United States and
Canada and 3,600,000 shares are initially being concurrently offered outside
the United States and Canada. The remaining 2,000,000 shares of the Common
Stock being offered are expected to be purchased directly from the Registrant
by Walter C. Scott, Chairman and President of Peter Kiewit Sons', Inc., and a
director of the Registrant, and/or by certain affiliated trusts and other
entities directly or indirectly related to Mr. Scott, at a price equal to the
public offering price of the other 12,000,000 shares. The Registrant intends
to use the net proceeds of the offering to finance in part the previously
announced acquisition of all of the ownership interests of Kiewit Diversified
Group Inc. ("KDG") in the various international power generation projects
which are jointly owned with the Registrant and managed by the Registrant as
well as to purchase KDG's outstanding ownership interests in the Registrant's
Common Stock.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired: None
(b) Pro Forma Financial Information: None
(c) Exhibits:
99.1 Preliminary Prospectus Supplement, dated September 24, 1997,
to Prospectus dated September 22, 1997, filed with the
Securities and Exchange Commission on September 25, 1997,
pursuant to Rule 424(b)(2) under the Securities Act of 1933,
as amended.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CalEnergy Company, Inc.
By: /s/ Douglas L. Anderson
--------------------------------------
Douglas L. Anderson
Assistant Secretary and Assistant
General Counsel
Dated: September 30, 1997
- 3 -
<PAGE>
Exhibit Index
-------------
Exhibit No. Description
- ---------- -----------
99.1 Preliminary Prospectus Supplement, dated September 24, 1997,
to Prospectus dated September 22, 1997, filed with the
Securities and Exchange Commission on September 25, 1997,
pursuant to Rule 424(b)(2) under the Securities Act of 1933,
as amended.
<PAGE>
This Prospectus Supplement relates to an effective registration statement
under the Securities Act of 1933, and is subject to completion or amendment.
SUBJECT TO COMPLETION DATED SEPTEMBER 24, 1997
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 22, 1997
14,000,000 Shares
CALENERGY COMPANY, INC.
[CALENERGY COMPANY, INC. LOGO]
Common Stock
($.0675 par value)
All of the 14,000,000 shares of Common Stock (the "Common Stock") of
CalEnergy Company, Inc., a Delaware corporation (the "Company"), offered
hereby are being sold by the Company. Of the 14,000,000 shares of Common
Stock being offered, 8,400,000 shares are initially being offered in the
United States and Canada (the "U.S. Shares") by the U.S. Underwriters (the
"U.S. Offering") and 3,600,000 shares are initially being concurrently
offered outside the United States and Canada (the "International Shares," and
together with the U.S. Shares, the "Shares") by the Managers (the
"International Offering," and together with the U.S. Offering, the
"Offering"). The offering price and underwriting discounts and commissions of
the U.S. Offering and the International Offering are identical. Up to
2,000,000 shares of Common Stock being offered pursuant to this Prospectus
Supplement are expected to be purchased by Walter C. Scott, Jr., Chairman and
President of Peter Kiewit Sons, Inc., and/or by certain affiliated trusts and
other entities directly or indirectly related to Mr. Scott, directly from the
Company at a price equal to the Price to Public set forth below (the "Direct
Sale"). Any shares not sold in the Direct Sale will be sold in the Offering.
The net proceeds of the Offering and the Direct Sale, together with the net
proceeds of certain senior notes concurrently being offered by the Company
(the "Debt Offering"), will be used to fund the Energy Project Joint Venture
Acquisition and the Stock Repurchase, as such terms are hereinafter defined
(collectively, the "Acquisition"). The closing of the Offering will occur
prior to, and is not conditioned upon, the closing of the Acquisition. The
Closing of the Offering is not conditioned upon the closing of the Direct
Sale or the Debt Offering.
The Common Stock of the Company is listed on the New York Stock Exchange, the
Pacific Stock Exchange and the London Stock Exchange under the symbol "CE".
On September 23, 1997, the last reported sale price of the Common Stock on
the New York Stock Exchange Composite Tape was $34 per share.
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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
--------------- ----------------- ---------------
<S> <C> <C> <C>
Per Share ..... $ $ $
Total (3) ..... $ $ $
</TABLE>
- ------------
(1) Does not include Underwriting Discounts and Commissions on the Direct
Sale, which are described under "Underwriting."
(2) Includes proceeds to the Company from the Direct Sale. Before deduction
of expenses payable by the Company estimated at $750,000 and Underwriting
Discounts and Commissions in connection with the Direct Sale.
(3) The Company has granted the U.S. Underwriters and the Managers an option
exercisable from time to time for 30 days from the date of this
Prospectus Supplement, to purchase a maximum of 2,100,000 additional
shares to cover over-allotments, if any. If the option is exercised in
full, the total Price to Public will be $ , Underwriting Discounts
and Commissions will be $ and Proceeds to Company will be $ .
The U.S. Shares are offered by the several U.S. Underwriters when, as and
if issued by the Company, delivered to and accepted by the U.S. Underwriters
and subject to their right to reject orders in whole or in part. It is
expected that the U.S. Shares will be ready for delivery on or about October
, 1997 against payment in immediately available funds.
JOINT BOOK RUNNING MANAGERS
CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE MERRILL LYNCH & CO.
SECURITIES CORPORATION
PROSPECTUS SUPPLEMENT DATED , 1997.
<PAGE>
THE COMPANY'S POWER GENERATION PROJECT PORTFOLIO(1)
<TABLE>
<CAPTION>
CURRENT POLITICAL
FACILITY NET MW POST-ACQUISITION COMMERCIAL U.S. $ RISK
PROJECT NET MW OWNED NET MW OWNED(2) FUEL LOCATION OPERATION PAYMENTS INSURANCE
- ---------------------------- ---------- --------- ---------------- ------- -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROJECTS IN OPERATION
Coso ....................... 264 127 127 Geo California 1987-90 Yes No
Imperial Valley ............ 268 268 268 Geo California 1986-96 Yes No
Saranac .................... 240 180 180 Gas New York 1994 Yes No
Power Resources ............ 200 200 200 Gas Texas 1988 Yes No
NorCon ..................... 80 64 64 Gas Pennsylvania 1992 Yes No
Yuma ....................... 50 50 50 Gas Arizona 1994 Yes No
Roosevelt Hot Springs ...... 23 17 17 Geo Utah 1984 Yes No
Desert Peak ................ 10 10 10 Geo Nevada 1985 Yes No
Mahanagdong ................ 165 74 149 Geo Philippines 1997 Yes Yes
Malitbog ................... 216 216 216 Geo Philippines 1996-97 Yes Yes
Upper Mahiao ............... 119 119 119 Geo Philippines 1996 Yes Yes
Teesside Power Limited ..... 1,875 202 289 Gas England 1993 No No
----- ----- -----
Total Projects in Operation 3,510 1,527 1,689
PROJECTS UNDER CONSTRUCTION
Casecnan ................... 150 52 105 Hydro Philippines 1999 Yes Yes
Dieng Unit I ............... 55 26 52 Geo Indonesia 1997 Yes Yes
Patuha Unit I .............. 80 35 70 Geo Indonesia 1999 Yes Yes
Viking ..................... 50 18 25 Gas England 1998 No No
----- ----- -----
Total Projects Under
Construction .............. 335 131 252
AWARDED AND OTHER
DEVELOPMENT PROJECTS
Salton Sea Mineral
Extraction .............. 15 15 15 Geo California 1999 Yes No
Telephone Flat ............. 30 30 30 Geo California 2000 Yes No
Dieng ...................... 345 162 324 Geo Indonesia 1998-99 Yes Yes
Patuha ..................... 320 141 282 Geo Indonesia 1999 Yes Yes
Bali ....................... 400 120 240 Geo Indonesia 2000 Yes Yes
Ijen ....................... 400 120 240 Geo Indonesia 2001 Yes Yes
Alto Peak .................. 70 70 70 Geo Philippines 1999 Yes Yes
Exeter Power Limited ....... 50 18 25 Gas England 1999 No No
----- ----- -----
Total Awarded and Other
Projects .................. 1,630 676 1,226
----- ----- -----
Total Power Generation
Projects................... 5,475 2,334 3,167
===== ===== =====
</TABLE>
- ------------
(1) For more detailed information, see the charts and related footnotes
on pages S-19 to S-22 and pages S-29 to S-33 herein.
(2) Gives effect to the Acquisition, as defined herein. See "Recent
Developments."
THE COMPANY'S PRODUCING GAS FIELD OPERATIONS AND FIELDS IN DEVELOPMENT
<TABLE>
<CAPTION>
SHARE OF CURRENT POST-ACQUISITION
PRODUCING GAS FIELD PROVEN RESERVES BCF(1) % WORKING INTEREST % WORKING INTEREST LOCATION
- ------------------- ---------------------- ------------------ ------------------ --------
<S> <C> <C> <C> <C>
Windemere........... 17.0 14.0% 20% U.K. Offshore (North Sea)
Victor ............. 11.8 3.5% 5% U.K. Offshore (North Sea)
Schooner ........... 15.1 1.4% 2% U.K. Offshore (North Sea)
</TABLE>
<TABLE>
<CAPTION>
FIELDS IN DEVELOPMENT SIZE KM(2)
- ---------------------- ----------
<S> <C> <C> <C> <C>
Gingin Concession .. 2,960 6.3% 9%(2) S.W. Australia Onshore (Perth Basin)
Pila Concession .... 14,000 70.0% 100% N.W. Poland (Polish Trough)
</TABLE>
- ------------
(1) As defined herein. Gingin and Pila have no current Proven reserves.
For further details, see pages S-22 and S-31.
(2) Currently owns 9% of Gingin Concession with right to earn up to a 50%
working interest.
THE COMPANY'S DISTRIBUTION AND SUPPLY BUSINESS
(SELECTED DATA ON NORTHERN AS OF AND FOR THE YEAR ENDED MARCH 31, 1997)
<TABLE>
<CAPTION>
<S> <C>
Operating Revenue ....................... pounds sterling 954.1 million
($1.5 billion)
Number of Customers ..................... 1.5 million
Kilometers of Distribution Lines ........ 43,211
Square Kilometers of Authorized Area .... 14,400
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERAGE TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference
in this Prospectus Supplement and accompanying Prospectus. Certain
capitalized terms used but not defined in this summary are used herein as
defined elsewhere in this Prospectus Supplement. Unless otherwise indicated
or unless the context otherwise requires, the information contained in this
Prospectus Supplement assumes that the U.S. Underwriters' over-allotment
option is not exercised. The term "Company" refers to CalEnergy Company, Inc.
("CalEnergy") and its operating subsidiaries (including Northern) and joint
ventures, and "Northern" refers to Northern Electric plc and its operating
subsidiaries, unless the context otherwise requires.
This Prospectus Supplement contains 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 this
Prospectus Supplement or incorporated by reference herein. Factors that could
cause or contribute to such differences include, but are not limited to,
those discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which is incorporated by reference
herein, "The Business of the Company" in this Prospectus Supplement and "Risk
Factors" in the accompanying Prospectus, as well as those discussed elsewhere
in this Prospectus Supplement and accompanying Prospectus or incorporated by
reference herein or therein.
In this Prospectus Supplement, references to "U.S. dollars," "dollars,"
"U.S. $," "$" or "cents" are to the currency of the United States and
references to " pounds sterling," "pounds," "sterling," "pounds sterling,"
"pence" or "p" are to the currency of the United Kingdom.
THE COMPANY
OVERVIEW
CalEnergy Company, Inc. is a fast-growing global power company whose goal
is to be a leading provider of low cost and reliable energy services throughout
the world as governments privatize or deregulate electricity and gas markets.
CalEnergy was founded in 1971 and, through its subsidiaries, manages and owns
interests in over 5,000 megawatts ("MW") of power generation facilities in
operation, construction and development worldwide, including 20 generating
facilities which it currently operates. In addition, through its subsidiary,
Northern Electric plc ("Northern"), the Company is engaged in the distribution
of electricity to approximately 1.5 million customers primarily in northeast
England as well as the supply of electricity and gas (together with other
related business activities) throughout England and Wales. The Company has
achieved significant growth in earnings and assets over the past five years
through: (i) acquisitions that complement and diversify the Company's
existing business, broaden the geographic locations of and fuel sources used
by its projects 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 and facilities
("greenfield development").
S-1
<PAGE>
A condensed financial structure overview reflecting the current ratings
of the principal senior debt issuances by CalEnergy and its subsidiaries is
presented below.(1)
<TABLE>
<CAPTION>
-------------
CalEnergy
Company, Inc.
Ba2/BB+
-------------
|
------------------------------------------------------------------------------------
| | | | | |
- ----------- -------------- ---------------- ------------ ---------- -----------------
<S> <C> <C> <C> <C> <C>
CE Electric Coso Funding Salton Sea CE Indonesia CE Casecnan Other
(U.K.) plc Corp. Funding Corp. Funding Corp. Project Subsidiaries and
Baa1/BBB+/A Baa2/BBB/BBB Baa3/BBB- Baa3/BBB- Ba2/BB Projects (U.S.,
(Coso Projects) (Imperial Valley (Indonesian Philippines,
Projects) Projects) Australia, Poland
and Others)
- ----------- -------------- ---------------- ------------ ---------- -----------------
|
- ------------
Northern
Electric plc
A3/BBB+/A
- ------------
</TABLE>
(1) The debt ratings reflected above have been published by Moody's
Investors Services, Inc. and Standard & Poor's Rating Service,
respectively, and, in the case of CE Electric, Northern and Coso, by
Duff & Phelps Credit Rating Co., in respect of certain senior
indebtedness of the respective issuers shown. These ratings may be
changed from time to time by the ratings agencies. On September 9,
1997, Standard & Poor's Ratings Service placed Northern and CE Electric
UK plc on CreditWatch, with negative implications in connection with
the Acquisition.
SIGNIFICANT GROWTH IN OPERATING RESULTS
The Company's management team has a proven track record of project
development, operation and acquisition integration. Since the arrival of the
current management team in 1991, the Company's operating and financial
results have improved significantly as a result of cutting costs, improving
operating efficiency at its existing plants, bringing all new greenfield
projects into operation on time and within budget and implementing an
aggressive international expansion and acquisition strategy. The senior
management team has an average of twelve years of independent power
experience and owns approximately 3% of the outstanding Common Stock of the
Company on a fully diluted basis after giving effect to the Offering.
The market capitalization of the Company has risen at a compound annual
rate of 33% from approximately $499 million in December 1991 to approximately
$2,419 million in June 1997, the revenues of the Company have risen at a
compound annual rate of 46% from approximately $127 million in 1992 to
approximately $576 million in 1996 and net income available to common
stockholders has risen at a compound annual rate of 33% from approximately
$30 million in 1992 to approximately $92 million in 1996. As the charts below
show, from 1992 through 1996, the Company's EBITDA (as defined in footnote
(1) below) and total assets have increased by a compound annual growth rate
of 47% and 77%, respectively.
S-2
<PAGE>
[CHART OMITTED: BAR GRAPH REPRESENTED AS TABULAR MATERIAL]
HISTORICAL GROWTH IN EBITDA (1)
(Millions)
1992 1993 1994 1995 1996 7/96-6/97 (2)
---- ---- ---- ---- ---- -------------
$82,346 $102,459 $129,939 $271,383 $385,028 $624,706
- ------------
(1) As used in this chart, "EBITDA" means the Company's earnings, before
interest, taxes, depreciation and amortization. Information concerning
EBITDA is presented here not as a measure of operating results, but
rather as a measure of the Company's ability to service debt. EBITDA
should not be construed as an alternative to either (i) operating
income (determined in accordance with Generally Accepted Accounting
Principles ("GAAP")) or (ii) cash flow from operating activities
(determined in accordance with GAAP).
(2) Unaudited EBITDA for the twelve month period ended June 30, 1997.
[CHART OMITTED: BAR GRAPH REPRESENTED AS TABULAR MATERIAL]
HISTORICAL GROWTH IN TOTAL ASSETS
(Millions)
1992 1993 1994 1995 1996 June 30, 1997
---- ---- ---- ---- ---- -------------
$580,550 $715,984 $1,131,145 $2,654,038 $5,712,907 $6,275,061
S-3
<PAGE>
On July 24, 1997, the Company reported operating results for the quarter
ended June 30, 1997. Revenues increased 353% to approximately $525.0 million
for the three months ended June 30, 1997, from approximately $115.8 million
for the same period in 1996. Net income available to holders of Common Stock
for the quarter rose 60% to approximately $30.9 million or $0.47 per share of
Common Stock with 66.0 million average shares of Common Stock outstanding,
compared to approximately $19.3 million or $0.35 per share of Common Stock
with 55.4 million average shares of Common Stock outstanding for the same
period in 1996. For the six month period ended June 30, 1997, revenues
increased 429% to approximately $1,091.0 million from $206.2 million for the
same period in 1996. Net income available to holders of Common Stock rose 73%
to $58.3 million or $0.89 per share of Common Stock with 65.8 million average
shares of Common Stock outstanding, compared to approximately $33.7 million
or $0.62 per share of Common Stock with 54.8 million average shares of Common
Stock outstanding for the same period in 1996.
RECENT SUCCESSFUL ACQUISITIONS
In the last three years, the Company has consummated several significant
acquisitions, each of which has been successfully integrated and immediately
accretive to earnings. In January 1995, the Company acquired Magma Power
Company ("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, has made the Company
the world's largest independent geothermal power producer (based on the
Company's estimate of aggregate MW of electric generating capacity in
operation and construction).
In April 1996, the Company completed the purchase 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 Resources, Inc.
("Falcon Seaboard") for approximately $226 million, thereby acquiring
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 December 1996, the Company acquired a majority of the common shares of
Northern. Northern is one of the twelve regional electricity companies (each,
a "REC") which came into existence as a result of the restructuring and
subsequent privatization of the electricity industry in the United Kingdom in
1990. Northern distributes electricity in its authorized area located in
northeast England which covers approximately 14,400 square kilometers and has
a population of approximately 3.2 million people. Northern also supplies
electricity and gas inside and outside its authorized area and owns interests
in three producing gas field operations in the North Sea.
PENDING ENERGY PROJECT JOINT VENTURE ACQUISITION AND STOCK REPURCHASE
On September 11, 1997, the Company announced that it had signed a
definitive agreement (the "KDG Agreement") with Kiewit Diversified Group Inc.
("KDG"), a wholly-owned subsidiary of Peter Kiewit Sons Inc. ("PKS"), to
acquire all of KDG's ownership interest in the various international power
generation projects (the "Energy Project Joint Venture Acquisition") which
are jointly owned with the Company and managed by the Company as well as to
repurchase all of KDG's outstanding ownership interests in the Company's
Common Stock (the "Stock Repurchase," and together with the Energy Project
Joint Venture Acquisition, the "Acquisition").
KDG's ownership interest in the Company consists of 20,231,065 shares of
Common Stock (including options to acquire 1,000,000 shares of Common Stock)
which currently represent approximately 30% of the Company's outstanding
shares (26% on a fully diluted basis prior to the Offering), as well as the
following power project interests: 45% of the 165 net MW Mahanagdong project,
35% of the 150 net MW Casecnan project, 47% of the 400 net MW Dieng project,
44% of the 400 net MW Patuha project, 30% of
S-4
<PAGE>
the 400 net MW Bali project and 30% of CE Electric UK (the parent of
Northern), each as defined herein. The Company is the managing partner and
operator of each such project (collectively, the "Joint Venture Energy
Projects"). In addition, KDG's 50% interest in all other power project
opportunities which the Company has in development under the international
joint venture agreement with KDG are being transferred to the Company. Upon
consummation of the Acquisition, the Company will immediately add over 1,000
net MW of generating capacity in operation, construction and development to
its project portfolio (including approximately 850 net MW of operating,
construction and advanced stage development projects reflected in the charts
on the inside front cover page of this Prospectus Supplement). See "Recent
Developments."
The KDG Agreement provides that the Company will pay $1,155,000,000 for
KDG's ownership interest in the Joint Venture Energy Projects and the
Company's Common Stock. Final closing of the transaction is expected to occur
in January 1998. The Company intends to fund the Acquisition with available
cash, the net proceeds of this Offering, the Direct Sale and the Debt
Offering.
Concurrently with the Offering and the Direct Sale, the Company is
offering $350 million of senior notes pursuant to the registration statement
of which this Prospectus Supplement and the Prospectus is a part. These debt
securities will be senior unsecured obligations of the Company ranking pari
passu in right of payment with all other existing and future senior unsecured
obligations of the Company and will rank senior to all other existing and
future subordinated debt of the Company. See "Recent Developments" and "Use
of Proceeds."
BENEFITS OF THE PENDING ACQUISITION
The Company believes the following benefits will be realized from the
Acquisition, thereby enhancing its competitive position:
o Accretive to earnings beginning in 1998;
o Addition of 1,000 MW net ownership without incurring any additional
development or administration costs;
o Increased size (the Company is already the largest independent
geothermal power producer in the world) which provides opportunities
for cost efficiencies, further enhancement of the Company's
international reputation and credibility with sovereign governments and
state utility customers and enhancement of its ability to successfully
compete for new projects; and
o Increased ownership percentage and resulting cash flows from
subsidiaries with an investment grade credit rating.
STRATEGY
The Company's growth strategy remains focused upon taking advantage of the
investment opportunities created by the continuing deregulation and
privatization in energy sectors throughout the world. In order to effectively
execute its growth strategy, the Company has organized its operations into
three geographic regions (the Americas, Asia and Europe) and two markets
(emerging and mature). As a market evolves in its life cycle from emerging to
mature, the investment opportunities available to the Company will evolve
from generation to distribution and supply.
In each market, the Company's strategy is comprised of the following key
elements:
o GROWTH THROUGH INTERNATIONAL AND DOMESTIC ACQUISITIONS. The Company has
successfully completed four acquisitions in the past three years, each
of which was immediately accretive to earnings. The Company believes
several of these acquisitions provided it with specialized skills and
experience that enhance its competitive position in the areas it has
targeted for future growth. For example, the Company's acquisition of
Northern, a United Kingdom ("UK") regional electric company engaged in
electric distribution and gas distribution and supply, is the first
step in its
S-5
<PAGE>
planned expansion into those sectors in the U.S. and elsewhere
throughout the world. In addition, since the United Kingdom is
progressively deregulating its electric and gas supply sectors, the
Company believes that its Northern management team has the knowledge
and skills to compete in a competitive supply market. Northern also
possesses the sophisticated billing and information systems that are
believed by the Company to be critically important components of the
skill and technology base necessary to compete effectively in a
deregulated environment.
The Company believes that the electric industry in the United States
will also progressively deregulate over the next three to five years
and will largely follow the regulatory model established in the United
Kingdom (with incentive based rates or price caps). As currently
regulated U.S. electric distributors and electric and gas suppliers
attempt to rationalize their businesses to maintain profitability in a
price competitive market, the Company believes that opportunities will
become available to low cost and reliable providers of energy services
to gain market share in energy supply and provide additional services
to competitors (such as utility line construction and maintenance
services, metering, customer billing and information systems services).
As a result, the Company believes that by acquiring a U.S. utility
operation and transferring the knowledge, skills and systems gained at
Northern, it can create a platform from which a U.S. energy
distribution and supply business can be profitably established and
expanded in a deregulated market. In this context, the Company recently
sought to acquire a U.S. utility, New York State Electric & Gas
Corporation ("NYSEG"), through a two-step tender offer. When its
minimum tender condition was not met, the Company did not increase its
offer price and chose not to further pursue the NYSEG acquisition.
Consistent with its disciplined approach to acquisitions, the Company
will continue to evaluate other available opportunities from time to
time, but will not agree to pay prices which it believes to be
unjustified in its acquisition analysis. The Company still intends to
acquire a U.S. utility operation in the next few years, although it
currently has no specific acquisition plans.
o GROWTH THROUGH GREENFIELD DEVELOPMENT OF ENERGY PROJECTS. The Company
continues to view the international power generation sector as an
attractive market for the development of new greenfield energy
opportunities, an area in which it has demonstrated substantial
expertise. In the past three years, the Company has developed and
financed seven new international power projects, three of which have
already completed construction on schedule and within budget and are
now earning revenues and the remaining four of which are still in their
scheduled construction phases.
With the acquisition of Sovereign Exploration Ltd. (now CalEnergy Gas
UK) as part of the Northern acquisition, the Company has expanded its
development strategy to include integrated generation and upstream
natural gas operations. The addition of gas exploration, production and
technical storage capabilities allows the Company to expand its number
of target markets throughout the world. In addition, utilization of its
geotechnical expertise in this manner allows early entrance with
limited upfront capital expenditures into markets in which the Company
might not otherwise have power development opportunities. The
integration of power generation plants with the upstream gas sources in
competitive energy markets will also produce market arbitrage
opportunities to sell either gas or electricity depending upon market
conditions at the time. The Company has recently announced two upstream
gas projects, one in Western Australia at the Gingin field in the Perth
Basin and one in Poland at the large Pila Concession.
Furthermore, the Company continues to view Asia as a primary
development region in the near term. The Company presently plans to
continue to focus its development efforts on power projects and other
energy opportunities in the Philippines, Indonesia, Australia and New
Zealand and to opportunistically pursue power projects elsewhere in
Asia, including China and India. The Company also continues to pursue
development opportunities in the Americas and European regions.
S-6
<PAGE>
o PROFIT ENHANCEMENT THROUGH OPERATING EFFICIENCIES WHILE MAINTAINING
QUALITY AND RELIABILITY OF SERVICE. The Company aggressively pursues
profitability improvements through efficiency and productivity gains
at existing operations. Since 1991, the cost of production per
kilowatt hour ("kWh") at the Company's Coso Projects has declined from
2.7 cents/kWh to 1.9 cents/kWh. Since 1994, the cost of production per
kWh at the Imperial Valley Projects (as defined herein) has declined
from 5.3 cents/kWh to 3.5 cents/kWh. In each case, the Company has
achieved these efficiencies while maintaining high reliability and
safety in its operation. Through continuing advancements in drilling
technology, reservoir modeling and well maintenance techniques, the
production capacity of new and existing wells has been improved or
maintained and, as a result, the useful output of the various
geothermal resources has been improved or maintained.
o CONTINUED DIVERSIFICATION OF REVENUE BASE AND FUEL SOURCES. The Company
believes that it presently has a diversified revenue base, distributed
among its net ownership of 1,527 MW in twenty-one operating projects
and its ownership of an operating electric utility.
Other than the revenues of Northern, which are largely derived from
its electric distribution and supply activities, substantially all of
the Company's current revenues are based on long-term contracts with
seven large U.S. utility companies and the foreign governments of the
Philippines (sovereign ratings of Ba1/BB+) and Indonesia (sovereign
ratings of Baa3/BBB).
The Company intends to seek continued diversification of its revenue
base and fuel sources through acquisitions and greenfield development.
As the table on the inside front cover page of this Prospectus
Supplement shows, the Company's existing power development backlog is
expected to result in a substantial increase in the Company's net
ownership interest in MW in operation from 1,527 MW of current net
ownership interest to 3,167 MW by 2001.
By the year 2000, based upon the Company's existing project backlog,
the Company expects approximately two-thirds of the power project
portfolio in operation to be comprised of international projects (based
on net MW owned).
o MAINTENANCE OF PRUDENT FINANCIAL AND RISK MANAGEMENT PRACTICES. The
Company has consistently maintained, and intends in the future to
maintain what it believes to be prudent financial and risk management
practices. A primary objective of the Company is to structure project
financing for development projects which can be rated investment grade
by Moody's Investor Services Inc. and Standard & Poor's Ratings
Services. Its Coso projects are rated Baa2/BBB; its Salton Sea Funding
Corp. is rated Baa3/BBB-; its Northern Electric subsidiary is rated
A3/BBB+; its CE Electric UK Holdings subsidiary is rated Baa1/BBB+; and
its Indonesia Projects received ratings of Baa3(implied)/BBB-. The debt
ratings reflected above have been published by Moody's Investors
Services, Inc. and Standard & Poor's Ratings Services, respectively, in
respect of certain senior indebtedness of the respective issuers shown.
These ratings may be changed from time to time by the ratings agencies.
The project financing structures engaged in to date by the Company
include as a fundamental protection for the Company's other assets the
requirement that (with certain minimal exceptions) the funds borrowed
for the purpose of financing a project are to be financed primarily or
entirely under loan agreements and related documents which provide that
the loans are to be repaid solely from the project's revenues and that
the security granted to secure the loan obligation be limited to the
capital stock, assets, contracts and cash flow of the plant or its
holding company. Under this type of financing structure, the lenders
cannot seek recourse against the Company or its other subsidiaries or
projects. The Company intends to continue to structure future projects
in a manner which minimizes the exposure of the Company's other assets
through appropriate non-recourse project financings.
o CONTINUED ADHERENCE TO STRICT PROJECT EVALUATION CRITERIA. The Company
intends to operate only in those countries where economic fundamentals
are believed to be attractive and risks can be contractually mitigated
or adequately covered by insurance. The Company's international
S-7
<PAGE>
investment criteria generally includes giving due consideration, where
appropriate, to the following:
o Sovereign guarantees;
o Significant demand for new power generating facilities;
o An established legal system providing for enforceability of
contracts and regulations;
o Contracts with utilities, governments or other parties with
acceptable creditworthiness which provide for primarily
US$-denominated payments and certain contractual protections
regarding currency convertibility and transferability;
o Fixed-price date-certain, turnkey construction contracts with
liquidated damages and performance security provisions; and
o Availability of political risk insurance.
The Company intends to continue to focus upon only those
development opportunities where it is permitted, directly or
indirectly, to acquire a majority ownership interest and exercise
operational control over the newly developed or acquired projects.
---------------
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.
S-8
<PAGE>
THE OFFERING AND THE DIRECT SALE
Common Stock offered by the
Company:
U.S. Offering ................. 8,400,000 Shares
International Offering ........ 3,600,000 Shares
Direct Sale ................... 2,000,000 Shares
Total ......................... 14,000,000 Shares
Common Stock to be outstanding
after the Offering and the
Direct Sale (1) ............... 77,085,687 Shares
Common Stock to be outstanding
after the Offering, Direct Sale
and the Acquisition ........... 57,854,622 Shares
Common Stock Listing .......... New York Stock Exchange, London Stock
Exchange and Pacific Stock Exchange
Listing Symbol ................ CE
Debt Offering ................. Concurrently with the Offering and the
Direct Sale, the Company is offering
$350,000,000 of senior notes (the "Debt
Offering").
Use of Proceeds ............... The Company will use the net proceeds from
the Offering, the Direct Sale, the Debt
Offering and available cash on hand from the
general corporate funds of the Company to
complete the Acquisition. The closing of the
Offering will occur in advance of, and is
not conditioned upon, the closing of the
Acquisition. The closing of the Debt
Offering is expected to occur concurrently
with or shortly after the closing of the
Offering and the closing of the Direct Sale
is expected to occur concurrently with the
closing of the Offering. The closing of the
Offering is not conditioned upon the closing
of the Direct Sale or the Debt Offering. See
"Use Of Proceeds."
- ------------
(1) Based on the number of shares of Common Stock outstanding as of
August 31, 1997. Does not reflect the expected repurchase of
19,231,065 shares of Common Stock from KDG pursuant to the Stock
Repurchase and does not include (i) 5,141,688 shares of Common Stock
reserved for issuance upon the exercise of outstanding stock options
(excluding 1,000,000 shares of Common Stock which are subject to
options held by KDG which will be canceled upon the closing of the
Acquisition) and (ii) shares of Common Stock issuable upon the
conversion of the Company's various series of convertible preferred
securities of subsidiary trusts.
S-9
<PAGE>
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(ALL DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
The following table presents summary historical consolidated financial and
operating data of the Company as of and for the years ended December 31,
1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997. The
unaudited consolidated financial statements of the Company as of and for the
six months ended June 30, 1996 and 1997 reflect all adjustments necessary in
the opinion of the Company's management (consisting of normal recurring
accruals) for a fair presentation of such data. The financial data set forth
below should be read in conjunction with the historical consolidated
financial statements of the Company and the notes thereto appearing elsewhere
or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, (3)
-----------------------------------------------------------------
1994 1995(1) 1996(2) 1996 1997
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ........................ $ 185,854 $ 398,723 $ 576,195 $ 206,150 $1,090,970
Operating revenues .................... 154,562 335,630 518,934 180,679 1,048,511
Income from operations ................ 55,836 97,051 135,713 49,270 117,528
Interest expense, net of capitalized
interest ............................. 52,906 102,083 126,038 47,996 119,506
Net income(4) ......................... 36,827 63,415 92,461 33,733 58,337
Net income per share--primary(5) ..... 0.89 1.25 1.60 .62 .89
Net income per share--fully diluted(5) 0.88 1.18 1.50 .59 .87
BALANCE SHEET DATA:
Properties, plants, contracts and
equipment, net ....................... $ 561,643 $1,781,255 $3,348,583 $2,028,624 $3,666,627
Total assets .......................... 1,131,145 2,654,038 5,712,907 2,975,127 6,275,061
Subsidiary and project debt ........... 264,583 921,219 1,754,895 1,056,077 2,276,539
Total indebtedness .................... 796,529 1,763,424 2,901,580 1,922,725 3,230,356
Convertible preferred securities of
subsidiary trusts (6) ................ -- -- 103,930 $ 103,930 $ 283,930
Stockholders' equity .................. 179,991 543,532 880,790 587,936 917,912
OTHER FINANCIAL DATA:
Depreciation and amortization ......... $ 21,197 $ 72,249 $ 118,586 $ 43,713 $ 137,912
Capital expenditures .................. 119,013 398,623 341,706 218,704 182,190
EBITDA(7)(8) .......................... 129,939 271,383 385,028 142,422 382,100
Ratio of EBITDA to fixed charges(8)(9) 2.1 2.0 2.3 1.9 2.5
Ratio of earnings to fixed charges(9) 1.7 1.5 1.6 1.4 1.7
</TABLE>
- ------------
(1) Reflects the acquisition of Magma Power Company, which was completed on
February 24, 1995.
(2) Reflects the acquisition of the remaining 50% of the Partnership
Projects (as defined herein) on April 17, 1996, the acquisition of
Falcon Seaboard on August 7, 1996 and the acquisition of majority
ownership of Northern by CE Electric U.K. plc ("CE Electric") (which is
70% owned indirectly by the Company) on December 24, 1996. In March
1997, the Company completed the acquisition of Northern.
(3) The Company's operations have historically been seasonal in nature,
with a disproportionate percentage of income earned in the quarter
ended September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for the full year. As a
result of the acquisition of Northern, the Company's historical results
are expected to differ significantly from the Company's actual results
in the future.
(4) The Company's 12% senior notes due 1995 were defeased in the first
quarter of 1994 in connection with the issuance of the 10 1/4% senior
discount notes due 2004, resulting in an extraordinary loss in 1994 in
the amount of $2.0 million.
(5) The weighted average number of primary shares of Common Stock
outstanding was 35.7 million, 50.0 million, 57.9 million, 54.8 million
and 65.8 million, respectively, for the years ended December 31, 1994,
1995 and 1996 and the six months ended June 30, 1996 and 1997. The
number of fully diluted shares of Common Stock outstanding was 40.2
million, 57.7 million, 67.2 million, 64.7 million and 72.3 million,
respectively, for the years ended December 31, 1994, 1995 and 1996 and
the six months ended June 30, 1996 and 1997.
(6) Also sometimes referred to herein as the "1996 TIDES" and the "6 1/4%
Convertible Preferred Securities" (each as defined herein), or as
"Company-obligated mandatorily redeemable convertible preferred
securities of subsidiary trusts." Subsequent to June 30, 1997, a
subsidiary trust issued an additional $270 million of Company-obligated
mandatorily redeemable convertible preferred securities.
(7) EBITDA means earnings before interest, taxes, depreciation and
amortization.
(8) The 1994 EBITDA balances are before the extraordinary item associated
with the defeasance of the Company's 12% senior notes due 1995.
Information concerning EBITDA is presented here not as a measure of
operating results, but rather as a measure of the Company's ability to
service debt. EBITDA should not be construed as an alternative to
either (i) operating income (determined in accordance with GAAP) or
(ii) cash flow from operating activities (determined in accordance with
GAAP).
(9) 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 (as
defined herein) (and for the year ended December 31, 1996 and the six
months ended June 30, 1997, the Partnership Projects (as defined
herein)), and (b) fixed charges, less capitalized interest. "Fixed
charges" represent interest (whether expensed or capitalized),
amortization of deferred financing and bank fees, and the portion of
rentals considered to be representative of the interest factor
(one-third of lease payments) and preferred stock dividend requirements
of major subsidiaries.
S-10
<PAGE>
SUMMARY SELECTED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following pro forma information reflects the Offering, the Direct Sale
and the offering in August 1997 of $270 million of Company-obligated
mandatorily redeemable convertible preferred securities and, in the case of
the statement of operations data and the other financial data, the
acquisitions described in footnote (2) below. The following pro forma as
adjusted information gives effect to these transactions and to the Debt
Offering and the Acquisition. In each case, the information is presented as
if such transactions had occurred on June 30, 1997 with respect to the
balance sheet data and on January 1, 1996 with respect to the statement of
operations data and other financial data. The pro forma financial information
set forth below should be read in conjunction with the historical and pro
forma consolidated financial statements of the Company and the notes thereto
appearing elsewhere or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus. The Offering is not conditioned
on the closing of the Acquisition, the Debt Offering or the Direct Sale. See
"Recent Developments," "Use of Proceeds" and "Pro Forma Financial Data."
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996(2)
--------------------------- ---------------------------
PRO FORMA PRO FORMA
PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ......................................... $1,090,970 $1,101,388 $2,162,381 $2,187,992
Operating revenues ..................................... 1,048,511 1,048,511 2,104,371 2,104,371
Income before income taxes ............................. 102,479 89,021 96,094 67,233
Interest expense, net of capitalized interest ......... 125,780 152,942 264,066 322,418
Net income ............................................. 53,591 54,860 54,106 33,974
Net income per share--primary .......................... .67 .92 .75 .65
Net income per share--fully diluted .................... .67 .89 .74 .64
Average number of common and common equivalent shares . 79,833 59,916 71,870 52,077
Fully diluted shares ................................... 86,269 66,352 72,712 52,919
BALANCE SHEET DATA:
Properties, plants, contracts and equipment, net ...... $3,666,627 $4,075,860 N/A N/A
Total assets ........................................... 7,049,061 7,085,545 N/A N/A
Subsidiary and project debt ............................ 2,276,539 2,765,062 N/A N/A
Total indebtedness ..................................... 3,230,356 4,068,879 N/A N/A
Convertible preferred securities of subsidiary
trusts(3) ............................................. 553,930 553,930 N/A N/A
Stockholders' equity ................................... 1,421,912 768,443 N/A N/A
OTHER FINANCIAL DATA:
Depreciation and amortization .......................... $ 137,912 $ 138,583 $ 203,348 $ 204,689
EBITDA(4)(5) ........................................... 382,100 396,475 585,749 616,581
Ratio of EBITDA to fixed charges(5) .................... 2.3 2.0 1.8 1.5
Ratio of earnings to fixed charges(6) .................. 1.5 1.3 1.2 1.0
</TABLE>
- ------------
(1) The Company's operations have historically been seasonal in nature,
with a disproportionate percentage of income earned in the quarter
ended September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for the full year. As a
result of the acquisition of Northern, the Company's historical results
are expected to differ significantly from the Company's actual results
in the future.
(2) Reflects the acquisition as of January 1, 1996 of the remaining 50% of
the Partnership Projects (as defined herein) on April 17, 1996, the
acquisition of Falcon Seaboard Resources, Inc. on August 7, 1996 and
the acquisition of majority ownership of Northern by CE Electric (which
is 70% owned indirectly by the Company) on December 24, 1996. In March
1997, the Company completed the acquisition of Northern.
(3) Also sometimes referred to herein as the "1996 TIDES" and the "6 1/4%
Convertible Preferred Securities" or as "Company-obligated mandatorily
redeemable convertible preferred securities of subsidiary trusts."
Subsequent to June 30, 1997, a subsidiary trust issued an additional
$270 million of Company-obligated mandatorily redeemable convertible
preferred securities.
(4) EBITDA means earnings before interest, taxes, depreciation and
amortization.
(5) Information concerning EBITDA is presented here not as a measure of
operating results, but rather as a measure of the Company's ability to
service debt. EBITDA should not be construed as an alternative to
either (i) operating income (determined in accordance with GAAP) or
(ii) cash flow from operating activities (determined in accordance with
GAAP).
(6) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of (a) the pre-tax income of the Company, including its
proportionate share of the pre-tax income of the Coso Project (as
defined herein) (and for the year ended December 31, 1996 and the six
months ended June 30, 1997, the Partnership Projects (as defined
herein)), and (b) fixed charges, less capitalized interest. "Fixed
charges" represent interest (whether expensed or capitalized),
amortization of deferred financing and bank fees, and the portion of
rentals considered to be representative of the interest factor
(one-third of lease payments) and preferred stock dividend requirements
of major subsidiaries.
S-11
<PAGE>
RECENT DEVELOPMENTS
On September 11, 1997, the Company announced that it had signed the KDG
Agreement with KDG, to acquire KDG's entire ownership interest in the Joint
Venture Energy Projects as well as to repurchase KDG's ownership interest in
the Company's Common Stock.
KDG's current ownership interest in the Company comprises 20,231,065
shares of Common Stock (including KDG's options to acquire 1,000,000 shares
of Common Stock) which represent approximately 30% of the Company's
outstanding shares of Common Stock (currently 26% on a fully diluted basis),
as well as the following interests in each of the projects which KDG jointly
owns with Company: 45% of the 165 net MW Mahanagdong project, 35% of the 150
net MW Casecnan project, 47% of the 400 net MW Dieng project, 44% of the 400
net MW Patuha project, 30% of the 400 net MW Bali project and 30% of CE
Electric UK (the parent of Northern), each as defined herein. The Company is
the managing partner and operator of each of the Joint Venture Energy
Projects. In addition, KDG's 50% interests in all of the Company's other
power project opportunities under the international joint venture agreement
with KDG are being transferred to the Company. The Acquisition is not
conditioned on consummation of this Offering, the Direct Sale or the Debt
Offering.
The KDG Agreement provides that the Company will pay $1,155,000,000 for
KDG's ownership interests in the Joint Venture Energy Projects and the
Company's Common Stock (subject to certain upward or downward adjustments not
to exceed $20 million). The Acquisition has an outside closing date of
February 20, 1998 and contains no express financing conditions although
certain material adverse capital market events would provide the Company the
right to terminate the KDG Agreement. Under the KDG Agreement, the Company is
obligated to utilize its reasonable best efforts to secure financing for the
Acquisition prior to February 20, 1998. If either party terminates the KDG
Agreement as a result of a breach by the other party of its representations,
warranties, covenants or agreements under the KDG Agreement, then the
breaching party must pay a termination fee of $50 million.
Concurrently with the execution of the KDG Agreement, the Company and KDG
executed a Confidentiality, Standstill, and Noncompetition Agreement (the
"CSN Agreement") which will terminate if the KDG Agreement were to be
terminated. The CSN Agreement provides that for the period commencing on the
date of the KDG Agreement and ending three years from the date of the closing
of the Acquisition, subject to the limited exceptions provided therein,
neither KDG nor an affiliate of KDG shall, through subsidiaries or
affiliates, participate in the ownership, management, operation or control of
any business that engages in the operation, development, supply or
distribution of electrical power anywhere in the world, or engages in any
business or activity that, through subsidiaries or affiliates, competes with
any business or activity presently engaged in by the Company. In addition,
for the period commencing on the date of the KDG Agreement and ending five
years from the date of the closing of the Acquisition, KDG shall not, and
shall cause its affiliates not to, among other things, unless and until KDG
receives the prior written invitation or approval of a majority of directors
of the Company, directly or indirectly (i) acquire, agree to acquire or make
any proposal to acquire any securities of the Company or any of its
subsidiaries, (ii) seek or propose, or, as to any of the following occurring
prior to the closing under the KDG Agreement, unless approved by a majority
of the current directors of the Company (excluding KDG's designees), vote in
favor of, any merger, consolidation, business combination, tender or exchange
offer, sale or purchase of assets or securities, dissolution, liquidation,
restructuring, recapitalization or similar transactions of or involving the
Company or any of its subsidiaries, or (iii) otherwise act, alone or in
concert with others, to seek to control or influence, in any manner, the
management, board of directors or policies of CalEnergy or any of its
subsidiaries.
Closing of the Acquisition is expected to occur in January 1998, although
there can be no assurance that the Acquisition will be consummated. The
Company intends to fund the Acquisition with available cash, the proceeds of
the Offering, the Direct Sale and the Debt Offering. See the Company's
Current Report on Form 8-K dated September 11, 1997, incorporated in the
accompanying Prospectus by reference.
The KDG Agreement has no impact on existing contractual arrangements with
construction company affiliates of KDG who are constructing plants for the
Company in Indonesia and the Philippines.
S-12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company of the Offering are estimated to be
approximately $ million (approximately $ million if the
over-allotment option is exercised in full). The net proceeds to the Company
of the Direct Sale are estimated to be approximately $ million.
Approximately $ million will be required to complete the Acquisition.
The net proceeds of the Offering and the Direct Sale (approximately $
million in the aggregate, assuming no exercise of the over-allotment option),
together with the expected net proceeds of $ million from the
concurrent Debt Offering described herein and cash on hand from general
corporate funds of the Company in the amount of approximately $
million, will be used by the Company to complete the Acquisition as described
herein. The closing of the Offering will occur in advance of, and is not
conditioned upon, the closing of the Acquisition. The closing of the Debt
Offering is expected to occur concurrently with or shortly after the closing
of the Offering and the closing of the Direct Sale is expected to occur
concurrently with the closing of the Offering, but the closing of the
Offering is not conditioned upon the closing of the Direct Sale or the Debt
Offering. If for any reason the Acquisition were not consummated, the net
proceeds of the Offering would be used to make equity investments in future
domestic or international energy projects, to fund possible future stock or
asset acquisitions, for the possible repayment of debt and for other general
corporate purposes.
MARKET PRICES OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on the New York Stock Exchange (the "NYSE"),
the Pacific Stock Exchange and the London Stock Exchange under the symbol
"CE." The following table sets forth for the fiscal quarters indicated the
high and low last reported sale prices of the Common Stock as reported on the
NYSE Composite Tape.
<TABLE>
<CAPTION>
PRICE RANGE
------------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 1997
Third Quarter (through September 23) $ 41.75 $ 32.75
Second Quarter ....................... 41.625 32.625
First Quarter ........................ 38.375 32.125
FISCAL YEAR ENDING DECEMBER 31, 1996
Fourth Quarter ....................... 33.625 28.125
Third Quarter ........................ 31.875 22.875
Second Quarter ....................... 28.375 24.00
First Quarter ........................ 26.875 18.375
FISCAL YEAR ENDING DECEMBER 31, 1995
Fourth Quarter ....................... 20.875 17.875
Third Quarter ........................ 21.50 16.125
Second Quarter ....................... 17.125 15.50
First Quarter ........................ 18.875 15.375
</TABLE>
On September 23, 1997, the last reported sale price of the Common Stock on
the NYSE Composite Tape was $34 per share. As of September 19, 1997, there
were approximately 1,077 holders of record of the Common Stock. The Company's
present policy is to reinvest earnings in the business and pay no dividends
on its Common Stock. In addition, certain of the Company's current debt
indentures restrict the payment of cash dividends based upon a formula and
limit the amount of dividends and other distributions generally to no more
than 50% of the Company's accumulated adjusted consolidated net income as
defined, subsequent to April 1, 1994, plus the proceeds of any stock
issuances. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Notes to Consolidated Financial Statements"
appearing elsewhere or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus.
S-13
<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth (i) the consolidated capitalization of the
Company at June 30, 1997, (ii) the pro forma consolidated capitalization of
the Company as if the Offering (based on an assumed price to the public of
$36.00 per share), the Direct Sale, and the offering in August of $270
million of Company-obligated mandatorily redeemable convertible preferred
securities had occurred on June 30, 1997, and (iii) the pro forma
consolidated capitalization of the Company as adjusted for the consummation
of the Debt Offering and the Acquisition. The table should be read in
conjunction with the Company's historical and pro forma consolidated
financial statements and the notes thereto, and the pro forma financial
statements and the notes thereto, appearing elsewhere or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. The
Offering is not conditioned upon the closing of the Acquisition, the Debt
Offering or the Direct Sale. See "Recent Developments," "Use of Proceeds" and
"Pro Forma Financial Data."
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Indebtedness:
Parent company debt:
Senior discount notes ...................................... $ 529,640 $ 529,640 $ 529,640
Limited recourse senior secured notes (1) .................. 200,000 200,000 200,000
Senior notes ............................................... 224,177 224,177 224,177
Concurrent debt offering ................................... -- -- 350,000
Subsidiary and project debt (2):
Construction loans ......................................... 429,994 429,994 547,017
Project finance loans ...................................... 243,021 243,021 614,521
Salton Sea notes and bonds ................................. 493,868 493,868 493,868
UK credit facility ......................................... 674,163 674,163 674,163
Northern Electric Bonds .................................... 435,493 435,493 435,493
---------- ---------- ----------
Total consolidated indebtedness ............................. 3,230,356 3,230,356 4,068,879
Deferred income ............................................. 29,750 29,750 29,750
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trusts .................. 283,930 553,930 553,930
Preferred securities of subsidiary .......................... 59,101 59,101 59,101
Minority interest............................................ 187,608 187,608 2,000
Stockholders' equity:
Preferred stock, no par value, 2,000 shares authorized ..... -- -- --
Common stock, $.0675 par value, 180,000 shares authorized,
63,858 shares issued and 63,669 outstanding--actual; 77,858
shares issued--pro forma and pro forma as adjusted; 77,669
outstanding--pro forma; 58,438 outstanding--pro forma as
adjusted ................................................... 4,311 5,256 5,256
Additional paid-in capital .................................. 560,478 1,063,533 1,042,221
Retained earnings ........................................... 355,857 355,857 355,857
Treasury stock, 189 common shares at cost--actual and
pro forma; 19,420--pro forma as adjusted ................... (5,687) (5,687) (639,110)
Cumulative effect of foreign currency translation adjustment 2,953 2,953 4,219
---------- ---------- ----------
Total stockholders' equity .................................. 917,912 1,421,912 768,443
---------- ---------- ----------
Total capitalization ........................................ $4,708,657 $5,482,657 $5,482,103
========== ========== ==========
</TABLE>
- ------------
(1) The limited recourse senior secured notes are recourse to the Company
only to a limited extent, which is currently $0.
(2) Represents debt for which the repayment obligation is at the project or
subsidiary level.
S-14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(ALL DATA IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
The following tables set forth selected historical consolidated financial
and operating data, which should be read in conjunction with the Company's
consolidated financial statements and related notes included herein and
incorporated by reference herein and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing
elsewhere or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. The selected consolidated data as of and for each of
the five years in the period ended December 31, 1996 have been derived from
the audited historical consolidated financial statements of the Company. The
selected consolidated data as of and for the six months ended June 30, 1996
and 1997 have been derived from the unaudited historical consolidated
financial statements of the Company and reflect all adjustments necessary in
the opinion of the Company's management (consisting of normal recurring
accruals) for a fair presentation of such data.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,(2)(3)
-------------------------------------------------------------------------------------
1992 1993 1994 1995(1) 1996(2) 1996 1997
---------- ---------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues ............... $117,342 $132,059 $154,562 $355,112 $531,914 $180,679 $1,059,124
Interest and other income ........ 10,187 17,194 31,292 43,611 44,281 25,471 31,846
-------- -------- -------- -------- -------- -------- ----------
Total revenue .................... $127,529 $149,253 $185,854 $398,723 $576,195 $206,150 $1,090,970
Plant operations, cost of sales,
general and administrative,
royalty and other expenses ..... 45,183 46,794 55,915 127,340 191,167 63,728 708,870
Depreciation and amortization ... 16,754 17,812 21,197 72,249 118,586 43,713 137,912
Interest expense, net of
capitalized interest ............ 14,860 23,389 52,906 102,083 126,038 47,996 119,506
Dividends on convertible
preferred securities of
subsidiary trusts ............... -- -- -- -- 4,691 1,443 7,154
Provision for income taxes ...... 11,922 18,184 17,002 30,631 41,821 15,537 46,591
Income before extraordinary item
and cumulative effect of
accounting principle(6).......... 38,810 43,074 38,834 66,420 93,892 33,733 70,937
Minority Interest ................ -- -- -- 3,005 1,431 -- 12,600
Extraordinary item(4)(5) ......... (4,991) -- (2,007) -- -- -- --
Cumulative effect of change in
accounting principle(6) ......... -- 4,100 -- -- -- -- --
Net income ....................... 33,819 47,174 36,827 63,415 92,461 33,733 58,337
Preferred dividends .............. 4,275 4,630 5,010 1,080 -- -- --
Net income available to common
stockholders .................... 29,544 42,544 31,817 62,335 92,461 33,733 58,337
Income per share before
extraordinary item and
cumulative effect of change in
accounting principle ............ 0.92 1.00 0.95 1.25 1.60 .62 .89
Extraordinary item per share .... (0.13) -- (0.06) -- -- -- --
Cumulative effect of change in
accounting principle per share .. -- 0.11 -- -- -- -- --
Net income per share--primary ... 0.79 1.11 0.89 1.25 1.60 .62 .89
Net income per share--fully
diluted ......................... 0.79 1.09 0.88 1.18 1.50 .59 .87
Weighted average shares
outstanding--primary ............ 37,495 38,485 35,721 49,971 57,870 54,836 65,833
OTHER DATA:
Capital expenditures ............. $ 32,446 $ 87,191 $119,013 $398,623 $341,706 $218,704 $ 182,190
EBITDA(7)(8) ..................... 82,346 102,459 129,939 271,383 385,028 142,422 382,100
Ratio of EBITDA to fixed
charges(7)(8)(9) ................ 4.0 3.4 2.1 2.0 2.3 1.9 2.5
Ratio of earnings to fixed
charges(9) ...................... 3.2 2.8 1.7 1.5 1.6 1.4 1.7
Dividends declared per share .... -- -- -- -- -- -- --
S-15
<PAGE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,(2)(3)
----------------------------------------------------------- ------------------------
1992 1993 1994 1995(1) 1996(2) 1996 1997
---------- ---------- ----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Cash and investments ............. $ 54,671 $127,756 $ 254,004 $ 72,114 $ 424,500 $ 253,661 $ 406,241
Properties, plants, contracts and
equipment, net .................. 393,958 463,514 561,643 1,781,255 3,348,583 2,028,624 3,666,627
Total assets ..................... 580,550 715,984 1,131,145 2,654,038 5,712,907 2,975,127 6,275,061
Revolving credit facility ........ -- -- -- -- 95,000 -- --
Senior discount notes ............ -- -- 431,946 477,355 527,535 501,798 529,640
Senior notes ..................... -- -- -- -- 224,150 -- 224,177
Limited recourse senior secured
notes ........................... -- -- -- 200,000 200,000 200,000 200,000
Convertible subordinated
debentures ...................... -- 100,000 100,000 100,000 -- 100,000 --
Convertible debt ................. -- -- -- 64,850 -- 64,850 --
CalEnergy credit facility ........ -- -- -- -- 100,000 -- --
12% Senior notes ................. 35,730 35,730 -- -- -- -- --
Construction loans ............... -- -- 31,503 211,198 377,454 305,870 429,994
Project finance loans ............ 263,604 246,880 233,080 257,933 270,844 187,172 243,021
Salton Sea notes and bonds ...... -- -- -- 452,088 538,982 563,035 493,868
UK Credit Facility ............... -- -- -- -- 128,423 -- 674,163
Northern Electric Bonds .......... -- -- -- -- 439,192 -- 435,493
Total liabilities ................ 336,272 425,393 867,703 2,084,474 4,263,803 2,257,048 4,796,760
Redeemable preferred stock ...... 54,350 58,800 63,600 -- -- -- --
Company-obligated mandatorily
redeemable convertible preferred
securities of subsidiary trusts -- -- -- -- 103,930 103,930 283,930
Total stockholders' equity ...... 168,764 211,503 179,991 543,532 880,790 587,936 917,912
</TABLE>
- ------------
(1) Reflects the acquisition of Magma Power Company which was completed on
February 24, 1995.
(2) Reflects the acquisition of the remaining 50% of the Partnership
Projects on April 17, 1996, the acquisition of Falcon Seaboard on
August 7, 1996 and the acquisition of majority ownership of Northern by
CE Electric (which is 70% owned indirectly by the Company) on December
24, 1996. In March, 1997, the Company completed the acquisition of
Northern.
(3) The Company's operations are seasonal in nature, with a
disproportionate percentage of the income earned in the quarter ending
September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for a full fiscal year. As a
result of the acquisition of Northern, the Company's historical results
are expected to differ significantly from the Company's actual results
in the future.
(4) The refinancing of the Coso Joint Ventures' project financing resulted
in an extraordinary loss in 1992 in the amount of $5.0 million.
(5) The Company's 12% senior notes due 1995 were defeased in the first
quarter of 1994 in connection with the issuance of the 10 1/4% senior
discount notes due 2004, resulting in an extraordinary loss in 1994 in
the amount of $2.0 million.
(6) On January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, Accounting for Income Taxes, resulting in
a cumulative effect adjustment increasing net income by $4.1 million in
1993.
(7) EBITDA means earnings before interest, taxes, depreciation and
amortization.
(8) Information concerning EBITDA is presented here not as a measure of
operating results, but rather as a measure of the Company's ability to
service debt. EBITDA should not be construed as an alternative to
either (i) operating income (determined in accordance with U.S. GAAP)
or (ii) cash flow from operating activities (determined in accordance
with U.S. GAAP).
(9) 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 Navy I, Navy II and BLM
(collectively, the "Coso Project") (and for the years ended December
31, 1995 and 1996, and the Partnership Projects (as defined herein)),
and (b) fixed charges, less capitalized interest. "Fixed charges"
represent interest (whether expensed or capitalized), amortization of
deferred financing and bank fees, and the portion of rentals considered
to be representative of the interest factor (one-third of lease
payments) and preferred stock dividend requirements of majority
subsidiaries.
S-16
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION
(In thousands, except per share data)
The following pro forma information reflects the Offering, the Direct Sale
and the offering in August 1997 of $270 million of Company-obligated
mandatorily redeemable convertible preferred securities and, in the case of
the statement of operations and other financial data, the acquisitions
described in footnote (2) below. The following pro forma as adjusted
information gives effect to these transactions and to the Debt Offering and
the Acquisition. In each case, the information is presented as if such
transactions had occurred on June 30, 1997 with respect to the balance sheet
data and on January 1, 1996 with respect to the statement of operations data
and other financial data. The pro forma financial information set forth below
should be read in conjunction with the historical and pro forma consolidated
financial statements of the Company and the notes thereto appearing elsewhere
or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. The Offering is not conditioned on the closing of
the Acquisition, the Debt Offering or the Direct Sale. See "Recent
Developments," "Use of Proceeds" and "Pro Forma Financial Data."
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997(1) DECEMBER 31, 1996(2)
--------------------------- ---------------------------
PRO FORMA PRO FORMA
PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ......................................... $1,090,970 $1,101,388 $2,162,381 $2,187,992
Operating revenues ..................................... 1,048,511 1,048,511 2,104,371 2,104,371
Income from operations before income taxes ............. 102,479 89,021 96,094 67,233
Interest expense, net of capitalized interest ......... 125,780 152,942 264,066 322,418
Net income ............................................. 53,591 54,860 54,106 33,974
Net income per share--primary .......................... .67 .92 .75 .65
Net income per share--fully diluted .................... .67 .89 .74 .64
Average number of common and common equivalent shares . 79,883 59,916 71,870 52,077
Fully diluted shares ................................... 86,269 66,352 72,712 52,919
BALANCE SHEET DATA:
Properties, plants, contracts and equipment, net ...... $3,666,627 $4,075,860 N/A N/A
Total assets ........................................... 7,049,061 7,085,545 N/A N/A
Subsidiary and project debt ............................ 2,276,539 2,765,062 N/A N/A
Total indebtedness ..................................... 3,230,356 4,068,879 N/A N/A
Convertible preferred securities of subsidiary
trusts(3) ............................................. 553,930 553,930 N/A N/A
Stockholders' equity ................................... 1,421,912 768,443 N/A N/A
OTHER FINANCIAL DATA:
Depreciation and amortization .......................... $ 137,912 $ 138,583 $ 203,348 $ 204,689
EBITDA(4)(5) ........................................... 382,100 396,475 585,749 616,581
Ratio of EBITDA to fixed charges(5) .................... 2.3 2.0 1.8 1.5
Ratio of earnings to fixed charges(6) .................. 1.5 1.3 1.2 1.0
</TABLE>
- ------------
(1) The Company's operations have historically been seasonal in nature,
with a disproportionate percentage of income earned in the quarter
ended September 30; therefore, operating results and ratios for interim
periods are not indicative of the results for the full year. As a
result of the acquisition of Northern, the Company's historical results
are expected to differ significantly from the Company's actual results
in the future.
(2) Reflects the acquisition as of January 1, 1996 of the remaining 50% of
the Partnership Projects (as defined herein) on April 17, 1996, the
acquisition of Falcon Seaboard Resources, Inc. on August 7, 1996 and
the acquisition of majority ownership of Northern by CE Electric (which
is 70% owned indirectly by the Company) on December 24, 1996. In March
1997, the Company completed the acquisition of Northern.
(3) Also sometimes referred to herein as the "1996 TIDES" and the "6 1/4%
Convertible Preferred Securities" or as "Company-obligated mandatorily
redeemable convertible preferred securities of subsidiary trusts."
Subsequent to June 30, 1997, a subsidiary trust issued an additional
$270 million of Company-obligated mandatorily redeemable convertible
preferred securities.
(4) EBITDA means earnings before interest, taxes, depreciation and
amortization.
(5) Information concerning EBITDA is presented here not as a measure of
operating results, but rather as a measure of the Company's ability to
service debt. EBITDA should not be construed as an alternative to
either (i) operating income (determined in accordance with GAAP) or
(ii) cash flow from operating activities (determined in accordance with
GAAP).
(6) For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent
the aggregate of (a) the pre-tax income of the Company, including its
proportionate share of the pre-tax income of the Coso Project (as
defined herein) (and for the year ended December 31, 1996 and the six
months ended June 30, 1997, the Partnership Projects (as defined
herein)), and (b) fixed charges, less capitalized interest. "Fixed
charges" represent interest (whether expensed or capitalized),
amortization of deferred financing and bank fees, and the portion of
rentals considered to be representative of the interest factor
(one-third of lease payments) and preferred stock dividend requirements
of major subsidiaries.
S-17
<PAGE>
THE BUSINESS OF THE COMPANY
GENERAL
The Company is a fast-growing global power company whose goal is to be a
leading provider of low cost energy services throughout the world as
governments privatize or deregulate electricity and gas markets. The Company
was founded in 1971 and, through its subsidiaries, manages and owns interests
in over 5,000 MW of power generation facilities in operation, construction
and development worldwide, including 20 generating facilities which it
currently operates. In addition, through its subsidiary, Northern, the
Company is engaged in the distribution of electricity to approximately 1.5
million customers primarily in northeast England as well as the supply of
electricity and gas (together with other related business activities)
throughout the United Kingdom. The following section sets out certain
information concerning the Company's power generation project portfolio, its
upstream gas operations and the electric utility it owns in England.
As is more fully discussed in the "Strategy" section at pages S-5 through
S-8 hereof, the Company's strategy is comprised of the following key
elements:
o Growth through international and domestic acquisitions.
o Growth through greenfield development of energy projects.
o Profit enhancement through operating efficiencies while maintaining
quality and reliability of service.
o Continued diversification of revenue base and fuel sources.
o Maintenance of prudent financial and risk management practices.
o Continued adherence to strict project evaluation criteria.
The Company currently has net ownership interests of an aggregate of (i)
1,527 MW in 21 projects in operation representing an aggregate net capacity
of 3,510 MW of electric generating capacity, (ii) 131 MW in four projects
under construction representing an aggregate net capacity of 335 MW of
electric generating capacity and (iii) 676 MW in eight projects in advanced
development stages with signed power sales agreements or under award
representing an aggregate net capacity of 1,630 MW of electric generating
capacity. As shown in the charts below, upon consummation of the pending
Acquisition, the Company will add to its portfolio over 1,000 MW of
generating capacity in operation, construction or development (including
approximately 850 net MW of operating, construction and advanced stage
development projects reflected in the charts on the inside front cover page
of this Prospectus Supplement).
S-18
<PAGE>
The following table sets out certain information concerning various
Company projects in operation, under construction and in development pursuant
to signed power sales agreements or awarded mandates.
INTERNATIONAL POWER GENERATION PROJECTS
PROJECTS IN OPERATION (1)
<TABLE>
<CAPTION>
CURRENT
FACILITY NET POST- PROJECT
NET OWNER ACQUISITION COMMERCIAL
FUEL CAPACITY INTEREST NET MW OPERATION CONTRACT CONTRACT
PROJECT SOURCE (IN MW)(2) (IN MW) OWNED LOCATION DATE EXPIRATION(3) TYPE
- ------------------- -------- ---------- ---------- ------------- ------------- ------------ ------------- ---------- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UPPER MAHIAO (5) .. GEO 119 119 119 LEYTE, THE 1996 CO+10 BUILD,
PHILIPPINES OWN
TRANSFER
MALITBOG (5) ....... GEO 216 216 216 LEYTE, THE 1996-97 CO+10 BUILD,
PHILIPPINES OWN
TRANSFER
MAHANAGDONG(5)(7) . GEO 165 74 149 LEYTE, THE 1997 CO+10 BUILD,
PHILIPPINES OWN
TRANSFER
TEESSIDE POWER
LIMITED ........... GAS 1,875 202 289 ENGLAND 1993 CO+15 NEGOT.
---------- ---------- -------------
TOTAL IN OPERATION 2,375 611 773
---------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
(RESTUBBED FROM ABOVE TABLE)
POLITICAL
RISK
INSURANCE
AND
PRIMARILY
POWER US$
PROJECT PURCHASER(4) CONTRACT
- ------------------- ------------ ---------
<S> <C> <C>
UPPER MAHIAO (5) .. PNOC- YES
EDC
(GOP)(6)
MALITBOG (5) ....... PNOC- YES
EDC
(GOP)(6)
MAHANAGDONG(5)(7) . PNOC- YES
EDC
(GOP)(6)
TEESSIDE POWER
LIMITED ........... VARIOUS NO
TOTAL IN OPERATION
</TABLE>
PROJECTS IN CONSTRUCTION
<TABLE>
<CAPTION>
CURRENT
FACILITY NET POST- PROJECT
NET OWNER ACQUISITION COMMERCIAL
FUEL CAPACITY INTEREST NET MW OPERATION CONTRACT CONTRACT
PROJECT SOURCE (IN MW)(2) (IN MW) OWNED LOCATION DATE EXPIRATION(3) TYPE
- ------------------- -------- ---------- ---------- ------------- ------------- ------------ ------------- ---------- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASECNAN(7)(8) ........ HYDRO 150 52 105 LUZON, THE 1999 CO+20 BUILD,
PHILIPPINES OWN
TRANSFER
DIENG UNIT I(4)(7) ... GEO 55 26 52 CENTRAL JAVA, 1997 CO+30 BUILD,
INDONESIA OWN
TRANSFER
PATUHA UNIT I(7)(10) . GEO 80 35 70 WESTERN JAVA, 1999 CO+30 BUILD,
INDONESIA OWN
TRANSFER
VIKING ................ GAS 50 18 25 ENGLAND 1998 CO+10 NEGOT.
---------- ---------- -------------
TOTAL IN CONSTRUCTION 335 131 252
---------- ---------- -------------
</TABLE>
(RESTUBBED FROM ABOVE TABLE)
<TABLE>
<CAPTION>
POLITICAL
RISK
INSURANCE
AND
PRIMARILY
POWER US$
PROJECT PURCHASER(4) CONTRACT
- ------------------- ------------ ---------
<S> <C> <C>
CASECNAN(7)(8) ...... NIA YES
(GOP)(6)
DIENG UNIT I(4)(7) . PLN YES
(GOI)
PATUHA UNIT I(7)(10) PLN YES
(GOI)
VIKING .............. NORTHERN NO
TOTAL IN CONSTRUCTION
</TABLE>
S-19
<PAGE>
PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS
<TABLE>
<CAPTION>
CURRENT
FACILITY NET POST- PROJECT
NET OWNER ACQUISITION COMMERCIAL
FUEL CAPACITY INTEREST NET MW OPERATION CONTRACT CONTRACT
PROJECT(9) SOURCE (IN MW)(2) (IN MW) OWNED LOCATION DATE EXPIRATION(3) TYPE
- ------------------- -------- ---------- ---------- ------------- ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIENG(10) .......... GEO 345 162 324 CENTRAL JAVA, 1998 CO+30 BUILD,
INDONESIA OWN
TRANSFER
PATUHA(10) ......... GEO 320 141 282 WESTERN JAVA, 1999 CO+30 BUILD,
INDONESIA OWN
TRANSFER
BALI(10) ........... GEO 400 120 240 BALI, 2000 CO+30 BUILD,
INDONESIA OWN
TRANSFER
IJEN(10) ........... GEO 400 120 240 BALI, 2001 CO+30 BUILD,
INDONESIA OWN
TRANSFER
ALTO PEAK .......... GEO 70 70 70 LEYTE, THE 1999 CO+10 BUILD,
PHILIPPINES OWN
TRANSFER
EXETER ............. GAS 50 18 25 ENGLAND 1999 CO+10 NEGOT.
TOTAL
CONTRACTED/AWARDED 1,585 631 1,181
---------- ---------- -------------
TOTAL INTERNATIONAL
PROJECTS .......... 4,295 1,373 2,206
========== ========== =============
</TABLE>
(RESTUBBED FROM ABOVE TABLE)
<TABLE>
<CAPTION>
POLITICAL
RISK
INSURANCE
AND
PRIMARILY
POWER US$
PROJECT(9) PURCHASER(4) CONTRACT
- ------------------- ------------ ---------
<S> <C> <C>
DIENG(10) .......... PLN YES
(GOI)
PATUHA(10) ......... PLN YES
(GOI)
BALI(10) ........... PLN YES
(GOI)
IJEN(10) ........... PLN YES
(GOI)
ALTO PEAK .......... PNOC-EDC YES
(GOP)(6)
EXETER ............. NORTHERN NO
TOTAL
CONTRACTED/AWARDED
TOTAL INTERNATIONAL
PROJECTS ..........
</TABLE>
- ------------
(1) The Company operates all such projects other than Teesside Power
Limited.
(2) Actual MW may vary depending on operating and reservoir conditions
and plant design. Facility Net Capacity (in MW) represents facility
gross capacity (in MW) less parasitic load. Parasitic load is
electrical output used by the facility and not made available for
sale to utilities or other outside purchasers. Net MW owned indicates
current legal ownership, but, in some cases, does not reflect the
current allocation of partnership distributions.
(3) Commercial Operation ("CO") plus number of years.
(4) PNOC-Energy Development Corporation ("PNOC-EDC"); Government of the
Philippines ("GOP"); P.T. PLN (Persero) ("PLN"); Government of
Indonesia ("GOI"); and Philippine National Irrigation Administration
("NIA"), Northern Electric plc ("Northern").
(5) Construction of these facilities has been completed and, accordingly,
these facilities have been "deemed complete" by PNOC-EDC and are
currently receiving the full capacity payments under the "take or
pay" provisions of their contracts with PNOC-EDC, pending NPC making
available to these projects a full capacity transmission line.
(6) Government of the Philippines undertaking supports PNOC-EDC's and
NIA's respective obligations.
(7) PKS has elected to exercise its ownership option pursuant to its
joint venture agreement with the Company which will be purchased as
part of the Acquisition.
(8) NIA also purchases water from this facility.
(9) Significant contingencies exist in respect of awards, including
without limitation, the need to obtain financing, permits and
licenses, and the completion of construction.
(10) See discussion of recent actions by the Government of Indonesia on
page S-31.
S-20
<PAGE>
DOMESTIC POWER GENERATION PROJECTS
PROJECTS IN OPERATION
<TABLE>
<CAPTION>
FACILITY
NET NET PROJECT
CAPACITY OWNERSHIP COMMERCIAL
FUEL (IN MW) INTEREST OPERATION CONTRACT CONTRACT POWER
PROJECT SOURCE (1)(2)(3) (IN MW) LOCATION DATE EXPIRATION TYPE PURCHASER(4)
- --------------------- -------- ---------- ----------- ------------------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I ............... Geo 88 41 China Lake, CA 8/1987 8/2011 SO4 Edison
BLM .................. Geo 88 42 China Lake, CA 3/1989 3/2019 SO4 Edison
Navy II .............. Geo 88 44 China Lake, CA 1/1990 1/2010 SO4 Edison
Vulcan ............... Geo 34 34 Imperial Valley, CA 2/1986 2/2016 SO4 Edison
Hoch (Del Ranch) .... Geo 38 38 Imperial Valley, CA 1/1989 12/2018 SO4 Edison
Elmore ............... Geo 38 38 Imperial Valley, CA 1/1989 12/2018 SO4 Edison
Leathers ............. Geo 38 38 Imperial Valley, CA 1/1990 12/2019 SO4 Edison
Salton Sea I ......... Geo 10 10 Imperial Valley, CA 7/1987 6/2017 Negot. Edison
Salton Sea II ........ Geo 20 20 Imperial Valley, CA 4/1990 4/2020 SO4 Edison
Salton Sea III ....... Geo 50 50 Imperial Valley, CA 2/1989 2/2019 SO4 Edison
Salton Sea IV ........ Geo 40 40 Imperial Valley, CA 6/1996 6/20/96 Negot. Edison
Saranac .............. Gas 240 180 Plattsburgh, NY 6/1994 6/2009 Negot. NYSEG
Power Resources ...... Gas 200 200 Big Spring, TX 6/1988 9/2003 Negot. TUEC
NorCon ............... Gas 80 64 Erie, PA 12/1992 12/2017 Negot. NIMO
Yuma Cogen............ Gas 50 50 Yuma, AZ 5/1994 5/2024 Negot. SDG&E
Roosevelt Hot Springs Gathered
(6).................. Geo 23 17 Milford, UT 5/1984 1/2021 Steam UP&L
Desert Peak .......... Geo 10 10 Desert Peak, NV 12/1985 Not FixedNegot. SPPC
----- ---
Total in Operation .. 1,135 916
===== ===
</TABLE>
PROJECTS IN CONSTRUCTION
None
PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS
<TABLE>
<CAPTION>
FACILITY
NET NET PROJECT
CAPACITY OWNERSHIP COMMERCIAL
FUEL (IN MW) INTEREST OPERATION CONTRACT CONTRACT POWER
PROJECT SOURCE (1)(2)(3) (IN MW) LOCATION DATE EXPIRATION(5) TYPE PURCHASER(4)
- --------------------- -------- ---------- ----------- ------------------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salton Sea Mineral
Extraction(7) ....... Geo 15 15 Imperial Valley, CA TBD TBD TBD TBD
Telephone Flat(7)(8) Geo 30 30 Siskiyou County, CA 2000 CO+20 Negot. BPA
----- -----
Total Contracted/
Awarded ............. 45 45
----- -----
Total Domestic
Projects ............ 1,180 961
----- -----
Total Projects ....... 5,475 2,334
----- -----
</TABLE>
- ------------
(1) Excludes royalty income received by Magma from the Mammoth and East
Mesa plants.
(2) Actual MW may vary depending on operating and reservoir conditions and
plant design. Facility Net Capacity (in MW) for projects in operation
represents gross electric output of the facility less the parasitic
load. Parasitic load is electrical output used by the facility and not
made available for sale to utilities or other outside purchasers. Net
MW owned indicates current ownership, but, in some cases, does not
reflect the current allocation of partnership distributions.
(3) With respect to the Vulcan, Hoch (Del Ranch), Elmore, Leathers, Salton
Sea I, Salton Sea II, Salton Sea III and Salton Sea IV Projects, this
represents nominal nameplate.
(4) Southern California Edison Company ("Edison"); San Diego Gas & Electric
Company ("SDG&E"); Utah
S-21
<PAGE>
Power & Light Company ("UP&L"); Sierra Pacific Power Company ("SPPC");
Bonneville Power Administration ("BPA"); New York State Electric & Gas
Corporation ("NYSEG"); Texas Utilities Electric Company ("TUEC"); and
Niagara Mohawk Power Corporation ("NIMO").
(5) Commercial Operation (CO) plus number of years.
(6) Represents the electrical equivalent of delivered steam.
(7) Actual MW may vary depending on operating and reservoir conditions and
final plant design. Significant contingencies exist in respect of
awards, including without limitation, the need to obtain financing,
permits and licenses, and the completion of construction.
(8) The Newberry project has been moved to Telephone Flat to take advantage
of better reservoir conditions at the latter location. A settlement
agreement has been executed with BPA to recognize the move, subject to
completion of certain activities including an environmental impact
statement.
PRODUCING GAS FIELD OPERATIONS AND FIELDS IN DEVELOPMENT
CE Gas UK Limited. CE Gas UK Limited ("CE Gas") is a gas exploration and
production company which is focused on developing integrated upstream gas
projects. Its "upstream gas" business consists of the exploration,
development and production, including transportation and storage, of gas for
delivery to a point of sale into either a gas supply market or a power
generation facility. CE Gas holds various interests in the southern basin of
the United Kingdom sector of the North Sea, as described below. Also as is
more fully discussed below, CE Gas has recently been involved in certain gas
development and exploration activities relating to a large gas field prospect
in Poland and the Gingin field in the Perth Basin in Australia.
THE COMPANY'S PRODUCING GAS FIELD OPERATIONS AND FIELDS IN DEVELOPMENT
<TABLE>
<CAPTION>
SHARE OF
PROVEN RESERVES CURRENT POST-ACQUISITION
PRODUCING GAS FIELDS BCF(1) % WORKING INTEREST % WORKING INTEREST LOCATION
- -------------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Windemere 17.0 14% 20% U.K. Offshore (North Sea)
Victor 11.8 3.5% 5% U.K. Offshore (North Sea)
Schooner 15.1 1.4% 2.07% U.K. Offshore (North Sea)
FIELDS IN
DEVELOPMENT(2) SIZE KM
- ----------------- ---------------
Gingin Concession 2,960 6.3% 9%(3) S.W. Australia Onshore (Perth Basin)
Pila Concession 14,000(4) 70% 100% N.W. Poland (Polish Trough)
</TABLE>
- ------------
(1) Gas reserves in Billion cubic feet (or "Bcf") as of December 31, 1996.
The Classification "Proven" means reserves which geophysical,
geological and engineering data indicate to be in place or recoverable
(as the case may be) to a high degree of certainty (90% probability the
reserves will exceed the estimate).
(2) No current Proven reserves. See further description of these
development projects at pages S-29 through S-33.
(3) Currently CE Gas beneficially owns 9% of Gingin Concession with a right
to earn up to a 50% working interest.
(4) Subject to 25% relinquishment after every 2 years during the 8 year
contract term based on work program results.
S-22
<PAGE>
Set forth below is a map setting forth the location of the Company's
North Sea producing gas interests, followed by certain additional information
concerning these producing gas interests:
[GRAPHIC OMITTED: MAP DEPICTING THE LOCATION OF THE COMPANY'S NORTH SEA
PRODUCING GAS INTERESTS]
Windemere Field (Producing). The Windemere Field is located in the Eastern
part of the Southern North Sea approximately 62 miles east of Hull on the UK
coast and has Proven reserves of 17 bcf net to CE Gas. The field is produced
by an unmanned platform which houses two wells. The gas is transported via an
8" pipeline from the Markham Field where it is processed, compressed and
delivered through the K13 pipeline system to the Den Helder terminal on the
Netherlands coast. CE Gas holds a 20% working interest in this field which
commenced production in April 1997 and currently has average daily production
of 5.48 MM scf (standard cubic feet). Gas is sold to N.V. Nederlandse
Gasunie.
Victor Field (Producing). The Victor gas field is located in the central
part of the Southern North Sea, approximately 80 miles east of the
Theddlethorpe terminal on the UK coast and has Proven reserves of 11.8 bcf
net to CE Gas. An unmanned platform is installed and the field produces from
5 production wells and a sixth subsea well tied back to the platform. The gas
is exported through a 16" pipeline to the Viking field and then onwards to
the Theddlethorpe shore terminal. The Victor field has been in production
since September 1984, and currently has average daily production of 10.67 MM
scf and sells its gas to British Gas Trading Limited. CE Gas holds a 5%
working interest in this field.
Schooner Field (Producing) The Schooner Field is located in the Northern
part of the Southern North Sea and has Proven reserves of 15.1 bcf. The field
is produced by an unmanned platform which is tied back through a 28km 16"
flowline to the Murdoch platform. Production is achieved from four wells with
a fifth well planned this year. The gas is transported through the CMS
pipeline to the Theddlethorpe shore terminal. CE Gas holds a 2.07% working
interest in the Schooner Field, which commenced production in October 1996
and currently has average daily production of 2.43 MM scf. The CE Gas share
of the gas is sold to its affiliate Northern.
S-23
<PAGE>
THE COMPANY'S DISTRIBUTION AND SUPPLY BUSINESS
(SELECTED DATA ON NORTHERN ELECTRIC PLC
AS OF AND FOR THE YEAR ENDED MARCH 31, 1997)
Operating Revenue ........................ pounds sterling 954.1 million
($1.5 billion)
Number of Customers ...................... 1.5 million
Kilometers of Distribution Lines ........ 43,211
Square Kilometers of Authorized Area .... 14,400
Northern Electric Distribution Limited. Northern Electric Distribution
Limited ("Northern Distribution"), a subsidiary of Northern, receives
electricity from the national grid transmission system and distributes
electricity to each customer's premises using Northern's network of
transformers, switchgear and cables. Substantially all of the customers in
Northern's authorized area are connected to Northern's network and can only
be supplied with electricity through the Northern distribution system,
regardless of whether the electricity is supplied by Northern's supply
business or by other suppliers, thus providing Northern with distribution
volume that is stable from year to year. Northern Distribution serves
approximately 1.5 million customers in Northern's area and charges its
customers access fees for the use of the distribution system.
At March 31, 1997, Northern's electricity distribution network (excluding
service connections to consumers) included approximately 17,000 kilometers of
overhead lines and approximately 26,000 kilometers of underground cables.
Substantially all substations are owned in freehold, and most of the balance
are held on leases which will not expire within 10 years. In addition to the
circuits referred to above, Northern's distribution facilities also include
approximately 24,000 transformers and approximately 23,000 substations.
Northern Electric Supply Limited. Northern Electric Supply Limited
("Northern Supply") focuses on Northern's supply business and is responsible
for marketing, tariff setting, contracts and customer service in connection
with the supply of both electricity and gas. Northern's supply business
involves the bulk purchase of electricity, primarily from the Pool (as
defined below), and subsequent sale to individual customers. Until March 31,
1998, each of the RECs is the exclusive supplier of electricity to customers
in its authorized area with a maximum demand of not more than 100kW
("Franchise Supply Customers"). The formula described below controls the
income that the supply business may receive from Franchise Supply Customers
and therefore the profits that can be derived from the supply of electricity
to Franchise Supply Customers. Supplies to other customers are not regulated
since the Director General of Electricity Supply (the "Regulator") believes
that the market in excess of 100kW is sufficiently competitive not to require
this. The current regulations that permit each of the RECs to be the
exclusive supplier in each of their authorized areas will expire as of March
31, 1998.
Under the terms of its public electricity supply ("PES") or "first tier"
license, Northern currently holds the right to supply approximately 1.5
million Franchise Supply Customers within Northern's authorized area. In
addition to competing for non-Franchise Supply Customers in its authorized
area, Northern holds a second tier license to compete with the RECs and other
suppliers to provide electricity to non-Franchise Supply Customers outside
its authorized area. Northern is one of the largest suppliers in the
competitive and open electricity market in the United Kingdom and supplies
customers in all 15 PES areas in Great Britain and Northern Ireland. Northern
supplies substantially more sites than it had previously supplied prior to
the beginning of open competition in the supply business in the United
Kingdom.
Northern Supply also competes to supply gas inside and outside its
authorized area.
Northern Utility Services Limited. Northern Utility Services Limited
("Northern Utility") is an engineering company whose role is to adapt,
maintain and restore the distribution network of Northern Distribution and to
sell related services to third parties. Northern Utility has been able to
make significant cost reductions for Northern during the past year by working
with suppliers in order to improve core processes, close selected depot
locations, increase staff productivity and reduce material and plant costs.
S-24
<PAGE>
Northern Utility has pioneered techniques using innovative diagnostic testing
equipment which reduces the need for intrusive maintenance. The equipment can
identify some of the causes of potential systems failures before breakdown
and subsequent loss of supply occurs. Also, the continued development in the
use of trenchless technology has brought both financial and environmental
benefits to Northern and its customers. While Northern Utility's largest
customer is Northern Distribution, it currently sells an average of
approximately 14% of its services to third parties. Northern Utility is
Northern's largest employer.
Northern Electric Retail Limited. Northern Electric Retail Limited
("Northern Retail"), a subsidiary of Northern, sells electrical and gas
appliances and provides account collection and customer services for
Northern's other businesses.
Northern Electric Generation Limited. Northern Electric Generation Limited
("Northern Generation"), a subsidiary of Northern, focuses on electricity
generation, primarily through its 15.4% stock ownership of Teesside Power
Limited, a company that owns and operates a 1,875 MW combined cycle gas-fired
power station. Northern takes 400 MW of electricity from the plant pursuant
to a 15 year contract.
Northern Metering Services Limited. Northern Metering Services Limited
("Northern Metering"), a subsidiary of Northern, provides meter supply,
installation, refurbishment and certification services as well as meter
operator and data collection services. Northern Metering has developed an
energy profiling system which helps businesses reduce costs through the more
efficient use of all fuels, not just electricity.
THE GLOBAL ENERGY MARKET
The opportunity for independent power generation has expanded from a
United States market consisting of cogeneration and small power production
projects to a global competitive market for power generation. Many foreign
countries have initiated restructuring and privatization policies that
encourage the development of independent power generation and, to a lesser
extent, independent distribution and supply of power. Internationally, large
amounts of new electric power generating capacity are required in developing
countries. The movement toward privatization in some developing countries has
created significant new markets outside the United States. In 1990 the World
Bank estimated that developing countries will need approximately 380,000 MW
of new power generating capacity through the end of the decade. The need for
such rapid expansion has caused many countries to select private power
development as their only practical alternative and to restructure their
legislative and regulatory systems to facilitate such development. The
Company believes that this significant need for power has created strong
local support for private power projects in many foreign countries and has
increased the availability of attractive long-term power contracts. The
Company intends to take advantage of opportunities in these new markets and
to develop, construct and acquire power generation, distribution and supply
and related energy projects meeting its strategic criteria outside the United
States.
In addition, as privatization, deregulation and restructuring initiatives
are enacted in various countries and states, the Company has identified a
number of promising opportunities to acquire power generation, distribution
and supply assets, as well as other energy related infrastructure assets.
These opportunities include bidding opportunities in connection with
privatization initiatives in the electric and gas distribution and supply
sectors in various countries, including principally South America and
Australia. The Company expects to see more of such acquisition opportunities
in additional markets in the future.
In pursuing its strategy, the Company presently intends to focus upon
development and acquisition opportunities in countries possessing certain
characteristics which meet the Company's investment criteria. At the present
time, the Company is active in the United States, the Philippines, Indonesia
and the United Kingdom and is pursuing development opportunities in Australia
and Poland. Set forth below is certain general information concerning the
present status of the energy markets in those countries in which the Company
currently has significant operations.
S-25
<PAGE>
The United States
In the United States, the independent power industry expanded rapidly in
the 1980s, facilitated by the enactment of the Public Utilities Regulatory
Policies Act ("PURPA"). PURPA was enacted to encourage the production of
electricity by non-utility companies (frequently referred to as independent
power companies) as well as to lessen reliance on imported fuels. According
to the Utility Data Institute, independent power producers were responsible
for the installation of approximately 30,000 MW of capacity, or 50%, of the
United States electric generation capacity that has been placed in service
since 1988. However, as the size of the United States independent power
market increased, available domestic power capacity and competition in the
industry also significantly increased and the need for new generating
capacity has been reduced.
During 1995 and 1996, many states began to accelerate the movement toward
more competition in many aspects of the electric power market, including
generation, transmission, distribution and supply. Extensive federal and
state legislative and regulatory reviews are presently underway in an effort
to further such competition. 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
independent system operator, and for direct access to generation for all
power purchasers outside the power exchange under certain circumstances. The
bill provides that existing qualifying facility power sales agreements will
be honored. Other states have or are expected to take similar steps aimed at
increasing competition by restructuring the electric industry, allowing
retail competition and deregulating most electric rates. In addition, recent
federal legislation has been proposed which would repeal PURPA and the Public
Utility Holding Company Act of 1935, as amended, respectively. The Company
cannot predict the final form or timing of the proposed industry
restructuring or the result on its operations. However, 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 (discussed
below) for competitive generation, transmission, distribution and supply of
energy. The Company further expects that the current effort to introduce
broader wholesale and retail competition in the United States will result in
a continuation and acceleration of the recent trend toward consolidation
among domestic utilities and independent power producers and an increase in
the trend toward disaggregation (or unbundling) of vertically integrated
utilities into separate generation, transmission and distribution businesses.
The Philippines
According to the 1995 Power Development Program (1995-2005) (the "PDP") of
the National Power Corporation of the Philippines ("NPC"), industrial growth,
a rising standard of living and an expanding power distribution network have
resulted in increased demand for electrical power in the Philippines by an
average of 6% per year since 1987. NPC has projected that over the next 10
years the need for additional generating capacity in the Philippines will
exceed 14,000 MW. Demand growth is expected to increase as industrialization
continues, living standards rise and the power distribution network expands.
According to the PDP, for the period 1996 to 2000, projected peak power
demand is estimated to increase by approximately 60%, 64%, and 90% for Luzon,
the Visayas, and Mindanao, respectively. For the country, total projected
peak power is estimated to increase by 3,826 MW or 65% from 1996 to 2000. For
the period 2001 to 2005, projected peak power is estimated to increase by
approximately 50%, 43%, and 59% for Luzon, the Visayas, and Mindanao,
respectively. For the country, total projected peak power is estimated to
increase by 5,459 MW or 51% from 2001 to 2005.
The PDP proposes to meet this demand by increasing the participation of
the private sector in power generation to 32% in 2000, and to 61% in 2005,
through direct sales to utilities by independent power producers and the use
of build-own-operate-transfer projects. NPC also will offer existing power
plants to the private sector through rehabilitate-operate-maintain and
rehabilitate-operate-lease arrangements.
Geothermal power has been identified as a preferred alternative by the
Government of the Philippines due to the domestic availability and the
minimal environmental effects of geothermal power in comparison to other
forms of power production.
S-26
<PAGE>
Indonesia
Indonesia, which has the world's fourth largest population, has
experienced rapid growth in electricity demand. The Company believes that
rapid expansion in industrial growth has created a backlog of unconnected
industrial users in excess of 4,000 MW. In its sixth five-year plan, the
Indonesian government has called for the addition of 12,000 MW of additional
generating capacity by 1999. The long range plan calls for an additional
15,000 MW to be added by the year 2004. The plans call for approximately 75%
of this capacity to be added by independent power producers. Although
Indonesia is a member of OPEC and is also the world's largest exporter of
liquefied natural gas, the Indonesian government has announced that it wishes
to maintain sufficient amounts of oil for export, which will require a shift
to coal fired generation and the use of other energy sources, such as
geothermal.
The main objective of Indonesia's electric energy policy has been to
secure a continuity of supply at reasonable rates for households (more than
50% of which have been reported to have no power) and to minimize the
utilization of hydrocarbons. Rural electrification will remain an important
component of the energy policy as PLN is targeting the addition of 2 million
customers a year.
Indonesia is rated "Baa3" by Moody's Investors Services, Inc. and BBB by
Standard & Poor's Ratings Services. The Company believes that Indonesia
represents an attractive development opportunity, as it combines growing
power needs with ample geothermal resources and creditworthy contract
parties. On September 20, 1997, the Indonesian Government announced a
Presidential Decree relating to private power projects. See "Projects in
Development--Indonesia."
The United Kingdom
GENERAL. The electricity industry in the United Kingdom has seen the
ongoing privatization of electric supply and distribution since 1990. The
Electricity Act of 1989 established an industry structure that permitted this
phased-in privatization to occur. Since that time, in England and Wales,
electricity is produced by generators, the largest of which are National
Power, PowerGen and British Energy. Electricity is transmitted through the
national grid transmission system by The National Grid Company plc ("NGC")
and distributed to customers by the twelve regional electric companies
("RECs") in their respective authorized areas. Most customers currently are
supplied with electricity by their local REC, although there are other
suppliers holding second tier supply licenses, including other generators and
RECs, who can compete to supply larger customers in that REC's authorized
area. Under the current licensing regime, after March 31, 1998, all
customers, including those who are currently Franchise Supply Customers, will
be free to choose their electricity supplier.
Virtually all electricity generated in England and Wales is sold by
generators and bought by suppliers through the Pool. A generator that is a
Pool member and also a licensed supplier must nevertheless sell all the
electricity it generates into the Pool, and purchase all the electricity that
it supplies from the Pool. Because Pool prices fluctuate, generators and
suppliers may enter into bilateral arrangements, such as contracts for
differences ("CFDs"), to provide a degree of protection against such
fluctuations.
DISTRIBUTION. Each of the RECs is required to offer terms for connection
to its distribution system to any person, for use of its distribution system
to any authorized electricity operator. In providing use of its distribution
system, a REC must not discriminate between its own supply business and that
of any other authorized electricity operator, or between those of other
authorized electricity operators; nor may its charges differ except where
justified by differences in cost.
Most revenue of the distribution business is controlled by a distribution
price control formula. The Retail Price Index ("RPI") used in this formula
reflects the average of the 12 month inflation rates recorded for the
previous July to December period. The distribution price control formula also
reflects an XD factor which is established by the Regulator following review
and is set at 3% from April 1, 1997. This formula determines the maximum
average price per unit of electricity distributed (in pence per kilowatt
hour) which a REC is entitled to charge. The distribution price control
formula permits RECs to partially retain additional revenues due to increased
distribution of units and a predetermined increase in customer numbers. The
price control does not seek to constrain the profits of a REC from year to
year. It is a control on income which operates independently of the REC's
costs. During the lifetime of the price
S-27
<PAGE>
control additional cost savings therefore contribute directly to profit. The
distribution prices allowable under the current distribution price control
formula are expected to be reviewed by the Regulator at the expiration of the
formula's scheduled five-year duration, effective as of April 1, 2000. The
formula may be further reviewed at other times in the discretion of the
Regulator.
SUPPLY. Subject to minor exceptions, all electricity customers in the
United Kingdom must be supplied by a licensed supplier. Licensed suppliers
purchase electricity and make use of the transmission and distribution
networks to achieve delivery to customers' premises.
There are two types of licensed suppliers: PES (or first tier) suppliers
and second tier suppliers. PESs are the RECs, Scottish Power and
Hydro-Electric, each supplying in its respective authorized area. Second tier
suppliers include National Power, PowerGen, British Energy, Scottish Power,
Hydro-Electric and other PESs supplying outside their respective authorized
areas. There are also a number of independent second tier suppliers.
At present, a Franchise Supply Customer can only buy electricity from the
PES authorized to supply the relevant authorized area. Franchise Supply
Customers typically include domestic and small commercial and small
industrial customers. Non-Franchise Supply Customers with demand over 100kW
are not limited to buying electricity from the local PES and can choose to
buy from a second tier supplier. Such customers are typically larger
commercial, agricultural and industrial electricity users. Second tier
suppliers compete with one another and with the local PES to supply customers
in this competitive (or "non-franchise") sector of the market.
The supply of electricity to Franchise Supply Customers is subject to
price control until March 31, 1998. The maximum permitted average charge per
unit supplied (in pence per kilowatt hour) is controlled by a formula whereby
certain costs are passed through in full (the Y term) to customers. The
permitted income per unit supplied in respect of the supply business' own
costs and margin increases (or decreases) each year by RPI--X (the "Supply
Price Control Formula") where X is currently 2%. RPI reflects the average of
the 12 month inflation rates recorded for the previous July to December
period. The X factor is established by the Regulator during the price control
review. The Y term is a pass-through of certain costs which are either
largely outside the control of the REC or have been regulated elsewhere. It
thus covers the REC's electricity purchase costs, including both direct Pool
purchase costs and costs of hedging, transmission charges made by NGC,
distribution charges made by its own and other REC distribution businesses
and other levies which are attributable to Franchise Supply Customers.
Associated with the deregulation occurring on March 31, 1998, a price cap
will be established for some of the current Franchise Supply Customers.
THE POOL. The Pool was established at the time of privatization for bulk
trading of electricity in England and Wales between generators and suppliers.
The Pool reflects two principal characteristics of the physical generation
and supply of electricity from a particular generator to a particular
supplier. First, it is not possible to trace electricity from a particular
generator to a particular supplier. Second, it is not practicable to store
electricity in significant quantities, creating the need for a constant
matching of supply and demand. Subject to certain exceptions, all electricity
generated in England and Wales must be sold and purchased through the Pool.
All licensed generators and suppliers must become and remain signatories to
the Pooling and Settlement Agreement, which governs the constitution and
operation of the Pool and the calculation of payments due to and from
generators and suppliers. The Pool also provides centralized settlement of
accounts and clearing. The Pool does not itself buy or sell electricity.
Prices for electricity are set by the Pool daily for each one-half hour of
the following day based on the bids of the generators and a complex set of
calculations matching supply and demand and taking account of system
stability, security and other costs. A computerized system (the settlement
system) is used to calculate prices and to process metered, operational and
other data and to carry out the other procedures necessary to calculate the
payments due under the Pool trading arrangements. The settlement system is
administered on a day-to-day basis by Energy Settlements and Information
Services, Limited, a subsidiary of NGC, as settlement system administrator.
S-28
<PAGE>
The price control regulations which govern the authorized area supply
market permit the pass-through to customers of certain permitted costs, which
include the cost of arrangements such as CFDs to hedge against Pool price
volatility. Generally, CFDs are contracts between generators and suppliers
that have the effect of fixing the price of electricity for a contracted
quantity of electricity over a specific time period. Differences between the
actual price set by the Pool and the agreed prices give rise to difference
payments between the parties to the particular CFD. At any time, Northern's
forecast franchise supply market demand is substantially hedged through
various types of agreements including CFDs.
PROJECTS IN DEVELOPMENT
The following is a summary description of certain information concerning
the Company's advanced stage development projects. Since these projects are
still in development there can be no assurance that this information will not
change materially over time. In addition, there can be no assurance that
development efforts on any particular project, or the Company's development
efforts generally, will be successful. See also "Risk Factors" contained in
the accompanying Prospectus.
EUROPEAN REGION: PROJECTS IN DEVELOPMENT
Exeter. Exeter Power Limited ("Exeter") is a company owned 50% by Northern
Electric Generation Limited and 50% by Rolls-Royce Power Ventures. Exeter is
a project to construct a 50 MW gas-fired power plant at Exeter, England. This
project is based upon the U.K. "Mid-merit" model (described below) and will
be managed and operated by Northern upon commercial operation. The power
purchase contract and permits for the project are currently being finalized.
U.K. Mid-merit Projects. The Company, through Northern Generation, is
pursuing a number of "Mid-merit" project opportunities in addition to Exeter
and Viking (which is under construction), in conjunction with and separate
from Rolls Royce. "Mid-merit" projects are those projects which have
generation units having a registered capacity of 50MW or less. As a result,
these projects only require local planning permission and limited central
government permits. In addition, these projects are connected to the local
distribution system and not the National Grid, which means these projects do
not have to be a member of the Pool and pay generator related grid and Pool
charges.
These Mid-merit generating projects are also not subject to central
dispatch by the National Grid and therefore allow for the potential of gas
arbitrage between the electricity day-ahead pool market and the within-day
gas spot market. Northern supplies gas to these projects through a gas
tolling contract arrangement.
Finally, these projects are based on open (simple) cycle aero derivative
gas turbines which are ideally suited to multiple start/stop operations. This
flexible capability provides significant economic benefits to Northern's
electricity supply business in buying electricity from the Mid-merit plant
and avoiding pool purchases at high pool price times and making Pool
purchases when the Pool price is below the Mid-merit plant's marginal costs.
U.K. On-Shore Gas Storage: The Company, through CE Gas, is pursuing a
number of gas storage opportunities in the U.K. to integrate with its North
Sea upstream gas production operations.
Poland. In August 1997, CE Gas signed an eight year concession development
agreement with the Polish government providing it with the exclusive right (a
100% working interest) to develop the extensive (14,000 square kilometers)
undeveloped Pila gas concession in the Polish Trough in northwest Poland. CE
Gas is committed to a seismic and drilling work program to develop producing
areas within the concession over that period, subject to relinquishment of up
to 25% of the concession area after every two years, with only developed
areas to be retained by CE Gas at the end of the eight year term. The Company
believes that there is the potential to structure an integrated upstream
gas/power generation project at the Pila concession, subject to (among other
things) identifying a suitable site and negotiating an acceptable power
offtake agreement.
S-29
<PAGE>
[GRAPHIC OMITTED: MAP DEPICTING ASIA REGION: PROJECTS IN DEVELOPMENT]
ASIA REGION: PROJECTS IN DEVELOPMENT
PHILIPPINES
Alto Peak. The Alto Peak Project is a smaller geothermal project in the
same general area of Leyte as the Upper Mahiao, Mahanagdong and Malitbog
Projects. A subsidiary of the Company and PNOC-EDC have executed a 70 net MW
Energy Conversion Agreement, dated May 7, 1994. The general terms and
conditions are similar to the Malitbog Energy Conversion Agreement ("ECA").
However, the plant design has not been initiated because PNOC-EDC has not
finalized the steam conditions (pressure, composition and pH). PNOC-EDC is
still drilling and testing the geothermal wells that will supply steam to
such project. Consequently, the ECA has been extended and the Company has not
commenced financing arrangements for the Alto Peak Project.
INDONESIA
Dieng, Patuha and Bali. The Company's Dieng, Patuha and Bali projects in
Indonesia represent ongoing, phased-in development and construction programs
through the year 2000 of 1,200 MW under contract, to be brought into
commercial operation on a modular basis as the steam fields are concurrently
drilled and developed. On June 12, 1997, the Company announced that its
special-purpose subsidiary, CE Indonesia Funding Corp., entered into a $400
million revolving credit facility (which is nonrecourse to the Company) to
finance the development and construction of the Company's geothermal power
facilities at the Dieng, Patuha and Bali sites in Indonesia.
Dieng. Pursuant to the Dieng Joint Operating Contract and Energy Sales
Contract, the Company intends to proceed on a modular basis with construction
of additional units to follow Dieng Unit I,
S-30
<PAGE>
resulting in an aggregate first phase net capacity at this site of 215 MW.
The Company estimates that the total project cost of these units will be
approximately $450 million. The next phase is expected to expand the total
capacity to 400 MW. The cost of the full Dieng Project is estimated to
approximate $1 billion.
Patuha. The Company is also developing a geothermal power plant in the
Patuha geothermal field in Java, Indonesia (the "Patuha Project") pursuant to
a joint operation contract and an energy sales contract, each of which
contains terms substantially similar to those described above for the Dieng
Project. Patuha Power Ltd. intends to proceed on a modular basis similar to
the Dieng Project, with an aggregate capacity of up to 400 MW. The Company
estimates that the total cost of the Patuha Project will be approximately $1
billion.
Bali. The Company and PT Panutan Group, an Indonesian consortium of
energy, oil, gas and mining companies, have formed a joint venture to pursue
the development of geothermal resources in Bali (the "Bali Project"). The PT
Panutan Group is entitled to contribute up to 40% of the total equity and
obtain up to 40% of the net profit of the Bali Project. The project company
developing the Bali Project has executed both a joint operation contract and
an energy sales contract with terms similar to those at Dieng and Patuha.
Bali Energy Ltd. intends to proceed on a modular basis similar to the Dieng
Project, with an aggregate capacity of up to 400 MW. The Company estimates
that the total cost of the Bali Project will be approximately $1 billion.
Ijen. The Ijen Project is a new 400 MW development project with the same
ownership structure as the Bali Project. The joint operation contract, energy
sales contract and major permits currently are being negotiated.
Recent Indonesian Governmental Announcement Regarding Power Projects in
Indonesia. On September 20, 1997, a Presidential Decree was issued in
Indonesia, providing for government action to the effect that, in order to
address certain recent fluctuations in the value of the Indonesian currency,
the start-up dates for a number of private power projects would be: (i)
continued according to their initial schedule (because construction process
was underway), (ii) postponed as to their start-up dates (because they are
not yet in progress) until economic conditions have recovered, or (iii)
reviewed with a view to being continued, postponed or rescheduled, depending
on the status of those projects. In the Decree, Dieng Units 1, 2 and 3 are
approved to continue according to their initial schedule; Patuha Unit 1 and
Bali Units 1 and 2 are to receive further review to determine whether or not
they should be continued in accordance with their initial schedule; and Bali
Units 3 and 4, Patuha Units 2, 3 and 4 and Dieng Unit 4 are to be postponed
for an unspecified period. In this regard, the Company notes that its
contracts and government undertakings for the Dieng, Patuha and Bali projects
do not by their terms permit such delays by the government and that the
Company has obtained political risk insurance coverage for its Indonesian
projects, as described in this Prospectus Supplement. Moreover, since the
Indonesian Minister of Finance has publicly stated and other officials in the
Government of Indonesia have stated to the Company that the Indonesian
government does not intend to impact the schedule of any projects for which
financing has already been arranged or on which construction related work has
already commenced, and since all of the Company's projects in the "future
review category" meet one or both of those standards, the Company believes
that the schedule for these projects should not be delayed. The Company does
not believe that any delay in the "postponed" category of projects will have
a material adverse effect on its planned operations in Indonesia, since all
but one of these units were not scheduled to commence construction until
after 1998. The Company believes that, given Indonesia's demonstrated need
for power and its emphasis on diversifying fuel sources and maintaining
sufficient amounts of oil for export, the Company's projects are
significantly advantaged by their indigenous geothermal fuel source and will
all proceed. However, until further information is made available by the
Indonesian government with respect to the projects that are under review or
postponed, no assurance can be given that such will be the case.
AUSTRALIA
Gingin Gas Field. In August 1997, CE Gas signed an earn-in agreement with
Empire Gas of Australia, the permit holder for various concession areas in
the Gingin field in the Perth Basin in Western Australia. The earn-in
agreement provides CE Gas with the ability, through a seismic and drilling
phased work program, to obtain up to a 50% working interest in the main
concession area totaling 2,960 square
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<PAGE>
kilometers and up to a 33% working interest in four ancillary concession
areas totaling 9,451 square kilometers. Gingin gas reserves are estimated by
Empire Gas to be 470 Bcf. Given the advantages of the location of the Gingin
field, in close proximity to an industrial area and electric residential load
center, the Company believes that the Gingin field possesses the potential
for an integrated upstream gas/power generation project.
Western Australia offers significant growth potential in the energy
sector. Set forth below is a map showing the location and certain other
information relevant to the Gingin development project:
[GRAPHIC OMITTED: MAP DEPICTING WESTERN AUSTRALIAN DAMPIER TO BUNBURY PIPELINE
AND GAS AND OIL FIELDS]
Both electricity and gas are in the process of being opened up for
competition. 95% of all gas to SW Australia is currently supplied from the NW
shelf (Dampier to Bunbury pipeline--1500km). The Onshore Perth Basin is known
to be gas prone but has been significantly underexplored and underdeveloped.
Historically, gas has been a state controlled energy sector in Australia. The
Gingin field proved gas in the early 1970s. The Company believes that new
technologies now offer the potential for extracting significant gas reserves
through more advanced recovery methods, and the Company, which currently
beneficially owns a 6.3% interest in the Gingin Concession, has the right to
earn up to a 50% working interest under its phased seismic and drilling work
program with Empire Gas of Australia.
AMERICAS REGION: PROJECTS IN DEVELOPMENT
UNITED STATES
Salton Sea Minerals Extraction. The Company has developed a process
providing for the extraction of minerals from elements in solution in the
geothermal brine and fluids utilized at its Imperial Valley plants (the
"Salton Sea Extraction Project") as well as the production of power to be
used in the
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<PAGE>
extraction process. The initial phase of the project would require delivery
of approximately 15 MW of power. A pilot plant has successfully produced
commercial quality zinc at the Company's Imperial Valley Project, which
consists of the Company's Salton Sea I, Salton Sea II, Salton Sea III and
Salton Sea IV projects (collectively, the "Salton Sea Projects") and Vulcan,
Hoch (Del Ranch), Elmore and Leathers projects (collectively, the
"Partnership Projects"). The Company intends to sequentially develop boron,
lithium, manganese, gold and other products as it further develops the
extraction technology. If successfully developed, the mineral extraction
process will provide an environmentally compatible and low cost minerals
recovery methodology.
Telephone Flat. Under a Bonneville Power Administration ("BPA") geothermal
pilot program, the Company has been developing a 30 MW net geothermal project
which was originally located in the Newberry Known Geothermal Resource Area
in Deschutes County, Oregon (the "Telephone Flat Project"). Pursuant to two
power sales contracts executed in September 1994, an affiliate of the Company
agreed to sell 20 MW to BPA and 10 MW to Eugene Water and Electric Board
("EWEB") from the Telephone Flat Project. In addition, BPA and EWEB together
have an option to purchase up to an additional 100 MW of production from the
project under certain circumstances. These power sales contracts provide that
under certain circumstances the contracts may be utilized at an alternative
location. Pursuant to its resource exploration program, the Company has
determined that the geothermal resource at Newberry is not sufficient to
support the contracts and accordingly has determined to utilize the contracts
at its leasehold position in Telephone Flat in northern California, where it
has two successful production wells. The BPA contract arrangements have been
amended to reflect the relocation of the project to Telephone Flat. Under the
amended BPA contract arrangements, BPA will purchase 30 MW from the project.
The movement of the project to this alternative location and BPA's purchase
obligation are subject to obtaining a final environmental impact statement
relating to the new site location.
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<PAGE>
MANAGEMENT
EXECUTIVE AND OTHER OFFICERS OF THE COMPANY
The Company's management structure is organized functionally into three
geographic regions and a corporate group (including its accounting, finance,
insurance, legal and planning functions) as indicated below:
----------------
David L. Sokol
Chairman and CEO
----------------
|
--------------------------------------------------------------
| | | |
- --------------------- ------------------- ------------------- ------------
CE Corporate
CE Asia CE Americas CE Europe o accounting
Donald M. O'Shei, Jr. Thoman R. Mason Gregory E. Abel o finance
(President and COO) (President and COO) (President and COO) o insurance
o legal
o planning
- --------------------- ------------------- ------------------- ------------
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- ----- -------------------------------------------------------------
<S> <C> <C>
CE ASIA
Donald M. O'Shei, Jr.* 37 President and Chief Operating Officer, CalEnergy Asia
David A. Baldwin ....... 33 Vice President, Development, CalEnergy Asia
Darcelle C. Lahr ....... 34 Vice President, Construction, CalEnergy Asia
Bruce D. Lundstrom .... 34 Vice President and Assistant Secretary, CalEnergy Asia
Frederick L. Manuel ... 38 Vice President, Indonesia
James D. Stallmeyer ... 40 General Counsel, CalEnergy Asia and Vice President/General
Manager, Philippines and Assistant General Counsel, CalEnergy
CE AMERICAS
Thomas R. Mason* ....... 53 President and Chief Operating Officer, CalEnergy Americas
Douglas L. Anderson ... 39 General Counsel, CalEnergy Americas and Assistant General
Counsel and Assistant Secretary, CalEnergy
Edward J. Heinrich .... 44 Vice President, Gas Operations, CalEnergy Americas
Donald C. Blachly ...... 49 Vice President, Geothermal Operations, CalEnergy Americas
Jonathan M. Weisgall .. 47 Vice President, Legislative and Regulatory Affairs
CE EUROPE (AND UPSTREAM
GAS DEVELOPMENT)
Gregory E. Abel* ....... 35 President and Chief Operating Officer, CalEnergy Europe and
Chief Accounting Officer
Eric Conner ............ 48 Managing Director, Northern Electric Utility Services Ltd.
Malcolm Chandler ....... 54 Managing Director, Northern Electric Supply Ltd.
John France ............ 40 Regulation Director, Northern Electric plc
Dr. Philip Lawless .... 35 Managing Director, Northern Electric Generation Ltd.
David Swan ............. 52 Managing Director, Northern Utility Distribution Ltd.
Peter Youngs ........... 42 Managing Director, CE UK Gas, Inc., and Upstream Gas
Development (Europe & Asia)
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- ----- -------------------------------------------------------------
<S> <C> <C>
CORPORATE (AND AMERICAS
DEVELOPMENT)
David L. Sokol* ........ 40 Chairman of the Board and Chief Executive Officer
Edward F. Bazemore* ... 60 Vice President, Human Resources
J. Douglas Divine ...... 40 Vice President, Strategic Planning
Vincent R. Fesmire .... 56 Vice President, Construction and Engineering
Adrian M. Foley III ... 50 Vice President, Marketing
Patrick J. Goodman .... 30 Controller
Craig M. Hammett* ...... 36 Vice President and Chief Financial Officer
Brian K. Hankel ........ 35 Treasurer
Steven A. McArthur* ... 39 Senior Vice President, General Counsel and Secretary
Robert S. Silberman* .. 39 Senior Vice President, Marketing, Implementation and
Strategic Planning
</TABLE>
- -----------------------
* Indicates an Executive Officer of the Company
<TABLE>
<CAPTION>
<S> <C> <C>
CALENERGY BOARD OF
DIRECTORS
David L. Sokol ......... 40 Director
Edgar D. Aronson ....... 62 Director
Judith E. Ayres ........ 53 Director
Richard K. Davidson ... 55 Director
David Dewhurst ......... 53 Director
Richard R. Jaros ....... 45 Director
David R. Morris ........ 62 Director
Bernard W. Reznicek ... 60 Director
Walter Scott, Jr. ...... 65 Director
John R. Shiner ......... 53 Director
Neville G. Trotter .... 65 Director
David E. Wit ........... 35 Director
</TABLE>
Set forth below is certain information with respect to each of the
foregoing officers and directors:
EXECUTIVE OFFICERS
DAVID L. SOKOL, Chairman of the Board and Chief Executive Officer. Mr.
Sokol has been CEO since April 19, 1993 and served as President of the
Company from April 19, 1993 until January 21, 1995. He has been Chairman of
the Board of Directors since May 1994. Mr. Sokol has been a director of the
Company since March 1991. Formerly, Mr. Sokol was Chairman, President and
Chief Executive Officer of the Company from February 1991 until January 1992.
Mr. Sokol was the President and Chief Operating Officer of, and a director
of, JWP, Inc., from January 27, 1992 to October 1, 1992. From November 1990
until February 1991, Mr. Sokol was the President and Chief Executive Officer
of Kiewit Energy Company, currently the largest shareholder of the Company
and a wholly owned subsidiary of PKS.
GREGORY E. ABEL, President and Chief Operating Officer, CalEnergy Europe
and Chief Accounting Officer of the Company. Mr. Abel joined the Company in
1992. Mr. Abel is a Chartered Accountant and from 1984 to 1992 he was
employed by Price Waterhouse. As a Manager in the San Francisco office of
Price Waterhouse, he was responsible for clients in the energy industry.
EDWARD F. BAZEMORE, Vice President, Human Resources. Mr. Bazemore joined
the Company in July 1991. From 1989 to 1991, he was Vice President, Human
Resources, at Ogden Projects, Inc. in New Jersey. Prior to that, Mr. Bazemore
was Director of Human Resources for Ricoh Corporation, also in New Jersey.
Previously, he was Director of Industrial Relations for Scripto, Inc. in
Atlanta, Georgia.
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<PAGE>
CRAIG M. HAMMETT, Vice President and Chief Financial Officer. Mr. Hammett
joined the Company in 1996. Prior to joining the Company, Mr. Hammett served
as Director of Project Finance for Energy Power group, as Director, Project
Finance and M&A for CSW Energy and as a corporate loan officer for various
financial institutions.
THOMAS R. MASON, President and Chief Operating Officer, CalEnergy
Americas. Mr. Mason joined the Company in March 1991. From October 1989 to
March 1991, Mr. Mason was Vice President and General Manager of Kiewit Energy
Company. Prior to that, Mr. Mason was Director of Marketing for Energy
Factors, Inc. (now Sithe Energies U.S.A., Inc.), a non-utility developer of
power facilities. Prior to that Mr. Mason was a worldwide Market Manager of
power generation for Caterpillar's Solar Gas Turbines, a gas turbine
manufacturer.
STEVEN A. McARTHUR, Senior Vice President, General Counsel and Secretary.
Mr. McArthur joined the Company in February 1991. From 1988 to 1991 he was an
attorney in the Corporate Finance Group at Shearman & Sterling in San
Francisco. From 1984 to 1988 he was an attorney in the Corporate Finance
Group at Winthrop, Stimson, Putnam & Roberts in New York.
DONALD M. O'SHEI, JR., President and Chief Operating Officer, CalEnergy
Asia. Mr. O'Shei joined the Company in August 1992. Prior to 1997, he served
as General Manager--Indonesia and Vice President of CE International
Investments, Ltd. for the Company. From 1991 to 1992, he was employed by
Proven Alternatives Capital Corporation as a Financial Analyst. Prior to
1991, Mr. O'Shei served in the U.S. Army in the Special Forces, Airborne and
Pathfinder Units.
ROBERT S. SILBERMAN, Senior Vice President, Marketing, Implementation and
Strategic Planning. Mr. Silberman joined the Company in 1995. Prior to that,
Mr. Silberman served as Executive Assistant to the Chairman and Chief
Executive Officer of International Paper Company, as Director of Project
Finance and Implementation for the Ogden Corporation and as a Project Manager
in Business Development for Allied-Signal, Inc. He has also served as the
Assistant Secretary of the Army for the United States Department of Defense.
OTHER OFFICERS
DOUGLAS L. ANDERSON, Assistant General Counsel and Assistant Secretary,
CalEnergy and General Counsel, CalEnergy Americas. Mr. Anderson joined the
Company in February 1993. From 1990 to 1993, Mr. Anderson was a business
attorney with Fraser, Stryker, Vaughn, Meusey, Olson, Boyer & Bloch, P.C. in
Omaha. From 1987 through 1989, Mr. Anderson was a principal in the firm
Anderson & Anderson. Prior to that, from 1985 to 1987, he was an attorney
with Foster, Swift, Collins & Coey, P.C. in Lansing, Michigan.
DAVID A. BALDWIN, Vice President, Development, CalEnergy Asia. Mr. Baldwin
joined the Company in June 1997. From December 1996 to June 1997, Mr. Baldwin
served as Vice President, Project Development for Asia Power Ltd. in Hong
Kong. From October 1994 to December 1996, Mr. Baldwin was Project Director at
SouthPac Corporation Ltd. in New Zealand and, prior to that, he held a series
of project management and engineering positions at Shell International in the
Netherlands and New Zealand.
DONALD C. BLACHLY, Vice President, Geothermal Operations, CalEnergy
Americas. Mr. Blachly joined the Company in June 1993. Prior to that Mr.
Blachly had been employed by Santa Fe Geothermal and the Sacramento Municipal
Utility District in various management and engineering capacities.
MALCOLM CHANDLER, Managing Director, Northern Electric Supply Ltd. Mr.
Chandler joined Northern in 1970 from Manweb as Tariffs Engineer. His
management positions have included Tariffs & Supplies Manager, Regional
Manager and Director of Tariffs & Contracts.
ERIC CONNOR, Managing Director, Northern Electric Utility Services Ltd.
Mr. Connor joined Northern in 1992 as a Director. Prior to joining Northern,
he was a Director at NEI Reyrolle Ltd. and prior to that, he held the
following appointments: deputy group head of engineering, National Nuclear
Corporation; manager computer systems, NEI Electronics (C&I Systems); systems
engineer, Davy-
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<PAGE>
Leowy; software engineer, Marconi Space & Defence; mathematics teacher, North
Tyneside; manufacturing engineer, Electrosil; and apprentice electrician,
National Coal Board.
J. DOUGLAS DIVINE, Vice President, Strategic Planning. Mr. Divine joined
the Company in September 1996. Prior to that, he was Director of Planning and
Regulatory Affairs with Falcon Seaboard Resources Inc. from 1990 to 1996.
From 1987 to 1990, he was Senior Manager of Management Consulting Services
with Price Waterhouse; from 1984 to 1986 Mr. Divine was Director of
Operations Review Divisions and Executive Assistant to Commissioner of the
Public Utility Commission of Texas; and from 1983 to 1984, he was Coordinator
of Revenue and Economic Analysis for the Governor's Office, State of Texas.
VINCENT R. FESMIRE, Vice President, Construction and Engineering. Mr.
Fesmire joined the Company in October 1993. Since joining CalEnergy, Mr.
Fesmire's responsibilities have shifted from project development and
implementation to construction in parallel with the status of the Company's
projects. Prior to joining the Company, Mr. Fesmire was employed for 19 years
with Stone & Webster, an engineering firm, serving in various management
level capacities with an expertise in geothermal design engineering.
JOHN FRANCE, Regulation Director, Northern Electric plc. Mr. France joined
Northern in 1989. From 1982 to 1989, Mr. France held a number of regulatory
positions with British Gas.
ADRIAN M. FOLEY, III, Vice President, Marketing. Mr. Foley joined the
Company in January 1994 as Project Development Manager and continued in that
capacity until January 1997 when he was promoted to Vice President,
Marketing. Prior to joining CalEnergy, Mr. Foley was Regional Manager,
Business Development with Ogden Projects, Inc. from 1989 to 1993 and
Executive Vice President with Rescom Development Company from 1980 to 1989.
PATRICK J. GOODMAN, Controller. Mr. Goodman joined the Company in June
1995, and served as Manager of Consolidation Accounting until September 1996
when he was promoted to Controller. Prior to joining the Company, Mr. Goodman
was an accountant at Coopers & Lybrand.
BRIAN K. HANKEL, Treasurer. Mr. Hankel joined the Company in February 1992
as Treasury Analyst and served in that position to December 1995. Mr. Hankel
was appointed to Assistant Treasurer in January 1996 and was appointed
Treasurer in January 1997. Prior to joining the Company, Mr. Hankel was a
Money Position Analyst at FirsTier Bank of Lincoln from 1988 to 1992 and
Senior Credit Analyst at FirsTier from 1987 to 1988.
EDWARD J. HEINRICH, Vice President, Gas Operations, CalEnergy Americas.
Mr. Heinrich joined the Company in November 1993. Prior the joining the
Company Mr. Heinrich was plant supervisor with Sithe Energies, Inc. and prior
to that he was with the United States Navy.
DARCELLE C. LAHR, Vice President, Construction, CalEnergy Asia. Ms. Lahr
joined the Company in March 1990. Ms. Lahr was most recently responsible for
the management, implementation and construction of the Mahanagdong geothermal
power plant on the island of Leyte, Philippines. From 1984 to 1990 she worked
in various engineering and management capacities in the Mechanical and
Nuclear Engineering Department with Pacific Gas & Electric in San Francisco.
DR. PHILIP LAWLESS, Managing Director, Northern Electric Generation Ltd.
Mr. Lawless joined Northern in 1989 as Contract Development Officer (Power
Purchase). His previous positions in Northern include Project Manager--TPL
and Generation Projects Manager. Prior to joining Northern, he worked at NEI
Parsons Ltd, where he held various positions, and North Kalgurlie Mines Ltd
Australia, as an Assistant Plant Metallurgist.
BRUCE D. LUNDSTROM, Vice President and Assistant Secretary, CalEnergy
Asia. Mr. Lundstrom joined CalEnergy in May 1995. From October 1989 until May
1995, Mr. Lundstrom was an attorney with Luce, Forward, Hamilton & Scripps in
San Diego, California.
FREDERICK L. MANUEL, Vice President, Indonesia. Mr. Manuel joined the
Company in 1991. Prior to that, he was employed by Chevron Corporation with
responsibilities including land and offshore drilling, reservoir and
production engineering, project management and technical research.
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<PAGE>
JAMES D. STALLMEYER, Vice President/General Manager, Philippines and
General Counsel, CalEnergy, Asia and Assistant General Counsel, CalEnergy.
Mr. Stallmeyer joined the Company in 1993. Mr. Stallmeyer practiced in the
public finance and banking areas at Chapman and Cutler in Chicago from 1984
to 1987 and in the corporate finance department from 1989 to 1993. Prior to
that, Mr. Stallmeyer was an attorney in the public finance department of the
Chicago office of Skadden, Arps, Slate, Meagher & Flom in 1987 and 1988 and
was a legal writing instructor at the University of Illinois College of Law
in 1988 and 1989.
DAVID SWAN, Managing Director, Northern Electric Distribution Ltd. Mr.
Swan joined Northern in 1966 and has held posts in varying disciplines
including distribution, engineering design, operations, customers
engineering, customer relationships, engineering contracting, logistics,
computer systems development and project management.
JONATHAN WEISGALL, Vice President, Legislative and Regulatory Affairs. Mr.
Weisgall joined the Company in May 1995. Prior to that, Mr. Weisgall was an
attorney in private practice with extensive energy and regulatory experience
and is currently Adjunct Professor of Energy Law at Georgetown University Law
Center.
PETER YOUNGS, Managing Director, CE UK Gas, Inc., and Upstream Gas
Development. Mr. Youngs joined Neste Oy in 1974 as a Geoscientist and held
the following positions within the company: International Exploration
Manager, General Manager (Europe-Africa Region), Vice President and Managing
Director UKEXPRO. From 1994 to present, he has been the General Manager of
Sovereign Exploration Ltd.
CALENERGY BOARD OF DIRECTORS
DAVID L. SOKOL, Director. (See above biographical reference in Executive
Officers.)
EDGAR D. ARONSON, Director. Mr. Aronson has been a director of the Company
since April 1983. Mr. Aronson founded EDACO Inc., a private venture capital
company in 1981, and has been President of EDACO since that time. Prior to
that, Mr. Aronson was Chairman of Dillon, Read International from 1979 to
1981 and a General Partner in charge of the International Department at
Salomon Brothers Inc. from 1973 to 1979.
JUDITH E. AYRES, Director. Ms. Ayres has been a director of the Company
since July 1990. Since 1990, Ms. Ayres has been Principal of The
Environmental Group, an environmental consulting firm in San Francisco,
California. From 1988 to 1989, Ms. Ayres was a Vice President of William D.
Ruckelshaus Associates, an environmental consulting firm. From 1983 to 1988,
Ms. Ayres was the Regional Administrator of Region 9 (Arizona, California,
Hawaii, Nevada, and the Western Pacific Islands) of the United States
Environmental Protection Agency.
RICHARD K. DAVIDSON, Director. Mr. Davidson has been a director of the
Company since March 1993. As of January 1, 1997, Mr. Davidson became Chairman
and CEO of Union Pacific Corporation. Prior to that, Mr. Davidson, President
of Union Pacific Corporation and a director of that corporation since May
1994, was Chairman of Union Pacific Railroad since September 1991. Mr.
Davidson became part of Union Pacific Railroad when it merged with the
Missouri Pacific and the Western Pacific Railroads in 1982. He was promoted
to Vice President-Operations in 1986, Executive Vice President-Operations in
1989, until his appointment as President and Chief Executive Officer on
August 7, 1991; seven weeks later Mr. Davidson was named Chairman and Chief
Executive Officer.
DAVID DEWHURST, Director. Mr. Dewhurst has been a Director of the Company
since August 1996. Mr. Dewhurst was the founder, Chairman and Chief Executive
Officer of Falcon Seaboard for many years and is presently Chairman and Chief
Executive Officer of Falcon Seaboard Holdings, L.P. Mr. Dewhurst was a
Foreign Service Reserve Officer in the U.S. Department of State, in 1971-1973
and served in the U.S. Air Force from 1968-70. Mr. Dewhurst currently serves
on the National Board of Directors of Citizens for a Sound Economy.
RICHARD R. JAROS, Director. Mr. Jaros has been a director of the Company
since March 1991. Mr. Jaros served as President and Chief Operating Officer
of CalEnergy from January 8, 1992 to April 19, 1993 and as Chairman of the
Board from April 19, 1993 to May 1994. Mr. Jaros is currently a Director of
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<PAGE>
PKS. Until July 1997, he was Executive Vice President and Chief Financial
Officer of PKS and President of KDG. From 1990 until January 8, 1992, Mr.
Jaros served as a Vice President of PKS. Mr. Jaros serves as a director of
C-TEC Corporation, a publicly traded company in which PKS holds a majority
ownership interest.
DAVID R. MORRIS, Director. Mr. Morris was appointed a director of the
Company in February 1997. Mr. Morris was Chairman of Northern Electric plc
from 1989 to January 1997. In 1980 he joined Delta plc becoming Managing
Director of the Switchgear and Accessories Division in 1981 and a Board
Director in 1984. Prior to that, Mr. Morris was Managing Director of Wildt
Mellor Bromley Ltd., a subsidiary of Sears Holdings, plc, from 1975 to 1980.
From 1958 to 1975 Mr. Morris was associated with English Electric Aircraft
Ltd., which merged with GEC, in production and development management. Mr.
Morris is a director of Delta Group plc.
BERNARD W. REZNICEK, Director. Mr. Reznicek has been a director of the
Company since May 1995. Mr. Reznicek became National Director--Utility
Marketing for Central States Indemnity Co. of Omaha on January 2, 1997. Prior
to that, he was Dean, College of Business Administration at Creighton
University from 1994 to 1996. Prior to that, Mr. Reznicek was the Chairman,
President and Chief Executive Officer of Boston Edison Company from 1987 to
1994 and was the President and Chief Executive Officer of the Omaha Public
Power District from 1981 to 1987. Mr. Reznicek serves on the Board of
Directors of Stone & Webster, Incorporated since (1995), State Street Boston
Corporation (1991), Boston Edison Company (1987) and Guarantee Life
Companies, Inc. (1986).
WALTER SCOTT, JR., Director. Mr. Scott has been a director of the Company
since June 1991. Mr. Scott was the Chairman and Chief Executive Officer of
the Company from January 8, 1992 until April 19, 1993. Mr. Scott is Chairman
and President of PKS, a position he has held since 1979. Mr. Scott is a
director of Berkshire Hathaway, Inc., Burlington Resources, Inc., ConAgra,
Inc., Valmont Industries, Inc., WorldCom, Inc., First Bank Systems and C-TEC
Corporation, a publicly traded company in which PKS holds a majority
ownership interest.
JOHN R. SHINER, Director. Mr. Shiner has been a director of the Company
since May 1995. He joined the law firm of Morrison & Foerster in 1993, where
he is a partner resident in the Los Angeles office. Prior to that time, he
was a partner in the law firm of Baker & McKenzie. Mr. Shiner has practiced
law in Los Angeles since 1968, specializing in litigation and consultation
with the senior management and board of directors of closely held and public
corporations.
NEVILLE G. TROTTER, Director. Mr. Trotter was appointed a director of the
Company in 1997. From 1974 until 1997, Mr. Trotter was a Member of Parliament
in the U.K. House of Commons representing the Tynemouth area. In Parliament,
Mr. Trotter served as a member of the Select Committees of the House relating
to Defense, Trade & Industry and Transport. Prior to that, Mr. Trotter, a
Chartered Accountant, was a Senior Partner in the Grant Thornton accounting
firm in the U.K. and formerly served as a member of the Newcastle City
Council and was Chairman of the City Finance and Transport Committees.
DAVID E. WIT, Director. Mr. Wit has been a director of the Company since
April 1987. He is Co-Chief Executive Officer of Logicat, Inc., a software
development/publishing firm. Prior to working at Logicat, Inc., Mr. Wit
worked at E.M. Warburg Pincus & Company, where he analyzed seed-stage
financing and technology investments.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1997 (the "Underwriting Agreement"), Credit Suisse
First Boston Corporation, Lehman Brothers Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as representatives of the several underwriters listed below
(the "U.S. Underwriters") have severally but not jointly agreed to purchase
from the Company the following respective numbers of U.S. Shares:
NUMBER OF
UNDERWRITER U.S. SHARES
- ---------------------------------------------------- -------------
Credit Suisse First Boston Corporation ..............
Lehman Brothers Inc. ................................
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ...............................
-------------
Total ............................................. 8,400,000
=============
The Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all of the U.S. Shares offered
hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The Underwriting Agreement provides
that, in the event of a default by a U.S. Underwriter, in certain
circumstances the purchase commitments of the non-defaulting U.S.
Underwriters may be increased or the Underwriting Agreement may be
terminated.
The Company has entered into a Subscription Agreement (the "Subscription
Agreement") with the managers of the International Offering (the "Managers")
providing for the concurrent offer and sale of the International Shares
outside the United States and Canada. The closing of the U.S. Offering is a
condition to the closing of the International Offering and vice versa. The
Direct Sale from the Company of up to 2,000,000 shares of Common Stock being
offered pursuant to this Prospectus Supplement is expected to be made to
Walter C. Scott, Jr., Chairman and President of PKS, and certain affiliated
trusts and other entities directly or indirectly related to Mr. Scott, at a
price equal to the Price to the Public set forth on the cover page of this
Prospectus Supplement. To the extent such shares of Common Stock are not
purchased in the Direct Sale, such shares will be sold in the U.S. Offering.
The closing of the Offering is not conditioned upon the closing of the
Acquisition, the Direct Sale or the Debt Offering. In connection with the
Direct Sale, the underwriting discounts and commissions per share will equal
60% of the underwriting discounts and commissions payable in connection with
the Offering or an aggregate of $ for 2,000,000 shares.
The Company has granted to the U.S. Underwriters and the Managers an
option, exercisable from time to time by Credit Suisse First Boston
Corporation and Lehman Brothers Inc., expiring at the close of business on
the 30th day after the date of this Prospectus Supplement, to purchase up to
2,100,000 additional shares at the public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus Supplement. Such options may be exercised only to cover
over-allotments in the sale of the shares of Common Stock. To the extent such
option is exercised, each U.S. Underwriter and each Manager will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock being sold to the U.S.
Underwriters and the Managers as the number of U.S. Shares set forth next to
such U.S. Underwriter's name in the preceding table and as the number of
International Shares set forth next to such Manager's name in the
corresponding table in the Prospectus Supplement relating to the
International Offering bears to the sum of the total number of shares of
Common Stock in such tables.
S-40
<PAGE>
The Company has been advised by Credit Suisse First Boston Corporation
and Lehman Brothers Inc. on behalf of the U.S. Underwriters that the U.S.
Underwriters propose to offer the U.S. Shares in the United States to the
public and in Canada on a private placement basis to certain institutions
initially at the public offering price set forth on the cover page of this
Prospectus Supplement and, through the Underwriters, to certain dealers at
such price less a concession of $ per share, and the U.S. Underwriters and
such dealers may allow a discount of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Underwriters. The
offering price to dealers for the U.S. Offering and the concurrent
International Offering will be identical. Pursuant to an Agreement between
the U.S. Underwriters and the Managers (the "Intersyndicate Agreement")
relating to the Offering, changes in the offering price, commission and
reallowance to dealers will be made only upon the mutual agreement of Credit
Suisse First Boston Corporation and Lehman Brothers Inc. on behalf of the
U.S. Underwriters, and Credit Suisse First Boston (Europe) Limited ("CSFBL")
and Lehman Brothers International (Europe) ("LBI"), on behalf of the
Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters
has agreed that, as part of the distribution of the U.S. Shares and subject
to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any shares of Common Stock or distribute any
prospectus relating to the shares of Common Stock to any person outside the
United States and Canada or to any other dealer who does not so agree. Each
of the Managers has agreed that, as part of the distribution of the
International Shares and subject to certain exceptions, it has not offered or
sold and may not offer or sell, directly or indirectly, any shares of Common
Stock or distribute any prospectus relating to the shares of Common Stock to
any person inside the United States and Canada or to any other dealer who
does not so agree. The foregoing limitations do not apply to stabilization
transactions or to transactions between the Underwriters and the Managers
pursuant to the Intersyndicate Agreement. As used herein, "United States"
means the United States of America (including the States and the District of
Columbia), its territories, possessions and other areas subject to its
jurisdiction. "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) any individual resident in
the United States or Canada or (ii) any corporation, partnership, pension,
profit-sharing or other trust or other entity (including any such entity
acting as an investment adviser with discretionary authority) whose office
most directly involved with the purchase is located in the United States or
Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Common Stock
as may be mutually agreed upon. The price of any shares so sold will be the
public offering price less such amount agreed upon by Credit Suisse First
Boston Corporation and Lehman Brothers Inc. on behalf of the U.S.
Underwriters, and CSFBL and LBI, on behalf of the Managers, but not exceeding
the selling concession applicable to such shares. To the extent that there
are sales between the U.S. Underwriters and the Managers pursuant to the
Intersyndicate Agreement, the number of shares of Common Stock initially
available for sale by the U.S. Underwriters or by the Managers may be more or
less than the amount appearing on the cover page of this Prospectus
Supplement. Neither the U.S. Underwriters nor the Managers are obligated to
purchase from the other any unsold shares of Common Stock.
The Company and its executive officers and directors have agreed that
during the period beginning from the date of this Prospectus Supplement and
continuing to the date 90 days from the date of this Prospectus Supplement,
not to offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or file with the Securities and Exchange Commission a
registration statement relating to, any shares of Common Stock, or any
securities that are convertible into or exercisable or exchangeable for, or
that represent the right to receive, shares of Common Stock, or publicly
disclose the intention to make any such offer, sale, pledge or disposal,
without the prior written consent of Credit Suisse First Boston Corporation
and Lehman Brothers Inc. except: (i) issuances of Common Stock pursuant to
the conversion or exchange of convertible or exchangeable securities or the
exercise of warrants or options, in each case outstanding on the date of this
Prospectus Supplement, (ii) grants of employee stock options pursuant to the
terms of a plan in effect on the date of this Prospectus Supplement or
issuances of Common Stock
S-41
<PAGE>
pursuant to the exercise of such options, (iii) sales of Common Stock
pursuant to employee stock benefit plans in effect on the date of the
Prospectus Supplement, and (iv) filing with the Securities and Exchange
Commission a registration statement relating to the securities described in
the preceding clauses (i), (ii) and (iii).
The Company has agreed to indemnify the U.S. Underwriters and the Managers
against certain liabilities, including civil liabilities under the Securities
Act, or contribute to payments which the U.S. Underwriters may be required to
make in respect thereof.
Credit Suisse First Boston Corporation and Lehman Brothers Inc., on behalf
of the U.S. Underwriters and the Managers, may engage in over-allotment,
stabilizing transactions, syndicate-covering transactions and penalty bids in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate-covering transactions involve purchases
of the Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit
the Underwriter to reclaim a selling concession from a syndicate member when
the shares of Common Stock originally sold by such syndicate member are
purchased in a syndicate-covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate-covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it
would be in the absence of such transactions. These transactions may be
effected on the New York Stock Exchange, the Pacific Stock Exchange or
otherwise and, if commenced, may be discontinued at any time.
Certain of the U.S. Underwriters and the Managers and their affiliates
have provided from time to time, and expect to provide in the future, various
investment banking and commercial banking services for the Company, for which
such U.S. Underwriters and Managers have received and will receive customary
fees and commissions. Credit Suisse First Boston Corporation and Lehman
Brothers Inc. are acting as Joint Book Running Managers for the Debt
Offering. Credit Suisse First Boston Corporation and Lehman Brothers Inc.
also acted as financial advisor to the Company in connection with the
Acquisition.
S-42
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepares
and files a prospectus with the securities regulatory authorities in each
province where trades of Common Stock are effected. Accordingly, any resale
of the Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek
legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from
whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Common
Stock without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as
principal and not as agent and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
RIGHT OF ACTION FOR ONTARIO PURCHASERS
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the Company or such persons. All or a substantial portion of the assets
of the Company and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Company or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against the Company of such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Company.
Only one such report must be filed in respect of Common Stock acquired on the
same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility
of the Common Stock for investment by such purchasers under relevant Canadian
legislation.
S-43
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following discussion concerns the material United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock applicable to Non-U.S. Holders who acquire and own such Common Stock as
a capital asset. In general, a "Non-U.S. Holder" is any person holding Common
Stock other than (i) a citizen or resident of the United States, (ii) a
corporation (a "U.S. corporation") or partnership (a "U.S. partnership")
created or organized under the laws of the United States or of any State,
(iii) an estate whose income is included in gross income for United States
federal income tax purposes regardless of its source or (iv) a trust if (a) a
court within the United States is able to exercise primary jurisdiction over
the trust and (b) one or more United States persons have the authority to
control all substantial decisions of the trust. The following summary does
not consider any specific facts or circumstances that may apply to a
particular Non-U.S. Holder (including the fact that, in the case of a
Non-U.S. Holder that is a partnership, the U.S. tax consequences of
purchasing, holding and disposing of Common Stock may be affected by certain
determinations made at the partner level). This summary is based on
provisions of the Internal Revenue Code, Treasury Regulations promulgated
thereunder and administrative and judicial interpretations as of the date
hereof, all of which are subject to change, possibly on a retroactive basis.
This summary does not deal with U.S. state and local or non-U.S. tax
consequences and, except as specifically noted, does not address the effects
of any tax treaties the United States has concluded with other countries.
ALL PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND
OTHER TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF COMMON STOCK.
DIVIDENDS
In general, dividends paid by a U.S. corporation to a Non-U.S. Holder will
be subject to United States withholding tax at a 30% rate (or lower rate
prescribed by an applicable tax treaty) unless the dividends are (i)
effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States, or (ii) if an applicable tax treaty so
provides, attributable to a United States permanent establishment maintained
by the Non-U.S. Holder. To determine the applicability of a tax treaty
providing for a lower rate of withholding, dividends paid to an address in a
foreign country are presumed under current Treasury Regulations (absent
actual knowledge to the contrary) to be paid to a resident of that country.
Proposed Treasury Regulations, if finally adopted, generally would require
Non-U.S. Holders to file Internal Revenue Service Form W-8 to obtain the
benefit of any applicable tax treaty providing for a lower rate of
withholding tax on dividends.
Dividends effectively connected with the Non-U.S. Holder's conduct of a
trade or business within the United States or, if applicable, attributable to
a permanent establishment, generally will not be subject to withholding (if
the Non-U.S. Holder annually files Internal Revenue Service Form 4224 in
duplicate with the payor of the dividend), but generally will be subject to
United States federal income tax on a net income basis at the same rates
applicable to U.S. Holders. In the case of a Non-U.S. Holder that is a
corporation, such effectively connected income also may be subject to a
branch profits tax at the 30% rate (or such lower rate as may be specified by
an applicable treaty).
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with
the Internal Revenue Service.
For purposes of these rules, Non-U.S. Holders should be aware that the
Company's present policy is to reinvest earnings in its business and
therefore the Company pays no dividends on its Common Stock.
DISPOSITION OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such Holder's Common
Stock unless (i) the gain is effectively connected with a trade or business
carried on by the Non-U.S. Holder within the United States or, if an
applicable tax treaty so provides, attributable to a permanent establishment
maintained by the Non-U.S. Holder in the United States; (ii) in the case of a
Non-U.S. Holder who is an individual and holds the Common Stock
S-44
<PAGE>
as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the disposition and certain other conditions
are met; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of the U.S. tax laws applicable to certain U.S. expatriates; or
(iv) the Company is or has been a "U.S. real property holding corporation"
for federal income tax purposes (at any time within the shorter of the
five-year period preceding the disposition or the Non-U.S. Holder's holding
period) and, if the Common Stock is "regularly traded on an established
securities market", the Non-U.S. Holder held, directly or indirectly, at any
time during the five-year period ending generally on the date of disposition,
more than 5% of the Common Stock. The Company believes that it has not been,
is not currently and is not likely to become, a United States real property
holding company.
FEDERAL ESTATE TAX
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States federal estate tax
purposes) of the United States at the time of death will be includable in the
individual's gross estate for United States federal estate tax purposes and
may be subject to United States federal estate tax, unless an applicable tax
treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
If the Company were to pay dividends, the Company generally must report
annually to the Internal Revenue Service and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such
Non-U.S. Holder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these information returns also may be made available under the provisions of
a specific treaty or agreement to the tax authorities in the country in which
the Non-U.S. Holder resides. United States backup withholding tax (which
generally is a withholding tax imposed at the rate of 31% on certain payments
to persons who fail to furnish the information required under the United
States information reporting requirements) will generally not apply, under
existing Treasury Regulations, to dividends paid on shares of Common Stock to
a Non-U.S. Holder at an address outside the United States. This exemption may
be affected, on a prospective basis, if the Treasury Regulations are revised
to eliminate the foreign address method for determining the applicability of
the 30% withholding tax or any lower treaty rate as discussed above.
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding if the Non-U.S. Holder fails to
establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and certain other information to the Company.
The payment of the proceeds from the disposition of shares of Common Stock
to or through the United States office of a broker will be subject to
information reporting and backup withholding imposed at a rate of 31% unless
the owner certifies, among other things, its status as a Non-U.S. Holder, or
otherwise establishes an exemption. The payment of the proceeds from the
disposition of shares of Common Stock made outside the United States to or
through a non-U.S. office of a non-U.S. broker will not be subject to backup
withholding and generally will not be subject to information reporting.
However, under the existing Treasury Regulations, unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder and
that certain conditions are met, or that the holder otherwise is entitled to
an exemption, information reporting will apply to payments made through (a) a
non-U.S. office of a U.S. broker, or (b) a non-U.S. office of a non-U.S.
broker that is either a "controlled foreign corporation" for the United
States federal income tax purposes or a person 50% or more of whose gross
income from all sources for a certain period was effectively connected with a
United State trade or business.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
Proposed Regulations. The Internal Revenue Service has issued proposed
regulations relating to withholding, backup withholding and information
reporting that, if adopted in their current form, would, among other things,
unify current certification procedures and forms and clarify reliance
standards. The proposed regulations would, among other things, eliminate the
general current law presumption that
S-45
<PAGE>
dividends paid to an address in a foreign country are paid to a resident of
that country and would impose certain certification and documentation
requirements on non-U.S. Holders claiming the benefit of a reduced
withholding rate with respect to dividends under a tax treaty. These
regulations generally are proposed to be effective with respect to payments
made after December 31, 1997, although in certain cases they are proposed to
be effective only with respect to payments made after December 31, 1999.
Proposed regulations are subject to change, however, prior to their adoption
in final form.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Steven A. McArthur, Senior Vice President and General Counsel
of the Company, and by Willkie Farr & Gallagher. Certain matters will be
passed upon on behalf of the Underwriters by Skadden, Arps, Slate, Meagher &
Flom LLP. As of August 31, 1997, Mr. McArthur beneficially owned 123,542
shares of Common Stock.
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company and its subsidiaries as of December 31, 1996 and 1995 and for
each of the three years in the period ended December 31, 1996 included or
incorporated by reference in this Prospectus Supplement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing in this Prospectus Supplement and incorporated herein by reference.
With respect to the Company's unaudited interim financial information for
the periods ended March 31, 1997 and 1996 and June 30, 1997 and 1996,
included and incorporated by reference in this Prospectus Supplement,
Deloitte & Touche LLP have applied limited procedures in accordance with
professional standards for a review of such information. However, as stated
in their reports included in the Company's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1997 and June 30, 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 the 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 Report on Form 8-K/A dated February 18,
1997, have been audited by Ernst & Young, chartered accountants, as stated in
their report which is incorporated herein by reference.
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 Supplement, 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 an accountant 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 Supplement
have been audited by Coopers & Lybrand L.L.P., independent accountants given
on the authority of that firm as experts in accounting and auditing.
S-46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CALENERGY COMPANY, INC.
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995 ........................ F-2
Consolidated Statements of Operations for the Three Years Ended December 31, 1996 .. F-3
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 1996 .................................................................. F-4
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1996 .. F-5
Notes to Consolidated Financial Statements .......................................... F-6
Independent Auditors' Report......................................................... F-37
Interim Consolidated Financial Statements:
Independent Accountants' Report ..................................................... F-38
Consolidated Balance Sheets, June 30, 1997 and December 31, 1996 .................... F-39
Consolidated Statements of Operations for the Three and Six Months Ended June 30,
1997 and 1996 ...................................................................... F-40
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996 ............................................................................... F-41
Notes to Consolidated Financial Statements .......................................... F-42
</TABLE>
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents ............................................ $ 424,500 $ 72,114
Joint venture cash and investments.................................... 48,083 77,590
Restricted cash....................................................... 107,143 149,227
Short-term investments................................................ 4,921 34,190
Accounts receivable................................................... 342,307 57,909
Due from joint ventures............................................... 17,556 27,273
Properties, plants, contracts and equipment, net ..................... 3,348,583 1,781,255
Excess of cost over fair value of net assets acquired, net .......... 790,920 302,288
Equity investments.................................................... 196,535 60,815
Deferred charges and other assets .................................... 432,359 91,377
------------ ------------
Total assets ....................................................... $5,712,907 $2,654,038
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable...................................................... $ 218,182 $ 6,638
Other accrued liabilities ............................................ 674,842 87,892
Parent company debt .................................................. 1,146,685 842,205
Subsidiary and project debt........................................... 1,754,895 921,219
Deferred income taxes................................................. 469,199 226,520
------------ ------------
Total liabilities .................................................. 4,263,803 2,084,474
------------ ------------
Deferred income....................................................... 29,067 26,032
------------ ------------
Commitments and contingencies (Notes 3, 17, 18, 19 and 20)
Company--obligated mandatorily redeemable convertible preferred
securities of subsidiary trust holding solely convertible
debentures........................................................... 103,930 --
Preferred securities of subsidiary.................................... 136,065 --
Minority interest..................................................... 299,252 --
------------ ------------
Stockholders' equity:
Preferred stock--authorized 2,000 shares, no par value................ -- --
Common stock--par value $.0675 per share, authorized 80,000 shares,
issued 63,747 and 50,680 shares, outstanding 63,448 and 50,593
shares, respectively................................................. 4,303 3,421
Additional paid in capital............................................ 563,567 343,406
Retained earnings .................................................... 297,520 205,059
Cumulative effect of foreign currency translation adjustment ......... 29,658 --
Treasury stock--299 and 87 common shares at cost ..................... (8,787) (1,348)
Unearned compensation--restricted stock .............................. (5,471) (7,006)
------------ ------------
Total stockholders' equity.......................................... 880,790 543,532
------------ ------------
Total liabilities and stockholders' equity ......................... $5,712,907 $2,654,038
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Sales of electricity and steam .................. $518,934 $335,630 $154,562
Income on equity investments..................... 6,134 -- --
Royalty income .................................. 6,846 19,482 --
Interest and other income........................ 44,281 43,611 31,292
---------- ---------- ----------
Total revenues................................. 576,195 398,723 185,854
---------- ---------- ----------
Cost and expenses:
Operating expense................................ 108,962 79,294 33,015
Cost of sales.................................... 31,840 -- --
General and administration....................... 21,451 23,376 13,012
Royalty expense.................................. 23,693 24,308 9,888
Depreciation and amortization.................... 118,586 72,249 21,197
Loss on equity investment in Casecnan ........... 5,221 362 --
Interest expense................................. 165,900 134,637 62,837
Less interest capitalized........................ (39,862) (32,554) (9,931)
Dividends on convertible preferred securities of
subsidiary trust ............................... 4,691 -- --
---------- ---------- ----------
Total expenses................................. 440,482 301,672 130,018
---------- ---------- ----------
Income before provision for income taxes ........ 135,713 97,051 55,836
Provision for income taxes....................... 41,821 30,631 17,002
---------- ---------- ----------
Income before extraordinary item................. 93,892 66,420 38,834
Extraordinary item .............................. -- -- (2,007)
---------- ---------- ----------
Income before minority interest and preferred
dividends....................................... 93,892 66,420 36,827
Minority interest ............................... 1,431 3,005 --
---------- ---------- ----------
Net income....................................... 92,461 63,415 36,827
Preferred dividends.............................. -- 1,080 5,010
---------- ---------- ----------
Net income available to common stockholders ..... $ 92,461 $ 62,335 $ 31,817
========== ========== ==========
Income per share before extraordinary item ..... $ 1.60 $ 1.25 $ .95
---------- ---------- ----------
Extraordinary item .............................. -- -- (.06)
---------- ---------- ----------
Net income per share--primary.................... $ 1.60 $ 1.25 $ .89
========== ========== ==========
Net income per share--fully diluted.............. $ 1.50 $ 1.18 $ .88
========== ========== ==========
Average number of shares outstanding--primary ... 57,870 49,971 35,721
========== ========== ==========
Fully diluted shares............................. 67,164 57,742 40,166
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
DOLLARS AND SHARES IN THOUSANDS
<TABLE>
<CAPTION>
OUTSTANDING ADDITIONAL FOREIGN
COMMON COMMON PAID-IN RETAINED CURRENCY TREASURY UNEARNED
SHARES STOCK CAPITAL EARNINGS ADJUST. STOCK COMPENSATION TOTAL
------------ ------- ---------- --------- ---------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 ..... 35,446 $2,404 $100,965 $111,031 $ -- $ (2,897) $ -- $211,503
Exercise of stock options ..... 46 3 379 -- -- -- -- 382
Purchase of treasury stock .... (3,765) -- -- -- -- (65,119) -- (65,119)
Exercise of stock options from
treasury stock................ 96 -- (1,473) -- -- 1,772 -- 299
Employee stock purchase plan
issues from treasury stock ... 26 -- (122) -- -- 470 -- 348
Preferred stock dividends,
Series C, including cash
distribution of $121.......... -- -- -- (4,921) -- -- -- (4,921)
Tax benefit from stock plan .. -- -- 672 -- -- -- -- 672
Net income before preferred
dividends .................... -- -- -- 36,827 -- -- -- 36,827
------ ------ -------- -------- ------- -------- -------- --------
Balance December 31, 1994 ..... 31,849 2,407 100,421 142,937 -- (65,774) -- 179,991
Equity offering................ 18,170 1,004 240,825 -- -- 56,801 -- 298,630
Exercise of stock options ..... 102 7 303 -- -- -- -- 310
Restricted stock............... 500 -- 848 -- -- 8,652 (9,500) --
Amortization of unearned
compensation.................. -- -- -- -- -- -- 2,494 2,494
Employee stock purchase plan
issues........................ 41 3 559 -- -- -- -- 562
Exercise of stock options from
treasury stock................ 33 -- (416) -- -- 563 -- 147
Purchase of treasury stock .... (102) -- -- -- -- (1,590) -- (1,590)
Preferred stock dividends,
Series C, including cash
distribution of $43........... -- -- -- (1,293) -- -- -- (1,293)
Tax benefit from stock plan .. -- -- 866 -- -- -- -- 866
Net income before preferred
dividends .................... -- -- -- 63,415 -- -- -- 63,415
------ ------ -------- -------- ------- -------- -------- --------
Balance December 31, 1995 ..... 50,593 3,421 343,406 205,059 -- (1,348) (7,006) 543,532
Exercise of stock options and
other equity transactions .... 4,971 335 57,190 -- -- 1 -- 57,526
Amortization of unearned
compensation ................. -- -- -- -- -- -- 1,535 1,535
Employee stock purchase plan
issues........................ 60 2 547 -- -- 588 -- 1,137
Exercise of stock options from
treasury stock................ 232 -- (4,707) -- -- 3,980 -- (727)
Purchase of treasury stock .... (472) -- -- -- -- (12,008) -- (12,008)
Conversion of debt ............ 8,064 545 164,912 -- -- -- -- 165,457
Tax benefit from stock plan .. -- -- 2,219 -- -- -- -- 2,219
Foreign currency translation
adjustment ................... -- -- -- -- 29,658 -- -- 29,658
Net income..................... -- -- -- 92,461 -- -- -- 92,461
------ ------ -------- -------- ------- -------- -------- --------
Balance December 31, 1996 ..... 63,448 $4,303 $563,567 $297,520 $29,658 $ (8,787) $(5,471) $880,790
====== ====== ========= ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 92,461 $ 63,415 $ 36,827
Adjustments to reconcile net cash flow from operating activities:
Depreciation and amortization........................................ 109,447 65,244 21,197
Amortization of excess of cost over fair value of net assets
acquired............................................................ 9,139 7,005 --
Amortization of original issue discount.............................. 50,194 45,409 31,946
Amortization of deferred financing costs............................. 9,677 8,979 1,885
Amortization of unearned compensation................................ 1,535 2,494 --
Provision for deferred income taxes.................................. 12,252 13,983 8,258
Loss (income) on equity investments.................................. (910) 362 --
Income applicable to minority interest............................... 1,431 3,005 --
Changes in other items:
Accounts receivable................................................. (13,936) 213 (6,614)
Accounts payable and other accrued liabilities...................... (942) 5,922 19,364
Deferred income..................................................... 3,035 6,181 (437)
--------- ----------- ---------
Net cash flows from operating activities............................. 273,383 222,212 112,426
--------- ----------- ---------
Cash flows from investing activities:
Purchase of Northern, Falcon Seaboard, Partnership Interest and
Magma, net of cash acquired........................................... (474,443) (907,614) (3,043)
Distributions from equity investments................................. 8,222 -- --
Capital expenditures relating to operating projects................... (24,821) (27,120) (38,078)
Philippine construction............................................... (167,160) (289,655) (69,997)
Indonesian and other development...................................... (81,068) (8,973) (2,445)
Salton Sea IV construction............................................ (63,772) (62,430) --
Pacific Northwest, Nevada, and Utah exploration costs................. (4,885) (10,445) (8,493)
Decrease (increase) in short-term investments......................... 33,998 80,565 (50,000)
Decrease (increase) in restricted cash................................ 63,175 (17,452) (83,670)
Other................................................................. (2,591) 11,514 1,847
Investment in Casecnan................................................ -- (61,177) --
--------- ----------- ---------
Net cash flows from investing activities............................. (713,345) (1,292,787) (253,879)
--------- ----------- ---------
Cash flows from financing activities:
Proceeds from sale of common and treasury stock and exercise of
stock options........................................................ 54,935 299,649 1,580
Proceeds from convertible preferred securities of subsidiary trust ... 103,930 -- --
Proceeds from issuance of parent company debt......................... 324,136 200,000 400,000
Net proceeds from revolver ........................................... 95,000 -- --
Proceeds from subsidiary and project debt............................. 428,134 654,695 31,503
Repayments of subsidiary and project debt............................. (210,892) (176,664) (13,800)
Deferred charges relating to debt financing........................... (36,010) (34,733) (11,905)
Decrease (increase) in amounts due from joint ventures................ 10,756 (29,169) 316
Purchase of treasury stock............................................ (12,008) (1,590) (65,119)
Proceeds from merger facility......................................... -- 500,000 --
Recapitalization of merger facility................................... -- (500,000) --
Defeasance of 12% senior notes........................................ -- -- (35,730)
--------- ----------- ---------
Net cash flows from financing activities............................. 757,981 912,188 306,845
--------- ----------- ---------
Effect of exchange rate changes ...................................... 4,860 -- --
--------- ----------- ---------
Net increase (decrease) in cash and investments....................... 322,879 (158,387) 165,392
--------- ----------- ---------
Cash and cash equivalents at beginning of period...................... 149,704 308,091 142,699
--------- ----------- ---------
Cash and cash equivalents at end of period............................ $ 472,583 $ 149,704 $ 308,091
========= =========== =========
Supplemental Disclosures:
Interest paid (net of amounts capitalized)............................ $ 92,829 $ 50,840 $ 12,624
========= =========== =========
Income taxes paid..................................................... $ 23,211 $ 14,812 $ 4,926
========= =========== =========
</TABLE>
See note 6 regarding conversion of debt to equity.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
Dollars and Shares in Thousands, Except Per Share Amounts
1. BUSINESS
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 primarily 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.
The Company has organized several partnerships and joint ventures (herein
referred to as the "Coso Joint Ventures") in order to develop geothermal
energy at the China Lake Naval Air Weapons Station, Coso Hot Springs, China
Lake, California. Collectively, the projects undertaken by these Coso Joint
Ventures are referred to as the Coso Project. In 1992, the Company entered
into the natural gas-fired electrical generation market through the purchase
of a development opportunity in Yuma, Arizona which commenced commercial
operation in May 1994. In 1993, the Company started developing a number of
international power project opportunities where private power generating
programs have been initiated, including the Philippines and Indonesia. In
1995, the Company acquired Magma Power Company ("Magma"). Magma's operating
assets included four projects referred to as the Partnership Project in which
Magma had a 50% interest, and three projects referred to as the Salton Sea
Project of which Magma owned 100%. A fourth project included in the Salton
Sea Project was constructed after the acquisition of Magma and commenced
operations in June 1996. In addition, in April 1996, the Company acquired the
remaining 50% interest in the Partnership Project. In August 1996, the
Company acquired Falcon Seaboard Resources, Inc. ("Falcon Seaboard") which
includes significant interests in three operating gas-fired cogeneration
facilities and a related natural gas pipeline. On December 24, 1996, CE
Electric UK plc ("CE Electric"), which is 70% owned indirectly by the Company
and 30% owned indirectly by Peter Kiewit Sons', Inc. ("PKS"), acquired
majority ownership of the outstanding ordinary share capital of Northern
pursuant to a tender offer ("Tender Offer"). The total amount expected to be
paid for all of Northern's ordinary and preference shares is approximately
$1.3 billion.
Northern is one of the twelve regional electric companies ("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 to distribute and supply electricity in Northern's Authorized
Area ("Authorized Area"). 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. Northern
also is involved in non-regulated activities, including the generation of
electricity, electrical appliance retailing and gas exploration and
production.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, and its proportionate share of the
partnerships and joint ventures in which it has an undivided interest in the
assets and is proportionally liable for its share of liabilities. Other
investments and corporate joint ventures where the Company has the ability to
exercise significant influence are accounted for under the equity method of
accounting. Investments, where the Company's ability to influence is limited,
are accounted for under the cost method of accounting. All significant
inter-enterprise
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
transactions and accounts have been eliminated. The results of operations of
the Company include the Company's proportionate share of results of
operations of entities acquired as of the date of each acquisition.
INVESTMENTS AND RESTRICTED CASH
Investments other than restricted cash are primarily commercial paper and
money market securities. The restricted cash balance includes such securities
and mortgage backed securities, and is mainly composed of amounts deposited
in restricted accounts from which the Company will source its equity
contributions and debt service reserve requirements relating to the projects.
These funds are restricted by their respective project debt agreements to be
used only for the related project.
At December 31, 1996, all of the Company's investments are classified as
held-to-maturity and are accounted for at their amortized cost basis. The
carrying amount of the investments approximates the fair value based on
quoted market prices as provided by the financial institution which holds the
investments.
WELL, RESOURCE DEVELOPMENT AND EXPLORATION COSTS
The Company follows the full cost method of accounting for costs incurred
in connection with the exploration and development of geothermal resources.
All such costs, which include dry hole costs and the cost of drilling and
equipping production wells and directly attributable administrative and
interest costs, are capitalized and amortized over their estimated useful
lives when production commences. The estimated useful lives of production
wells are ten to twenty years depending on the characteristics of the
underlying resource; exploration costs and development costs, other than
production wells, are generally amortized over the weighted average remaining
term of the Company's power and steam purchase contracts.
DEFERRED WELL AND REWORK COSTS
Well rework costs are deferred and amortized over the estimated period
between reworks. These deferred costs, net of accumulated amortization, are
$8,371 and $7,086 at December 31, 1996 and 1995, respectively, and are
included in other assets.
PROPERTIES, PLANTS, CONTRACTS, EQUIPMENT AND DEPRECIATION
The cost of major additions and betterments are capitalized, while
replacements, maintenance, and repairs that do not improve or extend the
lives of the respective assets are expensed.
Depreciation of the operating power plant costs, net of salvage value, is
computed on the straight-line method over the estimated useful lives, between
10 and 30 years. Depreciation of furniture, fixtures and equipment which are
recorded at cost, is computed on the straight line method over the estimated
useful lives of the related assets, which range from three to ten years.
The Northern, Falcon Seaboard, Partnership Interest and Magma acquisitions
by the Company have been accounted for as purchase business combinations. All
identifiable assets acquired and liabilities assumed were assigned a portion
of the cost of acquiring the respective companies equal to their fair values
at the date of the acquisition and include the following:
Property and equipment of Northern is depreciated using a systematic
method, which approximates the straight line method over the estimated
useful lives of the related assets which range from 1-40 years.
Northern's investment in Teesside Power Limited is being amortized over
the remaining contract life of 11 years using a straight line method.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
Power sales agreements are amortized separately over (1) the remaining
portion of the scheduled price periods of the power sales agreements and
(2) for the Partnership Interest and Magma acquisitions the 20 year
avoided cost periods of the power sales agreements using the straight line
method.
Mineral reserves are amortized on the units of production method.
EXCESS OF COST OVER FAIR VALUE
Total acquisition costs in excess of the fair values assigned to the net
assets acquired are amortized over a 40 year period for the Northern and
Magma acquisitions and a 25 year period for the Falcon Seaboard acquisition,
both using the straight line method.
CAPITALIZATION OF INTEREST AND DEFERRED FINANCING COSTS
Prior to the commencement of operations, interest is capitalized on the
costs of the plants and geothermal resource development to the extent
incurred. Capitalized interest and other deferred charges are amortized over
the lives of the related assets.
Deferred financing costs are amortized over the term of the related
financing using the implicit interest method.
REVENUE RECOGNITION
Revenues are recorded based upon service rendered and electricity and
steam delivered to the end of the month. Royalties earned from providing
geothermal resources to power plants operated by other geothermal power
producers are recorded on an accrual basis.
DEFERRED INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on the
difference between the financial statement and tax bases of assets and
liabilities using estimated tax rates in effect for the year in which the
differences are expected to reverse. The Company intends to repatriate
earnings of foreign subsidiaries in the foreseeable future. As a result,
deferred income taxes are provided for retained earnings of international
subsidiaries and corporate joint ventures which are intended to be remitted.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as discussed herein. Fair
values have been estimated based on quoted market prices for debt issues
listed on exchanges. Fair values of financial instruments that are not
actively traded are based on market prices of similar instruments and/or
valuation techniques using market assumptions.
The Company assumes that the carrying amount of short-term financial
instruments approximates their fair value. For these purposes, short-term is
defined as any item that matures, reprices, or represents a cash transaction
between willing parties within six months or less of the measurement date.
NET INCOME PER COMMON SHARE
Primary and fully diluted earnings per common share are based on the
weighted average number of common and dilutive common equivalent shares
outstanding during the period computed using the treasury stock method. Fully
diluted earnings per common share also assumes the conversion at the
beginning of the year of the convertible debt into 3,529 common shares at a
conversion price of $18.375 per share, the conversion at the beginning of the
year of the convertible subordinated debentures into 4,444 common shares at a
conversion price of $22.50 per share, the convertible preferred securities of
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
subsidiary into 3,477 common shares at a conversion price of $29.89 per share
and the exercise of all dilutive stock options outstanding at their option
prices, with the option exercise proceeds used to repurchase shares of common
stock at the ending market price for fully diluted earnings per share. For
primary earnings per share, shares of common stock are assumed to be
repurchased at the average price for the period.
CASH EQUIVALENTS
The Company considers all investment instruments purchased with an
original maturity of three months or less to be cash equivalents. Restricted
cash is not considered a cash equivalent.
IMPAIRMENT OF LONG-LIVED ASSETS
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" which requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS 121
did not have a material effect on the Company's financial statements.
RECLASSIFICATION
Certain amounts in the fiscal 1995 and 1994 financial statements and
supporting footnote disclosures have been reclassified to conform to the
fiscal 1996 presentation. Such reclassification did not impact previously
reported net income or retained earnings.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACQUISITIONS
NORTHERN
On December 24, 1996, CE Electric, which is 70% owned indirectly by the
Company and 30% owned indirectly by PKS, acquired majority ownership of the
outstanding ordinary share capital of Northern pursuant to the Tender Offer.
Through January 31, 1997, CE Electric had purchased more than 90% of
Northern's ordinary shares. Under United Kingdom statutory procedures
available to compulsorily acquire shares not purchased in the Tender Offer,
CE Electric expects to acquire the remaining Northern ordinary shares by
April 30, 1997.
As of December 31, 1996, the Company and PKS had contributed to CE
Electric approximately $410,000 and $176,000 respectively, of the
approximately $1,300,000 required to acquire all of Northern's ordinary and
preference shares in connection with the Tender Offer. The Company obtained
such funds from cash on hand, short-term borrowings, and borrowings of
approximately $100,000 under a Credit Agreement entered into with Credit
Suisse on October 28, 1996 (the "CalEnergy Credit Facility"). The remaining
funds necessary to consummate the Tender Offer will be provided from a pounds
sterling560,000 ($958,888) Term Loan and Revolving Facility Agreement, dated
October 28, 1996 (the "U.K. Credit Facility").
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
The Northern acquisition has been accounted for as a purchase business
combination. All identifiable assets acquired and liabilities assumed were
assigned a portion of the cost of acquiring Northern, equal to their fair
values at the date of the acquisition. Minority interest is recorded at
historical cost. The total cost of the acquisition through December 31, 1996
was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash........................................................................ $ 200,399
Properties, plants and equipment............................................ 1,101,860
Other assets................................................................ 541,554
Northern project debt....................................................... (447,119)
Accounts payable............................................................ (213,710)
Accrued liabilities......................................................... (606,525)
Minority interest........................................................... (297,821)
Preferred securities........................................................ (136,065)
Excess of cost over fair value of net assets acquired, net of deferred
taxes of $129,493.......................................................... 267,648
----------
$ 410,221
==========
</TABLE>
In 1993, Northern entered into a contract relating to the purchase of 400
MW of capacity from a 15.4% owned related party, Teesside Power Limited
("Teesside"), for a period of 15 years beginning April 1, 1993. The contract
sets escalating purchase prices at predetermined levels. Currently the
escalating contract prices exceed those paid by the Company to the
electricity pool (the "Pool") which is operated by the National Grid Group.
However, under current price cap regulation expected to expire March 31, 1998
the Company is able to recover these costs. For the period after March 31,
1998, the Company has established a liability for the estimated loss as a
result of this contract.
Northern utilizes contracts for differences ("CFDs") to mitigate its
exposure to volatility in the prices of electricity purchased through the
Pool. Such contracts allow the Company to effectively convert the majority of
its anticipated Pool purchases from market to fixed prices. As of December
31, 1996, CFDs were in place to hedge a portion of electricity purchases of
approximately 55,000 GWh through the year 2008.
The Labour Party has asserted that if they are elected at the next General
Election, which must be held no later than May 22, 1997, they will seek to
introduce a "windfall" assessment to be levied on the privatized utilities
including Northern. The Company has established a liability for such an
assessment as part of its purchase accounting reserves.
The preferred securities reflect the fair value of the outstanding
preferred stock of Northern.
FALCON SEABOARD
On August 7, 1996 the Company completed the acquisition of Falcon Seaboard
for a cash price of $229,500 including acquisition costs. Through the
acquisition, the Company indirectly acquired significant ownership interests
in three operating gas-fired cogeneration facilities and a related
natural-gas pipeline. The plants are located in Texas, Pennsylvania and New
York and total 520 MW in capacity.
The Falcon Seaboard acquisition has been accounted for as a purchase
business combination. All identifiable assets acquired and liabilities
assumed were assigned a portion of the cost of acquiring Falcon
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
Seaboard, equal to their fair values at the date of the acquisition. The
total cost of the acquisition was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash ....................................................................... $ 22,923
Operating facilities........................................................ 141,176
Power sales agreements...................................................... 23,282
Equity investments.......................................................... 144,656
Other assets................................................................ 27,229
Project loans............................................................... (119,478)
Other liabilities........................................................... (15,527)
Excess of cost over fair value of net assets acquired, net of deferred
taxes of $93,279........................................................... 5,239
---------
$ 229,500
=========
</TABLE>
EDISON MISSION ENERGY'S PARTNERSHIP INTEREST
On April 17, 1996 the Company completed the acquisition of Edison Mission
Energy's Partnership Interests in four geothermal operating facilities in
California for a cash purchase price of $71,000 including acquisition costs.
The four projects, Vulcan, Hoch (Del Ranch), Leathers and Elmore, are located
in the Imperial Valley of California. Prior to this transaction, the Company
was a 50% owner of these facilities.
The Partnership Interest acquisition has been accounted for as a purchase
business combination. All identifiable assets acquired and liabilities
assumed were assigned a portion of the cost of acquiring the Partnership
Interest, equal to their fair values at the date of the acquisition. The
total cost of the acquisition was allocated as follows:
Cash................... $ 12,956
Restricted cash........ 13,226
Power sales
agreements............ 78,036
Other assets........... 20,254
Project loans.......... (48,161)
Liabilities............ (5,311)
----------
$ 71,000
==========
MAGMA POWER COMPANY
On January 10, 1995, the Company acquired approximately 51% of the
outstanding shares of common stock of Magma (the "Magma Common Stock")
through a cash tender offer (the "Magma Tender Offer") and completed the
Magma acquisition on February 24, 1995 by acquiring the approximately 49% of
the outstanding shares of Magma Common Stock not owned by the Company through
a merger.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
The Magma acquisition has been accounted for as a purchase business
combination. All identifiable assets acquired and liabilities assumed were
assigned a portion of the cost of acquiring Magma, equal to their fair values
at the date of the acquisition. The total cost of the acquisition was
allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash........................................................................ $ 62,116
Operating facilities and project cash....................................... 291,365
Power sales agreements...................................................... 173,730
Mineral reserves............................................................ 160,768
Construction in progress.................................................... 93,174
Process license and other................................................... 39,304
Excess of cost over fair value of net assets acquired, net of deferred
taxes of $168,914.......................................................... 137,455
--------
$957,912
========
</TABLE>
Unaudited pro forma combined revenue, net income and primary earnings per
share of the Company, Northern, Falcon Seaboard, the Partnership Interest and
Magma for the twelve months ended December 31, 1996 and 1995, as if the
acquisitions had occurred at the beginning of 1995 after giving effect to
certain pro forma adjustments related to the acquisition were $2,162,381,
$64,811 and $1.12, compared to $2,006,496, $53,887 and $1.02, respectively.
4. PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT
Properties, plants, contracts and equipment comprise the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Operating project costs:
Power plants and distribution system................... $2,361,089 $ 623,778
Wells and resource development......................... 391,929 329,414
Power sales agreements................................. 232,228 188,415
Licenses, equipment, wells and resource development in
progress ............................................. 66,207 58,517
---------- ----------
Total operating facilities............................. 3,051,453 1,200,124
Less accumulated depreciation and amortization ........ (271,216) (164,184)
---------- ----------
Net operating facilities............................... 2,780,237 1,035,940
---------- ----------
Mineral reserves....................................... 207,424 212,929
Construction in progress:
Malitbog ............................................. 152,411 146,735
Mahanagdong .......................................... 123,567 76,560
Other international development....................... 84,944 11,418
Upper Mahiao ......................................... -- 188,904
Salton Sea IV......................................... -- 108,769
---------- ----------
Total.................................................. $3,348,583 $1,781,255
========== ==========
</TABLE>
COSO PROJECT OPERATING FACILITIES
The Coso Project operating facilities comprise the Company's
proportionate share of the assets of three of its Coso Joint Ventures:
Coso Finance Partners ("Navy I Joint Venture"), Coso Energy Developers
("BLM Joint Venture"), and Coso Power Developers ("Navy II Joint
Venture"). The Navy
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
I power plant is located on land owned by and leased from the U.S. Navy to
December 2009, with a 10 year extension at the option of the Navy. Under
terms of the Navy I Joint Venture, profits and losses were allocated
approximately 49% before payout of Units 2 and 3 and approximately 46.4%
thereafter to the Company. As of December 31, 1994, payout had been reached
on Units 2 and 3 of the Navy I Joint Venture. The BLM power plant is situated
on lands leased from the U.S. Bureau of Land Management under a geothermal
lease agreement that extends until October 31, 2035. The lease may be
extended to 2075 at the option of the BLM. Under the terms of the BLM Joint
Venture agreement, the Company's share of profits and losses before and after
payout is approximately 45% and 48%, respectively. The BLM Joint Venture
reached payout in June 1994. Under terms of the Navy II Joint Venture, all
profits, losses and capital contributions for Navy II are divided equally by
the two partners.
IMPERIAL VALLEY PROJECT OPERATING FACILITIES
The Company currently operates eight geothermal power plants in the
Imperial Valley in California. Four of these plants were developed by Magma.
The Partnership Project consists of the Vulcan, Hoch (Del Ranch), Elmore, and
Leathers Partnerships. The remaining four plants which comprise the Salton
Sea Project are indirect wholly owned subsidiaries of the Company, three of
which were purchased by Magma on March 31, 1993 from Union Oil Company of
California and the fourth which was completed by the Company in June 1996.
These geothermal power plants consist of the Salton Sea I, Salton Sea II,
Salton Sea III and the Salton Sea IV. The Partnership Project and the Salton
Sea Project are collectively referred to as the Imperial Valley Project. The
Imperial Valley Project commencement dates and nominal capacities are as
follows:
IMPERIAL VALLEY PLANTS COMMENCEMENT DATE NOMINAL CAPACITY
- -------------------------- --------------------- --------------------
Vulcan..................... February 10, 1986 34 MW
Hoch (Del Ranch)........... January 2, 1989 38 MW
Elmore..................... January 1, 1989 38 MW
Leathers .................. January 1, 1990 38 MW
Salton Sea I............... July 1, 1987 10 MW
Salton Sea II.............. April 5, 1990 20 MW
Salton Sea III............. February 13, 1989 49.8 MW
Salton Sea IV.............. May 24, 1996 39.6 MW
SIGNIFICANT CUSTOMERS AND CONTRACTS
All of the Company's sales of electricity from the Coso Project and
Imperial Valley Project, which comprise approximately 77% of 1996 electricity
and steam revenues, are to Edison and are under long-term power purchase
contracts.
The Coso Project and the Partnership Project sell all electricity
generated by the respective plants pursuant to seven long-term SO4 Agreements
between the projects and Edison. These SO4 Agreements provide for capacity
payments, capacity bonus payments and energy payments. Edison makes fixed
annual capacity payments to the projects and, to the extent that capacity
factors exceed certain benchmarks, is required to make capacity bonus
payments. The price for capacity and capacity bonus payments is fixed for the
life of the SO4 Agreements. Energy is sold at increasing scheduled rates for
the first ten years after firm operation and thereafter at Edison's Avoided
Cost of Energy.
The scheduled energy price periods of the Coso Project SO4 Agreements
extend until at least August 1997, March 1999 and January 2000 for each of
the units operated by the Navy I, BLM and Navy II Partnerships, respectively.
The Company's share of the annual capacity payments is approximately $5,600
to $5,900 per annum for each plant. The Company's share of bonus payments is
approximately $1,000 per annum for each plant.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
The scheduled energy price periods of the Partnership Project SO4
Agreements extended until February 1996 for the Vulcan Partnership and extend
until December 1998, December 1998, and December 1999 for each of the Hoch
(Del Ranch), Elmore and Leathers Partnerships, respectively. The annual
capacity payments are approximately $24,500 and the bonus payments are
approximately $4,400 in aggregate for the four plants.
Excluding Vulcan, which is receiving Edison's Avoided Cost of Energy, the
Company's SO4 Agreements provide for energy rates ranging from 12.6 cents per
kWh in 1996 to 15.6 cents per kWh in 1999. The weighted average energy rate
for all of the Company's SO4 Agreements was 11.7 cents per kWh in 1996.
Salton Sea I sells electricity to Edison pursuant to a 30-year negotiated
power purchase agreement, as amended (the "Salton Sea I PPA"), which provides
for capacity and energy payments. The energy payment is calculated using a
Base Price which is subject to quarterly adjustments based on a basket of
indices. The time period weighted average energy payment for Salton Sea I was
5.1 cents per kWh during 1996. As the Salton Sea I PPA is not an SO4
Agreement, the energy payments do not revert to Edison's Avoided Cost of
Energy. The capacity payment is approximately $1,100 per annum.
Salton Sea II and Salton Sea III sell electricity to Edison pursuant to
30-year modified SO4 Agreements that provide for capacity payments, capacity
bonus payments and energy payments. The price for contract capacity and
contract capacity bonus payments is fixed for the life of the modified SO4
Agreements. The energy payments for the first ten year period, which period
expires in April 2000 and February 1999 are levelized at a time period
weighted average of 10.6 cents per kWh and 9.8 cents per kWh for Salton Sea
II and Salton Sea III, respectively. Thereafter, the monthly energy payments
will be Edison's Avoided Cost of Energy. For Salton Sea II only, Edison is
entitled to receive, at no cost, 5% of all energy delivered in excess of 80%
of contract capacity through September 30, 2004. The annual capacity and
bonus payments for Salton Sea II and Salton Sea III are approximately $3,300
and $9,700, respectively.
The Salton Sea IV Project sells electricity to Edison pursuant to a
modified SO4 agreement which provides for contract capacity payments on 34 MW
of capacity at two different rates based on the respective contract
capacities deemed attributable to the original Salton Sea PPA option (20 MW)
and to the original Fish Lake PPA (14 MW). The capacity payment price for the
20 MW portion adjusts quarterly based upon specified indices and the capacity
payment price for the 14 MW portion is a fixed levelized rate. The energy
payment (for deliveries up to a rate of 39.6 MW) is at a fixed price for
55.6% of the total energy delivered by Salton Sea IV and is based on an
energy payment schedule for 44.4% of the total energy delivered by Salton Sea
IV. The contract has a 30-year term but Edison is not required to purchase
the 20 MW of capacity and energy originally attributable to the Salton Sea I
PPA option after September 30, 2017, the original termination date of the
Salton Sea I PPA.
For the year ended December 31, 1996, Edison's average Avoided Cost of
Energy was 2.5 cents per kWh which is substantially below the contract energy
prices earned for the year ended December 31, 1996. Estimates of Edison's
future Avoided Cost of Energy vary substantially from year to year. The
Company cannot predict the likely level of Avoided Cost of Energy prices
under the SO4 Agreements and the modified SO4 Agreements at the expiration of
the scheduled payment periods. The revenues generated by each of the projects
operating under SO4 Agreements could decline significantly after the
expiration of the respective scheduled payment periods.
The Upper Mahiao Project was deemed complete in June 1996 and began
receiving capacity payments pursuant to the Upper Mahiao Energy Conversion
Agreement ("ECA"), in July of 1996. The project is structured as a ten year
BOOT, in which the Company's subsidiary CE Cebu Geothermal Power Company,
Inc. ("CE Cebu"), the project company, is responsible for providing
operations and maintenance during the ten year BOOT period. The electricity
generated by the Upper Mahiao geothermal power plant is sold to PNOC-Energy
Development Corporation ("PNOC-EDC"), which is also responsible for supplying
the facility with the geothermal steam. After the ten year cooperation
period, and the recovery by the Company of its capital investment plus
incremental return, the plant will be transferred to PNOC-EDC at no cost.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
PNOC-EDC is obligated to pay for electric capacity that is nominated each
year by CE Cebu, irrespective of whether PNOC-EDC is willing or able to
accept delivery of such capacity. PNOC-EDC pays to CE Cebu a fee (the
"Capacity Fee") based on the plant capacity nominated to PNOC-EDC in any year
(which, at the plant's design capacity, is approximately 95% of total
contract revenues) and a fee (the "Energy Fee") based on the electricity
actually delivered to PNOC-EDC (approximately 5% of total contract revenues).
The Capacity Fee serves to recover the capital costs of the project, to
recover fixed operating costs and to cover return on investment. The Energy
Fee is designed to cover all variable operating and maintenance costs of the
power plant. Payments under the Upper Mahiao ECA are denominated in U.S.
Dollars, or computed in U.S. dollars and paid in Philippine pesos at the
then-current exchange rate, except for the Energy Fee, which will be used to
pay Philippine peso-denominated expenses. Significant portions of the
Capacity Fee and Energy Fee are indexed to U.S. and Philippine inflation
rates, respectively. PNOC-EDC's payment requirements, and its other
obligations under the Upper Mahiao ECA are supported by the Government of the
Philippines through a performance undertaking.
Unit I of the Malitbog Project was deemed complete in July 1996. The
Malitbog Project is being built, owned and operated by VGPC, a Philippine
general partnership that is wholly owned, indirectly, by the Company. VGPC is
selling 100% of its capacity on substantially the same basis as described
above for the Upper Mahiao Project to PNOC-EDC, which will in turn sell the
power to the NPC. As with the Upper Mahiao project, the Malitbog project is
structured as a ten year BOOT, in which the Company will be responsible for
implementing construction of the geothermal power plant and, as owner, for
providing operations and maintenance for the ten year BOOT period. After a
ten year cooperation period, and the recovery by the Company of its capital
investment plus incremental return, the plant will be transferred to PNOC-EDC
at no cost.
The Saranac Project sells electricity to New York State Electric & Gas
pursuant to a 15 year negotiated power purchase agreement (the "Saranac
PPA"), which provides for capacity and energy payments. Capacity payments,
which in 1996 total 2.1 cents per kWh, are received for electricity produced
during "peak hours" as defined in the Saranac PPA and escalate at
approximately 4.1% annually for the remaining term of the contract. Energy
payments, which average 6.3 cents per kWh in 1996, escalate at approximately
4.4% annually for the remaining term of the Saranac PPA. The Saranac PPA
expires in June of 2009.
The Power Resources Project sells electricity to Texas Utilities Electric
Company ("TUEC") pursuant to a 15 year negotiated power purchase agreement
(the "Power Resources PPA"), which provides for capacity and energy payments.
Capacity payments and energy payments, which in 1996 are $2,930 per month and
2.86 cents per kWh, respectively, escalate at 3.5% annually for the remaining
term of the Power Resources PPA. The Power Resources PPA expires in September
2003.
The NorCon Project sells electricity to Niagara Mohawk Power Corporation
("Niagara") pursuant to a 25 year negotiated power purchase agreement (the
"NorCon PPA") which provides for energy payments calculated pursuant to an
adjusting formula based on Niagara's ongoing Tariff Avoided Cost and the
contractual Long-Run Avoided Cost. The NorCon PPA term extends through
December 2017. The Company and Niagara are currently engaged in discussions
regarding a potential restructuring or buyout and termination of the NorCon
PPA.
The Yuma Project sells electricity to SDG&E under an existing 30-year
power purchase contract. The energy is sold at SDG&E's Avoided Cost of Energy
and the capacity is sold to SDG&E at a fixed price for the life of the power
purchase contract. The contract term extends through May 2024.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
ROYALTY EXPENSE
Royalty expense comprises the following for the years ended:
1996 1995 1994
--------- --------- --------
Navy I, Unit 1........ $ 1,620 $ 1,622 $1,641
Navy I, Units 2 and 3. 3,512 3,394 3,174
BLM................... 2,538 3,036 2,842
Navy II............... 5,742 5,571 1,963
Partnership Project .. 6,702 6,820 --
Salton Sea Project ... 3,526 3,578 --
Desert Peak........... 53 287 268
------- ------- ------
Total............... $23,693 $24,308 $9,888
======= ======= ======
The amount of royalties paid by Navy I to the U.S. Navy to develop
geothermal energy for Navy I, Unit 1 on the lands owned by the Navy comprises
(i) a fee payable during the term of the contract based on the difference
between the amounts paid by the Navy to Edison for specified quantities of
electricity and the price as determined under the contract (which currently
approximates 73% of that paid by the Navy to Edison), and (ii) $25,000
payable in December 2009, of which the Company's share is $11,600. The
$25,000 payment is secured by funds placed on deposit monthly, which funds,
plus accrued interest, will aggregate $25,000. The monthly deposit is
currently $50. As of December 31, 1996, the balance of funds deposited
approximated $5,311, which amount is included in restricted cash.
Units 2 and 3 of Navy I and the Navy II power plants are on Navy lands,
for which the Navy receives a royalty based on electric sales revenue at the
initial rate of 4% escalating to 22% by the end of the contract in December
2019. The BLM is paid a royalty of 10% of the value of steam produced by the
geothermal resource supplying the BLM Plant.
The Partnership Project pays royalties based on both energy revenues and
total electricity revenues. Hoch (Del Ranch) and Leathers pay royalties of
approximately 5% of energy revenues and 1% of total electricity revenue.
Elmore pays royalties of approximately 5% of energy revenues. Vulcan pays
royalties of 4.167% of energy revenues.
The Salton Sea Project's weighted average royalty expense in 1996 was
approximately 5.2%. The royalties are paid to numerous recipients based on
varying percentages of electrical revenue or steam production multiplied by
published indices.
NEVADA AND UTAH PROPERTIES
Roosevelt Hot Springs. The Company operates and owns an approximately 70%
interest in a geothermal steam field which supplies geothermal steam to a 23
net MW power plant owned by Utah Power & Light Company ("UP&L") located on
the Roosevelt Hot Springs property under a 30-year steam sales contract.
The Company obtained approximately $20,317 cash under a pre-sale agreement
with UP&L whereby UP&L paid in advance for the steam produced by the steam
field. The Company must make certain penalty payments to UP&L if the steam
produced does not meet certain quantity and quality requirements.
Desert Peak. The Company is the owner and operator of a geothermal plant
at Desert Peak, Nevada that is currently selling electricity to Sierra
Pacific Power Company ("Sierra") at Sierra's Avoided Cost.
GLASS MOUNTAIN
Under a Bonneville Power Administration ("BPA") geothermal pilot program,
the Company has been developing a 30 net MW geothermal project which was
originally located in the Newberry Known
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
Geothermal Resource Area in Deschutes County, Oregon. Pursuant to two power
sales contracts executed in September 1994, an affiliate of the Company
agreed to sell 20 MW to BPA and 10 MW to Eugene Water and Electric Board
("EWEB") from the Project. In addition, BPA and EWEB together have an option
to purchase up to an additional 100 MW of production from the project under
certain circumstances. These power sales contracts provide that under certain
circumstances the contracts may be utilized at an alternative location.
Pursuant to its resource exploration program, the Company has determined
that the geothermal resource at Newberry is not sufficient to support the
contracts and accordingly has determined to utilize the contracts at its
leasehold position in Glass Mountain (the "Glass Mountain Project") in
Northern California, where it has two successful production wells. The
Company and BPA have agreed to relocate the project to Glass Mountain. Under
the relocation agreement BPA will purchase 30 MW from the project. The
movement of the project to this alternative location and BPA's purchase
obligation are subject to obtaining a final environmental impact statement
relating to the new site location. Discussions with EWEB are continuing.
The Glass Mountain Project is currently expected to commence commercial
operation in 2000. Completion of this project is subject to a number of
significant uncertainties and cannot be assured.
5. EQUITY INVESTMENTS
The Company has a present indirect ownership of approximately 35% in the
Casecnan Project, a combined irrigation and 150 net MW hydroelectric power
generation project located on the island of Luzon in the Philippines.
The Company acquired an approximate 47% economic interest in Saranac Power
Partners, L.P. and a 20% economic interest in NorCon Power Partners, L.P. as
part of the Falcon Seaboard acquisition.
Summary financial information for these equity investments follows:
CASECNAN SARANAC NORCON
---------- ---------- ----------
As of and for the year ended
December 31, 1996:
Assets................... $492,166 $325,174 $125,956
Liabilities.............. 380,737 213,326 121,223
Net income (loss)........ (11,207) 40,005 (53)
As of December 31, 1995:
Assets................... 501,160 N/A N/A
Liabilities.............. 378,524 N/A N/A
6. PARENT COMPANY DEBT
Parent company debt comprises the following at December 31:
1996 1995
------------ ----------
Senior discount notes.................. $ 527,535 $477,355
Senior notes .......................... 224,150 --
Limited recourse senior secured
notes*................................ 200,000 200,000
CalEnergy credit facility ............. 100,000 --
Revolving credit facility ............. 95,000 --
Convertible subordinated debentures ... -- 100,000
Convertible debt ...................... -- 64,850
---------- --------
$1,146,685 $842,205
========== ========
- ------------
* The amount of recourse obligation to the parent was $0 at December 31,
1996.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
SENIOR DISCOUNT NOTES
In March 1994, the Company issued $400,000 of 10 1/4% Senior Discount
Notes which accrete to an aggregate principal amount of $529,640 at maturity
in 2004. The original issue discount (the difference between $400,000 and
$529,640) will be amortized from issue date through January 15, 1997, during
which time no cash interest will be paid on the Senior Discount Notes.
Commencing July 15, 1997, cash interest on the Senior Discount Notes will be
payable semiannually on January 15 and July 15 of each year. The Senior
Discount Notes are redeemable at any time on or after January 15, 1999
initially at a redemption price of 105.125% declining to 100% on January 15,
2002 plus accrued interest to the date of redemption. The Senior Discount
Notes are unsecured senior obligations of the Company.
The Senior Discount Notes prohibit payment of cash dividends unless
certain financial ratios are met and unless the dividends do not exceed 50%
of the Company's accumulated adjusted consolidated net income as defined,
subsequent to April 1, 1994, plus the proceeds of any stock issuance.
SENIOR NOTES
On September 20, 1996 the Company completed a private sale to
institutional investors of $225,000 aggregate principal amount of 9 1/2%
Senior Notes due 2006. Interest on the Senior Notes will be payable
semiannually on March 15 and September 15 of each year. The Senior Notes are
redeemable at any time on or after September 15, 2001 initially at a
redemption price of 104.75% declining to 100% on September 15, 2004 plus
accrued interest to the date of redemption. The Senior Notes are unsecured
senior obligations of the Company.
LIMITED RECOURSE SENIOR SECURED NOTES
On July 21, 1995 the Company issued $200,000 of 9 7/8% Limited Recourse
Senior Secured Notes Due 2003 (the "Notes"). Interest on the Notes is payable
on June 30 and December 30 of each year, commencing December 1995. The Notes
are secured by an assignment and pledge of 100% of the outstanding capital
stock of Magma and are recourse only to such Magma capital stock, the
Company's interest in a secured Magma note and general assets of the Company
equal to the Restricted Payment Recourse Amount, as defined in the Note
Indenture ("Note Indenture"), which was $0 at December 31, 1996.
At any time or from time to time on or prior to June 30, 1998, the Company
may, at its option, use all or a portion of the net cash proceeds of a
Company equity offering (as defined in the Note Indenture) and shall at any
time use all of the net cash proceeds of any Magma equity offering (as
defined in the Note Indenture) to redeem up to an aggregate of 35% of the
principal amount of the Notes originally issued at a redemption price equal
to 109.875% of the principal amount thereof plus accrued interest to the
redemption date. On or after June 30, 2000, the Notes are redeemable at the
option of the Company, in whole or in part, initially at a redemption price
of 104.9375% declining to 100% on June 30, 2002 and thereafter, plus accrued
interest to the date of redemption.
CALENERGY CREDIT FACILITY
On October 28, 1996 the Company obtained a $100,000 credit facility (the
"CalEnergy Credit Facility") of which the Company has drawn $100,000 as of
December 31,1996. Borrowings under the CalEnergy Credit Facility are
unsecured and mature on October 28, 1997, subject to prepayment by the
Company at any time. Subsequent to year end, the Company repaid the entire
balance of the CalEnergy Credit Facility.
REVOLVING CREDIT FACILITY
On July 8, 1996 the Company obtained a $100,000 three year revolving
credit facility. The facility is unsecured and is available to fund general
operating capital requirements and finance future business opportunities. The
Company had drawn $95,000 as of December 31, 1996. Subsequent to year end,
the Company repaid the entire balance.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
CONVERTIBLE SUBORDINATED DEBENTURES
In June of 1993, the Company issued $100,000 principal amount of 5%
convertible subordinated debentures ("debentures") due July 31, 2000.
Substantially all of the debentures were converted into 4,443 common shares
in September and October 1996 at a conversion price of $22.50 per share.
CONVERTIBLE DEBT
On November 19, 1991, the Company sold one thousand shares of convertible
preferred stock, Series C, at $50,000 per share to Kiewit Energy Company Inc.
("Kiewit"), a subsidiary of PKS, in a private placement. Each share of the
Series C preferred stock was convertible at any time at $18.375 per common
share into 2,721 shares of common stock subject to customary adjustments. The
Series C preferred stock had a dividend rate of 8.125%, commencing March 15,
1992 through conversion date or December 15, 2003. The dividends, which were
cumulative, were payable quarterly in convertible preferred stock, Series C,
through March 15, 1995 and in cash on subsequent dividend dates.
Pursuant to the terms of the Securities Purchase Agreement, the Company
exercised its rights to exchange the preferred stock, Series C, on March 15,
1995 for $64,850 principal amount 9.5% convertible subordinated debenture of
the Company due 2003, with the same conversion features of the preferred
stock, Series C. On September 20, 1996, the Company converted the $64,850
convertible debt and associated accrued interest into 3,620 common shares at
a conversion price of $18.375 per share.
The annual repayments of the parent company debt for the years beginning
January 1, 1997 are as follows:
SENIOR LIMITED
DISCOUNT SENIOR RECOURSE
NOTES NOTES NOTES *
---------- ---------- ----------
1997 - 2001... $ -- $ -- $ --
Thereafter.... 529,640 225,000 200,000
-------- -------- --------
$529,640 $225,000 $200,000
======== ======== ========
- ------------
* The amount of recourse obligation to the parent was $0 at December 31,
1996.
7. SUBSIDIARY AND PROJECT DEBT
Project loans held by subsidiaries and projects of the Company comprise
the following at December 31:
1996 1995
------------ ----------
Salton Sea Notes and Bonds ...... $ 538,982 $452,088
Northern eurobonds............... 439,192 --
Coso Funding Corp. project
loans........................... 148,346 203,226
U.K. Credit Facility............. 128,423 --
Power Resources project debt .... 114,571 --
Construction loans............... 377,454 211,198
Other............................ 7,927 54,707
---------- --------
$1,754,895 $921,219
========== ========
Pursuant to separate project financing agreements, substantially all the
assets of the Company are pledged or encumbered to support or otherwise
provide the security for the project or subsidiary debt.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
SALTON SEA NOTES AND BONDS
On June 20, 1996 and July 25, 1995, the Company through its wholly owned
subsidiary, Salton Sea Funding Corporation ("Funding Corporation"), completed
sales to institutional investors of $135,000 and $475,000, respectively, of
Salton Sea Notes and Bonds (the "Notes and Bonds"). The Salton Sea Notes and
Bonds are nonrecourse to the Company. The Funding Corporation debt securities
were offered as follows:
SENIOR SECURED SERIES DUE RATE AMOUNT
--------------------- -------------- ------- ----------
July 25, 1995 ... A Notes May 30, 2000 6.69% $232,750
July 25, 1995 ... B Bonds May 30, 2005 7.37% 133,000
July 25, 1995 ... C Bonds May 30, 2010 7.84% 109,250
June 20, 1996 ... D Notes May 30, 2000 7.02% 70,000
June 20, 1996 ... E Bonds May 30, 2011 8.30% 65,000
The Salton Sea Notes and Bonds are secured by the Company's four existing
Salton Sea plants as well as an assignment of the right to receive various
royalties payable to Magma in connection with its Imperial Valley properties
and distributions from the Partnership Project.
Each of the Company's direct or indirect subsidiaries is organized as a
legal entity separate and apart from the Company and its other subsidiaries.
It should not be assumed that any asset of any such subsidiary will be
available to satisfy the obligations of the Company or any of its other such
subsidiaries; provided, however, that unrestricted cash or other assets which
are available for distribution may, subject to applicable law and the terms
of financing arrangements of such parties, be advanced, loaned, paid as
dividends or otherwise distributed or contributed to the Company or
affiliates thereof. Substantially all of the assets of each subsidiary listed
below (except Vulcan/BN Geothermal Power Company and certain other
subsidiaries involved in project financing activities) have been encumbered
to secure obligations owed to the creditors of such subsidiary:
Fish Lake Power Company
Salton Sea Brine Processing L.P.
Salton Sea Power Generation L.P.
Vulcan Power Company
CalEnergy Operating Company
Salton Sea Funding Corporation
Salton Sea Power Company
Salton Sea Royalty Company
Vulcan/BN Geothermal Power Company
Del Ranch, L.P.
Elmore, L.P.
Leathers, L.P.
Pursuant to the Depository Agreement, Funding Corporation established a
debt service reserve fund in the form of a letter of credit in the amount of
$70,430 from which scheduled interest and principal payments can be made.
NORTHERN EUROBONDS
The Northern debt includes a pounds sterling55,000 ($94,177) debenture due
in 1999, which bears a fixed interest rate of 12.661%. The debt also includes
bearer bonds repayable in pounds sterling100,000 ($171,230) amounts in 2005
and 2020, bearing fixed interest rates of 8.625% and 8.875%, respectively.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
The balance at December 31, 1996 consists of the following:
Debenture due 1999 ...... $ 99,924
Bearer bonds due 2005.... 171,130
Bearer bonds due 2020.... 168,138
--------
$439,192
========
COSO FUNDING CORP. PROJECT LOANS
The Coso Funding Corp. project loans are from Coso Funding Corp., a
single-purpose corporation formed to issue notes for its own account and act
as an agent on behalf of the Coso Project. On December 16, 1992, pursuant to
separate credit agreements executed between Coso Funding Corp. and each Coso
Joint Venture, the proceeds from Coso Funding Corp.'s note offering were
loaned to the Coso Project. The proceeds of $560,245 were used by the Coso
Project to (i) purchase and retire project finance debt comprised of the term
loans and construction loans in the amount of $424,500, (ii) fund contingency
funds in the amount of $68,400, (iii) fund debt service reserve funds in the
amount of $40,000, and (iv) finance $27,345 of capital expenditures and
transaction costs. The contingency fund and debt service reserve fund were
required by the project loan agreements.
The contingency fund represented the approximate maximum amount, if any,
which could theoretically have been payable by the Coso Project to third
parties to discharge all liens of record and other contract claims
encumbering the Coso Project's plants at the time of the project loans. The
contingency fund was established in order to obtain investment-grade ratings
to facilitate the offer and sale of the notes by Coso Funding Corp., and such
establishment did not reflect the Coso Project's view as to the merits or
likely disposition of such litigation or other contingencies. On June 9,
1993, MPE and the Mission Power Group, subsidiaries of Edison Corp., and the
Coso Project reached a final settlement of all of their outstanding disputes
and claims relating to the construction of the Coso Project. As a result of
the various payments and releases involved in such settlement, the Coso
Project agreed to make a net payment of $20,000 to MPE from the cash reserves
of the Coso Project contingency fund and MPE agreed to release its mechanics'
liens on the Coso Project. After making the $20,000 payment, the remaining
balance of the Coso Project contingency fund (approximately $49,300) was used
to increase the Coso Project debt reserve fund from approximately $43,000 to
its maximum fully-funded requirement of $67,900. The remaining $24,400
balance of contingency fund was retained within the Coso Project for future
capital expenditures and for Coso Project debt service payments. Since the
Coso Project debt service reserve is fully funded in advance, Coso Project
cash flows otherwise intended to fund the Coso Project debt service reserve
fund, subject to satisfaction of certain covenants and conditions contained
in the Coso Joint Ventures' refinancing documents, may be available for
distribution to the Company in its proportionate share.
The Coso Funding Corp. project loans are collateralized by, among other
things, the power plants, geothermal resource, debt service reserve funds,
contingency funds, pledge of contracts, and an assignment of all such Coso
Project's revenues which will be applied against the payment of obligations
of each Coso Joint Venture, including the project loans. Each Coso Joint
Venture's assets will secure only its own project loan, and will not be
cross-collateralized with assets pledged under other Coso Joint Venture's
credit agreements. The project loans are nonrecourse to any partner in the
Coso Joint Ventures and the Coso Funding Corp. shall solely look to such Coso
Joint Venture's pledged assets for satisfaction of such project loans.
However, the loans are cross-collateralized by the available cash flow of
each Coso Joint Venture. Each Coso Joint Venture after satisfying a series of
its own obligations has agreed to advance support loans (to the extent of
available cash flow and, under certain conditions, its debt service reserve
funds) in the event revenues from the supporting Coso Joint Ventures are
insufficient to meet scheduled principal and interest on their separate
project loans.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
The Coso Funding Corp. project loans carry a fixed interest rate with
weighted average interest rates of 8.46% and 8.29% at December 31, 1996 and
1995, respectively. The loans have scheduled repayments through December
2001.
U.K. CREDIT FACILITY
On October 28, 1996 CE Holdings obtained a pounds sterling560,000
($958,888) five year term loan and revolving credit facility (the "U.K.
Credit Facility"). The Company has not guaranteed, nor is it otherwise
subject to recourse for, amounts borrowed under the U.K. Credit Facility. The
agreement places restrictions on distributions from CE Electric to any of its
shareholders based on certain financial ratios. As of December 31, 1996, CE
Holdings had drawn pounds sterling75,000 ($128,423) under the agreement.
POWER RESOURCES PROJECT FINANCING DEBT
Power Resources, an indirect wholly-owned subsidiary, has project
financing debt consisting of a term loan payable to a consortium of banks
with interest and principal due quarterly through October 2003. The debt
carries fixed interest rates of 10.385% and 10.625%. The loan is
collateralized by all of the assets of Power Resources.
The annual repayments of the subsidiary and project debt, excluding
construction loans, for the years beginning January 1, 1997 and thereafter
are as follows:
<TABLE>
<CAPTION>
SALTON SEA COSO
NOTES AND FUNDING UK CREDIT POWER
BONDS NORTHERN CORP. FACILITY RESOURCES OTHER
------------ ---------- ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
1997......... $ 90,228 $ -- $ 41,729 $ -- $ 11,228 $ 873
1998......... 106,938 -- 38,912 -- 12,805 1,678
1999......... 57,836 99,924 31,717 -- 14,268 1,421
2000......... 25,072 -- 4,080 -- 16,087 1,181
2001......... 22,376 -- 31,908 128,423 18,119 959
Thereafter .. 236,532 339,268 -- -- 42,064 1,815
-------- -------- -------- -------- -------- ------
$538,982 $439,192 $148,346 $128,423 $114,571 $7,927
======== ======== ========= ========= ======== ======
</TABLE>
CONSTRUCTION LOANS
The Company's share of project construction loans comprise the following
at December 31:
1996 1995
---------- ----------
Upper Mahiao .. $150,628 $134,619
Malitbog....... 137,881 36,863
Mahanagdong.... 76,503 39,716
Dieng Unit I .. 12,442 --
-------- --------
$377,454 $211,198
========= ========
The construction loans are scheduled to be replaced by term project
financing upon completion of construction and commencement of commercial
operations.
UPPER MAHIAO CONSTRUCTION LOAN
Draws on the construction loan for the Upper Mahiao geothermal power
project at December 31, 1996 totaled $150,628. A consortium of international
banks provided the construction financing with interest rates at LIBOR or
"Prime" with interest payments due every quarter and at LIBOR maturity.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
The weighted average interest rate at December 31, 1996 and 1995 is
approximately 8.01% and 8.31%, respectively. The Export-Import Bank of the
U.S. ("Ex-Im Bank") is providing political risk insurance to commercial banks
on the construction loan. The construction loan is expected to be converted
to a term loan promptly after NPC completes the full capacity transmission
line, which is currently expected in early 1997. The largest portion of the
term loan for the project will also be provided by Ex-Im Bank. The term
financing for the Ex-Im Bank loan will be for a ten year term at a fixed
interest rate of 5.95%.
MALITBOG CONSTRUCTION LOAN
Draws on the construction loan for the Malitbog geothermal power project
at December 31, 1996 totaled $137,881. Credit Suisse and OPIC have provided
the construction and term loan facilities. The eight year project term loan
facilities will be at variable interest rates (weighted average of 8.15% and
8.42% at December 31, 1996 and 1995, respectively). The international bank
portion of the debt will be insured by the Overseas Private Investment
Corporation ("OPIC") against political risks and the Company's equity
contribution to Visayas Geothermal Power Company ("VGPC") is covered by
political risk insurance from the Multilateral Investment Guarantee Agency
and OPIC.
MAHANAGDONG CONSTRUCTION LOAN
The Company's share of draws on the construction loan for the Mahanagdong
geothermal power project at December 31, 1996 totaled $76,503. The
construction debt financing is provided by OPIC and a consortium of
international banks. The construction loan interest rates are at LIBOR or
"Prime" with interest payments due quarterly and at LIBOR maturity. The
weighted average interest rate at December 31, 1996 and 1995 is approximately
8.05% and 8.02% respectively. Political risk insurance from Ex-Im Bank has
been obtained for the commercial lenders. Ten year project term debt
financing of approximately $120,000 will be provided by Ex-Im Bank (which
will replace the bank construction debt) and by OPIC. The majority of the
term financing is expected to be provided by the Ex-Im Bank at a fixed
interest rate of 6.92%.
DIENG CONSTRUCTION LOAN
On October 4, 1996 the Company closed the $120,000 project financing for
the Dieng Unit I 55 net MW geothermal project located in Indonesia. The loan
carries a variable interest rate (weighted average of 7.19% at December 31,
1996) and has scheduled project term repayments through 2002. Dieng Unit I is
under construction and is currently expected to begin commercial operation by
late 1997. The Company has drawn $12,442 as of December 31, 1996.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
8. INCOME TAXES
Provision for income taxes is comprised of the following at December 31:
1996 1995 1994
--------- --------- --------
Currently payable:
State.................................... $ 7,520 $ 5,510 $ 1,970
Federal.................................. 19,873 11,138 5,829
Foreign.................................. 2,176 -- --
-------- ------- -------
29,569 16,648 7,799
-------- ------- -------
Deferred:
State.................................... 1,619 921 1,017
Federal.................................. 9,209 13,062 7,241
Foreign.................................. 1,424 -- --
-------- ------- -------
12,252 13,983 8,258
-------- ------- -------
Total after benefit of extraordinary
item..................................... 41,821 30,631 16,057
Tax benefit attributable to extraordinary
item..................................... -- -- 945
-------- ------- -------
Total before benefit of extraordinary
item................................... $41,821 $30,631 $17,002
======== ======= =======
A reconciliation of the federal statutory tax rate to the effective tax
rate applicable to income before provision for income taxes follows:
1996 1995 1994
-------- -------- --------
Federal statutory rate................. 35.00% 35.00% 35.00%
Percentage depletion in excess of cost
depletion............................. (6.12) (7.38) (6.85)
Investment and energy tax credits ..... (8.34) (1.80) (3.04)
State taxes, net of federal tax
effect................................ 4.38 4.09 4.48
Goodwill amortization.................. 2.51 2.53 --
Non-deductible expense................. .84 1.10 --
Lease investment....................... -- (2.18) --
Tax effect of foreign income........... 2.54 -- --
Other.................................. .01 .20 .86
------ ------ ------
30.82% 31.56% 30.45%
====== ====== ======
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
Deferred tax liabilities (assets) are comprised of the following at
December 31:
1996 1995
----------- -----------
Depreciation and amortization, net................. $ 725,366 $ 349,079
Pensions........................................... 22,883 --
Other.............................................. 6,119 4,043
--------- ---------
754,368 353,122
--------- ---------
Deferred contract costs............................ (128,745) --
Deferred income.................................... (9,298) (7,709)
Loss carryforwards................................. -- (3,050)
Energy and investment tax credits.................. (55,931) (52,857)
Advance corporation tax............................ (20,205) --
Alternative minimum tax credits.................... (50,819) (52,480)
Jr. SO4 royalty receivable......................... (5,865) (5,865)
Accruals not currently deductible for tax
purposes.......................................... (13,372) --
Other.............................................. (934) (4,641)
--------- ---------
(285,169) (126,602)
--------- ---------
Net deferred taxes................................. $ 469,199 $ 226,520
========= =========
The Company has unused investment and geothermal energy tax credit
carryforwards of approximately $55,931 expiring between 2002 and 2011. The
Company also has approximately $50,819 of alternative minimum tax credit and
pounds sterling11,800 ($20,205) of surplus advance corporation tax
carryforwards which have no expiration date.
9. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF SUBSIDIARY TRUST HOLDING SOLELY CONVERTIBLE DEBENTURES
On April 12, 1996 CalEnergy Capital Trust, a special purpose Delaware
business trust organized by the Company (the "Trust"), pursuant to the
Amended and Restated Declaration of Trust (the "Declaration") dated as of
April 4, 1996, completed a private placement (with certain shelf registration
rights) of $100,000 of convertible preferred securities ("TIDES"). In
addition, an option to purchase an additional 78.6 TIDES, or $3,930, was
exercised by the initial purchasers to cover over-allotments.
The Trust has issued 2,078.6 of 6 1/4% TIDES with a liquidation preference
of fifty dollars each. The Company owns all of the common securities of the
Trust. The TIDES and the common securities represent undivided beneficial
ownership interests in the Trust. The assets of the Trust consist solely of
the Company's 6 1/4% Convertible Junior Subordinated Debentures due 2016 in
an outstanding aggregate principal amount of $103,930 ("Junior Debentures")
issued pursuant to an indenture dated as of April 1, 1996. The indenture
includes an agreement by the Company to pay expenses and obligations incurred
by the Trust. Each TIDES will be convertible at the option of the holder
thereof at any time into 1.6728 shares of CalEnergy Common Stock (equivalent
to a conversion price of $29.89 per share of the Company's Common Stock),
subject to customary anti-dilution adjustments.
Until converted into the Company's Common Stock, the TIDES will have no
voting rights with respect to the Company and, except under certain limited
circumstances, will have no voting rights with respect to the Trust.
Distributions on the TIDES (and Junior Debentures) are cumulative, accrue
from the date of initial issuance and are payable quarterly in arrears,
commencing June 15, 1996. The Junior Debentures are subordinated in right of
payment to all senior indebtedness of the Company and the Junior Debentures
are subject to certain covenants, events of default and optional and
mandatory redemption provisions, all as described in the Junior Debenture
Indenture.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
Pursuant to a Preferred Securities Guarantee Agreement, dated as of April
10, 1996 (the "Guarantee"), between the Company and a preferred guarantee
trustee, the Company has agreed irrevocably to pay to the holders of the
TIDES, to the extent that the Trustee has funds available to make such
payments, quarterly distributions, redemption payments and liquidation
payments on the TIDES. Considered together, the undertakings contained in the
Declaration, Junior Debentures, Indenture and Guarantee constitute a full and
unconditional guarantee by the Company of the Trust's obligations under the
TIDES.
10. PREFERRED STOCK
On December 1, 1988 the Company distributed a dividend of one preferred
share purchase right ("right") for each outstanding share of common stock.
The rights are not exercisable until ten days after a person or group
acquires or has the right to acquire, beneficial ownership of 20% or more of
the Company's common stock or announces a tender or exchange offer for 30% or
more of the Company's common stock. Each right entitles the holder to
purchase one one-hundredth of a share of Series A junior preferred stock for
$52. The rights may be redeemed by the Board of Directors up to ten days
after an event triggering the distribution of certificates for the rights.
The rights plan was amended in February 1991 so that the agreement with
Kiewit would not trigger the exercise of the rights. The rights will expire,
unless previously redeemed or exercised, on November 30, 1998. The rights are
automatically attached to, and trade with, each share of common stock.
11. STOCK OPTIONS AND RESTRICTED STOCK
The Company has issued various stock options. As of December 31, 1996, a
total of 5,088 shares are reserved for stock options, of which 4,777 shares
have been granted and remain outstanding at prices of $3.00 to $30.38 per
share.
The Company has stock option plans under which shares were reserved for
grant as incentive or non-qualified stock options, as determined by the Board
of Directors. The plans allow options to be granted at 85% of their fair
market value at the date of grant. Generally, options are issued at 100% of
fair market value at the date of grant. Options granted under the 1996 Plan
become exercisable over a period of three to five years and expire if not
exercised within ten years from the date of grant or, in some instances a
lesser term. Prior to the 1996 Plan, the Company granted 256 options at fair
market value at date of grant which had terms of ten years and were
exercisable at date of grant. In addition, the Company had issued
approximately 138 options to consultants on terms similar to those issued
under the 1996 Plan. The non-1996 plan options are primarily options granted
to Kiewit (see Note 12).
The Company granted 500 shares of restricted common stock with an
aggregate market value of $9,500 in exchange for the relinquishment of 500
stock options which were canceled by the Company. The shares have all rights
of a shareholder, subject to certain restrictions on transferability and risk
of forfeiture. Unearned compensation equivalent to the market value of the
shares at the date of issuance was charged to Stockholders' equity. Such
unearned compensation is being amortized over the vesting period of which 125
shares were immediately vested and the remaining 375 shares vest straight
line over approximately five years. Accordingly, $1,535 and $2,494 of
unearned compensation was charged to general and administrative expense in
1996 and 1995, respectively.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
TRANSACTIONS IN STOCK OPTIONS
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES AVAILABLE ---------------------------
FOR GRANT UNDER OPTION PRICE WEIGHTED AVG
1996 OPTION PLAN SHARES PER SHARE OPTION PRICE TOTAL
---------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 . 439 8,514 $3.00-$19.00 $12.32 $104,931
---------------- --------- --------------- -------------- ----------
Options granted............ (954) 1,243 $12.00-$17.25 15.49 19,260
Options terminated......... 15 (15) $3.00-$15.94 13.67 (205)
Options exercised.......... -- (141) $3.00-$15.94 5.03 (709)
Additional shares reserved
under 1996 Option Plan ... 586 -- -- -- --
---------------- --------- --------------- -------------- ----------
Balance December 31, 1994 . 86 9,601 $3.00-$19.00 12.84 123,277
---------------- --------- --------------- -------------- ----------
Options granted............ (396) 396 $15.81-$19.00 18.15 7,188
Options terminated......... 571 (571) $14.88-$19.00 18.69 (10,673)
Options exercised.......... -- (135) $3.00-$15.94 3.41 (460)
---------------- --------- --------------- -------------- ----------
Balance December 31, 1995 . 261 9,291 $3.00-$19.00 12.84 119,332
---------------- --------- --------------- -------------- ----------
Options granted............ (1,157) 1,157 $25.06-$30.38 28.17 32,590
Options terminated......... 468 (468) $3.00-$19.00 17.96 (8,406)
Options exercised.......... -- (5,203) $3.00-$21.68 11.13 (57,931)
Additional shares reserved
under 1996 Option Plan ... 739 -- -- -- --
---------------- --------- --------------- -------------- ----------
Balance December 31, 1996 . 311 4,777 $3.00-$30.38 $17.92 $ 85,585
================ ========= =============== ============== ==========
Options exercisable at:
December 31, 1994.......... 7,897 $3.00-$19.00 $11.87 $ 93,705
December 31, 1995.......... 8,229 $3.00-$19.00 $12.26 $100,886
December 31, 1996.......... 3,071 $3.00-$30.38 $14.25 $ 43,770
========= =============== ============== ==========
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable as of December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER AVERAGE REMAINING NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- --------------- ----------- --------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.00 $11.99 1,251 $10.70 4 years 1,251 $10.70
12.00 20.99 2,369 16.72 7 years 1,786 16.50
21.00 30.38 1,157 28.16 9 years 34 29.25
- ------------ ------------ -------------- ---------------- ------------- --------------
4,777 $17.92 7 years 3,071 $14.25
------------- -------------- ---------------- ------------- --------------
</TABLE>
In October 1995 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." SFAS 123 defines a fair value based method of
accounting for stock-based employee compensation plans and encourages all
entities to adopt that method of accounting. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting.
The Company has decided to continue to apply the intrinsic value based
method of accounting for its stock-based employee compensation plans. If the
fair value based method had been applied for 1996
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
and 1995, non-cash compensation expense and the effect on net income
available to common stockholders and earnings per share would have been
immaterial. The fair value for stock options was estimated using the
Black-Scholes option pricing model with assumptions for the risk-free
interest rate of 6.00%, expected volatility of 22%, expected life of
approximately 4.5 years, and no expected dividends. The weighted average fair
value of options granted during 1996 and 1995 was $8.62 per option and $5.72
per option, respectively.
12. COMMON STOCK SALES & RELATED OPTIONS
Simultaneous with the acquisition of the remaining equity interest of
Magma on February 24, 1995, the Company completed a public offering (the
"Offering") of 18,170 shares of common stock, which amount included a direct
sale by the Company to Kiewit of 1,500 shares and the exercise of underwriter
over-allotment options for 1,500 shares, at a price of $17.00 per share. The
Company received proceeds of $300,388 from the Offering.
The Company and Kiewit signed a Stock Purchase Agreement and related
agreements, dated as of February 18, 1991. Under the terms of the agreements,
Kiewit purchased 4,000 shares of common stock at $7.25 per share and received
options to buy 3,000 shares at a price of $9 per share exercisable over three
years and an additional 3,000 shares at a price of $12 per share exercisable
over five years (subject to customary adjustments).
In May 1994, pursuant to a special antidilution provision of the 1991
Stock Purchase Agreement between the Company and Kiewit, the Company
increased Kiewit's existing option (granted in 1991) to purchase 3,000 shares
at $12 per share by an additional 289 shares as a final adjustment under such
provisions.
In connection with this initial stock purchase, the Company and Kiewit
also entered into certain other agreements pursuant to which Kiewit and its
affiliates agreed not to acquire more than 34% of the outstanding common
stock (the "Standstill Percentage") for a five-year period ending in February
1996 and Kiewit became entitled to nominate at least three of the Company's
directors.
On June 19, 1991, the board approved a number of amendments to the Stock
Purchase Agreement and the related agreements. As part of those amendments,
the Company extended the term of the $9 and $12 options to seven years;
modified certain of the other terms of these options; granted to Kiewit an
option to acquire an additional 1,000 shares of the common stock at $11.625
per share for a ten year term; and increased the Standstill Percentage from
34% to 49%.
On November 19, 1991, the Board approved the issuance by the Company to
Kiewit of one thousand shares of Series C preferred stock for $50,000. In
connection with the sale of the Series C preferred stock to Kiewit, the
Standstill Agreement was amended so that the 49% Standstill Percentage
restriction would apply to voting stock rather than just common stock.
13. RELATED PARTY TRANSACTIONS
The Company charged and recognized a management fee and interest on
advances to its Coso Joint Ventures, which aggregated approximately $5,731,
$6,075 and $5,569 in the years ended December 31, 1996, 1995 and 1994,
respectively. The Company has a note receivable from the Coso Joint Ventures
included in deferred charges and other assets which bears a fixed interest
rate of 12.5% and is payable on or before March 19, 2002. The balance of the
note is $11,578 and $14,254 as of December 31, 1996 and 1995, respectively.
This note is subordinated to the senior project loan on the project.
The Mahanagdong Project is being constructed by a consortium (the "EPC
Consortium") of Kiewit Construction Group, Inc. ("KCG") and the CE Holt
Company, a wholly owned subsidiary of the Company, pursuant to fixed-price,
date-certain, turnkey supply and construction contracts (collectively,
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
the "Mahanagdong EPC"). The obligations of the EPC Consortium under the
Mahanagdong EPC are supported by a guaranty of KCG at an aggregate amount
equal to approximately 50% of the Mahanagdong EPC price. The Mahanagdong EPC
provides for maximum liability for liquidated damages of up to $100,500 and
total liability of up to $201,000. KCG, a wholly owned subsidiary of PKS, is
the lead member of the EPC Consortium, with an 80% interest. KCG performs
construction services for a wide range of public and private customers in the
U.S. and internationally. CE Holt Company provides design and engineering
services for the EPC Consortium, and holds a 20% interest. The Company has
provided a guaranty of CE Holt Company's obligations under the Mahanagdong
EPC Contract.
The Company has an international joint venture agreement with PKS, a
stockholder of the Company, which the Company believes enhances its
capabilities in foreign power markets. The joint venture agreement is limited
to international power project development activities and provides that, if
both the Company and PKS agree to participate in a project, they will share
all development costs equally. The Company and PKS each will provide 50% of
the equity required for financing a project developed by the joint venture
and the Company will receive from the project a development fee (generally 1%
of project capital) and will operate and manage such project for a fee. The
agreement creates a joint development structure under which, on a project by
project basis, the Company will be the development manager, managing partner
and/or project operator, and equal equity participant with PKS and a
preferred participant in the construction consortium and PKS will be an equal
equity participant and the preferred turnkey construction contractor. The
joint venture agreement may be terminated by either party on 15 days written
notice, provided that such termination cannot affect the pre-existing
contractual obligations of either party.
14. EXTRAORDINARY ITEM
In conjunction with the Company's Senior Discount Notes offering in 1994,
the 12% Senior Notes were defeased. This resulted in an extraordinary item in
the amount of $2,007, after the income tax effect of $945. The extraordinary
item represents the amount necessary to defease the interest payments and the
unamortized portion of the deferred financing costs on the 12% Senior Notes.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation. Although management uses
its best judgment in estimating the fair value of these financial
instruments, there are inherent limitations in any estimation techniques.
Therefore, the fair value estimates presented herein are not necessarily
indicative of the amounts which the Company could realize in a current
transaction.
The methods and assumptions used to estimate fair value are as follows:
Debt instruments--The fair value of all debt issues listed on exchanges
has been estimated based on the quoted market prices.
Interest rate swap agreements--The fair value of interest rate swap
agreements is estimated based on quotes from the counter party to these
instruments and represents the estimated amounts that the Company would
expect to receive or pay to terminate the agreements. It is the Company's
intention to hold the swap agreements to their intended maturity.
Other financial instruments--All other financial instruments of a material
nature fall into the definition of short-term and fair value is estimated as
the carrying amount.
The carrying amounts in the table below are included under the indicated
captions in Notes 6 and 7 except for the interest rate swaps which are
discussed in Note 16.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Interest rate swap receivable............... $ 100 $ 222 $ 61 $ 561
Financial liabilities:
Senior discount notes....................... 527,535 556,971 477,355 503,158
Senior notes................................ 224,150 229,866 -- --
Limited recourse senior secured notes ...... 200,000 212,560 200,000 210,500
CalEnergy credit facility................... 100,000 100,000 -- --
Revolving line of credit.................... 95,000 95,000 -- --
Convertible subordinated debentures ........ -- -- 100,000 100,500
Salton Sea notes and bonds.................. 538,982 531,807 452,088 459,629
Northern Electric eurobonds................. 439,192 445,830 -- --
Construction loans.......................... 377,454 377,454 211,198 211,198
Coso Funding Corp. project loans............ 148,346 153,650 203,226 214,917
Power Resources Inc. project financing
debt....................................... 114,571 114,571 -- --
U.K. credit facility........................ 128,423 128,423 -- --
Other....................................... 7,927 7,927 54,707 54,707
Interest rate swap payable.................. -- -- 226 672
---------- ----------- ---------- -----------
</TABLE>
16. INTEREST RATE SWAP AGREEMENTS
In January 1993, the Coso Joint Ventures entered into five year deposit
interest rate swap agreements. The subject deposits represent debt service
reserves established in conjunction with refinancing the Coso Joint Ventures
loans through Coso Funding Corp. The deposit interest rate swaps effectively
convert interest earned on the debt service reserve deposits from a variable
rate to a fixed rate, in order to match the nature of the interest rate on
the borrowings used to fund the debt service reserve deposits. The Company's
proportion of the deposit amount of $27,239 included in restricted cash and
investments accretes annually to a maximum amount of approximately $29,300 in
1997. Under the agreements, which mature on January 11, 1998, the Coso Joint
Ventures make semi-annual payments to the counter party at variable rates
based on LIBOR, reset and compounded every three months, and in return
receive payments based on a fixed rate of 6.34%. The effective LIBOR rate
ranged from 5.5313% to 5.9375% during 1996 and was 5.5313% at December 31,
1996. The counter party to these agreements is a large multi-national
financial institution.
17. REGULATORY MATTERS
Northern is subject to price cap regulation. The Office of Electricity
Regulation ("OFFER") controls the revenues generated by Northern in its
distribution and supply businesses by applying a price control formula, P +
RPI -X (where X is currently 3% for distribution and 2% for supply), where P
is the price level at the beginning of each new regulatory period, RPI is the
change in the Retail Price Index and X is an adjustment factor determined by
OFFER.
In the distribution business, the Distribution Price Control Formula
("DPCF") is usually set for a five-year period, subject to more frequent
adjustments as determined necessary by the Director General of Electricity
Supply (the "Regulator"). At each review, the Regulator can require a
one-time price reduction. An initial review by the Regulator of allowable
income in the distribution business led to a reduction of the price level by
17% for Northern starting April 1, 1995, followed by efficiency factors of
X=2% for each year until March 2000. On July 6, 1995, the Regulator announced
the result of a further distribution price review which was precipitated by
certain market events in the UK electric utility
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
industry. For Northern, such announcement meant a further real reduction of
11% in allowable distribution income for the twelve months from April 1,
1996, followed by an efficiency factor X=3% for each year until March 31,
2000, before an allowed increase for inflation.
In the supply business, which is progressively being opened to
competition, price regulation still applies to the market for customers with
demand of not more than 100kW. The calculation of the maximum supply charge
is based on a Supply Price Control Formula, similar to the DPCF and is set
for a four-year period. In 1993, OFFER announced the supply franchise market
(i.e., with demand of not more than 100kW) income entitlement for the
four-year period ending March 1998. A relatively small efficiency factor of
X=2% was applied to Northern and is being offset by an allowance for both
unit and customer growth. The nonfranchise markets (above 1 MW) were opened
to full competition during privatization in 1990; the nonfranchise markets
above 100kW were opened to full competition starting in April 1994.
18. PENSION COMMITMENTS
Northern participates in the Electricity Supply Pension Scheme, which
provides pension and other related defined benefits, based on final
pensionable pay, to substantially all employees throughout the Electricity
Supply Industry in the United Kingdom.
The actuarial computation assumed an interest rate of 7.75% an expected
return on plan assets of 8.25% and annual compensation increases of 5.75%
over the remaining service lives of employees covered under the plan. Amounts
funded to the pension are primarily invested in equity and fixed income
securities.
The following table details the funded status and the amount recognized in
the balance sheet of the Company as of December 31, 1996.
Actuarial present value of benefit obligations:
Vested benefits................................ $797,932
Nonvested benefits............................. --
----------
Accumulated benefit obligation.................. 797,932
Effect of future increase in compensation ...... 58,218
----------
Projected benefit obligation.................... 856,150
Fair value of plan assets....................... 919,163
----------
Prepaid pension asset .......................... $ 63,013
==========
19. COMMITMENTS AND CONTINGENCIES
There were no material outstanding lawsuits as of December 31, 1996.
Casecnan
In November 1995, CE Casecnan Water and Energy Company, Inc., a Philippine
corporation ("CE Casecnan"), closed the financing and commenced construction
of the Casecnan Project, a combined irrigation and 150 net MW hydroelectric
power generation project (the "Casecnan Project") located in the central part
of the island of Luzon in the Republic of the Philippines. The Casecnan
Project will consist generally of diversion structures in the Casecnan and
Denip Rivers that will divert water into a tunnel of approximately 23
kilometers. The tunnel will transfer the water from the Casecnan and Denip
Rivers in the Pantabangan Reservoir for irrigation and hydroelectric use in
the Central Luzon area. An underground powerhouse located at the end of the
water tunnel and before the Pantabangan Reservoir will house a power plant
consisting of approximately 150 MW of newly installed rated electrical
capacity.
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
A tailrace tunnel of approximately three kilometers will deliver water from
the water tunnel and the new powerhouse to the Pantabangan Reservoir,
providing additional water for irrigation and increasing the potential
electrical generation at two downstream existing hydroelectric facilities of
the National Power Corporation of the Philippines ("NPC").
CE Casecnan, which is presently indirectly owned as to approximately 35%
of its equity by the Company and approximately 35% by PKS, is developing the
Casecnan Project under the terms of the Project Agreement between CE Casecnan
and the National Irrigation Administration ("NIA"). Under the Project
Agreement, CE Casecnan will develop, finance and construct the Casecnan
Project over an estimated four-year construction period, and thereafter own
and operate the Casecnan Project for 20 years (the "Cooperation Period").
During the Cooperation Period, NIA is obligated to accept all deliveries of
water and energy, and so long as the Casecnan Project is physically capable
of operating and delivering in accordance with agreed levels set forth in the
Project Agreement, NIA will pay CE Casecnan a guaranteed fee for the delivery
of water and a guaranteed fee for the delivery of electricity, regardless of
the amount of water or electricity actually delivered. In addition, NIA will
pay a fee for all electricity delivered in excess of a threshold amount up to
a specified amount. NIA will sell the electric energy it purchases to NPC,
although NIA's obligations to CE Casecnan under the Project Agreement are not
dependent on NPC's purchase of the electricity from NIA. All fees to be paid
by NIA to CE Casecnan are payable in U.S. dollars. The guaranteed fees for
the delivery of water and energy are expected to provide approximately 70% of
CE Casecnan's revenues.
The Project Agreement provides for additional compensation to CE Casecnan
upon the occurrence of certain events, including increases in Philippine
taxes and adverse changes in Philippine law. Upon the occurrence and during
the continuance of certain force majeure events, including those associated
with Philippines political action, NIA may be obligated to buy the Casecnan
Project from CE Casecnan at a buy out price expected to be in excess of the
aggregate principal amount of the outstanding CE Casecnan debt securities,
together with accrued but unpaid interest. At the end of the Cooperation
Period, the Casecnan Project will be transferred to NIA and NPC for no
additional consideration on an "as is" basis.
The Republic of the Philippines has provided a Performance Undertaking
under which NIA's obligations under the Project Agreement are guaranteed by
the full faith and credit of the Republic of the Philippines. The Project
Agreement and the Performance Undertaking provide for the resolution of
disputes by binding arbitration in Singapore under international arbitration
rules.
The Casecnan Project is being constructed on a joint and several basis by
Hanbo Corporation and Hanbo Engineering & Construction Co. Ltd. (formerly
known as You One Engineering & Construction Co., Ltd., and herein referred to
as "HECC"), both of which are South Korean corporations, pursuant to a
fixed-price, date-certain, turnkey construction contract (the "Turnkey
Construction Contract"). Hanbo Corporation and HECC (sometimes collectively
referred to as the "Contractor") are under common ownership control. Hanbo
Corporation is an international construction company. HECC, which recently
emerged from a court-administered receivership, is a contractor with over 25
years experience in tunnel construction, using both the drill-and-blast and
tunnel boring machine ("TBM") methods.
The Contractor's obligations under the Turnkey Construction Contract are
guaranteed by Hanbo Iron & Steel Company, Ltd. ("Hanbo Steel"), a large South
Korean steel company. In addition, the Contractor's obligations under the
Turnkey Construction Contract are secured by an unconditional, irrevocable
standby letter of credit issued by Korea First Bank ("KFB") in the
approximate amount of $118,000. The total cost of the Casecnan Project,
including development, construction, testing and startup, is estimated to be
approximately $495,000.
In late January 1997, the Company was advised that Hanbo Corporation and
Hanbo Steel had each filed to seek court receivership protection in Korea. At
the present time, all of the construction work on the Casecnan Project is
being performed by the second contractor which is party to the Turnkey
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
Construction Contract, HECC. Although HECC, Hanbo Corporation and Hanbo Steel
are under common ownership control, HECC has not filed for receivership
protection and is believed to be solvent. However, no assurances can be given
that HECC will not file for receivership due to the foregoing developments or
that it will remain solvent and able to perform fully its obligations under
the Turnkey Construction Contract.
The work on the Casecnan Project, which commenced in 1995, is presently
continuing on schedule and within the budget. CE Casecnan is presently
reviewing its rights, obligations and potential remedies in respect of the
recent developments regarding the co-Contractor and the guarantor and is
presently unable to speculate as to the ultimate effect of such developments
on CE Casecnan. However, CE Casecnan has recently received confirmation from
HECC that it intends to fully perform its obligations under the Turnkey
Construction Contract and complete the Casecnan Project on schedule and
within the budget. Additionally, it has been reported that the South Korean
government has informed the Philippine government that the South Korean
government will take appropriate actions to support HECC's completion of the
Casecnan Project.
KFB has recently reconfirmed to CE Casecnan that it will honor its
obligations under the Casecnan Project letter of credit and also has stated
its support for the successful completion of the Casecnan Project. However,
Moody's Investors Service has recently issued a warning for a possible
ratings downgrade for KFB because of the possible impact of the Hanbo Steel
receivership on the substantial loans KFB previously made to Hanbo Steel. In
a related development, the South Korean government has recently announced
that it would provide some funding to assist Hanbo Steel's creditor banks
(including KFB) and its subcontractors.
CE Casecnan financed a portion of the costs of the Casecnan Project
through the issuance of $125,000 of its 11.45% Senior Secured Series A Notes
due 2005 and $171,500 of its 11.95% Senior Secured Series B Notes due 2010
pursuant to an indenture dated November 27, 1995, as amended to date (the
"Casecnan Indenture"). Although no default has occurred under the Casecnan
Indenture as a result of the announced receivership of Hanbo Corporation, CE
Casecnan will continue to closely monitor the Hanbo group and KFB
developments and project construction status and develop appropriate
contingency plans.
If HECC were to materially fail to perform its obligations under the
Turnkey Construction Contract and if KFB were to fail to honor its
obligations under the Casecnan letter of credit, such actions could have a
material adverse effect on the Casecnan Project and CE Casecnan. However,
based on the information presently available to it, CE Casecnan does not
presently expect that either such event will occur.
Leases
Certain retail facilities, buildings and equipment are leased. The leases
expire in periods ranging from one to 75 years and some provide for renewal
options.
At December 31, 1996, the Company's future minimum rental payments with
respect to non-cancellable operating leases were as follows:
1997......... $ 9,137
1998......... 8,897
1999......... 5,337
2000......... 5,279
2001......... 5,098
Thereafter .. 61,204
---------
$94,952
=========
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
20. SUBSEQUENT EVENT
On February 26, 1997, CalEnergy Capital Trust II, a special purpose
Delaware business trust organized by the Company (the "Trust II"), pursuant
to the Amended and Restated Declaration of Trust (the "Declaration") dated as
of February 26, 1997, completed a private placement (with certain shelf
registration rights) of $150,000 of trust preferred convertible securities,
referred to as Company-obligated mandatorily redeemable convertible preferred
securities of subsidiary trust holding solely convertible debentures ("Trust
Securities"). In addition, an option to purchase an additional 600 Trust
Securities, or $30,000, was exercised by the initial purchasers to cover
over-allotments.
The Trust has issued 3,600 of 6 1/4% Trust Securities with a liquidation
preference of fifty dollars each. The Company owns all of the common
securities of the Trust. The Trust Securities and the common securities
represent undivided beneficial ownership interests in the Trust. The assets
of the Trust consist solely of the Company's 6 1/4% Convertible Junior
Subordinated Debentures due 2012 in an outstanding aggregate principal amount
of $180,000 ("Junior Debentures") issued pursuant to an indenture dated as of
February 20, 1997. The indenture includes an agreement by the Company to pay
expenses and obligations incurred by the Trust. Each Trust Security will be
convertible at the option of the holder thereof at any time into 1.1655
shares of CalEnergy Common Stock (equivalent to a conversion price of $42.90
per share of the Company's Common Stock), subject to customary anti-dilution
adjustments.
Until converted into the Company's Common Stock, the Trust Securities will
have no voting rights with respect to the Company and, except under certain
limited circumstances, will have no voting rights with respect to the Trust.
Distributions on the Trust Securities (and Junior Debentures) are cumulative,
accrue from the date of initial issuance and are payable quarterly in
arrears, commencing June 1, 1997. The Junior Debentures are subordinated in
right of payment to all senior indebtedness of the Company and the Junior
Debentures are subject to certain covenants, events of default and optional
and mandatory redemption provisions, all as described in the Junior Debenture
Indenture.
Pursuant to a Preferred Securities Guarantee Agreement (the "Guarantee"),
between the Company and a preferred guarantee trustee, the Company has agreed
irrevocably to pay to the holders of the Trust Securities, to the extent that
the Trust has funds available to make such payments, quarterly distributions,
redemption payments and liquidation payments on the Trust Securities.
Considered together, the undertaking contained in the Declaration, Junior
Debentures, Indenture and Guarantee constitute a full and unconditional
guarantee by the Company of the Trust's obligations under the Trust
Securities.
A portion of the net proceeds of the Trust Securities offering were used
to repay the CalEnergy Credit Facility.
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
21. GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment: the generation,
distribution and supply of electricity to customers located throughout the
world. The Company's operations by geographic area are as follows:
1996 1995 1994
------------ ------------ ----------
REVENUE
Americas............... $ 457,032 $ 355,112 $154,562
Asia................... 35,691 -- --
Europe................. 39,191 -- --
------------ ------------ ----------
531,914 355,112 154,562
------------ ------------ ----------
OPERATING INCOME (LOSS)
Americas............... 203,305 155,885 77,450
Asia................... 17,914 -- --
Europe................. 6,163 -- --
------------ ------------ ----------
227,382 155,885 77,450
------------ ------------ ----------
1996 1995
------------ ------------
IDENTIFIABLE ASSETS
Americas............... $2,613,830 $2,194,873
Asia................... 713,570 459,165
Europe................. 2,385,507 --
------------ ------------
$5,712,907 $2,654,038
------------ ------------
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 (Continued)
22. QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the Company's quarterly results of operations
for the years ended December 31, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED*
1996:(1) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Sales of electricity and steam .............. $75,944 $104,735 $165,487 $172,768
Total revenue ............................... 90,356 115,794 179,048 190,997
Total costs and expenses..................... 69,398 87,482 123,169 160,433
---------- ---------- -------------- -------------
Income before provision for income taxes and
minority interest........................... 20,958 28,312 55,879 30,564
Provision for income taxes................... 6,497 9,040 18,325 7,959
---------- ---------- -------------- -------------
Net income before minority interest.......... 14,461 19,272 37,554 22,605
Minority interest............................ -- -- -- 1,431
---------- ---------- -------------- -------------
Net income attributable to common shares .... $14,461 $ 19,272 $ 37,544 $ 21,174
========== ========== ============== =============
Net income per share--primary................ $ .27 $ .35 $ .67 $ .33
========== ========== ============== =============
Net income per share--fully diluted.......... $ .26 $ .33 $ .59 $ .32
========== ========== ============== =============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED*
1995:(2) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Sales of electricity and steam............... $72,978 $81,756 $102,423 $78,473
Total revenue................................ 86,685 97,096 119,717 95,225
Total costs and expenses..................... 68,527 76,957 79,898 76,290
---------- --------- -------------- -------------
Income before provision for income taxes and
minority interest........................... 18,158 20,139 39,819 18,935
Provision for income taxes................... 5,540 6,248 12,457 6,386
---------- --------- -------------- -------------
Net income before minority interest.......... 12,618 13,891 27,362 12,549
Minority interest............................ 3,005 -- -- --
---------- --------- -------------- -------------
Net income................................... 9,613 13,891 27,362 12,549
Preferred dividends.......................... 1,080 -- -- --
---------- --------- -------------- -------------
Net income attributable to common shares .... $ 8,533 $13,891 $ 27,362 $12,549
========== ========= ============== =============
Net income per share--primary................ $ .21 $ .27 $ .52 $ .24
========== ========= ============== =============
Net income per share--fully diluted.......... $ .21 $ .27 $ .48 $ .18
========== ========= ============== =============
</TABLE>
- ------------
* The Company's operations are seasonal in nature with a disproportionate
percentage of income historically earned in the second and third
quarters.
(1) Reflects acquisitions of Northern, Falcon Seaboard and the Partnership
Interest.
(2) Reflects acquisition of Magma.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
CalEnergy Company, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of CalEnergy
Company, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CalEnergy Company, Inc. and
subsidiaries at December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 31, 1997
(February 27, 1997 as to Notes 6 and 20)
F-37
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
CalEnergy Company, Inc.
Omaha, Nebraska
We have reviewed the accompanying consolidated balance sheet of CalEnergy
Company, Inc. and subsidiaries as of June 30, 1997, and the related
consolidated statements of operations for the three and six month periods
ended June 30, 1997 and 1996 and the related consolidated statements of cash
flows for the six month periods ended June 30, 1997 and 1996. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of CalEnergy Company, Inc. and
subsidiaries as of December 31, 1996, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended
(not presented herein), and in our report dated January 31, 1997 (February
27, 1997 as to Notes 6 and 20), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 1996 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 12, 1997
F-38
<PAGE>
CALENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 406,241 $ 424,500
Joint venture cash and investments ................................... 4,072 48,083
Restricted cash ...................................................... 84,640 107,143
Short-term investments ............................................... 5,958 4,921
Accounts receivable .................................................. 343,818 342,307
Due from joint ventures .............................................. 16,662 17,556
Properties, plants, contracts and equipment, net ..................... 3,666,627 3,348,583
Excess of cost over fair value of net assets acquired, net .......... 1,128,198 790,920
Equity investments ................................................... 185,238 196,535
Deferred charges and other assets .................................... 433,607 432,359
------------ -------------
Total assets ....................................................... $6,275,061 $5,712,907
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable ..................................................... $ 132,711 $ 218,182
Other accrued liabilities ............................................ 1,105,489 674,842
Parent company debt .................................................. 953,817 1,146,685
Subsidiary and project debt .......................................... 2,276,539 1,754,895
Deferred income taxes ................................................ 328,204 469,199
------------ -------------
Total liabilities .................................................. 4,796,760 4,263,803
------------ -------------
Deferred income ...................................................... 29,750 29,067
Company-obligated mandatorily redeemable convertible preferred
securities of subsidiary trusts ..................................... 283,930 103,930
Preferred securities of subsidiary ................................... 59,101 136,065
Minority interest .................................................... 187,608 299,252
Stockholders' equity:
Preferred stock--authorized 2,000 shares, no par value................ -- --
Common stock--par value $0.0675 per share, authorized 180,000 shares,
issued 63,858 and 63,747 shares, outstanding 63,669 and 63,448 at
June 30, 1997 and December 31, 1996, respectively ................... 4,311 4,303
Additional paid in capital ........................................... 561,428 563,567
Retained earnings .................................................... 355,857 297,520
Treasury stock--189 and 299 common shares at June 30, 1997 and
December 31, 1996, respectively, at cost ............................ (5,687) (8,787)
Unearned compensation--restricted stock .............................. (950) (5,471)
Cumulative effect of foreign currency translation adjustment ........ 2,953 29,658
------------ -------------
Total stockholders' equity ......................................... 917,912 880,790
------------ -------------
Total liabilities and stockholders' equity ......................... $6,275,061 $5,712,907
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues:
Operating revenue .................... $505,922 $104,735 $1,048,511 $180,679
Interest and other income ............ 19,072 11,059 42,459 25,471
---------- ---------- ------------ ----------
Total revenues ..................... 524,994 115,794 1,090,970 206,150
---------- ---------- ------------ ----------
Costs and expenses:
Cost of sales......................... 241,548 -- 518,930 ---
Operating expense..................... 70,122 22,431 147,208 41,387
General and administration............ 12,005 5,117 25,492 9,296
Royalty expense....................... 6,758 5,896 13,283 10,271
Depreciation and amortization......... 70,456 25,660 137,912 43,713
Loss on equity investment in
Casecnan............................. 1,289 1,812 3,957 2,774
Interest expense...................... 71,644 36,725 142,266 71,504
Less interest capitalized ............ (13,638) (11,602) (22,760) (23,508)
Dividends on convertible preferred
securities of subsidiary trusts .... 4,436 1,443 7,154 1,443
---------- ---------- ------------ ----------
Total costs and expenses ........... 464,620 87,482 973,442 156,880
---------- ---------- ------------ ----------
Income before income taxes............ 60,374 28,312 117,528 49,270
Provision for income taxes ........... 24,342 9,040 46,591 15,537
---------- ---------- ------------ ----------
Income before minority interest ...... 36,032 19,272 70,937 33,733
Minority interest .................... 5,143 -- 12,600 --
---------- ---------- ------------ ----------
Net income available for common
stockholders ........................ $ 30,889 $ 19,272 $ 58,337 $ 33,733
========== ========== ============ ==========
Net income per share--primary ....... $ .47 $ .35 $ .89 $ .62
========== ========== ============ ==========
Net income per share--fully diluted . $ .46 $ .33 $ .87 $ .59
========== ========== ============ ==========
Average number of common and common
equivalent shares outstanding ...... 66,000 55,404 65,833 54,836
========== ========== ============ ==========
Fully diluted shares ................. 73,726 66,472 72,269 64,726
========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................. $ 58,337 $ 33,733
Adjustments to reconcile net cash flow from operating activities:
Depreciation and amortization ......................................... 124,437 39,849
Amortization of excess of cost over fair value of net assets acquired 13,475 3,864
Amortization of deferred financing and other costs .................... 21,047 29,408
Provision for deferred income taxes ................................... 23,418 6,275
Loss (income) on equity investments ................................... (4,676) 2,774
Income applicable to minority interest ................................ 12,600 --
Changes in other items:
Accounts receivable .................................................. (2,219) (11,127)
Accounts payable and accrued liabilities ............................. (83,447) 2,737
Deferred income ...................................................... (5,998) 181
----------- -----------
Net cash flows from operating activities............................... 156,974 107,694
Cash flows from investing activities:
Purchase of Northern Electric and Partnership Interest, net of cash
acquired............................................................... (629,094) (58,044)
Distributions from equity investments................................... 13,219 --
Malitbog construction .................................................. (21,313) (64,353)
Mahanagdong construction ............................................... (11,633) (29,451)
Indonesian construction................................................. (40,652) (30,597)
Exploration and other development costs................................. (7,426) (2,716)
Capital expenditures relating to operations............................. (101,166) (18,630)
Upper Mahiao construction .............................................. -- (23,734)
Salton Sea IV construction ............................................. -- (49,223)
Decrease (increase) in short-term investments........................... (1,983) 30,895
Decrease in restricted cash............................................. 22,503 83,216
Decrease in other assets ............................................... 71,301 9,833
----------- -----------
Net cash flows from investing activities............................... (706,244) (152,804)
Cash flows from financing activities:
Proceeds from issuance of convertible preferred securities of
subsidiary trust....................................................... 180,000 103,930
Repayment of parent company debt........................................ (195,000) --
Proceeds from subsidiary and project debt............................... 598,280 229,672
Repayments of subsidiary and project debt............................... (71,602) (143,106)
Proceeds from sale of common and treasury stock and exercise of
options................................................................ 4,983 13,183
Decrease in amounts due from joint ventures............................. 10,732 9,003
Deferred charges relating to debt financing............................. (11,813) (4,566)
Purchase of treasury stock ............................................. (1,875) (3,221)
----------- -----------
Net cash flows from financing activities............................... 513,705 204,895
Effect of exchange rate changes, net ................................... (26,705) --
----------- -----------
Net increase (decrease) in cash and cash equivalents ................... (62,270) 159,785
----------- -----------
Cash and cash equivalents at beginning of period ....................... 472,583 149,704
----------- -----------
Cash and cash equivalents at end of period ............................. $ 410,313 $ 309,489
=========== ===========
Supplemental disclosures:
Interest paid, net of amount capitalized ............................... $ 123,802 $ 22,776
=========== ===========
Income taxes paid ...................................................... $ 22,629 $ 9,154
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER KWH AMOUNTS)
1. GENERAL:
In the opinion of management of CalEnergy Company, Inc. (the "Company"),
the accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of June 30, 1997 and the results of
operations for the three and six months ended June 30, 1997 and 1996, and
cash flows for the six months ended June 30, 1997 and 1996.
The consolidated financial statements include the accounts of the Company
and its wholly and majority owned subsidiaries, and its proportionate share
of the partnerships and joint ventures in which it has an undivided interest
in the assets and is proportionally liable for its share of liabilities.
Other investments and corporate joint ventures where the Company has the
ability to exercise significant influence are accounted for under the equity
method. Investments, where the Company's ability to influence is limited, are
accounted for under the cost method of accounting.
The results of operations for the three and six months ended June 30, 1997
and 1996 are not necessarily indicative of the results to be expected for the
full year.
Certain amounts in the 1996 financial statements and supporting footnote
disclosures have been reclassified to conform to the 1997 presentation. Such
reclassification did not impact previously reported net income or retained
earnings.
2. OTHER FOOTNOTE INFORMATION:
Reference is made to the Company's most recently issued annual report that
included information necessary or useful to the understanding of the
Company's business and financial statement presentations.
3. PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT:
Properties, plants, contracts and equipment comprise the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ --------------
(UNAUDITED)
<S> <C> <C>
Operating assets:
Distribution system.................................... $1,433,387 $1,101,860
Power plants .......................................... 1,286,240 1,277,702
Wells and resource development ........................ 387,193 377,731
Power sales agreements ................................ 227,535 227,535
Licenses, equipment, wells and resource development in
progress ............................................. 65,584 66,207
------------ --------------
Total operating assets ................................ 3,399,939 3,051,035
Less accumulated depreciation and amortization ....... (388,874) (271,216)
------------ --------------
Net operating assets .................................. 3,011,065 2,779,819
Mineral reserves ...................................... 217,436 207,842
Construction in progress:
Malitbog ............................................. 173,724 152,411
Mahanagdong .......................................... 135,200 123,567
Indonesia ............................................ 122,527 81,875
Other development .................................... 6,675 3,069
------------ --------------
Total.................................................. $3,666,627 $3,348,583
============ ==============
</TABLE>
F-42
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PER KWH AMOUNTS)
4. INCOME TAXES:
The Company's effective tax rate in 1997 is greater than the Federal
statutory rate primarily due to foreign and state taxes partially offset by
the depletion deduction. The significant components of the deferred tax
liability are the temporary differences between the financial reporting basis
and income tax basis of the power plants, distribution system and the well
and resource development costs, offset by the benefit of investment and
geothermal energy tax credits.
5. ISSUANCE OF CONVERTIBLE PREFERRED SECURITIES:
On February 26, 1997 a subsidiary of the Company completed a private
placement (with certain shelf registration rights) of $150,000 aggregate
amount of 6 1/4% Trust Convertible Preferred Securities ("Trust Securities").
In addition, an option to purchase an additional 600 Trust Securities, or
$30,000 aggregate amount, was exercised by the initial purchasers to cover
over-allotments in connection with the placement. Each Trust Security has a
liquidation preference of fifty dollars and is convertible at any time at the
option of the holder into 1.1655 shares of Company Common Stock (equivalent
to a conversion price of $42.90 per common share) subject to adjustments in
certain circumstances.
6. PURCHASE OF NORTHERN ELECTRIC:
On December 24, 1996 CE Electric plc ("CE Electric"), which is 70% owned
indirectly by the Company and 30% owned indirectly by Peter Kiewit Sons',
Inc. ("PKS"), acquired majority ownership of the outstanding ordinary share
capital of Northern Electric plc ("Northern") pursuant to a tender offer (the
"Northern Tender Offer") commenced in the United Kingdom by CE Electric on
November 5, 1996. As of March 18, 1997, CE Electric effectively owned 100% of
Northern's ordinary shares.
The Company and PKS contributed to CE Electric approximately $410,000 and
$176,000, respectively, of the approximately $1,300,000 required to acquire
all of Northern's ordinary and preference shares in connection with the
Northern Tender Offer. The Company obtained such funds from cash on hand,
short-term borrowings, and borrowings of approximately $100,000 under a
Credit Agreement entered on October 28, 1996 (the "CalEnergy Credit
Facility"). The Company has repaid the entire CalEnergy Credit Facility
through the use of proceeds of the Trust Securities offering. The remaining
funds necessary to consummate the Northern Tender Offer were provided from a
pounds sterling560,000 ($932,176) Term Loan and Revolving Facility Agreement,
dated as of October 28, 1996 (the "U.K. Credit Facility") obtained by CE
Electric UK Holdings. The Company has not guaranteed, and it is not otherwise
subject to recourse for, amounts borrowed under the U.K. Credit Facility. As
of June 30, 1997, CE Electric UK Holdings had borrowed approximately pounds
sterling405,000 ($674,163) under the U.K. Credit Facility to pay for Northern
ordinary and preference shares purchased to date, including related costs.
In 1996, the Company also acquired Falcon Seaboard Resources, Inc. and the
remaining 50% ownership interest in the Edison Mission Energy Partnerships.
Unaudited pro forma combined revenue, net income and primary earnings per
share of the Company for the six months ended June 30, 1997, as if the
acquisitions had occurred at the beginning of the year of acquisition after
giving effect to certain pro forma adjustments related to the acquisitions
were $1,090,970, $58,944 and $.90 compared to $1,034,573, $24,701 and $.45
for the same period last year.
7. COMMITMENTS AND CONTINGENCIES:
In November 1995, the Company closed the financing and commenced
construction of the Casecnan Project, a combined irrigation and 150 net MW
hydroelectric power generation project (the "Casecnan Project") located in
the central part of the island of Luzon in the Republic of the Philippines.
F-43
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PER KWH AMOUNTS)
7. COMMITMENTS AND CONTINGENCIES: (Continued)
CE Casecnan Water and Energy Company, Inc., a Philippine Corporation ("CE
Casecnan") which is presently indirectly owned as to approximately 35% of its
equity by the Company and approximately 35% indirectly owned by PKS, is
developing the Casecnan Project. CE Casecnan financed a portion of the costs
of the Casecnan Project through the issuance of $125,000 of its 11.45% Senior
Secured Series A Notes due 2005 and $171,500 of its 11.95% Senior Secured
Series B Bonds due 2010 and $75,000 of its Secured Floating Rate Notes due
2002, pursuant to an indenture dated as of November 27, 1995, as amended to
date.
The Casecnan Project was being constructed pursuant to a fixed-price,
date-certain, turnkey construction contract (the "Hanbo Contract") on a joint
and several basis by Hanbo Corporation ("Hanbo") and Hanbo Engineering and
Construction Co., Ltd. ("HECC"), both of which are South Korean corporations.
As of May 7, 1997, CE Casecnan terminated the Hanbo Contract due to defaults
by Hanbo and HECC including the insolvency of each such company. CE Casecnan
entered into a new turnkey engineering, procurement and construction contract
to complete the construction of the Casecnan Project (the "Replacement
Contract"). The work under the Replacement Contract will be conducted by a
consortium of contractors and subcontractors including Siemens A.G., Sulzer
Hydro Ltd., Black & Veatch and Colenco Power Engineering Ltd. and will be
headed by Cooperativa Muratori Cementisti CMC di Ravenna and Impressa
Pizzarottie & C. Spa. (collectively, the "Replacement Contractor").
In connection with the Hanbo Contract termination CE Casecnan tendered a
certificate of drawing to Korea First Bank ("KFB") on May 7, 1997 under the
irrevocable standby letter of credit issued by KFB as security under the
Hanbo Contract to pay for certain transition costs and other presently
ascertainable damages under the Hanbo Contract. As a result of KFB's dishonor
of the draw request, CE Casecnan filed an action in New York State Court.
That Court granted CE Casecnan's request for a temporary restraining order
requiring KFB to deposit $79,329, the amount of the requested draw, in an
interest bearing account with an independent financial institution in the
United States. KFB appealed this order, but the appellate court denied KFB's
appeal and on May 19, 1997, KFB transferred funds in the amount of $79,329 to
a segregated New York bank account pursuant to the Court order.
On August 6, 1997, CE Casecnan announced that it had issued a notice to
proceed to the Replacement Contractor. The Replacement Contractor was already
on site and is expected to immediately fully mobilize and commence
engineering, procurement and construction work on the Casecnan Project. The
receipt of the letter of credit funds from KFB remains essential and CE
Casecnan will continue to press KFB to honor its clear obligations under the
letter of credit and to pursue Hanbo and KFB for any additional damages
arising out of their actions to date.
On June 9, 1997, Edison filed a complaint alleging breach of certain ISO4
power purchase agreements ("SO4 Agreements") between Edison and Coso Finance
Partners, Coso Power Partners and Coso Energy Developers as a result of
alleged improper venting of certain noncondensible gases at the Coso
geothermal energy project located in California (partnerships in which
CalEnergy holds an approximate 50% ownership interest, collectively the "Coso
Partnerships"). In the complaint Edison seeks unspecified damages, including
the refund of certain amounts previously paid under the SO4 Agreements, and
termination of the SO4 Agreements. The complaint was recently filed and the
proceeding is in its early procedural stages. CalEnergy believes this
litigation has entirely no merit. The Coso Partnerships intend to vigorously
defend this action and prosecute all available counterclaims against Edison.
On February 14, 1995, NYSEG filed with the FERC a Petition for a
Declaratory Order, Complaint, and Request for Modification of Rates in Power
Purchase Agreements Imposed Pursuant to the Public
F-44
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PER KWH AMOUNTS)
7. COMMITMENTS AND CONTINGENCIES: (Continued)
Utility Regulatory Policies Act of 1978 ("Petition") seeking FERC (i) to
declare that the rates NYSEG pays under the Saranac PPA, which was approved
by the New York Public Service Commission (the "PSC") were in excess of the
level permitted under PURPA and (ii) to authorize the PSC to reform the
Saranac PPA. On March 14, 1995, the Saranac Partnership intervened in
opposition to the Petition asserting, inter alia, that the Saranac PPA fully
complied with PURPA, that NYSEG's action was untimely and that the FERC
lacked authority to modify the Saranac PPA. On March 15, 1995, the Company
intervened also in opposition to the Petition and asserted similar arguments.
On April 12, 1995, the FERC by a unanimous (5-0) decision issued an order
denying the various forms of relief requested by NYSEG and finding that the
rates required under the Saranac PPA were consistent with PURPA and the
FERC's regulations. On May 11, 1995, NYSEG requested rehearing of the order
and, by order issued July 19, 1995, the FERC unanimously (5-0) denied NYSEG's
request. On June 14, 1995, NYSEG petitioned the United States Court of
Appeals for the District of Columbia Circuit (the "Appeals Court") for review
of FERC's April 12, 1995 order. FERC moved to dismiss NYSEG's petition for
review on July 28, 1995. The Saranac Partnership intervened in the appeal and
concurred with NYSEG on the issue of the Court's jurisdiction while
disagreeing on the merits. On July 11, 1997, the Appeals Court dismissed
NYSEG's appeal holding that it was without jurisdiction to review the FERC's
order and that any enforcement action under PURPA lies in federal district
court.
On August 7, 1997, NYSEG filed a complaint in the U.S. District Court for
the Northern District of New York against the FERC, the PSC (and the
Chairman, Deputy Chairman and the Commissioners of the PSC as individuals in
their official capacity), the Saranac Partnership and Lockport Energy
Associates, L.P. ("Lockport") concerning the power purchase agreements that
NYSEG entered into with Saranac Partners and Lockport.
NYSEG's suit asserts that the PSC and the FERC improperly implemented
PURPA in authorizing the pricing terms that NYSEG, the Saranac Partnership
and Lockport agreed to in those contracts. The action raises similar legal
arguments to those rejected by the FERC in its April and July 1995 orders.
NYSEG in addition asks for retroactive reformation of the contracts as of the
date of commercial operation and seeks a refund of $281 million from the
Saranac Partnership. The Company believes that NYSEG's claims are without
merit for the same reasons described in the FERC's orders. In addition, the
Company believes that the additional relief sought by NYSEG is unwarranted.
8. SUBSEQUENT EVENTS:
On July 15, 1997, the Company advised New York State Electric & Gas
Corporation ("NYSEG") of its intention to commence a tender offer (the
"Tender Offer") to acquire that number of shares ("NYSEG Shares") of common
stock, par value $6.66 2/3 per share, of NYSEG which, together with the NYSEG
Shares beneficially owned by the Company, would represent 9.9% of the total
number of NYSEG Shares outstanding. On July 18, 1997 CE Electric (NY), Inc. a
wholly owned subsidiary of the Company (the "Purchaser"), commenced the
Tender Offer at a cash price of $24.50 per share.
The Company also advised NYSEG on July 15, 1997 that it was prepared to
negotiate a consensual merger (the "Proposed Merger") in which each
outstanding NYSEG Share would be exchanged for $27.50 in cash. NYSEG's Board
of Directors has recommended that NYSEG shareholders reject the Tender Offer
and the Proposed Merger.
On July 31, 1997, the United Kingdom Parliament passed the windfall tax to
be levied on privatized utilities, including Northern, which will result in a
third quarter charge to net income of approximately $136 million.
F-45
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND PER KWH AMOUNTS)
8. SUBSEQUENT EVENTS: (Continued)
On August 5, 1997, the Company and certain affiliated capital funding
trusts also filed with the Securities and Exchange Commission a shelf
registration statement covering up to $1.5 billion of common stock, preferred
stock and debt securities which may be sold from time to time for various
purposes.
On August 6, 1997, the Company and the Purchaser announced that it had
executed fully underwritten financing commitments to fund the Company's
Proposed Merger with NYSEG or a possible subsequent Tender Offer and a
related merger that may be consumated subsequent to such Tender Offer.
The financing commitments entered into by the Company and the Purchaser
relate to the following facilities:
o An amended and restated $250 million Company credit facility.
o A new $150 million Company revolving credit facility.
o A $500 million bridge financing facility, if required and to the extent
the net proceeds from certain possible future offerings (including the
6 1/2% Trust Convertible Preferred Securities placed on August 12,
1997) result in less than $500 million of net proceeds to the Company.
o $1.0 billion Purchaser credit facilities comprised of a $650 million
five-year term loan and a $350 million five-year revolving credit
facility.
The Company presently intends to effect certain equity and debt securities
offerings on a prompt basis (subject to market conditions), in which case
drawings under the bridge facility may not be required. The equity component
of such future offerings is not currently expected to exceed approximately
$550 million.
On August 12, 1997, a subsidiary of the Company completed a private
placement (with certain shelf registration rights) of $225,000 aggregate
amount of 6 1/2% Trust Convertible Preferred Securities (the "6 1/2 % Trust
Securities"). In addition, an option to purchase an additional 900 of the 6
1/2% Trust Securities, or $45,000 aggregate amount, was exercised by the
initial purchasers to cover overallotments in connection with the placement.
Each 6 1/2% Trust Security has a liquidation preference of fifty dollars and
is convertible at any time at the option of the holder into 1.047 shares of
Company Common Stock (equivalent to a conversion price of $47.75 per common
share) subject to adjustments in certain circumstances.
9. ACCOUNTING PRONOUNCEMENT:
In February 1997, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share." SFAS 128, which becomes effective for financial statements of the
Company issued for years ending after December 15, 1997, replaces primary and
fully diluted earnings per share, as disclosed under current pronouncements,
with basic and diluted earnings per share. Pro forma basic earnings per share
for the three months ending June 30, 1997 and 1996 are $.49 and $.37,
respectively. For the six months ending June 30, 1997 and 1996, pro forma
basic earnings per share are $.92 and $.65, respectively. Pro forma diluted
earnings per share for the three months ending June 30, 1997 and 1996 are
$.46 and $.34, respectively. For the six months ending June 30, 1997 and
1996, pro forma diluted earnings per share are $.88 and $.60, respectively.
F-46
<PAGE>
INDEX TO PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
<S> <C>
Pro Forma Condensed Unaudited Consolidated Financial Data
Pro Forma Condensed Unaudited Consolidated Balance Sheet as of June 30, 1997 .. P-3
Pro Forma Condensed Unaudited Consolidated Statement of Earnings for the Six
Months Ended June 30, 1997 .................................................... P-4
Pro Forma Condensed Unaudited Consolidated Statement of Earnings for the Year
Ended December 31, 1996 ....................................................... P-5
Notes to Pro Forma Condensed Unaudited Consolidated Financial Data ............ P-6
</TABLE>
P-1
<PAGE>
PRO FORMA CONDENSED UNAUDITED CONSOLIDATED FINANCIAL DATA
The following Pro Forma Condensed Unaudited Consolidated Balance Sheet as
of June 30, 1997 reflects the issuance of $270 million of 6-1/2% Convertible
Preferred Securities by CalEnergy Capital Trust III, which was completed in
August 1997, and the sale of 14 million shares of Common Stock (the "Common
Stock Offering") of CalEnergy Company, Inc. (the "Company") as if such
issuance and sale had occurred on June 30, 1997. The following Pro Forma
Condensed Unaudited Consolidated Balance Sheet as of June 30, 1997 further
reflects the issuance of certain debt securities (the "Debt Offering") being
offered by the Company concurrently with the Common Stock Offering and the
use of the net proceeds of the Common Stock Offering and the Debt Offering
along with other available funds to fund the Energy Project Joint Venture
Acquisition and the Stock Repurchase (collectively, the "Acquisition") as if
such transactions had occurred on June 30, 1997. The closing of the Common
Stock Offering and the Debt Offering will occur prior to, and are not
conditioned upon, the closing of the Acquisition. The closing of the Common
Stock Offering is not conditioned upon the closing of the Debt Offering. See
"Use of Proceeds."
The Pro Forma Condensed Unaudited Consolidated Statement of Earnings for
the six months ended June 30, 1997 reflects the above transactions as if each
had occurred on January 1, 1997. The Pro Forma Condensed Unaudited
Consolidated Statement of Earnings for the year ended December 31, 1996
reflects the above transactions and the acquisitions of (i) Northern Electric
plc ("Northern"), (ii) Falcon Seaboard Resources, Inc. ("FSRI") and (iii) BN
Geothermal, Inc., Niguel Energy Company, San Felipe Energy Company, Inc. and
Conejo Energy Company (collectively, the "Mission Acquired Companies") as if
each acquisition had occurred January 1, 1996. The Energy Project Joint
Venture Acquisition and the acquisitions of Northern, FSRI and the Mission
Acquired Companies are recorded under the purchase method of accounting,
after giving effect to the applicable pro forma adjustments and assumptions
described in the accompanying notes.
The Company has not completed its assessment of the fair values of the
Joint Venture Energy Projects' assets and liabilities. The Company expects to
finalize its fair value assessment in the year following the Energy Project
Joint Venture Acquisition. Accordingly, the final purchase price allocation
may differ from the pro forma amounts set forth herein.
The Pro Forma Condensed Unaudited Consolidated Financial Data are based
upon, and should be read together with, the assumptions described in the
accompanying notes. The Pro Forma Condensed Unaudited Consolidated Financial
Data are intended for information purposes only and are not intended to
present the results that would have actually occurred if the Acquisition and
the acquisitions of Northern, FSRI and the Mission Acquired Companies had
been in effect on the assumed dates and for the assumed periods, and are not
necessarily indicative of the results that may be obtained in the future.
P-2
<PAGE>
PRO FORMA CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
(1A) (1B) (2A) (2B, C & F)
THE CAPITAL COMMON STOCK DEBT THE PRO FORMA
COMPANY TRUST III OFFERING PRO FORMA OFFERING ACQUISITION AS ADJUSTED
------------- --------- ------------ ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $ 406,241 $270,000 $504,000 $1,180,241 $350,000 $(1,140,241) $ 390,000
Joint venture cash and investments ... 4,072 -- -- 4,072 -- -- 4,072
Restricted cash....................... 84,640 -- -- 84,640 -- 393,421 478,061
Short-term investments................ 5,958 -- -- 5,958 -- -- 5,958
Accounts receivable................... 343,818 -- -- 343,818 -- 5,464 349,282
Due from joint ventures............... 16,662 -- -- 16,662 -- 900 17,562
Properties, plants, contracts and
equipment, net....................... 3,666,627 -- -- 3,666,627 -- 409,233 4,075,860
Excess of cost over fair value of net
assets acquired, net................. 1,128,198 -- -- 1,128,198 -- 53,658 1,181,856
Equity investments.................... 185,238 -- -- 185,238 -- (49,199) 136,039
Deferred charges and other assets .... 433,607 -- -- 433,607 -- 13,248 446,855
------------- ----------- ------------------------- --------- ------------ -------------
Total assets........................ $6,275,061 $270,000 $504,000 $7,049,061 $350,000 $ (313,516) $7,085,545
============= =========== ========================= ========= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable...................... $ 132,711 $ -- $ -- $ 132,711 $ -- $ 3,803 $ 136,514
Other accrued liabilities............. 1,105,489 -- -- 1,105,489 -- 25,114 1,130,603
Parent company debt................... 953,817 -- -- 953,817 350,000 -- 1,303,817
Subsidiary and project debt........... 2,276,539 -- -- 2,276,539 -- 488,523 2,765,062
Deferred income taxes................. 328,204 -- -- 328,204 -- 8,121 336,325
------------- ----------- ------------------------- ---------- ----------- -------------
Total liabilities................... 4,796,760 -- -- 4,796,760 350,000 525,561 5,672,321
------------- ----------- ------------------------- ---------- ----------- -------------
Deferred income....................... 29,750 -- -- 29,750 -- -- 29,750
------------- ----------- ------------------------- ---------- ----------- -------------
Company-obligated mandatorily
redeemable convertible preferred
securities of subsidiary trusts ..... 283,930 270,000 -- 553,930 -- -- 553,930
Preferred securities of subsidiary ... 59,101 -- -- 59,101 -- -- 59,101
Minority interest..................... 187,608 -- -- 187,608 -- (185,608) 2,000
Total stockholders' equity............ 917,912 -- 504,000 1,421,912 -- (653,469) 768,443
------------- ----------- ------------------------- ---------- ------------ ------------
Total liabilities and stockholders'
equity............................. $6,275,061 $270,000 $504,000 $7,049,061 $350,000 $ (313,516) $7,085,545
============= =========== ========================= ========== ============ ============
</TABLE>
P-3
<PAGE>
PRO FORMA CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(1B)
(1A) COMMON
THE (4C) CAPITAL STOCK
COMPANY NORTHERN TRUST III OFFERING PRO FORMA
------------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Operating revenue................... $1,048,511 $ -- $ -- $ -- $1,048,511
Interest and other income........... 42,459 -- -- -- 42,459
------------- ---------- ----------- ---------- ------------
Total revenues.................... 1,090,970 -- -- -- 1,090,970
COST AND EXPENSES:
Cost of sales....................... 518,930 -- -- -- 518,930
Operating expense................... 147,208 -- -- -- 147,208
General and administration.......... 25,492 -- -- -- 25,492
Royalty expense..................... 13,283 -- -- -- 13,283
Depreciation and
amortization....................... 137,912 -- -- -- 137,912
Loss on equity investment in
Casecnan........................... 3,957 -- -- -- 3,957
Interest expense.................... 142,266 6,274 -- -- 148,540
Less interest capitalized........... (22,760) -- -- -- (22,760)
Dividends on convertible
preferred securities of
subsidiary trusts.................. 7,154 -- 8,775 -- 15,929
------------- ---------- ----------- ---------- ------------
Total costs and expenses.......... 973,442 6,274 8,775 -- 988,491
------------- ---------- ----------- ---------- ------------
Income before income taxes.......... 117,528 (6,274) (8,775) -- 102,479
Provision for income taxes.......... 46,591 (2,478) (3,422) -- 40,691
------------- ---------- ----------- ---------- ------------
Income before minority
interest........................... 70,937 (3,796) (5,353) -- 61,788
Minority interest................... 12,600 (4,403) -- -- 8,197
------------- ---------- ----------- ---------- ------------
Net income available to
common stockholders................ $ 58,337 $ 607 $(5,353) $ -- $ 53,591
============= ========== =========== ========== ============
Net income per share--primary ...... $ 0.89 $ 0.67
------------- ------------
Net income per share--fully
diluted............................ $ 0.87 $ 0.67
------------- ------------
Average number of common and common
equivalent shares outstanding ..... 65,833 -- -- 14,000 79,833
Fully diluted shares................ 72,269 -- -- 14,000 86,269
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
(2A) (2D, E & F) PRO FORMA
DEBT (2B & C) PRO FORMA AS
OFFERING ACQUISITION ADJUSTMENTS ADJUSTED
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Operating revenue................... $ -- $ -- $ -- $1,048,511
Interest and other income........... -- 10,418 -- 52,877
---------- ------------- ------------- -------------
Total revenues.................... -- 10,418 -- 1,101,388
COST AND EXPENSES:
Cost of sales....................... -- -- -- 518,930
Operating expense................... -- -- -- 147,208
General and administration.......... -- -- -- 25,492
Royalty expense..................... -- -- -- 13,283
Depreciation and
amortization....................... -- -- 671 138,583
Loss on equity investment in
Casecnan........................... -- -- (3,957) --
Interest expense.................... 14,000 23,438 -- 185,978
Less interest capitalized........... -- (4,026) (6,250) (33,036)
Dividends on convertible
preferred securities of
subsidiary trusts.................. -- -- -- 15,929
---------- ------------- ------------- -------------
Total costs and expenses.......... 14,000 19,412 (9,536) 1,012,367
---------- ------------- ------------- -------------
Income before income taxes.......... (14,000) (8,994) 9,536 89,021
Provision for income taxes.......... (5,460) (3,508) 2,438 34,161
---------- ------------- ------------- -------------
Income before minority
interest........................... (8,540) (5,486) 7,098 54,860
Minority interest................... -- -- (8,197) --
---------- ------------- ------------- -------------
Net income available to
common stockholders................ $ (8,540) $ (5,486) $15,295 $ 54,860
========== ============= ============= =============
Net income per share--primary ...... $ 0.92
-------------
Net income per share--fully
diluted............................ $ 0.89
-------------
Average number of common and common
equivalent shares outstanding ..... -- (19,917) -- 59,916
Fully diluted shares................ -- (19,917) -- 66,352
</TABLE>
P-4
<PAGE>
PRO FORMA CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(6B & C) (5B & C) (4C)
MISSION MISSION FSRI FSRI NORTHERN
THE ACQUIRED PRO FORMA ACQUIRED PRO FORMA NORTHERN PRO FORMA
COMPANY COMPANIES ADJUSTMENTS COMPANIES ADJUSTMENTS ELECTRIC ADJUSTMENTS
-------- --------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Operating revenue....... $531,914 $ -- $18,250 $61,948 $ (7,145) $1,501,275 $ (1,871)
Interest and other
income................. 44,281 -- 436 2,299 (5,658) 16,652 --
-------- --------- ----------- --------- ----------- ---------- -----------
Total revenues........ 576,195 -- 18,686 64,247 (12,803) 1,517,927 (1,871)
COST AND EXPENSES:
Cost of sales........... 31,840 -- -- -- -- 1,043,119 --
Operating expense....... 108,962 -- 9,911 25,911 -- 124,960 --
General and
administration......... 21,451 684 -- 1,310 (396) 179,966 --
Royalty expense......... 23,693 -- -- -- -- -- --
Depreciation and
amortization........... 118,586 -- 5,259 3,709 8,003 (1,188) 68,979
Loss on equity
investment in
Casecnan............... 5,221 -- -- -- -- -- --
Interest expense........ 165,900 -- 1,700 7,638 1,429 30,411 96,850
Less interest
capitalized............ (39,862) -- -- -- -- -- --
Dividends on
convertible preferred
securities of
subsidiary trusts...... 4,691 -- -- -- -- -- --
-------- --------- ----------- --------- ----------- ---------- -----------
Total costs and
expenses............. 440,482 684 16,870 38,568 9,036 1,377,268 165,829
-------- --------- ----------- --------- ----------- ---------- -----------
Income before income
taxes.................. 135,713 (684) 1,816 25,679 (21,839) 140,659 (167,700)
Provision for income
taxes.................. 41,821 (644) 683 684 1,037 45,999 (36,708)
-------- --------- ----------- --------- ----------- ---------- -----------
Income before minority
interest............... 93,892 (40) 1,133 24,995 (22,876) 94,660 (130,992)
Minority interest....... 1,431 -- -- -- -- 16,788 (22,258)
-------- --------- ----------- --------- ----------- ---------- -----------
Net income available to
common stockholders ... $ 92,461 $ (40) $ 1,133 $24,995 $(22,876) $ 77,872 $(108,734)
======== ========= =========== ========= =========== ========== ===========
Net income per
share--primary......... $ 1.60
Net income per
share--fully diluted .. $ 1.50
Average number of
common and common
equivalent shares
outstanding............ 57,870
Fully diluted shares ... 67,164
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
(1B)
(1A) COMMON (2A) (2B & C) (2D,E & F) PRO FORMA
PRO FORMA CAPITAL STOCK DEBT THE PRO FORMA AS
COMBINED TRUSTS OFFERING PRO FORMA OFFERING ACQUISITION ADJUSTMENTS ADJUSTED
---------- --------- -------- ---------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Operating revenue....... $2,104,371 $ -- $-- $2,104,371 $ -- $ -- $ -- $2,104,371
Interest and other
income................. 58,010 -- -- 58,010 -- 25,611 -- 83,621
---------- --------- -------- ---------- --------- ----------- ----------- ----------
Total revenues........ 2,162,381 -- -- 2,162,381 -- 25,611 -- 2,187,992
COST AND EXPENSES:
Cost of sales........... 1,074,959 -- -- 1,074,959 -- -- -- 1,074,959
Operating expense....... 269,744 -- -- 269,744 -- -- -- 269,744
General and
administration......... 203,015 -- -- 203,015 -- -- -- 203,015
Royalty expense......... 23,693 -- -- 23,693 -- -- -- 23,693
Depreciation and
amortization........... 203,348 -- -- 203,348 -- -- 1,341 204,689
Loss on equity
investment in
Casecnan............... 5,221 -- -- 5,221 -- -- (5,221) --
Interest expense........ 303,928 -- -- 303,928 28,000 46,695 -- 378,623
Less interest
capitalized............ (39,862) -- -- (39,862) -- (3,843) (12,500) (56,205)
Dividends on
convertible preferred
securities of
subsidiary trusts...... 4,691 17,550 -- 22,241 -- -- -- 22,241
---------- --------- -------- ---------- --------- ----------- ----------- ----------
Total costs and
expenses............. 2,048,737 17,550 -- 2,066,287 28,000 42,852 (16,380) 2,120,759
---------- --------- -------- ---------- --------- ----------- ----------- ----------
Income before income
taxes.................. 113,644 (17,550) -- 96,094 (28,000) (17,241) 16,380 67,233
Provision for income
taxes.................. 52,872 (6,844) -- 46,028 (10,920) (6,724) 4,875 33,259
---------- --------- -------- ---------- --------- ----------- ----------- ----------
Income before minority
interest............... 60,772 (10,706) -- 50,066 (17,080) (10,517) 11,505 33,974
Minority interest....... (4,039) -- -- (4,039) -- -- 4,039 --
---------- --------- -------- ---------- --------- ----------- ----------- ----------
Net income available to
common stockholders ... $ 64,811 $(10,706) $-- $ 54,105 $(17,080) $(10,517) $ 7,466 $ 33,974
========== ========= ======== ========== ========= =========== =========== ==========
Net income per
share--primary......... $ 1.12 $ 0.75 $ 0.65
Net income per
share--fully diluted .. $ 1.08 $ 0.74 $ 0.64
Average number of
common and common
equivalent shares
outstanding............ 57,870 14,000 71,870 (19,793) 52,077
Fully diluted shares ... 67,164 (8,452) 14,000 72,712 (19,793) 52,919
</TABLE>
P-5
<PAGE>
NOTES TO PRO FORMA CONDENSED
UNAUDITED CONSOLIDATED FINANCIAL DATA
(Tables in thousands)
On September 11, 1997, the Company announced that it had signed a
definitive agreement (the "KDG Agreement") with Kiewit Diversified Group,
Inc. ("KDG"), a wholly-owned subsidiary of Peter Kiewit Sons, Inc. ("PKS"),
to acquire all of KDG's ownership interest in the various international power
generation projects (the "Energy Project Joint Venture Acquisition") which
are jointly owned with the Company and managed by the Company as well as to
repurchase all of KDG's outstanding ownership interests in the Company's
Common Stock (the "Stock Repurchase" and collectively with the Energy Project
Joint Venture Acquisition, the "Acquisition"). KDG's ownership interest in
the Company consists of 20,231,065 shares of Common Stock (including options
to acquire 1,000,000 shares of Common Stock) which represents approximately
30% of the Company's outstanding shares (26% on a fully diluted basis prior
to the Common Stock Offering), as well as project interests in Mahanagdong,
Casecnan, Dieng, Patuha, Bali and CE Electric UK plc ("CE Electric") (the
parent of Northern) (collectively, the "Joint Venture Energy Projects"). The
KDG Agreement provides that the Company will pay $1,155 million for KDG's
ownership interest in the Joint Venture Energy Projects and KDG's outstanding
ownership interest in the Company's Common Stock less KDG option exercise
proceeds of $11.625 million. The net proceeds of the Common Stock Offering
and the Debt Offering are intended to be used to fund the Acquisition.
On December 24, 1996, CE Electric, which is indirectly owned 70% by the
Company and 30% by PKS, acquired a majority of the ordinary shares of
Northern. As of March 18, 1997, CE Electric effectively owned 100% of
Northern's common shares.
On August 7, 1996, the Company acquired all of the stock of Falcon
Seaboard Resources, Inc. ("FSRI"), including its ownership interests in three
operating gas-fired cogeneration plants, Saranac Power Partners, L.P., Power
Resources, Inc. and NorCon Power Partners, L.P., for $226 million in cash.
Certain assets, liabilities and subsidiaries of FSRI were distributed out of
FSRI prior to the Company's acquisition of FSRI's stock.
On April 17, 1996, a subsidiary of the Company acquired all of the stock
of BN Geothermal, Inc. ("BNG"), Niguel Energy Company ("Niguel"), San Felipe
Energy Company ("San Felipe") and Conejo Energy Company (collectively, the
"Mission Acquired Companies") from Edison Mission Energy for $70 million. The
Mission Acquired Companies own 50% partnership interests in each of the
Imperial Valley partnership projects (the "Partnership Project") in which the
Company had an existing 50% ownership interest resulting from the acquisition
of Magma Power Company ("Magma").
The Energy Project Joint Venture Acquisition and the acquisitions of
Northern, FSRI and the Mission Acquired Companies have been accounted for as
purchase business combinations pursuant to the principles of APB Opinion No.
16, "Business Combinations." In applying APB No. 16, all identifiable assets
acquired and liabilities assumed are assigned a portion of the cost of the
acquisitions.
The Pro Forma Condensed Unaudited Consolidated Financial Data are based on
the following assumptions:
1. A. Issuance of $270 million of 6-1/2% Convertible Preferred Securities
of CalEnergy Capital Trust III (which was completed in August
1997).
B. Completion of the Common Stock Offering of 14 million shares of
Common Stock for $504 million.
2. A. Completion of the Debt Offering of $350 million 8% senior notes.
B. The use of the proceeds of the Common Stock Offering and Debt
Offering to acquire KDG's ownership interest in the Company's
Common Stock and the Joint Venture Energy Projects for $1,155
million. Cash utilized in the Acquisition is as follows:
P-6
<PAGE>
Cost of Acquisition............................ $1,155,000
KDG Option exercise price...................... (11,625)
Cash acquired in Joint Venture Energy
Projects...................................... (3,134)
------------
$1,140,241
============
C. The allocation of costs of $654 million to the Treasury Shares
repurchased and options cancelled $486 million to the Joint Venture
Energy Projects, including $86 million assigned to the fair value
of certain long term power contracts and $54 million of goodwill.
D. The amortization of the fair values assigned to contracts over the
respective life of the contracts ranging from 10 to 30 years and
the amortization of goodwill over 40 years.
E. Capitalization of interest related to construction in progress.
F. Elimination of the equity investment in Casecnan, and the
elimination of the minority interest in Northern.
3. The Acquisition and the acquisitions of Northern, FSRI and the Mission
Acquired Companies occurred at the beginning of the periods presented
for statements of earnings purposes.
4. The acquisition on December 24, 1996 of majority ownership of Northern
is reflected in the Company's historical consolidated statement of
earnings beginning December 24, 1996. The pro forma adjustments to
reflect the effect of the Northern acquisition are as follows:
A. The adjustments which have been made to the assets and liabilities
of Northern to reflect the effect of the acquisition accounted for
as a purchase business combination follow:
Property and plant ................... $ 528,908
Goodwill ............................. 678,365
Investments .......................... 187,208
Deferred taxes ....................... 200,594
Other assets and liabilities ......... (16,526)
Accrued preacquisition contingencies (636,607)
Long-term debt ....................... (13,038)
-----------
$ 928,904
===========
Included in accrued preacquisition contingencies are reserves for
contingent liabilities existing at Northern at the time of
acquisition relating to a contract Northern had entered into
relating to the purchase of 400 megawatts of capacity from a 15.4%
owned related party, Teesside Power Limited ("Teesside"), for a
period of 15 years beginning April 1, 1993. The contract sets
escalating purchase prices at predetermined levels. Current
contract prices exceed those paid by the Company to the electricity
pool which is operated by the National Grid Group.
B. The cash which was used to acquire Northern, including estimated
transaction costs, has been provided for in the pro forma
adjustments as follows:
Reduced cash on hand at the Company ... $ 219,841
Increase in borrowings of the Company . 195,000
U.K. credit facility ................... 739,054
Contribution from Minority Shareholder 177,789
------------
$1,331,684
============
Payments to shareholders ............... $1,289,897
Other direct transaction costs ......... 31,424
Financing costs ........................ 10,363
------------
$1,331,684
============
P-7
<PAGE>
C. The pro forma adjustments to the Pro Forma Condensed Unaudited
Consolidated Statements of Earnings are as follows:
i. Provide depreciation and amortization of the fair value assigned
to all identifiable assets as described above. The Company's
policy is to provide depreciation and amortization expense upon
the commencement of revenue production of the estimated
remaining useful life of the identifiable assets and to
periodically assess the carrying value of such assets for
possible impairment in accordance with the provisions of
Statement of Financial Accounting Standards No. 121. The fair
value of property and equipment is depreciated using a
systematic method which approximates the straight line method,
over the remaining portion (between 1-40 years) of the original
asset lives (between 3-60 years).
ii. The fair values assigned to Northern's investments are being
amortized over the remaining contract life of 11 years using a
straight line method.
iii. Record amortization of the excess purchase price over the net
assets acquired using the straight line method over 40 years.
iv. Adjust interest relating to (1) the borrowings under the
Company's acquisition loan and credit facility, (2) U.K. credit
facility and (3) $225 million of senior notes, previously
issued, to reflect use of the proceeds from that offering in
this Pro Forma.
v. Change income tax expenses as a result of pro forma adjustments
which affect taxable income and to reflect incremental US tax
expense on foreign earnings.
vi. Adjust for minority interest in CE Electric.
5. The acquisition on August 7, 1996 of FSRI is reflected in the
Company's historical consolidated statement of earnings beginning
August 1, 1996. The pro forma adjustments to reflect the acquisition
of FSRI are as follows:
A. The adjustments which have been made to the assets and liabilities
of FSRI to reflect the effect of the acquisition accounted for as a
purchase business combination follow:
Property and plant ........... $ 58,050
Power sale agreements ........ 46,604
Goodwill ..................... 99,206
Equity investments ........... 136,375
Other assets and liabilities 8,008
Deferred taxes ............... (95,206)
----------
$253,037
==========
B. The FSRI historical statements have been adjusted to reflect the
exclusion of FSRI assets, liabilities and subsidiaries not acquired
by the Company and eliminate historical general and administrative
expenses and project development expenses of FSRI which will no
longer be incurred by FSRI. These FSRI assets, liabilities and
subsidiaries were distributed out of FSRI prior to the acquisition
of FSRI's stock by the Company.
P-8
<PAGE>
C. The pro forma adjustments to the Pro Forma Condensed Unaudited
Consolidated Statements of Earnings are as follows:
i. Provide depreciation and amortization of the fair values
assigned to all identifiable assets as described above. The
Company's policy is to provide depreciation and amortization
expense upon the commencement of revenue production over the
estimated remaining useful life of the identifiable assets and
to periodically assess the carrying value of such assets for
possible impairment in accordance with the provisions of
Statement of Financial Accounting Standards No. 121.
The fair value of property and equipment is depreciated using
the straight line method over the remaining portion (between
22-28 years) of the original 30-year life.
Power sales agreements have been assigned values for the
remaining contract period and are being amortized over the
remaining contract periods using the straight line method.
The fair values assigned to FSRI's equity investments are being
amortized over the remaining contract periods using the straight
line method.
ii. Record amortization of the excess of the purchase price over the
net assets acquired using the straight line method over the
remaining weighted average useful life of the facilities
acquired (25 years).
iii. Record anticipated incremental general and administration
expenses of the Company of $850,000 per year and reclassify
historical state franchise taxes from general and administrative
expenses to income tax expense.
iv. Adjust interest relating to (1) the borrowings under the
Company's revolving line of credit and (2) the use of existing
funds.
v. Change income tax expense as a result of pro forma adjustments
which affect taxable income.
6. The acquisition on April 17, 1996 of the Mission Acquired Companies is
reflected in the Company's historical consolidated statement of
earnings beginning April 1, 1996. The pro forma adjustments to reflect
the effect of the acquisition of the Mission Acquired Companies are as
follows:
A. The adjustments which have been made to the assets and liabilities
of the Mission Acquired Companies to reflect the effect of the
acquisition accounted for as a purchase business combination
follow:
Property and plant ........... $(101,999)
Power sale agreements ........ 44,797
Other assets and liabilities (4,882)
------------
$ (62,084)
============
B. The Salton Sea Funding Corporation Series D Notes and Series F
Bonds were issued and all existing project level debt of the
Partnership Projects was paid off at the beginning of the period
presented.
C. The pro forma adjustments to the Pro Forma Condensed Unaudited
Consolidated Statements of Earnings are as follows:
i. Provide depreciation and amortization of the fair values
assigned to all identifiable assets as described above. The
Company's policy is to provide depreciation and amortization
expense upon the commencement of revenue production over the
estimated remaining useful life of the identifiable assets and
to periodically assess the carrying value of such assets for
possible impairment in accordance with the provisions of
Statement of Financial Accounting Standards No. 121.
P-9
<PAGE>
The fair value of property and equipment, net of salvage value,
and exploration and development cost is depreciated using the
straight line method over the remaining portion (approximately
23 years) of the original 30-year life.
Power sales agreements have been assigned values separately for
each of (1) the remaining portion of the scheduled price periods
of the power sales agreements and (2) the 20 year avoided cost
periods of the power sales agreements and are being amortized
separately over such periods using the straight line method.
ii. Adjust interest relating to (1) the issuance of the Salton Sea
Funding Corporation Series D Notes and Series E Bonds net of the
repayment of all project level debt at the Partnership Projects
and (2) the use of existing funds.
iii. Change income tax expense as a result of pro forma adjustments
which affect taxable income.
P-10
<PAGE>
PROSPECTUS
[LOGO]
$1,500,000,000
CALENERGY COMPANY, INC.
Common Stock, Preferred Stock and Debt Securities
-------------------------------
CalEnergy Company, Inc. (the "Company") may from time to time offer,
together or separately, (i) shares of its common stock, par value $.0675 per
share ("Common Stock"), (ii) shares of its preferred stock, no par value
("Preferred Stock"), (iii) senior debt securities ("Senior Debt Securities")
and (iv) subordinated debt securities ("Subordinated Debt Securities" and
together with Senior Debt Securities, the "Debt Securities"). The Common
Stock, the Preferred Stock and the Debt Securities are collectively referred
to herein as the "Securities." The Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") may be offered,
separately or together, in separate series, in amounts, at prices and on
terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement").
By separate prospectus, the form of which is included in the Registration
Statement of which this Prospectus forms a part, three Delaware statutory
business trusts (individually, a "CalEnergy Trust" and collectively, the
"CalEnergy Trusts"), which are wholly owned subsidiaries of the Company, may
from time to time severally offer preferred securities guaranteed by the
Company to the extent set forth therein and the Company may offer from time
to time junior subordinated debt securities either directly or to a CalEnergy
Trust. The aggregate public offering price of the securities to be offered by
this Prospectus and such other prospectus shall not exceed $1,500,000,000 (or
its equivalent in one or more foreign currencies, currency units or composite
currencies).
Specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in an applicable Prospectus
Supplement, that includes, where applicable, the following: (i) in the case
of Common Stock, the specific designation, number of shares, purchase price
and the rights and privileges thereof, together with any qualifications or
restrictions thereon and any listing on a securities exchange; (ii) in the
case of Preferred Stock, the specific designation, number of shares, purchase
price and the rights, preferences and privileges thereof and any
qualifications or restrictions thereon (including dividends, liquidation
value, voting rights, terms for the redemption, conversion or exchange
thereof and any other specific terms of the Preferred Stock) and any listing
on a securities exchange; and (iii) in the case of the Debt Securities, the
specific designation, aggregate principal amount, authorized denomination,
maturity, premium, or discount, if any, exchangeability, redemption,
conversion, prepayment or sinking fund provisions, if any, interest rate
(which may be fixed or variable), if any, method, if any, of calculating
interest payments and dates for payment thereof, dates on which premium, if
any, will be payable, the right of the Company, if any, to defer payment of
interest on the Debt Securities and the maximum length of such deferral
period, the initial public offering price, any listing on a securities
exchange and other specific terms of the offering. Unless otherwise indicated
in the Prospectus Supplement, the Company does not intend to list any of the
Securities other than the Common Stock on a national securities exchange. Any
Prospectus Supplement relating to any series of Offered Securities will
contain information, where applicable, concerning certain United States
federal income tax considerations for the Offered Securities.
The Common Stock and Preferred Stock and Debt Securities offered pursuant
to this Prospectus may be denominated in U.S. dollars or one or more foreign
currencies, currency units or composite securities to be determined at or
prior to the time of any offering. The Debt Securities offered pursuant to
this Prospectus may consist of bonds, debentures, notes or other evidences of
indebtedness in one or more series and in amounts, at prices and on terms to
be determined at or prior to the time of any such offering. Unless otherwise
disclosed in a Prospectus Supplement, the Company's obligations under the
Senior Debt Securities will be unsecured obligations of the Company ranking
pari passu in right of payment of principal and interest and with all other
existing and future unsecured obligations of the Company. If security for the
Debt Securities is to be provided it will be described in an applicable
Prospectus Supplement. The Company's obligations under the Subordinated Debt
Securities will be subordinated in right of payment to the prior payment in
full of all Senior Debt.
The Offered Securities may be offered directly, through agents designated
from time to time, to or through dealers or to or through underwriters. Such
agents or underwriters may act alone or with other agents or underwriters.
Any such agents, dealers or underwriters will be set forth in a Prospectus
Supplement. If an agent of the Company, or a dealer or underwriter, is
involved in the offering of the Offered Securities, the agent's commission,
dealer's purchase price, underwriter's discount and net proceeds to the
Company, as the case may be, will be set forth in, or may be calculated from,
the Prospectus Supplement. Any underwriters, dealers or agents participating
in the offering may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act").
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT PROSPECTIVE INVESTORS SHOULD CONSIDER PRIOR TO AN INVESTMENT IN ANY OF
THE 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.
<PAGE>
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement. Any statement contained in
this Prospectus will be deemed to be modified or superseded by any
inconsistent statement contained in an accompanying Prospectus Supplement.
The date of this Prospectus is September 22, 1997.
<PAGE>
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.
This Prospectus and the periodic filings of the Company under the Exchange
Act contain forward-looking statements as defined by the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). These forward-looking
statements express the beliefs and expectations of management regarding the
Company's future results and performance.
Such statements are based on current expectation and involve a number of
known and unknown risks and uncertainties that could cause the actual
results, performance and/or other achievements of the Company to differ
materially from any expected future results, performance or achievements,
expressed or implied by the forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements and any such
statement is qualified by reference to the following cautionary statements.
In connection with the safe harbor provisions of the Reform Act, the
Company's management has identified important factors that could cause actual
results to differ materially from management's expectations. Reference is
made to the Company's Current Report on Form 8-K dated February 25, 1997,
incorporated herein by reference. The Company is not required to publicly
release any changes to these forward-looking statements for events occurring
after the date thereof or to reflect any other unanticipated events.
2
<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 Reports on Form 10-Q for the quarterly
periods ended March 31, 1997 and June 30, 1997;
(iii) the Company's Current Reports on Form 8-K dated December 24, 1996
(as amended by Form 8-K/A dated February 18, 1997), February 25, 1997,
February 26, 1997, March 28, 1997, May 7, 1997, May 19, 1997, July 7,
1997, July 15, 1997, July 22, 1997, August 6, 1997, August 8, 1997, August
18, 1997, August 28, 1997, September 9, 1997 and September 16, 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 hereby and 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 hereunder or
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.
3
<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 and risk factors described in the
documents incorporated herein by reference. The term "Company" refers to
CalEnergy Company, Inc. and its operating subsidiaries, unless the context
otherwise requires.
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." 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 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 acquisition opportunities, if
any, can be consummated on favorable terms or that the Company's integration
efforts will be successful.
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 Debt
Securities. 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 restrictions.
Furthermore, the Company is structuring other 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 Debt Securities 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
Debt Securities. 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 Debt Securities
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 June 30,
1997 the Company had approximately $3,230.4 million of total consolidated
indebtedness, which included approximately $2,276.5 million of the Company's
proportionate share of joint venture and subsidiary debt, which would be
effectively senior to the Debt Securities, substantially all of which would
have been secured by the assets of such joint ventures and subsidiaries, and
$283.9 million of subordinated debt issued in connection with Capital Trust
Convertible Preferred Securities. As of June 30, 1997, on a pro forma basis,
after giving effect to the consummation of the August 1997 offering of
another series of Capital Trust Convertible Preferred Securities, there would
have been approximately $3,230.4 million of total consolidated indebtedness,
which included approximately $2,276.5 million of the Company's proportionate
share of joint venture and subsidiary debt, which would be effectively senior
to the Company's Debt Securities.
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<PAGE>
LEVERAGE. The Company is substantially leveraged. At June 30, 1997, the
Company's total consolidated liabilities were $4,796.8 million (excluding
deferred income), its obligations in respect of the Trust Convertible
Preferred Securities and the TIDES Securities were $283.9 million, its total
consolidated assets were $6,275.1 million and its total stockholders' equity
was $917.9 million. As of such date, on a pro forma basis, after giving
effect to the consummation of the August 1997 offering of the 6 1/2%
Convertible Preferred Securities, the Company's total consolidated
liabilities would have been $4,796.8 million (excluding deferred income), its
obligations in respect of the Trust Convertible Preferred Securities, the
TIDES Securities and the 6 1/2% Convertible Preferred Securities would have
been $553.9 million, its total consolidated assets would have been $6,545.1
million and its stockholders' equity would have been $917.9 million. The
Company's leverage level presents the risk that the Company might not
generate sufficient cash to service the Company's indebtedness, including the
Debt Securities or Preferred Stock, 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. 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."
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 ("kW") 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 the Company's results of operations.
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
5
<PAGE>
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 the
United Kingdom Parliament. On July 31, 1997, the United Kingdom Parliament
passed the windfall tax to be levied on privatized utilities which will
result in a third quarter charge to net income of approximately $136 million.
See the Company's Current Report on Form 8-K dated July 7, 1997, incorporated
herein by reference. There can be no assurance that other possible changes in
tax or utility regulation by the United Kingdom government, by whichever
party it is controlled, would not have a material adverse effect on the
Company's results of operations.
DEVELOPMENT UNCERTAINTY. The Company is actively seeking to develop,
construct, own and operate new energy projects, both domestically and
internationally, the completion of any of which is subject to substantial
risk. Development can require the Company to expend significant sums for
preliminary engineering, permitting, 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 energy and the
Company's ability to obtain contracts to supply portions of this demand.
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 Reports on Form 8-K
dated May 20, 1997 and August 14, 1997, incorporated herein by reference.
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, changes in
law or regulation, change in government policy, 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.
6
<PAGE>
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.
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 deliver
natural gas in accordance with its contract 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.
7
<PAGE>
PRESENT DEPENDENCE ON LARGE CUSTOMER; CONTRACT UNCERTAINTIES. 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, which three projects 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
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
8
<PAGE>
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.
Currently, Congress is considering proposed legislation that would amend
PURPA by eliminating the requirement that utilities purchase electricity from
qualifying facilities at prices based on Avoided Cost of Energy. The Company
does not know whether such legislation will be passed or what form it may
take. The Company believes that if any such legislation is passed, it would
apply to new projects only and thus, although potentially impacting the
Company's ability to develop new domestic projects, it would not affect the
Company's existing qualifying facilities. There can be no assurance, however,
that any legislation passed would not adversely impact the Company's existing
domestic projects.
In addition, many states are implementing or considering regulatory
initiatives designed to increase competition in the domestic power generation
industry and increase access to electric utilities' transmission and
distribution systems for independent power producers and electricity
consumers. On September 1, 1997, the California legislature adopted an
industry restructuring bill that would provide for a phased-in competitive
power generation industry with a power pool and independent system operator
and also would permit direct access to generation for all power purchasers
outside the power exchange under certain circumstances. Under the bill,
consistent with the requirements of PURPA, existing qualifying facilities
power sales agreements would be honored. The Company cannot predict the final
form or timing of the proposed industry restructuring or the results of its
operations.
The structure of such federal and state energy regulations have in the
past, and may in the future, be the subject of various challenges and
restructuring proposals by utilities and other industry participants. The
implementation of regulatory changes in response to such changes or
restructuring proposals, or otherwise imposing more comprehensive or
stringent requirements on the Company, which would result in increased
compliance costs, could have a material adverse effect on the Company's
results of operations.
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE. Pursuant to the Company's
1996 Stock Option Plan (the "1996 Plan"), as of June 30, 1997, the Company
had outstanding various options to its officers, directors and employees for
the purchase of 4,859,668 shares of Common Stock. All of the shares of Common
Stock issuable upon exercise of said options have been registered pursuant to
registration
9
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statements on Form S-8, and, when fully vested, are available for immediate
resale. 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.
LACK OF PUBLIC MARKET FOR THE DEBT SECURITIES AND THE PREFERRED STOCK.
There is no existing public trading market for the Debt Securities and the
Preferred Stock and there can be no assurance regarding the future
development of a market for either the Debt Securities or the Preferred
Stock, or the ability of holders of such securities to sell their Debt
Securities and/or Preferred Stock or the price at which such holders may be
able to sell their Securities. If such a market were to develop, the Debt
Securities and/or Preferred Stock could trade at prices that may be higher or
lower than their initial offering price depending on many factors, including
prevailing interest rates, the price of Common Stock, the Company's operating
results and the market for similar securities. Historically, the market for
non-investment grade debt has demonstrated substantial volatility in the
prices of securities similar to the Debt Securities. There can be no
assurance that the future market for the Debt Securities will not be subject
to similar volatility.
10
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THE COMPANY
GENERAL
CalEnergy Company, Inc. (the "Company") is a fast-growing global power
company whose goal is to be one of the leading providers of low cost energy
services throughout the world as electricity and gas markets privatize or
deregulate. The Company was founded in 1971 and, through its subsidiaries,
manages and owns interests in over 6,000 MW of power generation facilities in
operation, construction and development worldwide, currently operates 20
generating facilities and also supplies and distributes electricity to 1.5
million customers. In addition, through its recently acquired subsidiary,
Northern Electric plc ("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.
The Company's Common Stock is traded on the New York, Pacific and London
Stock Exchanges. As of June 30, 1997, PKS was an approximate 27% 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.
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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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 six months ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- --------------
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 1.4 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, and 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.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement
accompanying this Prospectus, proceeds from the sale of the Offered
Securities ultimately will be used by the Company to make equity investments
in future domestic and international energy projects, to fund possible
project or Company acquisitions, for the repayment of debt or for other
general corporate purposes, and initially may be temporarily invested in
short-term securities.
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DESCRIPTION OF CAPITAL STOCK
The following summary does not purport to be complete and is subject to,
and qualified in its entirety by, the Company's Restated Certificate of
Incorporation, as amended (the "Restated Certificate of Incorporation"), and
the Company's By-Laws, as amended (the "By-Laws"), and by the provisions of
applicable law. The authorized capital stock of the Company consists of
180,000,000 shares of Common Stock, par value $0.0675 per share, and
2,000,000 shares of Preferred Stock, no par value. This summary contains a
description of certain general terms of the Common Stock and the Preferred
Stock to which any Prospectus Supplement may relate. Certain terms of any
Common Stock or any series of Preferred Stock offered by a Prospectus
Supplement will be described in the Prospectus Supplement relating thereto,
including the number of shares, offered, any initial offering price, and
market price and dividend information. If so indicated in the Prospectus
Supplement, the terms of any series may differ from the terms set forth
below.
COMMON STOCK
At June 30, 1997, there were 63,668,907 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders.
Holders of the Common Stock vote together as a single class on all matters.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. The outstanding shares of Common Stock are fully
paid and nonassessable. The Common Stock will, when issued against payment
therefor, be fully paid and nonassessable.
On December 1, 1988, the Company distributed a dividend of one Preferred
Share Purchase Right (a "Right") for each outstanding share of Common Stock.
The Rights are not exercisable until ten days after a person or group,
without prior Board approval, acquires, or has the right to acquire,
beneficial ownership of 20% or more of the Common Stock or announces a tender
or exchange offer for 30% or more of the Common Stock. Each Right entitles
the holder to purchase one one-hundredth of a share of Series A Junior
Preferred Stock, no par value ("Series A Preferred Stock"), for $52. The
Rights may be redeemed by the Board of Directors up to ten days after an
event triggering the distribution of certificates for the Rights. The Rights
will expire, unless previously redeemed or exercised, on November 30, 1998.
The Rights are automatically attached to, and trade with, each share of
Common Stock.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,000,000 shares
of Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption, redemption
prices, liquidation preferences and the number of shares constituting any
series or the designation of such series, without any further action by the
stockholders. The issuance of shares of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company
without further action by the stockholders. The issuance of shares of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. The Company has no present plans to issue any additional
shares of Preferred Stock. See "Description of Preferred Stock."
RESTATED CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS AFFECTING CHANGE
IN CONTROL
The Restated Certificate of Incorporation and the By-Laws include certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and that may have the
effect of delaying, deterring or preventing a future takeover or change in
control of the Company, unless such takeover or change in control is approved
by the Board of Directors. Such
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provisions may also render the removal of the directors and management more
difficult. Such provisions include a classified Board of Directors divided
into three classes serving staggered three-year terms, prohibit stockholders
of the Company from taking action by written consent, require the affirmative
vote of at least 66 2/3% of the outstanding shares of stock of the Company
entitled to vote thereon to adopt, repeal, alter, amend or rescind the
By-Laws, and require that special meetings of stockholders be called only by
the Board of Directors or the Chief Executive Officer. In addition to the
foregoing, the Board of Directors has adopted a Stockholder Rights Plan,
which provided for a dividend of one Right for each outstanding share of
Common Stock. See "--Common Stock."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock is publicly traded
or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that
such stockholder became an interested stockholder, unless (i) the corporation
has elected in its original certificate of incorporation not to be governed
by Section 203 (the Company did not make such an election), (ii) the
transaction in which the stockholder became an interested stockholder or the
business combination was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder, (iii) upon consummation of the transaction that made
it an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers
or held in employee benefit plans in which the employees do not have a
confidential right to tender or vote stock held by the plan) or (iv) the
business combination was approved by the board of directors of the
corporation and ratified by two-thirds of the voting stock which the
interested stockholder did not own. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an "interested stockholder," transactions with an "interested
stockholder" involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an "interested
stockholder's" percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who, together with its
affiliates and associates, owns (or, within three years prior, did own) 15%
or more of a Delaware corporation's voting stock. Section 203 could prohibit
or delay a merger, takeover or other change in control of the Company and
therefore could discourage attempts to acquire the Company.
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DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the shares of Preferred Stock
that may be offered by the Company sets forth certain general terms and
provisions of the Preferred Stock to which any Prospectus Supplement may
relate. Certain other terms of any series of Preferred Stock and the terms of
any related option, put or right of the Company to require the holder of any
other Security offered to also acquire shares of Preferred Stock will be
specified in the applicable Prospectus Supplement. If so specified in the
applicable Prospectus Supplement, the terms of any series of Preferred Stock
may differ from the terms set forth below. The description of the terms of
the Preferred Stock set forth below and in any Prospectus Supplement is
necessarily a summary thereof and is qualified in its entirety by reference
to the Certificate of Designation relating to the applicable series of
Preferred Stock, which Certificate of Designation will be filed as an exhibit
to or incorporated by reference in the Registration Statement of which this
Prospectus forms a part.
GENERAL
Pursuant to the Restated Certificate of Incorporation and the Delaware
General Corporation Law, the Board of Directors of the Company has the
authority, without further stockholder action, to issue from time to time up
to a maximum of up to 2,000,000 shares of Preferred Stock, in one or more
series and for such consideration as may be fixed from time to time by the
Board of Directors of the Company and to fix before the issuance of any
shares of Preferred Stock of a particular series, the designation of such
series, the number of shares to comprise such series, the dividend rate or
rates payable with respect to the shares of such series, the redemption price
or prices, if any, and the terms and conditions of any redemption, the voting
rights, any sinking fund provisions for the redemption or purchase of the
shares of such series, the terms and conditions upon which the shares are
convertible or exchangeable, if they are convertible or exchangeable, and any
other relative rights, preferences and limitations pertaining to such series.
Reference is made to the Prospectus Supplement relating to the particular
series of Preferred Stock offered thereby for specific terms, including: (i)
the designation, stated value and liquidation preference of such Preferred
Stock and the number of shares offered; (ii) the initial public offering
price at which such shares will be issued; (iii) the dividend rate or rates
(or method of calculation), the dividend periods, the date or dates on which
dividends shall be payable and whether such dividends shall be cumulative or
noncumulative and, if cumulative, the dates from which dividends shall
commence to cumulate; (iv) any redemption or sinking fund provisions; (v) any
conversion or exchange provisions; (vi) the procedures for any auction and
remarketing, if any, of such Preferred Stock; (vii) whether interests in
Preferred Stock will be represented by depositary shares; and (viii) any
additional dividend, liquidation, redemption, sinking fund and other rights,
preferences, privileges, limitations and restrictions of such Preferred
Stock.
The Preferred Stock will, when issued against payment therefor, be fully
paid and nonassessable. Holders of Preferred Stock will have no preemptive
rights to subscribe for any additional securities which may be issued by the
Company.
Because the Company is a holding company, its rights and the rights of
holders of its securities, including the holders of Preferred Stock, to
participate in the distribution of assets of any subsidiary of the Company
upon the latter's liquidation or recapitalization will be subject to the
prior claims of such subsidiary's creditors and preferred stockholders,
except to the extent the Company may itself be a creditor with recognized
claims against such subsidiary or a holder of preferred stock of such
subsidiary.
DIVIDENDS
The holders of the Preferred Stock will be entitled to receive, when and
as declared by the Board of Directors of the Company, out of funds legally
available therefor, dividends at such rates and on such dates as will be
specified in the applicable Prospectus Supplement. Such rates may be fixed or
variable or both. If variable, the formula used for determining the dividend
rate for each dividend period will be specified in the applicable Prospectus
Supplement. Dividends will be payable to the holders of record as they appear
on the stock books of the Company on such record dates as will be fixed by
the Board of
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Directors of the Company. Dividends may be paid in the form of cash,
Preferred Stock (of the same or a different series) or Common Stock of the
Company, in each case as specified in the applicable Prospectus Supplement.
Dividends on any series of Preferred Stock may be cumulative or
noncumulative, as specified in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Board of Directors of
the Company fails to declare a dividend payable on a dividend payment date on
any Preferred Stock for which dividends are noncumulative ("Noncumulative
Preferred Stock"), then the holders of such Preferred Stock will have no
right to receive a dividend in respect of the dividend period relating to
such dividend payment date, and the Company will have no obligation to pay
the dividend accrued for such period, whether or not dividends on such
Preferred Stock are declared or paid on any future dividend payment dates.
The Company shall not declare, pay or set apart for payment any dividends
on any series of its Preferred Stock ranking, as to dividends, on a parity
with or junior to the outstanding Preferred Stock of any series unless (i) if
such series of Preferred Stock has a cumulative dividend ("Cumulative
Preferred Stock"), full cumulative dividends have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment
thereof set apart for such payment on such Preferred Stock for all past
dividend periods and the then current dividend period, or (ii) if such series
of Preferred Stock is Noncumulative Preferred Stock, full dividends for the
then current dividend period on such Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment. When dividends are not paid
in full upon Preferred Stock of any series and any other shares of Preferred
Stock of the Company ranking on a parity as to dividends with such Preferred
Stock, all dividends declared upon such Preferred Stock and any other
Preferred Stock of the Company ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on such Preferred Stock and such other shares of Preferred
Stock shall in all cases bear to each other the same ratio that the accrued
dividends per share on such Preferred Stock (which shall not, if such
Preferred Stock is Noncumulative Preferred Stock, include any accumulation in
respect of unpaid dividends for prior dividend periods) and such other shares
of Preferred Stock bear to each other. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment or payments
on Preferred Stock of such series which may be in arrears.
Except as set forth in the preceding sentence, unless (i) full dividends
on the outstanding Cumulative Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period or (ii) full dividends for the then current
dividend period on the outstanding Noncumulative Preferred Stock of any
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment, no
dividends (other than in Common Stock of the Company or other shares of the
Company ranking junior to such Preferred Stock as to dividends and upon
liquidation) shall be declared or paid or set aside for payment, nor shall
any other distribution be made, on the Common Stock of the Company or on any
other shares of the Company ranking junior to or on a parity with such
Preferred Stock as to dividends or upon liquidation.
Unless (i) full dividends on the Cumulative Preferred Stock of any series
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period or (ii) full dividends
for the then current dividend period on the Noncumulative Preferred Stock of
any series have been declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment, no Common Stock or any other
shares of the Company ranking junior to or on a parity with such Preferred
Stock as to dividends or upon liquidation shall be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid or made
available for a sinking fund for the redemption of any such shares) by the
Company or any subsidiary of the Company except by conversion into or
exchange for shares of the Company ranking junior to such Preferred Stock as
to dividends and upon liquidation. Any dividend payment made on shares of
Cumulative Preferred Stock of any series shall first be credited against the
earliest accrued but unpaid dividend due with respect to shares of such
series which remains unpaid.
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REDEMPTION
Preferred Stock may be redeemable, in whole or in part, at the option of
the Company, out of funds legally available therefor, and may be subject to
mandatory redemption pursuant to a sinking fund or otherwise, in each case
upon terms, at the times and at the redemption prices specified, in the
applicable Prospectus Supplement. Preferred Stock redeemed by the Company
will be restored to the status of authorized but unissued shares of Preferred
Stock.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid dividends
thereon (which shall not, if such Preferred Stock is Noncumulative Preferred
Stock, include any accumulation in respect of unpaid dividends for prior
dividend periods) to the date of redemption. The redemption price may be
payable in cash or other property, as specified in the applicable Prospectus
Supplement. If the redemption price for Preferred Stock of any series is
payable only from the net proceeds of the issuance of capital stock of the
Company, the terms of such Preferred Stock may provide that, if no such
capital stock shall have been issued or to the extent the net proceeds from
any issuance are insufficient to pay in full the aggregate redemption price
then due, such Preferred Stock shall automatically and mandatorily be
converted into shares of the applicable capital stock of the Company pursuant
to conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) full dividends on the Cumulative
Preferred Stock of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period or
(ii) full dividends for the then current dividend period on the Noncumulative
Preferred Stock of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment, no shares of Preferred Stock of such series shall be redeemed unless
all outstanding shares of Preferred Stock of such series are simultaneously
redeemed, and the Company shall not purchase or otherwise acquire any shares
of Preferred Stock of such series; provided, however, that the foregoing
shall not prevent the purchase or acquisition of Preferred Stock of such
series pursuant to a purchase or exchange offer provided such offer is made
on the same terms to all holders of the Preferred Stock of such series.
Notice of redemption shall be given by mailing the same to each record
holder of the Preferred Stock to be redeemed, not less than 30 nor more than
60 days prior to the date fixed for redemption thereof, at the address of
such holder as the same shall appear on the stock books of the Company. Each
notice shall state: (i) the redemption date; (ii) the number of shares and
series of the Preferred Stock to be redeemed; (iii) the redemption price;
(iv) the place or places where certificates for such Preferred Stock are to
be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi)
the date upon which the holder's conversion or exchange rights, if any, as to
such shares shall terminate. If fewer than all the shares of Preferred Stock
of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of shares of Preferred Stock to be
redeemed from each such holder.
If fewer than all the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Board of Directors of the Company and such shares may be redeemed pro
rata from the holders of record of such shares in proportion to the number of
such shares held by such holders (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Board of Directors
of the Company.
If notice of redemption of any shares of Preferred Stock has been given
and if the funds necessary for such redemption have been set aside by the
Company, separate and apart from its other funds, in trust for the pro rata
benefit of holders of any shares of Preferred Stock so called for redemption,
then from and after the redemption date for such shares, dividends on such
shares shall cease to accrue and such shares shall no longer be deemed to be
outstanding, and all rights of the holders thereof as stockholders of the
Company (except the right to receive the redemption price) shall cease. Upon
surrender, in
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accordance with such notice, of the certificates representing any such shares
(properly endorsed or assigned for transfer, if the Board of Directors of the
Company shall so require and the notice shall so state), the redemption price
set forth above shall be paid out of the funds provided by the Company. If
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without
cost to the holder thereof.
CONVERSION OR EXCHANGE RIGHTS
The Prospectus Supplement relating to a series of Preferred Stock that is
convertible or exchangeable will state the terms on which shares of such
series are convertible or exchangeable into Common Stock, another series of
Preferred Stock or Debt Securities.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock
shall be entitled to receive out of the assets of the Company legally
available for distribution to stockholders, before any distribution of assets
is made to holders of Common Stock or any other class or series of capital
stock ranking junior to such Preferred Stock upon liquidation, liquidating
distributions in the amount of the liquidation preference of such Preferred
Stock plus all accrued and unpaid dividends thereon (which shall not, in the
case of Noncumulative Preferred Stock, include any accumulation in respect of
unpaid dividends for prior dividend periods). If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the
amounts payable with respect to Preferred Stock of any series and any other
shares of Preferred Stock of the Company ranking as to any such distribution
on a parity with such Preferred Stock are not paid in full, the holders of
such Preferred Stock and of such other shares of Preferred Stock will share
ratably in any such distribution of assets of the Company in proportion to
the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of Preferred Stock of any series Will not be entitled
to any further participation in any distribution of assets by the Company.
VOTING RIGHTS
Except as indicated below or in the applicable Prospectus Supplement, or
except as expressly required by applicable law, the holders of Preferred
Stock will not be entitled to vote.
If the Company fails to pay dividends on any shares of Preferred Stock for
six consecutive quarterly periods, the holders of such shares of Preferred
Stock (voting separately as a class with all other series of Preferred Stock
upon which like voting rights have been conferred and are exercisable) will
be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least 10%
of such Preferred Stock or the next annual meeting of stockholders and at
each subsequent meeting until (i) all dividends accumulated on shares of
Cumulative Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment or (ii) four consecutive
quarterly dividends on shares of Noncumulative Preferred Stock shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment. In such case, the entire Board of Directors of the Company
will be increased by two directors.
So long as any shares of Preferred Stock remain outstanding, the Company
shall not, without the affirmative vote of the holders of at least two-thirds
of each series of Preferred Stock outstanding at the time, given in person or
by proxy, at a meeting (voting separately as a class): (i) authorize, create
or issue, or increase the authorized or issued amount of, any class or series
of capital stock ranking prior to such series of Preferred Stock with respect
to payment of dividends or distribution of assets upon liquidation,
dissolution or winding up, or reclassify any capital stock into any such
shares, or authorize, create or issue any obligation or security convertible
into, exchangeable for or evidencing the right to purchase any such shares or
(ii) amend, alter or repeal the provisions of the Restated Certificate of
Incorporation, including the Certificate of Designation relating to such
series of Preferred Stock, whether by merger, consolidation,
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or otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; provided, however, that any increase in the amount of the authorized
Preferred Stock or any outstanding series of Preferred Stock or any other
capital stock of the Company, or the creation and issuance of any other
series of Preferred Stock or of any other capital stock of the Company, in
each case ranking on a parity with or junior to the Preferred Stock of such
series with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or
voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such
redemption.
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DESCRIPTION OF DEBT SECURITIES
The Debt Securities may consist of Senior Debt Securities or Subordinated
Debt Securities. The Senior Debt Securities will be issued under an indenture
(the "Senior Debt Indenture") between the Company, as issuer, and one or more
trustees (each a "Trustee") meeting the requirements of a trustee under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Subordinated Debt Securities will be issued under an indenture (the
"Subordinated Debt Indenture") between the Company, as issuer, and a Trustee.
Forms of the Indentures have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. The Indentures are subject to
and governed by the Trust Indenture Act. The following summaries of certain
provisions of the Indentures do not purport to be complete, and where
reference is made to particular provisions of the Indentures, such
provisions, including definitions of certain terms, are incorporated by
reference as a part of such summaries or terms, which are qualified in their
entirety by such reference. The Indentures are substantially identical except
for provisions relating to subordination.
The Debt Securities may be issued in one or more series. The particular
terms of each series of Debt Securities, as well as any modifications of or
additions to the general terms of the Debt Securities as described herein
that may be applicable in the case of a particular series of Debt Securities,
will be described in the Prospectus Supplement relating to such series of
Debt Securities. Accordingly, for a description of the terms of a particular
series of Debt Securities, reference must be made to both the Prospectus
Supplement relating thereto and the description of Debt Securities set forth
in this Prospectus.
GENERAL
Neither of the Indentures limits the amount of Debt Securities that may be
issued thereunder. Each Indenture provides that Debt Securities issuable
thereunder may be issued up to the aggregate principal amount which may be
authorized from time to time by the Company. Reference is made to the
Prospectus Supplement for the following terms of the Debt Securities (to the
extent such terms are applicable to such Debt Securities) in respect of which
this Prospectus is being delivered (the "Offered Debt Securities"):
(i) the title of the Offered Debt Securities and whether the Offered
Debt Securities are Senior Debt Securities or Subordinated Debt
Securities;
(ii) the aggregate principal amount of the Offered Debt Securities and
any limit on such aggregate principal amount;
(iii) the date or dates, or the method for determining such date or
dates, on which the principal of the Offered Debt Securities will be
payable;
(iv) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which the Offered Debt
Securities will bear interest, if any;
(v) the date or dates, or the method for determining such date or
dates, from which any interest will accrue, the interest payment dates on
which any such interest will be payable, the regular record dates for such
interest payment dates, or the method by which any such date shall be
determined, the person to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(vi) the place or places where the principal of (and premium, if any)
and interest, if any, on such Offered Debt Securities will be payable,
such Offered Debt Securities may be surrendered for conversion or
registration of transfer or exchange and notices or demands to or upon the
Company in respect of such Offered Debt Securities and the applicable
Indenture may be served;
(vii) the period or periods within which, the price or prices at which
and the terms and conditions upon which the Offered Debt Securities may be
redeemed, as a whole or in part, at the option of the Company, if the
Company is to have such an option;
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(viii) the denominations of the Offered Debt Securities if other than
$1,000 and any integral multiple thereof;
(ix) if other than the principal amount thereof, the portion of the
principal amount of the Offered Debt Securities payable upon declaration
of acceleration of the maturity thereof, or (if applicable) the portion of
the principal amount of the Offered Debt Securities which is convertible
into Common Stock or Preferred Stock, or the method by which any such
portion shall be determined;
(x) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on the Offered Debt Securities may be determined
with reference to an index, formula or other method (which index, formula
or method may, but need not be, based on one or more currencies, currency
units, composite currencies, commodities, equity indicies or other
indicies) and the manner in which such amounts shall be determined;
(xi) any additions to, modifications of or deletions from the terms of
the Offered Debt Securities with respect to the Events of Default or
covenants set forth in the applicable Indenture;
(xii) provisions, if any, granting special rights to the Holders of the
Offered Debt Securities upon the occurrence of such events as may be
specified;
(xiii) whether any of the Offered Debt Securities are to be issuable
initially in temporary global form and whether any of the Offered Debt
Securities are to be issuable in permanent global form and, if so, whether
beneficial owners of interests in any such permanent global Security may
exchange such interests for Debt Securities of such series and of like
tenor of any authorized form and denomination and the circumstances under
which any such exchanges may occur, if other than in the manner provided
in the applicable Prospectus Supplement, and, if the Offered Debt
Securities are to be issuable as a global Security, the identity of the
depositary for the Offered Debt Securities;
(xiv) the date as of which any temporary global Security representing
outstanding Offered Debt Securities shall be dated if other than the date
of original issuance of the first Offered Debt Security to be issued;
(xv) the Person to whom any interest on any Offered Debt Security
shall be payable, if other than the Person in whose name that Offered Debt
Security is registered, and the extent to which, or the manner in which,
any interest payable on a temporary global Security on an Interest Payment
Date will be paid if other than in the manner provided in the applicable
Prospectus Supplement;
(xvi) the applicability, if any, of defeasance and covenant defeasance
provisions of the applicable Indenture and any provisions in modification
of, in addition to or in lieu of any such defeasance or covenant
defeasance provisions;
(xvii) if the Offered Debt Securities are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Offered
Debt Security) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and/or terms
of such certificates, documents or conditions;
(xviii) if the Offered Debt Securities are to be issued upon the exercise
of warrants, the time, manner and place for such Offered Debt Securities
to be authenticated and delivered;
(xix) the terms, if any, upon which the Offered Debt Securities may be
convertible into Common Stock or Preferred Stock of the Company and the
terms and conditions upon which such conversion will be effected,
including, without limitation, the initial conversion price or rate and
the conversion period as well as any applicable limitations on the
ownership or transferability of the Common Stock or Preferred Stock into
which the Offered Debt Securities are convertible; and
(xx) any other terms of the Offered Debt Securities not inconsistent
with the provisions of the applicable Indenture.
As described in each Prospectus Supplement relating to any particular
series of Debt Securities offered thereby, the Indenture under which such
Debt Securities are issued may contain covenants
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limiting: (i) the incurrence of debt by the Company; (ii) the incurrence of
debt by subsidiaries of the Company; (iii) the making of certain payments by
the Company and its subsidiaries; (iv) business activities of the Company and
its subsidiaries; (v) the issuance of preferred stock of subsidiaries; (vi)
asset dispositions; (vii) transactions with affiliates; (viii) liens; and
(ix) mergers and consolidations involving the Company.
SENIOR DEBT SECURITIES
The payment of principal of, premium, if any, and interest on the Senior
Debt Securities will, to the extent and in the manner set forth in the Senior
Debt Indenture, rank pari passu in right of payment with all other existing
and future unsecured and unsubordinated obligations of the Company.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
The Subordinated Debt Indenture provides that the Subordinated Debt
Securities are subordinate and junior in right of payment to all Senior
Indebtedness of the Company as provided in the Subordinated Debt Indenture.
No payment of principal of (including redemption payments), or interest on,
the Subordinated Debt Securities may be made (i) if any Senior Indebtedness
is not paid when due, any applicable grace period with respect to a default
thereunder 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
Subordinated Debt Securities 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 Subordinated Debt Securities 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 Subordinated Debt Securities 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 Subordinated
Debt Securities 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, 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 and other similar obligations 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 Subordinated
Debt Securities that is by its terms subordinated to or pari passu with the
Subordinated Debt Securities 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
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connection with the issuance by such Financing Entity of Convertible
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.
CERTAIN COVENANTS
Unless otherwise provided in a Prospectus Supplements with respect to a
particular series of Offered Debt Securities, each of the Indentures will
contain certain covenants, including the ones summarized below, which
covenants will be applicable (unless they are waived or amended or unless the
Debt Securities are defeased, see "Defeasance" below) so long as any of the
Debt Securities are outstanding.
Limitation on Debt
The Company will not Incur any Debt, including Acquisition Debt, unless,
after giving effect to the incurrence of such Debt and the receipt and
application of the proceeds therefrom, the Fixed Charge Ratio (as defined in
the Indenture) of the Company would be equal to or greater than 2.0 to 1.
Notwithstanding the foregoing, the Company may Incur each and all of the
following: (i) Company Refinancing Debt, (ii) Debt of the Company to any of
its Restricted Subsidiaries or any Eligible Joint Venture that is expressly
subordinated in right of payment to the Senior Debt Securities of all series,
in the case of the Senior Debt Indenture or the Subordinated Debt Securities
of all series in the case of the Subordinated Debt Indenture, provided that
any transfer of such Debt by a Restricted Subsidiary or an Eligible Joint
Venture (other than to another Restricted Subsidiary or another Eligible
Joint Venture), or any transfer of the Company's ownership interest, or a
portion thereof, in such Restricted Subsidiary or such Eligible Joint Venture
or the interest, or a portion thereof, of Kiewit in a Permitted Joint Venture
or an Eligible Joint Venture (which transfer has the effect of causing such
Restricted Subsidiary or such Eligible Joint Venture to cease to be a
Restricted Subsidiary or an Eligible Joint Venture, as the case may be), will
be deemed to be an Incurrence of Debt that is subject to the provisions of
this covenant other than this clause (ii), (iii) Debt in an aggregate
principal amount not to exceed $100 million outstanding at any one time may
be issued under or in respect of Permitted Working Capital Facilities, (iv)
Non-Recourse Debt Incurred in respect of one or more Permitted Facilities in
which the Company has a direct or indirect interest, (v) Debt in respect of
Currency Protection Agreements or Interest Rate Protection Agreements, (vi)
Purchase Money Debt, provided that the amount of such Debt (net of any
original issue discount) does not exceed 90% of the fair market value of the
Property acquired, (vii) the Debt Securities and other Debt outstanding as of
the date of original issuance of any series of the Debt Securities (other
than Debt to the extent that it is extinguished, retired, defeased or repaid
in connection with the original issuance of any series of the Debt
Securities), including Debt that is Incurred in respect of interest or
discount on such Debt (or Redeemable Stock issued as dividends in respect of
Redeemable Stock) pursuant to the terms of the agreement or instrument that
governs such Debt (or such Redeemable Stock) as in effect on the date of
original issuance of any series of the Debt Securities and (viii) Debt in an
aggregate principal amount not to exceed $75 million outstanding at any one
time.
Limitation on Subsidiary Debt
The Company will not permit any of its Restricted Subsidiaries or any
Eligible Joint Venture, to Incur any Debt.
Notwithstanding the foregoing, each and all of the following Debt may be
Incurred by a Restricted Subsidiary or an Eligible Joint Venture: (i) Debt
outstanding as of the date of original issuance of any series of the Debt
Securities, (ii) Debt owed by a Restricted Subsidiary or an Eligible Joint
Venture to the Company or another Restricted Subsidiary of the Company or
another Eligible Joint Venture that either directly or indirectly owns all or
a portion of the Company's interest in, or directly or indirectly is owned
by, such Restricted Subsidiary, or such Eligible Joint Venture, as the case
may be, (iii) Non-Recourse Debt Incurred in respect of one or more Permitted
Facilities, provided that such Restricted Subsidiary or such Eligible Joint
Venture has a direct or an indirect interest (which may include Construction
Financing
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provided by the Company to the extent permitted under the covenant described
under "Limitation on Restricted Payments" below as a "Permitted Investment")
in one or more of such Permitted Facilities in respect of which one or more
Restricted Subsidiaries or Eligible Joint Ventures shall have a direct or
indirect interest, (iv) Subsidiary Refinancing Debt, (v) Acquired Debt, (vi)
Debt in respect of Currency Protection Agreements or Interest Rate Protection
Agreements, (vii) Permitted Funding Company Loans and (viii) Permitted
Facilities Debt, provided that at the time of Incurrence thereof and after
giving effect to the application of the proceeds thereof, the aggregate
principal amount of Permitted Facilities Debt shall not exceed 15% of total
consolidated Debt of the Company computed in accordance with GAAP.
Limitation on Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries or any Eligible Joint Venture to, directly or indirectly, make
any Restricted Payment unless at the time of such Restricted Payment and
after giving effect thereto (a) no Event of Default and no event that, after
the giving of notice or lapse of time or both, would become an Event of
Default, has occurred and is continuing, (b) the Company could Incur at least
$1 of Debt under the provision described in the first paragraph of
"Limitation on Debt" above and (c) the aggregate amount of all Restricted
Payments made by the Company, its Restricted Subsidiaries and the Eligible
Joint Ventures (the amount so made, if other than in cash, to be determined
in good faith by the Chief Financial Officer, as evidenced by an Officers'
Certificate, or, if more than $30 million, by the Board of Directors, as
evidenced by a Board resolution) after March 24, 1994, is less than the sum
(without duplication) of (i) 50% of the Adjusted Consolidated Net Income of
the Company for the period (taken as one accounting period) beginning on the
first day of the first fiscal quarter that begins after March 24, 1994 and
ending on the last day of the fiscal quarter immediately prior to the date of
such calculation, provided that if throughout any fiscal quarter within such
period the Ratings Categories applicable to the Debt Securities are rated
Investment Grade by Standard & Poor's Corporation and Moody's Investors
Service, Inc. (or if both do not make a rating of the Debt Securities
publicly available, an equivalent Rating Category is made publicly available
by another Rating Agency), then 100% (instead of 50%) of the Adjusted
Consolidated Net Income (if more than zero) with respect to such fiscal
quarter will be included pursuant to this clause (i), and provided further
that if Adjusted Consolidated Net Income for such period is less than zero,
then minus 100% of the amount of such net loss, plus (ii) 100% of the
aggregate net cash proceeds received by the Company from and after March 24,
1994 from (A) the issuance and sale (other than to a Restricted Subsidiary or
an Eligible Joint Venture) of its Capital Stock (excluding Redeemable Stock,
but including Capital Stock other than Redeemable Stock issued upon
conversion of, or in exchange for Redeemable Stock or securities other than
its Capital Stock), (B) the issuance and sale or the exercise of warrants,
options and rights to purchase its Capital Stock (other than Redeemable
Stock) and (C) the issuance and sale of convertible Debt upon the conversion
of such convertible Debt into Capital Stock (other than Redeemable Stock),
but excluding the net proceeds from the issuance, sale, exchange, conversion
or other disposition of its Capital Stock (I) that is convertible (whether at
the option of the Company or the holder thereof or upon the happening of any
event) into (x) any security other than its Capital Stock or (y) its
Redeemable Stock or (II) that is Capital Stock referred to in clauses (ii)
and (iii) of the definition of "Permitted Payment", plus (iii) the net
reduction in Investments of the types specified in clauses (iv) and (v) of
the definition of "Restricted Payment" that result from payments of interest
on Debt, dividends, or repayment of loans or advances, the proceeds of the
sale or disposition of the Investment or other return of the amount of the
original Investment to the Company, the Restricted Subsidiary or the Eligible
Joint Venture that made the original Investment from the Person in which such
Investment was made, provided that (x) the aggregate amount of such payments
will not exceed the amount of the original Investment by the Company or such
Restricted Subsidiary that reduced the amount available pursuant to this
clause (c) for making Restricted Payments and (y) such payments may be added
pursuant to this clause (iii) only to the extent such payments are not
included in the calculation of Adjusted Consolidated Net Income, provided
further that if Investments of the types specified in clauses (iv) and (v) of
the Definition of "Restricted Payment" have been made in any Person and such
Person thereafter becomes a Restricted Subsidiary or an Eligible Joint
Venture, then the aggregate amount of such Investment (to the extent that it
has reduced the amount available pursuant to this clause (c) for making
Restricted Payments), net of the amounts previously added pursuant to this
clause (iii), may be added to the amount available for
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making Restricted Payments, plus (iv) an amount equal to the principal amount
of Debt of the Company extinguished in connection with the conversion into
Common Stock of the Company of the Company's 5% Convertible Subordinated
Debentures due 2000 and its 9.5% Convertible Subordinated Debenture due 2003.
The foregoing clause (c) will not prevent the payment of any dividend within
60 days after the date of its declaration if such dividend could have been
made on the date of its declaration without violation of the provisions of
this covenant.
None of the Company, any of its Restricted Subsidiaries or any Eligible
Joint Venture will be deemed to have made an Investment at the time that a
Person that is a Restricted Subsidiary of the Company or an Eligible Joint
Venture ceases to be a Restricted Subsidiary or an Eligible Joint Venture
(other than as a result of being designated as an Unrestricted Subsidiary),
although any subsequent Investment made by the Company, its Restricted
Subsidiaries and Eligible Joint Ventures in such Person will be Investments
that will be subject to the foregoing paragraph unless and until such time as
such Person becomes a Restricted Subsidiary or an Eligible Joint Venture.
Notwithstanding the foregoing, (i) the designation of a Restricted Subsidiary
as an Unrestricted Subsidiary, in the manner provided in the definition of
"Unrestricted Subsidiary," will be an Investment that will be subject to the
foregoing paragraph and (ii) the transfer of the Company's interest (or any
portion thereof) in an entity that has been deemed to be an Eligible Joint
Venture, directly or indirectly, to an Unrestricted Subsidiary will be an
Investment (to the extent of the interest transferred) that will be subject
to the foregoing paragraph.
Restricted Payments are defined in the Indentures to exclude Permitted
Payments, which include Permitted Investments. See "Certain Definitions"
below.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries or any Eligible Joint Venture to, create or cause to become, or
as a result of the acquisition of any Person or Property, or upon any Person
becoming a Restricted Subsidiary or an Eligible Joint Venture, remain subject
to, any consensual encumbrance or consensual restriction of any kind on the
ability of any Restricted Subsidiary or any Eligible Joint Venture to (a) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary or such Eligible Joint Venture
owned by the Company, any other Restricted Subsidiary or any other Eligible
Joint Venture, (b) make payments in respect of any Debt owed to the Company,
any other Restricted Subsidiary of the Company or any Eligible Joint Venture,
(c) make loans or advances to the Company or to any other Restricted
Subsidiary of the Company or any other Eligible Joint Venture that is
directly or indirectly owned by such Restricted Subsidiary or such Eligible
Joint Venture or (d) transfer any of its Property to the Company or to any
other Restricted Subsidiary or any other Eligible Joint Venture that directly
or indirectly owns or is owned by such Restricted Subsidiary or such Eligible
Joint Venture, other than those encumbrances and restrictions created or
existing (i) on the date of the original issuance of any series of Debt
Securities, (ii) pursuant to the Indenture, (iii) in connection with the
Incurrence of any Debt permitted under the provisions described in clause
(iii) of the second paragraph of "Limitation on Subsidiary Debt" above,
provided that, in the case of Debt owed to Persons other than the Company,
its Restricted Subsidiaries and any Eligible Joint Venture, the Chief
Executive Officer or the Chief Financial Officer of the Company determines in
good faith, as evidenced by an Officers' Certificate, that such encumbrances
or restrictions are required to effect such financing and are not materially
more restrictive, taken as a whole, on the ability of the applicable
Restricted Subsidiary or the applicable Eligible Joint Venture to make the
payments, distributions, loans, advances or transfers referred to in clauses
(a) through (d) above than encumbrances and restrictions, taken as a whole,
customarily accepted (or, in the absence of any industry custom, reasonably
acceptable) in comparable financings or comparable transactions in the
applicable jurisdiction, (iv) in connection with the execution and delivery
of an electric power or thermal energy purchase contract, or other contract
related to the output or product of, or services rendered by one or more
Permitted Facilities to which such Restricted Subsidiary or such Eligible
Joint Venture is a supplying party or other contracts with customers,
suppliers and contractors to which such Restricted Subsidiary or such
Eligible Joint Venture is a party and where such Restricted Subsidiary or
such Eligible Joint Venture is engaged, directly or indirectly, in the
development, design, engineering, procurement, construction, acquisition,
ownership, management or operation of one or more of such Permitted
Facilities, provided
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that the Chief Executive Officer or the Chief Financial Officer of the
Company determines in good faith, as evidenced by an Officers' Certificate,
that such encumbrances or restrictions are required to effect such contracts
and are not materially more restrictive, taken as a whole, on the ability of
the applicable Restricted Subsidiary or the applicable Eligible Joint Venture
to make the payments, distributions, loans, advances or transfers referred to
in clauses (a) through (d) above than encumbrances and restrictions, taken as
a whole, customarily accepted (or, in the absence of any industry custom,
reasonably acceptable) in comparable financings or comparable transactions in
the applicable jurisdiction, (v) in connection with any Acquired Debt,
provided that such encumbrance or restriction was not incurred in
contemplation of such Person becoming a Restricted Subsidiary or an Eligible
Joint Venture and provided further that such encumbrance or restriction does
not extend to any other Property of such Person at the time it became a
Restricted Subsidiary or an Eligible Joint Venture, (vi) in connection with
the Incurrence of any Debt permitted under clause (iv) of the provision
described in the second paragraph of "Limitation on Subsidiary Debt" above,
provided that, in the case of Debt owed to Persons other than the Company and
its Restricted Subsidiaries, the Chief Executive Officer or the Chief
Financial Officer of the Company determines in good faith, as evidenced by an
Officers' Certificate, that such encumbrances or restrictions taken as a
whole are not materially more restrictive than the encumbrances and
restrictions applicable to the Debt and/or equity being exchanged or
refinanced, (vii) customary non-assignment provisions in leases or other
contracts entered into in the ordinary course of business of the Company, any
Restricted Subsidiary or any Eligible Joint Venture, (viii) any restrictions
imposed pursuant to an agreement entered into for the sale or disposition of
all or substantially all of the Capital Stock or Property of any Restricted
Subsidiary or Joint Venture that apply pending the closing of such sale or
disposition, (ix) in connection with Liens on the Property of such Restricted
Subsidiary or such Eligible Joint Venture that are permitted by the covenant
described under "Limitation on Liens" below but only with respect to
transfers referred to in clause (d) above, (x) in connection with the
Incurrence of any Debt permitted under clause (ii) of the provisions
described in the second paragraph of "Limitation on Subsidiary Debt" above or
(xi) in connection with the Incurrence of any Permitted Facilities Debt
permitted under clause (viii) of the provisions described in the second
paragraph of "Limitation on Subsidiary Debt" above, provided that any such
encumbrance or restriction relates only to those Restricted Subsidiaries or
Eligible Joint Ventures having a direct or indirect interest in the Permitted
Facilities in respect of which such Permitted Facilities Debt was Incurred.
Limitation on Dispositions
Subject to the covenant described under "Mergers, Consolidations and Sales
of Assets" below, the Company will not make, and will not permit any of its
Restricted Subsidiaries or any Eligible Joint Venture to make, any Asset
Disposition unless (i) the Company, the Restricted Subsidiary or the Eligible
Joint Venture, as the case may be, receives consideration at the time of each
such Asset Disposition at least equal to the fair market value of the
Property or securities sold or otherwise disposed of (to be determined in
good faith by the Chief Financial Officer, as evidenced by an Officers'
Certificate, or, if more than $30 million, by the Board of Directors, as
evidenced by a Board resolution), (ii) at least 85% of such consideration is
received in cash or Cash Equivalents or if less than 85%, the remainder of
such consideration consists of Property related to the business of the
Company as described in the first sentence of the covenant described under
"Limitation on Business" below, and (ii) unless otherwise required under the
terms of Senior Debt, at the Company's election, the Net Cash Proceeds are
either (A) invested in the business of the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture or (B) applied to the payment of
any Debt of the Company or any of its Restricted Subsidiaries or any Eligible
Joint Venture (or as otherwise required under the terms of such Debt),
provided that, no such payment of Debt (x) under Permitted Working Capital
Facilities or any other revolving credit agreement will count for this
purpose unless the related loan commitment, standby facility or the like will
be permanently reduced by an amount equal to the principal amount so repaid
or (y) owed to the Company, a Restricted Subsidiary thereof or an Eligible
Joint Venture will count for this purpose, provided further that such
investment or such payment, as the case may be, must be made within 365 days
from the later of the date of such Asset Disposition or the receipt by the
Company, such Restricted Subsidiary or such Eligible Joint Venture of the Net
Cash Proceeds related thereto. Any Net Cash Proceeds from Asset
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Dispositions that are not applied as provided in clause (A) or (B) of the
preceding sentence will constitute "Excess Proceeds." Excess Proceeds will be
applied, as described below, to make an offer (an "Offer") to purchase any
series of Debt Securities at a purchase price equal to 100% of the principal
thereof, plus accrued interest, if any, to the date of purchase.
Notwithstanding anything in the foregoing to the contrary, the Company,
its Restricted Subsidiaries and the Eligible Joint Ventures may exchange with
other Persons (i) Property that constitutes a Restricted Subsidiary or an
Eligible Joint Venture for Property that constitutes a Restricted Subsidiary
or an Eligible Joint Venture, (ii) Property that constitutes a Restricted
Subsidiary or an Eligible Joint Venture for Property that does not constitute
a Restricted Subsidiary or an Eligible Joint Venture, (iii) Property that
does not constitute a Restricted Subsidiary or an Eligible Joint Venture for
Property that does not constitute a Restricted Subsidiary or an Eligible
Joint Venture and (iv) Property that does not constitute a Restricted
Subsidiary or an Eligible Joint Venture for Property that constitutes a
Restricted Subsidiary or an Eligible Joint Venture, provided that in each
case the fair market value of the Property received is at least equal to the
fair market value of the Property exchanged as determined in good faith by
the Chief Financial Officer, as evidenced by an Officers' Certificate, or, if
more than $25 million, by the Board of Directors, as evidenced by a Board
resolution, provided that the Investment in the Property received in the
exchanges described in clauses (ii) and (iii) of the prior sentence will be
subject to the covenant described under "Limitation on Restricted Payments"
above. Notwithstanding anything in the foregoing to the contrary, the Company
may not, and will not permit any of its Restricted Subsidiaries or any
Eligible Joint Venture to, make an Asset Disposition of any of their interest
in, or Property of, any of the Coso Project other than for consideration
consisting solely of cash.
To the extent that any or all of the Net Cash Proceeds of any Foreign
Asset Disposition are prohibited from (or delayed in) being repatriated to
the United States by applicable local law, the portion of such Net Cash
Proceeds so affected will not be required to be applied at the time provided
above but may be retained by any Restricted Subsidiary or any Eligible Joint
Venture so long, but only so long, as the applicable local law does not
permit (or delays) repatriation to the United States. If such Net Cash
Proceeds are transferred by the Restricted Subsidiary or Eligible Joint
Venture that conducted the Foreign Asset Disposition to another Restricted
Subsidiary or Eligible Joint Venture, the Restricted Subsidiary or Eligible
Joint Venture receiving such Net Cash Proceeds must not be directly or
indirectly obligated on any Debt owed to any Person other than the Company.
The Company will take or cause such Restricted Subsidiary or such Eligible
Joint Venture to take all actions required by the applicable local law to
permit such repatriation promptly. Once repatriation of any of such Net Cash
Proceeds is permitted under the applicable local law, repatriation will be
effected immediately and the repatriated Net Cash Proceeds will be applied in
the manner set forth in this covenant as if such Asset Disposition had
occurred on the date of such repatriation. In addition, if the Chief
Financial Officer determines, in good faith, as evidenced by an Officers'
Certificate, that repatriation of any or all of the Net Cash Proceeds of any
Foreign Asset Disposition would have a material adverse tax consequence to
the Company, the Net Cash Proceeds so affected may be retained outside of the
United States by the applicable Restricted Subsidiary or the applicable
Eligible Joint Venture for so long as such material adverse tax consequence
would continue. Notwithstanding the foregoing provisions of this paragraph to
the contrary, if applicable local law prohibits (or delays) the repatriation
of Net Cash Proceeds of a Foreign Asset Disposition but such local law does
not prohibit the application of such Net Cash Proceeds pursuant to the first
sentence of the first paragraph of this covenant, the Company may apply such
Net Cash Proceeds pursuant to such provision.
If the series of Debt Securities tendered pursuant to an Offer have an
aggregate purchase price that is less than the Excess Proceeds available for
the purchase of such Debt Securities, the Company may use the remaining
Excess Proceeds for general corporate purposes without regard to the
provisions of this covenant. The Company will not be required to make an
Offer pursuant to this covenant if the Excess Proceeds available therefor are
less than $10 million, provided that the lesser amounts of such Excess
Proceeds will be carried forward and cumulated for each 36 consecutive month
period for purposes of determining whether an Offer is required with respect
to any Excess Proceeds of any subsequent Asset
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Dispositions. Any such lesser amounts so carried forward and cumulated need
not be segregated or reserved and may be used for general corporate purposes,
provided that such use will not reduce the amount of cumulated Excess
Proceeds or relieve the Company of its obligation hereunder to make an Offer
with respect thereto.
The Company will make an Offer by mailing to each Holder, with a copy to
the Trustee, within 30 days after the receipt of Excess Proceeds that cause
the cumulated Excess Proceeds to exceed $10 million, a written notice that
will specify the purchase date, which will not be less than 30 days nor more
than 60 days after the date of such notice (the "Purchase Date"), that will
contain certain information concerning the business of the Company that the
Company believes in good faith will enable the Holders to make an informed
decision and that will contain information concerning the procedures
applicable to the Offer (including, without limitation, the right of
withdrawal) and the effect of such Offer on the Debt Securities tendered.
Holders that elect to have their Debt Securities purchased will be required
to surrender such Debt Securities at least one Business Day prior to the
Purchase Date. If at the expiration of the Offer period the aggregate
purchase price of the series of Debt Securities properly tendered by Holders
pursuant to the Offer exceeds the amount of such Excess Proceeds, such series
of Debt Securities or portions of Debt Securities to be accepted for purchase
will be selected by the Trustee in such manner as the Trustee deems to be
fair and appropriate in the circumstances.
If the Company is prohibited by applicable law from making the Offer or
purchasing Debt Securities of any series thereunder, the Company need not
make an Offer pursuant to this covenant for so long as such prohibition is in
effect.
The Company will comply with all applicable tender offer rules, including,
without limitation, Rule 14e-1 under the Exchange Act, in connection with an
Offer.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries or any Eligible Joint Venture to, directly or indirectly,
conduct any business or enter into or permit to exist any transaction or
series of related transactions (including, but not limited to, the purchase,
sale or exchange of Property, the making of any Investment, the giving of any
Guarantee or the rendering of any service) with any Affiliate of the Company,
such Restricted Subsidiary or such Eligible Joint Venture, as the case may
be, unless (i) such business, transaction or series of related transactions
is in the best interest of the Company, such Restricted Subsidiary or such
Eligible Joint Venture, (ii) such business, transaction or series of related
transactions is on terms no less favorable to the Company, such Restricted
Subsidiary or such Eligible Joint Venture than those that could be obtained
in a comparable arm's length transaction with a Person that is not such an
Affiliate and (iii) with respect to such business, transaction or series of
related transactions that has a fair market value or involves aggregate
payments equal to, or in excess of, $10 million, such business, transaction
or series of transactions is approved by a majority of the Board of Directors
(including a majority of the disinterested directors), which approval is set
forth in a Board resolution delivered to the Trustee certifying that, in good
faith, the Board of Directors believes that such business, transaction or
series of transactions complies with clauses (i) and (ii) above.
Limitation on Liens
The Company may not Incur any Debt that is secured, directly or
indirectly, with, and the Company will not, and will not permit any of its
Restricted Subsidiaries or an Eligible Joint Venture to, grant a Lien on the
Property of the Company, its Restricted Subsidiaries or any Eligible Joint
Venture now owned or hereafter acquired unless contemporaneous therewith or
prior thereto the Debt Securities are equally and ratably secured except for
(i) any such Debt secured by Liens existing on the Property of any entity at
the time such Property is acquired by the Company, any of its Restricted
Subsidiaries or any Eligible Joint Venture, whether by merger, consolidation,
purchase of such Property or otherwise, provided that such Liens (x) are not
created, incurred or assumed in contemplation of such Property being acquired
by the Company, any of its Restricted Subsidiaries or any Eligible Joint
Venture and (y) do not extend to any other Property of the Company, any of
its Restricted Subsidiaries or any Eligible Joint Venture, (ii) any other
Debt that is required by the terms thereof to be equally and ratably secured
as a result of the
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Incurrence of Debt that is permitted to be secured pursuant to another clause
of this covenant, (iii) Liens that are granted in good faith to secure Debt
(A) contemplated by clause (iv) of the covenant described under "Limitation
on Debt" above or (B) contemplated by clauses (ii), (iii), (vi) and (viii) of
the covenant described under "Limitation on Subsidiary Debt" above, provided
that, in the case of Debt owed to a Person other than the Company or a
Restricted Subsidiary, the Chief Executive Officer or Chief Financial Officer
of the Company determines in good faith, as evidenced by an Officers'
Certificate, that such Liens are required in order to effect such financing
and are not materially more restrictive, taken as a whole, than Liens, taken
as a whole, customarily accepted (or in the absence of industry custom,
reasonably acceptable) in comparable financings or comparable transactions in
the applicable jurisdiction, (iv) Liens existing on the date of the original
issuance of any series of the Debt Securities, (v) Liens incurred to secure
Debt incurred by the Company as permitted by clause (vi) of the covenant
described under "Limitation on Debt" above, provided that such Liens may not
cover any Property other than that being purchased and improvements and
additions thereto, (vi) Liens on any Property of the Company securing
Permitted Working Capital Facilities, Guarantees thereof and any Interest
Rate Protection Agreements or Currency Protection Agreements, provided that
such Liens may not extend to the Capital Stock owned by the Company in any
Restricted Subsidiary of the Company or any Eligible Joint Venture, (vii)
Liens in respect of extensions, renewals, refundings or refinancings of any
Debt secured by the Liens referred to in the foregoing clauses, provided that
the Liens in connection with such renewal, extension, refunding or
refinancing will be limited to all or part of the specific property that was
subject to the original Lien, (viii) Liens incurred to secure obligations in
respect of letters of credit, bankers' acceptances, surety, bid, operating
and performance bonds, performance guarantees or other similar instruments or
obligations (or reimbursement obligations with respect thereto) (in each
case, to the extent incurred in the ordinary course of business), (ix) any
Lien arising by reason of (A) any judgment, decree or order of any court, so
long as such Lien is being contested in good faith and is appropriately
bonded, and any appropriate legal proceedings that may have been duly
initiated for the review of such judgment, decree or order have not been
finally terminated or the period within which such proceedings may be
initiated has not expired, (B) taxes, duties, assessments, imposts or other
governmental charges that are not yet delinquent or are being contested in
good faith, (C) security for payment of worker's compensation or other
insurance, (D) security for the performance of tenders, contracts (other than
contracts for the payment of money) or leases, (E) deposits to secure public
or statutory obligations, or to secure permitted contracts for the purchase
or sale of any currency entered into in the ordinary course of business, (F)
the operation of law in favor of carriers, warehousemen, landlords,
mechanics, materialmen, laborers, employees or suppliers, incurred in the
ordinary course of business for sums that are not yet delinquent or are being
contested in good faith by negotiations or by appropriate proceedings that
suspend the collection thereof, (G) easements, rights-of-way, zoning and
similar covenants and restrictions and other similar encumbrances or title
defects that do not in the aggregate materially interfere with the ordinary
conduct of the business of the Company, any of its Restricted Subsidiaries or
any Eligible Joint Venture or (H) leases and subleases of real property that
do not interfere with the ordinary conduct of the business of the Company,
any of its Restricted Subsidiaries or any Eligible Joint Venture and that are
made on customary and usual terms applicable to similar properties, or (x)
Liens, in addition to the foregoing, that secure obligations not in excess of
$5 million in the aggregate.
Purchase of Debt Securities Upon a Change of Control
Upon the occurrence of a Change of Control, each Holder of the Debt
Securities of each series will have the right to require that the Company
repurchase such Holder's Debt Securities of such series at a purchase price
in cash equal to 101% of the principal thereof on the date of purchase plus
accrued interest, if any, to the date of purchase.
The Change of Control provisions may not be waived by the Trustee or by
the Board of Directors, and any modification thereof must be approved by each
Holder. Nevertheless, the Change of Control provisions will not necessarily
afford protection to Holders, including protection against an adverse effect
on the value of the Debt Securities of any series, in the event that the
Company or its Subsidiaries Incur additional Debt, whether through
recapitalizations or otherwise.
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Within 30 days following a Change of Control, the Company will mail a
notice to each Holder of the Debt Securities of each series, with a copy to
the Trustee, stating (1) that a Change of Control has occurred and that such
Holder has the right to require the Company to purchase such Holder's Debt
Securities at the purchase price described above (the "Change of Control
Offer"), (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of Control),
(3) the purchase date (which will be not earlier than 30 days nor later than
60 days from the date such notice is mailed) (the "Purchase Date"), (4) and
thereafter interest on and such Debt Security will continue to accrue, (5)
any Debt Security properly tendered pursuant to the Change of Control Offer
will cease to accrue interest after the Purchase Date (assuming sufficient
moneys for the purchase thereof are deposited with the Trustee), (6) that
Holders electing to have a Debt Security of any series purchased pursuant to
a Change of Control Offer will be required to surrender the Debt Security of
such series, with the form entitled "Option of Holder To Elect Purchase" on
the reverse of the Debt Security completed, to the paying agent at the
address specified in the notice prior to the close of business on the fifth
Business Day prior to the Purchase Date, (7) that a Holder will be entitled
to withdraw such Holder's election if the paying agent receives, not later
than the close of business on the third Business Day (or such shorter periods
as may be required by applicable law) preceding the Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Debt Securities of such series the Holder
delivered for purchase, and a statement that such Holder is withdrawing his
election to have such Debt Securities of such series purchased and (8) that
Holders that elect to have their Debt Securities of any series purchased only
in part will be issued new Debt Securities having a principal amount equal to
the portion of the Debt Securities of the series that were surrendered but
not tendered and purchased.
On the Purchase Date, the Company will (i) accept for payment all Debt
Securities of any series or portions thereof tendered pursuant to the Change
of Control Offer, (ii) deposit with the Trustee money sufficient to pay the
purchase price of all Debt Securities of such series or portions thereof so
tendered for purchase and (iii) deliver or cause to be delivered to the
Trustee the Debt Securities of such series properly tendered together with an
Officers' Certificate identifying the Debt Securities of such series or
portions thereof tendered to the Company for purchase. The Trustee will
promptly mail, to the Holders of the Debt Securities of such series properly
tendered and purchased, payment in an amount equal to the purchase price, and
promptly authenticate and mail to each Holder a new Debt Security of the same
series having a principal amount equal to any portion of such Holder's Debt
Securities of such series that were surrendered but not tendered and
purchased, the Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Purchase Date.
If the Company is prohibited by applicable law from making the Change of
Control Offer or purchasing Debt Securities of any series thereunder, the
Company need not make a Change of Control Offer pursuant to this covenant for
so long as such prohibition is in effect.
The Company will comply with all applicable tender offer rules, including,
without limitation, Rule 14e-1 under the Exchange Act, in connection with a
Change of Control Offer.
Limitation on Business
The Company will, and will cause its Restricted Subsidiaries and the
Eligible Joint Ventures to, engage only in (i) the ownership, design,
engineering, procurement, construction, development, acquisition, operation,
servicing, management or disposition of Permitted Facilities, (ii) the
ownership, creation, development, acquisition, servicing, management or
disposition of Restricted Subsidiaries and Joint Ventures that own,
construct, develop, design, engineer, procure, acquire, operate, service,
manage or dispose of Permitted Facilities, (iii) obtaining, arranging or
providing financing incident to any of the foregoing and (iv) other related
activities incident to any of the foregoing. The Company will not, and will
not permit any of its Restricted Subsidiaries or any Eligible Joint Venture
to, make any Investment or otherwise acquire any Property that is not
directly related to the business of the Company as described in the preceding
sentence (collectively, the "Ineligible Investments") other than as a part of
an Investment or an acquisition of Property that is predominantly and
directly related to the business of the Company
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as described above, and if the aggregate fair market value of such Ineligible
Investments in the aggregate exceeds 20% (the "Percentage Limit") of the
total assets of the Company and its consolidated Restricted Subsidiaries (as
determined in accordance with GAAP) as determined in good faith by the Chief
Financial Officer, as evidenced by an Officers' Certificate, the Company, its
Restricted Subsidiaries and the Eligible Joint Ventures must cease acquiring
any additional Ineligible Investments and, within 18 months of the
acquisition that caused the Ineligible Assets to exceed the Percentage Limit,
must return to compliance with the Percentage Limit by disposing of
Ineligible Assets or otherwise, provided that such 18-month period may be
extended up to an additional six months if, despite the Company's active
efforts during such 18-month period to dispose of such Ineligible Investments
or to otherwise come into compliance with such Percentage Limit, the Company
is unable to do so because of regulatory restrictions or delays or adverse
market conditions.
Limitation on Certain Sale-Leasebacks
The Company will not, and will not permit any of its Restricted
Subsidiaries or any Eligible Joint Venture to, Incur or otherwise become
obligated with respect to any sale-leaseback (other than a sale-leaseback
with respect to a Permitted Facility that is Non-Recourse) unless, (i) (a) if
effected by the Company, the Company would be permitted to Incur such
obligation under the covenant described under "Limitation on Debt" above or,
(b) if effected by a Restricted Subsidiary or an Eligible Joint Venture, such
Restricted Subsidiary or such Eligible Joint Venture would be permitted to
Incur such obligation under the covenant described under "Limitation on
Subsidiary Debt" above, assuming for the purpose of this covenant and the
covenants described under "Limitation on Debt" and "Limitation on Subsidiary
Debt" that (x) the obligation created by such sale-leaseback is a Capitalized
Lease and (y) the Capitalized Lease Obligation with respect thereto is the
Attributable Value thereof, (ii) the Company, such Restricted Subsidiary or
such Eligible Joint Venture is permitted to grant a Lien with respect to the
property that is the subject of such sale-leaseback under the covenant
described under "Limitation on Liens" above, (iii) the proceeds of such
sale-leaseback are at least equal to the fair market value of the property
sold (determined in good faith as evidenced by an Officers' Certificate
delivered to the Trustee in respect of a transaction involving less than $25
million, or, if equal to or in excess of $25 million, by the Board of
Directors, as evidenced by a Board resolution) and (iv) the Net Cash Proceeds
of the sale-leaseback are applied pursuant to the covenants described under
"Limitation on Dispositions" above.
Limitation on Sale of Subsidiary Preferred Stock
The Company will not permit any of its Restricted Subsidiaries or any
Eligible Joint Venture to create, assume or otherwise cause or suffer to
exist any Preferred Stock except: (i) Preferred Stock outstanding on the date
of the Indentures, including Preferred Stock issued as dividends in respect
of such Preferred Stock pursuant to the terms of the agreement or instrument
that governs such Preferred Stock as in effect on the date of original
issuance of the Debt Securities, (ii) Preferred Stock held by the Company, a
Restricted Subsidiary of the Company or an Eligible Joint Venture, (iii)
Preferred Stock issued by a Person prior to the time (a) such Person becomes
a Restricted Subsidiary or an Eligible Joint Venture, (b) such Person merges
with or into another Restricted Subsidiary or another Eligible Joint Venture
or (c) a Restricted Subsidiary, or an Eligible Joint Venture merges with or
into such Person (in a transaction in which such Person becomes a Restricted
Subsidiary or an Eligible Joint Venture), provided that such Preferred Stock
was not issued in anticipation of such Person becoming a Restricted
Subsidiary or an Eligible Joint Venture or of such merger, (iv) Preferred
Stock issued or agreed to be issued by a Restricted Subsidiary or an Eligible
Joint Venture in connection with the financing of the construction, design,
engineering, procurement, equipping, developing, operation, ownership,
management, servicing or acquisition of one or more Permitted Facilities in
which the Company or one or more Restricted Subsidiaries or Eligible Joint
Ventures has a direct or indirect interest or the retirement of Debt or
Preferred Stock secured by any such Permitted Facility or in order to enhance
the repatriation of equity, advances or income or the increase of after-tax
funds available for distribution to the owners of any such Permitted
Facility, (v) Preferred Stock issued or agreed to be issued by a Restricted
Subsidiary or an Eligible Joint Venture in satisfaction of legal requirements
applicable to a Permitted Facility or to maintain the ordinary course of
conduct of such Restricted Subsidiary's or such Eligible Joint Venture's
business in the applicable jurisdiction and (vi) Preferred Stock that is
exchanged for, or the proceeds of
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which are used to refinance, any Preferred Stock permitted to be outstanding
pursuant to clauses (i) through (v) hereof (or any extension, renewal or
refinancing thereof), having a liquidation preference not to exceed the
liquidation preference of the Preferred Stock so exchanged or refinanced and
having a redemption period no shorter than the redemption period of the
Preferred Stock so exchanged or refinanced.
EVENTS OF DEFAULT
An Event of Default, as defined in each of the Indentures and applicable
to any particular series of Debt Securities issued under such Indenture is
defined as being: (i) default as to the payment of principal, or premium, if
any, on any Debt Security of that series or as to any payment required in
connection with a Change of Control or an Asset Disposition, (ii) default as
to the payment of interest on any Debt Security of that series for 30 days
after payment is due, (iii) failure to make an offer required under either of
the covenants described under "Limitation on Dispositions" or "Purchase of
Debt Securities Upon a Change of Control" above or a failure to purchase Debt
Securities of that series tendered in respect of such offer, (iv) default in
the performance, or breach, of any covenant, agreement or warranty contained
in the Indentures and the Debt Securities of that series and such failure
continues for 30 days after written notice is given to the Company by the
Trustee or the Holders of at least 25% in principal amount outstanding of the
Debt Securities of that series issued under such Indenture, as provided in
such Indenture, (v) default on any other Debt of the Company or any
Significant Subsidiary (other than Non-Recourse Debt of Significant
Subsidiaries) if either (x) such default results from failure to pay
principal of such Debt in excess of $25 million when due after any applicable
grace period or (y) as a result of such default, the maturity of such Debt
has been accelerated prior to its scheduled maturity and such default has not
been cured within the applicable grace period, and such acceleration has not
been rescinded, and the principal amount of such Debt, together with the
principal amount of any other Debt of the Company and its Significant
Subsidiaries (not including Non-Recourse Debt of the Significant
Subsidiaries) that is in default as to principal, or the maturity of which
has been accelerated, aggregates $25 million or more, (vi) the entry by a
court of one or more judgments or orders against the Company or any
Significant Subsidiary for the payment of money that in the aggregate exceeds
$25 million (excluding the amount thereof covered by insurance or by a bond
written by a Person other than an Affiliate of the Company), which judgments
or orders have not been vacated, discharged or satisfied or stayed pending
appeal within 60 days from the entry thereof, provided that such a judgment
or order will not be an Event of Default if such judgment or order does not
require any payment by the Company or any Significant Subsidiary, except to
the extent that such judgment is only against Property that secures
Non-Recourse Debt that was permitted under the Indentures, and the Company
could, at the expiration of the applicable 60 day period, after giving effect
to such judgment or order and the consequences thereof, Incur at least $1 of
Debt under the provisions described in the first paragraph of "Limited on
Debt" above, and (vii) certain events involving bankruptcy, insolvency or
reorganization of the Company or any of its Significant Subsidiaries.
The Indentures provide that the Trustee may withhold notice to the Holders
of any default (except in payment of principal of, premium, if any, or
interest on any series of Debt Securities and any payment required in
connection with a Change of Control or an Asset Disposition) if the Trustee
considers it in the interest of Holders to do so.
The Indentures provide that if an Event of Default with respect to Debt
Securities of any series at the time outstanding (other than an event of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary) has occurred and is continuing, either the Trustee or the Holders
of not less than 25% in principal amount of the Debt Securities of that
series issued under such Indenture then outstanding may declare the Default
Amount of all Debt Securities of that series to be due and payable
immediately, but upon certain conditions such declaration may be annulled and
past defaults (except, unless theretofore cured, a default in payment of
principal of, premium, if any, or interest on the Debt Securities of that
series or any payment required in connection with a Change of Control or an
Asset Disposition, as the case may be) may be waived by the Holders of a
majority in principal amount of the
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Debt Securities of that series then outstanding. If an Event of Default due
to the bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary occurs, the Indenture provides that the Default Amount
of all Debt Securities of that series will become immediately due and
payable.
The Holders of a majority in principal amount of the Debt Securities of
any series issued under such Indenture then outstanding will have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee under the Indenture with respect to the Debt
Securities of such series, subject to certain limitations specified in the
Indenture, provided that the Holders of Debt Securities of such series must
have offered to the Trustee reasonable indemnity against expenses and
liabilities. Each Indenture requires the annual filing by the Company with
the Trustee of a written statement as to compliance with the principal
covenants contained in the Indentures.
MODIFICATION
Each of the Indentures contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
principal amount of the Debt Securities at the time outstanding, to modify
such Indenture or any supplemental indenture or the rights of the Holders of
the series of Debt Securities issued under such Indenture, except that no
such modification may (i) extend the final maturity of any of the Debt
Securities, reduce the principal amount thereof, reduce any amount payable on
redemption or purchase thereof or impair the right of any Holder to institute
suit for the payment thereof or make any change in the covenants regarding a
Change of Control or an Asset Disposition or the related definitions without
the consent of the Holder of each of the series of Debt Securities so
affected or (ii) reduce the percentage of any series of Debt Securities, the
consent of the Holders of which is required for any such modification,
without the consent of the Holders of all series of Debt Securities issued
under such Indenture then outstanding.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS
The Company may not consolidate with, merge with or into, or transfer all
or substantially all its Property (as an entirety or substantially an
entirety in one transaction or a series of related transactions), to any
Person unless: (i) the Company will be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or to which the Property of the Company is transferred will
be a corporation organized and existing under the laws of the United States
or any State thereof or the District of Columbia and will expressly assume in
writing all the obligations of the Company, under the Indenture and the Debt
Securities, (ii) immediately after giving effect to such transaction, no
Event of Default and no event or condition that through the giving of notice
or lapse of time or both would become an Event of Default will have occurred
and be continuing, (iii) immediately after giving effect to such transaction
on a pro forma basis, the Company or the surviving entity would be able to
Incur at least $1 of Debt under the provision described in the first
paragraph of "Limitation on Debt" above and (iv) the Net Worth of the Company
or the surviving entity, as the case may be, on a pro forma basis after
giving effect to such transaction (without giving effect to the fees and
expenses incurred in respect of such transaction), is not less than the Net
Worth of the Company immediately prior to such transaction.
None of the Company, any of its Restricted Subsidiaries or any Eligible
Joint Ventures may merge with or into, or be consolidated with, an
Unrestricted Subsidiary of the Company, except to the extent that such
Unrestricted Subsidiary has been designated a Restricted Subsidiary as
provided in the Indenture in advance of or in connection with such merger.
DEFEASANCE AND DISCHARGE
Legal Defeasance
Each of the Indentures provides that the Company will be deemed to have
paid and will be discharged from any and all obligations in respect of the
Debt Securities of or within any series, on the 123rd day after the deposit
referred to below has been made (or immediately if an Opinion of Counsel is
delivered to the effect described in clause (B)(iii)(y) below), and the
provisions of such Indenture will
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cease to be applicable with respect to such Debt Securities of such series
(except for, among other matters, certain obligations to register the
transfer or exchange of such Debt Securities of such series, to replace
stolen, lost or mutilated Debt Securities of such series, to maintain paying
agencies and to hold monies for payment in trust) if, among other things, (A)
the Company has deposited with the Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued
interest on the applicable Debt Securities, on the respective Stated
Maturities of the Debt Securities or, if the Company makes arrangements
satisfactory to the Trustee for the redemption of the Debt Securities prior
to their Stated Maturity, on any earlier redemption date in accordance with
the terms of such Indenture and the applicable Debt Securities, (B) the
Company has delivered to the Trustee (i) either (x) an Opinion of Counsel to
the effect that Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred and the Company had paid or
redeemed such Debt Securities on the applicable dates, which Opinion of
Counsel must be based upon a ruling of the Internal Revenue Service to the
same effect or a change in applicable federal income tax law or related
Treasury regulations after the date of the Indentures or (y) a ruling
directed to the Trustee or the Company received from the Internal Revenue
Service to the same effect as the aforementioned Opinion of Counsel, (ii) an
Opinion of Counsel to the effect that the creation of the defeasance trust
does not violate the Investment Company Act of 1940 and (iii) an Opinion of
Counsel to the effect that either (x) after the passage of 123 days following
the deposit, the trust fund will not be subject to the effect of Section 547
or 548 of the U.S. Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law or (y) based upon existing precedents, if the matter were
properly briefed, a court should hold that the deposit of moneys and/or U.S.
Government Obligations as provided in clause (A) would not constitute a
preference voidable under Section 547 or 548 of the U.S. Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after
giving effect to such deposit on a pro forma basis, no Event of Default, or
event that after the giving of notice or lapse of time or both would become
an Event of Default, will have occurred and be continuing on the date of such
deposit or (unless an Opinion of Counsel is delivered to the effect described
in clause (B)(iii)(y) above) during the period ending on the 123rd day after
the date of such deposit and the deposit will not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which the Company is bound
and (D) if at such time the Debt Securities are listed on a national
securities exchange, the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Debt Securities will not be delisted as a
result of such deposit, defeasance and discharge.
Covenant Defeasance
The Indentures further provide that the provisions of clause (iii) under
"Mergers, Consolidations and Sales of Assets" and all the covenants described
herein under "Certain Covenants," clause (iv) under "Events of Default" with
respect to such covenants and with respect to clause (iii) under "Mergers,
Consolidations and Sales of Assets," clauses (i) and (iii) with respect to
certain offers for any series of Debt Securities required by certain
covenants and clauses (v) and (vi) under "Events of Default" will cease to be
applicable to the Company, its Restricted Subsidiaries and its Eligible Joint
Ventures upon the satisfaction of the provisions described in clauses (A),
(B)(ii) and (iii), (C) and (D) of the preceding paragraph and the delivery by
the Company to the Trustee of an Opinion of Counsel to the effect that, among
other things, the Holders of such Debt Securities will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
the defeasance of certain covenants and Events of Default and will be subject
to federal income tax on the same amount and in the same manner and at the
same times as would have been the case if such deposit and defeasance had not
occurred and the Company had paid or redeemed such Debt Securities on the
applicable dates.
Defeasance and Certain Other Events of Default
If the Company exercises its option to omit compliance with certain
covenants and provisions of the Indentures with respect to the Debt
Securities of any series as described in the immediately preceding paragraph
and any series of Debt Securities are declared due and payable because of the
occurrence of
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an Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on such Debt Securities at the time of their Stated Maturity or
scheduled redemption, but may not be sufficient to pay amounts due on such
Debt Securities at the time of acceleration resulting from such Event of
Default. The Company will remain liable for such payments.
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the law of the State of New York, including Section
5-1401 of the New York General Obligations Law, but otherwise without regard
to conflict of laws rules.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of each of the Indentures. Reference is made
to the Indentures for the full definitions of all such terms as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" is defined to mean Debt Incurred by a Person prior to the
time (i) such Person becomes a Restricted Subsidiary of the Company or an
Eligible Joint Venture, (ii) such Person merges with or into a Restricted
Subsidiary of the Company or an Eligible Joint Venture, or (iii) a Restricted
Subsidiary of the Company or an Eligible Joint Venture merges with or into
such Person (in a transaction in which such Person becomes a Restricted
Subsidiary of the Company or an Eligible Joint Venture), provided that, after
giving effect to such transaction, any Non-Recourse Debt of such Person could
have been Incurred pursuant to clause (iii) of the provision described under
"Limitation on Subsidiary Debt", any Permitted Facilities Debt of such Person
could have been Incurred pursuant to clause (viii) of the provision described
under "Limitation on Subsidiary Debt" and would not otherwise violate any
other provision of the applicable Indenture, and all the other Debt of such
Person could have been Incurred by the Company at the time of such merger or
acquisition pursuant to the provision described in the first paragraph of
"Limitation on Debt" above, and provided further that such Debt was not
Incurred in connection with, or in contemplation of, such merger or such
Person becoming a Restricted Subsidiary of the Company or an Eligible Joint
Venture.
"Acquisition Debt" is defined to mean Debt of any Person existing at the
time such Person is merged into the Company or assumed in connection with the
acquisition of Property from any such Person (other than Property acquired in
the ordinary course of business), including Debt Incurred in connection with,
or in contemplation of, such Person being merged into the Company (but
excluding Debt of such Person that is extinguished, retired or repaid in
connection with such merger or acquisition).
"Adjusted Consolidated Net Income" is defined to mean for any period, for
any Person (the "Referenced Person") the aggregate Net Income (or loss) of
the Referenced Person and its consolidated Subsidiaries for such period
determined in conformity with GAAP, provided that the following items will be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the Net Income (or loss) of any other Person (other than a Subsidiary of
the Referenced Person) in which any third Person has an interest, except to
the extent of the amount of dividends or other distributions actually paid in
cash to the Referenced Person during such period, or after such period and on
or before the date of determination, by such Person in which the interest is
held, which dividends and distributions will be included in such computation,
(ii) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to the provision described in clause (c) of the
first paragraph of "Limitation on Restricted Payments" above (and in such
case, except to the extent includable pursuant to clause (i) above), the Net
Income (if positive) of any other Person accrued prior to the date it becomes
a Subsidiary of the Referenced Person or is merged into or consolidated with
the Referenced Person or any of its Subsidiaries or all or substantially all
the Property of such other Person is acquired by the Referenced Person or any
of its Subsidiaries, (iii) the Net Income (if positive) of any Subsidiary of
the Referenced Person to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary to such Person or to
any other Subsidiary of such Net Income is not at the time permitted
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by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to that Subsidiary, (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales (except, solely for the purposes of calculating
the amount of Restricted Payments that may be made pursuant to the provision
described in clause (c) of the first paragraph of "Limitation on Restricted
Payments" above, any gains or losses of the Company and any of its Restricted
Subsidiaries from Asset Sales of Capital Stock of Unrestricted Subsidiaries),
(v) the cumulative effect of a change in accounting principles and (vi) any
amounts paid or accrued as dividends on Preferred Stock of any Subsidiary of
the Referenced Person that is not held by the Referenced Person or another
Subsidiary thereof. When the "Referenced Person" is the Company, the
foregoing references to "Subsidiaries" will be deemed to refer to "Restricted
Subsidiaries."
"Affiliate" of any Person is defined to mean any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled
by" and "under common control with") when used with respect to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise. For the purpose
of the covenant described under "Limitation on Transactions with Affiliates"
above, the term "Affiliate" will be deemed to include only Kiewit, any entity
owning beneficially 10% or more of the Voting Stock of the Company and their
respective Affiliates other than the Restricted Subsidiaries and the Eligible
Joint Ventures and the other equity investors in the Restricted Subsidiaries
and the Eligible Joint Ventures (solely on account of their investments in
the Restricted Subsidiaries and the Eligible Joint Ventures), and for such
purpose such term also will be deemed to include the Unrestricted
Subsidiaries.
"Asset Acquisition" is defined to mean (i) an investment by the Company,
any of its Subsidiaries or any Joint Venture in any other Person pursuant to
which such Person will become a direct or indirect Subsidiary of the Company
or a Joint Venture or will be merged into or consolidated with the Company,
any of its Subsidiaries or any Joint Venture or (ii) an acquisition by the
Company, any of its Subsidiaries or any Joint Venture of the Property of any
Person other than the Company, any of its Subsidiaries or any Joint Venture
that constitutes substantially all of an operating unit or business of such
Person.
"Asset Disposition" is defined to mean any sale, transfer, conveyance,
lease or other disposition (including by way of merger, consolidation or
sale-leaseback) by the Company, any of its Restricted Subsidiaries or any
Eligible Joint Venture to any Person (other than to the Company, a Restricted
Subsidiary of the Company or an Eligible Joint Venture and other than in the
ordinary course of business) of any Property of the Company, any of its
Restricted Subsidiaries or any Eligible Joint Venture other than any shares
of Capital Stock of the Unrestricted Subsidiaries. Notwithstanding the
foregoing to the contrary, the term "Asset Disposition" will include the
sale, transfer, conveyance or other disposition of any shares of Capital
Stock of any Unrestricted Subsidiary to the extent that the Company or any of
its Restricted Subsidiaries or Eligible Joint Ventures made an Investment in
such Unrestricted Subsidiary pursuant to clause (vii) of the definition of
"Permitted Payment," and the Company will, and will cause each of its
Restricted Subsidiaries and Eligible Joint Ventures to, apply pursuant to the
covenant described under "Limitation on Dispositions" that portion of the Net
Cash Proceeds from the sale, transfer, conveyance or other disposition of
such Unrestricted Subsidiary that is equal to the portion of the total
Investment in such Unrestricted Subsidiary that is represented by the
Investment that was made pursuant to clause (vii) of the definition of
"Permitted Payment." For purposes of this definition, any disposition in
connection with directors' qualifying shares or investments by foreign
nationals mandated by applicable law will not constitute an Asset
Disposition. In addition, the term "Asset Disposition" will not include (i)
any sale, transfer, conveyance, lease or other disposition of the Capital
Stock or Property of Restricted Subsidiaries or Eligible Joint Ventures
pursuant to the terms of any power sales agreements or steam sales agreements
to which such Restricted Subsidiaries or such Eligible Joint Ventures are
parties on the date of the original issuance of any series of the Debt
Securities or pursuant to the terms of any power sales agreements or steam
sales agreements, or other agreements or contracts that are related to the
output or product of, or services rendered by, a Permitted Facility as to
which such Restricted Subsidiary or such Eligible Joint Venture is the
supplying party, to which such Restricted
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Subsidiaries or such Eligible Joint Ventures become a party after such date
if the Chief Executive Officer or Chief Financial Officer of the Company
determines in good faith (evidenced by an Officers' Certificate) that such
provisions are customary (or, in the absence of any industry custom,
reasonably necessary) in order to effect such agreements and are reasonable
in light of comparable transactions in the applicable jurisdiction, (ii) any
sale, transfer, conveyance, lease or other disposition of Property governed
by the covenant described under "Mergers, Consolidations and Sales of Assets"
above, (iii) any sale, transfer, conveyance, lease or other disposition of
any Cash Equivalents, (iv) any transaction or series of related transactions
consisting of the sale, transfer, conveyance, lease or other disposition of
Capital Stock or Property with a fair market value aggregating less than $5
million and (v) any Permitted Payment or any Restricted Payment that is
permitted to be made pursuant to the covenant described under "Limitation on
Restricted Payments" above. The term "Asset Disposition" also will not
include (i) the grant of or realization upon a Lien permitted under the
covenant described under "Limitation on Liens" above or the exercise of
remedies thereunder, (ii) a sale-leaseback transaction involving
substantially all the Property constituting a Permitted Facility pursuant to
which a Restricted Subsidiary of the Company or an Eligible Joint Venture
sells the Permitted Facility to a Person in exchange for the assumption by
that Person of the Debt financing the Permitted Facility and the Restricted
Subsidiary or the Eligible Joint Venture leases the Permitted Facility from
such Person, (iii) dispositions of Capital Stock, contract rights,
development rights and resource data made in connection with the initial
development of Permitted Facilities, or the formation or capitalization of
Restricted Subsidiaries or Eligible Joint Ventures in respect of the initial
development of Permitted Facilities, in respect of which only an
insubstantial portion of the prospective Construction Financing that would be
required to commence commercial operation has been funded or (iv)
transactions determined in good faith by the Chief Financial Officer, as
evidenced by an Officers' Certificate, made in order to enhance the
repatriation of Net Cash Proceeds for a Foreign Asset Disposition or in order
to increase the after-tax proceeds thereof available for immediate
distribution to the Company. Any Asset Disposition that results from the bona
fide exercise by any governmental authority of its claimed or actual power of
eminent domain need not comply with the provisions of clauses (i) and (ii) of
the covenant described under "Limitation on Dispositions" above. Any Asset
Disposition that results from a casualty loss need not comply with the
provisions of clause (i) of the covenant described under "Limitation on
Dispositions" above.
"Asset Sale" is defined to mean the sale or other disposition by the
Company, any of its Subsidiaries or any Joint Venture (other than to the
Company, another Subsidiary of the Company or another Joint Venture) of (i)
all or substantially all of the Capital Stock of any Subsidiary of the
Company or any Joint Venture or (ii) all or substantially all of the Property
that constitutes an operating unit or business of the Company, any of its
Subsidiaries or any Joint Venture.
"Attributable Value" means, as to a Capitalized Lease Obligation under
which any Person is at the time liable and at any date as of which the amount
thereof is to be determined, the capitalized amount thereof that would appear
on the face of a balance sheet of such Person in accordance with GAAP.
"Average Life" is defined to mean, at any date of determination with
respect to any Debt security or Preferred Stock, the quotient obtained by
dividing (i) the sum of the product of (A) the number of years from such date
of determination to the dates of each successive scheduled principal or
involuntary liquidation value payment of such Debt security or Preferred
Stock, respectively, multiplied by (B) the amount of such principal or
involuntary liquidation value payment by (ii) the sum of all such principal
or involuntary liquidation value payments.
"Board of Directors" is defined to mean either the Board of Directors of
the Company or any duly authorized committee of such Board.
"Business Day" is defined to mean a day that, in the city (or in any of
the cities, if more than one) where amounts are payable in respect of the
Debt Securities, is neither a legal holiday nor a day on which banking
institutions are authorized or required by law, regulation or executive order
to close.
"Capital Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) in, or interests (however
designated) in, the equity of such Person that is outstanding or issued on or
after the date of Indenture, including, without limitation, all Common Stock
and Preferred Stock and partnership and joint venture interests in such
Person.
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"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any Property of which the discounted present value of the rental
obligations of such Person as lessee, in conformity with GAAP, is required to
be capitalized on the balance sheet of such Person, and "Capitalized Lease
Obligation" means the rental obligations, as aforesaid, under such lease.
"Cash Equivalent" is defined to mean any of the following: (i) securities
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof (provided that the full
faith and credit of the United States of America is pledged in support
thereof), (ii) time deposits and certificates of deposit of any commercial
bank organized in the United States having capital and surplus in excess of
$500,000,000 or any commercial bank organized under the laws of any other
country having total assets in excess of $500,000,000 with a maturity date
not more than two years from the date of acquisition, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clauses (i) or (v) that was entered into with any bank
meeting the qualifications set forth in clause (ii) or another financial
institution of national reputation, (iv) direct obligations issued by any
state or other jurisdiction of the United States of America or any other
country or any political subdivision or public instrumentality thereof
maturing, or subject to tender at the option of the holder thereof, within 90
days after the date of acquisition thereof and, at the time of acquisition,
having a rating of A from Standard & Poor's Corporation ("S&P") or A-2 from
Moody's Investors Service, Inc. ("Moody's") (or, if at any time neither S&P
nor Moody's may be rating such obligations, then from another nationally
recognized rating service acceptable to the Trustee), (v) commercial paper
issued by (a) the parent corporation of any commercial bank organized in the
United States having capital and surplus in excess of $500,000,000 or any
commercial bank organized under the laws of any other country having total
assets in excess of $500,000,000, and (b) others having one of the two
highest ratings obtainable from either S&P or Moody's (or, if at any time
neither S&P nor Moody's may be rating such obligations, then from another
nationally recognized rating service acceptable to the Trustee) and in each
case maturing within one year after the date of acquisition, (vi) overnight
bank deposits and bankers' acceptances at any commercial bank organized in
the United States having capital and surplus in excess of $500,000,000 or any
commercial bank organized under the laws of any other country having total
assets in excess of $500,000,000, (vii) deposits available for withdrawal on
demand with any commercial bank organized in the United States having capital
and surplus in excess of $500,000,000 or any commercial bank organized under
the laws of any other country having total assets in excess of $500,000,000,
(viii) investments in money market funds substantially all of whose assets
comprise securities of the types described in clauses (i) through (vi) and
(ix), and (ix) auction rate securities or money market preferred stock having
one of the two highest ratings obtainable from either S&P or Moody's (or, if
at any time neither S&P nor Moody's may be rating such obligations, then from
another nationally recognized rating service acceptable to the Trustee).
"Change of Control" is defined to mean the occurrence of one or more of
the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than Kiewit, is or becomes the beneficial owner
(as the term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act), directly
or indirectly, of more than 35% of the total voting power of the Voting
Stock of the Company (for the purposes of this clause (i), any person will
be deemed to beneficially own any Voting Stock of any corporation (the
"specified corporation") held by any other corporation (the "parent
corporation"), if such person "beneficially owns" (as so defined),
directly or indirectly, more than 35% of the voting power of the Voting
Stock of such parent corporation) and Kiewit "beneficially owns" (as so
defined), directly or indirectly, in the aggregate a lesser percentage of
the voting power of the Voting Stock of the Company and does not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of the
Company;
(ii) during any one-year period, individuals who at the beginning of
such period constituted the Board of Directors of the Company (together
with any new directors elected by such Board of Directors or nominated for
election by the shareholders of the Company by a vote of at least a
majority of the directors of the Company then still in office who were
either directors at the beginning
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of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Directors then in office, unless a majority of such new directors were
elected or appointed by Kiewit; or
(iii) the Company or its Restricted Subsidiaries sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all the
Property of the Company and the Restricted Subsidiaries taken as a whole;
provided that with respect to the foregoing subparagraphs (i), (ii) and
(iii), a Change of Control will not be deemed to have occurred unless and
until a Rating Decline has occurred as well.
"Common Stock" is defined to mean with respect to any Person, Capital
Stock of such Person that does not rank prior, as to the payment of dividends
or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Company Refinancing Debt" is defined to mean Debt issued in exchange for,
or the proceeds of which are used to refinance (including to purchase),
outstanding Debt Securities or other Debt of the Company Incurred pursuant to
clauses (i), (iv), and (vii) of "Limitation on Debt" and Debt Incurred
pursuant to the first paragraph under "Limitation on Debt" in an amount (or,
if such new Debt provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration thereof,
with an original issue price) not to exceed the amount so exchanged or
refinanced (plus accrued interest and all fees, premiums (in excess of the
accreted value) and expenses related to such exchange or refinancing), for
which purpose the amount so exchanged or refinanced will be deemed to equal
the lesser of (x) the principal amount of the Debt so exchanged or refinanced
and (y) if the Debt being exchanged or refinanced was issued with an original
issue discount, the accreted value thereof (as determined in accordance with
GAAP) at the time of such exchange or refinancing, provided that (A) such
Debt will be subordinated in right of payment to the Senior Debt Securities
in the case of the Senior Debt Indenture and the Subordinated Debt Securities
in the case of the Subordinated Debt Indenture at least to the same extent,
if any, as the Debt so exchanged or refinanced is subordinated to the Senior
Debt Securities in the case of the Senior Debt Indenture and the Subordinated
Debt Securities in the case of the Subordinated Debt Indenture, (B) such Debt
win be Non-Recourse if the Debt so exchanged or refinanced is Non-Recourse,
(C) the Average Life of the new Debt will be equal to or greater than the
Average Life of the Debt to be exchanged or refinanced and (D) the final
Stated Maturity of the new Debt will not be sooner than the earlier of the
final Stated Maturity of the Debt to be exchanged or refinanced or six months
after the final Stated Maturity of the Debt Securities, provided that if such
new Debt refinances any series of the Debt Securities in part only, the final
Stated Maturity of such new Debt must be at least six months after the final
Stated Maturity of such series of Debt Securities.
"Consolidated EBITDA" of any Person for any period is defined to mean the
Adjusted Consolidated Net Income of such Person, plus, only to the extent
deducted in computing Adjusted Consolidated Net Income and without
duplication, (i) income taxes, excluding income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
Asset Sales, all determined on a consolidated basis for such Person and its
consolidated Subsidiaries in accordance with GAAP, (ii) Consolidated Fixed
Charges, (iii) depreciation and amortization expense, all determined on a
consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP and (iv) all other non-cash items reducing Adjusted
Consolidated Net Income for such period, all determined on a consolidated
basis for such Person and its consolidated Subsidiaries in accordance with
GAAP, and less all non-cash items increasing Adjusted Consolidated Net Income
during such period, provided that depreciation and amortization expense of
any Subsidiary of such Person and any other non-cash item of any Subsidiary
of such Person that reduces Adjusted Consolidated Net Income will be excluded
(without duplication) in computing Consolidated EBITDA, except to the extent
that the positive cash flow associated with such depreciation and
amortization expense and other non-cash items is actually distributed in cash
to such Person during such period, provided further that as applied to the
Company, cash in respect of depreciation and amortization and other non-cash
items of Restricted Subsidiaries and Eligible Joint Ventures may be deemed to
have been distributed or paid to the Company to the extent that
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such cash (I) is or was under the exclusive dominion and control of such
Restricted Subsidiary or such Eligible Joint Venture and is or was free and
clear of the Lien of any other Person, (II) is or was immediately available
for distribution and (III) could be or could have been repatriated to the
United States by means that are both lawful and commercially reasonable,
provided that the amount of the cash deemed by this sentence to have been
distributed or paid will be reduced by the amount of tax that would have been
payable with respect to the repatriation thereof, provided further that any
cash that enables the recognition of depreciation and amortization and other
non-cash items pursuant to this sentence may not be used to enable the
recognition of depreciation and amortization and other non-cash items with
respect to any prior or subsequent period, regardless of whether such cash is
distributed to the Company, and provided further that the recognition of any
depreciation and amortization and other non-cash items as a result of this
sentence will be determined in good faith by the Chief Financial Officer, as
evidenced by an Officers' Certificate that will set forth in reasonable
detail the relevant facts and assumptions supporting such recognition. When
the "Person" referred to above is the Company, the foregoing references to
"Subsidiaries" will be deemed to refer to "Restricted Subsidiaries."
"Consolidated Fixed Charges" of any Person is defined to mean, for any
period, the aggregate of (i) Consolidated Interest Expense, (ii) the interest
component of Capitalized Leases, determined on a consolidated basis for such
Person and its consolidated Subsidiaries in accordance with GAAP, excluding
any interest component of Capitalized Leases in respect of that portion of a
Capitalized Lease Obligation of a Subsidiary that is Non-Recourse to such
Person, and (iii) cash and non-cash dividends due (whether or not declared)
on the Preferred Stock of any Subsidiary of such Person held by any Person
other than such Person and any Redeemable Stock of such Person or any
Subsidiary of such Person. When the "Person" referred to above is the
Company, the foregoing references to "Subsidiaries" will be deemed to refer
to "Restricted Subsidiaries."
"Consolidated Interest Expense" of any Person is defined to mean, for any
period, the aggregate interest expense in respect of Debt (including
amortization of original issue discount and non-cash interest payments or
accruals) of such Person and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, including all commissions,
discounts, other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs associated with Interest Rate
Protection Agreements and Currency Protection Agreements and any amounts paid
during such period in respect of such interest expense, commissions,
discounts, other fees and charges that have been capitalized, provided that
Consolidated Interest Expense of the Company will not include any interest
expense (including all commissions, discounts, other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and net
costs associated with Interest Rate Protection Agreements or Currency
Protection Agreements) in respect of that portion of any Debt that is
Non-Recourse, and provided further that Consolidated Interest Expense of the
Company in respect of a Guarantee by the Company of Debt of another Person
will be equal to the commissions, discounts, other fees and charges that
would be due with respect to a hypothetical letter of credit issued under a
bank credit agreement that can be drawn by the beneficiary thereof in the
amount of the Debt so guaranteed if (i) the Company is not actually making
directly or indirectly interest payments on such Debt and (ii) GAAP does not
require the Company on an unconsolidated basis to record such Debt as a
liability of the Company. When the "Person" referred to above is the Company,
the foregoing references to "Subsidiaries" will be deemed to refer to
"Restricted Subsidiaries."
"Construction Financing" is defined to mean the debt and/or equity
financing provided (over and above the owners' equity investment) to permit
the acquisition, development, design, engineering, procurement, construction
and equipping of a Permitted Facility and to enable it to commence commercial
operations, provided that Construction Financing may remain outstanding after
the commencement of commercial operations of a Permitted Facility, without
any increase in the amount of such financing, and such Construction Financing
will not cease to be Construction Financing.
"Currency Protection Agreement" is defined to mean, with respect to any
Person, any foreign exchange contract, currency swap agreement or other
similar agreement or arrangement intended to protect such Person against
fluctuations in currency values to or under which such Person is a party or a
beneficiary on the date of the Indenture or becomes a party or a beneficiary
thereafter.
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"Debt" is defined to mean, with respect to any Person, at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit, bankers' acceptances, surety, bid,
operating and performance bonds, performance guarantees or other similar
instruments or obligations (or reimbursement obligations with respect
thereto) (except, in each case, to the extent incurred in the ordinary course
of business), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, except Trade Payables, (v) the
Attributable Value of all obligations of such Person as lessee under
Capitalized Leases, (vi) all Debt of others secured by a Lien on any Property
of such Person, whether or not such Debt is assumed by such Person, provided
that, for purposes of determining the amount of any Debt of the type
described in this clause, if recourse with respect to such Debt is limited to
such Property, the amount of such Debt will be limited to the lesser of the
fair market value of such Property or the amount of such Debt, (vii) all Debt
of others Guaranteed by such Person to the extent such Debt is Guaranteed by
such Person, (viii) all Redeemable Stock valued at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends and (ix) to the extent not otherwise included in this definition,
all net obligations of such Person under Currency Protection Agreements and
Interest Rate Protection Agreements.
For purposes of determining any particular amount of Debt that is or would
be outstanding, Guarantees of, or obligations with respect to letters of
credit or similar instruments supporting (to the extent the foregoing
constitutes Debt), Debt otherwise included in the determination of such
particular amount will not be included. For purposes of determining
compliance with the Indenture, in the event that an item of Debt meets the
criteria of more than one of the types of Debt described in the above
clauses, the Company, in its sole discretion, will classify such item of Debt
and only be required to include the amount and type of such Debt in one of
such clauses.
"Default Amount" is defined to mean the principal amount plus accrued
interest.
"Eligible Joint Venture" is defined to mean a Joint Venture (other than a
Subsidiary) (i) that is or will be formed with respect to the construction,
development, acquisition, servicing, ownership, operation or management of
one or more Permitted Facilities and (ii) in which the Company and Kiewit
together, directly or indirectly, own at least 50% of the Capital Stock
therein (of which the Company must own at least half (in any event not less
than 25% of the total outstanding Capital Stock)) and (iii) in respect of
which the Company alone or in combination with Kiewit, directly or
indirectly, (a) controls, by voting power, board or management committee
membership, or through the provisions of any applicable partnership,
shareholder or other similar agreement or under an operating, maintenance or
management agreement or otherwise, the management and operation of the Joint
Venture or any Permitted Facilities of the Joint Venture or (b) otherwise has
significant influence over the management or operation of the Joint Venture
or any Permitted Facility of the Joint Venture in all material respects
(significant influence includes, without limitation, the right to control or
veto any material act or decision) in connection with such management or
operation. Any Joint Venture that is an Eligible Joint Venture pursuant to
this definition because of the ownership of Capital Stock therein by Kiewit
will cease to be an Eligible Joint Venture if (x) Kiewit disposes of any
securities issued by the Company and, as a result of such disposition, Kiewit
becomes the beneficial owner (as such term is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of less than
25% of the outstanding shares of Voting Stock of the Company or (y) (I) as a
result of any action other than a disposition of securities by Kiewit, Kiewit
becomes the beneficial owner of less than 25% of the outstanding shares of
Voting Stock of the Company and (II) thereafter Kiewit disposes of any
securities issued by the Company as a result of which the beneficial
ownership by Kiewit of the outstanding Voting Stock of the Company is further
reduced, provided that thereafter such Joint Venture may become an Eligible
Joint Venture if Kiewit becomes the beneficial owner of at least 25% of the
outstanding shares of Voting Stock of the Company and the other conditions
set forth in this definition are fulfilled.
"Fixed Charge Ratio" is defined to mean the ratio, on a pro forma basis,
of (i) the aggregate amount of Consolidated EBITDA of any Person for the
Reference Period immediately prior to the date of the transaction giving rise
to the need to calculate the Fixed Charge Ratio (the "Transaction Date") to
(ii) the
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aggregate Consolidated Fixed Charges of such Person during such Reference
Period, provided that for purposes of such computation, in calculating
Consolidated EBITDA and Consolidated Fixed Charges, (1) the Incurrence of the
Debt giving rise to the need to calculate the Fixed Charge Ratio and the
application of the proceeds therefrom (including the retirement or defeasance
of Debt) will be assumed to have occurred on the first day of the Reference
Period, (2) Asset Sales and Asset Acquisitions that occur during the
Reference Period or subsequent to the Reference Period and prior to the
Transaction Date (but including any Asset Acquisition to be made with the
Debt Incurred pursuant to (1) above) and related retirement of Debt pursuant
to an Offer (in the amount of the Excess Proceeds with respect to which such
Offer has been made or would be made on the Transaction Date if the purchase
of Debt Securities pursuant to such Offer has not occurred on or before the
Transaction Date) will be assumed to have occurred on the first day of the
Reference Period, (3) the Incurrence of any Debt during the Reference Period
or subsequent to the Reference Period and prior to the Transaction Date and
the application of the proceeds therefrom (including the retirement or
defeasance of other Debt) will be assumed to have occurred on the first day
of such Reference Period, (4) Consolidated Interest Expense attributable to
any Debt (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate will be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period unless the obligor on such Debt is a party to an Interest Rate
Protection Agreement (that will remain in effect for the twelve month period
after the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
will be used and (5) there will be excluded from Consolidated Fixed Charges
any Consolidated Fixed Charges related to any amount of Debt that was
outstanding during or subsequent to the Reference Period but is not
outstanding on the Transaction Date, except for Consolidated Fixed Charges
actually incurred with respect to Debt borrowed (as adjusted pursuant to
clause (4)) (x) under a revolving credit or similar arrangement to the extent
the commitment thereunder remains in effect on the Transaction Date or (y)
pursuant to the provision described in clause (iii) in the second paragraph
of "Limitation on Debt" above. For the purpose of making this computation,
Asset Sales and Asset Acquisitions that have been made by any Person that has
become a Restricted Subsidiary of the Company or an Eligible Joint Venture or
been merged with or into the Company or any Restricted Subsidiary of the
Company or an Eligible Joint Venture during the Reference Period, or
subsequent to the Reference Period and prior to the Transaction Date, will be
calculated on a pro forma basis, as will be all the transactions contemplated
by the calculations referred to in clauses (1) through (5) above with respect
to the Persons or businesses that were the subject of such Asset Sales and
Asset Dispositions, assuming such Asset Sales or Asset Acquisitions occurred
on the first day of the Reference Period.
"Foreign Asset Disposition" means an Asset Disposition in respect of the
Capital Stock or Property of a Restricted Subsidiary of the Company or an
Eligible Joint Venture to the extent that the proceeds of such Asset
Disposition are received by a Person subject in respect of such proceeds to
the tax laws of a jurisdiction other than the United States of America or any
State thereof or the District of Columbia.
"GAAP" is defined to mean generally accepted accounting principles in the
U.S. as in effect as of the date of the Indenture, applied on a basis
consistent with the principles, methods, procedures and practices employed in
the preparation of the Company's audited financial statements, including,
without limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any Debt obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such Debt
of such other Person (whether arising by virtue of partnership arrangements
(other than solely by reason of being a general partner of a partnership), or
by agreement to keep-well, to purchase assets, goods, securities or services
or to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for purposes of assuring in any other manner
the obligee of such Debt of the payment thereof or to protect such obligee
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against loss in respect thereof (in whole or in part), provided that the term
"Guarantee" will not include endorsements for collection or deposit in the
ordinary course of business or the grant of a Lien in connection with any
Non-Recourse Debt. The term "Guarantee" used as a verb has a corresponding
meaning.
"Holder", "holder of Debt Securities" and other similar terms are defined
to mean the registered holder of any Debt Security.
"Incur" is defined to mean with respect to any Debt, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to,
or become responsible for, the payment of, contingently or otherwise, such
Debt, provided that neither the accrual of interest (whether such interest is
payable in cash or kind) nor the accretion of original issue discount will be
considered an Incurrence of Debt. The term "Incurrence" has a corresponding
meaning.
"Interest Rate Protection Agreement" is defined to mean, with respect to
any Person, any interest rate protection agreement, interest rate future
agreement, interest rate option agreement, interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
hedge agreement or other similar agreement or arrangement intended to protect
such Person against fluctuations in interest rates to or under which such
Person or any of its Subsidiaries is a party or a beneficiary on the date of
the Indenture or becomes a party or a beneficiary thereafter.
"Investment" in a Person is defined to mean any investment in, loan or
advance to, Guarantee on behalf of, directly or indirectly, or other transfer
of assets to such Person (other than sales of products and services in the
ordinary course of business).
"Investment Grade" is defined to mean with respect to the Debt Securities,
(i) in the case of S&P, a rating of at least BBB-, (ii) in the case of
Moody's, a rating of at least Baa3, and (iii) in the case of a Rating Agency
other than S&P or Moody's, the equivalent rating, or in each case, any
successor, replacement or equivalent definition as promulgated by S&P,
Moody's or other Rating Agency as the case may be.
"Joint Venture" is defined to mean a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form.
"Kiewit" is defined to mean and include Kiewit Energy Company and any
other Subsidiary of Peter Kiewit Sons', Inc., Kiewit Construction Group Inc.
or Kiewit Diversified Group, Inc.
"Lien" is defined to mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such Property, but will not include any partnership, joint venture,
shareholder, voting trust or other similar governance agreement with respect
to Capital Stock in a Subsidiary or Joint Venture. For purposes of the
Indentures, the Company will be deemed to own subject to a Lien any Property
that it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such Property.
"Net Cash Proceeds" from an Asset Disposition is defined to mean cash
payments received (including any cash payments received by way of a payment
of principal pursuant to a note or installment receivable or otherwise, but
only as and when received (including any cash received upon sale or
disposition of any such note or receivable), excluding any other
consideration received in the form of assumption by the acquiring Person of
Debt or other obligations relating to the Property disposed of in such Asset
Disposition or received in any form other than cash) therefrom, in each case,
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses of any kind (including consent and waiver fees and any
applicable premiums, earn-out or working interest payments or payments in
lieu or in termination thereof) incurred, (ii) all federal, state,
provincial, foreign and local taxes and other governmental charges required
to be accrued as a liability under GAAP (a) as a consequence of such Asset
Disposition, (b) as a result of the repayment of any Debt in any jurisdiction
other than the jurisdiction where the Property disposed of was located or (c)
as a result of any repatriation of any proceeds of such Asset Disposition,
(iii) a reasonable reserve for the after-tax cost of any indemnification
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payments (fixed and contingent) attributable to seller's indemnities to the
purchaser undertaken by the Company, any of its Restricted Subsidiaries or
any Eligible Joint Venture in connection with such Asset Disposition (but
excluding any payments that by the terms of the indemnities will not, under
any circumstances, be made during the term of the Debt Securities), (iv) all
payments made on any Debt that is secured by such Property, in accordance
with the terms of any Lien upon or with respect to such Property, or that
must by its terms or by applicable law or in order to obtain a required
consent or waiver be repaid out of the proceeds from or in connection with
such Asset Disposition, and (v) all distributions and other payments made to
holders of Capital Stock of Restricted Subsidiaries or Eligible Joint
Ventures (other than the Company or its Restricted Subsidiaries) as a result
of such Asset Disposition.
"Net Income" of any Person for any period is defined to mean the net
income (loss) of such Person for such period, determined in accordance with
GAAP, except that extraordinary and non-recurring gains and losses as
determined in accordance with GAAP will be excluded.
"Net Worth" of any Person is defined to mean, as of any date, the
aggregate of capital, surplus and retained earnings (including any cumulative
currency translation adjustment) of such Person and its consolidated
Subsidiaries as would be shown on a consolidated balance sheet of such Person
and its consolidated Subsidiaries prepared as of such date in accordance with
GAAP When the "Person" referred to above is the Company, the foregoing
references to "Subsidiaries" will be deemed to refer to "Restricted
Subsidiaries."
"Non-Recourse", as applied to any Debt or any sale-leaseback, is defined
to mean any project financing that is or was Incurred with respect to the
development, acquisition, design, engineering, procurement, construction,
operation, ownership, servicing or management of one or more Permitted
Facilities in respect of which the Company or one or more Restricted
Subsidiaries or Eligible Joint Ventures has a direct or indirect interest,
provided that such financing is without recourse to the Company, any
Restricted Subsidiary or any Eligible Joint Venture other than any Restricted
Subsidiary or any Eligible Joint Venture that does not own any Property other
than one or more of such Permitted Facilities or a direct or indirect
interest therein, provided further that such financing may be secured by a
Lien on only (i) the Property that constitutes such Permitted Facilities,
(ii) the income from and proceeds of such Permitted Facilities, (iii) the
Capital Stock of, and other Investments in, any Restricted Subsidiary or
Eligible Joint Venture that owns the Property that constitutes any such
Permitted Facility, and (iv) the Capital Stock of, and other Investments in,
any Restricted Subsidiary or Eligible Joint Venture obligated with respect to
such financing and of any Subsidiary or Joint Venture (that is a Restricted
Subsidiary or an Eligible Joint Venture) of such Person that owns a direct or
indirect interest in any such Permitted Facility, and provided further that
an increase in the amount of Debt with respect to one or more Permitted
Facilities pursuant to the financing provided pursuant to the terms of this
definition (except for the first refinancing of Construction Financing) may
not be Incurred to fund or enable the funding of any dividend or other
distribution in respect of Capital Stock. The fact that a portion of
financing with respect to a Permitted Facility is not Non-Recourse will not
prevent other portions of the financing with respect to such Permitted
Facility from constituting Non-Recourse Debt if the foregoing requirements of
this definition are fulfilled with respect to such other portions.
"Officers' Certificate" is defined to mean a certificate signed by the
Chairman of the Board of Directors, the Chief Executive Officer or any Vice
President and by the Chief Financial Officer, the Treasurer, an Assistant
Treasurer, the Controller, the Assistant Controller, the Secretary or any
Assistant Secretary of the Company and delivered to the Trustee. Each such
certificate will comply with Section 314 of the Trust Indenture Act and
include the statements provided for in the Indenture if and to the extent
required thereby.
"Opinion of Counsel" is defined to mean an opinion in writing signed by
legal counsel who may be an employee of or counsel to the Company or who may
be other counsel satisfactory to the Trustee. Each such opinion will comply
with Section 314 of the Trust Indenture Act and include the statements
provided for in the Indenture, if and to the extent required thereby.
"Permitted Facility" is defined to mean (i) an electric power or thermal
energy generation or cogeneration facility or related facilities (including
residual waste management and facilities that use
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thermal energy from a cogeneration facility), and its or their related
electric power transmission, fuel supply and fuel transportation facilities,
together with its or their related power supply, thermal energy and fuel
contracts and other facilities, services or goods that are ancillary,
incidental, necessary or reasonably related to the marketing, development,
construction, management, servicing, ownership or operation of the foregoing,
owned by a utility or otherwise, as well as other contractual arrangements
with customers, suppliers and contractors or (ii) any infrastructure
facilities related to (A) the treatment of water for municipal and other
uses, (B) the treatment and/or management of waste water, (C) the treatment,
management and/or remediation of waste, pollution and/or potential pollutants
and (D) any other process or environmental purpose.
"Permitted Facilities Debt" is defined to mean any Debt that is or was
Incurred with respect to the direct or indirect development, acquisition,
design, engineering, procurement, construction, operation, ownership,
servicing or management of one or more Permitted Facilities (x) currently in
development by the Company (directly or indirectly) or which are hereafter
acquired or developed by the Company (directly or indirectly) and (y) in
which the Company or one or more Restricted Subsidiaries or Eligible Joint
Ventures has a direct or indirect interest.
"Permitted Funding Company Loans" is defined to mean (a) Debt of a
Restricted Subsidiary, all the Capital Stock of which is owned, directly or
indirectly, by the Company and that (x) does not own any direct or indirect
interest in a Permitted Facility and (y) is not directly or indirectly
obligated on any Debt owed to any Person other than the Company, a Restricted
Subsidiary or an Eligible Joint Venture (a "Funding Company"), owed to a
Restricted Subsidiary or an Eligible Joint Venture that is not directly or
indirectly obligated on any Debt owed to any Person other than the Company, a
Restricted Subsidiary or an Eligible Joint Venture (except to the extent that
it has pledged the Capital Stock of its Subsidiaries and Joint Ventures to
secure Non-Recourse Debt) (a "Holding Company"), provided that such Debt (i)
does not require that interest be paid in cash at any time sooner than six
months after the final Stated Maturity of any series of Debt Securities, (ii)
does not require any payment of principal at any time sooner than six months
after the final Stated Maturity of any series of Debt Securities, (iii) is
subordinated in right of payment to all other Debt of such Restricted
Subsidiary other than Debt Incurred pursuant to clause (vii) of the covenant
described under "Limitation on Subsidiary Debt," all of which will be pari
passu and (iv) is evidenced by a subordinated note in the form attached to
the Indenture, and (b) Debt of a Holding Company to a Funding Company.
"Permitted Investment" is defined to mean any Investment that is made
directly or indirectly by the Company and its Restricted Subsidiaries in (i)
a Restricted Subsidiary or Eligible Joint Venture (excluding for the purpose
of this clause (i) any Construction Financing) that, directly or indirectly,
is or will be engaged in the construction, development, acquisition,
operation, servicing, ownership or management of a Permitted Facility or in
any other Person as a result of which such other Person becomes such a
Restricted Subsidiary or an Eligible Joint Venture, provided that at the time
that any of the foregoing Investments is proposed to be made, no Event of
Default or event that, after giving notice or lapse of time or both, would
become an Event of Default, will have occurred and be continuing, (ii)
Construction Financing provided by the Company (A) to any of its Restricted
Subsidiaries (other than an Eligible Joint Venture) up to 100% of the
Construction Financing required by such Restricted Subsidiary and (B) to any
Eligible Joint Venture a portion of the Construction Financing required by
such Eligible Joint Venture that does not exceed the ratio of the Capital
Stock in such Eligible Joint Venture that is owned directly or indirectly by
the Company to the total amount of the Capital Stock in such Eligible Joint
Venture that is owned directly and indirectly by the Company and Kiewit
together (provided that the Company may provide such Construction Financing
to such Eligible Joint Venture only if Kiewit provides the balance of such
Construction Financing or otherwise causes it to be provided), if, in either
case, (x) the aggregate proceeds of all the Construction Financing provided
is not more than 85% of the sum of the aggregate proceeds of all the
Construction Financing and the aggregate owners' equity investment in such
Restricted Subsidiary or such Eligible Joint Venture, as the case may be, (y)
the Company receives a pledge or assignment of all the Capital Stock of such
Restricted Subsidiary or such Eligible Joint Venture, as the case may be,
that is owned by a non-governmental Person (other than the Company, its
Subsidiaries or the Eligible Joint Ventures) that is permitted to be pledged
for such purpose
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under applicable law and (z) neither the Company nor Kiewit reduces its
beneficial ownership in such Restricted Subsidiary or such Eligible Joint
Venture, as the case may be, prior to the repayment in full of the Company's
portion of the Construction Financing, (iii) any Cash Equivalents, (iv)
prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits in
the ordinary course of business consistent with past practice, (v) loans and
advances to employees made in the ordinary course of business and consistent
with past practice, (vi) Debt incurred pursuant to Currency Protection
Agreements and Interest Rate Protection Agreements as otherwise permitted by
the Indenture, (vii) bonds, notes, debentures or other debt securities and
instruments received as a result of Asset Dispositions to the extent
permitted by the covenants described under "Limitation on Dispositions" above
and "Limitation on Business" above, (viii) any Lien permitted under the
provisions described under "Limitation on Liens" above, (ix) bank deposits
and other Investments (to the extent they do not constitute Cash Equivalents)
required by lenders in connection with any Non-Recourse Debt, provided that
the Chief Executive Officer or the Chief Financial Officer of the Company
determines in good faith, as evidenced by an Officers' Certificate, that such
bank deposits or Investments are required to effect such financings and are
not materially more restrictive, taken as a whole, than comparable
requirements, if any, in comparable financings in the applicable jurisdiction
or (x) any Person to the extent made with Capital Stock (other than
Redeemable Stock) of the Company (whether by way of purchase, merger,
consolidation or otherwise) to the extent permitted by the covenants
described under "Limitation on Business" above.
"Permitted Joint Venture" is defined to mean a Joint Venture (i) that is
or will be formed with respect to the construction, development, acquisition,
servicing, ownership, operation or management of one or more Permitted
Facilities and (ii) in which (A) the Company or (B) the Company and Kiewit
together, directly or indirectly, own at least 70% of the Capital Stock
therein (of which the Company must own at least half (in any event not less
than 35% of the total outstanding Capital Stock)), provided that if
applicable non-U.S. law restricts the amount of Capital Stock that the
Company may own, the Company must own at least 70% of the amount of Capital
Stock that it may own pursuant to such law, which in any event must be not
less than 35% of the total outstanding Capital Stock therein and (iii) in
respect of which the Company alone or in combination with Kiewit, directly or
indirectly, (a) controls, by voting power, board or management committee
membership, or through the provisions of any applicable partnership,
shareholder or other similar agreement or under an operating, maintenance or
management agreement or otherwise, the management and operation of the Joint
Venture or any Permitted Facilities of the Joint Venture or (b) otherwise has
significant influence over the management or operation of the Joint Venture
or any Permitted Facility of the Joint Venture in all material respects
(significant influence includes, without limitations, the right to control or
veto any material act or decision) in connection with such management or
operation. Any Joint Venture that is a Permitted Joint Venture pursuant to
this definition because of the ownership of Capital Stock therein by Kiewit
will cease to be a Permitted Joint Venture if (x) Kiewit disposes of any
securities issued by the Company and, as a result of such disposition, Kiewit
becomes the beneficial owner (as such term is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) of less than
25% of the outstanding shares of Voting Stock of the Company or (y) (I) as a
result of any action other than a disposition of securities by Kiewit, Kiewit
becomes the beneficial owner of less than 25% of the outstanding shares of
Voting Stock of the Company and (II) thereafter Kiewit disposes of any
securities issued by the Company as a result of which the beneficial
ownership by Kiewit of the outstanding Voting Stock of the Company is further
reduced, provided that thereafter such Joint Venture may become a Permitted
Joint Venture if Kiewit becomes the beneficial owner of at least 25% of the
outstanding shares of Voting Stock of the Company and the other conditions
set forth in this definition are fulfilled.
"Permitted Payments" is defined to mean, with respect to the Company, any
of its Restricted Subsidiaries or any Eligible Joint Venture, (i) any
dividend on shares of Capital Stock of the Company payable (or to the extent
paid) solely in Capital Stock (other than Redeemable Stock) or in options,
warrants or other rights to purchase Capital Stock (other than Redeemable
Stock) of the Company and any distribution of Capital Stock (other than
Redeemable Capital Stock) of the Company in respect of the exercise of any
right to convert or exchange any instrument (whether Debt or equity and
including Redeemable Capital Stock) into Capital Stock (other than Redeemable
Capital Stock) of the Company,
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(ii) the purchase or other acquisition or retirement for value of any shares
of the Company's Capital Stock, or any option, warrant or other right to
purchase shares of the Company's Capital Stock with additional shares of, or
out of the proceeds of a substantially contemporaneous issuance of, Capital
Stock other than Redeemable Stock, (iii) any defeasance, redemption, purchase
or other acquisition for value of any Debt that by its terms ranks
subordinate in right of payment to the Debt Securities with the proceeds from
the issuance of (x) Debt that is subordinate to the Debt Securities at least
to the extent and in the manner as the Debt to be defeased, redeemed,
purchased or otherwise acquired is subordinate in right of payment to the
Debt Securities, provided that such subordinated Debt provides for no
mandatory payments of principal by way of sinking fund, mandatory redemption
or otherwise (including defeasance) by the Company (including, without
limitation at the option of the holder thereof other than an option given to
a holder pursuant to a "change of control" or an "asset disposition" covenant
that is no more favorable to the holders of such Debt than comparable
covenants for the Debt being defeased, redeemed, purchased or acquired or, if
none, the covenants described under "Limitation on Dispositions" and
"Purchase of Debt Securities Upon a Change of Control" above and such Debt is
not in an amount (net of any original issue discount) greater than, any
Stated Maturity of the Debt being replaced and the proceeds of such
subordinated Debt are utilized for such purpose within 45 days of issuance or
(y) Capital Stock (other than Redeemable Stock), (iv) Restricted Payments in
an amount not to exceed $75 million in the aggregate provided that no payment
may be made pursuant to this clause (iv) if an Event of Default, or an event
that, after giving notice or lapse of time or both, would become an Event of
Default, has occurred and is continuing, (v) any payment or Investment
required by applicable law in order to conduct business operations in the
ordinary course, (vi) a Permitted Investment and (vii) Investments in
Unrestricted Subsidiaries and other Persons that are not Restricted
Subsidiaries or Eligible Joint Ventures in an amount not to exceed $100
million in the aggregate, provided that no payment or Investment may be made
pursuant to this clause (vii) if an Event of Default, or an event that, after
giving notice or lapse of time or both, would become an Event of Default, has
occurred and is continuing. Notwithstanding the foregoing, the amount of
Investments that may be made pursuant to clauses (iv) or (vii), as the case
may be, may be increased by the net reduction in Investments of the type made
previously pursuant to clauses (iv) or (vii), as the case may be, that result
from payments of interest on Debt, dividends, or repayment of loans or
advances, the proceeds of the sale or disposition of the Investment or other
return of the amount of the original Investment to the Company, the
Restricted Subsidiary or the Eligible Joint Venture that made the original
Investment from the Person in which such Investment was made or any
distribution or payment of such Investment to the extent that such
distribution or payment constituted either a Restricted Payment or a
Permitted Payment, provided that (x) the aggregate amount of such payments
will not exceed the amount of the original Investment by the Company, such
Restricted Subsidiary or Eligible Joint Venture that reduced the amount
available pursuant to clause (iv) or clause (vii), as the case may be, for
making Restricted Payments and (y) such payments may be added pursuant to
this proviso only to the extent such payments are not included in the
calculation of Adjusted Consolidated Net Income.
"Permitted Working Capital Facilities" is defined to mean one or more loan
or credit agreements providing for the extension of credit to the Company for
the Company's working capital purposes, which credit agreements will be
ranked pari passu with or subordinate to the Debt Securities in right of
payment and may be secured or unsecured.
"Person" is defined to mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) or preferred or preference stock of
such Person that is outstanding or issued on or after the date of original
issuance of any series of Debt Securities.
"Property" of any Person is defined to mean all types of real, personal,
tangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person under GAAP.
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"Purchase Money Debt" means Debt representing, or Incurred to finance, the
cost of acquiring any Property, provided that (i) any Lien securing such Debt
does not extend to or cover any other Property other than the Property being
acquired and (ii) such Debt is Incurred, and any Lien with respect thereto is
granted, within 18 months of the acquisition of such Property.
"Rating Agencies" is defined to mean (i) S&P and (ii) Moody's or (iii) if
S&P or Moody's or both do not make a rating of the Debt Securities publicly
available, a nationally recognized securities rating agency or agencies, as
the case may be, selected by the Company, which will be substituted for S&P,
Moody's or both, as the case may be.
"Rating Category" is defined to mean (i) with respect to S&P, any of the
following categories: BB, B, CCC, CC, C and D (or equivalent successor
categories), (ii) with respect to Moody's, any of the following categories:
Ba, B, Caa, Ca, C and D (or equivalent successor categories) and (iii) the
equivalent of any such category of S&P or Moody's used by another Rating
Agency. In determining whether the rating of the Debt Securities has
decreased by one or more gradations, gradations within Rating Categories (+
and -for S&P, 1, 2 and 3 for Moody's or the equivalent gradations for another
Rating Agency) will be taken into account (e.g., with respect to S&P, a
decline in a rating from BB+ to BB, as well as from BB-to B+, will constitute
a decrease of one gradation).
"Rating Decline" is defined to mean the occurrence of the following on, or
within 90 days after, the earlier of (i) the occurrence of a Change of
Control and (ii) the date of public notice of the occurrence of a Change of
Control or of the public notice of the intention of the Company to effect a
Change of Control (the "Rating Date") which period will be extended so long
as the rating of the Debt Securities is under publicly announced
consideration for possible downgrading by any of the Rating Agencies: (a) in
the event that any series of the Debt Securities are rated by either Rating
Agency on the Rating Date as Investment Grade, the rating of such Debt
Securities by both such Rating Agencies will be reduced below Investment
Grade, or (b) in the event the Debt Securities are rated below Investment
Grade by both such Rating Agencies on the Rating Date, the rating of such
Debt Securities by either Rating Agency will be decreased by one or more
gradations (including gradations within Rating Categories as well as between
Rating Categories).
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of any series of the Debt Securities, (ii)
redeemable at the option of the holder of such class or series of Capital
Stock at any time prior to the Stated Maturity of any series of Debt
Securities or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Debt having a scheduled maturity
prior to the Stated Maturity of any series of Debt Securities, provided that
any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require the Company to
purchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or a "change of control" occurring prior to the Stated Maturity of any series
of Debt Securities will not constitute Redeemable Stock if the "asset sale"
or "change of control" provision applicable to such Capital Stock is no more
favorable to the holders of such Capital Stock than the provisions contained
in the covenants described under "Limitation on Dispositions" and "Purchase
of Debt Securities Upon a Change of Control" above and such Capital Stock
specifically provides that the Company will not purchase or redeem any such
Capital Stock pursuant to such covenants prior to the Company's purchase of
Debt Securities required to be purchased by the Company under the covenants
described under "Limitation on Dispositions" and "Purchase of Debt Securities
Upon a Change of Control" above.
"Reference Period" is defined to mean the four most recently completed
fiscal quarters for which financial information is available preceding the
date of a transaction giving rise to the need to make a financial
calculation.
"Restricted Payment" is defined to mean (i) any dividend or other
distribution on any shares of the Company's Capital Stock, provided that a
dividend or other distribution consisting of the Capital Stock of an
Unrestricted Subsidiary will not constitute a Restricted Payment except to
the extent of the portion thereof that is equal to the portion of the total
Investment in such Unrestricted Subsidiary that is represented by the
Investment that was made pursuant to clause (vii) of the definition of
"Permitted
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Payment," (ii) any payment on account of the purchase, redemption, retirement
or acquisition for value of the Company's Capital Stock, (iii) any
defeasance, redemption, purchase or other acquisition or retirement for value
prior to the scheduled maturity of any Debt ranked subordinate in right of
payment to the Senior Debt Securities in the case of the Senior Debt
Indenture and the Subordinated Debt Securities other than repayment of Debt
of the Company to a Restricted Subsidiary or an Eligible Joint Venture, (iv)
any Investment made in a Person (other than the Company or any Restricted
Subsidiary or any Eligible Joint Venture) and (v) designating a Restricted
Subsidiary as an Unrestricted Subsidiary (the Restricted Payment made upon
such a designation to be determined as the fair market value of the Capital
Stock of such Restricted Subsidiary owned directly or indirectly by the
Company at the time of the designation). Notwithstanding the foregoing,
"Restricted Payment" will not include any Permitted Payment, except that any
payment made pursuant to clauses (iv) and (v) of the definition of "Permitted
Payment" will be counted in the calculation set forth in clause (c) of the
covenant described under "Limitation on Restricted Payments."
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
that is not an Unrestricted Subsidiary.
"Senior Debt" is defined to mean the principal of and interest on all Debt
of the Company whether created, Incurred or assumed before, on or after the
date of original issuance of any series of Debt Securities (other than the
Debt Securities), provided that Senior Debt will not include (i) Debt that,
when Incurred and without respect to any election under Section 1111(b) of
Title 11, United States Code, was without recourse to the Company, (ii) Debt
of the Company to any Affiliate and (iii) any Debt of the Company that, by
the terms of the instrument creating or evidencing the same, is specifically
designated as being junior in right of payment to the Debt Securities or any
other Debt of the Company.
"Significant Subsidiary" is defined to mean a Restricted Subsidiary that
is a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X
under the Securities Act and the Exchange Act.
"Stated Maturity" is defined to mean, with respect to any debt security or
any installment of interest thereon, the date specified in such debt security
as the fixed date on which any principal of such debt security or any such
installment of interest is due and payable.
"Subsidiary" is defined to mean, with respect to any Person including,
without limitation, the Company and its Subsidiaries, (i) any corporation or
other entity of which such Person owns, directly or indirectly, a majority of
the Capital Stock or other ownership interests and has ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions, and (ii) with respect to the Company and, as appropriate,
its Subsidiaries, any Permitted Joint Venture, including, without limitation,
Coso Land Company Joint Venture, Coso Finance Partners, Coso Energy
Developers and Coso Power Developers, provided that in respect of any
Subsidiary that is not a Permitted Joint Venture, the Company must exercise
control over such Subsidiary and its Property to the same extent as a
Permitted Joint Venture.
"Subsidiary Refinancing Debt" is defined to mean Debt issued in exchange
for, or the proceeds of which are used to refinance (including to purchase),
outstanding Debt of a Restricted Subsidiary or an Eligible Joint Venture,
including, without limitation, Construction Financing, in amount (or, if such
new Debt provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration thereof, with an original
issue price) not to exceed the amount so exchanged or refinanced (plus
accrued interest or dividends and all fees, premiums (in excess of accreted
value) and expenses related to such exchange or refinancing), for which
purpose the amount so exchanged or refinanced will not exceed, in the case of
Debt, the lesser of (x) the principal amount of the Debt so exchanged or
refinanced and (y) if the Debt being exchanged or refinanced was issued with
an original issue discount, the accreted value thereof (as determined in
accordance with GAAP) at the time of such exchange or refinancing, and, in
the case of an equity investment made in lieu of or as part of Construction
Financing, Debt, in an amount not to exceed the capital and surplus shown on
the balance sheet of such Restricted Subsidiary or Eligible Joint Venture,
provided that (A) such Debt will be Non-Recourse if the Debt so exchanged or
refinanced is Non-Recourse and (B) the Average Life of the new Debt will be
equal to or greater than the Average Life of the Debt to be exchanged or
refinanced, provided further that upon
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<PAGE>
the first refinancing of any Construction Financing of a Restricted
Subsidiary or an Eligible Joint Venture, (i) the amount of the Subsidiary
Refinancing Debt issued in exchange for or to refinance such Construction
Financing will not be limited by this provision and (ii) the Subsidiary
Refinancing Debt issued in exchange for or to refinance such Construction
Financing will not be subject to the provisions of the foregoing clause (B)
of this provision.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors Incurred, created, assumed or Guaranteed by such Person or any of
its Subsidiaries or Joint Ventures arising in the ordinary course of
business.
"Unrestricted Subsidiary" is defined to mean any Subsidiary of the Company
that becomes an Unrestricted Subsidiary in accordance with the requirements
set forth in the next sentence. The Company may designate any Restricted
Subsidiary as an Unrestricted Subsidiary if (a) such designation is in
compliance with the first paragraph of the covenant described under
"Limitation on Restricted Payments" above and (b) after giving effect to such
designation, such Subsidiary does not own, directly or indirectly, a majority
of the Capital Stock or the Voting Stock of any other Restricted Subsidiary
unless such other Restricted Subsidiary is designated as an Unrestricted
Subsidiary at the same time. Any such designation will be effected by filing
with the Trustee an Officers' Certificate certifying that such designation
complies with the requirements of the immediately preceding sentence. No Debt
or other obligation of an Unrestricted Subsidiary may be with recourse to the
Company, any of its Restricted Subsidiaries, any Eligible Joint Venture or
any of their respective Property except to the extent otherwise permitted by
the provisions of the Indenture. An Unrestricted Subsidiary may be designated
as a Restricted Subsidiary if (i) all the Debt of such Unrestricted
Subsidiary could be Incurred under the provision described under "Limitation
on Subsidiary Debt" above or (ii) any portion of such Debt could not be
Incurred under such provision, if the Company could borrow all such remaining
Debt under the provision described in the first paragraph under "Limitation
on Debt" above.
"U.S. Government Obligations" is defined to mean securities that are (i)
direct obligations of the U.S. for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the U.S., the payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
U.S., that, in either case are not callable or redeemable at the option of
the issuer thereof, and will also include a depository receipt issued by a
bank or trust company as custodian with respect to any such U.S. Government
Obligations or a specific payment of interest on or principal of any such
U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of interest on or principal of the U.S. Government Obligation
evidenced by such depository receipt.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the
election of directors (or persons fulfilling similar responsibilities) of
such Person.
As more fully described in the Prospectus Supplement, each of the
Indentures also provides for defeasance of certain covenants.
CERTIFICATED SECURITIES
Except as may be set forth in a Prospectus Supplement, Debt Securities
will not be issued in certificated form. If, however, Debt Securities of any
series are to be issued in certificated form, no service charge will be made
for any transfer or exchange of any such Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
BOOK-ENTRY SYSTEM
If so specified in any accompanying Prospectus Supplement relating to Debt
Securities of any series, Debt Securities of or within such series may be
issued under a book-entry system in the form of one or
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more global securities (each, a "Global Security"). Each Global Security will
be deposited with, or on behalf of, a depositary, which, unless otherwise
specified in the accompanying Prospectus Supplement, will be The Depository
Trust Company, New York, New York (the "Depositary"). The Global Securities
will be registered in the name of the Depositary or its nominee.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary 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. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. The Depositary is owned by a number of its Direct Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc.
and the National Association of Securities Dealers, Inc. Access to the
Depositary 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 Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to the Depositary
and its Participants are on file with the SEC.
Purchases of the Offered Securities under the Depositary system must be
made by or through Direct Participants, which will receive a credit for the
Securities on the Depositary's records. The ownership interest of each actual
purchaser of each Security ("Beneficial Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Beneficial Owners will not
receive written confirmation from the Depositary of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner
entered into the transaction. Transfers of ownership interests in the
Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in
Securities, except in the event that use of the book-entry system for the
Securities is discontinued.
To facilitate subsequent transfers, all Securities deposited by
Participants with the Depositary are registered in the name of the
Depositary's partnership nominee, Cede & Co. The deposit of Securities with
the Depositary and their registration in the name of Cede & Co. effect no
change in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Securities; the Depositary's records reflect only
the identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Securities. Under its usual procedures, the Depositary mails an Omnibus
Proxy to the Company as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Securities will be made to the
Depositary. The Depositary's practice is to credit Direct Participants'
accounts on the payable date in accordance with their respective holdings
shown on the Depositary's records unless the Depositary has reason to believe
that it will not receive payment on the payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts
of
51
<PAGE>
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of the Depositary, agent, or the
Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to the Depositary
is the responsibility of the Depositary, and disbursement of such payments to
the Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
The Depositary may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to the Company. Under such circumstances, in the event that a
successor securities depository is not obtained, Security certificates are
required to be printed and delivered. The Company may decide to discontinue
use of the system of book-entry transfers through the Depositary (or a
success securities depository). In that event, Security certificates will be
printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the
Company believes to be reliable, but the Company takes no responsibility for
the accuracy thereof.
A Global Security of any series may not be transferred except as a whole
by the Depositary to a nominee or successor of the Depositary or by a nominee
of the Depositary to another nominee of the Depositary. A Global Security
representing all but not part of an offering of Offered Debt Securities
hereby is exchangeable for Debt Securities in definitive form of like tenor
and terms if (i) the Depositary notified the Company that it is unwilling or
unable to continue as depositary for such Global Security or if at any time
the Depositary is no longer eligible to be or in good standing as a clearing
agency registered under the Exchange Act, and in either case, a successor
depositary is not appointed by the Company within 90 days of receipt by the
Company of such notice or of the Company becoming aware of such
ineligibility, or (ii) the Company in its sole discretion at any time
determines not to have all of the Debt Securities represented in an offering
of Offered Debt Securities by a Global Security and notifies the Trustee
thereof. A Global Security exchangeable pursuant to the preceding sentence
shall be exchangeable for Debt Securities registered in such names and in
such authorized denominations as the Depositary of such Global Security shall
direct.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities in any of the following ways
(or in any combination thereof): (i) through underwriters or dealers; (ii)
directly to a limited number of purchasers or to a single purchaser; or (iii)
through agents. The Prospectus Supplement with respect to any Offered
Securities will set forth the terms of the offering of such Offered
Securities, including the name or names of any underwriters, dealers or
agents and the respective amounts of such Offered Securities underwritten or
purchased by each of them, the initial public offering price of such Offered
Securities and the proceeds to the Company from such sale, any discounts,
commissions or other items constituting compensation from the Company and any
discounts, commissions or concessions allowed or reallowed or paid to dealers
and any securities exchanges on which such Offered Securities may be listed.
If underwriters are used in the sale of any Offered Securities, such
Offered Securities will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying
prices determined at the time of sale. Such Offered Securities may be either
offered to the public through underwriting syndicates represented by managing
underwriters, or directly by underwriters.
Offered Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Unless otherwise indicated in
the Prospectus Supplement, any such agent will be acting on a best efforts
basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters, dealers or agents to solicit offers by certain purchasers to
purchase Offered Securities from the Company at the public offering price set
forth in the Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject only to those conditions set forth in the
Prospectus Supplement.
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Agents, dealers and underwriters may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters (including the validity of the Securities) will be
passed upon for the Company by Steven A. McArthur, Senior Vice President and
General Counsel of the Company and by Willkie Farr & Gallagher. As of August
31, 1997, Mr. McArthur beneficially owned 123,542 shares of Common Stock.
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company and its subsidiaries incorporated by reference in this
Registration Statement by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, 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 periods ended March 31, 1997 and 1996 and June 30, 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 reports included in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June
30, 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 the
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 Report on 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 an accountant 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.
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NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE
--------
Summary........................................... S-1
Recent Developments .............................. S-12
Use of Proceeds .................................. S-13
Market Prices of Common Stock and Dividend Policy S-13
Capitalization ................................... S-14
Selected Consolidated Financial and Operating
Data ............................................ S-15
Selected Pro Forma Financial Information ........ S-17
The Business of the Company ...................... S-18
Projects in Development .......................... S-29
Management ....................................... S-34
Underwriting ..................................... S-40
Notice to Canadian Residents ..................... S-43
Certain United States Federal Tax Considerations
for Non-U.S. Holders of Common Stock ............ S-44
Legal Matters .................................... S-46
Experts .......................................... S-46
Index to Financial Statements .................... F-1
Index to Pro Forma Financial Data ................ P-1
PROSPECTUS PAGE
--------
Available Information ............................ 2
Incorporation of Certain Documents by Reference . 3
Risk Factors ..................................... 4
The Company ...................................... 11
Ratio of Earnings to Fixed Charges ............... 12
Use of Proceeds .................................. 12
Description of Capital Stock ..................... 13
Description of Preferred Stock ................... 15
Description of Debt Securities ................... 20
Plan of Distribution ............................. 52
Legal Matters .................................... 53
Experts .......................................... 53
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CALENERGY COMPANY, INC.
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[CALENERGY COMPANY, INC. LOGO]
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14,000,000 Shares
Common Stock
($0.675 par value)
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
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