CALIFORNIA ENERGY COMPANY, INC.
10831 Old Mill Road
Omaha, NE 68154
March 25, 1994
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of California Energy Company, Inc. ("Company") to be held at the Red Lion
Hotel, 1616 Dodge Street, Omaha, Nebraska on May 12, 1994 at 10:00 A.M., local
time.
The following matters will be considered and acted upon at the Annual
Meeting: (i) election to the Board of Directors of the Company of three Class
II Directors; (ii) ratification of the appointment by the Board of Directors
of Deloitte & Touche as auditors of the Company for the 1994 fiscal year;
(iii) adoption and ratification of the 1994 Employee Stock Purchase Plan which
provides for an aggregate of 750,000 shares to be purchased by employees,
limited to a maximum of 500 shares per employee per six-month purchase period
under the plan; (iv) approval and ratification of an amendment to the
Company's Amended and Restated 1986 Stock Option Plan to increase the
aggregate number of options that may be available for grant to employees under
the plan by 1,586,000; and (v) transaction of such other business as may
properly come before the meeting.
Information concerning the matters to be considered and voted upon at
the Annual Meeting is set forth in the attached Notice of Annual Meeting and
Proxy Statement. We encourage you to review the attached material carefully
and to sign, date and return the enclosed proxy card in the enclosed postage
paid envelope. Each proxy is revocable and will not affect your right to vote
in person if you attend the meeting.
Sincerely,
/s/ Richard R. Jaros
Richard R. Jaros
Chairman of the Board
CALIFORNIA ENERGY COMPANY, INC.
Notice of Annual Meeting of Stockholders
To Be Held on May 12, 1994
To The Stockholders of California Energy Company, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of
California Energy Company, Inc. ("Company") will be held at the Red Lion
Hotel, 1616 Dodge Street, Omaha, Nebraska on May 12, 1994 at 10:00 A.M.local
time for the following purposes:
1. To elect to the Board of Directors of the Company three Class
II Directors (with terms expiring at the 1997 annual meeting);
2. To ratify the appointment by the Board of Directors of
Deloitte & Touche as auditors of the Company for fiscal year 1994;
3. To adopt and ratify the 1994 Employee Stock Purchase Plan
which provides for an aggregate of 750,000 shares to be purchased by
employees, limited to a minimum of 500 shares per employee per six-month
purchase period;
4. To approve and ratify the amendment to the Company's Amended
and Restated 1986 Stock Option Plan to increase the aggregate number of
options that may be available for grant to employees under the Plan by
1,586,000 shares; and
5. To act upon such other matters as may properly come before the
meeting.
All Stockholders of record at the close of business on March 21, 1994
are entitled to vote at the Annual Meeting.
To ensure that your shares are represented, you are urged to please fill
in, sign, date and return the enclosed proxy card promptly in the enclosed
postage paid envelope. You may revoke your proxy at any time before it is
voted at the Annual Meeting. If you attend the meeting, you may vote your
shares in person.
Please date your proxy card and sign it exactly as your name appears on
the proxy card.
By Order of the Board of Directors
/s/ Richard R. Jaros
March 25, 1994
Richard R. Jaros
Chairman of the Board
CALIFORNIA ENERGY COMPANY, INC.
10831 Old Mill Road
Omaha, NE 68154
Proxy Statement
March 25, 1994
ANNUAL MEETING OF STOCKHOLDERS
May 12, 1994
SOLICITATION AND VOTING
This Proxy Statement ("Proxy Statement") is furnished in connection with
the solicitation of proxies on behalf of the Board of Directors (the "Board")
of California Energy Company, Inc. (the "Company") to be voted at the Annual
Meeting of Stockholders to be held on May 12, 1994, or any adjournment thereof
(the "Annual Meeting"). This Proxy Statement, the Notice of Annual Meeting
and the accompanying Proxy are being mailed to Stockholders on or about March
31, 1994.
The voting stock of the Company (the "Voting Stock") consists of the
Common Stock of the Company, $0.0675 par value (the "Common Stock"), and the
Series C Redeemable Convertible Exchangeable Preferred Stock of the Company
(the "Series C Preferred Stock"). Holders of the Common Stock and the holder
of the Series C Preferred Stock will vote together as a single class at the
Annual Meeting. Each share of Common Stock will be entitled to one vote on
all matters presented at the Annual Meeting. Each share of Series C Preferred
Stock will be entitled to vote on an "as converted" basis on all matters
presented at the Annual Meeting.
The close of business on March 21, 1994 is the record date (the "Record
Date") for determining holders of the outstanding Voting Stock (the
"Stockholders") entitled to vote at the Annual Meeting. On the Record Date,
34,382,978 shares of Common Stock and 1,199 shares of Series C Preferred
Stock, entitled to 3,262,479 votes, were outstanding.
The approval of a plurality of the Voting Stock present in person or by
proxy at the Annual Meeting is required for the election of nominees as
Directors of the Company. The approval of a majority of the Voting Stock
present in person or by proxy at the Annual Meeting is required for approval
of Proposal 2 (ratification of selection of Independent Auditors), Proposal
3 (ratification of 1994 Employee Stock Purchase Plan) and Proposal 4
(amendment to the Amended and Restated 1986 Stock Option Plan). A quorum equal
to a majority of the outstanding Voting Stock must be present in person or by
proxy at the Annual Meeting in order to elect Directors and consider Proposals
2, 3 and 4.
All shares of Voting Stock represented by properly executed proxies
which are returned and not revoked will be voted in accordance with the
instructions, if any, given therein. If no instructions are provided in a
proxy, it will be voted FOR the Board's nominees for Director, FOR the
approval of Proposals 2, 3 and 4, and in accordance with the proxy-holders
best judgment as to any other matters raised at the Annual Meeting.
Abstentions and broker non-votes will not be counted as shares present with
respect to the proposals with respect to which they are not voted. The proxy
is revocable and any Stockholder who executes a proxy may revoke it at any
time before it is voted by delivering to the Secretary of the Company a
written statement revoking the proxy, by executing and delivering to the
Secretary of the Company a later dated proxy or by voting in person at the
Annual Meeting.
Expenses in connection with this solicitation of proxies will be paid
by the Company. Upon request, the Company will reimburse brokers, dealers,
banks or similar entities acting as nominees for reasonable expenses incurred
in forwarding copies of these proxy materials to the beneficial owners of
shares which such persons hold of record. The Company has engaged D. F.
King & Co., Inc. to solicit proxies for the Annual Meeting for a fee of
$6,500, plus reimbursement of reasonable expenses. In addition, solicitation
of proxies may be made through the mail, in person and by facsimile and
telephone by certain directors, officers and regular employees of the Company.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board currently consists of fourteen members divided into three
classes serving staggered three-year terms. The Board has unanimously
nominated Edgar D. Aronson, Ben Holt and Richard R. Jaros for election at
the Annual Meeting as Class II directors, with terms expiring at the 1997
annual meeting of Stockholders. The terms of the current Class II Directors,
Mr. Aronson, Mr. Brush, Mr. Holt, Mr. Jaros and Admiral Murphy expire at
the Annual Meeting. Mr. Brush and Adm. Murphy will be retiring as directors
of the Company at the end of their term and accordingly will not be seeking
re-election at the Annual Meeting. However, the Board unanimously voted to
appoint Mr. Brush and Adm. Murphy to the status of non-voting Directors
Emeritus for a period of one year after the Annual Meeting. Following the
Annual Meeting, the Board intends to vote to reduce the size of the Board to
twelve members to reflect the retirement of Mr. Brush and Adm. Murphy.
Mr. Aronson, Mr. Holt and Mr. Jaros have consented to serve if elected.
If a nominee becomes unable to serve if elected, proxies will be voted for
such other person, if any, as the Board may nominate, or the Board may be
reduced in size accordingly. The Board knows of no reason why any nominee
will be unable to serve if elected.
The approval of a plurality of the Voting Stock present in person or by
proxy at the Annual Meeting is required for election of the nominees as
directors. A quorum equal to the majority of the outstanding Voting Stock
must be present in person or by proxy at the Annual Meeting in order to elect
directors. If no instructions are provided in a proxy, it will be voted FOR
the Board's nominees for directors.
The Board of Directors unanimously recommends a vote FOR the above-named
nominees.
BOARD OF DIRECTORS
In addition to the above-named current Class II Directors, the Board
includes the following nine persons, each for a term expiring at the annual
meeting in the year indicated:
Class Year of
Expiration
of Term
Judith E. Ayres Class I 1996
Richard K. Davidson Class I 1996
Herbert L. Oakes, Jr Class I 1996
David L. Sokol Class I 1996
David E. Wit Class I 1996
James Q. Crowe Class III 1995
Everett B. Laybourne Class III 1995
Walter Scott, Jr Class III 1995
Barton W. Shackelford Class III 1995
During 1993, the Board met four times and took action by unanimous
written consent once.
The Board has an Audit Committee, a Compensation Committee, an
Environmental Committee, an Executive Committee, a Nominating Committee, and
a Stock Option Committee.
Audit Committee
The Audit Committee (Messrs. Aronson, Brush, Shackelford and Wit) is
empowered to recommend to the Board independent public accounting firms for
selection as auditors of the Company; to make recommendations to the Board on
auditing matters; to examine and make recommendations concerning the scope of
audits; and to review the terms of transactions between the Company and
related entities. The Audit Committee met four times during 1993.
Compensation Committee
The Compensation Committee (Messrs. Brush, Crowe, Laybourne,
Shackelford and Wit) is authorized to make recommendations to the Board with
respect to executive salaries and bonuses and directors' compensation. The
Compensation Committee met once during 1993.
Compensation Committee Interlocks and Insider Participation
Mr. Brush served as President, Vice Chairman and Chief Operating
Officer of the Company during portions of January and February 1991. Mr.
Crowe is the Chairman and Chief Executive Officer of MFS Communications
Company, Inc. Mr. Crowe serves on the Board of the Company as a nominee of
Kiewit Energy Company ("Kiewit Energy") under an agreement entered into in
connection with Kiewit Energy's investment in the Company in early 1991. Mr.
Crowe also owns Peter Kiewit Sons' Inc. ("Kiewit") stock. Kiewit Energy is
a wholly owned subsidiary of Kiewit. See "Certain Transactions and
Relationships - Transactions with Kiewit and its Affiliates." Mr. Laybourne
was of counsel to the Los Angeles office of the law firm Baker & McKenzie
until August 1993. The Company paid Baker & McKenzie a total of approximately
$615,000 in legal fees in 1993. The Company believes that the fees of Baker
& McKenzie are comparable to fees that would be payable for similar work
performed by unaffiliated third parties. Messrs. Shackelford and Wit have
not been employees of the Company or otherwise participated in activities
constituting compensation committee interlocks or insider participation
requiring disclosure under this caption.
Environmental Committee
The Environmental Committee (Mr. Aronson, Ms. Ayres, Mr. Brush, Mr.
Jaros, and Adm. Murphy) addresses issues and provides advice concerning
environmental regulations and compliance. The Environmental Committee met
three times during 1993.
Executive Committee
The Executive Committee (Messrs. Davidson, Jaros, Scott, Shackelford
and Sokol) was established to act for the Board in between regularly scheduled
Board meetings. The Executive Committee met once during 1993.
Nominating Committee
The Nominating Committee (Ms. Ayres and Messrs. Brush, Jaros, Oakes
and Sokol) was established to provide the Board with advice regarding
potential nominees to the Board. The Nominating Committee did not meet during
1993. The Nominating Committee will consider qualified nominees recommended
by holders in the aggregate of 5% or more of the Voting Stock. The Nominating
Committee is under no obligation, however, to nominate any person so
recommended. Holders may make such a recommendation in writing to the
Nominating Committee, in care of the Secretary of the Company. The Nominating
Committee is not presently considering any nominations to the Board.
Stock Option Committee
The Stock Option Committee (Messrs. Laybourne and Shackelford) was
established to provide disinterested administration of the Company's Amended
and Restated 1986 Stock Option Plan ("Employee Option Plan") pursuant to the
requirements of the SEC's Rule 16b-3. The Stock Option Committee acted by
written consent four times during 1993.
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS, DIRECTORS
CONTINUING IN OFFICE AND DIRECTORS RETIRING AT THE ANNUAL MEETING:
Edgar D. Aronson, 59. 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, 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, 49. Ms. Ayres has been a director of the Company
since July 1990. Since 1989 Ms. Ayres has been Principal of The
Environmental Group, an environmental consulting firm in San Francisco,
California. From 1988 to 1989, Ms. Ayres was Vice President/Principal 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.
Harvey F. Brush, 73. Mr. Brush has been a director of the Company
since July 1990. Mr. Brush served on an interim basis as President and Chief
Operating Officer of the Company from January 25, 1991 until February 19,
1991. Prior to his retirement in 1986, Mr. Brush was for several years the
Executive Vice President of Bechtel Group, Inc., a construction company. Mr.
Brush will be retiring from the Board at the Annual Meeting, but by unanimous
vote of the Board will remain a non-voting Director Emeritus for a period of
one year thereafter.
James Q. Crowe, 44. Mr. Crowe has been a director of the Company
since March 1991. Mr. Crowe is Chairman and Chief Executive Officer of MFS
Communications Company, Inc., a publicly traded company in which Kiewit holds
a majority ownership interest. Prior to assuming his current position in
1991, Mr. Crowe was President of Kiewit Industrial Company, a major
subsidiary of Kiewit. Before joining Kiewit Industrial Company in 1986, Mr.
Crowe was Group Vice President, Power Group at Morrison-Knudsen Corporation.
Mr. Crowe is a director of C-TEC Corporation, a publicly traded company in
which Kiewit holds a majority ownership interest.
Richard K. Davidson, 52. Mr. Davidson was appointed a director of the
Company in March 1993. Mr. Davidson has been Chairman and Chief Executive
Officer of Union Pacific Railroad since 1991. From 1989 to 1991 he was
Executive Vice President-Operations of Union Pacific Railroad, and from 1986
to 1989 he was Vice President-Operations of Union Pacific Railroad. Mr.
Davidson is also a director of FirsTier Financial, Inc., Chicago &
Northwestern Holdings Corporation and Missouri Pacific Railroad Company.
Ben Holt, 80. Mr. Holt was elected to the Board in September 1993.
Mr. Holt is the founder, and was Chairman and Chief Executive Officer of The
Ben Holt Co., an engineering firm located in Pasadena, California, which the
Company acquired in September 1993. Mr. Holt retired as Chairman and CEO of
The Ben Holt Co. in December 1993 and is currently a consultant to the
Company.
Richard R. Jaros, 42. Mr. Jaros has been a director of the Company
since March 1991. Mr. Jaros has served as Chairman of the Board since April
19, 1993 and served as President and Chief Operating Officer of the Company
from January 8, 1992 to April 19, 1993. From 1990 until January 8, 1992, Mr.
Jaros served as a Vice President of Kiewit and is currently an Executive Vice
President and director of Kiewit. Mr. Jaros serves as a director of MFS
Communications Company, Inc. and C-TEC Corporation, both of which are publicly
traded companies in which Kiewit holds a majority ownership interest. From
1986 to 1990, Mr. Jaros served as a Vice President for Mergers and
Acquisitions for Kiewit Holdings, a subsidiary of Kiewit.
Everett B. Laybourne, 82. Mr. Laybourne has been a director of the
Company since May 1988. For many years he served as counsel for a number of
major publicly-held corporations. He also presently serves as Vice President
and Trustee of The Ralph M. Parsons Foundation and as National Board Chairman
of WAIF, Inc. From 1969 to 1988, Mr. Laybourne was senior partner in the law
firm of MacDonald, Halsted & Laybourne in Los Angeles, California, whose
successor firm was Baker & McKenzie to which he acted for five years in an of
counsel capacity. He continues in the practice of law in Los Angeles.
Daniel J. Murphy, 72. Adm. Murphy, USN (RET.), has been a director
of the Company since January 1988. He is Chairman and President of Murphy and
Associates, consultants in domestic and foreign affairs. Prior to forming
Murphy and Associates in September 1992, Admiral Murphy was Chairman and co-
owner of Murphy & Demory, Ltd., a consulting firm in foreign and domestic
affairs. Prior to that, Adm. Murphy was the Vice Chairman of Hill & Knowlton
Public Affairs Worldwide, in charge of the International Division. Prior to
that he was Vice Chairman of Gray & Co., a public relations firm in
Washington, D.C. Adm. Murphy will be retiring from the Board at the Annual
Meeting, but by unanimous vote of the Board will remain a non-voting Director
Emeritus for one year thereafter.
Herbert L. Oakes, Jr., 47. Mr. Oakes has been a director of the
Company since October 1987. In 1982, Mr. Oakes founded and became President
of H.L. Oakes & Co., Inc., a corporate advisor and dealer in securities.
From 1988 to the present, Mr. Oakes has served as Managing Director of Oakes,
Fitzwilliams, Co., Limited, a member of the Securities and Futures Authority
Limited and The London Stock Exchange. Mr. Oakes is a director of Shared
Technologies, Inc., Harcor Energy Inc. and New World Power Corporation.
Walter Scott, Jr., 62. 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 Kiewit, a position he has held since 1979. Mr. Scott is a
director of Berkshire Hathaway, Inc., Burlington Resources, Inc., ConAgra,
Inc., FirsTier Financial, Inc., and Valmont Industries, Inc. Mr. Scott also
serves as a director of MFS Communications Company, Inc. and C-TEC
Corporation, both publicly traded companies in which Kiewit holds a majority
ownership interest.
Barton W. Shackelford, 73. Mr. Shackelford has been a director of the
Company since June 1986. Mr. Shackelford served as President and a director
of Pacific Gas & Electric Company from 1979 until his retirement in 1985. He
is a director of Harding Associates, Inc.
David L. Sokol, 37. Mr. Sokol has been a director of the Company
since March 1991 and has served as President and Chief Executive Officer of
the Company since April 19, 1993. 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. From 1983 to November 1990, Mr. Sokol was the President
and Chief Executive Officer of Ogden Projects, Inc.
David E. Wit, 32. Mr. Wit has been a director of the Company since
April 1987. He is co-founder and 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.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Proposal 2 is to ratify the appointment of Deloitte & Touche as the
Company's independent auditors.
The Board, upon the recommendation of the Audit Committee, has
unanimously appointed Deloitte & Touche as the independent accounting firm
engaged to audit the financial statements of the Company for the 1994 fiscal
year. Deloitte & Touche acted in that capacity for the 1993 fiscal year. A
representative of Deloitte & Touche is expected to be present at the Annual
Meeting and will be available to respond to questions and may make a statement
if he or she so desires.
The approval of a majority of the Voting Stock present in person or by
proxy at the Annual Meeting is required for approval of Proposal 2. A quorum
equal to the majority of the outstanding Voting Stock must be present in
person or by proxy at the Annual Meeting in order to vote on Proposal 2. If
no instructions are provided in a proxy, it will be voted FOR the approval of
Proposal 2.
The Board unanimously recommends a vote FOR this proposal.
PROPOSAL 3
EMPLOYEE STOCK PURCHASE PLAN
Proposal 3 is to adopt and ratify the 1994 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") which was adopted by the Board, and
became effective January 1, 1994, subject to Stockholder approval.
The Board has unanimously approved and recommended to the Stockholders
the adoption and ratification of the Employee Stock Purchase Plan. The number
of shares available for purchase by employees under the Employee Stock
Purchase Plan is limited to an aggregate amount of 750,000 shares. Pursuant
to the Employee Stock Purchase Plan all full-time employees of the Company and
designated subsidiaries may purchase shares of Company Common Stock at a
discount without incurring any tax liability at the time of purchase. The
purchase price is set at a discount of 15% from the market price at either the
beginning or the end of the six-month purchase period, whichever is lower.
The maximum number of shares an employee may purchase during any six-month
purchase period is 500 shares. In addition, the maximum amount of Common
Stock that can be purchased per employee per year under the Employee Stock
Purchase Plan is limited to shares having a fair market value of $25,000.
Shares may be sold at any time; however, shares must be held for two years
after the first day of the purchase period in order to qualify for favorable
capital gains tax treatment. Section 16 reporting officers must make
irrevocable six-month elections in advance of each purchase period in order
to participate in the Employee Stock Purchase Plan. The term of the Employee
Stock Purchase Plan is through the end of 1996 or such later date as the Board
may determine. The Employee Stock Purchase Plan was adopted by the Board and
became effective January 1, 1994, subject to Stockholder approval at the
Annual Meeting. See "Executive Officer and Director Compensation-1994
Employee Stock Purchase Plan." A copy of the entire text of the Employee Stock
Purchase Plan is attached as Exhibit A.
The fundamental objective of the Employee Stock Purchase Plan is to
align the interests of employees and Stockholders by providing an incentive
for stock ownership. The Company believes that offering employees the
opportunity to make stock purchases under the Employee Stock Purchase Plan also
plays an important role in the Company's ability to attract and retain employees
of outstanding ability.
Under the Plan, the Company may make certain changes without amending
the Plan, such as modifying the purchase period duration, adjusting the number
of shares available for purchase to reflect stock splits, stock dividends and
similar changes in the Company's stock, and setting the maximum number of
shares that may be purchased in any purchase period.
The approval of a majority of the Voting Stock present in person or by
proxy at the Annual Meeting is required for approval of Proposal 3. A quorum
equal to the majority of the outstanding Voting Stock must be present in
person or by proxy at the Annual Meeting in order to consider Proposal 3. If
no instructions are provided in a proxy, it will be voted FOR the approval of
Proposal 3.
The Board unanimously recommends a vote FOR this proposal.
PROPOSAL 4
AMENDMENT OF EMPLOYEE OPTION PLAN
Proposal 4 is to approve and ratify the amendment to the Company's
Employee Option Plan.
The Board has unanimously approved and recommended to the Stockholders
an amendment to the Company's Employee Option Plan. The Employee Option Plan
provides for options to purchase Common Stock. As of the Record Date, only
25,000 options are available under the Employee Option Plan for grant to
employees. The exercise of options granted as part of the Company's incentive
compensation awards in December 1993 to employees to purchase an aggregate of
586,000 shares of Common Stock was made subject to this proposed amendment of
the Employee Option Plan. The exercise price of the options was 100% of the
fair market value of the shares of Common Stock underlying the options on the
date of grant. On the Record Date, the closing sales price per share on the
New York Stock Exchange was $1778. The proposed amendment provides that the
aggregate amount of stock options that may be granted to employees be
increased by 1,586,000 shares. If the proposed amendment to the Employee
Option Plan is approved by the Stockholders, the 586,000 options granted to
employees in December 1993 will become exercisable according to the terms
thereof and the aggregate amount of stock options that may be granted to
employees after the date of the Annual Meeting will be 1,025,000. See note
7 to the table at "Security Ownership of Significant Stockholders and
Management" and "Executive Officer and Director Compensation" below. A copy
of the proposed amendment is set forth in Exhibit B.
The Company believes that the granting of options under the Employee
Option Plan plays an important role in the Company's ability to attract and
retain employees of outstanding ability. The Board believes that the
amendment to the Employee Option Plan to increase the aggregate number of
shares that can be granted to employees in the future is necessary to insure
that the Company can continue to attract and retain such persons.
The approval of a majority of the Voting Stock present in person or by
proxy at the Annual Meeting is required for approval of Proposal 4. A quorum
equal to the majority of the outstanding Voting Stock must be present in
person or by proxy at the Annual Meeting in order to consider Proposal 4. If
no instructions are provided in a proxy, it will be voted FOR the approval of
Proposal 4.
The Board unanimously recommends a vote FOR this proposal.
OTHER MATTERS
The Board knows of no other matters which are likely to be brought
before the Annual Meeting. However, if any other matters are brought before
the Annual Meeting, the proxy-holders will vote proxies granted by
Stockholders in accordance with their best judgment.
SECURITY OWNERSHIP OF SIGNIFICANT STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to all
Stockholders known by the Company to beneficially own more than 5% of either
class of the Voting Stock, and certain information with respect to the
beneficial ownership of each director and the five most highly compensated
executive officers of the Company (and all directors and executive officers
of the Company, as a group) of Common Stock. All information is as of March
21, 1994, unless otherwise indicated.
Number of Percentage of
Shares Class (1)
Beneficially
Owned (1)
Series C Preferred Stock:
Kiewit Energy Company 1000 Kiewit
Plaza Omaha, Nebraska 68131 1,199 100%
Common Stock:
Kiewit Energy Company (2) 16,198,591 37.54%
Merrill Lynch & Co., Inc. (3) 2,249,210 6.54%
The Equitable Companies, Inc. (4) 2,027,182 5.90%
Forstmann-Leff Associates, Inc. (5) 1,829,235 5.32%
Edgar D. Aronson 47,000 .14%
Judith E. Ayres 50,000 .15%
Harvey F. Brush - 0 - - 0 -
James Q. Crowe 10,000 .03%
Richard K. Davidson 30,000 .09%
Ben Holt 97,703 .28%
Richard R. Jaros 271,641 .78%
Everett B. Laybourne 17,589 .05%
Daniel J. Murphy 30,000 .09%
Herbert L. Oakes, Jr. (6) 61,365 .18%
Walter Scott, Jr 10,000 .03%
Barton W. Shackelford 2,660 .01%
David L. Sokol 394,431 1.13%
David E. Wit (8) 37,774 .11%
Thomas R. Mason (7) 55,420 .16%
Steven A. McArthur (7) 68,416 .20%
Donald M. O'Shei, Sr. (7) 38,545 .11%
John G. Sylvia (7) 60,270 .18%
All directors and executive officers
as a group (18 persons) 1,282,814 3.62%
(1)Includes shares which the listed beneficial owner is deemed to have the
right to acquire beneficial ownership under Rule 13d-3(d) under the Securities
Exchange Act, including, among other things, shares which the listed
beneficial owner has the right to acquire within 60 days.
(2)Includes the 7,436,112 shares of Common Stock Kiewit Energy held on October
29, 1992, the date of Amendment No. 6 to their Schedule 13D, options to
purchase an additional 5,500,000 shares of Common Stock and 3,262,479 shares
of Common Stock into which the 1,199 shares of Series C Preferred Stock held
by Kiewit Energy are convertible.
(3)According to a Schedule 13G filed by such parties in February 1994,
includes shares registered in the names of Merrill Lynch & Co., Inc., Merrill
Lynch Group, Inc., Princeton Services, Inc. and Merrill Asset Management,
L.P.
(4)According to a Schedule 13G filed by such parties in February 1994,
includes shares registered in the names of The Equitable Companies
Incorporated, Axa Assurances I.A.R.D. Mutuelle, Axa Assurances Vie Mutuelle,
Alpha Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, Uni Europe
Assurance Mutuelle and Axa.
(5)According to a Schedule 13G filed by such parties in February 1994,
includes shares registered in the name of Forstmann-Leff Associates Inc., FLA
Asset Management, Inc. and Stamford Advisors Corp.
(6)Includes 9,093 shares registered in the name of H.L. Oakes & Co., Inc.,
a company of which Mr. Oakes is a director and of which his wife is a
principal stockholder, 4,746 shares owned by Mr. Oakes' wife and 4,996 shares
registered to H.L. Oakes, trustee for Harrison Oakes, Mr. Oakes' minor son.
Mr. Oakes disclaims beneficial ownership of all of those shares.
(7)Includes the grant of options to purchase Common Stock subject to the
approval of Amendment No. 1 to the Employee Option Plan described at
"Proposal 4-Amendment to Employee Option Plan" above. The respective amounts
included are as follows: Mr. Mason, 528 shares; Mr. McArthur 1,056 shares;
Mr. O'Shei 528 shares and Mr. Sylvia, 1,056 shares.
(8)Includes 3,748 shares held jointly with his spouse.
EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
Compensation Committee Report
The Company's executive compensation is determined by the Compensation
Committee of the Board. The Compensation Committee usually meets once a year
in December, at which time salaries with respect to the next fiscal year, and
bonuses with respect to the nearly completed year are determined, as well as
recommendations for stock option grants as long-term incentive compensation.
The Compensation Committee believes that compensation of the Company's
key executives should be sufficient to attract and retain highly qualified and
productive personnel and also to provide meaningful incentives for enhanced
productivity and superior performance. It is the policy of the Company that
the three components of the Company's total compensation package (salary,
bonus and stock options) will be considered in the aggregate in determining
the amount of any one component. The Company seeks to reward achievement of
long and short-term individual performance goals, viewed in the context of
both individual power project and company performance. However, given the
unique nature of each independent development project (particularly
considering the context of the different legal, regulatory, financial,
accounting, tax, political and cultural systems, issues and structures found
in various countries in which the Company develops projects internationally)
and the resulting flexible adaptation required in the duties and tasks
performed by the Company's key executives, the Compensation Committee's
criteria for assessing executive performance in any year is inherently
subjective and not subject to specific enumeration of factors, relative
weighting or formulae calculations. The Company did not specifically use any
companies in the same industry (including those listed in the Performance
Graph) as a basis for comparison when establishing executive compensation.
During 1993, the Company's executive compensation included a base
salary, a cash bonus and long-term incentive compensation in the form of stock
options awarded under the Company's Employee Option Plan, all dependent on
subjective evaluations of performance as noted above. The cash bonus
compensation of executives is designed to compensate executives for the
Compensation Committee's assessment of superior performance and meritorious
and diligent individual efforts, and such assessments usually relate to
individual and unique projects. The long term incentive option grants are
intended to align the interests of employees and Stockholders and thereby to
motivate executives as equity owners to contribute at superior levels in the
future and to allow them to share in increased value developed for
Stockholders generally.
Our President and Chief Executive Officer, David Sokol, was hired in
April 1993. Mr. Sokol had previously served in that position from February
1991 through January 1992 and brought with him a considerable amount of senior
management experience, as well as many years of experience in the independent
power industry, having founded and served as President and Chief Executive
Officer of Ogden Projects, Inc. for eight years as well as his prior
successful one year tenure as President and Chief Executive Officer of the
Company. In order to induce Mr. Sokol to return to the Company as President
and Chief Executive Officer, the Company entered into a three year employment
agreement with Mr. Sokol at a base salary of $350,000 per annum, a minimum
annual bonus of $75,000 and a grant of 250,000 options at a fair market value
exercise price on the date of grant, 100,000 options to vest immediately and
the remainder to vest over four years. The employment contract also provides
for the payment of two years base salary and minimum bonus in the event of
termination without cause.
At its December 1993 meeting, the Compensation Committee determined to
make no increase to Mr. Sokol's base salary but to award Mr. Sokol a cash
bonus of $350,000 and recommended that the Stock Option Committee make an
option grant to Mr. Sokol of 750,000 options having an exercise price equal
to the fair market value on the date of grant, 200,000 options to vest
immediately and the remaining 550,000 options to vest in equal monthly
increments over six years. In addition, at the December 1993 meeting other
executives received salary increases, cash bonuses and recommendations for
stock option grants commensurate with the Compensation Committee's subjective
assessment of their relative individual performance.
In reviewing Mr. Sokol's compensation, the Compensation Committee
subjectively considered Mr. Sokol's significant contribution to the
management of the Company during his eight months in office, including the
favorable settlements of the outstanding material construction and
transmission litigations involving the Company's Coso Project, the issuance
of the Company's 5% convertible subordinated debentures due 2000, the
Company's successfully obtaining two power sales contracts for an aggregate
300 MW of geothermal power in the Philippines, the Company's other promising
project development activities internationally, record production levels at
Coso, the Company's Common Stock listing on the New York Stock Exchange and
the acquisition of The Ben Holt Co., to strengthen the Company technically.
Mr. Sokol contributed significantly to the Company's current success and the
Compensation Committee believed his overall compensation was wholly justified
and moreover, expressly approved of by Kiewit Energy, the Company's largest
Stockholder (holding approximately 37% of the Company's Voting Stock, on a
fully-diluted basis).
At the December 1993 meeting, the Compensation Committee also noted its
deep appreciation for the outstanding efforts of Richard Jaros, the Company's
current Chairman, who served as President and Chief Operating Officer during
1992 and a portion of 1993. Mr. Jaros successfully completed the significant
restructuring of the Company which commenced in 1991, completed the long-term
debt refinancing of the Company's Coso Project and initiated the efforts that
eventually led, under Mr. Sokol's direction, to a favorable resolution of
material litigation affecting the Coso Project.
Accordingly, the Compensation Committee determined to recognize Mr.
Jaros for his efforts during the first four months of 1993 with a combined
cash bonus and severance payment in connection with the mutual termination of
his three year contract of $250,000 in the aggregate. In addition, the
Compensation Committee determined that commencing in 1994, Mr. Jaros, as
Chairman of the Board would receive a $25,000 annual retainer fee instead of
the $15,000 annual retainer fee paid to other outside directors.
Compensation Committee
Harvey Brush
James Crowe
Everett Laybourne
Barton Shackelford
David Wit
Performance Graph
The following performance graph shall not be deemed to be incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates such information by reference, and shall not otherwise be deemed
filed under such Acts.
The following graph compares the yearly percentage change in the
cumulative total return on the Company's Common Stock with the cumulative
total return assuming reinvestment of dividends of (1) the S&P 400 Index, (2)
the S&P Utilities Index and (3) an index of comparable peer issuers
constructed by the Company. The index of comparable peer issuers is composed
of AES Corp., Destec Energy Inc., Magma Power Co. and Ogden Projects Inc.
during the periods that each company has been publicly traded.
[ Insert Chart - To come ]
Summary Compensation Table
The following table sets forth the compensation of the Company's five
most highly compensated executive officers who were employed as of the last
day in 1993, as well as for Richard R. Jaros, the Company's current Chairman
who served as President and Chief Operating Officer during a portion of 1993.
Information is provided regarding these individuals for the last three fiscal
years during which they were executive officers of the Company, if applicable.
Securities All Other
Other Annual Underlying Compensation
Name and Year Ended Salary Bonus Compensation Options (402(k) Plan
Principal Positions December 31, ($) ($) ($) (#) Contributions)
Richard R. Jaros (1) 1993 209,038 250,000 N/A 0 3,208
Past President and 1992 269,888 175,000 410,000 3,038
Chief Operating Officer
David L. Sokol (2) 1993 246,794 350,000 N/A 1,000,000 2,800
President and Chief Executive 1992 27,083 4,167 0 0
Officer 1991 288,933 250,000 0 3,242
Thomas R. Mason (3) 1993 164,359 30,000 N/A 5,000 3,398
Senior Vice President 1992 155,447 50,000 25,000 3,318
1991 91,042 40,000 60,000 2,425
Steven A. McArthur (4) 1993 156,538 70,000 N/A 10,000 3,398
Senior Vice President, 1992 150,000 40,000 20,000 3,215
General Counsel and Secretary 1991 129,968 30,000 60,000 3,120
Donald M. O'Shei, Sr. (5) 1993 160,000 50,000 N/A 5,000 3,398
Vice President 1992 105,102 40,000 20,000 1,500
1991 135,000 3,243
John G. Sylvia (6) 1993 130,449 45,000 N/A 10,000 2,216
Vice President, 1992 125,000 40,000 15,000 1,451
Chief Financial Officer 1991 122,917 40,000 20,000 1,998
and Treasurer
- --------------------------
(1)Mr. Jaros' compensation is for the period beginning January 8, 1992, the
date he commenced employment with the Company and ending on April 19, 1993,
the date of his termination of employment. The amount listed under the Bonus
column represents a combined 1993 bonus amount and a severance payment in
connection with the mutual termination of Mr. Jaros' three year employment
contract.
(2)Mr. Sokol's compensation is for the period beginning February 18, 1991,
the date he commenced employment with the Company and ending on January 8,
1992, the date of his termination of employment. Mr. Sokol rejoined the
Company on April 19, 1993.
(3)Mr. Mason's compensation is for the period beginning March 18, 1991, the
date he commenced employment with the Company.
(4)Mr. McArthur's compensation is for the period beginning February 14, 1991,
the date he commenced employment with the Company.
(5)Mr. O'Shei left the employment of the Company in September of 1991 and
rejoined the Company in August of 1992. From September 1991 to August 1992
Mr. O'Shei performed consulting services to the Company. Accordingly, the
1992 and 1991 Salary entries include payments for such consulting as well as
salary.
(6)Mr. Sylvia became an executive officer in February of 1991. The
compensation shown is for all of 1991.
Option Grants in Last Fiscal Year
The following table sets forth options granted to each of the named executive
officers of the Company during 1993:
Potential Realized
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term (1)
Individual Grants -------------------
Options Granted % of Total Options Exercise
and Date of Granted to Employees Price Expiration 5% 10%
Name Grant (#) In Fiscal Year ($/Share) Date ($) ($)
- -------------- ---------------- ------------------- --------- ----------- --------- ----------
David L. Sokol 4/4/93-250,000(2) 19.7% $18.50 4/3/2003 2,908,638 7,371,059
12/9/93-750,000(3) 59.0% $19.00 12/8/2003 8,961,748 22,710,830
Thomas R. Mason 12/9/93- 5,000(4) .4% $19.00 12/8/2003 59,745 151,406
Steven A. McArthur 12/9/93-10,000(5) .8% $19.00 12/8/2003 119,490 302,811
Donald M. O'Shei, Sr. 12/9/93-5,000(6) .4% $19.00 12/8/2003 59,745 151,406
John G. Sylvia 12/9/93-10,000(7) .8% $19.00 12/8/2003 119,490 302,811
- ---------------------
(1)As required by the Securities and Exchange Commission ("SEC"), potential
values stated are based on the prescribed assumption that the Company's Common
Stock will appreciate in value from the date of grant to the end of the option
term (ten years from the date of grant) at annualized rates of 5% and 10%
(total appreciation of 63% and 159%), respectively, and therefore are not
intended to forecast possible future appreciation, if any, in the price of the
Company's Common Stock. The total of all stock options granted to employees,
including executive officers, during fiscal 1993 was approximately 3.59% of
total shares outstanding during the year. Accordingly, the potential value
of such options for all optionees under the prescribed assumptions is
approximately 3.59% of the potential realizable value of all shareholders for
the same period under the same assumptions. As an alternative to the assumed
potential realizable values stated above, SEC rules would permit stating the
present value of such options at the date of grant. Methods of computing
present value suggested by different authorities can produce significantly
different results. Moreover, since stock options granted by the Company are
not transferable, there are no objective criteria by which any computation of
present value can be verified. Consequently, the Company's management does
not believe there is a reliable method of computing the present value of such
stock options and that all assumptions as to annualized appreciation rates are
inherently speculative.
(2)100,000 shares exercisable immediately and 3,125 shares exercisable per
month commencing on April 30, 1993.
(3)200,064 shares exercisable immediately and 7,638 shares exercisable per
month commencing on December 31, 1993.
(4)8 shares exercisable immediately and 104 shares exercisable per month
commencing on December 31, 1993.
(5)16 shares exercisable immediately and 208 shares exercisable per month
commencing on December 31, 1993.
(6)8 shares exercisable immediately and 104 shares exercisable per month
commencing on December 31, 1993.
(7)16 shares exercisable immediately and 208 shares exercisable per month
commencing on December 31, 1993.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth the option exercises and the value of in-
the-money unexercised options held by each of the named executive officers of
the Company at December 31, 1993, calculated as being equal to the difference
between the exercise price of the options and the closing price of the
Company's Common Stock on the New York Stock Exchange of $18.50 per share on
December 31, 1993.
Value of Unexercised
Number of Unexercised In-the-Money Options
Shares Acquired Value Options Held at FY End at FY End
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ----------------- -------- ----------- ------------- ----------- -------------
Richard R. Jaros - - 225,625 184,375 $861,950 $636,250
David L. Sokol - - 335,827 664,173 $ 0 $ 0
Thomas R. Mason - - 37,665 52,335 $169,424 $193,026
Steven A. McArthur - - 60,880 29,120 $295,308 $ 54,592
Donald M. O'Shei, Sr. 3-04-93 10,000 $131,250 35,946 18,616 $337,275 $ 56,487
8-30-93 3,000 $ 33,030
9-13-93 2,000 $ 22,520
John G. Sylvia - - 48,482 30,264 $546,300 $ 62,591
Compensation of Directors
For 1994, directors who are not employees of the Company will be paid an
annual retainer fee of $15,000 ($25,000 in the case of the Chairman of the
Board) and a fee of $500 per day for attendance at Board and Committee
meetings. Directors who are employees of the Company will not receive such
fees. All directors are reimbursed for their expenses incurred in attending
Board meetings.
Description of Amended and Restated 1986 Stock Option Plan
The Employee Option Plan permits the issuance of Common Stock pursuant to
grants of incentive stock options ("ISOs") and non-qualified stock options
("NSOs") to selected employees, including officers and directors of the
Company, designated by the Compensation Committee. Under the Employee Option
Plan, NSOs may also be granted to non-employee directors, independent
contractors or consultants to the Company.
The Employee Option Plan is administered by a committee of disinterested
directors appointed by the Board. Members of the committee are not eligible
for the discretionary grant of options under the Employee Option Plan, but
instead receive an automatic annual grant of an NSO to purchase 100 shares of
Common Stock at a price equal to 100% of the fair market value of the Common
Stock on the date the NSO is granted.
The exercise price of ISOs granted under the Employee Option Plan may not
be less than 100% of, and the exercise price of NSOs granted under the
Employee Option Plan may not be less than 85% of, the fair market value of the
Common Stock on the date of the grant. The exercise price of any ISO granted
to any holder of more than 10% of the Company's Voting Stock must be at least
equal to 110% of fair market value on the grant date. Options granted under
the Employee Option Plan may have terms of up to ten years and are exercisable
in one or more installments as determined by the Board. Some or all shares
of Common Stock may be purchased upon exercise of options under the Employee
Option Plan only after such shares have become fully exercisable and
nonforfeitable under the vesting provisions of the option agreement and other
terms and conditions of the Employee Option Plan.
Common Stock acquired pursuant to the exercise of an option can be paid
for in cash, or, subject to approval by the Committee, any one or a
combination of the following methods: (i) by surrendering shares of Common
Stock to the Company, if the individual is a former employee of the Company
and has owned the shares to be surrendered for at least six months, (ii) by
directing the Company to withhold a number of shares of Common Stock from the
option if the individual is a former employee and has held the option for at
least six months, or (iii) by a promissory note.
Outstanding options will become immediately vested and exercisable upon
the occurrence of any of the following events (unless the agreement governing
the event provides for the assumption of outstanding options): (i) approval
by the Board of a dissolution of the Company or a merger or consolidation of
the Company where the Company is not the surviving corporation, (ii) the sale
of all or substantially all of the assets of the Company, or (iii) a change
in control of more than 50% of the outstanding shares of all classes of stock
of the Company.
All of the options granted to date under the existing Employee Option Plan
have a term of not more than ten years. If Proposal 4 is approved, stock
options exercisable for a total of 1,025,000 shares of Common Stock will be
available for future grant to employees under the Employee Option Plan. The
existing Employee Option Plan terminates April 3, 1996.
The following table sets forth information with respect to all options to
purchase Common Stock which were granted to certain executive officers, all
current executive officers as a group, all current directors who are not
executive officers as a group, and all current employees as a group, during
the last fiscal year the exercise of which are subject to Stockholder approval
and ratification of Proposal 4. The number of shares underlying options
reflected in the following table are already included in the tables set forth
on pages 12, 13 and 14 above.
Amended and Restated 1986 Stock Option Plan
Dollar Number of
Value Shares
($)(1) Underlying
Options(2)(3)
Mr. Sokol............................... N/A 400,000
Mr. Sylvia.............................. N/A 10,000
Mr. McArthur............................ N/A 10,000
Mr. O'Shei.............................. N/A 5,000
Mr. Mason............................... N/A 5,000
All current executive officers,
as a group (5 persons)................. N/A 430,000
All current directors who are not
executive officers, as a group
(13 persons)............................ N/A 0
All current employees as a group
(other than current executive
officers,persons)....................... N/A 156,000
(1)The benefits on amounts that will be received by the participants under the
Employee Option Plan cannot be calculated, as they are dependent upon the
increase in the market price of the Company's Common Stock.
(2)Grants of options to employees to purchase 586,000 shares of Common Stock
are subject to approval by the Stockholders of the proposal described above
at "Proposal 4-Amendment of Employee Option Plan."
(3)The number of shares of Common Stock underlying the options listed in this
table are redundant of the number of shares underlying options in the tables
set forth on pages 12, 13 and 14.
The following brief description of the tax consequences of stock options
granted under the Employee Option Plan is based on present federal tax laws
and the regulations and does not purport to be a complete description of the
federal income tax aspects of the Employee Option Plan. Neither the optionee
nor the Company will incur any federal tax consequences as a result of the
grant of a stock option. The optionee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction when an ISO is exercised. Upon exercising
an NSO, the optionee generally must recognize ordinary income equal to the
difference between the exercise price and the fair market value of the Common
Stock on the date of exercise; the Company will be entitled to a deduction for
the same amount. The tax treatment of the disposition of shares acquired by
the exercise of a stock option granted under the Employee Option Plan depends
on how long the shares have been held and whether such shares were acquired
by exercising an ISO or an NSO. The Company will not be entitled to a
deduction in connection with a disposition of option shares, except in the
case of a disposition of Shares acquired under an ISO before the applicable
ISO holding periods have been satisfied.
The Company will file the necessary registration statement on Form S-8
under the Securities Act of 1933 to register the shares of Common Stock
underlying the increased number of options as proposed upon approval of
Proposal 4 by the Stockholders.
1994 Employee Stock Purchase Plan
As set forth in Proposal 3, the Board has recommended approval of the
Employee Stock Purchase Plan. The following is a brief summary of the tax
consequences and benefits under the Employee Stock Purchase Plan.
The Employee Stock Purchase Plan is intended to qualify as an employee
stock purchase plan as defined in Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"), and each eligible employee's right to purchase
shares under the Employee Stock Purchase Plan is taxed in accordance with
Sections 421 and 423 of the Code and the regulations issued thereunder.
The following summary of the effect of federal income taxation upon the
employee and the Company with respect to participants in the Employee Stock
Purchase Plan does not purport to be complete and reference is made to the
applicable provisions of the Code.
1. If the provisions of Section 423 are met, the employee will not
realize taxable income either at the time of election to participate in
the Employee Stock Purchase Plan or at the time the employee purchases
shares pursuant to the Plan.
2. If the employee disposes of shares of Common Stock after the later
of two years after the election to participate or one year from the date
of receipt of the stock pursuant to the election, then upon such
disposition the employee will recognize as ordinary income an amount equal
to the lesser of: (a) the excess of the fair market value of the shares of
Common Stock on the date of disposition over the amount the employee paid
for the shares under the Employee Stock Purchase Plan; or (b) the excess
of the fair market value of the shares at the time of election to
participate over the purchase price under the Employee Stock Purchase Plan
price. The employee will also recognize a long-term capital gain or loss
in an amount equal to the difference between (i) the amount realized upon
the sale of the Common Stock and (ii) the sum of the amount the employee
paid for the shares plus the amount, if any, taxed to the employee as
ordinary income under (a) or (b) above.
3. If the employee disposes of shares of Common Stock before the later
of two years after the election to participate or one year from the date
of receipt of the stock pursuant to the Employee Stock Purchase Plan, then
upon this disposition the employee will recognize as ordinary income an
amount equal to the excess of the fair market value of the shares of
Common Stock on the date of receipt of the stock over the amount the
employee paid for the shares. The employee will also recognize a capital
gain or loss in an amount equal to the difference between (i) the amount
realized upon the sale of the shares of Common Stock and (ii) the sum of
the amount the employee paid for the shares plus the amount, if any, taxed
to the employee as ordinary income. If the employee holds the shares for
more than one year, this gain or loss will be a long-term capital gain or
loss.
4. Generally, the Company will not receive any deduction for federal
income tax purposes with respect to the opportunity to purchase shares or
the shares of Common Stock issued under the Employee Stock Purchase Plan.
If, however, the employee disposes of stock acquired under the Employee
Stock Purchase Plan before the later of two years after the employee's
election to participate or one year from the date of the transfer of the
stock to the employee, the Company will be entitled to a deduction in an
amount equal to the amount which is considered ordinary income to the
employee.
The benefits or amounts that will be received by the participants under
the Employee Stock Purchase Plan cannot be presently calculated, as they are
dependent on each individual's decision regarding the amount of stock to be
purchased and on the price at which the stock is purchased under the Employee
Stock Purchase Plan.
On February 4, 1994 the Company filed a registration statement on Form S-8
under the Securities Act of 1933 to register 750,000 shares of Common Stock
to support the Employee Stock Purchase Plan.
Termination of Employment Arrangements
The Company has agreed, under certain conditions, to continue to pay Mr.
O'Shei his base salary through July 1, 1994 if his employment is terminated
prior to such time other than for cause. Under the terms of his employment
contract, Mr. Sokol is entitled to receive two times his base salary and
minimum bonus in the event of the termination of his employment by the Company
other than for cause. If such persons were terminated without cause, the
following amounts would be currently payable: $46,667 (Mr. O'Shei) and
$850,000 (Mr. Sokol).
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Transactions with Kiewit and its Affiliates
Stock Purchase and Related Agreements
The Company and Kiewit Energy are parties to a stock purchase agreement
and related agreements, dated as of February 18, 1991, pursuant to which
Kiewit Energy purchased 4,000,000 shares of Common Stock at $7.25 per share
and received options to buy 3,000,000 shares of Common Stock at a price of
$9.00 per share exercisable over three years, and an additional 3,000,000
shares of Common Stock at a price of $12.00 per share exercisable over five
years (subject to customary adjustments).
In connection with such stock purchase, the Company and Kiewit Energy also
entered into certain other agreements pursuant to which, among other things,
(i) Kiewit Energy and its affiliates agreed, subject to certain conditions, not
to acquire more than 34% of the outstanding Common Stock (the "Standstill
Percentage") for a five-year period, (ii) Kiewit Energy became entitled to
nominate at least three of the Company's directors, (iii) Kiewit Energy agreed
that Kiewit and its affiliates would present to the Company any opportunity to
acquire, develop, operate or own a geothermal resource or geothermal power
plant, and (iv) the Company and Kiewit Energy agreed to used their best efforts
to negotiate and execute a definitive joint venture agreement relating to the
development of certain geothermal properties in Nevada and Utah. Messrs.
Crowe, Jaros and Scott are the current Board nominees of Kiewit Energy.
On June 19, 1991, the Board approved a number of amendments to the stock
purchase agreement and the related agreements. Pursuant to such amendments,
the Company reacquired from Kiewit Energy the rights to develop the Nevada and
Utah properties, and Kiewit Energy agreed to exercise options to acquire
1,500,000 shares of Common Stock at $9.00 per share, providing the Company
with $13.5 million in cash. The Company also extended the term of the $9.00
and $12.00 options to seven years, modified certain of the other terms of
these options, granted to Kiewit Energy an option to acquire an additional
1,000,000 shares of the outstanding Common Stock at a price of $11.625 per
share exercisable over ten years (the closing price for the shares on the
American Stock Exchange on June 18, 1991), and increased the Standstill
Percentage from 34% to 49%.
Joint Venture Agreements
The Company entered into a joint venture agreement with two subsidiaries
of Kiewit, Kiewit Diversified Group, Inc. and Kiewit Construction Group,
Inc., on December 14, 1993. The agreement provides a framework for the joint
development of power projects located in the Philippines, Indonesia and
countries outside the region covered by the joint venture agreement between
the Company and Distral, S.A. (which is the Caribbean, South America and that
part of Central America south of Mexico).
Gilbert Industrial
Commencing in 1991, Gilbert Industrial Corporation ("Gilbert"), a wholly-
owned subsidiary of Kiewit, constructed modifications to the geothermal power
production facility owned by a partnership in which the Company holds a 48%
interest. Through the year ended December 31, 1993, the Company's portion of
amounts paid by the partnership to Gilbert under this contract was
approximately $3.6 million.
Aircraft Lease
The Company is subleasing to Midwest Aviation, a division of a subsidiary
of Kiewit, an airplane leased by the Company from an unaffiliated third-party
aircraft lessor (the "Lessor"). The Company pays monthly lease payments of
$38,669 to the Lessor. Midwest Aviation, in turn, pays monthly sublease
payments of $25,000 to the Company. Both the lease and the sublease terminate
on July 31, 1995. Upon termination of the lease, the Company has the right
to purchase the aircraft; Midwest Aviation, in turn, has the right to purchase
the aircraft from the Company for the price paid by the Company.
The Company believes that the terms of the construction contracts and
sublease described above are comparable to terms that would be obtained in
similar transactions with unaffiliated third parties.
Certain Relationships
Mr. Scott, a director of the Company, is also the Chairman and President
of Kiewit and owns Kiewit stock. Mr. Crowe, a director of the Company, is
the Chairman and President of MFS Communications Company, Inc., a subsidiary of
Kiewit and owns Kiewit's common stock. Mr. Jaros, the Chairman and a director
of the Company, is an officer and director of Kiewit and also owns Kiewit's
common stock.
Mr. Holt, a director of the Company, provides consulting and other
services to the Company for an annual fee of $75,000 pursuant to the terms of
a consulting agreement which expires in 1998. The Company believes the terms
of this agreement are comparable to those in similar transactions with
unaffiliated third parties.
Certain Transactions and Relationships with Others
The Company retained the law firm of Baker & McKenzie in 1993. Everett B.
Laybourne, a director, was of counsel to the Los Angeles office of Baker &
McKenzie until August 1993. The Company paid to Baker & McKenzie a total of
approximately $615,636 in legal fees in 1993. The Company believes that the
fees payable to Baker & McKenzie are comparable to fees that would be payable
in similar transactions with unaffiliated third parties.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder intends to present at the 1995 annual
meeting of Stockholders must be received by the Company no later than November
25, 1994 in order to be considered for inclusion in the proxy statement
relating to such meeting. Any such proposals should be directed to the
Secretary, California Energy Company, Inc., 10831 Old Mill Road, Omaha,
Nebraska 68154.
By Order of the Board of Directors
/s/ Richard R. Jaros
Richard R. Jaros
Chairman of the Board
March 25, 1994
Omaha, Nebraska