As filed with the Securities and Exchange Commission on July 17, 1996
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CalEnergy Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-2213782
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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CalEnergy Capital Trust
(Exact name of registrant as specified in its charter)
Delaware 47-6208410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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302 South 36th Street, Suite 400
Omaha, NE 68131
(402) 341-4500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Steven A. McArthur, Esq.
Senior Vice President, General Counsel and Secretary
CalEnergy Company, Inc.
302 South 36th Street, Suite 400
Omaha, NE 68131
(402) 341-4500
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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Copy to:
Peter J. Hanlon, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669
(212) 821-8000
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check
the following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ]____________________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]____________________________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
===================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Per Aggregate Offering Registration
to be Registered Registered(1) Unit(4) Price(4) Fee(1)
TIDES............................. 2,078,600 $52.5625 $109,256,412.5 (1)(2) $37,675
(1)(2)
Convertible Junior Subordinated
Debentures of CalEnergy Company,
Inc............................... (3) -- -- --
Common Stock of CalEnergy Company,
Inc.(5)........................... 3,477,083.(4) -- -- --
Preferred Securities Guarantee(6). -- -- -- --
Total.......................... 2,078,600 100% $109,256,412.5 $37,675
===================================================================================================================
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act.
(2) Exclusive of accrued interest and distributions, if any.
(3) $103,930,000 in aggregate principal amount of 6 1/4% Convertible Junior
Subordinated Debentures (the "Convertible Junior Subordinated
Debentures") of CalEnergy Company, Inc. (the "Company") were issued and
sold to CalEnergy Capital Trust (the "Trust") in connection with the
issuance by the Trust of 2,078,600 of its 6 1/4% Convertible Preferred
Securities Term Income Deferrable Equity Securities ("TIDES"). The
Convertible Junior Subordinated Debentures may be distributed, under
certain circumstances, to the holders of TIDES for no additional
consideration.
(4) Such number of shares of Common Stock ("Common Stock") of the Company are
issuable upon conversion of the TIDES or the Convertible Junior
Subordinated Debentures registered hereunder. This Registration Statement
also covers such shares as may be issuable pursuant to anti-dilution
adjustments.
(5) Includes Common Stock purchase rights. Prior to the occurrence of certain
events, the purchase rights will not be exercisable or evidenced
separately from the Common Stock. No separate consideration will be
received for the Common Stock purchase rights.
(6) Includes the rights of holders of the TIDES under the Preferred
Securities Guarantee. No separate consideration will be received for the
Preferred Securities Guarantee.
-------------------
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
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Subject to Completion, dated July 17, 1996
PROSPECTUS
2,078,600 TIDES[SM]
CalEnergy Capital Trust
6 1/4% Convertible Preferred Securities
Term Income Deferrable Equities Securities (TIDES)SM
(liquidation preference $50 per each of the TIDES)
guaranteed to the extent set forth herein by, and convertible into
Common Stock of,
CalEnergy Company, Inc.
Distributions payable March 15, June 15, September 15, and December 15.
------------------------
This Prospectus relates to the 6 1/4% Convertible Preferred
Securities Term Income Deferrable Equity Securities (TIDES)SM or TIDES[SM],
which represent undivided beneficial ownership interests in the assets of
CalEnergy Capital Trust, a statutory business trust formed under the laws of
the State of Delaware (the "Issuer" or the "Trust"), and the shares of the
common stock, par value $.0675 per share ("Common Stock") of CalEnergy
Company, Inc., a Delaware corporation ("CalEnergy" or the "Company"), issuable
upon conversion of the TIDES. The TIDES were issued and sold (the "Original
Offering") on April 10, 1996 (the "Original Offering Date") to the Initial
Purchasers (as defined herein) and were simultaneously sold by the Initial
Purchasers in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in the United
States to persons reasonably believed by the Initial Purchasers to be
qualified institutional buyers in reliance on Rule 144A under the Securities
Act and to a limited number of institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act). The
Company directly or indirectly owns all the common securities issued by the
Issuer (the "Common Securities" and together with the TIDES, the "Trust
Securities"). The Issuer exists for the sole purpose of issuing the Trust
Securities and using the proceeds thereof to purchase from the Company its 6
1/4% Convertible Junior Subordinated Debentures due 2016 (the "Convertible
Junior Subordinated Debentures") having the terms described herein. The
holders of TIDES will have a preference with respect to cash distributions and
amounts payable upon liquidation, redemption or otherwise over the holders of
the Common Securities of the Issuer.
The TIDES and the Common Stock issuable upon conversion of the TIDES
(the "Offered Securities") may be offered and sold from time to time by the
holders named herein or by their transferees, pledgees, donees or their
successors (collectively, the "Selling Holders") pursuant to this Prospectus.
The Offered Securities may be sold by the Selling Holders from time to time
directly to purchasers or, under certain circumstances, through agents,
underwriters or dealers. See "Plan of Distribution" and "Selling Holders." If
required, the names of any Selling Holders, agents or underwriters involved in
the sale of the Offered Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth
in an accompanying supplement to this Prospectus (the "Prospectus
Supplement"). The Selling Holders will receive all of the net proceeds from
the sale of the Offered Securities and will pay all underwriting discounts and
selling commissions, if any, applicable to any such sale. The Company is
responsible for payment of all other expenses incident to the offer and sale
of the Offered Securities. The Selling Holders and any broker-dealers, agents
or underwriters which participate in the distribution of the Offered
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commission received by them and any profit on the
resale of the Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
See "Plan of Distribution" for a description of indemnification arrangements.
Prospective investors should carefully consider matters discussed
under the caption "Risk Factors" commencing on page 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
3
(continued from front cover)
Holders of the TIDES are entitled to receive cumulative cash
distributions at an annual rate of 6 1/4% of the liquidation preference of $50
per each of the TIDES, accruing from the date of original issuance and payable
quarterly in arrears on each March 15, June 15, September 15 and December 15,
commencing June 15, 1996. See "Description of the TIDES--Distributions." The
payment of distributions and payments on liquidation of the Issuer or the
redemption of TIDES, as described below (but only to the extent of funds of
the Issuer available therefor), are guaranteed by the Company to the extent
described herein (the "Guarantee"). The Company's obligations under the
Guarantee are subordinate and junior to all other liabilities of the Company,
except any liabilities that may be made pari passu expressly by their terms
and certain other guarantees, but are pari passu with the most senior
preferred stock issued, from time to time, if any, by the Company. See
"Description of the Guarantee." If the Company fails to make interest payments
on the Convertible Junior Subordinated Debentures, the Issuer will have
insufficient funds to pay distributions on the TIDES. The Guarantee does not
cover payment of distributions when the Issuer does not have sufficient funds
to pay such distributions. The Guarantee, when taken together with the
Company's obligations under the Convertible Junior Subordinated Debentures and
the Indenture (as defined herein) and its obligations under the Declaration
(as defined herein), including its liabilities to pay costs, expenses, debts
and obligations of the Issuer (other than with respect to the Trust
Securities), provide a full and unconditional guarantee of amounts due on the
TIDES. The obligations of the Company under the Convertible Junior
Subordinated Debentures are subordinate and junior in right of payment to
Senior Indebtedness (as defined herein) of the Company. At March 31, 1996,
Senior Indebtedness consisting of borrowed money of the Company aggregated
approximately $854.4 million. See "Capitalization."
The Company has the right under the Indenture for the Convertible
Junior Subordinated Debentures to defer the interest payments due from time to
time on the Convertible Junior Subordinated Debentures for successive periods
not exceeding 20 consecutive quarters for each such period, and, as a
consequence, quarterly distributions on the TIDES would be deferred by the
Issuer (but would continue to accumulate quarterly and accrue interest) until
the end of any such interest deferral period. See "Risk Factors--Option to
Extend Interest Payment Period; Tax Consequences," "Description of the
TIDES--Distributions" and "Description of the Convertible Junior Subordinated
Debentures--Option to Extend Interest Payment Period."
Each of the TIDES is convertible in the manner described herein at
the option of the holder into shares of Common Stock at the rate of 1.6728
shares of the Common Stock for each of the TIDES (equivalent to a conversion
price of $29.89 per share of Common Stock), subject to adjustment in certain
circumstances. See "Description of the TIDES--Conversion Rights." The last
reported sale price of the Common Stock (which is listed under the symbol "CE"
on the New York Stock Exchange) on July 16, 1996, was $24 7/8 per share.
The TIDES are effectively redeemable at the option of the Company, in
whole or in part, from time to time, after April 9, 1999, at the prices set
forth herein, plus accrued and unpaid distributions thereon to the date fixed
for redemption (the "Redemption Price"). See "Description of the
TIDES--Optional Redemption." Upon the repayment of the Convertible Junior
Subordinated Debentures at maturity or upon any acceleration, earlier
redemption, or otherwise, the proceeds from such repayment will be applied to
redeem the TIDES and the Common Securities on a pro rata basis. In addition,
upon the occurrence of certain events arising from a change in law or a change
in legal interpretation, the Company will liquidate the Issuer and cause to be
distributed to the holders of the TIDES, on a pro rata basis, Convertible
Junior Subordinated Debentures or, in certain limited circumstances, will
cause the redemption of the TIDES in whole at the liquidation preference of
$50 per each of the TIDES plus accrued and unpaid distributions. See
"Description of the TIDES--Tax Event or Investment Company Event Redemption or
Distribution" and "Description of the Convertible Junior Subordinated
Debentures."
In the event of the liquidation of the Issuer, the holders of the
TIDES will be entitled to receive for each of the TIDES a liquidation
preference of $50 plus accrued and unpaid distributions thereon to the date of
payment, unless, in connection with such liquidation, Convertible Junior
Subordinated Debentures are distributed to the holders of the TIDES. See
"Description of the TIDES--Liquidation Distribution Upon Dissolution."
4
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 ("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 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. Such reports,
proxy and information statements and other information can also be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
The Company has filed with the SEC a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth or incorporated by reference in the Registration Statement and the
exhibits and schedules related thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the SEC. For further
information with respect to the Company and the securities offered by this
Prospectus, reference is made to the Registration Statement and the exhibits
filed or incorporated as a part thereof. Statements contained in this
Prospectus as to the contents of any documents referred to are not necessarily
complete and, in each such instance, are qualified in all respects by
reference to the applicable documents filed with the SEC.
No separate financial statements of the Issuer have been included
herein. The Company does not consider that such financial statements would be
material to holders of the TIDES because (i) all of the voting securities of
the Issuer will be owned, directly or indirectly, by the Company, a reporting
company under the Exchange Act, (ii) the Issuer has no independent operations
but exists for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Issuer and investing the proceeds
thereof in Convertible Junior Subordinated Debentures issued by the Company
and (iii) the obligations of the Issuer under the Trust Securities are fully
and unconditionally guaranteed by the Company to the extent that the Issuer
has funds available to meet such obligations. See "Description of the
Convertible Junior Subordinated Debentures" and "Description of the
Guarantee."
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 description of the Common Stock contained in the
Company's Registration Statement on Form 8-A, dated July 28, 1993, pursuant to
Section 12 of the Exchange Act, including any amendment or report filed for
the purpose of updating such description;
(ii) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995;
(iii) The Company's Form 10-Q for the quarterly period ending
March 31, 1996; and
(iv) The Company's Current Reports on Form 8-K dated March 26, 1996,
March 28, 1996, April 2, 1996, April 12, 1996, April 17, 1996, July 1, 1996
and July 8, 1996.
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.
5
Any statement contained in a document, all or a portion of which is
incorporated by reference herein, or contained in this Prospectus, 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 certain 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.
6
RISK FACTORS
Prospective purchasers should carefully consider the following risk
factors 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 may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such
differences include, but are not limited to, the following risk factors.
Subordination of Guarantee and Convertible Junior Subordinated
Debentures. The Company's obligations under the Guarantee are subordinate and
junior in right of payment to all other liabilities of the Company, with
certain limited exceptions. The obligations of the Company under the
Convertible Junior Subordinated Debentures are subordinate and junior in right
of payment to Senior Indebtedness (as defined herein) of the Company. No
payment of principal (including redemption payments, if any), premium, if any,
or interest on the Convertible Junior Subordinated Debentures may be made if
(i) any Senior Indebtedness is not paid when due and any applicable grace
period with respect to such default has ended with such default not having
been cured or waived or ceasing to exist, or (ii) the maturity of any Senior
Indebtedness has been accelerated because of a default. As of March 31, 1996,
the Company had approximately $854.4 million principal amount of borrowed
money included in Senior Indebtedness. See "Capitalization." Neither the
TIDES, the Convertible Junior Subordinated Debentures nor the Guarantee limit
the Company's ability to incur additional indebtedness or liabilities,
including indebtedness or liabilities that would rank senior to the
Convertible Junior Subordinated Debentures and the Guarantee. See "Description
of the Guarantee--Status of the Guarantee; Subordination" and "Description of
the Convertible Junior Subordinated Debentures--Subordination." The
Convertible Junior Subordinated Debentures are also effectively subordinate to
all existing and future liabilities, including trade payables, of the
Company's subsidiaries, joint ventures and affiliates. See "Risk
Factors--Holding Company Structure."
Dependence on Convertible Junior Subordinated Debentures Payments;
Substantial Leverage. The ability of the Issuer to pay amounts due on the
TIDES is wholly dependent upon the Company making payments on the Convertible
Junior Subordinated Debentures. The Company is substantially leveraged. As of
March 31, 1996, the Company's total consolidated liabilities were $2,126.6
million (excluding deferred income), its total consolidated assets were
$2,721.4 million and its total stockholders' equity was $569.2 million. As of
such date, on a pro forma basis, after giving effect to the consummation of
the offering of the TIDES and the application of the net proceeds therefrom,
and the acquisition of the Mission interests together with the issuance of
$135 million of Salton Sea Funding Corporation notes and bonds and the
application of the net proceeds therefrom, the Company's total consolidated
liabilities would have been $2,218.6 million (excluding deferred income), its
obligations in respect of the TIDES would have been $103.9 million, its total
consolidated assets would have been $2,813.4 million and its stockholders'
equity would have been $569.2 million. The Company's substantial level of debt
presents the risk that the Company might not generate sufficient cash to
service the Company's indebtedness, including the Convertible Junior
Subordinated Debentures, or that its leveraged capital structure could limit
its ability to finance the acquisition and development of additional projects,
to compete effectively or to operate successfully under adverse economic
conditions. See "Selected Historical Financial and Operating Data" and
"Capitalization." If the Company is unable to make payments on the Convertible
Junior Subordinated Debentures or the Guarantee, the Issuer will be unable to
make payments on the TIDES as and when required. The Company is also a holding
company which derives substantially all of its operating income from its
subsidiaries and joint ventures. Distributions from such entities are
restricted under various covenants and conditions contained in financing
documents by which they are bound and the stock or assets of substantially all
of such entities is directly or indirectly pledged, to secure various of such
financings. See "Risk Factors--Holding Company Structure," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Notes to the Consolidated Financial Statements."
Holding Company Structure. As a holding company, the Company is
dependent on distributions from its subsidiaries' and joint ventures'
ownership interests in the projects owned and operated by such entities for
substantially all of its operating income. The Company expects that its future
development efforts will also be structured to involve operating subsidiaries,
joint ventures and partnerships. The Company must rely upon dividends and
other payments from its subsidiaries, partnerships and joint ventures to
generate the funds
7
necessary to meet its obligations, including the payment of principal,
interest and premium, if any, on the Convertible Junior Subordinated
Debentures. The availability of distributions from the Company's subsidiaries
and projects is subject to the satisfaction of various covenants and
conditions contained in the applicable subsidiaries' and joint ventures'
financing documents and, until the pending acquisition of the remaining
partnership interests in the Partnership Projects (as defined herein) is
consummated, in the partnership agreements relating to the Partnership
Projects. Furthermore, the Company is structuring Philippine and Indonesian
project financing arrangements containing, and anticipates that future project
level financings will contain, certain conditions and similar restrictions on
the distribution of cash to the Company.
The Company's subsidiaries, partnerships and joint ventures are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Convertible Junior
Subordinated Debentures or to make any funds available therefor, whether by
dividends, loans or other payments, and do not guarantee the payment of
interest on, premium (if any) or principal of the Convertible Junior
Subordinated Debentures. Any right of the Company to receive any assets of any
of its subsidiaries or other affiliates upon any liquidation or reorganization
of the Company (and the consequent right of the holders of the Convertible
Junior Subordinated Debentures to participate in the distribution of, or to
realize proceeds from, those assets) will be effectively subordinated to the
claims of any such subsidiary's or other affiliate's creditors (including
trade creditors and holders of debt issued by such subsidiary or other
affiliate). As of March 31, 1996, on a pro forma basis, after giving effect to
the consummation of the offering of the TIDES and the application of the net
proceeds therefrom, and the acquisition of the Mission interests together with
the issuance of $135 million of Salton Sea Funding Corporation notes and bonds
and the application of net proceeds therefrom, there would have been
approximately $1,880.0 million of total consolidated indebtedness, which
includes the Company's proportionate share of joint venture and subsidiary
debt, which would be effectively senior to the Convertible Junior Subordinated
Debentures, substantially all of which would have been secured by the assets
of such joint ventures and subsidiaries, and $103.9 million of TIDES. See
"Description of the Convertible Junior Subordinated Debentures--Subordination."
Rights Under the Guarantee. The Guarantee Trustee (as defined herein)
holds the Guarantee for the benefit of the holders of the TIDES. The Guarantee
guarantees to the holders of the TIDES the payment (but not the collection) of
(i) any accrued and unpaid distributions on the TIDES to the extent the Issuer
has funds available therefor, (ii) the amount payable upon redemption,
including all accrued and unpaid distributions, of the TIDES called for
redemption by the Issuer, to the extent the Issuer has funds available
therefor and (iii) upon a voluntary or involuntary dissolution, winding up or
termination of the Issuer (other than in connection with a redemption of all
of the TIDES), the lesser of (a) the aggregate of the liquidation amount and
all accrued and unpaid distributions on the TIDES to the date of payment to
the extent the Issuer has funds available therefor and (b) the amount of
assets of the Issuer remaining available for distribution to holders of the
TIDES upon the liquidation of the Issuer. The holders of a majority in
liquidation amount of the TIDES have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee. In the event of a payment default on
the TIDES, any holder of TIDES may institute a legal proceeding directly
against the Company to enforce such holder's rights in respect thereof under
the Guarantee without first instituting a legal proceeding against the Issuer,
the Guarantee Trustee, or any other person or entity. If the Company were to
default on its obligations under the Convertible Junior Subordinated
Debentures, the Issuer would lack available funds for the payment of
distributions or amounts payable on redemption of the TIDES or otherwise, and
in such event, the holders of the TIDES would not be able to rely upon the
Guarantee for payment of such amounts. Instead, holders of the TIDES would
rely on the enforcement (1) by the Trustee of its rights, as registered holder
of the Convertible Junior Subordinated Debentures, against the Company
pursuant to the terms of the Convertible Junior Subordinated Debentures or (2)
by such holder of its right of direct action against the Company to enforce
payments on the Convertible Junior Subordinated Debentures. See "Description
of the Guarantee--Status of the Guarantee; Subordination" and "Description of
the Convertible Junior Subordinated Debentures--Subordination" herein. The
Declaration provides that each holder of TIDES by acceptance thereof agrees to
the provisions of the Guarantee (including the subordination provisions
thereof) and the Indenture.
8
Option to Extend Interest Payment Period; Tax Consequences. The
Company has the right under the Indenture to defer interest payments from time
to time on the Convertible Junior Subordinated Debentures for successive
periods not exceeding 20 consecutive quarters for each such period. Upon the
termination of any Deferral Period and the payment of all amounts then due,
the Company may select a new Deferral Period, subject to the requirements
described herein. As a consequence, during any such Deferral Period, quarterly
distributions on the TIDES would be deferred (but would continue to accrue
with interest thereon) by the Issuer. In the event that the Company exercises
this right, during such period the Company (i) shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock (other than stock dividends paid by the Company which consist of stock
of the same class as that on which the dividend is being paid), (ii) shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company after the date
of initial issuance of the Convertible Junior Subordinated Debentures that
rank pari passu with or junior to the Convertible Junior Subordinated
Debentures, and (iii) shall not make any guarantee payments with respect to
the foregoing (other than pursuant to the Guarantee). Prior to the termination
of any such Deferral Period, the Company may further extend the Deferral
Period; provided that such Deferral Period, together with all previous and
further extensions thereof, may not exceed 20 consecutive quarters and that
such Deferral Period may not extend beyond the maturity date of the
Convertible Junior Subordinated Debentures. The Company has no current
intention of exercising its right to defer payments of interest by extending
the interest payment period on the Convertible Junior Subordinated Debentures.
However, if the Company should determine to exercise its deferral right in the
future, the market price of the TIDES is likely to be adversely affected. See
"Description of the TIDES--Distributions" and "Description of the Convertible
Junior Subordinated Debentures--Option to Extend Interest Payment Period."
Should a Deferral Period occur, a holder of TIDES will continue to
accrue interest income for United States federal income tax purposes. As a
result, such a holder will be required to include such interest in gross
income for United States federal income tax purposes in advance of the receipt
of cash, and such holder will not receive the cash from the Issuer related to
such income if such holder disposes of or converts its TIDES prior to the
record date for payment of distributions. See "United States
Taxation--Potential Extension of Interest Payment Period and Original Issue
Discount."
Tax Event or Investment Company Event Redemption or Distribution.
Upon the occurrence of a Tax Event or Investment Company Event, the Company
will, except in certain limited circumstances, cause the Trustees to liquidate
the Issuer and cause Convertible Junior Subordinated Debentures to be
distributed pro rata to the holders of TIDES. In certain circumstances, the
Company will have the right to redeem the Convertible Junior Subordinated
Debentures, in whole (but not in part), at 100% of principal amount plus
accrued and unpaid interest, in lieu of a distribution of the Convertible
Junior Subordinated Debentures, in which event the TIDES will be redeemed in
whole at the liquidation preference of $50 per each of the TIDES plus accrued
and unpaid distributions. In the case of a Tax Event, the Company may also
elect to cause the TIDES to remain outstanding and pay Additional Interest (as
defined herein) on the Convertible Junior Subordinated Debentures. See
"Description of the TIDES--Tax Event or Investment Company Event Redemption or
Distribution" and "Description of the Convertible Junior Subordinated
Debentures--General."
Under current United States federal income tax law, a distribution of
the Convertible Junior Subordinated Debentures would not be a taxable event to
holders of the TIDES. However, if the relevant Special Event (as defined
herein) is a Tax Event which results in the Issuer being treated as an
association taxable as a corporation, the distribution would likely constitute
a taxable event to holders of the TIDES. See "United States Taxation--Receipt
of Convertible Junior Subordinated Debentures or Cash Upon Liquidation of the
Issuer."
Limited Voting Rights. Except in the limited circumstances described
herein, holders of TIDES will have no voting rights. See "Description of the
TIDES--Voting Rights."
Development Uncertainty. The Company is actively seeking to develop,
construct, own and operate new power projects utilizing geothermal and other
technologies, both domestically and internationally, the completion of any of
which is subject to substantial risk. The Company has in development or under
9
construction projects representing several times the generating capacity of
those currently in operation. Development can require the Company to expend
significant sums for preliminary engineering, permitting, legal and other
expenses in preparation for competitive bids which the Company may not win or
before it can be determined whether a project is feasible, economically
attractive or capable of being financed. Successful development and
construction is contingent upon, among other things, negotiation on terms
satisfactory to the Company of engineering, construction, fuel supply and
power sales contracts with other project participants, receipt of required
governmental permits and consents and timely implementation of construction.
Further, there can be no assurance that the Company, which is substantially
leveraged, will obtain access to the substantial debt and equity capital
required to continue to develop and construct electric power projects or to
refinance projects. The future growth of the Company is dependent, in large
part, upon the demand for significant amounts of additional electrical
generating capacity and its ability to obtain contracts to supply portions of
this capacity. There can be no assurance that development efforts on any
particular project, or the Company's efforts generally, will be successful.
Development Uncertainty Outside the United States. The Company has
five projects under construction outside the United States representing an
aggregate net capacity of 705 megawatts ("MW") of electric generating capacity
of which the Company's aggregate net ownership interest is 487 MW 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 first-time privatization efforts in the countries involved, currency
exchange rate fluctuations, currency repatriation restrictions, political
instability, civil unrest and expropriation) and other structuring issues that
have the potential to cause substantial delays in respect of or material
impairment of the value of the project being developed, which the Company 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.
Exploration, Development and Operation Uncertainties of Geothermal
Energy Resources. Geothermal exploration, development and operations are
subject to uncertainties similar to those typically associated with oil and
gas exploration and development, including dry holes and uncontrolled
releases. Because of the geological complexities of geothermal reservoirs, the
geographic area and sustainable output of geothermal reservoirs can only be
estimated and cannot be definitively established. There is, accordingly, a
risk of an unexpected decline in the capacity of geothermal wells and a risk
of geothermal reservoirs not being sufficient for sustained generation of the
electrical power capacity 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 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 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
10
APITAL PRINTING SYSTEMS]
may be required for the maintenance of current operating levels, thereby
requiring substantial capital expenditures.
Competition. The international power production market is
characterized by numerous strong and capable competitors, many of which have
more extensive and more diversified developmental or operating experience
(including international experience) and greater financial resources than the
Company. Many of these competitors also compete in the domestic market.
Further, in recent years, the domestic power production industry has been
characterized by strong and increasing competition with respect to the
industry's efforts to obtain new power sales agreements, which has contributed
to a reduction in prices offered by utilities. In this regard, many utilities
often engage in "competitive bid" solicitations to satisfy new capacity
demands. In the domestic market, the Energy Policy Act of 1992 is expected to
increase competition.
Present Dependence on Large Customer. The Company currently relies on
long-term power purchase "Standard Offer No. 4" contracts (each, an "SO4
Agreement") with a single customer, Southern California Edison Company
("Edison"), to generate substantially all of its operating revenues. Any
material failure by Edison to fulfill its contractual obligations under any of
such contracts is likely to have a material adverse effect on the Company's
results of operations.
Contract Risks; Expected Negative Impact of Avoided Cost Pricing.
Each of the Company's S04 Agreements provides for both capacity payments and
energy payments for a term of between 20 and 30 years. During the first ten
years of the term of each S04 Agreement, energy payments are based on a
pre-set schedule. Thereafter, while the basis for the capacity payment remains
the same, the required energy payment is 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, March 1999 and January 2000, respectively, for certain
of the Company's domestic projects at China Lake, California (150 miles
northeast of Los Angeles). Such ten-year period expired in 1996 with respect
to one of the Company's seven geothermal plants in the Imperial Valley in
California (the "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 S04 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 scheduled payment periods. Edison's Avoided Cost of Energy
as determined by the CPUC is currently substantially below the current energy
prices under the Company's respective SO4 Agreements. For the year ended
December 31, 1995, the time period-weighted average of Edison's Avoided Cost
of Energy was 2.1 cents per kWh, compared to the time period-weighted average
for the year ended December 31, 1995 selling prices for energy of
approximately 11.4 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 fixed-price period.
Impact of Environmental 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 and existing
facilities and the drilling and operation of new and existing wells. Such laws
and regulations generally require the Company to obtain and comply with a wide
variety of licenses, permits and other approvals. The Company also remains
subject to a number of complex and stringent laws and regulations that both
public officials and private individuals may seek to enforce. There can be no
assurance that existing regulations will not be revised or that new
regulations will not be adopted or become applicable to the Company which
could have an adverse impact on its operations. The implementation of
regulatory changes imposing more comprehensive or stringent requirements on
the Company, which would result in increased compliance costs, could have a
material adverse effect on the Company's results of operations. In addition,
regulatory compliance for the construction of new facilities is a costly and
time-consuming process, and intricate and rapidly changing environmental
regulations may require major expenditures for permitting and create the risk
of expensive delays or material impairment of project value if projects cannot
function as planned due to changing regulatory requirements or local
opposition.
11
Shares of Common Stock Eligible for Future Sale. Pursuant to the
Company's Amended and Restated 1996 Stock Option Plan (the "1996 Plan"), as of
March 31, 1996, the Company had outstanding various options to its officers,
directors and employees for the purchase of 3,226,519 shares of Common Stock,
of which all of the shares of Common Stock issuable upon exercise of said
options have been registered pursuant to registration statements on Form S-8,
and, as and when fully vested, are available for immediate resale. Also as of
March 31, 1996, there were additional options outstanding to purchase
4,489,163 shares of Common Stock, 4,289,163 of which were granted to Peter
Kiewit Sons' Inc. ("PKS"). As of March 31, 1996, PKS has demand and piggyback
registration rights with respect to approximately 12,322,312 shares of Common
Stock (and any shares of Common Stock subsequently held by PKS), all options
to purchase shares of Common Stock (and the shares issuable upon the exercise
of such options) and 3,529,252 shares of Common Stock issuable upon conversion
of the Company's 9.5% convertible subordinated debentures. In addition,
4,444,444 shares of Common Stock have been reserved for issuance pursuant to
the conversion of the Company's 5% convertible subordinated debentures. Sales
of substantial amounts of Common Stock or the availability of Common Stock for
sale, could have an adverse impact on the market price of the Common Stock and
on the Company's ability to raise additional capital through the sale of
Common Stock.
Trading Characteristics of the TIDES. The TIDES may trade at a price
that does not fully reflect the value of accrued but unpaid distributions. A
holder who disposes of its TIDES between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest
on the Convertible Junior Subordinated Debentures through the date of
disposition in income as ordinary income (i.e., original issue discount), and
to add such amount to its adjusted tax basis in its pro rata share of the
underlying Convertible Junior Subordinated Debentures deemed disposed of. To
the extent the selling price is less than the holder's adjusted tax basis
(which will include, in the form of original issue discount, all accrued but
unpaid interest), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. See "United States Taxation."
Lack of Public Market for the TIDES. There is no existing trading
market for the TIDES, and there can be no assurance regarding the future
development of a market for the TIDES, or the ability of holders of the TIDES
to sell their TIDES or the price at which such holders may be able to sell
their TIDES. If such a market were to develop, the TIDES could trade at prices
that may be higher or lower than the initial offering price depending on many
factors, including prevailing interest rates, the price of the Common Stock,
the Company's operating results and the market for similar securities. The
Initial Purchasers currently make a market in the TIDES. The Initial
Purchasers are not obligated to do so, however, and any market making with
respect to the TIDES may be discontinued at any time without notice.
Therefore, there can be no assurance as to the liquidity of any trading market
for the TIDES or that an active public market for the TIDES will develop. The
Company does not intend to apply for listing or quotation of the TIDES on any
securities exchange or stock market; however, the TIDES are eligible for
trading in the Private Offerings, Resale and Trading through Automated
Linkages (PORTAL) Market of the National Association of Securities Dealers,
Inc.
12
CALENERGY CAPITAL TRUST
CalEnergy Capital Trust (the "Issuer" or the "Trust") is a statutory
business trust formed under Delaware law pursuant to (i) a declaration of
trust (the "Declaration") executed by the Company, as sponsor of the Trust,
and the trustees of the Issuer (the "Issuer Trustees") and (ii) the filing of
a certificate of trust with the Secretary of State of the State of Delaware.
The Company owns, directly or indirectly, Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of the Issuer. The Common
Securities rank pari passu, and payment will be made thereon pro rata, with
the TIDES, except that, upon the occurrence and during the continuance of an
event of default under the Declaration, the rights of the holders of the
Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the TIDES. The assets of the Trust will consist principally of
the Convertible Junior Subordinated Debentures. The Issuer exists for the
exclusive purpose of (i) issuing the Trust Securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the Trust Securities in the Convertible Junior Subordinated
Debentures and (iii) engaging in only those other activities necessary or
incidental thereto.
Pursuant to the Declaration, there are initially five Issuer
Trustees. Three of the Issuer Trustees (the "Company Trustees") are
individuals who are employees or officers of or who are affiliated with the
Company.
The fourth trustee is a financial institution that is unaffiliated
with the Company (the "Trustee"). The fifth trustee is an entity which
maintains its principal place of business in the State of Delaware (the
"Delaware Trustee"). Initially, The Bank of New York, a New York banking
corporation, acts as Trustee and its affiliate, The Bank of New York
(Delaware), a Delaware banking corporation, acts as Delaware Trustee until, in
each case, removed or replaced by the holder of the Common Securities. The
Bank of New York also acts as indenture trustee under the Guarantee (the
"Guarantee Trustee") and under the Indenture (the "Indenture Trustee"). See
"Description of the Guarantee" and "Description of the TIDES."
The Trustee holds title to the Convertible Junior Subordinated
Debentures for the benefit of the holders of the Trust Securities and the
Trustee has the power to exercise all rights, powers and privileges under the
Indenture as the holder of the Convertible Junior Subordinated Debentures. In
addition, the Trustee maintains exclusive control of a segregated non-interest
bearing bank account (the "Property Account") to hold all payments made in
respect of the Convertible Junior Subordinated Debentures for the benefit of
the holders of the Trust Securities. The Company, as the direct or indirect
holder of all the Common Securities, has the right to appoint, remove or
replace any of the Issuer Trustees and to increase or decrease the number of
trustees, provided that the number of trustees shall be at least three, a
majority of which shall be Company Trustees. The Company will pay all fees and
expenses related to the Trust and the offering of the TIDES. See "Description
of the Convertible Junior Subordinated Debentures."
The rights of the holders of the TIDES, including economic rights,
rights to information and voting rights, if any, are as set forth in the
Declaration and the Delaware Business Trust Act, as amended (the "Trust Act").
See "Description of the TIDES." The Declaration, the Indenture and the
Guarantee also incorporate by reference the terms of the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). The Declaration, the
Indenture and the Guarantee will be qualified under the Trust Indenture Act.
The place of business and the telephone number of the Trust are the principal
executive offices and telephone number of the Company. See "The Company."
13
THE COMPANY
CalEnergy Company, Inc., formerly known as California Energy Company,
Inc. (the "Company"), was founded in 1971 and is primarily engaged in the
development and operation of environmentally responsible independent power
production facilities worldwide utilizing geothermal resources or other energy
sources, such as hydroelectric, natural gas, oil and coal. The Company is the
largest independent geothermal power producer in the world (on the basis of
the Company's estimate of the aggregate MW of electric generating capacity in
operation and under construction).
The Company has an aggregate net ownership interest of 432 MW of
electric generating capacity in power production facilities in the United
States having an aggregate net capacity of 575 MW. All of these facilities are
managed and operated by the Company and are principally located in Southern
California. In addition to the electricity sales revenue earned from its net
ownership position in such facilities, the Company receives significant fee
and royalty income from operating such plants and certain power plants which
are owned by unaffiliated third parties and from managing the production from
the geothermal resources for such facilities.
Additionally, the Company has an aggregate net ownership interest of
449 MW of electric generating capacity in four geothermal power projects in
the Philippines and the United States having an aggregate net capacity of 540
MW, and has a net ownership interest of 52 MW of electric generating capacity
in a hydroelectric power project in the Philippines having an aggregate net
capacity of 150 MW, which projects are financed and under construction. The
Company has commenced construction of a 55 net MW geothermal project in
Indonesia in which the Company has an aggregate net ownership interest of 26
MW of electric generating capacity.
The Company is also developing seven additional projects with
executed or awarded power sales contracts in the Philippines, Indonesia and
the United States. The Company is expected to have an approximate net
ownership interest of 760 MW in these development projects (which represent an
aggregate net capacity of 1,423 MW of additional potential electric generating
capacity). Additionally, the Company is developing the Salton Sea Minerals
Extraction Project, in which it plans to recover minerals (potentially
including zinc, manganese, lithium carbide, boric acid and hydrogen sulfide)
in commercial quantities from the geothermal fluids at the Company's Imperial
Valley Projects (as defined herein). Substantial contingencies exist with
respect to development projects, including, without limitation, the need to
obtain financing, permits and licenses and the satisfactory completion of
construction and implementation of commercial operation.
The Company's Common Stock is traded on the New York, Pacific and
London Stock Exchanges. As of July 16, 1996, PKS was an approximate 34%
stockholder of the Company (on a fully diluted basis). PKS is a large
employee-owned construction, mining and telecommunications company with
approximately $3 billion in revenues in 1995. PKS is one of the largest
construction companies in North America and has been in the construction
business since 1884.
Strategy
Domestically, the Company is focusing on market opportunities in
which it believes it has relative competitive advantages due to its
geotechnical, project management, and operating expertise. In addition, the
Company expects to continue diversification into other environmentally
responsible sources of energy primarily through selected acquisitions,
including acquisitions of partially developed or existing power generating
projects and contracts. The Company is also evaluating the potential impacts
and opportunities of direct access and retail wheeling.
The Company presently believes that the international independent
power market holds the majority of new opportunities for financially
attractive private power development in the next several years, in large part
because the demand for new generating capacity is growing more rapidly in
emerging nations than in the United States. In developing its international
strategy, the Company pursues development opportunities in countries which it
believes have an acceptable risk profile and where the Company's geothermal
resource development
14
and operating experience, project development expertise or strategic
relationship with PKS or local partners are expected to provide it with a
competitive advantage. The Company has financed and has under construction
four projects representing an aggregate of 461 MW of net ownership of electric
generating capacity in the Philippines and has commenced construction of a 55
MW geothermal project in Indonesia in which the Company has a net ownership
interest of 26 MW of electric generating capacity. In addition, the Company is
currently pursuing a number of other electric power project opportunities in
the Philippines, Indonesia and other countries. The Company believes that
these countries are ideally suited for the Company to develop, finance and
operate power projects successfully because of their population demographics,
extensive geothermal resources and stated commitments to the development of
private power programs. The Company's development efforts include both
so-called "greenfield" development as well as the acquisition of or
participation in the joint venture development of projects which are under
development or already operating. In greenfield development, the Company
attempts to negotiate power sales contracts for new generation capacity or
engages in competitive bids in response to government agency or utility
requests for proposals for new capacity.
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.
RECENT DEVELOPMENTS
On July 8, 1996, the Company and Falcon Seaboard Resources, Inc.
("Falcon Seaboard") jointly announced that CE/FS Holding Company, Inc. ("CE
Holding Company"), a wholly owned subsidiary of the Company, had entered into
a definitive agreement (the "Falcon Agreement") with the stockholders of
Falcon Seaboard for the purchase by CE Holding Company of all of the issued
and outstanding shares of capital stock of Falcon Seaboard (less certain
assets to be distributed to the stockholders of Falcon Seaboard prior to
closing) for a cash purchase price of approximately $226,000,000. Falcon
Seaboard has a significant ownership interest in three operating gas-fired
cogeneration plants and related natural-gas pipelines. The plants are located
in Texas, Pennsylvania and New York and total 520 MWs in capacity. The
acquisition is expected to be consummated in early August 1996, subject to
customary closing conditions. The waiting period pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has been
terminated by the Federal Trade Commission. Reference is made to the Company's
Current Report on Form 8-K dated July 8, 1996 which contains the terms and
conditions to the Falcon Agreement and which is incorporated herein by
reference.
RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
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, 1995, and for the three-month periods ended March 31, 1995
and March 31, 1996.
Three Months Ended
Year Ended December 31, March 31,
------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
Ratio of Earning
Fixed Charges...................... 2.0 3.2 2.8 1.7 1.5 1.5 1.3
- -----------------------------------------
For purposes of computing historical ratios of earnings to fixed
charges, earnings are divided by fixed charges. "Earnings" represent the
aggregate of (a) the pre-tax income of the Company, including its
proportionate share of the pre-tax income of the Coso Project (as defined
herein) and beginning for the year ended December 31, 1995, the Partnership
Projects (as defined herein) 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).
15
CAPITALIZATION
(In thousands)
The following table sets forth (i) the consolidated capitalization of
the Company at March 31, 1996, and (ii) the consolidated capitalization of the
Company as adjusted to reflect the sale of the TIDES and the issuance by
Salton Sea Funding Corporation of $135 million of notes and bonds. The table
should be read in conjunction with the Company's consolidated financial
statements and notes thereto and other financial data incorporated herein by
reference.
At March 31, 1996
-----------------
Actual As Adjusted
------ -----------
Indebtedness:
Construction loans................................................................ $ 251,386 $ 251,386
Project finance loans............................................................. 235,464 187,182
Senior discount notes............................................................. 489,517 489,517
Salton Sea notes and bonds........................................................ 452,088 587,088
Limited recourse senior secured notes............................................. 200,000 200,000
5% Convertible debt............................................................... 100,000 100,000
Convertible debt.................................................................. 64,850 64,850
---------- ----------
Total consolidated indebtedness................................................. 1,793,305 1,880,023
Deferred income...................................................................... 25,584 25,584
Convertible preferred securities of subsidiary (1)................................... -- 103,930
Stockholders' equity:
Preferred stock, no par value, 2,000 shares authorized............................
Common stock, $.0675 par value, 80,000 shares authorized, 52,180 3,523 3,523
shares issued, 51,944 outstanding.................................................
Additional paid-in capital........................................................ 356,251 356,251
Retained earnings................................................................. 219,520 219,520
Treasury stock, 186 common shares at cost......................................... (3,416) (3,416)
Unearned compensation--restricted stock............................................ (6,650) (6,650)
---------- -----------
Total stockholders' equity........................................................ 569,228 569,228
---------- -----------
Total capitalization............................................................ $2,388,117 $2,578,765
========== ==========
- --------------------
(1) As described herein, the sole asset of the Issuer will be the 6 1/4%
Convertible Junior Subordinated Debentures due 2016 of the Company with
an outstanding principal amount of approximately $107,023 and upon
redemption of such debt, such convertible preferred securities (TIDES)
will be mandatorily redeemable.
16
ACCOUNTING TREATMENT
The financial statements of the Issuer will be included in the
Company's consolidated financial statements and the TIDES will be shown as
convertible preferred securities of a subsidiary.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of
the Offered Securities. Neither the Company nor the Issuer will receive any
proceeds from the sale of the Offered Securities.
DESCRIPTION OF THE TIDES
The following summary of certain material terms and provisions of the
TIDES is subject to, and qualified in its entirety by reference to, the
Declaration. The TIDES were issued pursuant to the terms of the Declaration.
The Declaration incorporates by reference terms of the Trust Indenture Act.
The Declaration will be qualified under the Trust Indenture Act. The Bank of
New York, as Trustee, acts as indenture trustee for the Declaration for
purposes of compliance with the Trust Indenture Act. Capitalized terms not
otherwise defined herein have the meanings assigned to them in the
Declaration.
General
The TIDES were issued in fully registered form without interest
coupons. Bearer TIDES were not issued.
The TIDES represent undivided beneficial ownership interests in the
assets of the Issuer and entitle the holders thereof to a preference in
certain circumstances with respect to distributions and amounts payable on
redemption or liquidation over the Common Securities, as well as other
benefits as described in the Declaration.
All of the Common Securities are owned, directly or indirectly, by
the Company. The Common Securities rank pari passu, and payments will be made
thereon pro rata, with the TIDES except as described under "--Subordination of
Common Securities." The Convertible Junior Subordinated Debentures are owned
by the Trustee and held for the benefit of the holders of the Trust
Securities. The Declaration does not permit the issuance by the Issuer of any
securities other than the Trust Securities or the incurrence of any
indebtedness by the Issuer.
Distributions
The distributions payable on each of the TIDES are fixed at a rate
per annum of 6 1/4% of the stated liquidation preference of $50 per each of
the TIDES. Deferred distributions (and interest thereon) accrue interest
(compounded quarterly) at the same rate. The term "distributions" as used
herein includes any such distributions payable unless otherwise stated. The
amount of distributions payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months.
Distributions on the TIDES are cumulative, accrue from the date of
initial issuance and are payable quarterly in arrears on each March 15, June
15, September 15 and December 15, commencing June 15, 1996, when, as and if
available. The Company has the right under the Indenture to defer interest
payments from time to time on the Convertible Junior Subordinated Debentures
for successive periods not exceeding 20 consecutive quarters for each such
period, and, as a consequence, quarterly distributions on the TIDES would be
deferred by the Issuer (but would continue to accrue with interest) during any
such Deferral Period. In the event that the Company exercises this right,
during such period the Company (i) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than
stock dividends paid by the Company which consist of stock of the same class
as that on which the dividend is being paid), (ii) shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem
any debt securities issued by the Company after the date of original issuance
of the Convertible Junior Subordinated Debentures that rank pari passu with or
junior to the
17
Convertible Junior Subordinated Debentures, and (iii) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the termination of any Deferral Period, the Company may
further extend such Deferral Period; provided that such Deferral Period
together with all previous and further deferrals thereof may not exceed 20
consecutive quarters. Upon the termination of any Deferral Period, the Company
is required to pay all amounts then due and, upon such payment, the Company
may select a new Deferral Period, subject to the above requirements. In no
event shall any Deferral Period extend beyond the maturity of the Convertible
Junior Subordinated Debentures. See "Description of the Convertible Junior
Subordinated Debentures--Interest" and "--Option to Extend Interest Payment
Period."
Distributions on the TIDES must be paid quarterly on the dates
payable to the extent of funds of the Trust available for the payment of such
distributions. Amounts available to the Trust for distribution to the holders
of the TIDES are limited to payments under the Convertible Junior Subordinated
Debentures in which the Issuer will invest the proceeds from the issuance and
sale of the Trust Securities. See "Description of the Convertible Junior
Subordinated Debentures." The payment of distributions, to the extent of funds
of the Trust available therefor, is guaranteed by the Company, as set forth
under "Description of the Guarantee."
Distributions on the TIDES are payable to the holders thereof as they
appear on the books and records of the Issuer on the relevant record dates,
which will be fifteen days prior to the relevant payment dates. Subject to any
applicable laws and regulations and the provisions of the Declaration, each
such payment will be made as described under "--Book-Entry-Only Issuance--The
Depository Trust Company" below. In the event that any date on which
distributions are payable on the TIDES is not a Business Day, payment of the
distribution payable on such date will be made on the next succeeding day
which is a Business Day (without any distribution or other payment in respect
of any such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date. A "Business Day" shall mean any day other than a day on which banking
institutions in The City of New York are authorized or required by law to
close.
Conversion Rights
General. TIDES are convertible at any time prior to maturity (except
in the case of TIDES called for redemption which are convertible at any time
prior to the close of business on the Business Day prior to the redemption
date), at the option of the holder thereof and in the manner described below,
into shares of the Common Stock at an initial conversion rate of 1.6728 shares
of Common Stock for each of the TIDES (equivalent to a conversion price of
$29.89 per share of Common Stock), subject to adjustment as described under
"Conversion Price Adjustments" below. The Issuer has covenanted in the
Declaration not to convert Convertible Junior Subordinated Debentures held by
it except pursuant to a notice of conversion delivered by a holder of TIDES to
an office or agency designated by the Trust for such purpose (the "Conversion
Agent"). A holder of TIDES wishing to exercise its conversion right shall
deliver an irrevocable conversion notice, together, if such TIDES is a
Certificated Security (as defined herein), with such Certificated Security, to
the Conversion Agent which shall, on behalf of such holder, exchange such of
the TIDES for a portion of the Convertible Junior Subordinated Debentures and
immediately convert such Convertible Junior Subordinated Debentures into
Common Stock. Holders may obtain copies of the required form of the conversion
notice from the Conversion Agent.
Holders of TIDES at the close of business on a distribution record
date will be entitled to receive the distribution payable on such TIDES on the
corresponding distribution payment date notwithstanding the conversion of such
TIDES following such distribution record date but prior to such distribution
payment date. Except as provided in the immediately preceding sentence,
neither the Issuer nor the Company will make, or be required to make, any
payment, allowance or adjustment for accumulated and unpaid distributions,
whether or not in arrears, on converted TIDES. The Company will make no
payment or allowance for distributions on the shares of Common Stock issued
upon such conversion, except to the extent that such shares of Common Stock
are held of record on the record date for any such distributions, except in
certain limited circumstances. Each conversion will be deemed to have been
effected immediately prior to the close of business on the day on which the
related conversion notice was received by the Issuer.
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No fractional shares of the Common Stock will be issued as a result
of conversion, but in lieu thereof such fractional interest will be paid by
the Company in cash.
Conversion Price Adjustments--General. The conversion price will be
subject to adjustment in certain events including, without duplication: (a)
the issuance of shares of Common Stock as a dividend or a distribution with
respect to Common Stock, (b) subdivisions, combinations and reclassification
of Common Stock, (c) the issuance to all holders of Common Stock of rights or
warrants entitling them (for a period not exceeding 45 days) to subscribe for
shares of Common Stock at less than the current market price, and (d) the
distribution to holders of Common Stock of evidences of indebtedness of the
Company, securities or capital stock, cash or assets (including securities,
but excluding those rights, warrants, dividends and distributions referred to
above and dividends paid exclusively in cash).
The Company from time to time may reduce the conversion price of the
Convertible Junior Subordinated Debentures (and thus the conversion price of
the TIDES) by any amount selected by the Company for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
reduction. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Company's Board
of Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income tax purposes.
See "United States Taxation--Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance
of any shares of Common Stock pursuant to any present or future plan providing
for the reinvestment of dividends or interest payable on securities of the
Company and the investment of additional optional amounts in shares of Common
Stock under any such plan. No adjustment in the conversion price will be
required unless such adjustment would require a change of at least one percent
(1%) in the price then in effect; provided, however, that any adjustment that
would not be required to be made shall be carried forward and taken into
account in any subsequent adjustment. If any action would require adjustment
of the conversion price pursuant to more than one of the provisions described
above, only one adjustment shall be made and such adjustment shall be the
amount of adjustment that has the highest absolute value to the holder of the
TIDES.
Conversion price adjustments or omissions in making such
adjustments may, under certain circumstances, be deemed to be distributions
that could be taxable as dividends to holders of the TIDES or to the holders
of Company Common Stock. See "United States Taxation."
Conversion Adjustments--Merger, Consolidation or Sale of Assets of
the Company. In the event that the Company shall be a party to any transaction
(including, without limitation, and with certain exceptions, (a)
recapitalization or reclassification of the Common Stock, (b) consolidation of
the Company with, or merger of the Company into, any other Person, or any
merger of another Person into the Company, (c) any sale, transfer or lease of
all or substantially all of the assets of the Company or (d) any compulsory
share exchange) pursuant to which the Common Stock is converted into the right
to receive other securities, cash or other property (each of the foregoing
being referred to as a "Transaction"), then the holders of the TIDES then
outstanding shall have the right to convert the TIDES into the kind and amount
of securities, cash or other property receivable upon the consummation of such
Transaction by a holder of the number of shares of Common Stock issuable upon
conversion of such TIDES immediately prior to such Transaction.
In the case of a Transaction, each of the TIDES would become
convertible into the securities, cash or property receivable by a holder of
the number of shares of the Common Stock into which such TIDES was convertible
immediately prior to such Transaction. This change could substantially lessen
or eliminate the value of the conversion privilege associated with the TIDES
in the future. For example, if the Company were acquired in a cash merger,
each of the TIDES would become convertible solely into cash and would no
longer be convertible into securities whose value would vary depending on the
future prospects of the Company and other factors.
19
Payment of Excess Cash Dividends
If the Company shall declare and pay cash dividends on its Common
Stock in an annualized per share amount which exceeds the greater of (A) the
per share amount of the immediately preceding cash dividend on its Common
Stock (as adjusted to reflect any of the events described above under
"--Conversion Rights--Conversion Price Adjustments--General") and (B) 15% of
the current market price of the Common Stock as of the trading day immediately
preceding the date of declaration of such dividend (the per share amount of
any such excess, to the extent of such excess, being herein called an "Excess
Amount"), then in any such event the holders of the TIDES then outstanding
shall have the right to receive, and the Company will pay to each such holder,
at the time of the payment of such Common Stock dividend, an amount equal to
such Excess Amount (on the basis of the number of shares of Common Stock that
would have been issued to such holder upon conversion of the TIDES held by
such holder on the record date for the payment of such dividend).
Optional Redemption
The Company is permitted to redeem the Convertible Junior
Subordinated Debentures as described herein under "Description of the
Convertible Junior Subordinated Debentures--Optional Redemption," in whole or
in part, from time to time, after April 9, 1999, upon not less than 20 nor
more than 60 days' notice. See "Description of the Convertible Junior
Subordinated Debentures--Optional Redemption." Upon any redemption in whole or
in part of the Convertible Junior Subordinated Debentures at the option of the
Company, the Issuer will, to the extent of the proceeds of such redemption,
redeem TIDES and Common Securities at the Redemption Price. In the event that
fewer than all the outstanding TIDES are to be so redeemed, the TIDES to be
redeemed will be selected as described under "--Book-Entry-Only Issuance--The
Depository Trust Company" below.
In the event of any redemption in part, the Trust shall not be
required to (i) issue, register the transfer of or exchange any of the TIDES
during a period beginning at the opening of business 15 days before any
selection for redemption of TIDES and ending at the close of business on the
earliest date in which the relevant notice of redemption is deemed to have
been given to all holders of TIDES to be so redeemed and (ii) register the
transfer of or exchange any TIDES so selected for redemption, in whole or in
part, except for the unredeemed portion of any TIDES being redeemed in part.
Tax Event or Investment Company Event Redemption or Distribution
If a Tax Event (as defined herein) shall occur and be continuing, the
Company shall cause the Company Trustees to liquidate the Issuer and cause
Convertible Junior Subordinated Debentures to be distributed to the holders of
the TIDES in liquidation of the Issuer within 90 days following the occurrence
of such Tax Event; provided, however, that such liquidation and distribution
shall be conditioned on (i) the Company Trustees' receipt of an opinion of
nationally recognized independent tax counsel (reasonably acceptable to the
Company Trustees) experienced in such matters (a "No Recognition Opinion"),
which opinion may rely on published revenue rulings of the Internal Revenue
Service, to the effect that the holders of the TIDES will not recognize any
income, gain or loss for United States Federal income tax purposes as a result
of such liquidation and distribution of Convertible Junior Subordinated
Debentures, and (ii) the Company being unable to avoid such Tax Event within
such 90-day period by taking some ministerial action or pursuing some other
reasonable measure that, in the sole judgment of the Company, will have no
adverse effect on the Issuer, the Company or the holders of the TIDES and will
involve no material cost. Furthermore, if (i) the Company has received an
opinion (a "Redemption Tax Opinion") of nationally recognized independent tax
counsel (reasonably acceptable to the Company Trustees) experienced in such
matters that, as a result of a Tax Event, there is more than an insubstantial
risk that the Company would be precluded from deducting the interest on the
Convertible Junior Subordinated Debentures for United States Federal income
tax purposes, even after the Convertible Junior Subordinated Debentures were
distributed to the holders of the TIDES upon liquidation of the Issuer as
described above, or (ii) the Company Trustees shall have been informed by such
tax counsel that it cannot deliver a No Recognition Opinion, the Company shall
have the right, upon not less than 30 nor more than 60 days' notice and within
90 days following the occurrence of the Tax Event, to redeem the Convertible
Junior Subordinated Debentures, in whole (but not in part) for cash, at 100%
of principal amount thereof plus accrued
20
and unpaid interest and, following such redemption, all the TIDES will be
redeemed by the Issuer at the liquidation preference of $50 per each of the
TIDES plus accrued and unpaid distributions; provided, however, that, if at
the time there is available to the Company or the Issuer the opportunity to
eliminate, within such 90-day period, the Tax Event by taking some ministerial
action or pursuing some other reasonable measure that, in the sole judgment of
the Company, will have no adverse effect on the Issuer, the Company or the
holders of the TIDES and will involve no material cost, the Issuer or the
Company will pursue such measure in lieu of redemption. See "--Mandatory
Redemption." In lieu of the foregoing options, the Company will also have the
option of causing the TIDES to remain outstanding and pay Additional Interest
(as defined herein) on the Convertible Junior Subordinated Debentures. See
"Description of the Convertible Junior Subordinated Debentures--Additional
Interest."
"Tax Event" means that the Company shall have obtained an opinion of
nationally recognized independent tax counsel (reasonably acceptable to the
Company Trustees) experienced in such matters to the effect that, as a result
of (a) any amendment to or change (including any announced prospective change)
in the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein or (b) any
amendment to or change in an interpretation or application of such laws or
regulations by any legislative body, court, governmental agency or regulatory
authority (including the enactment of any legislation and the publication of
any judicial decision or regulatory determination on or after the date of this
Offering Circular), which amendment or change is effective or which
interpretation or pronouncement is announced on or after the date of this
Offering Circular (collectively, a "Change In Tax Law"), there is more than an
insubstantial risk that (i) the Issuer is or will be subject to United States
Federal income tax with respect to interest received on the Convertible Junior
Subordinated Debentures, (ii) interest payable to the Issuer on the
Convertible Junior Subordinated Debentures is not or will not be deductible
for United States Federal income tax purposes or (iii) the Issuer is or will
be subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges of whatever nature imposed by the
United States, or any other taxing authority. Notwithstanding anything in the
previous sentence to the contrary, a Tax Event shall not include any Change in
Tax Law that requires the Company for United States federal income tax
purposes to defer taking a deduction for any original issue discount ("OID")
that accrues with respect to the Convertible Junior Subordinated Debentures
until the interest payment related to such OID is paid by the Company in money
provided that such Change in Tax Law does not create more than an
insubstantial risk that the Company will be prevented from taking a deduction
for OID accruing with respect to the Convertible Junior Subordinated
Debentures at a date that is no later than the date the interest payment
related to such OID is actually paid by the Company in money.
If an Investment Company Event (as hereinafter defined) shall occur
and be continuing, the Company shall cause the Company Trustees to liquidate
the Issuer and cause the Convertible Junior Subordinated Debentures to be
distributed to the holders of the TIDES in liquidation of the Issuer within 90
days following the occurrence of such Investment Company Event.
The distribution by the Company of the Convertible Junior
Subordinated Debentures will effectively result in the cancellation of the
TIDES.
"Investment Company Event" means the occurrence of a change in law or
regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law") to the effect that the Issuer is or
will be considered an "investment company" which is required to be registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), which
Change in 1940 Act Law becomes effective on or after the date of this Offering
Circular.
A "Special Event" means either an Investment Company Event or a Tax
Event.
After the date fixed for any distribution of Convertible Junior
Subordinated Debentures (i) the TIDES will no longer be deemed to be
outstanding, (ii) The Depository Trust Company (the "Depository" or "DTC") or
its nominee, as the record holder of the Global Certificates (as defined
herein), will receive a registered global certificate or certificates
representing the Convertible Junior Subordinated Debentures to be delivered
upon such
21
distribution and (iii) any certificates representing TIDES not held by DTC or
its nominee will be deemed to represent Convertible Junior Subordinated
Debentures having a principal amount equal to the aggregate of the stated
liquidation preference of such TIDES, with accrued and unpaid interest equal
to the amount of accrued and unpaid distributions on such TIDES, until such
certificates are presented to the Company or its agent for transfer or
reissuance.
Mandatory Redemption
The Convertible Junior Subordinated Debentures will mature on March
10, 2016, and may be redeemed, in whole or in part, at any time after April 9,
1999 or at any time in certain circumstances upon the occurrence of a Tax
Event. Upon the repayment or payment of the Convertible Junior Subordinated
Debentures, whether at maturity or upon redemption or otherwise, the proceeds
from such repayment or redemption shall simultaneously be applied to redeem
Trust Securities having an aggregate liquidation amount equal to the
Convertible Junior Subordinated Debentures so repaid or redeemed at the
applicable redemption price together with accrued and unpaid distributions
through the date of redemptions provided that holders of the Trust Securities
shall be given not less than 30 nor more than 60 days' notice of such
redemption. See "--Tax Event or Investment Company Event Redemption or
Distribution" and "Description of the Convertible Junior Subordinated
Debentures--General" and "--Optional Redemption." Upon the repayment of the
Convertible Junior Subordinated Debentures at maturity or upon any
acceleration, earlier redemption or otherwise, the proceeds from such
repayment will be applied to redeem the TIDES and Common Securities, in whole,
upon not less than 30 nor more than 60 days' notice.
Redemption Procedures
The TIDES will not be redeemed unless all accrued and unpaid
distributions have been paid on all TIDES for all quarterly distribution
periods terminating on or prior to the date of redemption.
If the Issuer gives a notice of redemption in respect of TIDES (which
notice will be irrevocable), then, by 12:00 noon, New York time, on the
redemption date, the Issuer will irrevocably deposit with DTC funds sufficient
to pay the amount payable on redemption and will give DTC irrevocable
instructions and authority to pay such amount in respect of TIDES represented
by the Global Certificates and will irrevocably deposit with the paying agent
for the TIDES funds sufficient to pay such amount in respect of any securities
issued in fully registered, certificated form ("Certificated Securities") and
will give such paying agent irrevocable instructions and authority to pay such
amount to the holders of Certificated Securities upon surrender of their
certificates. Notwithstanding the foregoing, distributions payable on or prior
to the redemption date for any TIDES called for redemption shall be payable to
the holders of such TIDES on the relevant record dates for the related
distribution dates. If notice of redemption shall have been given and funds
are deposited as required, then upon the date of such deposit, all rights of
holders of such TIDES so called for redemption will cease, except the right of
the holders of such TIDES to receive the redemption price, but without
interest on such redemption price. In the event that any date fixed for
redemption of TIDES is not a Business Day, then payment of the amount payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will
be made on the immediately preceding Business Day. In the event that payment
of the redemption price in respect of TIDES is improperly withheld or refused,
and not paid either by the Issuer or by the Company pursuant to the Guarantee
described under "Description of the Guarantee," distributions on such TIDES
will continue to accrue at the then applicable rate, from the original
redemption date to the date of payment, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating
the amount payable upon redemption (other than for purposes of calculating any
premium).
Subject to the foregoing and applicable law (including, without
limitation, United States Federal securities laws), the Company or its
subsidiaries may at any time and from time to time purchase outstanding TIDES
by tender, in the open market or by private agreement.
22
Subordination of Common Securities
Payment of distributions on, and the amount payable upon redemption
of, the Trust Securities, as applicable, shall be made pro rata based on the
liquidation preference of the Trust Securities; provided, however, that, if on
any distribution date or redemption date a Declaration Event of Default (as
defined below under "--Declaration Events of Default") under the Declaration
shall have occurred and be continuing, no payment of any distribution on, or
amount payable upon redemption of, any Common Security, and no other payment
on account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of accumulated and
unpaid distributions on all outstanding TIDES for all distribution periods
terminating on or prior thereto, or in the case of payment of the amount
payable upon redemption of the TIDES, the full amount of such amount in
respect of all outstanding TIDES, shall have been made or provided for, and
all funds available to the Trustee shall first be applied to the payment in
full in cash of all distributions on, or the amount payable upon redemption
of, TIDES then due and payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until all such Declaration Events of Default with respect to the TIDES have
been cured, waived or otherwise eliminated. Until any such Declaration Events
of Default with respect to the TIDES have been so cured, waived or otherwise
eliminated, the Trustee shall act solely on behalf of the holders of the TIDES
and not the holder of the Common Securities, and only the holders of the TIDES
will have the right to direct the Trustee to act on their behalf.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary liquidation,
dissolution, winding up or termination of the Issuer, the holders of the TIDES
at the time will be entitled to receive out of the assets of the Issuer
available for distribution to holders of Trust Securities after satisfaction
of liabilities of creditors of the Trust, before any distribution of assets is
made to the holders of the Common Securities, an amount equal to the aggregate
of the stated liquidation preference of $50 per each of the TIDES and accrued
and unpaid distributions thereon to the date of payment (the "Liquidation
Distribution"), unless, in connection with such liquidation, dissolution,
winding up or termination, Convertible Junior Subordinated Debentures in an
aggregate principal amount equal to the Liquidation Distribution have been
distributed on a pro rata basis to the holders of the Trust Securities.
Pursuant to the Declaration, the Issuer shall be dissolved and its
affairs shall be wound up upon the earliest to occur of the following: (i)
April 2, 2021, the expiration of the term of the Issuer, (ii) the bankruptcy
of the Company, (iii) the filing of a certificate of dissolution or its
equivalent with respect to the Company or the filing of a certificate of
cancellation with respect to the Issuer, following the approval thereof by the
holders of at least a majority in liquidation amount of the outstanding TIDES
as described under "--Modification of the Declaration," or the revocation of
the Company's charter and the expiration of 90 days after the date of notice
to the Company of such revocation without a reinstatement of its charter, (iv)
the distribution of all the assets of the Issuer, (v) the entry of a decree of
a judicial dissolution of the Company or (vi) the redemption of all the Trust
Securities.
Merger, Consolidation or Amalgamation of the Issuer
The Issuer may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity or person,
except as described below. The Issuer may, without the consent of the holders
of the TIDES, consolidate, amalgamate, merge with or into, or be replaced by,
a trust organized as such under the laws of any state of the United States of
America; provided that (i) if the Issuer is not the survivor, such successor
entity either (x) expressly assumes all of the obligations of the Issuer under
the TIDES or (y) substitutes for the TIDES other securities having
substantially the same terms as the TIDES (the "Successor Securities") as long
as the Successor Securities rank the same as the TIDES with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii)
the Company expressly acknowledges a trustee of the successor entity that
possesses the same powers and duties as the Trustee as the holder of the
Convertible Junior Subordinated Debentures, (iii) the TIDES or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any
23
national securities exchange or other organization on which the TIDES are then
listed, (iv) such merger, consolidation, amalgamation or replacement does not
cause the TIDES (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the
rights, preferences and privileges of the holders of the TIDES (including any
Successor Securities) in any material respect, (vi) such successor entity has
a purpose substantially identical to that of the Issuer, (vii) the Company has
provided a guarantee to the holders of the Successor Securities with respect
to such Successor entity having substantially the same terms as the Guarantee,
and (viii) prior to such merger, consolidation, amalgamation or replacement,
the Company has received an opinion of nationally recognized independent
counsel (reasonably acceptable to the Trustee) to the Issuer experienced in
such matters to the effect that (x) such successor entity will be treated as a
grantor trust for United States Federal income tax purposes, (y) following
such merger, consolidation, amalgamation or replacement, neither the Company
nor such successor entity will be required to register as an investment
company under the 1940 Act and (z) such merger, consolidation, amalgamation or
replacement will not adversely affect the rights, preferences and privileges
of the holders of the TIDES in any material respect. Notwithstanding the
foregoing, the Issuer shall not, except with the consent of holders of 100% in
liquidation amount of the Common Securities, consolidate, amalgamate, merge
with or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if such
consolidation, amalgamation, merger or replacement would cause the Issuer or
the Successor Entity to be classified as other than a grantor trust for United
States Federal income tax purposes.
Declaration Events of Default
An event of default under the Indenture (an "Event of Default") or a
default by the Company under the Guarantee constitutes an event of default
under the Declaration with respect to the Trust Securities (a "Declaration
Event of Default"); provided that, pursuant to the Declaration, the holder of
the Common Securities will be deemed to have waived any Declaration Event of
Default with respect to the Common Securities until all Declaration Events of
Default with respect to the TIDES have been cured, waived or otherwise
eliminated. Until such Declaration Events of Default with respect to the TIDES
have been so cured, waived or otherwise eliminated, the Trustee will be deemed
to be acting solely on behalf of the holders of the TIDES and only the holders
of the TIDES will have the right to direct the Trustee with respect to certain
matters under the Declaration and, therefore, the Indenture.
If a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Convertible Junior Subordinated Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, the
redemption date), then a holder of TIDES may directly institute a proceeding
(a "Direct Action") for enforcement of payment to such holder of the principal
of or interest on the Convertible Junior Subordinated Debentures having a
principal amount equal to the aggregate liquidation amount of the TIDES of
such holder on or after the respective due date specified in the Convertible
Junior Subordinated Debentures. In connection with such Direct Action, the
Company will be subrogated to the rights of such holder of TIDES under the
Declaration to the extent of any payment made by the Company to such holder of
Convertible Preferred Securities in such Direct Action. The holders of TIDES
will not be able to exercise directly any other remedy available to the
holders of the Convertible Junior Subordinated Debentures.
Upon the occurrence of a Declaration Event of Default, the Trustee as
the sole holder of the Convertible Junior Subordinated Debentures will have
the right under the Indenture to declare the principal of and interest on the
Convertible Junior Subordinated Debentures to be immediately due and payable.
The Company and the Trust are each required to file annually with the Property
Trustee an officer's certificate as to its compliance with all conditions and
covenants under the Declaration.
Voting Rights
Except as described herein, under the Trust Act, the Trust Indenture
Act and under "Description of the Guarantee Amendments and Assignments," and
as otherwise required by law and the Declaration, the holders of the TIDES
will have no voting rights.
24
Subject to the requirement of the Trustee obtaining a tax opinion in
certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the TIDES have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or direct the exercise of any trust or
power conferred upon the Trustee under the Declaration including the right to
direct the Trustee, as holder of the Convertible Junior Subordinated
Debentures, to (i) exercise the remedies available under the Indenture with
respect to the Convertible Junior Subordinated Debentures, (ii) waive any past
Event of Default that is waiveable under the Indenture, (iii) exercise any
right to rescind or annul a declaration that the principal of all the
Convertible Junior Subordinated Debentures shall be due and payable or (iv)
consent to any amendment, modification, or termination of the Indenture or the
Convertible Junior Subordinated Debentures where such consent shall be
required; provided, however, that, where a consent or action under the
Indenture would require the consent or act of the holders of more than a
majority of the aggregate principal amount of Convertible Junior Subordinated
Debentures affected thereby, only the holders of the percentage of the
aggregate stated liquidation preference of the TIDES which is at least equal
to the percentage required under the Indenture may direct the Trustee to give
such consent or take such action. If the Trustee fails to enforce its rights
under the Convertible Junior Subordinated Debentures to receive interest or
principal on the Convertible Junior Subordinated Debentures on the date such
interest or principal is otherwise payable (or in the case of redemption, the
redemption date), a holder of record of TIDES may institute a legal proceeding
directly against the Company to enforce the Trustee's rights under the
Convertible Junior Subordinated Debentures without first instituting any legal
proceeding against the Trustee or any other person or entity. The Trustee
shall notify all holders of the TIDES of any notice of default received from
the Indenture Trustee with respect to the Convertible Junior Subordinated
Debentures. Such notice shall state that such Event of Default also
constitutes a Declaration Event of Default. Except with respect to directing
the time, method and place of conducting a proceeding for a remedy, the
Trustee shall not take any of the actions described in clause (i), (ii) or
(iii) above unless the Trustee has obtained an opinion of tax counsel to the
effect that, as a result of such action, the Issuer will not fail to be
classified as a grantor trust for United States Federal income tax purposes.
In the event the consent of the Trustee, as the holder of the
Convertible Junior Subordinated Debentures, is required under the Indenture
with respect to any amendment, modification or termination of the Indenture,
the Trustee shall request the direction of the holders of the Trust Securities
with respect to such amendment, modification or termination and shall vote
with respect to such amendment, modification or termination as directed by a
majority in liquidation amount of the Trust Securities voting would require
the together as a single class; provided, however, that, where a consent under
the Indenture would require the consent of the holders of more than a majority
of the aggregate principal amount of the Convertible Junior Subordinated
Debentures, the Trustee may only give such consent at the direction of the
holders of at least the same proportion in aggregate stated liquidation
preference of the Trust Securities. The Trustee shall not take any such action
in accordance with the directions of the holders of the Trust Securities
unless the Trustee has obtained an opinion of tax counsel to the effect that
for the purposes of United States Federal income tax the Issuer will not be
classified as other than a grantor trust.
A waiver of an Event of Default under the Indenture will constitute a
waiver of the corresponding Declaration Event of Default.
Any required approval or direction of holders of TIDES may be given
at a separate meeting of holders of TIDES convened for such purpose, at a
meeting of all of the holders of Trust Securities or pursuant to written
consent. The Company Trustees will cause a notice of any meeting at which
holders of TIDES are entitled to vote, or of any matter upon which action by
written consent of such holders is to be taken, to be mailed to each holder of
record of TIDES. Each such notice will include a statement setting forth the
following information: (i) the date of such meeting or the date by which such
action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of TIDES
will be required for the Issuer to redeem and cancel TIDES or distribute
Convertible Junior Subordinated Debentures in accordance with the Declaration.
25
Notwithstanding that holders of TIDES are entitled to vote or consent
under any of the circumstances described above, any of the TIDES that are
owned at such time by the Company or any entity directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
the Company, shall not be entitled to vote or consent and shall, for purposes
of such vote or consent, be treated as if such TIDES were not outstanding.
The procedures by which holders of TIDES may exercise their voting
rights are described below. See "--Book-Entry-Only Issuance--The Depository
Trust Company" below.
Holders of the TIDES will have no rights to appoint or remove the
Issuer Trustees, who may be appointed, removed or replaced solely by the
Company as the indirect or direct holder of all of the Common Securities.
Modification of the Declaration
The Declaration may be modified and amended if approved by the
Company Trustees (and in certain circumstances the Trustee and the Delaware
Trustee), provided, that if any proposed amendment provides for, or the
Company Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise or
(ii) the dissolution, winding-up or termination of the Trust other than
pursuant to the terms of the Declaration, then the holders of the Trust
Securities voting together as a single class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least a majority in liquidation amount of the
Trust Securities affected thereby; provided, that if any amendment or proposal
referred to in clause (i) above would adversely affect only the TIDES or the
Common Securities, then only the affected class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of at least a majority in liquidation
amount of such class of Securities.
Notwithstanding the foregoing, no amendment or modification may be
made to the Declaration if such amendment or modification would (i) cause the
Trust to be classified for purposes of United States Federal income taxation
as other than a grantor trust, (ii) reduce or otherwise adversely affect the
powers of the Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
Transfer Restrictions
The TIDES (and any Convertible Junior Subordinated Debentures
distributed to holders of TIDES) will be subject to restrictions on transfer
and will bear a legend substantially as described in "Transfer Restrictions."
Shares of Common Stock received upon conversion of TIDES or Convertible Junior
Subordinated Debentures subject to such restrictions will also be subject to
such restrictions and will bear a comparable legend.
Registration Rights
In connection with the Original Offering, the Company entered into a
registration rights agreement dated April 10, 1996 (the "Registration Rights
Agreement") with the Initial Purchasers, for the benefit of the holders of the
TIDES, pursuant to which the Company would, at its cost, (a) file a
Registration Statement on Form S-3 (a "Shelf Registration Statement") covering
resales of the TIDES (together with the Convertible Junior Subordinated
Debentures, the Guarantee and the related Common Stock) pursuant to Rule 415
under the Securities Act, (b) use its reasonable best efforts to cause the
Shelf Registration Statement to be declared effective under the Securities Act
and (c) use its reasonable best efforts to keep the Shelf Registration
Statement continuously effective for a period of three years from its
effective date; in each case, subject to the terms and conditions of the
Registration Rights Agreement. The Company would, in the event a Shelf
Registration Statement is filed, among other things, provide to each holder
for whom such Shelf Registration Statement was filed copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit
26
unrestricted resales of such Securities. A holder selling such Securities
pursuant to the Shelf Registration Statement generally would be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, would be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
If (i) by October 7, 1996, the Shelf Registration Statement had not
been declared effective by the Securities and Exchange Commission ("SEC"), or
(ii) after the Shelf Registration Statement has been declared effective, such
Registration Statement ceases to be effective or usable (subject to certain
exceptions) in connection with resales of TIDES in accordance with and during
the periods specified in the Registration Rights Agreement (each such event
referred to in clauses (i) through (ii) a "Registration Default"), the
Convertible Junior Subordinated Debentures would bear interest at the rate per
annum of 6 3/4% and, therefore, distributions would accrue on the TIDES at the
rate of 6 3/4% per annum, from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. At all other times, interest will
accrue on the Convertible Junior Subordinated Debentures and distributions
will accrue on the TIDES at a rate of 6 1/4% per annum. This Prospectus is a
part of the Shelf Registration Statement filed in accordance with the
foregoing requirements.
The summary herein of certain provisions of the Registration Rights
Agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the Registration Rights Agreement, a copy of which is
available upon request to the Company or the Initial Purchasers.
Book-Entry-Only Issuance--The Depository Trust Company
The description of book-entry procedures in this Prospectus includes
summaries of certain rules and operating procedures of DTC that affect
transfers of interests in the global certificate or certificates issued in
connection with sales of TIDES to qualified institutional buyers pursuant to
Rule 144A under the Securities Act. Except for TIDES initially sold to certain
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) and issued as Certificated Securities, the TIDES were
issued only as fully registered securities registered in the name of Cede &
Co. (as nominee for DTC). One or more fully registered global TIDES
certificates (the "Global Certificates") will be issued, representing, in the
aggregate, TIDES sold pursuant to this Prospectus and will be deposited with
DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC holds securities that its participants ("Participants") deposit with
DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the SEC.
Purchases of TIDES within the DTC system must be made by or through
Participants, which will receive a credit for the TIDES on DTC's records. The
ownership interest of each actual purchaser of TIDES ("Beneficial Owner") is
in turn to be recorded on the Participants' and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Participants or Indirect Participants
through which the Beneficial Owners purchased TIDES. Transfers of ownership
interests in the TIDES are to be accomplished by entries made on the books of
Participants and Indirect Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive
27
certificates representing their ownership interests in TIDES, except in the
event that use of the book-entry system for the TIDES is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the TIDES;
DTC's records reflect only the identity of the Participants to whose accounts
such TIDES are credited, which may or may not be the Beneficial Owners. The
Participants and Indirect Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to
Participants, by Participants to Indirect Participants, and by 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.
Redemption notices in respect of the TIDES held in book-entry form
shall be sent to Cede & Co. If less than all of the TIDES are being redeemed,
DTC will determine the amount of the interest of each Participant to be
redeemed in accordance with its procedures.
Although voting with respect to the TIDES is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to TIDES. Under its usual procedures, DTC would mail an
Omnibus Proxy to the Issuer as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Participants to whose accounts the TIDES are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Distributions on the TIDES held in book-entry form will be made to
DTC in immediately available funds. DTC's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants and Indirect Participants to Beneficial Owners will be governed
by standing instructions and customary practices and will be the
responsibility of such Participants and Indirect Participants and not of DTC,
the Issuer or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Issuer, disbursement of such payments to Participants is
the responsibility of DTC, and disbursement of such payments to the Beneficial
owners is the responsibility of Participants and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a
global TIDES will not be entitled to receive physical delivery of TIDES.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the TIDES.
DTC may discontinue providing its services as securities depository
with respect to the TIDES at any time by giving notice to the Issuer. Under
such circumstances, in the event that a successor securities depository is not
obtained, certificates for the TIDES are required to be printed and delivered.
Additionally, the Issuer (with the consent of the Company) may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository). In that event, certificates for the TIDES will be
printed and delivered. In each of the above circumstances, the Company will
appoint a paying agent with respect to the TIDES.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company and the Issuer believe
to be reliable, but neither the Company nor the Issuer takes responsibility
for the accuracy thereof.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global TIDES as
represented by a Global Certificate.
28
Payment and Paying Agency
Payments in respect of the TIDES shall be made to DTC, which shall
credit the relevant accounts at DTC on the applicable distribution dates or,
in the case of Certificated Securities, such payments shall be made by check
mailed to the address of the holder entitled thereto as such address shall
appear on the Register. The Paying Agent shall initially be The Bank of New
York. The Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the Issuer Trustees. In the event that The Bank of New
York shall no longer be the Paying Agent, the Trustee shall appoint a
successor to act as Paying Agent (which shall be a bank or trust company).
Registrar, Transfer Agent and Conversion Agent
The Bank of New York acts as registrar, transfer agent and Conversion
Agent for the TIDES. Registration of transfers of TIDES will be effected
without charge by or on behalf of the Issuer, but upon payment (with the
giving of such indemnity as the Issuer or the Company may require) in respect
of any tax or other government charges which may be imposed in relation to it.
The Issuer will not be required to register or cause to be registered the
transfer of TIDES after such TIDES have been called for redemption.
Information Concerning the Trustee
The Company and certain of its subsidiaries maintain deposit accounts
and conduct other banking transactions with the Trustee in the ordinary course
of their businesses.
Miscellaneous
The Issuer Trustees are authorized and directed to conduct the
affairs of and to operate the Issuer in such a way that the Issuer will not be
deemed to be an "investment company" required to be registered under the 1940
Act or characterized as other than a grantor trust for federal income tax
purposes and so that the Convertible Junior Subordinated Debentures will be
treated as indebtedness of the Company for United States federal income tax
purposes. In this connection, the Issuer Trustees are authorized to take any
action, not inconsistent with applicable law, the certificate of trust or the
Declaration that the Issuer Trustees determine in their discretion to be
necessary or desirable for such purposes as long as such action does not
adversely affect the interests of the holders of the TIDES.
Holders of the TIDES have no preemptive rights.
29
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee
which was executed and delivered by the Company for the benefit of the holders
from time to time of TIDES. The summary is subject in all respects to the
provisions of, and is qualified in its entirety by reference to, the
Guarantee. The Guarantee incorporates by reference the terms of the Trust
Indenture Act. The Guarantee will be qualified under the Trust Indenture Act.
The Bank of New York acts as trustee under the Guarantee for purposes of the
Trust Indenture Act. The Bank of New York, as the Guarantee Trustee, holds the
Guarantee for the benefit of the holders of the TIDES.
General
Pursuant to the Guarantee, the Company irrevocably and
unconditionally agrees, to the extent set forth herein, to pay in full, to the
holders of the TIDES, the Guarantee Payments (as defined below), as and when
due, regardless of any defense, right of set off or counterclaim which the
Issuer may have or assert. The following payments with respect to the TIDES,
to the extent not paid by the Issuer (the "Guarantee Payments"), will be
subject to the Guarantee (without duplication): (i) any accrued and unpaid
distributions which are required to be paid on the TIDES to the extent of
funds of the Trust available therefor, (ii) the amount payable upon redemption
of the TIDES, payable out of funds of the Trust available therefor with
respect to any TIDES called for redemption by the Issuer and (iii) upon a
liquidation of the Issuer, the lesser of (a) the aggregate of the liquidation
preference and all accrued and unpaid dividends on the TIDES to the date of
payment and (b) the amount of assets of the Issuer remaining available for
distribution to holders of TIDES upon the liquidation of the Issuer. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of TIDES or by
causing the Issuer to pay such amounts to such holders.
If the Company fails to make interest payments on the Convertible
Junior Subordinated Debentures or pay amounts payable upon the redemption,
acceleration or maturity of the Convertible Junior Subordinated Debentures,
the Issuer will have insufficient funds to pay distributions on or to pay
amounts payable upon the redemption or repayment of the TIDES. The Guarantee
does not cover payment of distributions or the amount payable upon redemption
or repayment in respect of the TIDES when the Issuer does not have sufficient
funds to pay such distributions or such amount.
In taking any action to enforce the Guarantee, holders of the TIDES
may proceed directly against the Company as guarantor, rather than having to
proceed against the Issuer before attempting to collect from the Company, and
the Company waives any right or remedy to require that any action be brought
against the Issuer or any other person or entity before proceeding against the
Company. Such obligations will not be discharged except by payment of the
Guarantee Payments in full.
The Guarantee, when taken together with the Company's obligations
under the Convertible Junior Subordinated Debentures, and the Indenture and
the Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities)
provides a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the TIDES issued by the Trust.
The Company has also agreed separately to irrevocably and
unconditionally guarantee the obligations of the Trust with respect to the
Common Securities (the "Common Securities Guarantee") to the same extent as
the Guarantee, except that upon the occurrence and during the continuation of
a Declaration Event of Default, holders of TIDES shall have priority over
holders of Common Securities with respect to distributions and payments on
liquidation, redemption, or otherwise.
Certain Covenants of the Company
In the Guarantee, the Company has covenanted that, so long as any
TIDES remain outstanding, if at such time (i) the Company has exercised its
option to defer interest payments on the Convertible Junior
30
Subordinated Debentures and such deferral is continuing, (ii) the Company
shall be in default with respect to its payment or other obligations under the
Guarantee or (iii) there shall have occurred any event that, with the giving
of notice or the lapse of time or both, would constitute an Event of Default
under the Indenture, then the Company (a) shall not declare or pay dividends
on, make distributions with respect to, or redeem, purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other
than stock dividends paid by the Company which consist of the stock of the
same class as that on which the dividend is being paid), (b) shall not make
any payment of interest, principal or premium, of any, on or repay, repurchase
or redeem any debt securities issued by the Company after the date of original
issuance of the Convertible Junior Subordinated Debentures that rank pari
passu with or junior to the Convertible Junior Subordinated Debentures, and
(c) shall not make any guarantee payments with respect to the foregoing (other
than pursuant to the Guarantee).
As part of the Guarantee, the Company has agreed that it will honor
all obligations described therein relating to the conversion of the TIDES into
Common Stock as described in "Description of the TIDES--Conversion Rights."
Amendments and Assignment
Except with respect to any changes which do not materially adversely
affect the rights of holders of TIDES (in which case no vote will be
required), the Guarantee may be changed only with the prior approval of the
holders of not less than a majority in aggregate stated liquidation preference
of the outstanding TIDES. The manner of obtaining any such approval of holders
of the TIDES will be as set forth under "Description of the TIDES--Voting
Rights." All guarantees and agreements contained in the Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the TIDES then
outstanding. Except in connection with any permitted merger or consolidation
of the Company with or into another entity or any permitted sale, transfer or
lease of the Company's assets to another entity as described below under
"Description of the Convertible Junior Subordinated Debentures--Restrictions,"
the Company may not assign its rights or delegate its obligations under the
Guarantee without the prior approval of the holders of at least a majority of
the aggregate stated liquidation preference of the TIDES then outstanding.
Termination of the Guarantee
The Guarantee will terminate as to each holder of TIDES and be of no
further force and effect upon (a) full payment of the applicable redemption
price of such holder's TIDES or (b) the distribution of Common Stock to such
holder in respect of the conversion of such holder's TIDES into Common Stock
and will terminate completely upon full payment of the amounts payable upon
liquidation of the Issuer. The Guarantee will continue to be effective or will
be reinstated, as the case may be, if at any time any holder of TIDES must
restore payment of any sums paid under such TIDES or the Guarantee.
Status of the Guarantee; Subordination
The Guarantee constitutes an unsecured obligation of the Company and
ranks (i) subordinate and junior in right of payment to all liabilities of the
Company, except any liabilities that may be made pari passu expressly by their
terms, (ii) pari passu with the most senior preferred or preference stock now
or hereafter issued by the Company and with any guarantee now or hereafter
entered into by the Company in respect of any preferred or preference stock or
preferred securities of any affiliate of the Company and (iii) senior to
Common Stock. The Declaration provides that each holder of TIDES by acceptance
thereof agrees to the subordination provisions and other terms of the
Guarantee. Upon the bankruptcy, liquidation or winding up of the Company, its
obligations under the Guarantee will rank junior to all its other liabilities
(except as aforesaid) and, therefore, funds may not be available for payment
under the Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, prior to the occurrence of a default, has
undertaken to perform only such duties as are specifically set forth in the
Guarantee and, after default with respect to the Guarantee, shall exercise the
same degree of care as a prudent individual would exercise in the conduct of
his or her own affairs. Subject to
31
such provision, the Guarantee Trustee is under no obligation to exercise any
of the powers vested in it by the Guarantee at the request of any holder of
TIDES unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby.
Governing Law
The Guarantee is governed by and construed in accordance with the
laws of the State of New York.
32
DESCRIPTION OF THE CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the
Convertible Junior Subordinated Debentures in which the Issuer invested with
the proceeds of the issuance and sale of (i) the TIDES and (ii) the Common
Securities. The following description is qualified in its entirety by
reference to the Indenture dated as of April 1, 1996 (the "Indenture"),
between the Company and The Bank of New York, as trustee (the "Indenture
Trustee"), a copy of which has been filed as an exhibit to the Registration
Statement and is incorporated herein by reference. The Indenture will be
qualified under the Trust Indenture Act. Whenever particular provisions or
defined terms in the Indenture are referred to herein, such provisions or
defined terms are incorporated by reference herein.
Under certain circumstances involving the dissolution of the Issuer
following the occurrence of a Tax Event or Investment Company Event,
Convertible Junior Subordinated Debentures may be distributed to the holders
of the TIDES in liquidation of the Issuer. See "Description of the TIDES--Tax
Event or Investment Company Event Redemption or Distribution."
General
The Convertible Junior Subordinated Debentures were issued under the
Indenture. The Convertible Junior Subordinated Debentures were limited in
aggregate principal amount to $107,022,800, such amount being the sum of the
aggregate stated liquidation preference of the TIDES and the Common
Securities.
The entire principal amount of the Convertible Junior Subordinated
Debentures will become due and payable, together with any accrued and unpaid
interest thereon, including Additional Interest, if any, on March 10, 2016.
The Convertible Junior Subordinated Debentures, if distributed to
holders of TIDES in a dissolution of the Issuer, will initially be issued as a
global security to the extent of any Global Certificates at the time
representing any TIDES and otherwise in fully registered, certificated form.
In the event that Convertible Junior Subordinated Debentures are issued in
certificated form, such Convertible Junior Subordinated Debentures will be in
denominations of $50 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
Payments on Convertible Junior Subordinated Debentures issued as a
global security will be made in immediately available funds to DTC, as the
depository for the Convertible Junior Subordinated Debentures. In the event
Convertible Junior Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Convertible Junior
Subordinated Debentures will be registrable and Convertible Junior
Subordinated Debentures will be exchangeable for Convertible Junior
Subordinated Debentures of other denominations of a like aggregate principal
amount at the corporate trust office of the Indenture Trustee in The City of
New York; provided that, unless the Convertible Junior Subordinated Debentures
are held by the Issuer or any successor permissible under "Description of the
TIDES--Merger, Consolidation or Amalgamation of the Issuer," payment of
interest may be made at the option of the Company by check mailed to the
address of the persons entitled thereto.
The Indenture does not contain any provisions that afford holders of
Convertible Junior Subordinated Debentures protection in the event of a highly
leveraged transaction involving the Company. The Convertible Junior
Subordinated Debentures are not entitled to the benefit of any sinking fund.
Interest
Each Convertible Junior Subordinated Debenture bears interest at the
rate of 6 1/4% per annum from the original date of issuance, payable quarterly
in arrears on March 15, June 15, September 15, and December 15 (each, an
"Interest Payment Date"), commencing June 15, 1996, to the person in whose
name such Convertible Junior Subordinated Debenture is registered at the close
of business on the fifteenth day immediately preceding such Interest Payment
Date. Interest compounds quarterly and accrues at the annual rate of 6 1/4% on
any interest installment not paid when due.
33
The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which interest is payable on the Convertible Junior Subordinated Debentures is
not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day which is a Business Day (without any interest
or other payment in respect of any such delay), except that, if such Business
Day is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
Option to Extend Interest Payment Period
The Company has the right at any time during the term of the
Convertible Junior Subordinated Debentures to defer interest payments from
time to time for successive periods not exceeding 20 consecutive quarters for
each such period. At the end of each Deferral Period (subject to extensions as
provided below), the Company shall pay all interest then accrued and unpaid
(together with interest thereon at the rate specified for the Convertible
Junior Subordinated Debentures to the extent permitted by applicable law). In
no event shall any Deferral Period extend beyond the maturity of the
Convertible Junior Subordinated Debentures. During any Deferral Period, the
Company (i) shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than stock dividends paid by the
Company which consist of stock of the same class as that on which the dividend
is being paid), (ii) shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities issued
by the Company that rank pari passu with or junior to the Convertible Junior
Subordinated Debentures, and (iii) shall not make any guarantee payments with
respect to the foregoing (other than pursuant to the Guarantee). Prior to the
expiration of any such Deferral Period, the Company may further extend such
Deferral Period; provided that such Deferral Period together with all previous
and further extensions thereof may not exceed 20 consecutive quarters. Upon
the expiration of any Deferral Period and the payment of all amounts then due,
the Company may select a new Deferral Period, subject to the above
requirements. No interest during a Deferral Period, except at the end thereof,
shall be due and payable. If the Issuer shall be the sole holder of the
Convertible Junior Subordinated Debentures, the Company shall give the Issuer
notice of its selection of such Deferral Period at least one Business Day
prior to the earlier of (i) the date the distributions on the TIDES are
payable or (ii) the date the Issuer is required to give notice to any
applicable self-regulatory organization or to holders of the TIDES of the
record date or the date such distribution is payable, but in any event not
less than ten Business Days prior to such record date. The Company shall cause
the Issuer to give notice of the Company's selection of such Deferral Period
to the holders of the TIDES. If the Issuer shall not be the sole holder of the
Convertible Junior Subordinated Debentures, the Company shall give the holders
of the Convertible Junior Subordinated Debentures notice of its selection of
such Deferral Period at least ten Business Days prior to the earlier of (i)
the Interest Payment Date or (ii) the date the Company is required to give
notice to any applicable self-regulatory organization or to holders of the
Convertible Junior Subordinated Debentures of the record or payment date of
such related interest payment, but in any event not less than two Business
Days prior to such record date.
Additional Interest
If the Issuer would be required to pay any taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes)
imposed by the United States, or any other taxing authority, then, in any such
case, the Company will pay as additional interest ("Additional Interest") such
amounts as shall be required so that the net amounts received and retained by
the Issuer after paying any such taxes, duties, assessments or governmental
charges will be not less than the amounts the Issuer would have received had
no such taxes, duties, assessments or governmental charges been imposed.
Conversion of the Convertible Junior Subordinated Debentures
The Convertible Junior Subordinated Debentures are convertible into
Common Stock at the option of the holders of the Convertible Junior
Subordinated Debentures at any time prior to maturity (except in the case of
TIDES called for redemption which shall be convertible at any time prior to
the close of business on the Business Day prior to the redemption date) at the
initial conversion price set forth on the cover page of this
34
Prospectus, subject to the conversion price adjustments described under
"Description of the TIDES--Conversion Rights." The Issuer has covenanted not
to convert Convertible Junior Subordinated Debentures held by it except
pursuant to a notice of conversion delivered to the Conversion Agent by a
holder of TIDES. Upon surrender of each $50 of liquidation preference of TIDES
to the Conversion Agent for conversion, the Issuer will distribute $50
principal amount of the Convertible Junior Subordinated Debentures to the
Conversion Agent on behalf of the holder of the TIDES so converted, whereupon
the Conversion Agent will convert such Convertible Junior Subordinated
Debentures to Common Stock on behalf of such holder. The Company's delivery to
the holders of the Convertible Junior Subordinated Debentures (through the
Conversion Agent) of the fixed number of shares of Common Stock into which the
Convertible Junior Subordinated Debentures are convertible (together with the
cash payment, if any, in lieu of fractional shares) will be deemed to satisfy
the Company's obligation to pay the principal amount of the Convertible Junior
Subordinated Debentures so converted, and the accrued and unpaid interest
thereon attributable to the period from the last date to which interest has
been paid or duly provided for; provided, however, that if any Convertible
Junior Subordinated Debenture is converted after a record date for payment of
interest, the interest payable on the related interest payment date with
respect to such Convertible Junior Subordinated Debenture shall be paid to the
Issuer (which will distribute such interest to the converting holder) or other
holder of Convertible Junior Subordinated Debentures, as the case may be,
despite such conversion.
Optional Redemption
The Company shall have the right to redeem the Convertible Junior
Subordinated Debentures, in whole or in part, at any time or from time to time
after April 9, 1999, upon not less than 20 nor more than 60 days' notice, at a
redemption price equal to $52.08 per $50 principal amount of the Convertible
Junior Subordinated Debentures to be redeemed plus any accrued and unpaid
interest, including Additional Interest, if any, to the redemption date, if
redeemed on or before April 9, 2000, and at the following redemption prices
per $50 principal amount of Convertible Junior Subordinated Debentures, if
redeemed during the 12-month period ending April 9:
Price per $50
principal
Year amount
- ---- ------
2001 .................................................... $51.74
2002 .................................................... 51.39
2003 .................................................... 51.39
2004 .................................................... 51.39
2005 .................................................... 51.39
and thereafter at $50 per $50 principal amount of Convertible Junior
Subordinated Debentures plus, in each case, accrued and unpaid interest,
including Additional Interest, if any, to the redemption date.
In the event of any redemption in part, the Company shall not be
required to (i) issue, register the transfer of or exchange any Convertible
Junior Subordinated Debenture during a period beginning at the opening of
business 15 days before any selection for redemption of Convertible Junior
Subordinated Debentures and ending at the close of business on the earliest
date on which the relevant notice of redemption is deemed to have been given
to all holders of Convertible Junior Subordinated Debentures to be so redeemed
and (ii) register the transfer of or exchange any Convertible Junior
Subordinated Debentures so selected for redemption, in whole or in part,
except the unredeemed portion of any Convertible Junior Subordinated Debenture
being redeemed in part.
Subordination
The Indenture provides that the Convertible Junior Subordinated
Debentures are subordinate and junior in right of payment to all Senior
Indebtedness of the Company as provided in the Indenture. No payment of
35
principal of (including redemption payments), or interest on, the Convertible
Junior Subordinated Debentures may be made (i) if any Senior Indebtedness is
not paid when due, any applicable grace period with respect to such default
has ended and such default has not been cured or waived, or (ii) if the
maturity of any Senior Indebtedness has been accelerated because of a default.
Upon any distribution of assets of the Company to creditors upon any
dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings,
all principal of, and premium, if any, and interest due or to become due on,
all Senior Indebtedness must be paid in full before the holders of the
Convertible Junior Subordinated Debentures are entitled to receive or retain
any payment. In the event that, notwithstanding the foregoing, any payment or
distribution of cash, property or securities shall be received or collected by
a holder of the Convertible Junior Subordinated Debentures in contravention of
the foregoing provisions, such payment or distribution shall be held for the
benefit of and shall be paid over to the holders of Senior Indebtedness or
their representative or representatives or to the trustee or trustees under
any indenture under which any instrument evidencing Senior Indebtedness may
have been issued, as their respective interests may appear, to the extent
necessary to pay in full all Senior Indebtedness then due, after giving effect
to any concurrent payment to the holders of Senior Indebtedness. Subject to
the payment in full of all Senior Indebtedness, the rights of the holders of
the Convertible Junior Subordinated Debentures will be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Convertible Junior Subordinated Debentures are paid in full.
The term "Senior Indebtedness" shall mean in respect of the Company
(i) the principal, premium, if any, and interest in respect of (A)
indebtedness of such obligor for money borrowed and (B) indebtedness evidenced
by securities, convertible preferred securities, bonds or other similar
instruments issued by such obligor, (ii) all capital lease obligations of such
obligor, (iii) all obligations of such obligor issued or assumed as the
deferred purchase price of property, all conditional sale obligations of such
obligor and all obligations of such obligor under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business), (iv) all obligations of such obligor for the reimbursement of
any letter of credit, banker's acceptance, security purchase facility or
similar credit transaction, (v) all obligations of the type referred to in
clauses (i) through (iv) above of other persons for the payment of which such
obligor is responsible or liable as obligor, guarantor or otherwise, and (vi)
all obligations of the type referred to in clauses (i) through (v) above of
other persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), except for (1)
any such indebtedness issued after the date of original issuance of the
Convertible Junior Subordinated Debentures that is by its terms subordinated
to or pari passu with the Convertible Junior Subordinated Debentures and (2)
any indebtedness (including all other debt securities and guarantees in
respect of those debt securities) initially issued to any other trust, or a
trustee of such trust, partnership or other entity affiliated with the Company
that is, directly or indirectly, a financing vehicle of the Company (a
"Financing Entity") in connection with the issuance by such Financing Entity
of preferred securities or other similar securities. Such Senior Indebtedness
shall continue to be Senior Indebtedness and entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior
Indebtedness the Company may issue. At March 31, 1996, Senior Indebtedness
consisting of borrowed money of the Company aggregated approximately $854.4
million. See "Capitalization."
Certain Covenants
If (i) there shall have occurred any event that would constitute an
Event of Default, (ii) the Company shall be in default with respect to its
payment of any obligations under the Guarantee, or (iii) the Company shall
have given notice of its election to defer payments of interest on the
Convertible Junior Subordinated Debentures by extending the interest payment
period as provided in the Indenture and such period, or any extension thereof,
shall be continuing, then the Company (a) shall not declare or pay dividends
on, make distributions with respect to, or redeem, purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other
than stock dividends paid by the Company which consist of stock of the same
class as that on which the dividend is being paid), (b) shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company after the date of original
36
issuance of the Convertible Junior Subordinated Debentures that rank pari
passu with or junior to the Convertible Junior Subordinated Debentures, and
(c) shall not make any guarantee payments with respect to the foregoing (other
than pursuant to the Guarantee).
The Company has covenanted (i) to directly or indirectly maintain
100% ownership of the Common Securities of the Trust; provided, however, that
any permitted successor of the Company under the Indenture may succeed to the
Company's ownership of such Common Securities and (ii) to use its reasonable
efforts to cause the Trust (x) to remain a statutory business trust, except in
connection with the distribution of Convertible Junior Subordinated Debentures
to the holders of Trust Securities in liquidation of the Trust, the redemption
of all of the Trust Securities of the Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (y)
to otherwise continue to be classified as a grantor trust for United States
Federal income tax purposes.
Restrictions
The Indenture provides that the Company shall not consolidate with or
merge with or into any other corporation, or, directly or indirectly, convey,
transfer or lease all or substantially all of the properties and assets of the
Company on a consolidated basis to any Person, unless either the Company is
the continuing corporation or such corporation or Person assumes by
supplemental indenture all the obligations of the Company under the Indenture
and the Convertible Junior Subordinated Debentures, no default or Event of
Default shall exist immediately after the transaction, and the surviving
corporation or such Person is a corporation, partnership or trust organized
and validly existing under the laws of the United States of America, any state
thereof or the District of Columbia.
Events of Default
The Indenture provides that any one or more of the following
described events, which has occurred and is continuing, constitutes an "Event
of Default" with respect to the Convertible Junior Subordinated Debentures:
(i) failure for 30 days to pay interest on the Convertible Junior Subordinated
Debentures, including any Additional Interest in respect thereof, when due; or
(ii) failure to pay principal of or premium, if any, on the Convertible Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration or otherwise; or (iii) failure by the Company to deliver shares of
Common Stock upon an election by a holder of TIDES to convert such TIDES; or
(iv) failure to observe or perform any other covenant contained in the
Indenture for 90 days after notice; or (v) the dissolution, winding up or
termination of the Issuer, except in connection with the distribution of
Convertible Junior Subordinated Debentures to the holders of TIDES in
liquidation of the Issuer and in connection with certain mergers,
consolidations or amalgamations permitted by the Declaration; or (vi) certain
events in bankruptcy, insolvency or reorganization of the Company.
The Indenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of the Convertible Junior Subordinated
Debentures may declare the principal of and interest (including any Additional
Interest) on the Convertible Junior Subordinated Debentures due and payable
immediately on the occurrence of an Event of Default; provided, however, that,
after such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding Convertible Junior Subordinated Debentures may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal, have been cured or waived
as provided in the Indenture. For information as to waiver of defaults, see
"--Modification of the Indenture."
Notwithstanding the foregoing, if an Event of Default has occurred
and is continuing and such event is attributable to the failure of the Company
to pay interest or principal on the Convertible Junior Subordinated Debentures
on the date such interest or principal is otherwise payable (or in the case of
any redemption, the redemption date), a holder of TIDES may institute a direct
action for payment on or after the respective due date (or redemption date)
specified in the Convertible Junior Subordinated Debentures. The Company may
not amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of all the holders of TIDES. Notwithstanding
any payment made to such holder of TIDES by the Company in connection with a
Direct Action, the Company shall remain obligated to pay the principal of or
interest on the
37
Convertible Junior Subordinated Debentures held by the Issuer or the Trustee
of the Issuer and the Company shall be subrogated to the rights of the holder
of such TIDES with respect to payments on the TIDES to the extent of any
payments made by the Company to such holder in any Direct Action. The holders
of TIDES will not be able to exercise directly any other remedy available to
the holders of the Convertible Junior Subordinated Debentures.
The Trustee is the initial holder of the Convertible Junior
Subordinated Debentures. However, while the TIDES are outstanding, the Trustee
has agreed not to waive an Event of Default with respect to the Convertible
Junior Subordinated Debentures without the consent of holders of a majority in
aggregate liquidation preference of the TIDES then outstanding.
A default under any other indebtedness of the Company or any of its
subsidiaries or joint ventures or the Issuer would not constitute an Event of
Default under the Convertible Junior Subordinated Debentures.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee in case an Event of Default shall occur and be
continuing, the Indenture Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request or direction of any
holders of Convertible Junior Subordinated Debentures, unless such holders
shall have offered to the Indenture Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Indenture Trustee, the holders
of a majority in aggregate principal amount of the Convertible Junior
Subordinated Debentures then outstanding will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Indenture Trustee, or exercising any trust or power conferred on the
Indenture Trustee.
No holder of any Convertible Junior Subordinated Debenture will have
any right to institute any proceeding with respect to the Indenture or for any
remedy thereunder, unless such holder shall have previously given to the
Indenture Trustee written notice of a continuing Event of Default and, if the
Issuer is not the sole holder of Convertible Junior Subordinated Debentures,
unless the holders of at least 25% in aggregate principal amount of the
Convertible Junior Subordinated Debentures then outstanding shall also have
made written request, and offered reasonable indemnity, to the Indenture
Trustee to institute such proceeding as Indenture Trustee, and the Indenture
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Convertible Junior Subordinated Debentures
a direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. However, such limitations do not apply to a
suit instituted by a holder of a Convertible Junior Subordinated Debenture for
enforcement of payment of the principal of or interest on such Convertible
Junior Subordinated Debenture on or after the respective due dates expressed
in such Convertible Junior Subordinated Debenture.
The holders of a majority in aggregate outstanding principal amount
of all series of the Convertible Junior Subordinated Debentures affected
thereby may, on behalf of the holders of all the Convertible Junior
Subordinated Debentures of such series, waive any past default, except a
default in the payment of principal, premium, if any, or interest. The Company
is required to file annually with the Indenture Trustee and the Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants under the Indenture.
Modification of the Indenture
The Indenture contains provisions permitting the Company and the
Indenture Trustee, with the consent of the holders of not less than a majority
in principal amount of the Convertible Junior Subordinated Debentures, to
modify the Indenture or any supplemental indenture, provided that no such
modification may, without the consent of the holder of each outstanding
Convertible Junior Subordinated Debenture affected thereby, (i) extend the
fixed maturity of any Convertible Junior Subordinated Debentures of any
series, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or reduce any premium payable upon
the redemption thereof, or adversely affect the right to convert Convertible
Junior Subordinated Debentures, without the consent of the holder of each
Convertible Junior Subordinated Debenture so affected, or (ii) reduce the
percentage of Convertible Junior Subordinated Debentures, the holders
38
of which are required to consent to any such supplemental indenture, without
the consent of the holders of each Convertible Junior Subordinated Debenture
then outstanding and affected thereby.
In addition, the Company and the Indenture Trustee may execute,
without the consent of any holder of Convertible Junior Subordinated
Debentures, any supplemental indenture to cure any ambiguities, comply with
the Trust Indenture Act and for certain other customary purposes.
Setoff
Notwithstanding anything contained to the contrary in the Indenture,
the Company has the right to set off any payment with respect to the
Convertible Junior Subordinated Debentures it is otherwise required to make
thereunder with and to the extent the Company has theretofore made, or is
concurrently on the date of such payment making, a payment under the
Guarantee.
Governing Law
The Indenture and the Convertible Junior Subordinated Debentures are
governed by, and construed in accordance with, the laws of the State of New
York.
Information Concerning the Indenture Trustee
The Indenture Trustee, prior to default, has undertaken to perform
only such duties as are specifically set forth in the Indenture and, after
default, shall exercise the same degree of care as a prudent individual would
exercise in the conduct of his or her own affairs. Subject to such provision,
the Indenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of Convertible
Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The Indenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its
duties if the Indenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Issuer is to
issue the Trust Securities and use the proceeds thereof to purchase from the
Company the Convertible Junior Subordinated Debentures.
As long as payments of interest and other payments are made when due
on the Convertible Junior Subordinated Debentures, such payments will be
sufficient to cover distributions and payments due on the TIDES primarily
because (i) the aggregate principal amount of Convertible Junior Subordinated
Debentures will be equal to the sum of the aggregate stated liquidation
preference of the TIDES and the Common Securities; (ii) the interest rate and
interest and other payment dates on the Convertible Junior Subordinated
Debentures will match the distribution rate and distribution and other payment
dates for the TIDES; (iii) the Declaration provides that the Company, as
originator, shall pay for all, and the Issuer shall not be obligated to pay,
directly or indirectly, for any, costs and expenses of the Issuer; and (iv)
the Declaration further provides that the holders of Common Securities and the
Issuer Trustees shall not cause or permit the Issuer to, among other things,
engage in any activity that is not consistent with the purposes of the Issuer.
If an Event of Default has occurred and is continuing and such event
is attributable to the failure of the Company to pay interest or principal on
the Convertible Junior Subordinated Debentures on the date such interest or
principal is otherwise payable (or in the case of redemption, on the
redemption date), then a holder of TIDES may institute a direct action against
the Company for payment on or after the respective due date for payment (or
redemption date).
Payments of distributions and other payments due on the TIDES out of
moneys held by the Issuer are guaranteed by the Company to the extent set
forth under "Description of the Guarantee." If the Company fails to
39
make payments under the Guarantee, a holder of any of the TIDES may institute
a direct action against the Company to enforce its rights under the Guarantee.
DESCRIPTION OF CALENERGY CAPITAL STOCK
The authorized capital stock of the Company consists of 80,000,000
shares of Common Stock, par value $0.0675 per share, and 2,000,000 shares of
Preferred Stock, no par value.
Common Stock
As of March 31, 1996, there were 51,994,438 shares of Common Stock
outstanding (not including 15,689,379 shares issuable pursuant to outstanding
stock options and upon conversion of all outstanding 5% convertible debentures
and 9.5% exchangeable subordinated debentures). 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.
Subject to certain exceptions, Kiewit Energy has the right to purchase its pro
rata share of any securities convertible to Common Stock or other equity
securities offered or sold by the Company at a price less than the greater of
the current market price of the Common Stock or the exercise price of certain
options granted to Kiewit Energy. No other holders of Common Stock have
preemptive rights and holders of Common Stock have no rights to convert their
Common Stock into any other securities. The outstanding shares of Common Stock
are, and the Common Stock to be issued upon conversion of the TIDES will 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 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, no
par value (the "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 Plan pursuant to
which such Rights were issued was amended in February 1991 so that Kiewit
Energy's purchase of Common Stock 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.
Preferred Stock
The Board of Directors has the authority to issue 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 additional 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 additional
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. As of March 26, 1996, 678,215 shares of
Series A Preferred Stock were subject to issuance if the Rights were exercised
in full.
Stock Options
The Company has issued various stock options. As of March 31, 1996, a
total of 8,717,000 shares of Common Stock are reserved for stock options, of
which 7,716,000 have been granted and remain outstanding at
40
exercise prices ranging from $3.00 to $19.00 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 generally 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.
Transfer Agent and Registrar
The Chemical Trust Company of California of San Francisco,
California, has been appointed as the transfer agent and registrar for the
Company's Common Stock and registration of transfer and exchange of shares of
Common Stock may be made at the office maintained for that purpose in San
Francisco, California.
Kiewit Registration Rights Agreements
Under the terms of the Registration Rights Agreement, dated as of
February 18, 1991, between the Company and Kiewit Energy, and the Registration
Rights Agreement, dated as of June 19, 1991, between the Company and Kiewit
Energy, each as amended (collectively, the "Kiewit Registration Rights
Agreements"), subject to certain conditions, Kiewit Energy or its affiliates
may request that the Company register under the Securities Act all or any
portion of certain securities of the Company owned by Kiewit Energy, including
(i) 12,322,312 shares of Common Stock held by Kiewit Energy and any shares of
Common Stock subsequently held by Kiewit Energy (the "Kiewit Shares"), (ii)
options held by Kiewit Energy to purchase 4,289,163 shares of Common Stock
(the "Kiewit Options"), (iii) 4,289,163 shares of Common Stock issuable upon
exercise of the Kiewit Options, and (iv) 3,529,252 shares of Common Stock
issuable upon conversion of the 9.5% Exchangeable Subordinated Debentures
(which were issued upon the exchange of the Series C Preferred Stock) (such
shares are referred to as the "Kiewit Conversion Shares"), in each case,
subject to adjustment as provided in the Kiewit Registration Rights
Agreements. (The Kiewit Shares, the Kiewit Options, the Kiewit Option Shares
and the Kiewit Conversion Shares are collectively referred to as the "Kiewit
Securities"). Subject to certain conditions, the Company is required to use
its diligent efforts to effect such registration. The Company is required to
effect no more than three such registrations (unless Kiewit Energy agrees to
pay all expenses in connection therewith) with respect to the Kiewit Shares,
4,500,000 Kiewit Option Shares and the related Kiewit Options, and two such
registrations (unless Kiewit Energy agrees to pay all expenses in connection
therewith) with respect to the Kiewit Conversion Shares, 1,000,000 Kiewit
Option Shares and the related Kiewit Options. If the Company proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other stockholders, the Company is required
under the Kiewit Registration Rights Agreements, subject to certain conditions
and at Kiewit Energy's (or its affiliate's) option, to include the Kiewit
Securities specified by Kiewit Energy or its affiliates in the registration
statement. If the underwriters selected for underwriting determine that
marketing factors require a limitation on the number of shares to be
underwritten, the underwriters may (subject to the allocation priority set
forth in the Kiewit Registration Rights Agreements) limit the number of Kiewit
Securities included in the registration statement and underwriting. Generally,
the Company is required to bear the expenses of all such registrations.
UNITED STATES TAXATION
General
The following is a summary of certain of the material United States
federal income tax consequences of the purchase, ownership, disposition and
conversion of TIDES. Unless otherwise stated, this summary deals only with
TIDES held as capital assets by holders and does not deal with special classes
of holders such as banks, thrifts, real estate investment trusts, regulated
investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, or persons that will hold the TIDES as other
than a capital asset. This summary also does not address the tax consequences
to persons that have a functional currency other than the U.S. Dollar or the
tax consequences to shareholders, partners or beneficiaries of a holder of
TIDES. Further, it does not include any description of any alternative minimum
tax consequences or the tax laws of any state or local government or of any
foreign government that may be applicable to the TIDES. This summary is
41
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations thereunder and administrative and judicial interpretations
thereof, as of the date hereof, all of which are subject to change, possibly
on a retroactive basis.
Treatment by the Company
The Company intends to treat the Convertible Junior Subordinated
Debentures as debt for United States federal income tax purposes and each
holder of TIDES as the owner of an undivided interest in the Convertible
Junior Subordinated Debentures. The Company and the Trust will therefore
report any payments on the Convertible Junior Subordinated Debentures to the
Internal Revenue Service in a manner consistent with such characterization.
Classification of the Trust
In connection with the issuance of the TIDES, Willkie Farr &
Gallagher, special counsel to the Company and the Trust, rendered its opinion
generally to the effect that, under then current law and assuming full
compliance with the terms of the Declaration and the Convertible Junior
Subordinated Debenture Indenture (and certain other documents), and based on
certain facts and assumptions contained in such opinion, the Trust will be
classified for United States federal income tax purposes as a grantor trust
and not as an association taxable as a corporation. Accordingly, for United
States federal income tax purposes, each holder of TIDES generally will be
considered the owner of an undivided interest in the Convertible Junior
Subordinated Debentures, and each holder will be required to include in its
gross income any OID accrued with respect to its allocable share of those
Convertible Junior Subordinated Debentures.
Potential Extension of Interest Payment Period and Original Issue Discount
Because the Company has the option, under the terms of the
Convertible Junior Subordinated Debentures, to defer payments of interest by
extending interest payment periods for up to 20 quarters, all of the stated
interest payments on the Convertible Junior Subordinated Debentures will be
treated as "original issue discount." Holders of debt instruments issued with
OID must include that discount in income on an economic accrual basis before
the receipt of cash attributable to the interest, regardless of their method
of tax accounting. Generally, all of a holder's taxable interest income with
respect to the Convertible Junior Subordinated Debentures will be accounted
for as OID. Actual payments and distributions of stated interest will not,
however, be separately reported as taxable income. The amount of OID that
accrues in any quarter will approximately equal the amount of the interest
that accrues on the Convertible Junior Subordinated Debentures in that quarter
at the stated interest rate. In the event that the interest payment period is
extended, holders will continue to accrue OID approximately equal to the
amount of the interest payment due at the end of the extended interest payment
period on an economic accrual basis over the length of the extended interest
payment period.
Holders purchasing TIDES at an "acquisition premium" for United
States federal income tax purposes (i.e., for an amount greater than its
adjusted issue price as of the purchase date but less than or equal to the sum
of all amounts payable on the TIDES) will be required to include a reduced
amount of OID in income. The reduction in includable OID is determined by
multiplying the amount of OID otherwise includable by a fraction, the
numerator of which is the excess, if any, of the price paid by the holder over
the adjusted issue price of the TIDES and the denominator of which is the
excess of the sum of all amounts payable on the TIDES after the purchase date
over the adjusted issue price of the TIDES. For this purpose, the adjusted
issue price of TIDES generally is equal to its issue price, increased by the
amount of OID that has accrued on the TIDES. In lieu of applying this
acquisition premium fraction, a holder may elect to include OID in income on a
constant yield method, determined as if the holder had purchased the TIDES at
original issuance.
Because income on the TIDES will constitute OID, corporate holders of
TIDES will not be entitled to a dividends-received deduction with respect to
any income recognized with respect to the TIDES.
42
Market Discount
Generally, market discount will exist to the extent the purchase
price paid by a holder for TIDES is less than the revised issue price of the
TIDES at the time of purchase, subject to a statutory de minimis exception.
The revised issue price of TIDES generally equals its issue price, increased
by the amount of OID that has accrued for periods prior to a holder's
acquisition.
A holder of TIDES who acquires the TIDES with market discount will be
required to treat any payment on, or any gain realized on the sale, exchange,
retirement or other disposition of, the TIDES as ordinary income to the extent
of the market discount that accrued (but was not previously included in
income) during the period such holder held the TIDES. Market discount will be
considered to accrue ratably during the period from the date of acquisition to
the maturity date of the TIDES, unless the holder elects to accrue market
discount on the basis of semiannual compounding.
Alternatively, a holder may elect to include market discount in
income currently as it accrues (either on a ratable or semiannual compounding
basis), in which case the rules described above regarding the treatment as
ordinary income of gain upon disposition of the TIDES would not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States federal income tax purposes. Such an election will
apply to all debt instruments acquired by a holder on or after the first day
of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
A holder may be required to defer the deduction of all or a portion
of the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry TIDES with market discount until the maturity of the TIDES
or certain earlier dispositions.
Receipt of Convertible Junior Subordinated Debentures or Cash Upon
Liquidation of the Issuer
Under certain circumstances, as described under the caption
"Description of the TIDES--Tax Event or Investment Company Event Redemption or
Distribution," Convertible Junior Subordinated Debentures may be distributed
to holders in exchange for the TIDES and in liquidation of the Trust. Under
current law, such a distribution to holders, for United States federal income
tax purposes, would be treated as a nontaxable event to each holder, and each
holder would receive an aggregate tax basis in the Convertible Junior
Subordinated Debentures equal to such holder's aggregate tax basis in its
TIDES. A holder's holding period in the Convertible Junior Subordinated
Debentures so received in liquidation of the Trust would include the period
during which the TIDES were held by such holder. If, however, the related
Special Event is a Tax Event which results in the Trust being treated as an
association taxable as a corporation, the distribution would likely constitute
a taxable event to holders of the TIDES.
Under certain circumstances described herein (see "Description of the
TIDES"), the Convertible Junior Subordinated Debentures may be redeemed for
cash and the proceeds of such redemption distributed to holders in redemption
of their TIDES. Under current law, such a redemption would, for United States
federal income tax purposes, constitute a taxable disposition of the redeemed
TIDES, and a holder would recognize gain or loss as if it sold such redeemed
TIDES for cash. See "--Disposition of TIDES."
Disposition of TIDES
A holder that sells TIDES will recognize gain or loss equal to the
difference between the amount realized on the sale of the TIDES and the
holder's adjusted tax basis in such TIDES. A holder's adjusted tax basis in
the TIDES generally will be its initial purchase price increased by OID
previously includible in such holder's gross income to the date of disposition
and decreased by payments received on the TIDES to the date of disposition.
Such gain or loss will be a capital gain or loss and will be a long-term
capital gain or loss if the TIDES have been held for more than one year at the
time of sale.
The TIDES may trade at a price that does not accurately reflect the
value of accrued but unpaid interest with respect to the underlying
Convertible Junior Subordinated Debentures. A holder who disposes of or
43
converts his TIDES between record dates for payments of distributions thereon
will be required to include accrued but unpaid interest on the Convertible
Junior Subordinated Debentures through the date of disposition in income as
ordinary income, and to add such amount to his adjusted tax basis in his pro
rata share of the underlying Convertible Junior Subordinated Debentures deemed
disposed of. To the extent the selling price is less than the holder's
adjusted tax basis (which basis will include, in the form of OID, all accrued
but unpaid interest), a holder will recognize a capital loss. Subject to
certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States Federal income tax purposes.
Conversion of TIDES into Common Stock
A holder of TIDES will not recognize gain or loss upon the exchange,
through the Conversion Agent, of TIDES for a proportionate share of the
Convertible Junior Subordinated Debentures held by the Issuer.
A holder of TIDES will not recognize income, gain or loss upon the
conversion, through the Conversion Agent, of Convertible Junior Subordinated
Debentures into the Common Stock. A holder of TIDES will, however, recognize
gain upon the receipt of cash in lieu of a fractional share of the Common
Stock equal to the amount of cash received less such holder's tax basis in
such fractional share. A holder of TIDES' tax basis in the Common Stock
received upon exchange and conversion should generally be equal to such
holder's tax basis in the TIDES delivered to the Conversion Agent for exchange
less the basis allocated to any fractional share for which cash is received
and a holder of TIDES' holding period in the Common Stock received upon
exchange and conversion should generally begin on the date such holder
acquired the TIDES delivered to the Conversion Agent for exchange.
Adjustment of Conversion Price
Treasury Regulations promulgated under Section 305 of the Code would
treat holders of TIDES as having received a constructive distribution from the
Company in the event the conversion ratio of the Convertible Junior
Subordinated Debentures were adjusted if (i) as a result of such adjustment,
the proportionate interest (measured by the quantum of Common Stock into or
for which the Convertible Junior Subordinated Debentures are convertible or
exchangeable) of the holders of the TIDES in the assets or earnings and
profits of the Company were increased, and (ii) the adjustment was not made
pursuant to a bona fide, reasonable antidilution formula. An adjustment in the
conversion ratio would not be considered made pursuant to such a formula if
the adjustment was made to compensate for certain taxable distributions with
respect to the Common Stock. Thus, under certain circumstances, a reduction in
the conversion price for the holders may result in a deemed distribution. The
fair market value of such distribution will be taxable as dividend income to
holders to the extent of the current or accumulated earnings and profits of
the Company. Holders of the TIDES would be required to include their allocable
share of such deemed dividend income in gross income but will not receive any
cash related thereto.
Proposed Tax Legislation
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") which, among other things, would treat as equity for United
States federal income tax purposes instruments with a maximum term of more
than 20 years that are not shown as indebtedness on the consolidated balance
sheet of the issuer. On March 29, 1996, Senate Finance Committee Chairman
William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer
issued a joint statement (the "Joint Statement") indicating their intent that
certain legislative proposals initiated by the Clinton administration,
including the Proposed Legislation, that may be adopted by either of the
tax-writing committees of Congress, would have an effective date that is no
earlier than the date of "appropriate Congressional action." Based on the
Joint Statement, it is expected that if the Proposed Legislation were enacted,
such legislation would not apply to the Convertible Junior Subordinated
Debentures. Furthermore, even if the Proposed Legislation were enacted in its
current form with effective date provisions making it applicable to the
Convertible Junior Subordinated Debentures, it would not cause the TIDES to be
treated as equity for United States federal income tax purposes since the
maximum term of the TIDES will not exceed 20 years. There can be no
assurances, however, that the effective date guidance contained in the Joint
Statement
44
will be incorporated into any enacted legislation or that other legislation
enacted after the date hereof will not otherwise adversely affect the tax
treatment of the TIDES. If legislation is enacted that adversely affects the
tax treatment of the TIDES, such legislation could result in the distribution
of the TIDES to holders of the TIDES or, in certain limited circumstances, the
redemption of such securities by the Company and the distribution of the
resulting cash in redemption of the TIDES. See "Description of the TIDES--Tax
Event or Investment Company Event Redemption or Distribution."
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is
any corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership, or a nonresident fiduciary of a foreign estate or trust.
Under present United States federal income tax law, (i) payments by
the Trust or any of its paying agents to any holder of TIDES who or which is a
United States Alien Holder will not be subject to withholding of United States
Federal income tax; provided that, (a) the beneficial owner of the TIDES does
not actually or constructively (including by virtue of its interest in the
underlying Convertible Junior Subordinated Debentures) own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) the beneficial owner of the TIDES is not a controlled foreign
corporation that is related to the Company through stock ownership, and (c)
either (A) the beneficial owner of the TIDES certifies to the Trust or its
agent, under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) a securities clearing organization, bank
or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution"), and
holds the TIDES in such capacity, that certifies to the Trust or its agent,
under penalties of perjury, that such statement has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Trust or its agent with a copy thereof; and
(ii) a United States Alien Holder of TIDES will not be subject to withholding
of United States Federal income tax on any gain realized upon the sale or
other disposition of the TIDES.
If a United States Alien Holder is treated as receiving a deemed
dividend as a result of an adjustment of the conversion price of the TIDES, as
described above under "Adjustment of Conversion Price," such deemed dividend
will be subject to United States federal withholding tax at a 30% (or lower
treaty) rate.
Information Reporting and Backup Withholding
Subject to the qualifications discussed below, income on the TIDES
will be reported to holders on Forms 1099, which forms should be mailed to
holders of TIDES by January 31 following each calendar year.
The Trust will be obligated to report annually to Cede & Co., as
holder of record of the TIDES, the OID related to the TIDES that accrued
during the year. The Trust currently intends to report such information on
Form 1099 prior to January 31 following each calendar year even though the
Trust is not legally required to report to record holders until April 15
following each calendar year. The Placing Agents have indicated to the Trust
that, to the extent that they hold TIDES as nominees for beneficial holders,
they currently expect to report to such beneficial holders on Forms 1099 by
January 31 following each calendar year. Under current law, holders of TIDES
who hold as nominees for beneficial holders will not have any obligation to
report information regarding the beneficial holders to the Trust. The Trust,
moreover, will not have any obligation to report to beneficial holders who are
not also record holders. Thus, beneficial holders of TIDES who hold their
TIDES through the Initial Purchasers will receive Forms 1099 reflecting the
income on their TIDES from such nominee holders rather than the Trust.
Payments made on, and proceeds from the sale of, the TIDES may be
subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amounts will be allowed as a
credit against the holder's United States federal income tax, provided the
required information is provided to the Internal Revenue Service.
45
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON
A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE TIDES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"), or Section 4975 of the Code
("Plans"), may purchase TIDES, subject to the investing fiduciary's
determination that the investment in TIDES satisfies ERISA's fiduciary
standards and other requirements applicable to investments by the Plan.
In any case, the Company and/or any of its affiliates may be
considered a "party in interest" (within the meaning of ERISA) or a
"disqualified person" (within the meaning of Section 4975 of the Code) with
respect to certain Plans (generally, Plans maintained or sponsored by, or
contributed to by, any such persons). The acquisition and ownership of TIDES
by a Plan (or by an individual retirement arrangement or other plans described
in Section 4975(e)(i) of the Code) with respect to which the Company or any of
its affiliates is considered a party in interest or a disqualified person, may
constitute or result in a prohibited transaction under ERISA or Section 4975
of the Code, unless such TIDES are acquired pursuant to and in accordance with
an applicable exemption.
As a result, Plans with respect to which the Company or any of its
affiliates is a party in interest or a disqualified person should not acquire
TIDES. Any other Plans or other entities whose assets include Plan assets
subject to ERISA proposing to acquire TIDES should consult with their own
ERISA counsel.
SELLING HOLDERS
The TIDES were originally issued by the Trust and sold by CS First
Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Initial Purchasers"), in a transaction exempt from the registration
requirements of the Securities Act, to persons reasonably believed by such
Initial Purchasers to be "qualified institutional buyers" (as defined in Rule
144A under the Securities Act), and to a limited number of institutional
"accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act). The Selling Holders may from time to time offer and sell
pursuant to this Prospectus any or all of the TIDES, any Convertible Junior
Subordinated Debentures and Common Stock issued upon conversion of the TIDES.
The term Selling Holders includes the holder listed below and the beneficial
owners of the TIDES and their transferees, pledgees, donees or other
successors.
The following table sets forth information with respect to the record
holder of the TIDES as of July 15, 1996.
Number of
Selling Holder TIDES
- ---------------------------------------------------------- -------------
Cede & Co. 2,078,600
46
None of the Selling Holders has, or within the past three years
has had, any position, office or other material relationship with the Trust or
the Company or any of their predecessors or affiliates, except as noted above.
Because the Selling Holders may, pursuant to this Prospectus, offer all or
some portion of the TIDES, the Convertible Junior Subordinated Debentures or
the Common Stock issuable upon conversion of the TIDES, no estimate can be
given as to the amount of the TIDES, the Convertible Junior Subordinated
Debentures or the Common Stock issuable upon conversion of the TIDES that will
be held by the Selling Holders upon termination of any such sales. In
addition, the Selling Holders identified above may have sold, transferred or
otherwise disposed of all or a portion of their TIDES since the date on which
they provided the information regarding their TIDES pursuant to transactions
exempt from the registration requirements of the Securities Act.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers
directly by the Selling Holders. Alternatively, the Selling Holders may from
time to time offer the Offered Securities to or through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Holders or
the purchasers of such securities for whom they may act as agents. The Selling
Holders and any underwriters, broker/dealers or agents that participate in the
distribution of Offered Securities may be deemed to be "underwriters" within
the meaning of the Securities Act and any profit on the sale of such
securities and any discounts, commissions, concessions or other compensation
received by any such underwriter, broker/dealer or agent may be deemed to be
underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted
at the time of sale, (ii) in the over-the-counter market, (iii) in
transactions otherwise than on such exchanges or in the over-the-counter
market or (iv) through the writing of options. At the time a particular
offering of the Offered Securities is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount and
type of Offered Securities being offered and the terms of the offering,
including the name or names of any underwriters, broker/dealers or agents, any
discounts, commissions and other terms constituting compensation from the
Selling Holders and any discounts, commissions or concessions allowed or
reallowed or paid to broker/dealers.
Pursuant to the Registration Rights Agreement, the Company is
required to use its reasonable best efforts to keep the Registration Statement
continuously effective for a period of three years from its effective date or
such shorter period that will terminate upon the earlier of the date on which
the Offered Securities shall have been sold pursuant to the Registration
Statement or the date on which the Offered Securities are permitted to be
freely sold or distributed to the public pursuant to any exemption from the
registration requirements of the Securities Act (excluding in reliance on Rule
144A under the Securities Act). Notwithstanding the foregoing obligations, the
Company may, under certain circumstances, postpone or suspend the filing or
the effectiveness of the Registration Statement (or any amendments or
supplements thereto) or the sale of Offered Securities thereto.
To comply with the securities laws of certain jurisdictions, if
applicable, the Offered Securities will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions the Offered Securities may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is available
and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by
the Selling Holders. The foregoing may affect the marketability of such
securities.
47
Pursuant to the Registration Rights Agreement, all expenses of the
registration of the Offered Securities will be paid by the Company, including,
without limitation, SEC filing fees and expenses of compliance with state
securities or "blue sky" laws; provided, however, that the Selling Holders
will pay all underwriting discounts and selling commissions, if any. The
Selling Holders will be indemnified by the Company and the Trust, jointly and
severally against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith. The Company and the Trust will be indemnified by the Selling
Holders severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
LEGAL MATTERS
The validity of the TIDES, the Convertible Junior Subordinated
Debentures, the Guarantee and any Common Stock issuable upon conversion of
such Convertible Junior Subordinated Debentures will be passed upon for the
Company and the Issuer by Steven A. McArthur, Senior Vice President and
General Counsel of the Company, and by Willkie Farr & Gallagher, and certain
matters will be passed upon on behalf of the Initial Purchasers by Skadden,
Arps, Slate, Meagher & Flom. As of March 31, 1996, Mr. McArthur beneficially
owned 155,498 shares of Common Stock.
EXPERTS
The financial statements and the related financial statement schedules
of the Company and its subsidiaries incorporated in this Registration
Statement by reference to the Company's 1995 Form 10-K have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports (which
reports express an unqualified opinion and include an explanatory paragraph
referring to the Company's adoption effective January 1, 1993, of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes") which
are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
With respect to the Company's unaudited interim financial information
for the three month periods ended March 31, 1996 and 1995, incorporated herein
by reference, Deloitte & Touche LLP have applied limited procedures in
accordance with professional standards for a review of such information.
However, as stated in their report included in the Company's report on Form
10-Q for the quarter ended March 31, 1996 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 report 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 report on
the unaudited interim financial information because the report is not a
"report" or a "part" of a registration statement prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Securities Act.
The balance sheets of BN Geothermal Inc., Conejo Energy Company, San
Felipe Energy Company and Niguel Energy Company as of December 31, 1995 and
December 31, 1994 and the related statements of operations, shareholder's
equity and cash flows for each of the three years in the period ended December
31, 1995, incorporated by reference into this Registration Statement on Form
S-3, have been audited by Arthur Andersen LLP, independent public accountants,
as stated in their reports, and have been referred to herein in reliance upon
the authority of said firm as experts in giving said reports.
48
- -----------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or the Issuer or any of their
agents. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of the Company or the
Issuer since such date.
---------------------------
TABLE OF CONTENTS
Page
----
Available Information........................................5
Incorporation Of Certain Documents By Reference..............5
Risk Factors.................................................7
CalEnergy Capital Trust.....................................13
The Company.................................................14
Recent Developments.........................................15
Ratio Of Earnings To Fixed Charges..........................15
Capitalization..............................................16
Accounting Treatment........................................17
Use Of Proceeds.............................................17
Description Of The Tides....................................17
Description Of The Guarantee................................30
Description Of The Convertible Junior Subordinated
Debentures..............................................33
Effect Of Obligations Under The Convertible Junior
Subordinated Debentures And The Guarantee...............39
Effect Of Obligations Under The Convertible Junior
Subordinated Debentures And The Guarantee...............39
Description Of CalEnergy Capital Stock......................40
United States Taxation......................................41
ERISA Considerations........................................46
Selling Holders.............................................46
Plan Of Distribution........................................47
Legal Matters...............................................48
Experts.....................................................48
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- -----------------------------------------------------------------------------
CalEnergy
Capital Trust
(Graphic)
2,078,600 TIDESSM
guaranteed to the extent
set forth herein by,
and convertible into
Common Stock of,
CalEnergy Company, Inc.
----------------
PROSPECTUS
----------------
- -----------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following are the estimated expenses in connection with the
distribution of the securities being registered hereunder, other than
underwriting discounts and commissions.
Amount
SEC registration fee............................................. $37,675
Printing, shipping and engraving expenses........................ 130,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 100,000
Transfer Agent, Registrar and trustee fees and expenses.......... 15,000
Miscellaneous expenses........................................... 17,325
Total....................................................... $500,000
Item 15. Indemnification of Officers and Directors.
The Company
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") grants each corporation organized thereunder, such as the
Company, the power to indemnify its directors and officers against liabilities
for certain of their acts. Article EIGHTH of the Company's Restated
Certificate of Incorporation and Article V of the Company's By-Laws provides
for indemnification of directors and officers of the Company to the extent
permitted by the DGCL. Article V of the Company's By-Laws further provides
that the Registrant may enter into contracts providing indemnification to the
full extent authorized or permitted by the DGCL and that the Company may
create a trust fund, grant a security interest and/or use other means to
ensure the payment of such amounts as may become necessary to effect
indemnification pursuant to such contracts or otherwise.
Section 102(b)(7) of the DGCL permits a provision in the certificate
of incorporation of each corporation organized thereunder, such as the
Company, eliminating or limiting, with certain exceptions, the personal
liability of a director to the corporation or its stockholders for monetary
damages for certain breaches of fiduciary duty as a director. Article EIGHTH
of the Company's Restated Certificate of Incorporation eliminates the personal
liability of directors to the full extent permitted by the DGCL.
The foregoing statements are subject to the detailed provisions of
Sections 145 and 102(b)(7) of the DGCL, Article EIGHTH of the Company's
Restated Certificate of Incorporation and Article V of the Company's By-Laws.
Section 145 of the DGCL empowers a Delaware corporation to indemnify
any persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was
an officer or director of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided that such officer or director acted in
good faith and in a manner reasonably believed to be in or not opposed to the
corporation's best interests, and, for criminal proceedings, had no reasonable
cause to believe his conduct was illegal. A Delaware corporation may indemnify
officers and directors in an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial
II-1
approval if the officer or director is adjudged to be liable to the
corporation in the performance of his duty. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such
officer or director actually and reasonably incurred.
The Trust
The Declaration of Trust (the "Declaration") provides that no Trustee,
affiliate of any Regular Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives or agent of the Trust, or any
employee or agent of the trust or its affiliates (each an "Indemnified
Person") shall be liable, responsible or accountable in damages or otherwise
to the Trust or any employee or agent of the trust or its affiliates for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by the such Indemnified Person in good faith on behalf of the Trust
and in a manner such Indemnified Person reasonably believed to be within the
scope of the authority conferred on such Indemnified Person by the Declaration
or by law, except that an Indemnified Person shall be liable for any such
loss, damage or claim incurred by reason of such Indemnified Person's gross
negligence (or, in the case of the Trustee, negligence) or willful misconduct
with respect to such act or omissions. The Declaration also provides that to
the fullest extent permitted by applicable law, the Company shall indemnify
and hold harmless each Indemnified Person from and against any loss, damage or
claim incurred by such Indemnified Person by reason of any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Trust and in a manner such Indemnified Person reasonably believed to be within
the scope of authority conferred on such Indemnified Person by the
Declaration, except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, damage or claim incurred by such
Indemnified Person by reason of gross negligence (or, in the case of the
Trustee, negligence) or willful misconduct with respect to such acts or
omissions. The Declaration further provides that, to the fullest extent
permitted by applicable law, expenses (including legal fees) incurred by an
Indemnified Person in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
or an undertaking by or on behalf of the Indemnified Person to repay such
amount if it shall be determined that the Indemnified Person is not entitled
to be indemnified for the underlying cause of action as authorized by the
Declaration. The directors and officers of the Company and the Regular
Trustees are covered by insurance policies indemnifying them against certain
liabilities, including certain liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), which might be incurred by them in
such capacities and against which they cannot be indemnified by the Company or
the Trust. The Selling Holders will be indemnified by the Company and the
Trust, jointly and severally, against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith. The Company and the Trust will be
indemnified by the Selling Holders severally against certain civil
liabilities, including certain liabilities under the Securities Act, or will
be entitled to contribution in connection therewith.
Item 16. Exhibits and Financial Statement Schedules.
A. Exhibits
The following exhibits are filed as part of this Registration
Statement:
Exhibit No. Description
- ------------------- ------------------------------------------------------
4.1 Certificate of Trust of CalEnergy Capital Trust
4.2 Amended and Restated Declaration of Trust of CalEnergy
Capital Trust, dated as of April 4, 1996, among
CalEnergy Company, Inc., as Sponsor, The Bank of New
York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee and Steven A.
McArthur, John G. Sylvia and Gregory Abel, as
Trustees
4.3 Indenture for the 6 1/4% Convertible Junior
Subordinated Debentures, dated as of April 1, 1996,
among CalEnergy Company, Inc., as Issuer, and The
Bank of New York, as Trustee
II-2
4.4 Form of 6 1/4% Convertible Preferred Securities Term
Income Deferrable Equity Securities (TIDES)SM
(included in Exhibit 4.2 above)
4.5 Form of 6 1/4% Convertible Junior Subordinated
Debentures (included in Exhibit 4.3 above)*
4.6 CalEnergy Company, Inc. Preferred Securities Guarantee,
dated as of April 10, 1996, between CalEnergy
Company, Inc., as Guarantor, and The Bank of New
York, as Preferred Guarantee Trustee
4.7 CalEnergy Company, Inc. Common Securities Guarantee,
dated as of April 10, 1996, by CalEnergy Company,
Inc., as Guarantor
5.1* Opinion of Willkie Farr & Gallagher as to the
legality of the TIDES, Convertible Junior
Subordinated Debentures and Preferred Securities
Guarantee being registered hereby
5.2* Opinion of Steven A. McArthur, General Counsel of
CalEnergy Company, Inc., as to the legality of the
Common Stock of CalEnergy Company, Inc., being
registered hereby
8.1* Opinion of Willkie Farr & Gallagher as to certain tax
matters
10.1 Registration Rights Agreement, dated April 10, 1996,
by and among CalEnergy Capital Trust, CalEnergy
Company, Inc., CS First Boston Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated
12.1 Statement on Ratio of Earnings to Fixed Charges of
CalEnergy Company, Inc.
15.1 Awareness letter of Deloitte & Touch LLP
23.1 Consent of Deloitte & Touche LLP, independent public
accountants
23.2 Consent of Arthur Andersen LLP, independent public
accountants
23.3* Consent of Willkie Farr & Gallagher is contained in
the opinions of counsel filed as Exhibits 5.1 and 8.1
23.4* Consent of Steven A. McArthur, General Counsel of
CalEnergy Company, Inc., is contained in the opinion
filed as Exhibit 5.2
24.1 Power of Attorney
25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Trustee under the 6 1/4Convertible Junior
Subordinated Debentures Indenture
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Property Trustee under the Amended and
Restated Declaration of Trust
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of New
York, as Preferred Guarantee Trustee under the
Preferred Securities Guarantee
- ------------------------------
* To be filed by amendment
B. Financial Statements and Schedules
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission either are not required under the related
instructions or the information required to be included therein has been
included in the financial statements and schedule of CalEnergy Company, Inc.
included in its Form 10-K.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933, as amended (the "Securities Act").
II-3
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Securities and Exchange
Commission ("SEC") by such registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described in Item 15 or
otherwise, the Registrant has been advised that in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the SEC under Section
305(b)(2) of the Trust Indenture Act.
(e) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, CalEnergy
Company, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Omaha, State of Nebraska, on July
17, 1996.
CALENERGY COMPANY, INC.
By: /s/ David L. Sokol
---------------------------
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- -----------------------------------------------------------------------------
/s/ David L. Sokol Chairman of the Board, July 17, 1996
- ------------------- Chief Executive Officer, and
David L. Sokol Director
/s/ John G. Sylvia Senior Vice President, July 17, 1996
- ------------------- Chief Financial Officer and
John G. Sylvia Treasurer
/s/ Gregory E. Abel Senior Vice President, Controller July 17, 1996
- ------------------- and Chief Accounting Officer
Gregory E. Abel
* Director July 17, 1996
- -------------------
Edgar D. Aronson
* Director July 17, 1996
- -------------------
Judith E. Ayres
* Director July 17, 1996
- -------------------
James Q. Crowe
* Director July 17, 1996
- -------------------
Richard K. Davidson
* By /s/ Steven A. McArthur
-------------------------
Attorney-In-Fact
II-5
* Director July 17, 1996
- -----------------------------
Richard R. Jaros
* Director July 17, 1996
- -----------------------------
Ben Holt
* Director July 17, 1996
- -----------------------------
John R. Shiner
* Director July 17, 1996
- -----------------------------
Bernard W. Reznicek
* Director July 17, 1996
- -----------------------------
Walter Scott, Jr.
* Director July 17, 1996
- -----------------------------
David E. Wit
* By /s/ Steven A. McArthur
-----------------------
Attorney-In-Fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, CalEnergy
Capital Trust certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Omaha, State of Nebraska, on July
17, 1996.
CALENERGY CAPITAL TRUST
By: /s/ Steven A. McArthur
---------------------------
Trustee
By: /s/ John G. Sylvia
---------------------------
Trustee
By: /s/ Gregory E. Abel
---------------------------
Trustee
II-7
EXHIBIT INDEX
Exhibit
Number Exhibit Description Page
------- ------------------- ----
4.1 Certificate of Trust of CalEnergy Capital Trust
4.2 Amended and Restated Declaration of Trust of
CalEnergy Capital Trust, dated as of April 4, 1996,
among CalEnergy Company, Inc., as Sponsor, The Bank
of New York, as Property Trustee, The Bank of New
York (Delaware), as Delaware Trustee and Steven A.
McArthur, John G. Sylvia and Gregory Abel, as
Trustees
4.3 Indenture for the 6 1/4% Convertible Junior
Subordinated Debentures, dated as of April 1, 1996,
among CalEnergy Company, Inc., as Issuer, and The
Bank of New York, as Trustee
4.4 Form of 6 1/4% Convertible Preferred Securities
Term Income Deferrable Equity Securities (TIDES) SM
(included in Exhibit 4.2 above)
4.5 Form of 6 1/4% Convertible Junior Subordinated
Debentures (included in Exhibit 4.3 above)
4.6 CalEnergy Company, Inc. Preferred Securities
Guarantee, dated as of April 10, 1996, between
CalEnergy Company, Inc., as Guarantor, and The Bank
of New York, as Preferred Guarantee Trustee
4.7 CalEnergy Company, Inc. Common Securities
Guarantee, dated as of April 10, 1996, by CalEnergy
Company, Inc., as Guarantor
5.2* Opinion of Steven A. McArthur, General Counsel of
CalEnergy Company, Inc., as to the legality of the
Common Stock of CalEnergy Company, Inc., being
registered hereby
8.1* Opinion of Willkie Farr & Gallagher as to certain
tax matters
10.1 Registration Rights Agreement, dated April 10, 1996,
by and among CalEnergy Capital Trust, CalEnergy
Company, Inc., CS First Boston Corporation and
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as the Initial Purchasers
12.1 Statement on Ratio of Earnings to Fixed Charges of
CalEnergy Company, Inc.
15.1 Awareness letter of Deloitte & Touche LLP
23.1 Consent of Deloitte & Touche LLP, independent
public accountants
23.2 Consent of Arthur Andersen LLP, independent
public accountants
23.3* Consent of Willkie Farr & Gallagher is contained in
the opinions of counsel filed as Exhibits 5.1 and
8.1
23.4* Consent of Steven A. McArthur, General Counsel of
CalEnergy Company, Inc., is contained in the opinion
filed as Exhibit 5.2
24.1 Power of Attorney
25.1 Form T-1 Statement of Eligibility under the Trus
Indenture Act of 1939, as amended, of The Bank of
New York, as Trustee under the 6 1/4% Convertible
Junior Subordinated Debentures Indenture
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Trustee under the Amended and Restated
Declaration of Trust
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Preferred Guarantee Trustee under the
Preferred Securities Guarantee
- ------------------
* To be filed by amendment
II-8