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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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MAGMA POWER COMPANY
(Name of Subject Company)
MAGMA POWER COMPANY
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
0005591941
(CUSIP number of Class of Securities)
JON R. PEELE, ESQ.
Executive Vice President, Secretary and General Counsel
MAGMA POWER COMPANY
4365 EXECUTIVE DRIVE, SUITE 900
SAN DIEGO, CALIFORNIA 92121
(619) 622-7800
(Name, address and telephone number of person authorized to receive notice and
communications on behalf of the person(s) filing statement)
Copies to:
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Michael J. Kennedy, Esq. David W. Heleniak, Esq.
SHEARMAN & STERLING SHEARMAN & STERLING
555 California Street 599 Lexington Avenue
San Francisco, California 94104 New York, New York 10022
(415) 616-1100 (212) 848-4000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Magma Power Company, a Nevada corporation
("Magma" or the "Company"), and the address of its principal executive offices
is 4365 Executive Drive, Suite 900, San Diego, California 92121. The title of
the class of equity securities to which this statement relates is the Common
Stock, par value $0.10 per share, of Magma (the "Shares"), including the
associated rights (the "Rights") to purchase shares of Series A Preferred
Stock, par value $0.10 per share, of Magma issued pursuant to the Rights
Agreement, dated October 6, 1994, between Magma and Chemical Trust Company of
California, as Rights Agent (the "Rights Agreement"). Unless the context
otherwise requires, all references herein to the Shares shall include the
associated Rights.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1 dated December 9, 1994, as amended through the date
hereof (the "Schedule 14D-1"), of CE Acquisition Company, Inc., a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of California
Energy Company, Inc., a Delaware corporation ("California Energy" or "Parent"),
to purchase 12,400,000 Shares at a price of $39 per Share net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated December 9, 1994 (the "Offer to Purchase"), as amended through
the date hereof, and the related Letter of Transmittal and any supplement
thereto (which together constitute the "Offer"). The Offer is being made
pursuant to an Agreement and Plan of Merger among Parent, the Purchaser and the
Company dated as of December 5, 1994 (the "Merger Agreement").
Pursuant to the Merger Agreement, the Purchaser will, as soon as practicable
following consummation of the Offer, consummate a merger (the "Merger") with
the Company. In the Merger, each outstanding Share (other than Shares held by
Parent, the Purchaser or any other direct or indirect subsidiary of Parent,
Shares held in the treasury of the Company and Shares held by stockholders who
properly exercise dissenters' rights under the Nevada General Corporation Law
(the "NGCL")) will be converted into the right to receive, at Parent's option,
either (i) the All Cash Component Amount (as defined below), net in cash,
without interest thereon, or (ii) both (A) the Mixed Cash Component Amount (as
defined below), net in cash, without interest thereon, and (B) the number of
fully paid and nonassessable shares of common stock, par value $0.0675 per
share, of Parent ("California Energy Common Stock") equal to the quotient of
(I) $39.00 less (II) the Mixed Cash Component Amount divided by the Average
Closing Price (as defined below) (the All Cash Component Amount or (ii)(A) and
(ii)(B), collectively, as applicable, being the "Merger Consideration"). The
"Mixed Cash Component Amount" shall mean an amount equal to the quotient of (A)
(x) $28.50 multiplied by the number of Shares outstanding at the Effective Time
less (y) $39.00 multiplied by the number of Shares owned by Parent and any of
its affiliates immediately prior to the Effective Time, divided by (B) the
number of Shares outstanding at the Effective Time (other than Shares owned by
Parent and any of its affiliates). The "All Cash Component Amount" shall mean
an amount equal to the quotient of (A) (x) $38.75 multiplied by the number of
Shares outstanding at the Effective Time less (y) $39.00 multiplied by the
number of Shares owned by Parent and any of its affiliates immediately prior to
the Effective Time, divided by (B) the number of Shares outstanding at the
Effective Time (other than Shares owned by Parent and any of its affiliates).
The "Average Closing Price" shall mean the average closing price of California
Energy Common Stock on the New York Stock Exchange (the "NYSE") during the 15
consecutive trading days ending on the fifth business day prior to the
Effective Time; provided, however, that if such average closing price exceeds
$18.73, the Average Closing Price shall be $18.73, and if such average closing
price is less than $14.27, the Average Closing Price shall be $14.27 (such
proviso being referred to herein as the "Collar Provision").
On December 2, 1994, California Energy and the Purchaser terminated the
tender offer disclosed in a Tender Offer Statement on Schedule 14D-1 dated
October 6, 1994, as amended through December 2, 1994 (the "Prior Schedule 14D-
1"), of the Purchaser and California Energy, to purchase 12,400,000 Shares at a
price of $38.50 net to the seller in cash, upon the terms and subject to the
conditions set forth in a offer to purchase dated October 6, 1994 (the "Prior
Offer to Purchase"), as amended through December 2, 1994, and the related
letter of transmittal and the supplement thereto (which together constituted
the "Prior Offer").
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According to the Schedule 14D-1, the address of the principal executive
offices of California Energy is 10831 Old Mill Road, Omaha, Nebraska 68194.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of Magma, which is the person filing this statement,
are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
Magma and certain of its directors, executive officers and affiliates are
described the sections entitled "Compensation of Directors", "Executive
Compensation", "Certain Relationships and Related Transactions" and "Agenda
Item 2: Approval of the 1994 Equity Participation Plan" in Magma's Proxy
Statement dated May 11, 1994 for Magma's 1994 Annual Meeting of Stockholders
(the "1994 Annual Meeting Proxy Statement"). These sections of the 1994 Annual
Meeting Proxy Statement are filed as Exhibit 1 hereto and are incorporated
herein by reference.
(i) Severance Agreements with Officers of the Company. In November 1993 the
Compensation Committee of the Board of Directors of Magma (the "Compensation
Committee") determined that, in order to attract and retain key executives of
the Company, from time to time it would be in the Company's best interests to
enter into "change in control" agreements with key executives. The Compensation
Committee authorized the Company to enter into agreements subject to the
following parameters:
(A) provision for up to two times base and bonus salary;
(B) accelerated vesting of options; and
(C) continuation of health and insurance benefits.
Each of the items referred to in (A) through (C) would be triggered by a
Change in Control (as defined below) of the Company followed by termination of
the relevant officer's employment by the Company within a specified period,
other than for cause, disability or retirement.
On September 15, 1994 the Company entered into change in control agreements
with each of its six current executive officers (Paul Pankratz, Chairman of the
Board, Ralph Boeker, President and Chief Executive Officer, Jon Peele,
Executive Vice President, General Counsel and Secretary, Ken Kerr, Senior Vice
President--Commercial Development, Trond Aschehoug, Vice President--North
American Operations, and Wallace Dieckmann, Vice President and Chief Financial
Officer) ("Agreement I") and with nine other officers (Tom Hinrichs, Vice
President--Government Affairs, David Olsen, Vice President--Marketing, Jim
Runchey, Vice President--Human Resources and Administration, Russ Tenney, Vice
President--Asian Operations, Steve Jaye, Vice President--Legal Affairs, Mark
Robinson, Vice President--Business Development, Paul Zapf, Corporate
Controller, Joe Asiala, Director--Resource Development and Management, and Jim
Turner, Director --Engineering and Technology) ("Agreement II").
The agreements provide for certain severance payments to those officers in
the event of the termination of their employment following a Change in Control
of the Company, consistent with the enabling resolutions passed by the
Compensation Committee in the fall of 1993. Each agreement has a term expiring
on December 31, 1997, renewable at the end of such term if mutually agreed to
by the officer and the Company.
Agreement I provides that if the officer's employment is terminated by the
Company for any reason other than for Cause, Disability or Retirement (as such
terms are defined in Agreement I) or by the officer for Good Reason (as such
term is defined in Agreement I) within two years following a Change in Control
(as such term is defined below), (i) the Company will pay the officer, within
30 days of the date of termination, a cash payment (the "Severance Payment")
equal to 200% of the sum (the "Sum") of (A) the officer's base salary for the
twelve months immediately preceding the Change in Control and (B) the officer's
entire targeted bonus payable under the Company's Management Incentive Bonus
Plan or other executive bonus plan then
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in effect and (ii) all Magma deferred shares or similar Magma securities and
all options to purchase Magma securities then held by the officer shall
immediately vest. The Company will continue to provide the officer and his or
her dependents group life and health insurance benefits substantially the same
as those in effect immediately prior to the Change in Control, increased to the
extent that such benefits are increased following the Change in Control, for 24
months following the officer's date of termination. In the event that any
payments or benefits under the agreement would not be deductible (in whole or
in part) by the Company as a result of the application of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), the Severance Payment
will be reduced until no portion of the Severance Payment and benefits is not
deductible as a result of Section 280G of the Code.
Agreement II provides the same level of payments and benefits as provided in
Agreement I except that the Severance Payment shall equal 100% of the
applicable Sum and that health insurance benefits shall be provided for 12
months following a Change in Control.
A "Change in Control" shall be deemed to have occurred (i) in the event of
the acquisition by any person, together with its affiliates, of beneficial
ownership of capital stock of the Company possessing 30% or more of the
combined voting power of the Company outstanding capital stock, (ii) if within
any two-year period, the majority of the members of the Board of Directors of
Magma (the "Magma Board") were to be comprised of individuals other than those
who were members at the beginning of such period, unless the members elected
during such period were approved by a majority of the Magma Board in office
immediately prior to the beginning of such period, (iii) if all or
substantially all of the Company's assets are sold as an entirety to any person
or related group of persons or (iv) if the Company is merged with or into
another corporation or another corporation is merged into the Company with the
effect that immediately after such transaction the shareholders of the Company
immediately prior to such transaction hold less than a majority in interest of
the total voting power entitled to vote in the election of directors, managers
or trustees of the entity surviving such transaction.
At a regularly scheduled Board of Directors meeting held on September 20,
1994, the Compensation Committee authorized a change to the definition of "Good
Reason" in these agreements, the effect of which would allow a covered
executive to resign for "Good Reason" if, after a Change in Control, the
executive were required to relocate more than 50 miles from his then current
place of employment.
The foregoing description is qualified in its entirety by reference to the
agreements, copies of which are filed as Exhibits 2 and 3 respectively, and are
incorporated herein by reference.
(ii) Indemnification Agreements. At its September 20 meeting, the Magma Board
authorized the Company to enter into indemnity agreements with each member of
the Magma Board. At that meeting the form of indemnification agreement
previously prepared by the Company's counsel was presented to each member of
the Magma Board, and each member of the Magma Board executed an indemnification
agreement.
The indemnification agreements supplement the protections afforded to the
Company's directors under the Company's articles and bylaws primarily by
providing for mandatory advancement of expenses in certain cases. In general,
the indemnification agreements provide for the Company to indemnify the
directors against expenses, judgments, fines, penalties, ERISA excise taxes and
amounts paid in settlement arising in connection with third party proceedings
and proceedings by or in the right of the Company against any director relating
to his services to the Company if such director acted in good faith and in a
manner such director reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to criminal proceedings, had no
reasonable cause to believe his behavior was unlawful.
The foregoing description of the indemnification agreements is qualified in
its entirety by reference to the form of agreement, a copy of which is filed as
Exhibit 4 and is incorporated herein by reference.
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(iii) The Merger Agreement. The following is a summary of the Merger
Agreement. Defined terms used below and not defined herein have the respective
meanings assigned to those terms in the Merger Agreement. Such summary is
qualified in its entirety by reference to the Merger Agreement, a copy of which
is filed as Exhibit 5 hereto and is incorporated herein by reference.
The Offer and the Merger. The Merger Agreement provides for the making of the
Offer by the Purchaser upon the terms and subject to the conditions set forth
in the Offer to Purchase. The Merger Agreement further provides that as
promptly as practicable after the satisfaction or waiver of the conditions
described below, the Purchaser will be merged with and into the Company, with
the Company continuing as the surviving corporation following the Merger (the
"Surviving Corporation"). As a result of the Merger, the Company will become a
wholly owned subsidiary of California Energy. In addition, the directors of the
Purchaser immediately prior to the Effective Time will become the initial
directors of the Surviving Corporation, and the officers of the Company
immediately before the Effective Time will be the initial officers of the
Surviving Corporation, in each case until their successors are duly elected or
appointed and qualified.
Conditions to the Obligations of Each Party to Effect the
Merger. Consummation of the Merger is subject to certain conditions, including
(i) the purchase of Shares pursuant to the Offer, (ii) approval and adoption of
the Merger and the Merger Agreement by the requisite vote of the Company's
stockholders, (iii) approval of the issuance of California Energy Common Stock
in order to effectuate the Merger by the requisite vote of California Energy's
stockholders, (iv) the California Energy Common Stock issuable to the Company's
stockholders in the Merger having been authorized for listing on the NYSE upon
official notice of issuance, (v) the registration statement to be filed with
the Commission by California Energy on Form S-4 under the Securities Act of
1933, as amended (the "Securities Act"), for the purpose of registering the
shares of California Energy Common Stock to be issued in the Merger shall have
become effective in accordance with the provisions of the Securities Act and no
stop order suspending such effectiveness shall have been issued by the
Commission and remain in effect, and (vi) that there shall not be in effect (a)
any judgment, decree or order issued by any Federal, state or local court of
competent jurisdiction, or (b) any statute, rule or regulation enacted or
promulgated by any Federal, state, local or legislative, administrative or
regulatory body of competent jurisdiction, that in either of cases (a) or (b)
prohibits the consummation of the Merger or makes such consummation illegal.
The Merger Consideration. In the Merger, each outstanding Share (other than
Shares held by California Energy, the Purchaser or any other direct or indirect
subsidiary of California Energy, Shares held in the treasury of the Company and
Shares held by stockholders who properly exercise dissenters' rights under the
NGCL), will be converted into the right to receive, at California Energy's
option, either (i) the All Cash Component Amount, net in cash, without interest
thereon, or (ii) both (A) the Mixed Cash Component Amount, net in cash, without
interest thereon, and (B) the number of fully paid and nonassessable shares of
California Energy Common Stock equal to the quotient of (I) $39.00 less (II)
the Mixed Cash Component Amount divided by the Average Closing Price (as
defined below). The "Mixed Cash Component Amount" shall mean an amount equal to
the quotient of (A) (x) $28.50 multiplied by the number of Shares outstanding
at the Effective Time less (y) $39.00 multiplied by the number of Shares owned
by California Energy and any of its affiliates immediately prior to the
Effective Time, divided by (B) the number of Shares outstanding at the
Effective Time (other than Shares owned by California Energy and any of its
affiliates). The "All Cash Component Amount" shall mean an amount equal to the
quotient of (A) (x) $38.75 multiplied by the number of Shares outstanding at
the Effective Time less (y) $39.00 multiplied by the number of Shares owned by
California Energy and any of its affiliates immediately prior to the Effective
Time, divided by (B) the number of Shares outstanding at the Effective Time
(other than Shares owned by California Energy and any of its affiliates). The
"Average Closing Price" shall mean the average closing price of California
Energy Common Stock on the NYSE during the 15 consecutive trading days ending
on the fifth business day prior to the Effective Time; provided, however, that
if such average closing price exceeds $18.73, the Average Closing Price shall
be $18.73, and if such average closing price is less than $14.27, the Average
Closing Price shall be $14.27.
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The foregoing formula for determining the consideration to be paid in the
Merger was determined so that (i) if California Energy determines to pay the
Merger Consideration with a combination of cash and California Energy Common
Stock, the consideration paid by California Energy in the Offer and the Merger
would consist, on a blended basis, of $28.50 per Share in cash and $10.50 per
Share in market value of California Energy Common Stock, based on the Average
Closing Price and subject to the Collar Provision, and (ii) if California
Energy determines to pay only cash consideration in the Merger, the blended
consideration paid by California Energy in the Offer and the Merger would be
$38.75 per Share. The consideration to be paid in the Offer and the Merger,
including the terms of the Collar Provision, was negotiated on an arm's length
basis between California Energy and the Company. The purpose of the Collar
Provision is to limit the number of shares of California Energy Common Stock
required to be issued in the Merger if the Average Closing Price is less than
$14.27 and to establish a minimum number of shares of California Energy Common
Stock required to be issued in the Merger if the Average Closing Price exceeds
$18.73. It is California Energy's current intention to pay solely in cash
although such intention is based on expected market conditions and other
factors which may change.
Company Stock Options. Each option outstanding immediately prior to the
Effective Time under the Company Stock Option Plans (as defined in the Merger
Agreement), whether or not then exercisable, shall be cancelled by the Company
and, in exchange therefor, each holder of any such option shall be entitled to
receive from the Company at the Effective Time, or as soon as practicable
thereafter, an amount in cash equal to the product of (x) the number of Shares
previously subject to such option and (y) the excess, if any, of $39.00 or, if
California Energy has elected the All Cash Component Amount, $38.75, over the
exercise price per Share previously subject to such option. Each unvested share
of deferred stock outstanding immediately prior to the Effective Time (each, a
"Deferred Share") shall be cancelled by the Company and each holder of a
cancelled Deferred Share shall be entitled to receive at the Effective Time or
as soon as practicable thereafter from the Company an amount in cash equal to
$39.00 or, if California Energy has elected the All Cash Component Amount,
$38.75.
Magma and California Energy Board Representation. The Merger Agreement
provides that, subsequent to consummation of the Offer, the Purchaser will be
entitled to that percentage of the number of seats on the Board (rounded to the
nearest whole seat) as reflects the percentage of the outstanding Shares then
owned by the Purchaser, but in no event less than a majority of the entire
Board of Directors of the Company (regardless of vacancies). In order to
provide the Purchaser with such representation on the Board, the Company may be
required to increase the size of the Board or to secure the resignation of one
or more directors; provided, however, that such resignations will not cause the
number of Disinterested Directors (as defined below) to be less than two. If
the Purchaser acquires Shares pursuant to the Offer and determines to obtain
majority representation on the Board, the Company will be required to send to
stockholders the information required by Rule 14f-1 under the Exchange Act, and
California Energy and the Purchaser will be required to furnish to the Company
all such information with respect to itself and its directors, officers and
affiliates. Following the election or appointment of the foregoing nominees and
prior to the Effective Time, any amendment of the Merger Agreement or the
Company's Articles of Incorporation or Bylaws, any termination of the Merger
Agreement by the Company, any extension by the Company of the time for the
performance of any of the obligations or other acts of California Energy or the
Purchaser or waiver of any of the Company's rights under the Merger Agreement,
and any other consent or action by the Company's Board of Directors under the
Merger Agreement will require the concurrence of a majority (which shall be at
least two) of the directors of the Company who are not designees of California
Energy or the Purchaser ("Disinterested Directors").
California Energy has agreed to nominate and use its best efforts to cause up
to two nominees of the Company to be elected or appointed as members of
California Energy's Board of Directors.
Other Proposals. The Merger Agreement further provides that neither the
Company nor any of its subsidiaries, or any of their respective directors,
officers, agents, financial advisors or otherwise may solicit, initiate or
knowingly encourage the submission of proposals or offers from any person
relating to any Competing Transaction (as defined below) or participate in any
negotiations regarding, or furnish to any other person any information (except
for information which has been previously publicly disseminated by the
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Company in the ordinary course of business) with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. The Company may (i) review and act upon (which actions may include,
without limitation, providing confidential information, negotiating a
transaction and entering into an agreement for a transaction) an unsolicited
proposal by any other person relating to any of the transactions referred to in
the preceding sentence, if the Board determines in good faith, after
consultation with and based upon the advice of its financial and legal
advisors, that failing to review and act upon such proposal would constitute a
breach of fiduciary duty and (ii) comply with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer, and such review,
conduct or compliance will not violate the Merger Agreement. "Competing
Transaction" shall mean any of the following involving the Company or any of
its subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 50% or more of the assets of
the Company and its subsidiaries, taken as a whole, in a single transaction or
series of transactions; (iii) any tender offer or exchange offer for 50% or
more of the Shares or the filing of a registration statement under the
Securities Act in connection therewith; (iv) any person having acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 50% or
more of the Shares; or (v) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
The Company has agreed to notify California Energy immediately if any
inquiries are received by, any information is requested from, or any
negotiations or discussions are sought to be initiated or continued with the
Company, in each case in connection with any acquisition, business combination
or purchase of all or any significant portion of the assets of, or any equity
interest in, the Company or any subsidiary.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of the parties thereto, including
representations by each of the Company and California Energy as to the absence
of certain changes or events concerning its business, compliance with law,
energy regulatory status, environment, employee benefit plans, insurance,
taxes, related party transactions, the status of development and construction
projects and the status of operating projects.
Certain Covenants of the Company, California Energy and the Purchaser. The
Company has agreed that, prior to the Effective Time, unless California Energy
shall otherwise consent in writing and except as is otherwise permitted by the
Merger Agreement, the businesses of the Company and its subsidiaries shall be
conducted only in, and the Company and its subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice; and the Company will use its best efforts to preserve
substantially intact its business organization, to keep available the services
of its present officers, employees and consultants and to preserve its present
relationships with customers, suppliers and other persons with which it or any
of its subsidiaries has significant business relations. By way of amplification
and not limitation, except as contemplated by the Merger Agreement, the Company
has agreed that neither it nor any of its subsidiaries will, prior to the
Effective Time, directly or indirectly, do any of the following without the
prior written consent of California Energy: (a) (i) issue, sell, pledge,
dispose of, encumber, authorize, or propose the issuance, sale, pledge,
disposition, encumbrance or authorization of any Shares or shares of its
subsidiaries' capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of its or its
subsidiaries' capital stock, or any other ownership interest (except with
respect to Shares previously reserved for issuance as disclosed in Section 4.03
of the Merger Agreement); (ii) amend or propose to amend its articles of
incorporation or bylaws or equivalent organizational documents; (iii) split,
combine or reclassify any of its outstanding common stock, or declare, set
aside or pay any dividend or distribution payable in cash, stock, property or
otherwise with respect to the common stock; (iv) redeem, purchase or otherwise
acquire or offer to redeem, purchase or otherwise acquire any shares of its
capital stock, except in the performance of its obligations under existing
employee plans; or (v) authorize or propose or enter into any contract,
agreement, commitment or arrangement with respect to
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any of the matters set forth in this section (a); (b) (i) acquire (by merger,
consolidation, or acquisition of stock, partnership interests or assets) any
corporation, partnership or other business organization or division thereof or
any other interests in operating properties; (ii) except in the ordinary course
of business and in a manner consistent with past practices, sell, pledge,
lease, transfer, dispose of, or encumber or authorize or propose the sale,
pledge, lease, transfer, disposition or encumbrance of any of its or its
subsidiaries' assets (including intangible assets); (iii) create, incur, assume
or guarantee any indebtedness or other similar obligation, or enter into any
contract or agreement, except in the ordinary course of business and consistent
with past practice; (iv) enter into any new line of business or make any bid or
enter into any commitment in respect of any new or proposed projects; (v)
prepay or refinance any part of the principal or interest of any existing
indebtedness before the due date thereof; (vi) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity, except for
endorsements in the ordinary course of business in connection with the deposit
of items for collection; (vii) make any loans, advances or capital
contributions to or investments in any person or entity; (viii) waive, release,
grant or transfer any rights of value or modify or change in any material
respect any existing license, material lease or commitment; (ix) make or commit
to or guarantee any single capital expenditure or obligation which is not
consistent with past practice and currently budgeted; or (x) enter into or
amend any contract, agreement, commitment or arrangement with respect to any of
the matters set forth in this section (b); (c) take any action other than in
the ordinary course of business and in a manner consistent with past practice
(none of which actions shall be unreasonable or unusual) with respect to the
grant of any severance or termination pay (otherwise than pursuant to policies
of the Company or any of its subsidiaries in effect on November 30, 1994) or
with respect to any increase of benefits payable under its severance or
termination pay policies in effect on November 30, 1994; (d) make any payments
(except in the ordinary course of business and in amounts and in a manner
consistent with past practice) under any of its employee plans to any of its or
its subsidiaries' employees, independent contractors or consultants, enter into
any new employee plan, any new employment or consulting agreement, grant or
establish any new awards under such plan or agreement, or adopt or otherwise
amend any of the foregoing; (e) take any action except in the ordinary course
of business and in a manner consistent with past practice (none of which
actions shall be unreasonable or unusual) with respect to accounting policies
or procedures (including, without limitation, its procedures with respect to
the payment of accounts payable); (f) before the purchase of Shares pursuant to
the Offer and other than pursuant to the Merger Agreement, take any action to
cause the shares of its common stock to cease to be listed on the NNM; (g)
cause or permit any of their current insurance (or reinsurance) policies to be
cancelled or terminated or any of the coverage thereunder to lapse, unless
forthwith upon notice of such termination, cancellation or lapse, the Company
or such subsidiary used its best efforts to obtain commercially reasonable
replacement policies from the same or comparable insurers providing coverage
which is the same as or comparable to that provided under the cancelled,
terminated or lapsed policies; (h) enter into any agreement or transaction with
any affiliate of the Company upon terms and conditions less favorable to the
Company or such affiliate than could be obtained on an arm's length basis,
except for agreements or transactions in the ordinary course of business and
consistent with past practice; (i) settle any material pending litigation; or
(j) enter into any oral or written agreement, contract, commitment, arrangement
or understanding with respect to any of the foregoing.
Notwithstanding the foregoing: (i) the Company may close the financing of its
Malitbog project without the prior consent of California Energy; provided that
California Energy has been given the opportunity to review the relevant
financing documents and the Company has given California Energy at least two
days' prior notice of the anticipated closing date; (ii) the Company may make
and commit to ordinary course budgeted operational capital and other
expenditures relating to projects in operation or construction without the
consent of California Energy; (iii) the Company may make planned capital and
operational expenditures with respect to its Malitbog project, without the
consent of California Energy; (iv) the Company will not make any capital or
other expenditures in excess of $500,000 in the aggregate with respect to its
Nevada Power Pumped Storage contract, its Alto Peak contract and any other
contract related to a development project without prior consultation with
California Energy and California Energy's consent; (v) the Company may honor
all existing contractual obligations relating to projects in operation or
construction without the
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consent of California Energy; and (vi) the Company will not incur any
additional indebtedness (secured or unsecured) or make new project or capital
commitments in excess of $1,000,000 without prior consultation with California
Energy and California Energy's consent.
California Energy has agreed that, prior to the Effective Time, unless the
All Cash Component election has been made or unless the Company shall otherwise
consent in writing, and except as is otherwise permitted by the Merger
Agreement, neither California Energy nor any of the California Energy
subsidiaries shall, directly or indirectly, do any of the following: (a)(i)
issue or sell, or propose the issuance or sale of, any shares of its or its
subsidiaries' capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of its or its
subsidiaries' capital stock, or any other ownership interest (except with
respect to California Energy Common Stock previously reserved for issuance as
disclosed in Section 3.03 of the Merger Agreement) if (A) the proceeds of any
such issuance or sale ("Proceeds") exceed $50,000,000, and (B) such Proceeds
are not applied, if necessary, so as to allow California Energy to exercise the
All Cash Component election; (ii) split, combine or reclassify any of its
outstanding common stock, or declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise with respect to the
common stock; (iii) redeem, purchase or otherwise acquire or offer to redeem,
purchase or otherwise acquire any shares of its capital stock, except in the
performance of its obligations under existing employee plans or pursuant to a
repurchase program under Rule 10b-18 promulgated under the Exchange Act; or
(iv) authorize or propose or enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this section (a);
(b) in the case of California Energy, merge or consolidate with or into another
person or engage in a recapitalization or other similar extraordinary business
transaction; (c) make any material change in accounting policies, other than as
required by generally accepted accounting principles; or (d) enter into any
oral or written agreement, contract, commitment, arrangement or understanding
with respect to any of the foregoing.
Access to Information. The Merger Agreement provides that from December 5,
1994 to the Effective Time, each of California Energy and the Company shall,
and shall cause their respective subsidiaries, officers, directors, employees,
auditors, attorneys and agents to, afford the officers, employees, auditors,
attorneys and agents of the other party (the "Respective Representatives")
complete access at all reasonable times and on reasonable notice to its
officers, employees, agents, accountants, properties, offices and other
facilities and to all books and records, and shall furnish such Respective
Representatives with all financial, operating and other data and information
and all information relating to the regulatory status of its plants (whether
held by it, a subsidiary, or agents thereof) as the other party, through its
officers, employees, agents or accountants, may reasonably request. All
information obtained by California Energy or the Company is required to be kept
confidential in accordance with confidentiality agreements dated December 4,
1994 entered into between California Energy and the Company.
Employee Benefits. The Merger Agreement provides that California Energy shall
cause the Surviving Corporation and its subsidiaries to (x) honor all
employment, change in control, deferred compensation, pension, retirement and
severance agreements in effect on December 5, 1994 between the Company or one
of its subsidiaries and any employee of the Company or one of its subsidiaries,
or maintained for the benefit of any employee of the Company or one of its
subsidiaries, and (y) honor all bonus determinations for the fiscal year ending
December 31, 1994 made by the Company or any of its subsidiaries prior to
December 5, 1994 with respect to the bonus plans and arrangements of the
Company and its subsidiaries. For a period of one year commencing on the
Effective Time, California Energy shall cause the Surviving Corporation to
provide active employees of the Company and its subsidiaries with benefits
(including, without limitation, welfare benefits) that are no less favorable,
taken as a whole, than the benefits provided under the Company Benefit Plans
(as defined in the Merger Agreement) (other than equity-based plans and bonus
plans) as in effect immediately prior to the Effective Date. To the extent that
service is relevant for eligibility, vesting or benefit calculations or
allowances (including, without limitation, entitlements to vacation and sick
days) under any plan or arrangement maintained in order to provide the benefits
described in the preceding sentence, such plan or arrangement shall credit
employees for service on or prior to the Effective Time with the Company
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or any of its subsidiaries. California Energy shall as promptly as practicable
after the Effective Time cause the Surviving Corporation to (or the Company may
prior to the Effective Time) amend each demand note made in favor of the
Company by an employee of the Company or one of its subsidiaries to provide
that (x) such demand note will not be repayable on demand from the Company and
(y) upon the involuntary termination without cause of the employment of such
employee, all sums owed under such demand note shall be payable in equal
quarterly installments over a period of not less than 36 months. With respect
to each employee of the Company (other than employees of the Company which are
parties to a "change in control" or "severance" agreement) who is, within the
one-year period following the closing of the Offer, either (i) terminated
without cause or (ii) terminated as a result of a reduction in force.
California Energy shall cause the Surviving Corporation to make the following
payments: (1) if, upon the effective date of such employee's termination, such
employee has less than one year's service with the Company, a payment equal to
three months' base salary plus an amount equal to one-fourth of the prior
year's targeted bonus for such employee, payable in twelve equal installments
over the twelve months following such termination; or (2) if, upon the
effective date of such employee's termination, such employee has one year or
more of service with the Company, a payment equal to six months' base salary
plus an amount equal to one-fourth of the prior year's targeted bonus for each
such employee, payable in twelve equal installments over the twelve months
following such termination. For the purposes of subclauses (1) and (2), if an
employee was not eligible for a bonus in the referenced prior year, then the
targeted bonus for the current year shall be used. An employee shall not be
eligible for the payments specified in subclause (1) or (2) if such employee's
termination relates to a reduction in force referred to in subclause (ii) above
and such employee has been offered a comparable position (in terms of
compensation) by California Energy at any location; provided, however, that no
such amounts referenced in (1) and (2) will be payable if, in the good faith
determination of the Company, the employee's job performance did not merit
continued employment or offer of relocation to a comparable position. An
employee may not receive the foregoing severance payments and simultaneously
receive any severance payments under the Company's severance policy described
in the first two sentences of this paragraph.
Disposition of Pending Litigation. The Merger Agreement provides that the
parties will jointly file a stipulation of dismissal without prejudice of, or
take other reasonable steps necessary to terminate without prejudice, the
action entitled Magma Power Company v. California Energy Company, Inc., et al.,
Case No. CV-N-94-00719-DWH, pending in the United States District Court for the
District of Nevada, including any and all claims and counterclaims asserted
against the Company, its directors, its officers, California Energy and the
Purchaser, with each party bearing its own costs and attorneys' fees.
Amendment. The Merger Agreement may be amended by action taken by California
Energy and the Purchaser, and by action taken by or on behalf of the Company's
Board at any time before the Effective Time; provided, however, that, after
approval of the Merger by the stockholders of the Company, no amendment may be
made which would materially adversely impact the interests of the Company's
stockholders or reduce the amount or change the type of consideration into
which each Share will be converted upon consummation of the Merger.
Termination. The Merger Agreement provides that it may be terminated at any
time before the Effective Time in the following circumstances: (a) by mutual
consent of the Boards of Directors of California Energy and the Company; or (b)
by the Company or California Energy if the Offer shall not have been
consummated by February 28, 1995; or (c) by the Company or California Energy if
the Effective Time shall not have occurred on or prior to September 30, 1995;
or (d) by either California Energy or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto shall use their best efforts to
lift), in each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by the Merger Agreement and such order, decree,
ruling or other action shall have become final and nonappealable; or (e) by
California Energy if (i) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of the Merger Agreement or any of the
transactions contemplated thereby or shall have resolved to do any of the
foregoing or (ii) the Board of Directors of the
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Company recommends to the holders of Shares any proposal with respect to a
merger, consolidation, share exchange or similar transaction involving the
Company or any of its Subsidiaries, other than the transactions contemplated by
the Merger Agreement; or (f) by California Energy if, without the Company's
consent, any person has acquired beneficial ownership or the right to acquire
beneficial ownership of or any "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) has been
formed which beneficially owns, or has the right to acquire beneficial
ownership of, more than 10% of the Shares; or (g) by the Company or California
Energy if (i) a corporation, partnership, person or other entity or group shall
have made a bona fide offer that the Board of Directors of the Company
determines in its good faith judgment and in the exercise of its fiduciary
duties, after consultation with and based upon the advice of its financial and
legal advisors, is more favorable to the Company's stockholders than the Offer
and the Merger or (ii) any person (including, without limitation, the Company
or any affiliate thereof), other than California Energy or any affiliate of
California Energy, shall have become the beneficial owner of more than 50% of
the then outstanding Shares; or (h) by either California Energy or the Company
if the other party shall have breached the Merger Agreement in any material
respect and such breach continues for a period of ten days after the receipt of
notice of the breach from the nonbreaching party.
Termination Fee for California Energy. The Merger Agreement provides that if
it is terminated pursuant to clause (e) or (g) or terminated by California
Energy pursuant to clause (h) of the preceding paragraph, the Company will be
required to pay California Energy a termination fee of $8,000,000 plus
California Energy's actual documented out-of-pocket expenses incurred since
September 13, 1994 in connection with the Merger Agreement and the transactions
contemplated thereby, including, without limitation, legal and professional
fees and expenses.
Termination Fee for the Company. The Merger Agreement provides that if by
December 19, 1994, California Energy has not delivered to the Company either a
revised Commitment Letter (as defined in the Merger Agreement) or definitive
loan documentation reflecting the financing contemplated by such Commitment
Letter which, in each case,(i) does not contain any due diligence conditions
regarding California Energy and the Company and its subsidiaries and (ii) has a
definition of "material adverse effect" and/or "material adverse change" that
substantially conforms in all material respects with the definition of Material
Adverse Effect (other than as provided in subclause (i) of the definition
provided below) contained in the Merger Agreement with respect to California
Energy and the Company, then California Energy will be required to pay the
Company a termination fee of $8,000,000 if (i) the Offer expires or is
terminated without the Purchaser having accepted for payment the Shares
tendered pursuant thereto or (ii) the Merger Agreement is terminated by either
California Energy or the Company because the Offer has not been consummated by
February 28, 1995 ((i) and (ii) collectively, the "Offer Termination Events");
provided, however, that the $8,000,000 termination fee will not be required to
be paid if failure to consummate the Offer results from one or more of the
following: (i) a Material Adverse Effect with respect to the Company shall
exist or shall have occurred and be continuing on or prior to the relevant
Offer Termination Event; (ii) the Company shall have materially breached the
Merger Agreement and California Energy shall have terminated the Merger
Agreement pursuant to clause (h) of the paragraph entitled "Termination" above;
or (iii) generally accepted accounting principles would require a restatement
of the Company's audited financial statements contained in the Company SEC
Reports (as defined in the Merger Agreement).
Certain Definitions. When used in connection with California Energy and the
Purchaser, the term "Material Adverse Effect" means any change or effect, when
taken together with all other adverse changes and effects relating to
California Energy or the Purchaser, which are not individually or in the
aggregate deemed to have a Material Adverse Effect, that is or is reasonably
likely to be materially adverse to the business, operations, properties,
condition (financial or otherwise), assets or liabilities (including, without
limitation, contingent liabilities) of California Energy and its subsidiaries
taken as a whole; provided, however, that the occurrence of any or all of the
following shall not constitute a Material Adverse Effect: (i) any change in any
law applicable to California Energy or any California Energy subsidiary or by
which any property or asset of California Energy or any California Energy
subsidiary is bound, (ii) a failure to receive any contract
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for which California Energy or any California Energy subsidiary has submitted
or will submit a competitive bid, (iii) the loss of any contract or arrangement
(whether by revocation, lapse or invalidity) with respect to a project that
California Energy or a California Energy subsidiary has under development other
than any such loss resulting from a breach by California Energy of the
representations and warranties set forth in Sections 3.22 and 3.23 of the
Merger Agreement (relating to the status of California Energy's development and
construction projects and its operating projects), (iv) a failure to close any
public or private financing of any project in which California Energy or any
California Energy subsidiary owns a direct or indirect interest or (v) the
termination of the employment of any employee, officer, director or consultant
of California Energy or any California Energy subsidiary.
When used in connection with the Company or any of its subsidiaries, the term
"Material Adverse Effect" means any change or effect, when taken together with
all other adverse changes and effects relating to the Company and its
subsidiaries, that is or is reasonably likely to be materially adverse to the
business, operations, properties, condition (financial or otherwise), assets or
liabilities (including, without limitation, contingent liabilities) of the
Company and the subsidiaries taken as a whole; provided, however, that the
occurrence of any or all of the following shall not constitute a Material
Adverse Effect: (1) any change in any law applicable to the Company or any
subsidiary or by which any property or asset of the Company or any subsidiary
is bound, (ii) a failure to receive any contract or award for which the Company
or any subsidiary has submitted or will submit a competitive bid, (iii) the
loss of any contract or arrangement (whether by revocation, lapse or
invalidity) with respect to a project that the Company or any subsidiary has
under development, other than any such loss related to the Malitbog project or
Fish Lake project and other than any such loss resulting from a breach by the
Company of the representations and warranties set forth in Sections 4.22 and
4.23 of the Merger Agreement (relating to the status of the Company's
development and construction projects and its operating projects), (iv) an
unfavorable ruling by the California Public Utilities Commission with respect
to the Company's California plants under the pending Biennial Resource Plan
Update, (v) a loss of, or unfavorable ruling in, the Company's pending
litigation against Southern California Edison Company, but only insofar as such
litigation seeks to increase the energy price payable for deliveries over
nameplate capacity and not insofar as any unfavorable ruling affects the
validity or enforceability of any contract subject thereto or the
enforceability of any material term thereof, (vi) a failure to close any public
or private financing of any project in which the Company or any subsidiary owns
a direct or indirect interest (other than as a result of a loss with respect to
the Malitbog project or the Fish Lake project or as a result of a breach by the
Company of the representations and warranties set forth in Section 4.22 or 4.23
of the Merger Agreement), or (vii) the termination of the employment of any
employee, officer, director or consultant of the Company or any subsidiary.
Miscellaneous. The Merger Agreement contains customary indemnification
provisions pursuant to which the directors, officers, employees, fiduciaries
and agents of the Company and its subsidiaries are required to be indemnified
to the fullest extent permitted by applicable law, and regardless of whether
the Merger becomes effective, by the Company and, after the Effective Time, by
the Surviving Corporation and California Energy, from costs or expenses
(including attorney's fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement of or in connection with any claim,
action, suit, proceeding or investigation arising out of or pertaining to the
transactions contemplated by the Merger Agreement, including liabilities under
the securities laws in connection with the Merger. In addition, except as set
forth above, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby will be paid by the party
incurring such costs and expenses.
The foregoing description of the Merger Agreement is qualified in its
entirety by reference to the text of the Merger Agreement, which is filed as
Exhibit 5 and is incorporated herein by reference.
(iv) Confidentiality and Standstill Agreements. California Energy and the
Company have entered into confidentiality agreements, dated December 4, 1994,
pursuant to which each party has agreed to maintain the confidentiality of
proprietary information that may be disclosed to it and its representatives in
connection with the transactions contemplated by the Merger Agreement. In
addition, California Energy and the
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Company have entered into a standstill agreement, dated December 5, 1994,
pursuant to which California Energy has agreed that neither California Energy
nor any of its subsidiaries will, for a period of three years from December 5,
1994, among other things, acquire any securities of the Company or participate
in any proxy solicitation of the Company's stockholders, except in connection
with the Offer and the Merger or a tender offer for all shares of the Company's
Common Stock for a price no less than $38.75 net to the seller in cash.
(v) Background. In May 1991, representatives of California Energy and the
Company entered into discussions to explore the possibility of combining the
companies, and the two companies exchanged certain information concerning their
respective businesses for the purpose of considering a business combination or
other acquisition transaction. The information provided to California Energy
included confidential information about Magma supplied under a confidentiality
agreement. At the end of May 1991, the discussions were terminated as a result
of the inability of the parties to reach agreement concerning price and certain
other terms.
In the summer of 1991, a then member of the Magma Board conducted
unauthorized discussions with representatives of California Energy in an
attempt to revive the failed transaction of the spring. These discussions were
immediately terminated when the Magma Board became aware of them; the
responsible Magma director promptly resigned. California Energy then brought
suit against Magma seeking reimbursement of expenses on the theory that Magma
had not acted in good faith. This suit was dismissed with prejudice in late
1992 without any payments by Magma.
In August 1993, Mr. David Sokol, who had been appointed President and Chief
Executive Officer of California Energy in April of 1993, contacted Mr.
Pankratz, then Chairman and Chief Executive Officer of the Company, to request
a meeting. At a meeting in San Diego in September 1993, Mr. Sokol and Mr.
Steven A. McArthur, Senior Vice President, General Counsel and Secretary of
California Energy, and Messrs. Pankratz and Peele and Mr. Ralph W. Boeker,
President of the Company, discussed principally the possibility of joint
venturing or other cooperation in respect of certain pending power development
projects in the Philippines. Mr. Sokol also shared with Mr. Boeker and Mr.
Pankratz his views as to the possible strategic and cost benefits that could
follow from consolidation in the independent power industry, and, in
particular, a combination of the Company and California Energy. Mr. Boeker and
Mr. Pankratz expressed the view that they did not agree with Mr. Sokol's
analysis and questioned its underlying assumptions.
In addition, at the August meeting California Energy suggested to the Company
that it consider utilizing Peter Kiewit Sons', Inc. ("Kiewit") as the Company's
general contractor in respect of the Company's pending projects in the
Philippines. The Company's management agreed to meet with Kiewit regarding its
possible role as a contractor in the Philippines. The meeting between the
Company and Kiewit was held in the fall of 1993. No agreements or
understandings were reached with Kiewit, and no further discussions were held
in respect of using Kiewit, as the Company's general contractor.
In January 1994, Mr. Sokol contacted Mr. Pankratz again by telephone to try
to arrange another meeting. At Mr. Pankratz's suggestion, Mr. Sokol was asked
to contact Mr. Boeker, the President and recently appointed Chief Executive
Officer of the Company, to discuss a meeting. In an April 1994 telephone
conversation between Mr. Sokol and Mr. Boeker, the possibility of cooperation
with respect to international joint ventures between the companies and other
possible synergies between the companies were generally discussed. No
agreements or understandings were reached, and Mr. Boeker again questioned the
validity of Mr. Sokol's synergy assumptions.
In June 1994, Mr. Sokol proposed a meeting with Messrs. Pankratz and Boeker
to discuss a possible combination of Magma and California Energy. Although
Magma originally agreed to meet on August 11, 1994 with Mr. Sokol to hear his
views, Magma cancelled this meeting as a result of reports that had been
received by Mr. Boeker which indicated that certain California Energy
representatives were making various misrepresentations about Magma to its
overseas partners regarding Magma's Malitbog project in the Philippines.
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On September 15, 1994, Mr. Sokol contacted a member of the Magma Board in an
effort to determine whether the Company had an interest in discussing a
negotiated combination of the companies in the near future. The director stated
that he would ask the Company's management to respond directly to Mr. Sokol's
inquiry. Later that same day, Messrs. Pankratz and Boeker called Mr. Sokol and
advised him that they had no interest in meeting with Mr. Sokol until mid-
November after the closing of the Malitbog financing.
On September 19, 1994, Mr. Sokol delivered to Messrs. Pankratz and Boeker and
released publicly a letter in which California Energy made a proposal (the
"Initial Proposal") to acquire Magma Power for $25 a Share in cash and $10 a
Share in California Energy common stock and threatened to proceed in a hostile
manner unless Magma promptly responded to the Initial Proposal.
On September 19 Magma issued a press release stating that the Magma Board
would consider the Initial Proposal in due course.
On September 22, 1994, Magma announced its retention of Goldman, Sachs & Co.
("Goldman Sachs") and Shearman & Sterling as its independent financial and
legal advisors, respectively, in connection with the Initial Proposal.
On the afternoon of Monday, September 26, 1994, Goldman Sachs contacted
Gleacher & Co. Inc. ("Gleacher"), financial advisor to California Energy.
Goldman Sachs advised Gleacher that the Magma Board would be meeting on October
2 and 3, 1994 and agreed to a meeting in New York to allow Gleacher and Mr.
Sokol to clarify the Initial Proposal on the condition that California Energy
not commence a hostile tender offer prior to October 4.
Representatives of Goldman Sachs met with Mr. Sokol and representatives of
Gleacher on Wednesday, September 28, 1994. At this meeting Mr. Sokol and the
Gleacher representatives explained their views of the benefits of the Initial
Proposal. In addition, they delivered a third letter to Messrs. Pankratz and
Boeker, which stated that California Energy would commence a tender offer on
Tuesday, October 4, 1994 if the Magma Board did not authorize "meaningful"
merger negotiations by the close of business on October 3, 1994.
At a meeting held on October 2 and 3, 1994, the Magma Board carefully
considered the Company's business, financial condition and prospects, the terms
and conditions of the Initial Proposal, California Energy's business, financial
condition and prospects and other matters, including presentations by the
Company's management and financial and legal advisors. The Company's management
made detailed presentations regarding, among other things, the Company's
business plan and the various strategic initiatives which the Company had
undertaken both in the United States and overseas.
On October 3, 1994, the Magma Board (i) authorized the adoption of a
stockholders' rights plan (the "Rights Plan") and an amendment to the Company's
Bylaws that eliminated the ability of the Company's stockholders to act by
written consent (the "Bylaw Amendment") and (ii) authorized the filing of an
action in Nevada state court seeking a declaratory judgment that the Nevada
business combination statute would be upheld as valid and that the Magma Board
had properly discharged its fiduciary duties in adopting the Rights Plan and
the Bylaw Amendment. The Magma Board also authorized Goldman Sachs to meet with
representatives of Gleacher. This meeting was held on the morning of October 4,
1994. At this meeting Goldman Sachs informed Gleacher that Magma was not for
sale and that the value placed on Magma by the Initial Proposal did not
remotely reflect the intrinsic value of Magma. Later that day California Energy
issued a press release announcing its intention to commence a tender offer for
12,400,000 Shares at a price of $35 net to the seller per Share.
On October 6, 1994, California Energy caused the Purchaser to commence the
Prior Offer. In the Prior Offer to Purchase, the Purchaser stated that
California Energy was seeking to negotiate a definitive acquisition agreement
pursuant to which the Purchaser would, as soon as practicable following
consummation of the
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Offer, consummate a merger or other business combination (the "Back-End
Merger") with the Company. In the Prior Offer to Purchase, the Purchaser
stated that in the Back-End Merger each remaining Share would be converted
into the right to receive cash and shares of California Energy common stock.
The Prior Offer to Purchase implied that the amount of cash available in the
Back-End Merger would be approximately $15.00 per share. The Prior Offer and
the Back-End Merger are collectively referred to herein as the "Prior CE
Proposal".
At a meeting of the Magma Board held on October 10, 1994, the Company's
management and Goldman Sachs each reviewed and updated the presentations they
had made to the Magma Board at the October 2 and 3, 1994 board meeting. In
addition, Goldman Sachs opined to the Magma Board that the consideration
provided for in the Prior Offer was inadequate.
At the October 10, 1994 board meeting the Magma Board, after careful
consideration, unanimously voted to reject the Prior Offer. Accordingly, the
Magma Board unanimously recommended that the Company's stockholders reject the
Prior Offer and not tender their Shares pursuant to the Prior Offer. The Magma
Board determined that, based on, among other things, the presentations of the
Company's management and Goldman Sachs at the meeting and the Magma Board's
knowledge of and familiarity with the Company's businesses, financial
condition and future prospects and with California Energy and its management,
it was in the best interest of the Company and its stockholders that the
Company remain independent and continue to pursue its long-term business
strategy.
In reaching its determinations and recommendations with respect to the Prior
Offer, as indicated above, the Magma Board took into account numerous factors
discussed at its October 2 and 3, 1994 board meetings and its October 10, 1994
board meeting including, among other things, the conditional and coercive
terms of the Prior Offer and the opinion of Goldman Sachs that the
consideration provided in the Prior Offer was inadequate.
The Board resolved at its October 10, 1994 meeting that the Distribution
Date (as defined in the Rights Agreement) would not occur until the earlier of
(i) such later date as the Board, in its sole discretion, shall fix by
resolution adopted prior to the Distribution Date and (ii) the date the
Purchaser becomes an Acquiring Person (as defined in the Rights Agreement).
On October 21, 1994, California Energy announced that it had revised the
Prior Offer (as so revised the "Revised Prior Offer") so as to offer $38.50
net to the seller per Share and the terms of the Back-End Merger, which
indicated that remaining Shares would each be converted in the Back-End Merger
into approximately $18.10 in cash and California Energy Common Stock with a
value of approximately $20.40.
At a meeting of the Magma Board held on October 28, 1994, the Company's
management and Goldman Sachs each reviewed and updated the presentations they
had made to the Magma Board at the October 2 and 3, 1994 and October 10, 1994
board meetings. In addition, Goldman Sachs opined to the Magma Board that the
consideration provided in the Revised Prior Offer was inadequate.
At the October 28, 1994 board meeting the Magma Board, after careful
consideration, unanimously voted to reject the Revised Prior Offer.
Accordingly, the Magma Board unanimously recommended that the Company's
stockholders reject the Revised Prior Offer and not tender their Shares
pursuant to the Revised Prior Offer.
In reaching its determinations and recommendations with respect to the
Revised Offer, as indicated above, the Magma Board took into account numerous
factors discussed at its October 28, 1994 board meeting, including, among
other things, inquiries received from various third parties expressing
interest in pursuing a possible business combination with the Company, the
conditional and coercive terms of the Revised Prior Offer and the opinion of
Goldman Sachs that the consideration provided for in the Revised Prior Offer
was inadequate.
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At its meeting held on October 28, 1994, the Magma Board considered a variety
of alternatives to the Revised Prior Offer. After considerable discussion, the
Magma Board resolved that it was desirable and in the best interests of the
Company and its stockholders to direct the Company's management and financial
advisor to explore all available alternatives to further the best interests of
Magma stockholders, including remaining independent, conducting discussions
with interested parties, including California Energy, concerning possible
business combinations, strategic partnerships or equity investments,
recapitalizing or restructuring the Company and similar transactions.
At the Magma Board's October 28, 1994 meeting, the Magma Board determined
that if, and when, any discussions or negotiations of the type referred to in
the immediately preceding paragraph (including, without limitation, the
provision of confidential information to interested third parties) were
underway or undertaken, disclosure with respect to any parties to, furnishing
confidential information in connection with, and the possible terms of, any
such transactions or proposals might jeopardize the continuation of any
discussions or negotiations. Accordingly, the Magma Board adopted a resolution
instructing the members of the Magma Board and management not to disclose the
possible terms of any such transactions or proposals, or the parties thereto,
or the furnishing of confidential information in connection therewith, unless
and until a definitive agreement or an agreement in principle relating thereto
had been reached.
After the meeting of the Magma Board on Friday, October 28, 1994,
representatives of Magma's financial advisor called a representative of
California Energy's financial advisor to inform him that the Magma Board had
rejected the Revised Prior Offer and that on the ensuing Monday Magma would
actively commence exploring all available alternatives to further the best
interests of Magma stockholders. Magma's representatives suggested that if
California Energy was inclined to meaningfully negotiate all aspects of the
Revised Prior Offer (including a substantial increase in price), Magma would be
available over the weekend to meet with California Energy. California Energy's
financial advisor responded that it would be premature to meet at such time.
On October 31, 1994, the Magma Board announced that it had unanimously voted
to reject the Revised Prior Offer and unanimously recommended that Magma's
stockholders reject the Revised Prior Offer and not tender their shares
pursuant to the Revised Prior Offer.
The Magma Board also announced that it had authorized Magma management and
Goldman Sachs to explore all available alternatives to further the best
interests of Magma stockholders, including remaining independent, conducting
discussions with interested parties, including California Energy, concerning
possible business combinations, strategic partnerships or equity investments,
recapitalizing or restructuring the company and similar transactions.
On November 1, 1994, California Energy filed a revised Request Solicitation
Statement and announced that it had extended the expiration date of the Revised
Offer until December 2, 1994 and that about 596,580 shares of Common Stock
(approximately 2.5% of the outstanding shares of Common Stock) were tendered as
of November 1. Mr. Sokol was quoted as follows: ". . . we [California Energy]
have put our best offer on the table and we intend to withdraw our acquisition
proposal if we have not signed a merger agreement with Magma or received
sufficient written requests to call a special meeting by December 2, 1994."
On or about November 5, 1994 California Energy sent a definitive Request
Solicitation Statement to Magma stockholders and filed such statement with the
SEC on November 7, 1994.
On November 7, 1994, Magma issued a press release relating to the status of
meetings with interested parties.
Representatives of Magma provided California Energy with the same form of
confidentiality agreement provided to other third parties interested in
reviewing confidential information regarding Magma in connection with possible
alternative transactions. California Energy refused to sign this agreement and
instead provided a signed copy of an agreement that had been modified so as to,
among other things, remove the standstill provision.
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In a letter dated November 7, 1994, counsel to Magma provided a signed
confidentiality agreement in favor of California Energy (including a three-year
standstill provision) and suggested a meeting between California Energy and
Magma to discuss California Energy during the week of November 21. In this
letter, it was reiterated that Magma would not provide confidential information
to California Energy on different terms than those pursuant to which such
information was being provided to other interested parties. In a letter dated
November 10, 1994 from Mr. Sokol to Mr. Pankratz, the proposed meeting was
rejected.
On November 14, 1994, Magma issued a press release expressing its
disappointment in the failure of California Energy to provide Magma access to
confidential information regarding California Energy, despite Magma's execution
of a confidentiality agreement in California Energy's favor.
On November 21, 1994, Magma filed with the SEC and sent to Magma stockholders
a definitive Opposition Solicitation Statement.
On November 29, 1994, the Magma Board had a meeting at which, among other
things, Magma's management and advisors updated the Magma Board on the status
of the contacts and discussions that had been undertaken to explore all
alternatives available to further the best interests of Magma's stockholders.
Throughout the day on December 2, 1994, discussions were held between Magma's
advisors and California Energy's advisors regarding certain terms and
conditions of the Revised Prior Offer. Later that day, California Energy
announced that it had failed to receive requests to call a special meeting of
Magma stockholders from holders of a majority of the outstanding Magma capital
stock and that it was terminating its request solicitation and the Revised
Prior Offer. Mr. Sokol placed calls to Messrs. Pankratz and Boeker and to a
representative of Dow to advise them of this development. These calls and
certain follow-up calls among the parties and their advisors resulted in a
meeting in New York the following day to discuss the possibility of a
negotiated transaction.
During meetings among representatives of Magma and California Energy, along
with their respective legal and financial advisers, held between Saturday,
December 3, 1994 and Monday, December 5, 1994, the parties negotiated the terms
of the Merger Agreement, which following its approval by the Magma Board and
the board of directors of California Energy, was executed on the morning of
Monday, December 5, 1994.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) THE MAGMA BOARD HAS UNANIMOUSLY APPROVED (WITH TWO DIRECTORS ABSENT) THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED THAT
EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF THE COMPANY. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
ALL HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
A copy of a letter to stockholders communicating the Magma Board's
recommendation and a form of press release announcing such recommendation are
filed as Exhibits 6 and 7 hereto, respectively, and are incorporated herein by
reference.
(b) At meetings of the Magma Board held on December 4 and 5, 1994, the
Company's management and Goldman Sachs each reviewed and updated the
presentations they had made to the Magma Board at the October 2 and 3, 1994,
October 10, 1994, October 28, 1994 and November 29, 1994 board meetings in
connection with the Prior Offer. In addition, on December 5, 1994, Goldman
Sachs delivered its oral opinion (which it subsequently confirmed in writing)
to the Magma Board that, as of December 5, 1994, the consideration to be
received by the holders of the Shares in the Offer and the Merger, taken as a
unitary transaction, was fair to the holders of Shares receiving such
consideration (other than California Energy and its affiliates).
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At the December 4 and 5, 1994 board meetings, the Magma Board reviewed in
detail the Offer and the various alternatives reviewed by management and
Goldman Sachs, and deliberated extensively with its legal and financial
advisors regarding the foregoing. At the end of the meetings, the Magma Board,
after careful consideration, unanimously (with two directors absent) determined
that the Offer is fair to, and in the best interests of, the Company, and its
stockholders and authorized the delivery of the Merger Agreement. Accordingly,
the Magma Board recommends that the Company's stockholders accept the Offer and
tender their Shares pursuant to the Offer.
In reaching its determinations and recommendations with respect to the Offer,
as indicated above, the Magma Board took into account numerous factors
discussed at its December 4 and 5, 1994 board meetings, including, among other
things, the following:
(i) The improvement to the terms and conditions of the Revised Prior
Offer contained in the Offer and the Merger Agreement including, without
limitation, (A) the increase in the blended average per Share consideration
offered from a $28.50 in cash and $10 in California Energy Common Stock to,
at the option of California Energy, either $28.50 in cash and $10.50 in
California Energy Common Stock or $38.75 in cash and (B) the reduction in
the number and scope of conditions precedent to the Offer.
(ii) The Magma Board's familiarity with the financial condition and
future prospects of the Company including the prospects of the Company were
it to remain independent.
(iii) The presentation of Goldman Sachs at the December 4 and 5, 1994
meetings and the oral opinion of Goldman Sachs (which was subsequently
confirmed in writing) to the Magma Board that, as of December 5, 1994, the
consideration to be received by the holders of the Shares in the Offer and
the Merger, taken as a unitary transaction, was fair to the holders of
Shares receiving such consideration (other than California Energy and its
affiliates). The full text of the written opinion, dated December 9, 1994,
which confirms Goldman Sachs' December 5 oral opinion and sets forth the
assumptions made, the matters considered and the limitations on the review
undertaken by Goldman Sachs, is attached as Exhibit 8 hereto and is
incorporated herein by reference. Such opinion should be read carefully in
its entirety by stockholders in conjunction with the foregoing matters.
(iv) The Magma Board's belief that the reasonably likely alternatives
were unlikely to provide values to the stockholders of the Company superior
to the Offer, which belief was based on, among other things, the report of
management and Goldman Sachs with respect to the status of the contacts and
discussions that had been undertaken based upon the Magma Board's
resolution on October 28, 1994 to explore all alternatives available to
further the best interests of Magma's stockholders.
(v) The Provision of the Merger Agreement permitting the Company to
terminate the Merger Agreement if any person shall have a bona fide offer
that the Magma Board determines in its good faith judgment and in the
exercise of its fiduciary duties is more favorable to the Company's
stockholders than the Merger.
(vi) The provision of the Merger Agreement prohibiting the solicitation
by the Company of other proposals and the termination provisions of the
Merger Agreement providing that Parent and Merger Sub could be entitled to
receive a fee of $8 million, as well as reimbursement of all out-of-pocket
fees and expenses actually incurred by them or on their behalf in
connection with the Prior Offer, the Offer, the Merger and the transactions
contemplated by the Merger Agreement under certain circumstances (see
"Termination Fee for California Energy" in Item 3(b)(iii)). After
consulting with its legal and financial advisors, among other things, the
Magma Board concluded that, in view of the other provisions of the Merger
Agreement and the Magma Board's view with respect to possible alternatives,
it was in the best interests of the Magma stockholders to accept these
provisions in order to induce California Energy to execute the Merger
Agreement.
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(vii) The provision of the Merger Agreement providing that the Company
would be entitled to receive a fee of $8 million under certain
circumstances (See "Termination Fee for the Company" in Item 3(b)(iii)).
(viii) The Magma Board's confidence that the highest offer had been
received from California Energy.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Goldman Sachs to render financial advisory services
to the Company with respect to the Offer and such other matters as may be
agreed upon by the Company and Goldman Sachs. Pursuant to the terms of an
engagement letter dated September 26, 1994 entered into in connection with the
Initial Proposal, the Company has agreed to pay Goldman Sachs (a) an initial
fee of $850,000, (b) a transaction fee in the event of any transaction in which
at least 50% of the outstanding Shares are acquired, or all or substantially
all of the assets of the Company are transferred, equal to 0.4% of the
aggregate value of such transaction up to $35.00 per share, plus 1.666% of the
aggregate value of such transaction in excess of $35.00 per share up to $38.00
per share, plus 2.5% of the aggregate value of such transaction in excess of
$38.00 per share and (c) a financial advisory fee to the extent no transaction
of the type described in clause (b) above has been consummated equal to 0.4% of
the market value of the Company's outstanding shares as determined on September
20, 1994, payable in four equal installments due December 31, 1994, March 31,
1995, June 30, 1995 and September 30, 1995, so long as the Company is
independent as of any date such payment is due; provided, however, that such
financial advisory fee shall equal (i) $850,000 in the event that the Company
rejected the Initial Proposal by October 10, 1994, and California Energy
subsequently withdraws such proposal on or before the end of the fifth business
day following the date of such rejection or (ii) $1,700,000 in the event that
the Company rejected the Initial Proposal by October 10, 1994, and California
Energy subsequently withdraws such proposal after the fifth business day
following such rejection but on or before the end of the fifteenth business day
following such rejection. The fees paid pursuant to clauses (a) and (c) above
shall be creditable against any fees payable pursuant to clause (b) above.
The Company has also agreed to reimburse Goldman Sachs for its out-of-pocket
expenses, including all fees and disbursements of counsel, and to indemnify
Goldman Sachs and certain related persons against certain liabilities in
connection with their engagement, including certain liabilities under the
federal securities laws.
The Company has retained Georgeson & Co., Inc. ("Georgeson") to assist the
Company in connection with the Offer and related matters. Such firm will
receive customary compensation for its services and reimbursement of out-of-
pocket expenses in connection therewith. The Company has agreed to indemnify
Georgeson against certain liabilities in connection with their engagement,
including certain liabilities under the federal securities law.
The Company has retained Kekst & Co. ("Kekst") as a public relations advisor
in connection with the Offer and the merger. Such firm will receive customary
compensation for its services and reimbursement of out-of-pocket costs in
connection therewith. The Company has agreed to indemnify Kekst against certain
liabilities in connection with their engagement, including certain liabilities
under the federal securities law.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations
or recommendations to stockholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) There have been no transactions in Shares which where effected during the
past 60 days by the Company, or to the best knowledge of the Company, by any
executive officer, director, affiliate or subsidiary of the Company.
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(b) To the best of the Company's knowledge and subject to applicable tax or
securities laws and other personal considerations, all of the Company's
executive officers, affiliates and directors presently intend to tender all
Shares held of record or beneficially by such persons pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth above in item 3 above, the Company is not engaged in
any negotiations in response to the Offer which relate to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in item 3 there are no transactions, Magma Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to
in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
CALIFORNIA ENERGY LITIGATION
On October 3, 1994, Magma filed a complaint (the "Magma Complaint"), entitled
Magma Power Company v. California Energy Company, Inc., Case No CV94-06160, for
declaratory relief against California Energy in the Second Judicial District
Court for the State of Nevada in and for the County of Washoe. The Magma
Complaint seeks declaratory relief seeking to uphold (i) the constitutionality
and validity of the Nevada Business Combination Statute and (ii) the Rights
Plan and the Bylaw Amendment. On October 5, 1994, this action was removed as of
right to the United States District Court for the District of Nevada.
On October 17, 1994, California Energy filed an Answer and Counterclaims to
the Magma Complaint in the United States District Court for the District of
Nevada. In its Answer, California Energy denied the material allegations of the
Magma Complaint, and denied that Magma is entitled to declaratory relief. In
the Counterclaims, California Energy and the Purchaser filed claims for
declaratory and injunctive relief against Magma and its board of directors,
alleging (1) breach of fiduciary duties by the directors in adopting the Rights
Plan, Bylaw Amendment, severance and indemnification agreements for certain
executives, and use of the Nevada Business Combination Statute; (2) the
unconstitutionality of the Nevada Business Combination Statute; and (3)
violations of the federal securities laws allegedly resulting from statements
made by Magma on its Schedule 14D-9 regarding the tender offer and proxy
solicitation.
On October 17, 1994, Magma filed an Amended Complaint for Declaratory and
Injunctive Relief (the "Amended Complaint") against California Energy. In
addition to restating its request for declaratory relief regarding the validity
of the Nevada Business Combination Statute and the propriety of its decision to
adopt the Rights Plan and Bylaw Amendment, the Amended Complaint alleges that
California Energy has violated the federal securities laws by making a host of
false and misleading statements in connection with its tender offer and proxy
solicitation. Magma further alleges that California Energy has violated the
federal securities laws by failing to identify and provide necessary
information concerning its co-bidders to acquire Magma. Magma seeks, among
other relief, a preliminary and permanent injunction prohibiting California
Energy and any and all persons acting on its behalf from proceeding further
with the tender offer and proxy solicitation unless and until it provides full,
forthright and corrective disclosures of all material facts and Magma's
shareholders have had sufficient time and opportunity to digest such
information.
On October 19, 1994, California Energy and the Purchaser filed an Answer to
the Amended Complaint and Amended Counterclaims against Magma and its board of
its directors, in which they denied the material
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allegations of the Amended Complaint, and denied that Magma is entitled to
declaratory or injunctive relief. In the Amended Counterclaims, California
Energy and the Purchaser filed claims for declaratory and injunctive relief
against Magma and its board of directors, alleging (1) breach of fiduciary
duties by the directors in adopting the Rights Plan, Bylaw Amendment, severance
and indemnification agreements for certain executives, and use of the Nevada
Business Combination Statute; (2) the unconstitutionality of the Nevada
Business Combination Statute; and (3) violation of the federal securities laws
allegedly resulting from statements made by Magma on its Schedule 14D-9 and
amendments filed thereto regarding the Prior Offer.
On October 25, 1994, California Energy and the Purchaser filed their Answer
to Amended Complaint and Second Amended Counterclaims against Magma and its
board of directors, in which they (i) repeated their denials of the material
allegations of the Amended Complaint and their denials that Magma is entitled
to declaratory or injunctive relief, (ii) reasserted factual allegations and
claims for declaratory and injunctive relief set forth in their earlier Amended
Counterclaims, and (iii) added further allegations concerning (A) the increase
in consideration offered by California Energy to effect the acquisition, to
$38.50 per share (consisting of $28.50 per share in cash and $10.00 per share
of California Energy stock) and (B) violations of federal securities laws and
breaches of fiduciary duties allegedly arising from Magma's October 21, 1994
announcement of the termination of an energy development project in Indonesia
caused by the pendency of California Energy's offer and other alleged efforts
by Magma to permit unidentified international joint venture partners to
withdraw from unidentified projects in the event that California Energy's offer
is successful.
On November 3, 1994, California Energy and the Purchaser filed their Answer
to Amended Complaint and Third Amended Counterclaims against Magma and its
board of directors which, among other things, sought a ruling that the Control
Share Statute does not apply to the Prior Offer.
Pursuant to the Merger Agreement, Magma, California Energy and the Purchaser
agreed to file jointly a stipulation of dismissal without prejudice, or to
terminate without prejudice, the Magma Complaint, including all related claims
and counterclaims.
STOCKHOLDER LITIGATION
On September 20, 1994, a purported class action complaint (the "California
Complaint") entitled William Steiner, et al. v. Paul M. Pankratz, et al., Case
No. 680986, was filed against the Company and its directors in the Superior
Court of the State of California in and for the County of San Diego, alleging,
among other things, that the Company's stockholders have been deprived of the
opportunity to fully realize the benefits of their investment in the Company as
a result of the directors' refusal to properly consider the Initial Proposal,
which actions are alleged to constitute unfair dealing and a breach of
fiduciary duty. As relief, the complaint seeks an order directing the Company's
directors to carry out their fiduciary duties to the Company's stockholders by
cooperating fully with California Energy or any other entity making a bona fide
offer for the Company, as well as damages and costs. On December 6, 1994, the
California Complaint was dismissed without prejudice.
On October 4, 1994, a purported class action complaint (the "Nevada
Complaint" and, together with the California Complaint, the "Complaints")
entitled Charles Miller, et al. v. Magma Power Company, et al., case No. CV94-
06187, was filed against the Company, its directors and Dow in the Second
Judicial District Court of the State of Nevada in and for the County of Washoe,
alleging, among other things, that the defendants' unwillingness to seriously
consider California Energy's proposal to acquire the Company and its adoption
of the Rights Plan and Bylaw Amendment, among other things, constitute breaches
of the fiduciary duty owed to the Company's stockholders. As relief, the
complaint seeks a declaration that defendants have breached their fiduciary
duties, an order directing the defendants to fairly evaluate alternatives
designed to maximize value for the Company's stockholders, and an injunction
with respect to the implementation of the Rights Plan or other defensive
measures, as well as damages and costs. On November 2, 1994, the Nevada
Complaint was dismissed without prejudice.
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On October 28, a purported class action complaint (the "Nevada Federal
Complaint") entitled William Steiner and Charles Miller, et al. v. Magma Power
Company, et al., Case No. CV-N-94-773, was filed against the Company, its
directors and Dow in the United States District Court for the District of
Nevada. On November 2, 1994, the Nevada Complaint was dismissed without
prejudice. The Nevada Federal Complaint alleges that the Company's directors
have breached, and are continuing to breach, their fiduciary duties to the
Company's shareholders by failing to take all reasonable steps in the face of
the Initial Proposal, the Offer and the Revised Offer. The Nevada Federal
Complaint also alleges that the Company has violated Section 14(d) and 14(e) of
the Exchange Act by making false and misleading statements and omissions in its
Schedule 14D-9 filed with the SEC in connection with the Offer and the Revised
Offer. The Nevada Federal Complaint seeks an order directing the Company's
directors to carry out their fiduciary duties to the Company's shareholders,
damages and costs, including attorneys and experts' fees, and other equitable
relief.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following exhibits are filed herewith:
Exhibit 1 -- Excerpts from the Company's Proxy Statement dated May 11, 1994
for its 1994 Anual Meeting of Stockholders.
Exhibit 2 -- Form of Change in Control Agreement I.
Exhibit 3 -- Form of Change in Control Agreement II.
Exhibit 4 -- Form of Indemnification Agreement.
Exhibit 5 -- Agreement and Plan of Merger, dated as of December 5, 1994,
among the Company, Parent and the Purchaser.
Exhibit 6 -- Letter to Stockholders of the Company.*
Exhibit 7 -- Joint Press Release of the Company and Parent, dated
December 5, 1994.
Exhibit 8 -- Opinion of Goldman, Sachs & Co., dated December 9, 1994.*
- --------
* Included in copies mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
MAGMA POWER COMPANY
/s/ Jon R. Peele
By:_____________________________________
Name: Jon R. Peele
Title: Executive Vice President,
Secretary and General Counsel
Dated: December 9, 1994
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ANNEX I
MAGMA POWER COMPANY
4365 EXECUTIVE DRIVE, SUITE 900
SAN DIEGO, CALIFORNIA 92121
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about December 9, 1994, as
part of the Solicitation/Recommendation Statement of Magma Power Company (the
"Company" or "Magma") on Schedule 14D-9 ("Schedule 14D-9") with respect to the
new tender offer by CE Acquisition Company, Inc. ("CE Acquisition"), a wholly
owned subsidiary of California Energy Company, Inc. ("California Energy"), to
the holders of record of the Company's Common Stock, $0.10 par value ("Common
Stock"). Capitalized terms used and not otherwise defined herein shall have the
meaning set forth in the Schedule 14D-9. You are receiving this Information
Statement in connection with the possible election of persons designated by CE
Acquisition to a majority of the seats on the Board. The Merger Agreement
provides that CE Acquisition, upon purchase of Shares pursuant to the Offer,
shall be entitled to designate such number of directors, rounded up to the next
whole number, on the Board as will give CE Acquisition representation on the
Board of that number of directors which equals the product of the total number
of directors on the Board (after giving effect to the directors to be elected
pursuant to the Merger Agreement) multiplied by the percentage that the
aggregate number of Shares beneficially owned by CE Acquisition or any
affiliate (including such Shares as are accepted for payment pursuant to the
Offer, but excluding Shares held by the Company or its affiliates) bears to the
number of outstanding shares of Common Stock of the Company. In addition, the
Merger Agreement provides that the Company shall promptly take all action
necessary to cause CE Acquisition designees to be so elected including, either
increasing the size of the Board or securing the resignation of such number of
directors, or both; provided, however, that such resignations shall not cause
the number of disinterested directors, who are neither designated by California
Energy nor employees of the Company, to be less than two. The Merger Agreement
further provides that, at such times, the Company will cause persons designated
by CE Acquisition to constitute the same percentage as is on the Board of (i)
each committee of the Board, (ii) each board of directors of each subsidiary of
the Company, if requested by CE Acquisition and (iii) each committee of each
such board, if requested by CE Acquisition, in each case only to the extent
permitted by law. This Information Statement is required by Section 14(f) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and Rule 14f-
1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
Pursuant to the Merger Agreement, CE Acquisition commenced a new Offer to
Purchase, dated December 9, 1994. The Offer is scheduled to expire at 12:00
midnight, New York City time, on January 9, 1995, at which time, if all
conditions to the Offer have been satisfied or waived, CE Acquisition has
informed the Company that it intends to purchase all of the Shares validly
tendered pursuant to the Offer and not properly withdrawn.
The information contained in this Information Statement concerning CE
Acquisition and California Energy has been furnished to the Company by
California Energy and the Company assumes no responsibility for the accuracy,
completeness or fairness of any such information.
CE Acquisition has informed the Company that it currently intends to choose
the designees (the "Acquisition Designees") it has the right to designate to
the Board pursuant to the Merger Agreement from the individuals listed below
under the caption "Acquisition Designees." It is expected that the Acquisition
Designees may assume office at any time following the purchase by CE
Acquisition of a majority of the
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outstanding Shares pursuant to the Offer, which purchase cannot be earlier than
January 9, 1995, and that, upon assuming office, the Acquisition Designees will
thereafter constitute at least a majority of the Board. This step will be
accomplished at a meeting or by written consent of the Board providing that the
size of the Board will be increased and/or sufficient numbers of current
directors will resign such that, immediately following such action, the number
of vacancies to be filled by the Acquisition Designees will constitute at least
a majority of the available positions on the Board. It is currently not known
which of the current directors of the Company will resign. CE Acquisition has
informed the Company that each of the individuals listed below under
"Acquisition Designees" has consented to act as a director of the Company, if
so designated.
None of the executive officers and directors of California Energy or CE
Acquisition currently is a director of, or holds any position with, the
Company. As of the date hereof, CE Acquisition is the record owner and
California Energy is the beneficial owner of 200,000 Shares. Mr. Ben Holt, a
director of California Energy, is the record owner of 3,763 Shares. The Company
has been advised that, other than as set forth above, to the best knowledge of
California Energy and CE Acquisition, none of California Energy's or CE
Acquisition's directors, executive officers, affiliates or associates
beneficially owns any equity securities, or rights to acquire any equity
securities, of the Company and none has been involved in any transactions with
the Company or any of its directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC").
VOTING SECURITIES OF THE COMPANY
As of September 30, 1994, there were issued and outstanding 24,042,915 shares
of Common Stock, each of which entitles the holder to one vote.
BOARD OF DIRECTORS, ACQUISITION DESIGNEES
AND EXECUTIVE OFFICERS
BOARD BIOGRAPHICAL INFORMATION
The persons named below are the current members of the Board. The following
sets forth as to each director, his age (as of December 1, 1994) and principal
occupation and business experience, and the period during which each has served
as a director of the Company.
Ralph W. Boeker, 60, was elected President and director of the Company
effective March 1, 1993. On January 11, 1994, Mr. Boeker was named CEO of the
Company. Mr. Boeker retired from Dow as of March 1, 1993, where he had been
employed since 1959, most recently as Group Vice President for Chemicals,
Performance Products and Hydrocarbons and as a member of the Operating Board of
Dow Chemical U.S.A., an operating unit of Dow, and the Dow Management
Committee.
Lester L. Coleman, 51, was elected to the Board of the Company on March 30,
1994. Mr. Coleman is Executive Vice President and General Counsel for
Halliburton Company where he has worked in various capacities since 1983.
Halliburton Company is an oil field services company, located at 3600 Lincoln
Plaza, 500 North Akard Street, Dallas, Texas 75201. Prior employment included
Vice President and General Counsel for Pickands Mather & Company, an iron ore
and coal mining and transport company formerly headquartered in Cleveland, Ohio
where he worked for five years, and 10 years of private law practice with Arter
& Hadden, Cleveland where he served as a partner.
Thomas C. Hinrichs, 60, has been a director of the Company since 1981. He has
been employed by the Company in various senior management positions since 1974,
and was named a Vice President of the Company in March 1987.
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Roger L. Kesseler, 58, was elected a director of the Company on November 6,
1991. Mr. Kesseler has been employed by Dow since 1959. For more than the last
five years he has served as the Controller and a Vice President of Dow. Mr.
Kesseler is also a member of the Board of Directors of Univar Corporation, a
publicly traded, Kirkland, Washington-based chemical distribution company.
William R. Knee, 48, was elected a director of the Company on February 22,
1989. Mr. Knee has been employed by Dow in various management capacities since
1968, most recently as Director of Technology Centers for Dow.
Paul M. Pankratz, 62, was elected Chairman of the Board, President and Chief
Executive Officer effective February 1, 1992, and relinquished to Mr. Boeker
the titles of President in March 1993 and CEO in January 1994. Mr. Pankratz
remains as Chairman of the Board. He joined Magma upon retirement from Dow,
where he had been employed in various capacities since 1957, most recently as
Vice President, Corporate Products Department. He has served as a director of
the Company since 1984.
Bent Petersen, 47, was elected a director of the Company in 1990. Prior to
1990 he was the managing partner of the San Diego office of the accounting firm
of Coopers & Lybrand. Coopers & Lybrand has acted as the Company's independent
public accountants since 1981. Since his retirement from Coopers & Lybrand in
1990, Mr. Petersen has been a private investor and independent businessman. In
1994, he established and currently acts as President of Petersen Enterprises,
Inc., a franchise development company, located at 432 East Idaho No. 419,
Kalispell, MT 59901.
J. Pedro Reinhard, 49, was elected a director of the Company on June 18,
1992. Mr. Reinhard has been employed by Dow since 1970. For more than the last
five years he has served as Treasurer of Dow and was also named a Vice
President of Dow in October 1990.
John D. Roach, 50, was elected a director of the Company on January 11, 1994.
Since 1991, Mr. Roach has been employed as Chairman, President and CEO of
Fibreboard Corporation, a publicly traded building products company located at
2121 N. California Blvd., Suite 560, Walnut Creek, CA 94576. From 1987 to 1991
Mr. Roach was employed in a variety of capacities by Manville Corporation, a
leading industrial products company based in Walnut Creek, California, most
recently as Executive Vice President of Manville.
James D. Shepard, 56, has been a director of the Company since 1981. He was
Vice President--Finance and Treasurer of the Company from May 1981 until March
1987. Since 1988, he has been co-trustee of the B. C. McCabe Living Trust and
the B. C. McCabe Foundation.
Louis A. Simpson, 57, was elected a director of the Company on March 30,
1994. Mr. Simpson is President and CEO of Capital Operations (investments),
GEICO Corporation where he has worked in various capacities since 1979. GEICO
Corporation is an insurance company located at GEICO Plaza, Washington, D.C.
20076. Mr. Simpson also serves on the board of GEICO Corporation, Potomac
Electric Power Company and Salomon, Inc. Salomon Brothers Inc., a subsidiary of
Salomon Inc., is providing financial advisory and underwriting services to
Magma for the financing of the Company's proposed 216 MW (net) geothermal
electric generating facility on the island of Leyte in the Republic of the
Philippines.
ACQUISITION DESIGNEE BIOGRAPHICAL INFORMATION
CE Acquisition has selected the following Acquisition Designees:
David L. Sokol, 38, has served as President and Chief Executive Officer of
California Energy since April 19, 1993, as Chairman of the Board of Directors
since May 5, 1994 and has been a director of California Energy since March
1991. He has served as Chairman of the Board of Directors, President and Chief
Executive Officer of the Purchaser since its organization. Formerly, Mr. Sokol
was Chairman, President, and Chief Executive Officer of California Energy from
February 1991 until January 1992. Mr. Sokol has served as Chairman, President
and Chief Executive Officer of the Purchaser since its formation on September
22, 1994. Mr. Sokol was the President and Chief Operating Officer of, and a
director of, JWP, Inc., from January 27, 1992 to October 1, 1992. From November
1990 until February 1991, Mr. Sokol was the President and
I-3
<PAGE>
Chief Executive Officer of Kiewit Energy Company, the largest stockholder of
California Energy and a wholly owned subsidiary of Peter Kiewit & Sons Inc.
("PKS"). From 1983 to November 1990, Mr. Sokol was the President and Chief
Executive Officer of Ogden Projects, Inc.
Edgar D. Aronson, 59, has been a director of California Energy since April
1983.Mr. Aronson founded EDACO Inc., a private venture capital company, in
1981, and has been President of EDACO since that time. Prior to that, Mr.
Aronson was Chairman, Dillon, Read International from 1979 to 1981 and a
General Partner in charge of the International Department at Salomon Brothers
Inc from 1973 to 1979.
Richard K. Davidson, 52, was appointed a director of California Energy in
March 1993. Mr. Davidson has been Chairman and Chief Executive Officer of Union
Pacific Railroad since 1991. From 1989 to 1991 he was Executive Vice
President--Operations of Union Pacific Railroad, and from 1986 to 1989 he was
Vice President--Operations of Union Pacific Railroad. Mr. Davidson is also a
director of FirsTier Financial, Inc., Chicago & Northwestern Holdings
Corporation and Missouri Pacific Railroad Company.
Ben Holt, 80, has been a director of California Energy since September 1993.
Mr. Holt is the founder, and was Chairman and Chief Executive Officer, of The
Ben Holt Co., an engineering firm located in Pasadena, California, which
California Energy acquired in September 1993. Mr. Holt retired as Chairman and
CEO of The Ben Holt Co. in December 1993 and is currently a consultant to
California Energy.Mr. Holt is a beneficial owner of 3,763 Shares, representing
less than 1% of the outstanding Shares.
Richard R. Jaros, 42, has been a director of California Energy since March
1991. Mr. Jaros served as Chairman of the Board from April 19, 1993 to May 5,
1994 and served as President and Chief Operating Officer of California Energy
from January 8, 1992 to April 19, 1993. From 1990 until January 8, 1992, Mr.
Jaros served as a Vice President of PKS and is currently an Executive Vice
President and a director of PKS. Mr. Jaros serves as a director of MFS
Communications Company, Inc. and C-TEC Corporation, both of which are publicly
traded companies in which PKS holds a majority ownership interest. From 1986 to
1990, Mr. Jaros served as a Vice President for Mergers and Acquisitions for
Kiewit Holdings, a subsidiary of PKS.
Walter Scott, Jr., 62, has been a director of California Energy since June
1991. Mr. Scott was the Chairman and Chief Executive Officer of California
Energy from January 8, 1992 until April 19, 1993. Mr. Scott is Chairman and
President of PKS, a position he has held since 1979. Mr. Scott is a director of
Berkshire Hathaway, Inc., Burlington Resources, Inc., ConAgra, Inc., FirsTier
Financial, Inc., and Valmont Industries, Inc. Mr. Scott also serves as a
director of MFS Communications Company, Inc. and C-TEC Corporation, both
publicly traded companies in which PKS holds a majority ownership interest.
BOARD COMMITTEES AND MEETINGS
As of December 1, 1994, the six regularly constituted committees of the Board
were: (1) the Audit Committee, which is comprised of Messrs. Kesseler, Petersen
and Roach; (2) the Compensation Committee which is comprised of Messrs.
Kesseler, Pankratz, Roach, and Shepard (with Messrs. Roach and Shepard
comprising an Option sub-Committee of the Compensation Committee); (3) the
Environmental, Health and Safety Committee, which is comprised of Messrs.
Hinrichs, Pankratz and Knee; (4) the Executive Committee, which is comprised of
Messrs. Boeker and Pankratz; (5) the Finance Committee, which is comprised of
Messrs. Boeker, Coleman, Reinhard and Simpson; and (6) the Nomination
Committee, which is comprised of Messrs. Boeker and Pankratz.
The Audit Committee monitors the Company's basic accounting policies, reviews
the Company's audit and management reports, reviews the Company's systems for
internal control, monitors compliance with the Company's code of conduct and
the Foreign Corrupt Practices Act, and makes recommendations regarding the
appointment of independent auditors. The Compensation Committee establishes
salaries and other
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<PAGE>
compensation for directors, executive officers and management level officers of
the Company. The Compensation Committee also reviews all employee compensation
programs including approval of merit budgets, establishment of short and long-
term incentive plans, benefits, and compliance with 1934 Act reporting of
Executive Compensation in the Company's proxy. The Option sub-committee of the
Compensation Committee administers the stock incentive programs of the Company
with full power for all grants and awards to executive officers under the 1987
Stock Option Plan and under the 1994 Equity Participation Plan (if and to the
extent approved). The Environmental, Health and Safety Committee oversees the
environmental compliance and other environmental, health and safety policies
and programs of the Company. The Executive Committee has broad discretionary
authority to make all executive decisions which are not expressly reserved to
the Board by resolution or otherwise. The Finance Committee, established in
April 1994, oversees the financial affairs of the Company and makes
recommendations to the Board as to financial policies formulated by management
of the Company. The Nomination Committee recommends nominees for election as
directors, officers and members of committees, and also from time to time makes
recommendations concerning enlarging or reducing the size of the Board.
As of December 31, 1993, the six regularly constituted committees of the
Board were: (1) the Audit Committee, which was comprised of Messrs. Kesseler
and Petersen; (2) the Compensation Committee, which was comprised of Messrs.
Kesseler, Petersen and Shepard; (3) the Environmental, Health and Safety
Committee, which was comprised of Messrs. Knee and Hinrichs; (4) the Executive
Committee, which was comprised of Messrs. Boeker and Pankratz; (5) the
Nomination Committee, which was comprised of Messrs. Boeker and Pankratz; and
(6) the Stock Option Committee, which was comprised of Messrs. Petersen and
Shepard.
During 1993 (a) the Board met nine times (including regularly scheduled,
special and telephonic meetings); (b) the Audit Committee met three times; (c)
the Compensation Committee met four times; (d) the Environmental, Health and
Safety Committee met three times; (e) the Executive Committee took action once
by unanimous written consent; (f) the Nomination Committee took action once by
unanimous written consent; (g) the Stock Option Committee met four times; and
(h) a Special Independent Committee met twice. Each incumbent director who was
a director during 1993 attended more than 75% of the Board meetings and
meetings of standing committees of which he was a member.
COMPENSATION OF DIRECTORS AND ACQUISITION DESIGNEES
Directors of the Company may be reimbursed for necessary expenses incurred in
connection with their attendance at Board and committee meetings. Each
"outside" director receives a $15,000 annual fee, $1,500 for each Board meeting
he attends, and $750 for each committee meeting he attends (if such committee
meeting is not held the same day as a Board meeting). The members of the Board
deemed to be "outside" directors for this purpose (since they are neither
employed by the Company nor affiliated with a major stockholder of the Company)
are currently Messrs. Coleman, Petersen, Roach and Simpson.
On December 3, 1993, concurrent with Mr. Arnold L. Johnson's resignation from
the Board, the Company accelerated the remaining payments he otherwise would
have received in 1994 under the agreement Mr. Johnson and the Company entered
into in connection with Mr. Johnson's resignation as an officer of the Company
in June 1991 (the "June 1991 Agreement"). Such accelerated payment to satisfy
the Company's obligations to Mr. Johnson under the June 1991 Agreement amounted
to approximately $1,164,000, which included a cash payment for Mr. Johnson's
supplemental benefit plan accounts. Mr. Shepard receives an annual payment of
$15,000 for serving as a shareholder relations consultant to the Company.
STOCKHOLDER NOMINATIONS
Stockholders of the Company may nominate candidates to be elected to the
Board of Directors at an annual or special meeting of stockholders provided
that any such stockholder (a) is a stockholder of record on the date of giving
notice of such nomination and on the record date for the determination of
stockholders entitled to vote at such meeting and (b) gives timely notice of
such nomination in proper written form to the Secretary of the Company.
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<PAGE>
To be timely under the Bylaws of Magma a stockholder's notice to the
Company's Secretary must be delivered to or mailed and received at the
principal executive offices of the Company (a) in the case of an annual
meeting, not less than 120 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, however, that
in the event that the annual meeting is called for a date that is not within 30
days before or after such anniversary date, notice by the stockholder in order
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders for the purpose of electing directors, not later than the close of
business on the tenth day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs. To be in proper written form, a
stockholder's notice to the Secretary must set forth (a) as to each person whom
the stockholder proposes to nominate for election as a director (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class or series and number of
shares of capital stock of the Company which are owned beneficially or of
record by the person and (iv) any other information relating to the person that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the 1934 Act and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the notice (i) the
name and record address of such stockholder, (ii) the class or series and
number of shares of capital stock of the Company which are owned beneficially
or of record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nominations are
to be made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice and (v) any other information relating to such stockholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the 1934 Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serving as a director
if elected.
FAMILY RELATIONSHIPS
There are no family relationships between any director, executive officer or
person nominated or chosen to become a director or executive officer and any
other director, executive officer or person nominated or chosen to become a
director or executive officer of the Company.
I-6
<PAGE>
EXECUTIVE OFFICERS
Executive officers serve at the discretion of the Board. Each executive
officer serves until such officer's respective successor is elected and has
been qualified, or until such officer's earlier death, resignation or removal.
Executive officers are elected by the Board annually at its first meeting
following the Annual Meeting of Stockholders. Set forth below are the ages (as
of December 1, 1994) and biographical information for each executive officer of
the Company who is not a director.
Jon R. Peele, 51, joined the Company in March 1987 as Secretary and General
Counsel. He was also named a Vice President of the Company in February 1988, a
Senior Vice President in February 1990 and Executive Vice President in March
1993. He was Senior Staff Counsel in Dow's Legal Department from 1983 through
May 1988.
Wallace C. Dieckmann, 51, joined the Company in June 1988 as Vice President
and Controller, and was also named Treasurer and Assistant Secretary on June
15, 1990. Mr. Dieckmann relinquished the controller position and title when he
was named Chief Financial Officer in June 1993.
Trond Aschehoug, 51, became Director of Operations for the Company and
President of Magma Operating Company in May 1992 under an employment agreement
between the Company, Dow and Mr. Aschehoug, wherein the Company reimbursed Dow
for Mr. Aschehoug's direct and indirect compensation and paid certain
relocations expenses. On June 15, 1993, Mr. Aschehoug was named Vice President,
North American Operations, and on July 1, 1993 became an employee of the
Company. Prior to joining the Company, Mr. Aschehoug spent 25 years with Dow,
most recently as Section Manager having responsibility for multiple operating
units.
Kenneth J. Kerr, 51, joined Magma in June 1993 as Senior Vice President,
Commercial Development and became an executive officer of the Company in April
1994. Mr. Kerr is currently an employee of Dow. Mr. Kerr, the Company and Dow
entered into an employment contract dated March 12, 1993, wherein the Company
reimburses Dow for direct and indirect compensation expenses until
approximately July 1, 1997, at which time Mr. Kerr will retire from Dow and
become an employee of the Company. Prior to June 1993, Mr. Kerr spent 28 years
with Dow, where he most recently was Commercial Vice President, Plastics for
Dow's Pacific Area, residing in Tokyo.
I-7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of October 1, 1994, the name and address,
the total number of shares (if any) of Common Stock beneficially owned (as
defined in Rule 13d-3 under the 1934 Act) and the percentage of the outstanding
shares of the Common Stock so owned (i) by each person who is known to the
Company to own beneficially 5% or more of the outstanding shares of the Common
Stock, (ii) by each director and nominee to the Board, (iii) by the Company's
Chief Executive Officer and each of its executive officers and (iv) by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) BENEFICIAL OWNERSHIP(2) OF CLASS(3)
---------------------------------------- ---------------------- ----------
<S> <C> <C>
The Dow Chemical Company.......................... 5,032,430 (4) 21.0%
2030 Dow Center
Midland, Michigan 48674
B. C. McCabe Foundation .......................... 2,752,641 (5) 11.5%
7624 S. Painter Ave., Suite A
Whittier, CA 90602-2313
Firstar Investment Research & Management Company . 1,975,500 8.2%
777 E. Wisconsin Avenue
Milwaukee, WI 53202
James D. Shepard.................................. 221,134 (6) *
Paul M. Pankratz.................................. 114,100 (7) *
Ralph W. Boeker................................... 50,000 (8) *
Jon R. Peele...................................... 32,000 (9) *
Wallace C. Dieckmann.............................. 19,859 (10) *
Thomas C. Hinrichs................................ 17,618 (11) *
Kenneth J. Kerr................................... 16,000 (12) *
Trond Aschehoug................................... 15,450 (13) *
Louis A. Simpson.................................. 10,819 (14) *
John D. Roach..................................... 2,250 (15) *
Lester L. Coleman................................. 819 (16) *
Roger L. Kesseler................................. 200 *
Directors and executive officers as a group (15
persons)......................................... 500,249 (17) 2.1% (18)
</TABLE>
- --------
* Represents less than one percent.
(1) Except as otherwise indicated, the address of each of the persons named
below is c/o Magma Power Company, 4365 Executive Drive, Suite 900, San
Diego, California 92121.
(2) For purposes of this table, a person is deemed to have "beneficial
ownership" of (i) any security which such person has the right to acquire
within 60 days after October 1, 1994, (ii) any security which is held by
such person's spouse or other immediate family member sharing such person's
household, (iii) securities held in certain trusts, partnerships and other
legal entities affiliated with such person, and (iv) individual retirement
accounts of such person. Beneficial ownership has been disclaimed by
certain of the named persons with respect to certain of such shareholdings.
The amounts set forth under this column exclude shares held for the benefit
of the named person in the Magma 401(k) Plan. All
I-8
<PAGE>
information with respect to the beneficial ownership of the shares referred
to in this table is based upon filings made by the respective beneficial
owners with the Securities and Exchange Commission or information provided
to the Company by such beneficial owners.
(3) Unless otherwise noted, the number of shares of Common Stock outstanding
for this purpose is 24,014,714.
(4) Includes 4,000,005 shares which were placed in escrow, pursuant to an
escrow agreement dated April 1, 1991 between The Dow Chemical Company, a
Delaware corporation ("Dow"), and Morgan Guaranty Trust Company of New
York, as Escrow Agent, for delivery upon exchanges of $150,000,000
aggregate principal amount of 5 3/4% Subordinated Exchangeable Notes Due
2001 of Dow (the "Notes"). The Notes are exchangeable at any time into
shares of Common Stock at an exchange rate of 26.6667 shares per $1,000
principal amount of Notes. Dow retains the right to vote the shares placed
in escrow.
(5) Does not include shares held by Mr. Shepard, a director of the Company,
who is a co-trustee of the B. C. McCabe Foundation.
(6) Does not include shares owned by the B. C. McCabe Foundation for which Mr.
Shepard is a co-trustee, and with regard to which beneficial ownership is
disclaimed.
(7) Includes Mr. Pankratz's options to purchase 114,000 shares of Common
Stock.
(8) Includes 3,000 shares of deferred stock which are subject to vesting
requirements based on continuing employment and are not entitled to vote
or receive dividends until vested. Also includes Mr. Boeker's options to
purchase 45,000 shares of Common Stock.
(9) Includes 4,500 shares of deferred stock subject to vesting requirements
based on continuing employment, and which the holder is not entitled to
vote or receive dividends on until vested. Also includes Mr. Peele's
options to purchase 27,500 shares of Common Stock.
(10) Includes a 6,000 shares of deferred stock subject to vesting requirements
based on continuing employment, and which the holder is not entitled to
vote or receive dividends on until vested. Also includes Mr. Dieckmann's
options to purchase 13,859 shares of Common Stock.
(11) Includes 6,000 shares of deferred stock subject to vesting requirements
based on continuing employment, and which the holder is not entitled to
vote or receive dividends on until vested. Also includes Mr. Hinrichs'
options to purchase 5,750 shares of Common Stock.
(12) Includes 10,000 shares of deferred stock subject to vesting requirements
based on continuing employment. The holder of such deferred stock is not
entitled to vote such shares or receive dividends until vested. Also
includes Mr. Kerr's options to purchase 5,000 shares of Common Stock.
(13) Includes 8,600 shares of deferred stock which are subject to vesting
requirements based on continuing employment, and which the holder is not
entitled to vote or receive dividends on until vested. Also includes Mr.
Aschehoug's options to purchase 6,000 shares of Common Stock.
(14) Includes Mr. Simpson's options to purchase 819 shares of Common Stock.
(15) Includes Mr. Roach's options to purchase 1,250 shares of Common Stock.
(16) Includes Mr. Coleman's options to purchase 819 shares of Common Stock.
(17) Includes 38,100 shares of deferred stock held by all directors and
officers as a group. Also includes options to purchase 219,998 shares of
Common Stock held by all directors and executive officers as a group. Does
not include shares held by Dow, which is the employer of directors Knee,
Kesseler and Reinhard.
(18) Includes the 38,100 shares of deferred stock and the options to purchase
219,998 shares of Common Stock referred to in Note 17 above. The number of
outstanding shares of Common Stock for this purpose is 24,272,812.
COMPLIANCE WITH SECTION 16(A) OF THE 1934 ACT
Section 16(a) of the 1934 Act requires the Company's directors and executive
officers, and any persons who are beneficial owners of more than 10 percent of
the Common Stock to report their initial ownership of
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<PAGE>
Common Stock and any subsequent changes in that ownership to the SEC. Specific
due dates for such reports have been established, and the Company is required
to disclose in this Information Statement any failure to file such reports by
such dates during 1993. All of such filing requirements were satisfied during
such period.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents information about compensation awarded over the
Company's last three fiscal years to Mr. Pankratz and the Company's other four
most highly compensated executive officers as of December 31, 1993.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------- ---------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)
------------------------ ---- ---------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul M. Pankratz(6)(7).. 1993 $263,250 $389,688 -- -- 48,000 $69,226
Chairman of the Board 1992 229,166 301,250(8) -- -- 66,000(9) 44,217
of Directors 1991 N/A N/A N/A N/A N/A N/A
Ralph W. Boeker (6)(10). 1993 206,731 289,688 -- $167,500(11) 65,000 453,309(12)
President and Chief 1992 N/A N/A N/A N/A N/A N/A
Executive Officer 1991 N/A N/A N/A N/A N/A N/A
Jon R. Peele............ 1993 153,346 125,531 -- N/A 7,500 31,760
Executive Vice
President, 1992 145,000 87,750 -- -- 30,000 26,305
Secretary, General 1991 138,439 90,000 -- -- 15,000 --
Counsel
Trond Aschehoug(13)..... 1993 139,356 86,906 -- $65,625(14) 0 17,554
Vice President &
Director 1992 N/A N/A N/A N/A N/A N/A
of North American 1991 N/A N/A N/A N/A N/A N/A
Operations
Wallace C. Dieckmann.... 1993 119,563 67,594 -- N/A 0 24,153
Vice President & 1992 108,500 40,500 -- -- 11,600 15,371
Chief Financial Officer 1991 104,834 30,000 -- -- 3,500 --
</TABLE>
- --------
(1) Cash bonuses are paid to executive officers of the Company based upon their
individual contribution to the Company and the Company's overall financial
performance. A portion of the bonuses for 1993 were paid in the fourth
quarter of 1993, and the balance was paid in the first quarter of 1994.
(2) Excludes the value of perquisites and other personal benefits. The
incremental cost to the Company of providing such perquisites and other
personal benefits did not during 1993, exceed the lesser of $50,000 or 10%
of annual salary and bonus for the respective individuals named in the
Summary Compensation Table.
(3) Company deferred stock is subject to vesting based on continuing
employment, and the holder of such deferred stock is not entitled to vote
or receive dividends until such deferred stock is vested. The grant date
value shown may overstate the value of deferred stock because it does not
take into account the negative effect of the lack of transferability,
vesting restrictions and potential loss of the deferred stock upon
termination of employment. This table excludes shares of Company deferred
stock granted to Messrs. Peele, Aschehoug and Dieckmann under the 1994
Equity Participation Plan approved at the 1994 Annual Meeting.
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<PAGE>
(4) There are currently no SARs outstanding.
(5) Represents amounts allocated by the Company for the accounts of the named
individuals to the Company Benefit Plans (as defined below) in 1993 as
follows:
<TABLE>
<CAPTION>
EMPLOYEE
RETIREMENT EMPLOYEES' EXECUTIVE
SAVINGS PENSION SUPPLEMENTAL
NAME PLAN PLAN PLAN
---- ---------- ---------- ------------
<S> <C> <C> <C>
Paul M. Pankratz........................... $6,855 $14,043 $48,328
Ralph W. Boeker............................ 4,400 14,150 29,901
Jon R. Peele............................... 6,855 14,043 10,862
Trond Aschehoug............................ 5,096 8,903 3,555
Wallace C. Dieckmann....................... 6,716 13,311 4,126
</TABLE>
(6) Prior to January 11, 1994, Mr. Pankratz served as Chairman and CEO and Mr.
Boeker served in the capacity of President.
(7) Mr. Pankratz joined the Company as of February 1, 1992.
(8) Includes the fair market value on the grant date ($98,750) of 5,000 shares
of Company Common Stock awarded to Mr. Pankratz, without restrictions, in
conjunction with his initial employment by the Company.
(9) Includes 30,000 options granted to Mr. Pankratz in conjunction with his
initial employment by the Company.
(10) Mr. Boeker joined the Company on March 1, 1993.
(11) Represents the value on the grant date of 5,000 shares of Company deferred
stock granted in conjunction with Mr. Boeker's initial employment by the
Company on March 1, 1993. As of December 31, 1993 Mr. Boeker held 4,000
shares of Deferred Stock which vest 1,000 shares on each of March 1, 1994,
1995, 1996 and 1997
(12) Includes $404,858 associated with Mr. Boeker's relocation to Souther
California from Midland, Michigan.
(13) Includes amounts paid to Dow for Mr. Aschehoug as a "leased employee" from
Dow. Mr. Aschehoug became an employee of the Company on July 1, 1993.
Excludes options granted to Mr. Aschehoug prior to his becoming an employee
of the Company.
(14) Represents the value on the grant date of 2,100 shares of Company Deferred
Stock granted to Mr. Aschehoug in conjunction with his employment on July
1, 1993. As of December 31, 1993 Mr. Aschehoug held 2,100 shares of
Deferred Stock which vest 700 shares on each of July 1, 1994, 1995 and
1996.
I-11
<PAGE>
OPTION GRANT TABLE
The following table presents information about options granted to Mr.
Pankratz and to the Company's four other most highly compensated executive
officers as of December 31, 1993.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
GRANT DATE
PRESENT
INDIVIDUAL GRANTS VALUE
- ----------------------------------------------------------------------------------- ----------
% OF TOTAL
NUMBER OF OPTIONS/SARS GRANT
SECURITIES GRANTED TO EXERCISE DATE GRANT
UNDERLYING ALL OR BASE MARKET DATE
OPTIONS/SARS EMPLOYEES IN PRICE PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1)FISCAL YEAR ($/SHARE) ($/SHARE) DATE VALUE $(2)
- ------------------------ ------------ ------------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul M. Pankratz........ 48,000(3) 17.4% $33.300 $37.000 11/15/03 $1,035,840
Ralph W. Boeker......... 30,000(4) 10.9% $28.130 $31.000 01/11/03 $ 540,000
35,000(3) 12.7% $33.300 $37.000 11/15/03 $ 755,300
Jon R. Peele............ 7,000(3) 2.7% $33.300 $37.000 11/15/03 $ 161,850
Trond Aschehoug......... 0 0% -- -- -- $ 0
Wallace C. Dieckmann.... 0 0% -- -- -- $ 0
</TABLE>
- --------
(1) There are currently no SARs outstanding.
(2) These potential values were calculated using the Black-Scholes Option
Valuation method. The Black-Scholes Option Valuation Method used does not
take into account the negative effect on value of the lack of
transferability, vesting restrictions and potential loss of the option upon
termination of employment and therefore overstates the value of an
executive's stock option. The assumptions used under the Black-Scholes
model include a volatility of 26.5 percent based on one-year historical
volatility of the Common Stock ending February 28, 1994; a risk-free rate
of 6.67 percent based on the ten-year zero coupon treasury bond and a
dividend yield of 0.0 percent based on the current dividend rate and an
option term equal to the full ten-year stated option term. These potential
values have not been, and may never be, realized. The underlying options
have not been, and may never be, exercised. The actual value of these
options (if any) will depend upon the value of Common Stock on the date of
exercise (if any).
(3) The grant date is 10 years prior to the expiration date noted in the table.
The shares of Common Stock covered by each such option vests and becomes
exercisable on the first anniversary of the grant date.
(4) The grant date is 10 years prior to the expiration date noted in the table.
One-third of the shares of Common Stock covered by each such option vests
and becomes exercisable on the first, second and third anniversaries of the
grant date.
I-12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table summarizes for each of the named executive officers the
number of shares of Common Stock received upon exercise of stock options, if
any, during 1993, the aggregate dollar value realized upon exercise, the total
number of shares of Common Stock with respect to which unexercised options were
held as of December 31, 1993, if any, and the aggregate dollar value of in-the-
money, unexercised options held as of December 31, 1993.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED IN-
OPTIONS/SARS THE-MONEY
AT FY-END (#) OPTIONS/SARS AT
SHARES (1) FY-END ($) (1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(2)
---- ----------- ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Paul M. Pankratz............ 0 $ 0 66,000/48,000 $1,093,680/$93,600
Ralph W. Boeker............. 0 0 0/65,000 0/281,850
Jon R. Peele................ 26,000 423,180 20,000/27,500 85,250/344,925
Trond Aschehoug............. 0 0 3,000/6,000 51,390/102,780
Wallace C. Dieckmann........ 4,000 73,520 13,242/10,358 101,887/152,803
</TABLE>
- --------
(1) There are currently no SARs outstanding.
(2) These potential values have not been, and may never be, realized. The
underlying options have not been, and may never be, exercised; actual
gains, if any, on exercise will depend on the value of Common Stock on the
date of exercise, if any.
COMPANY BENEFIT PLANS
Employee Retirement Savings Plan. The Company provides a Retirement Savings
Plan (the "401(k) Plan") pursuant to Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"). The 401(k) Plan became effective April 1, 1988, and
covers all of the Company's employees who have completed one year of service
with the Company. Under the 401(k) Plan, the Company is obligated to contribute
1% of each participating employee's eligible compensation and to match 50% of
the first 6% of the employee's contributions. In addition, the Company may also
make discretionary contributions. In fiscal year 1993, the Company made no such
discretionary contributions.
Employee's Pension Plan. The Magma Power Company Pension Plan (the "Pension
Plan") covers all of the Company's full-time regular employees who have
completed one year of service with the Company. The Pension Plan was effective
as of January 1, 1990. It is a qualified plan pursuant to Section 401(a) of the
Code. Under the Pension Plan, the Company is obligated to contribute an amount
equal to 6% of the eligible compensation of each of the participants in the
Pension Plan.
Executive Supplemental Plan. The Company maintains a Special Supplemental
Retirement Plan covering a select group of management and upper level
employees. The Supplemental Plan is an unfunded nonqualified plan under Section
401(a) of the Code. It is designed to receive certain allocations of funds that
could not be contributed to the participants' 401(k) Plan or Pension Plan
accounts under current tax law limitations. Additionally, under the
Supplemental Plan, participating employees may defer income, and the Company
may also allocate amounts such as discretionary contributions.
I-13
<PAGE>
1987 Stock Option Plan. The Magma Power Company 1987 Stock Option Plan (which
is a Rule 16b-3 Plan) provides that options to purchase an aggregate of
1,000,000 shares of the Company's Common Stock may be granted to salaried
employees and consultants of the Companionate its subsidiaries, as selected by
the Option Sub-Committee of the Compensation Committee. The purchase price
which must be paid for stock on exercise of an option granted under the 1987
Stock Option Plan will be fixed by the Option Sub-Committee when the option is
granted, but such price may not be less than 90% of the fair market value of
the stock on the grant date and must be at least 100% of such fair market value
for any option intended to be an "incentive stock option" under federal tax
law. It is unlikely that additional grants will be made under the 1987 Plan if
law because the 1994 Equity Participation Plan was approved by the Company's
stockholders at the 1994 Annual Meeting.
1994 Equity Participation Plan. The Company adopted the 1994 Equity
Participation Plan for the benefit of key employees, consultants and directors.
Not more than 1,000,000 shares of Common Stock (or their equivalent in other
equity securities) are authorized for issuance upon exercise of options, stock
appreciation rights ("SARs") and other awards or upon vesting of restricted or
deferred stock awards at the discretion of the Compensation Committee of the
Board. Each grant or issuance will be set forth in a separate agreement with
the person receiving the award and will indicate the type, terms and conditions
of the award. The exercise or purchase price for all options, SARs, restricted
stock and other rights to acquire Company Common Stock, together with any
applicable tax required to be withheld, must be paid in full in cash at the
time of exercise or purchase or may, with the approval of the Committee, be
paid in whole or in part in Common Stock of the Company owned by the optionee
(or issuable upon exercise of the option) and having a fair market value on the
date of exercise equal to the aggregate exercise price of the shares so to be
purchased. The Committee may also provide, in the terms of an option or other
right, that the purchase price may be payable within thirty days after the date
of exercise. The Committee may also authorize other lawful consideration to be
applied to the exercise or purchase price of an award. This may also include
services rendered, or the difference between the exercise price of presently
exercisable options and the fair market value of the Common Stock covered by
such options on the date of exercise.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In November 1993 the Compensation Committee determined that, in order to
attract and retain key executives of the Company, from time to time it would be
in the Company's best interests to enter in to "change in control" agreements
with key executives. The Compensation Committee authorized the Company to enter
into agreements subject to the following parameters:
(i) provision for up to two times base and bonus salary;
(ii) accelerated vesting of options; and
(iii) continuation of health and insurance benefits.
Each of the items referred to in (i) through (iii) would be triggered by a
Change in Control (as defined below) of the Company followed by termination of
the relevant officer's employment by the Company within a specified period,
other than for cause, disability or retirement.
On September 15, 1994 the Company entered into change in control agreements
with each of its six current executive officers (Paul Pankratz, Chairman of the
Board, Ralph Boeker, President and Chief Executive Officer, Jon Peele,
Executive Vice President, General Counsel and Secretary, Ken Kerr, Senior Vice
President--Commercial Development, Trond Aschehoug, Vice President--North
American Operations, and Wallace Dieckmann, Vice President and Chief Financial
Officer) ("Agreement I") and with nine other officers (Tom Hinrichs, Vice
President--Government Affairs, David Olsen, Vice President Marketing, Jim
Runchey, Vice President--Human Resources and Administration, Russ Tenney, Vice
President--Asian Operations, Steve Jaye, Vice President--Legal Affairs, Mark
Robinson, Vice President--Business Development, Paul Zapf, Corporate
Controller, Joe Asiala, Director--Resource Development and Management, and Jim
Turner, Director--Engineering and Technology) ("Agreement II").
I-14
<PAGE>
The agreements provide for certain severance payments to those officers in
the event of the termination of their employment following a Change in Control
of the Company, consistent with the enabling resolutions passed by the
Compensation Committee in the fall of 1993. Each agreement has a term expiring
on December 31, 1997, renewable at the end of such term if mutually agreed to
by the officer and the Company.
Agreement I provides that if the officer's employment is terminated by the
Company for any reason other than for Cause, Disability or Retirement (as such
terms are defined in Agreement I) or by the officer for Good Reason (as such
term is defined in Agreement I) within two years following a Change in Control
(as such term is defined below), (i) the Company will pay the officer, within
30 days of the date of termination, a cash payment (the "Severance Payment")
equal to 200% of the sum (the "Sum") of (A) the officer's base salary for the
twelve months immediately preceding the Change in Control and (B) the officer's
entire targeted bonus payable under the Company's Management Incentive Bonus
Plan or other executive bonus plan then in effect and (ii) all Magma deferred
shares or similar Magma securities and all options to purchase Magma securities
then held by the officer shall immediately vest. The Company will continue to
provide the officer and his or her dependents group life and health insurance
benefits substantially the same as those in effect immediately prior to the
Change in Control, increased to the extent that such benefits are increased
following the Change in Control, for 24 months following the officer's date of
termination. In the event that any payments or benefits under the agreement
would not be deductible (in whole or in part) by the Company as a result of the
application of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), the Severance Payment will be reduced until no portion of the
Severance Payment and benefits is not deductible as a result of Section 280G of
the Code.
Agreement II provides the same level of payments and benefits as provided in
Agreement I except that the Severance Payment shall equal 100% of the
applicable Sum and that health insurance benefits shall be provided for 12
months following a Change in Control.
A "Change in Control" shall be deemed to have occurred (i) in the event of
the acquisition by any person, together with its affiliates, of beneficial
ownership of capital stock of the Company possessing 30% or more of the
combined voting power of the Company outstanding capital stock, (ii) if within
any two-year period, the majority of the members of the Board of Directors of
Magma (the "Magma Board") were to be comprised of individuals other than those
who were members at the beginning of such period, unless the members elected
during such period were approved by a majority of the Magma Board in office
immediately prior to the beginning of such period, (iii) if all or
substantially all of the Company's assets are sold as an entirety to any person
or related group of persons or (iv) if the Company is merged with or into
another corporation or another corporation is merged into the Company with the
effect that immediately after such transaction the shareholders of the Company
immediately prior to such transaction hold less than a majority in interest of
the total voting power entitled to vote in the election of directors, managers
or trustees of the entity surviving such transaction.
At a regularly scheduled Board of Directors meeting held on September 20,
1994, the Compensation Committee authorized a change to the definition of "Good
Reason" in these agreements, the effect of which would allow a covered
executive to resign for "Good Reason" if, after a Change in Control, the
executive were required to relocate more than 50 miles from his then current
place of employment.
The foregoing description is qualified in its entirety by reference to the
agreements, copies of which are available, without charge, upon written or oral
request, to Magma Power Company, 4365 Executive Drive, Suite 900, San Diego,
California 92121 (telephone number (619) 622-7800), Attn: Jon R. Peele.
I-15
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION*
As members of the Compensation Committee, it is our duty to oversee the
Company's overall compensation programs to ensure compliance with the Company's
compensation philosophy, to evaluate the performance of the Chief Executive
Officer (CEO), review the performance of the executive management group,
establish the compensation level of the CEO, review compensation levels for the
executive management group, and consider related matters.
The compensation programs of the Company are designed to align executive
officers' compensation with the strategic goals and performance of the Company.
The Compensation Committee strives to develop and administer programs that
will:
. Attract and retain key executive officers critical to the long-term
success of the Company;
. Provide salary and total compensation levels for executive officers
which are competitive with the median salary and compensation levels for
the Company's competitors;
. Motivate executive officers to enhance long-term stockholder value in the
Company; and
. Integrate the Company's compensation programs with its strategic
planning and measurement processes.
The compensation philosophy of the Company, which is endorsed by the
Compensation Committee, is to provide salary and total compensation levels
comparable to the median of the Company's compensation peer group,
specifically, those publicly traded independent power producers and growth
companies similar to the Company. This peer group includes substantially all of
the members of the Industry Peer Group reflected in the 1993 Proxy Performance
Graph plus an additional group of publicly traded technology growth companies
with annual revenues, growth history, and other performance and business
characteristics similar to the Company but which may not directly compete with
the Company in its independent power business. The compensation philosophy also
calls for a substantial portion of the annual compensation of each executive
officer to relate to, and be contingent upon, the performance of the Company
and the individual contribution of such executive officer to such performance.
As a result, much of an executive officer's compensation is "at risk" with
annual incentive bonus compensation amounting to a significant portion of total
cash compensation.
The Compensation Committee retained in 1993 the services of an outside
executive compensation consulting firm to assist in the performance of its
various duties. The results of the consulting firms' study disclosed that the
Company's executive compensation levels, base salary, annual and long-term
incentives, were below the median of its peer group. As such, the Committee
approved a program to bring compensation levels in line with its philosophy
over a two-year period. The Committee takes into account the Company's
performance as well as the competitiveness of the Company's compensation levels
to the comparable levels paid by the Company's compensation peer group.
The base salary and target bonus for the Company's newly appointed Chief
Executive Officer, Mr. Ralph W. Boeker, were based principally on his rights
under his offer of employment as President of the Company as detailed in the
letter dated January 20, 1993 (the "January 20, 1993 Letter"). On January 11,
1994, the Compensation Committee recommended to the Board of Directors, and the
Board of Directors approved, that Mr. Boeker's base annual salary be increased
to $300,000 concurrent with his appointment as the Company's Chief Executive
Officer. This increase was based on the compensation survey data provided by
- --------
* Neither this Report nor the Performance Graph set forth below shall be
deemed to be incorporated by reference into any filing by the Company under
either the Securities Act of 1933, as amended (the "1933 Act"), or the 1934
Act, except to the extent that the Company specifically incorporates the
same by reference.
I-16
<PAGE>
the Company's executive compensation consulting firm and is in line with the
Company's compensation philosophy to compensate at the median level of its peer
group. The January 20, 1993 Letter also provided for (i) the grant by the Stock
Option Committee to Mr. Boeker of 30,000 options under the Company's 1987 Stock
Option Plan with an exercise price of 90% of the fair market value of the
Common Stock on the grant date and with three years vesting and (ii) the grant
of 5,000 shares of restricted Common Stock vesting 1,000 shares on date of hire
and 1,000 shares per year on the succeeding four anniversaries of the date of
hire. The terms of the January 20, 1993 Letter were designed to provide Mr.
Boeker with total compensation levels comparable to the median of the Company's
compensation peer group.
The base salary and target bonus for the Company's former Chief Executive
Officer and current Chairman of the Board of Directors, Mr. Paul M. Pankratz,
were unchanged from the levels reported last year.
Under the Company's annual management incentive bonus plan, bonuses are based
one-half on the individual's performance and one-half on the performance of the
Company, with target bonuses of approximately 35% to 50% of total cash
compensation, except in extraordinary circumstances. The Company's performance
for purposes of compensation decisions is measured under the annual incentive
bonus plan against goals established for a given fiscal year by the
Compensation Committee. The 1993 goals consisted of performance objectives for
both the individuals and the Company. Company performance was measured by
actual 1993 income before taxes (net income plus provision for taxes) compared
to targeted 1993 income before taxes ("IBT"). In 1993 the Company materially
exceeded the targeted IBT goal, and in 1992 the Company substantially met the
targeted IBT objective. The Committee evaluated individual performance, so
that, on average, together with over-achievement on Company performance, total
1993 annual incentive bonuses represented approximately 43% of total cash
compensation for the executive officers. In assessing the individual
performances of Messrs. Pankratz and Boeker, the Committee was influenced by
(a) the successful integration of the acquired geothermal assets from Union Oil
of California into the Company's operation, (b) the successful consummation of
an energy conversion agreement with the Philippine National Oil Company for a
231 MW (gross) geothermal generating facility on the island of Leyte, and (c)
the Company's record results in 1993 with net income up 51% and revenues 53%
greater than the previous year.
In addition to the annual incentive bonus plan, the Company's 1987 Stock
Option Plan is an integral part of the Company's long-term compensation
program. Such long-term compensation is designed to encourage and create
ownership and retention of the Company's stock by key employees and to provide
incentives to increase the profits and long-term profitable growth of the
Company. This program is designed to align the long-range interests of key
employees with those of the stockholders. The 1987 Stock Option Plan is
administered by the Option Sub-Committee of the Compensation Committee. In
November of 1993, under the 1987 Stock Option Plan, Mr. Boeker was granted by
the Option Sub-Committee a performance award of 35,000 options, and Mr.
Pankratz was granted by the Option Sub-Committee a performance award of 48,000
options, all at an exercise price of 90% of the fair market value of the Common
Stock on the grant date. Such options were based on an evaluation of these
executives' performance and their contributions to the Company, their options
granted previously, and the long-term compensation and total compensation
levels provided at the Company's compensation peer group. Such options fully
vest one year after the grant date. In addition, Jon R. Peele received 7,500
options fully vested after one year from the date of grant. These option grants
were structured to provide these executive officers with total compensation
levels comparable to the median of the Company's compensation peer group.
Roger L. Kesseler, Chairman
Bent Petersen
James D. Shepard
I-17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1993 were Mr. Kesseler, Mr.
Petersen and Mr. Shepard. As of December 1, 1994, the members of the
Compensation Committee were Messrs. Kesseler, Pankratz, Roach and Shepard, with
Messrs. Roach and Shepard serving as members of the Option Sub-Committee. Mr.
Pankratz is the Chairman of the Board and a full time employee of Magma Power,
as well as the Company's past CEO and President. Mr. Shepard is a former Vice
President and Treasurer of the Company.
PERFORMANCE GRAPH
The Performance Graph below shows changes over the past five years in the
value of $100 invested in (a) the Common Stock of the Company; (b) an industry
peer group of publicly traded, non-utility companies in the independent power
generation industry compiled by the Company; and (c) the Standard & Poor's
MidCap 400 Index. The Bridge Information Services Utilities & Electric Index
shown in 1992 is no longer available for the Performance Graph.
The year-end values of each of such investment are based on share price
appreciation plus dividends paid in cash, with such dividends reinvested on the
date they were paid. The calculations of such values exclude trading
commissions and taxes. The industry peer group calculations reflect weighted
average total returns for the entire group.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN (1)
AMONG MAGMA POWER COMPANY, S&P MIDCAP 400, UTILITIES AND
ELECTRIC INDEX AND PEER GROUP
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period MAGMA POWER S&P MIDCAP UTILITIES &
(Fiscal Year Covered) COMPANY 400 INDEX ELECTRIC INDEX PEER GROUP
- ------------------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Measurement Pt- 12/30/88 $100 $100 $100 $100
FYE 12/29/89 $159 $136 $132 $132
FYE 12/31/90 $144 $129 $100 $100
FYE 12/31/91 $157 $193 $129 $129
FYE 12/31/92 $205 $216 $113 $113
FYE 12/31/93 $224 $246 $122 $118
</TABLE>
- --------
(1) Stock price performance shown is not necessarily indicative of future price
performance.
(2) Industry peer group includes: The AES Corporation; California Energy
Company, Inc.; Destec Energy, Inc.; O'Brien Environmental Energy, Inc.; and
Ogden Projects, Inc.
(3) Adjusted Industry peer group includes: The AES Corporation; California
Energy Company, Inc.; Destec Energy, Inc.; Kenetech Corp.; O'Brien
Environmental Energy, Inc.; Ogden Projects, Inc.; and Sithe Energies, Inc.
Both of the two companies added to this adjusted industry peer group
(Kenetech Corp. and Sithe Energies, Inc.) became publicly traded for the
first time in 1993.
I-18
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dow Services. Under two technical services agreements between the Company and
Dow, Dow agreed to furnish certain technical and other services in connection
with the operation of the Company's geothermal power plants. The Company, in
turn, agreed to pay for such services in cash payments or through the issuance
of previously authorized but unissued shares of Common Stock. In 1993, the
Company entered into a new agreement with Dow (the "1993 Technical Services
Agreement") which amends, restates and supersedes the prior technical services
agreements. Under the 1993 Technical Services Agreement, Dow has agreed to
provide technical services for the Company's geothermal power plants until
January 1, 2000. The Company, in turn, has agreed to make payments for such
technical services in the amounts of $575,000 for 1993 and $550,000 for 1994
and thereafter in annual amounts reduced by $50,000 each year to $300,000 for
1999. Such annual payments entitle the Company each year to receive technical
services from Dow equivalent in value to such year's payment, invoiced at Dow's
internal interdepartmental charge rates. The Company may obtain additional
technical services from Dow (if available), invoiced and paid for by the
Company at such scheduled rates. The Company is also entitled to receive from
Dow technical services for additional power plants by increasing the annual
payments to Dow by $50,000 for each such plant, subject to certain limitations.
Payments under the 1993 Technical Services Agreement are to be made exclusively
in cash--there is no provision for payment in Company Stock. In 1993, the
Company paid Dow $575,000 under the 1993 Technical Services Agreement. In
addition, in March 1994 the Company signed a five-year agreement (the "1994
Engineering and Construction Management Services Agreement") with Dow
Engineering Company ("DEC"). Under the Agreement, DEC will provide engineering,
procurement and construction management services to Magma, including process
engineering, project design, procurement and construction management services
for Magma's existing and future geothermal power projects in North America. The
Company believes that the 1993 Technical Services Agreement and the 1994
Engineering and Construction Management Services Agreement are on terms at
least as favorable to the Company as would be available from an unaffiliated
third party.
Dow Options. In October 1993 the Company acquired at a discount Dow's option
to purchase for an exercise price of $21 per share two million shares of Magma
Common Stock. Magma purchased the options for 857,143 shares of newly issued
and unregistered shares of its stock (the "Dow Shares"). The closing price of
Magma's common stock on the date the acquisition was consummated was $38.50 per
share. J.P. Morgan Securities Inc. was retained by an independent committee of
the Company's Board of Directors to assist in valuing the option. Under the
Option Surrender Agreement, Dow agreed not to sell the newly issued shares
before September 30, 1994 (the "Lock-up"). The purposes for this acquisition
included lessening the magnitude of the overhang caused by the two million
shares subject to the option. The newly issued shares did not materially impact
the Company's 1993 earnings per share calculations since the option shares were
already reflected in the number of shares used in calculating primary earnings
per share.
On July 26, 1994, the Company agreed to release Dow from the Lock-up in
consideration of Dow's agreement to (i) sell the Dow Shares in a single block
transaction in a private placement outside of the Nasdaq National Market, (ii)
cause the purchaser of the Dow Shares to agree in writing to refrain from
reselling the Dow Shares until after September 29, 1994 and (iii) give the
Company the opportunity to review the final form of any Dow public disclosure
regarding this matter at least three business days prior to public release or
filing.
On September 12, 1994, Dow sold 857,143 shares of Common Stock to Garantia
Banking Limited, a Bahamian corporation ("Garantia"), for $24,214,289.75. On
September 12, 1994, Dow acquired an option (the "Option") to purchase 857,143
shares of Common Stock from Garantia for an exercise price of $24,214,289.75.
The Option was acquired in consideration of $150,000. According to a filing by
Dow with the SEC, the purpose of this transaction was to match Dow's book and
tax basis for the Dow Shares. On September 30, 1994, Dow exercised the Option
in full and reacquired the 857,143 shares from Garantia for $24,214,289.75.
I-19
<PAGE>
Following these transactions, Dow holds over 5 million shares of Magma Common
Stock, approximately 4 million of which are currently held in escrow for
exchangeable notes (see below). By virtue of such remaining percentage
ownership of the Common Stock, Dow may still be deemed to control the
management and policies of the Company. According to Dow's Schedule 13D
currently on file with the Commission, the Common Stock held by Dow is held for
investment purposes.
1993 Stock Offering. Pursuant to a registration rights agreement, Dow
requested that the Company facilitate a registered public offering by Dow of
certain of its shares of Magma Common Stock. Accordingly, the Company filed,
and in June 1993 the SEC declared effective, a registration statement covering
the sale by Dow of 3,635,000 shares of Company Common Stock and the sale by J.
P. Morgan & Co. Incorporated of 365,000 shares of Company Common Stock.
Pursuant to the registration rights agreement, the Company paid the first
$100,000 of its accounting, printing, legal and other expenses of the offering,
and the two selling shareholders paid the remainder of such expenses.
1991 Stock Offering. In April 1991, the Company registered 4,000,005 shares
(the "Registered Shares") of Common Stock owned by Dow. The Registered Shares
were placed in escrow by Dow for delivery upon exchange of the Notes. The Notes
are exchangeable at any time into shares of Common Stock at an exchange rate of
26.6667 shares per $1,000 principal amount of the Notes. Dow retains the right
to vote the shares placed in escrow. A registration statement covering the
Registered Shares (the "Registration Statement") was filed by the Company on
behalf of Dow pursuant to existing registration rights agreements between the
Company and Dow. The Company has agreed to keep the Registration Statement
current until the earlier of (i) the maturity of the Notes in 2001 or (ii) the
date on which all of the Notes have been exchanged or redeemed. The Company and
Dow have agreed to indemnify each other against certain liabilities, including
liabilities under the 1933 Act in connection with the Registration Statement
and another registration statement concurrently filed by Dow in connection with
its issuance of the Notes.
Aschehoug Home Purchase. In September 1994, the Company sold a residential
home to Mr. Aschehoug and his wife (the "Aschehougs") for $250,000. The
purchase price of $250,000 was determined by an independent appraisal of the
property. The Aschehougs financed the purchase with a 90-day note (the "Note")
from the Company in the amount of $200,000 bearing interest at a rate of 6.49%
per annum. In November 1994, the Aschehougs refinanced the Note and paid the
Company in full.
Kerr Relocation Loan. In July 1993, the Company made an interest-free
employee relocation loan (the "Loan") to Mr. Kerr and his wife (the "Kerrs") in
the amount of $100,000 for the purpose of financing the purchase of a new
residence. The Loan is secured by a deed of trust granted by the Kerrs to the
Company relating to their new residence. Mr. Kerr is obligated to make annual
reduction payments on the Loan in an amount equal to one-half the annual cash
bonus paid to him for services rendered in the preceding fiscal year, less any
taxable portion thereof. Currently, $77,000 remains outstanding under the Loan,
and the final balance is due and payable in full on July 16, 1998.
Halliburton Services. Halliburton Energy Services ("Halliburton Energy")
provides Magma Operating Company, a subsidiary of the Company, with various
maintenance services for the Company's well fields. Mr. Coleman is the
Executive Vice President and General Counsel of Halliburton Company, the parent
of Halliburton Energy. While the terms by which Halliburton Energy provides
services are currently determined on a case-by-case basis, Magma Operating
Company is considering negotiating a long term maintenance service agreement
with Halliburton Energy. For the nine-month period ended September 30, 1994 and
for fiscal 1993, Magma Operating Company made payments to Halliburton Energy of
approximately $225,000 and $700,000, respectively.
I-20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBITS PAGE NUMBER
-------- -----------
<C> <S> <C>
Exhibit 1 -- Excerpts from the Company's Proxy Statement dated
May 11, 1994 for its 1994 Annual Meeting of
Stockholders.
Exhibit 2 -- Form of Change in Control Agreement I.
Exhibit 3 -- Form of Change in Control Agreement II.
Exhibit 4 -- Form of Indemnification Agreement.
Exhibit 5 -- Agreement and Plan of Merger, dated as of December
5, 1994, among the Company, Parent and the
Purchaser.
Exhibit 6 -- Letter to Stockholders of the Company.
Exhibit 7 -- Joint Press Release of the Company and Parent,
dated December 5, 1994.
Exhibit 8 -- Opinion of Goldman, Sachs & Co., dated December 9,
1994.
</TABLE>
<PAGE>
EXHIBIT 99.1
COMPENSATION OF DIRECTORS
Directors of the Company may be reimbursed for necessary expenses incurred
in connection with their attendance at Board and committee meetings. Each
"outside" director receives a $15,000 annual fee, $1,500 for each Board meeting
he attends, and $750 for each committee meeting he attends (if such committee
meeting is not held the same day as a Board meeting). The members of the Board
deemed to be "outside" directors for this purpose (since they are neither
employed by the Company nor affiliated with a major stockholder of the Company)
are currently Messrs. Coleman, Petersen, Roach and Simpson.
On December 3, 1993, concurrent with Mr. Arnold L. Johnson's resignation
from the Board, the Company accelerated the remaining payments he otherwise
would have received in 1994 under the agreement Mr. Johnson and the Company
entered into in connection with Mr. Johnson's resignation as an officer of the
Company in June 1991 (the "June 1991 Agreement"). Such accelerated payment to
satisfy the Company's obligations to Mr. Johnson under the June 1991 Agreement
amounted to approximately $1,164,000, which included a cash payment for Mr.
Johnson's supplemental benefit plan accounts. Mr. Shepard receives an annual
payment of $15,000 for serving as a shareholder relations consultant to the
Company.
1
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents information about compensation awarded over
the Company's last three fiscal years to Mr. Pankratz and the Company's
other four most highly compensated executive officers as of December 31, 1993.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------- ----------------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)
- ----------------------------- ---- -------- -------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul M. Pankratz(6)(7)....... 1993 $263,250 $389,688 -- -- 48,000 $ 69,226
Chairman of the Board of 1992 229,166 202,500 -- -- 66,000(8) 142,967(9)
Directors 1991 N/A N/A N/A N/A N/A N/A
Ralph W. Boeker(6)(10)....... 1993 206,731 289,688 -- $167,500(11) 65,000 453,309(12)
President and Chief 1992 N/A N/A N/A N/A N/A N/A
Executive Officer 1991 N/A N/A N/A N/A N/A N/A
Jon R. Peele................. 1993 153,346 125,531 -- N/A 7,500 31,760
Executive Vice President, 1992 145,000 87,750 -- -- 30,000 26,305
Secretary, General Counsel 1991 138,439 90,000 -- -- 15,000 --
Trond Aschehoug(13).......... 1993 139,356 86,906 -- $65,625(14) 0 17,554
Vice President & Director of 1992 N/A N/A N/A N/A N/A N/A
North American Operations 1991 N/A N/A N/A N/A N/A N/A
Wallace C. Dieckmann......... 1993 119,563 67,594 -- N/A 0 24,153
Vice President & Chief 1992 108,500 40,500 -- -- 11,600 15,371
Financial Officer 1991 104,834 30,000 -- -- 3,500 --
</TABLE>
- ---------
(1) Cash bonuses are paid to executive officers of the Company based upon their
individual contribution to the Company and the Company's overall financial
performance. A portion of the bonuses for 1993 were paid in the fourth
quarter of 1993, and the balance was paid in the first quarter of 1994.
(2) Excludes the value of perquisites and other personal benefits. The
incremental cost to the Company of providing such perquisites and other
personal benefits did not, during 1993, exceed the lesser of $50,000 or
10% of annual salary and bonus for the respective individuals named in
the Summary Compensation Table.
(3) Company Deferred Stock is subject to vesting based on continuing
employment, and the holder of such Deferred Stock is not entitled to vote
or receive dividends until such Deferred Stock is vested. The grant date
value shown may overstate the value of Deferred Stock because it does not
take into account the negative effect of the lack of transferability,
vesting restrictions and potential loss of the Deferred Stock upon
termination of employment. This table excludes shares of Company Deferred
Stock which are expected to be granted to Messrs. Peele, Aschehoug and
Dieckmann following the Annual Stockholders Meeting if and to the extent
that the 1994 Equity Participation Plan is approved.
(4) There are currently no SARs outstanding.
2
<PAGE>
(5) Represents amounts allocated by the Company for the accounts of the named
individuals to the Company Benefit Plans (as defined below) in 1993 as
follows:
EMPLOYEE
RETIREMENT EMPLOYEES' EXECUTIVE
SAVINGS PENSION SUPPLEMENTAL
NAME PLAN PLAN PLAN
---- ---------- -------- ------------
Paul M. Pankratz................... $6,855 $14,043 $48,328
Ralph W. Boeker.................... 4,400 14,150 29,901
Jon R. Peele....................... 6,855 14,043 10,862
Trond Aschehoug.................... 5,096 8,903 3,555
Wallace C. Dieckmann............... 6,716 13,311 4,126
(6) Prior to January 11, 1994, Mr. Pankratz served as Chairman and CEO and Mr.
Boeker served in the capacity of President.
(7) Mr. Pankratz joined the Company as of February 1, 1992.
(8) Includes 30,000 options granted to Mr. Pankratz in conjunction with his
initial employment by the Company.
(9) Includes the fair market value on the grant date ($98,750) of 5,000 shares
of the Company Common Stock awarded to Mr. Pankratz, without restrictions,
in conjunction with his initial employment by the Company.
(10) Mr. Boeker joined the Company on March 1, 1993.
(11) Represents the value on the grant date of 5,000 shares of Company Deferred
Stock granted in conjunction with Mr. Boeker's initial employment by the
Company on March 1, 1993.
(12) Includes $404,858 associated with Mr. Boeker's relocation to Southern
California from Midland, Michigan.
(13) Includes amounts paid to Dow for Mr. Aschehoug as a "leased employee" from
Dow. Mr. Aschehoug became an employee of the Company on July 1, 1993.
Excludes options granted to Mr. Aschehoug prior to his becoming an employee
of the Company.
(14) Represents the value on the grant date of 2,100 shares of Company Deferred
Stock granted to Mr. Aschehoug in conjunction with his employment on July
1, 1993.
3
<PAGE>
OPTION GRANT TABLE
The following table presents information about options granted to Mr.
Pankratz and to the Company's four other most highly compensated executive
officers as of December 31, 1993.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
GRANT DATE
PRESENT
INDIVIDUAL GRANTS VALUE
- ------------------------------------------------------------------------------------------------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS GRANT
OPTIONS/ GRANTED TO EXERCISE DATE
SARS ALL OR BASE MARKET GRANT DATE
GRANTED EMPLOYEES IN PRICE PRICE EXPIRATION PRESENT
NAME (#)(1) FISCAL YEAR ($/SHARE) ($/SHARE) DATE VALUE $(2)
- -------------------------- ---------- ------------ --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Paul M. Pankratz.......... 48,000(3) 17.4% $33.300 $37.000 11/15/03 $1,035,840
Ralph W. Boeker........... 30,000(4) 10.9% $28.130 $31.000 1/11/03 $ 540,000
35,000(3) 12.7% $33.300 $37.000 11/15/03 $ 755,300
Jon R. Peele.............. 7,500(3) 2.7% $33.300 $37.000 11/15/03 $ 161,850
Trund Aschehoug........... 0 0% -- -- -- $ 0
Wallace C. Dieckmann...... 0 0% -- -- -- $ 0
- --------
</TABLE>
(1) There are currently no SARs outstanding.
(2) Those potential values were calculated using the Black-Scholes Option
Valuation Method. The Black-Scholes Option Valuation Method used does not
take into account the negative effect on value of the lack of
transferability, vesting restrictions and potential loss of the option upon
termination of employment and therefore overstates the value of an
executive's stock option. The assumptions used under the Black-Scholes model
include a volatility of 26.5 percent based on one-year historical volatility
of the Common Stock ending February 28, 1994; a risk-free rate of 6.67
percent based on the ten-year zero coupon treasury bond and a dividend yield
of 0.0 percent based on the current dividend rate and an option term equal
to the full ten-year stated option term. These potential values have not and
may never be realized. The underlying options have not been, and may never
be, exercised. The actual value of these options (if any) will depend upon
the value of Common Stock on the date of exercise (if any).
(3) The grant date is 10 years prior to the expiration date noted in the table.
The shares of Common Stock covered by each such option vests and becomes
exercisable on the first anniversary of the grant date.
(4) The grant date is 10 years prior to the expiration date noted in the table.
One-third of the shares of Common Stock covered by each such option vests
and becomes exercisable on the first, second and third anniversaries of the
grant date.
4
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table summarizes for each of the named executive officers the
number of shares of Common Stock received upon exercise of stock options, if
any, during 1993, the aggregate dollar value realized upon exercise, the total
number of shares of Common Stock with respect to which unexercised options were
held as of December 31, 1993, if any, and the aggregate dollar value of in-the-
money, unexercised options held as of December 31, 1993.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
NUMBER OF
UNEXERCISED
OPTIONS/SARS
SHARES AT FY-END VALUE OF UNEXERCISED
ACQUIRED ON VALUE (#)(1) IN-THE-MONEY OPTIONS/SARS AT
EXERCISE REALIZED EXERCISABLE/ FY-END ($)(1)
NAME (#) ($) UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- --------------------------- ----------- -------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Paul M. Pankratz.......... 0 $ 0 66,000/48,000 $1,093,680/$ 93,600
Ralph W. Boeker............ 0 $ 0 0/65,000 0/ 281,850
Jon R. Peele............... 26,000 $423,180 20,000/27,500 85,250/ 344,925
Trond Aschehoug............ 0 $ 0 3,000/6,000 51,390/ 102,780
Wallace C. Dieckmann....... 4,000 $ 73,520 13,242/10,358 101,887/ 152,803
- --------
</TABLE>
(1) There are currently no SARS outstanding.
(2) These potential values have not been and may never be, realized. The
underlying options have not been, and may never be, exercised; actual gains,
if any, on exercise will depend on the value of Common Stock on the date of
exercise, if any.
COMPANY BENEFIT PLANS
Employee Retirement Savings Plan. The Company provides a Retirement Savings
Plan (the "401(k) Plan") pursuant to Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"). The 401(k) Plan became effective April 1, 1988, and
covers all of the Company's employees who have completed one year of service
with the Company. Under the 401(k) Plan, the Company is obligated to contribute
1% of each participating employee's eligible compensation and to match 50% of
the first 6% of the employee's contributions. In addition, the Company may also
make discretionary contributions. In fiscal year 1993, the Company made no such
discretionary contributions.
Employees' Pension Plan. The Magma Power Company Pension Plan (the "Pension
Plan") covers all of the Company's full-time regular employees who have
completed one year of service with the Company. The Pension Plan was effective
as of January 1, 1990. It is a qualified plan pursuant to Section 401(a) of the
Code. Under the Pension Plan, the Company is obligated to contribute an amount
equal to 6% of the eligible compensation of each of the participants in the
Pension Plan.
Executive Supplemental Plan. The Company maintains a Special Supplemental
Retirement Plan covering a select group of management and upper level employees.
The Supplemental Plan is an unfunded nonqualified plan under Section 401(a) of
the Code. It is designed to receive certain allocations of funds that could not
be contributed to the participants' 401(k) Plan or Pension Plan accounts under
current tax law limitations. Additionally, under the Supplemental Plan,
participating employees may defer income, and the Company may also allocate
amounts such as discretionary contributions.
5
<PAGE>
1987 Stock Option Plan. The Magma Power Company 1987 Stock Option Plan
(which is a Rule 16b-3 Plan) provides that options to purchase an aggregate
of 1,000,000 shares of the Company's Common Stock may be granted to salaried
employees and consultants of the Company and its subsidiaries, as selected
by the Option Sub-Committee of the Compensation Committee. The purchase price
which must be paid for stock on exercise of an option granted under the 1987
Stock Option Plan will be fixed by the Option Sub-Committee when the option is
granted, but such price may not be less than 90% of the fair market value of
the stock on the grant date and must be at least 100% of such fair market
value for any option intended to be an "incentive stock option" under federal
tax law. It is unlikely that additional grants will be made under the 1987 Plan
if the 1994 Equity Participation Plan is approved by the Company's stockholders.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On January 20, 1992, the Company entered into an arrangement with
Paul M. Pankratz in connection with his initial employment with the Company.
This arrangement provides for the payment of one year's base salary and the
immediate vesting of all previously unvested stock options held by
Mr. Pankratz in the event that Mr. Pankratz' employment with the Company
should be terminated without cause after a change-in-control. This agreement
is scheduled to terminate January 31, 1995. See "Compensation Committee
Report on Executive Compensation" below.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION*
As members of the Compensation Committee, it is our duty to oversee the
Company's overall compensation programs to ensure compliance with the Company's
compensation philosophy, to evaluate the performance of the Chief Executive
Officer (CEO), review the performance of the executive management group,
establish the compensation level of the CEO, review compensation levels for
the executive management group, and consider related matters.
The compensation programs of the Company are designed to align executive
officers' compensation with the strategic goals and performance of the
Company. The Compensation Committee strives to develop and administer programs
that will:
. Attract and retain key executive officers critical to the
long-term success of the Company;
. Provide salary and total compensation levels for executive
officers which are competitive with the median salary and
compensation levels for the Company's competitors;
. Motivate executive officers to enhance long-term stockholder
value in the Company; and
. Integrate the Company's compensation programs with its
strategic planning and measurement processes.
The compensation philosophy of the Company, which is endorsed by the
Compensation Committee, is to provide salary and total compensation levels
comparable to the median of the Company's compensation peer group,
specifically, those publicly traded independent power producers and growth
companies similar to the Company. This peer group includes substantially
all of the members of the Industry Peer Group reflected in the 1993 Proxy
Performance graph plus an additional group of publicly traded technology
growth companies with annual revenues, growth history, and other
performance and business characteristics similar to the Company but which
may not directly compete with the Company in its independent power
business.
- ----------
* Neither this Report nor the Performance Graph set forth below shall be deemed
to be incorporated by reference into any filing by the Company under either
the Securities Act of 1933, as amended (the "1933 Act") or the 1934 Act,
except to the extent that the Company specifically incorporates the same by
reference.
6
<PAGE>
The compensation philosophy also calls for a substantial portion of the annual
compensation of each executive officer to relate to, and be contingent upon the
performance of the Company and the individual contribution of such executive
officer to such performance. As a result, much of an executive officer's
compensation is "at risk" with annual incentive bonus compensation amounting to
a significant portion of total cash compensation.
The Compensation Committee retained in 1993 the services of an outside
executive compensation consulting firm to assist in the performance of its
various duties. The results of the consulting firm's study disclosed that the
Company's executive compensation levels, base salary, annual and long-term
incentives, were below the median of its peer group. As such, the Committee
approved a program to bring compensation levels in line with its philosophy over
a two-year period. The Committee takes into account the Company's performance as
well as the competitiveness of the Company's compensation levels to the
comparable levels paid by the Company's compensation peer group.
The base salary and target bonus for the Company's newly appointed Chief
Executive Officer, Mr. Ralph W. Boeker, were based principally on his rights
under his offer of employment as President of the Company as detailed in the
letter dated January 20, 1993 (the "January 20, 1993 Letter"). On January 11,
1994, the Compensation Committee recommended to the Board of Directors, and the
Board of Directors approved, that Mr. Boeker's base annual salary be increased
to $300,000 concurrent with his appointment as the Company's Chief Executive
Officer. This increase was based on the compensation survey data provided by the
Company's executive compensation consulting firm and is in line with the
Company's compensation philosophy to compensate at the median level of its peer
group. The January 20, 1993 Letter also provided for (i) the grant by the Stock
Option Committee to Mr. Boeker of 30,000 options under the Company's 1987 Stock
Option Plan with an exercise price of 90% of the fair market value of the Common
Stock on the grant date and with three years vesting and (ii) the grant of 5,000
shares of restricted Common Stock vesting 1,000 shares on date of hire and 1,000
shares per year on the succeeding four anniversaries of the date of hire. The
terms of the January 20, 1993 Letter were designed to provide Mr. Boeker with
total compensation levels comparable to the median of the Company's compensation
peer group.
The base salary and target bonus for the Company's former Chief Executive
Officer and current Chairman of the Board of Directors, Mr. Paul M. Pankratz,
were unchanged from the levels reported last year.
Under the Company's annual management incentive bonus plan, bonuses are
based one-half on the individual's performance and one-half on the performance
of the Company, with target bonuses of approximately 35% to 50% of total cash
compensation, except in extraordinary circumstances. The Company's performance
for purposes of compensation decisions is measured under the annual incentive
bonus plan against goals established for a given fiscal year by the Compensation
Committee. The 1993 goals consisted of performance objectives for both the
individuals and the Company. Company performance was measured by actual 1993
income before taxes (net income plus provision for taxes) compared to targeted
1993 income before taxes ("IBT"). In 1993 the Company materially exceeded the
targeted IBT goal and in 1992, the Company substantially met the targeted IBT
objective. The Committee evaluated individual performance, so that, on average,
together with the over achievement on Company performance, total 1993 annual
incentive bonuses represented approximately 43% of total cash compensation for
the executive officers. In assessing the individual performances of Messrs.
Pankratz and Boeker, the Committee was influenced by (a) the successful
integration of the acquired geothermal assets from Union Oil of California into
the Company's operation, (b) the successful consummation of an energy conversion
agreement with the Philippine National
7
<PAGE>
Oil Company for a 231 MW (gross) geothermal generating facility on the island of
Leyte, and (c) the Company's record results in 1993 with net income up 51% and
revenues 53% greater than the previous year.
In addition to the annual incentive bonus plan, the Company's 1987 Stock
Option Plan is an integral part of the Company's long-term compensation program.
Such long-term compensation is designed to encourage and create ownership and
retention of the Company's stock by key employees and to provide incentives to
increase the profits and long-term profitable growth of the Company. This
program is designed to align the long range interests of key employees with
those of the stockholders. The 1987 Stock Option Plan is administered by the
Option Sub-Committee of the Compensation Committee. In November of 1993, under
the 1987 Stock Option Plan, Mr. Boeker was granted by the Option Sub-Committee a
performance award of 35,000 options, and Mr. Pankratz was granted by the Option
Sub-Committee a performance award of 48,000 options, all at an exercise price of
90% of the fair market value of the Common Stock on the grant date. Such options
were based on an evaluation of these executives' performance and their
contributions to the Company, their options granted previously, and the
long-term compensation and total compensation levels provided at the Company's
compensation peer group. Such options fully vest one year after the grant date.
In addition, Jon R. Peele received 7,500 options fully vested after one year
from the date of grant. These option grants were structured to provide these
executive officers with total compensation levels comparable to the median of
the Company's compensation peer group.
Roger L. Kesseler, Chairman
Bent Petersen
James D. Shepard
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1993 were Mr. Kesseler, Mr.
Petersen and Mr. Shepard. As of the record date, the members of the Compensation
Committee are Messrs. Kesseler, Pankratz, Roach and Shepard, with Messrs. Roach
and Shepard serving as members of the Option Sub-Committee. Mr. Shepard is a
former Vice President and Treasurer of the Company.
8
<PAGE>
PERFORMANCE GRAPH
The Performance Graph below shows changes over the past five years in the
value of $100 invested in (a) the Common Stock of the Company; (b) an industry
peer group of publicly-traded, non-utility companies in the independent power
generation industry compiled by the Company; and (c) the Standard & Poor's
MidCap 400 Index. The Bridge Information Services Utilities & Electric Index
shown in 1992 is no longer available for the Performance Graph.
The year-end values of each of such investments are based on share price
appreciation plus dividends paid in cash, with such dividends reinvested on
the date they were paid. The calculations of such values exclude trading
commissions and taxes. The industry peer group calculations reflect weighted
average total returns for the entire group.
<TABLE>
PERFORMANCE GRAPH APPEARS HERE
COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
AMONG MAGMA POWER COMPANY, PEER GROUP INDEX, S&P
MIDCAP 400 AND ADJUSTED PEER GROUP
<CAPTION>
Magma
Measurement Period Power S&P Adjusted
(Fiscal Year Covered) Company Peer Group Midcap 400 Peer Group
- ------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
12/30/88 $100 $100 $100 $100
12/29/89 $159 $122 $136 $132
12/31/90 $144 $100 $129 $100
12/31/91 $157 $129 $193 $129
12/30/92 $205 $113 $216 $113
12/31/93 $224 $118 $246 $122
</TABLE>
- ---------
(1) Stock price performance shown is not necessarily indicative of future
price performance.
(2) Industry peer group includes: The AES Corporation; California Energy
Company, Inc.; Destec Energy, Inc.; O'Brien Environmental Energy, Inc.;
and Ogden Projects, Inc.
(3) Adjusted Industry peer group includes: The AES Corporation; California
Energy Company, Inc.; Destec Energy, Inc.; Kenetech Corp.; O'Brien
Environmental Energy, Inc.; Ogden Projects, Inc.; and Sithe Energies,
Inc. Both of the two companies added to this adjusted industry peer
group (Kenetech Corp. and Sithe Energies, Inc.) became publicly
traded for the first time in 1993.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dow Services. Under two technical services agreements between the Company
and Dow, Dow agreed to furnish certain technical and other services in
connection with the operation of the Company's geothermal power plants. The
Company, in turn, agreed to pay for such services in cash payments or through
the issuance of previously authorized but unissued shares of Common Stock. In
1993, the Company entered into a new agreement with Dow (the "1993 Technical
Services Agreement") which amends, restates and supersedes the prior technical
services agreements. Under the 1993 Technical Services Agreement, Dow has agreed
to provide technical services for the Company's geothermal power plants until
January 1, 2000. The Company, in turn, has agreed to make payments for such
technical services in the amounts of $575,000 for 1993 and $550,000 for 1994 and
thereafter in annual amounts reduced by $50,000 each year to $300,000 for 1999.
Such annual payments entitle the Company each year to receive technical services
from Dow equivalent in value to such year's payment, invoiced at Dow's internal
interdepartmental charge rates. The Company may obtain additional technical
services from Dow (if available), invoiced and paid for by the Company at such
scheduled rates. The Company is also entitled to receive from Dow technical
services for additional power plants by increasing the annual payments to Dow by
$50,000 for each such plant, subject to certain limitations. Payments under the
1993 Technical Services Agreement are to be made exclusively in cash--there is
no provision for payment in Company Stock. In 1993, the Company paid Dow
$575,000 under the 1993 Technical Services Agreement. In addition, in March 1994
the Company signed a five-year agreement (the "1994 Engineering and Construction
Management Services Agreement") with Dow Engineering Company ("DEC"). Under the
Agreement, DEC will provide engineering, procurement and construction management
services to Magma, including process engineering, project design, procurement
and construction management services for Magma's existing and future geothermal
power projects in North America. The Company believes that the 1993 Technical
Services Agreement and the 1994 Engineering and Construction Management Services
Agreement are on terms at least as favorable to the Company as would be
available from an unaffiliated third party.
Dow Option Surrender. In October 1993 the Company acquired at a discount
Dow's option to purchase two million shares of Magma Common Stock. Magma
purchased the options for 857,143 shares of newly issued and unregistered shares
of its stock. J.P. Morgan Securities Inc. was retained by an independent
committee of the Company's Board of Directors to assist in valuing the option.
Under the Option Surrender Agreement, Dow has agreed not to sell the newly
issued shares before September 30, 1994. The newly issued shares did not
materially impact the Company's 1993 earnings per share calculations since the
option shares were already reflected in the number of shares used in calculating
primary earnings per share. Following the transaction, Dow holds over 5 million
shares of Magma Common Stock, approximately 4 million of which are currently
held in escrow for exchangeable notes (see below). By virtue of such remaining
percentage ownership of the Common Stock, Dow may still be deemed to control the
management and policies of the Company. According to Dow's Schedule 13D
currently on file with the Commission, the Common Stock held by Dow is held for
investment purposes.
1993 Stock Offering. Pursuant to a registration rights agreement, Dow
requested that the Company facilitate a registered public offering by Dow of
certain of its shares of Magma Common Stock. Accordingly, the Company filed, and
in June 1993 the Securities and Exchange Commission declared effective, a
registration statement covering the sale by Dow of 3,635,000 shares of Company
Common Stock and the sale by J. P. Morgan & Co. Incorporated of 365,000 shares
of Company Common Stock. Pursuant to the
10
<PAGE>
registration rights agreement, the Company paid the first $100,000 of its
accounting, printing, legal and other expenses of the offering, and the two
selling shareholders paid the remainder of such expenses.
1991 Stock Offering. In April 1991, the Company registered 4,000,005 shares
(the "Registered Shares") of Common Stock owned by Dow. The Registered Shares
were placed in escrow by Dow for delivery upon exchange of the Notes. The Notes
are exchangeable at any time into shares of Common Stock at an exchange rate of
26.6667 shares per $1,000 principal amount of the Notes. Dow retains the right
to vote the shares placed in escrow. A registration statement covering the
Registered Shares (the "Registration Statement") was filed by the Company on
behalf of Dow pursuant to existing registration rights agreements between the
Company and Dow. The Company has agreed to keep the Registration Statement
current until the earlier of (i) the maturity of the Notes in 2001 or (ii) the
date on which all of the Notes have been exchanged or redeemed. The Company and
Dow have agreed to indemnify each other against certain liabilities, including
liabilities under the 1933 Act in connection with the Registration Statement and
another registration statement concurrently filed by Dow in connection with its
issuance of the Notes.
AGENDA ITEM 2: APPROVAL OF THE 1994 EQUITY PARTICIPATION
PLAN
DESCRIPTION OF THE 1994 EQUITY PARTICIPATION PLAN
In April 1994 the Company's Board of Directors adopted the 1994 Equity
Participation Plan of Magma Power Company (the "1994 Plan"). The 1994 Plan
succeeds the Company's Stock Option Plan of 1987 (the "1987 Plan"), which
covered 1,000,000 shares of the Company's Common Stock and was adopted by the
Board of Directors and then approved by the stockholders in 1987.
The principal purposes of the 1994 Plan are to provide incentives for
officers, key employees and consultants of the Company and its subsidiaries
through granting of options, restricted stock and other awards, thereby
stimulating their personal and active interest in the Company's development and
financial success, and inducing them to remain in the Company's employ. In
addition to grants and awards made to officers, employees or consultants, the
1994 Plan provides for the granting of options or stock to the Company's
non-employee directors in lieu of directors' fees (if any), as described in
further detail below.
Under the 1994 Plan, not more than 1,000,000 shares of Common Stock (or
their equivalent in other equity securities) are authorized for issuance upon
exercise of options, stock appreciation rights ("SARs"), and other awards, or
upon vesting of restricted or deferred stock awards. As of December 31, 1993,
under the 1987 Plan, a total of 598,250 shares were subject to outstanding stock
options held by approximately 77 officers and key employees and only 57,081
shares remained available for the grant of new stock options or SARs under the
1987 Plan. On March 31, 1994, the closing price of a share of the Company's
Common Stock on the NASDAQ National Market System was $32.25.
The shares available under the 1994 Plan upon exercise of stock options,
SARs and other awards, and for issuance as restricted or deferred stock, may be
either previously unissued shares or treasury shares, and may be equity
securities of the Company other than Common Stock. The 1994 Plan provides for
appropriate adjustments in the number and kind of shares subject to the 1994
Plan and to outstanding grants thereunder in the event of a stock split, stock
dividend or certain other types of recapitalizations, including restructurings.
If any portion of a stock option, SAR or other award terminates or lapses
unexercised, or is cancelled upon grant of a new option, SAR or other award
(which may be at a higher or lower exercise price than the option, SAR or other
award so cancelled), the shares which were subject to the unexercised portion of
such option, SAR or other award, will continue to be available for issuance
under the 1994 Plan.
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The principal features of the 1994 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 1994 Plan itself, which
is available upon request from the Company.
Administration
The 1994 Plan is administered by the Compensation Committee or a
subcommittee thereof (referred to herein as the "Committee"), consisting of at
least two members of the Board, none of whom is an officer or employee of the
Company, and each of whom is a "disinterested person" as defined by Rule 16b-3.
The Committee is authorized to select from among the eligible employees and
consultants the individuals to whom options, SARs, restricted stock purchase
rights and other awards are to be granted and to determine the number of shares
to be subject thereto and the terms and conditions thereof, consistent with the
1994 Plan. The Committee is also authorized to adopt, amend and rescind rules
relating to the administration of the 1994 Plan.
Payment for Shares
The exercise or purchase price for all options, SARs, restricted stock and
other rights to acquire Company Common Stock, together with any applicable tax
required to be withheld, must be paid in full in cash at the time of exercise or
purchase or may, with the approval of the Committee, be paid in whole or in part
in Common Stock of the Company owned by the optionee (or issuable upon exercise
of the option) and having a fair market value on the date of exercise equal to
the aggregate exercise price of the shares so to be purchased. The Committee may
also provide, in the terms of an option or other right, that the purchase price
may be payable within thirty days after the date of exercise. The Committee may
also authorize other lawful consideration to be applied to the exercise or
purchase price of an award. This may also include services rendered, or the
difference between the exercise price of presently exercisable options and the
fair market value of the Common Stock covered by such options on the date of
exercise.
Amendment and Termination
Amendments of the 1994 Plan to increase the number of shares as to which
options, SARs, restricted stock and other awards may be granted (except for
adjustments resulting from stock splits and the like) require the approval of
the Company's stockholders. In all other respects the 1994 Plan can be amended,
modified, suspended or terminated by the Committee, unless such action would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. Amendments of the 1994 Plan will not, without the consent of the
participant, affect such person's rights under an award previously granted,
unless the award itself otherwise expressly so provides. No termination date is
specified for the 1994 Plan.
Eligibility
Options, SARs, restricted stock and other awards under the 1994 Plan may be
granted to individuals who are then officers or other employees of the Company
or any of its present or future subsidiaries and who are determined by the
Committee to be key employees. Such awards also may be granted to consultants of
the Company selected by the Committee for participation in the 1994 Plan.
Approximately 77 officers and other employees are currently eligible to
participate in the 1994 Plan. More than one option, SAR, restricted stock grant
or other award may be granted to a key employee or consultant, but the aggregate
fair market value (determined at the time of grant) of shares with respect to
which an Incentive Stock Option is first exercisable by an optionee (i.e.
"vests") during any calendar year cannot exceed $100,000.
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Non-employee directors of the Company are eligible to participate in the
Plan pursuant to Plan provisions which allow such directors to elect to receive
options or stock in lieu of directors' fees, as described below.
Awards under the 1994 Plan
The 1994 Plan provides that the Committee may grant or issue stock options,
SARs, restricted stock, deferred stock, dividend equivalents, performance
awards, stock payments and other stock related benefits, or any combination
thereof. Each grant or issuance will be set forth in a separate agreement with
the person receiving the award and will indicate the type, terms and conditions
of the award.
Nonqualified stock options ("NQSOs") will provide for the right to purchase
Common Stock at a specified price which may be less than fair market value on
the date of grant (but not less than par value), and usually will become
exercisable (in the discretion of the Committee) in one or more installments
after the grant date. NQSOs may be granted for any term specified by the
Committee.
Director stock options are NQSOs granted to non-employee directors of the
Company who have elected in advance to receive such options in lieu of
directors' fees. The difference between the exercise price of such options and
the fair market value of the underlying Common Stock on the grant date will
equal the amount of directors' fees which the non-employee director has elected
to forgo. Alternatively, the Board may permit a non-employee director to receive
shares of Common Stock directly in lieu of directors' fees.
Incentive stock options, if granted, will be designed to comply with the
provisions of the Code and will be subject to restrictions contained in the
Code, including exercise prices equal to at least 100% of fair market value of
Common Stock on the grant date and a ten year restriction on their term, but may
be subsequently modified to disqualify them from treatment as an incentive stock
option. Incentive stock options may be granted only to employees.
Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Committee. Restricted stock, typically, may be repurchased by the Company at
the original purchase price if the conditions or restrictions are not met. In
general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of restricted
stock, unlike recipients of options, will have voting rights and will receive
dividends prior to the time when the restrictions lapse.
Deferred stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Committee. Like restricted stock,
deferred stock may not be sold, or otherwise transferred or hypothecated, until
vesting conditions are removed or expire. Unlike restricted stock, deferred
stock will not be issued until the deferred stock award has vested, and
recipients of deferred stock generally will have no voting or dividend rights
prior to the time when vesting conditions are satisfied.
Stock appreciation rights may be granted in connection with stock options
or other awards, or separately. SARs granted by the Committee in connection with
stock options or other awards typically will provide for payments to the holder
based upon increases in the price of the Company's Common Stock over the
exercise price of the related option or other awards, but alternatively may be
based upon criteria such as book value. There are no restrictions specified in
the 1994 Plan on the exercise of SARs or the amount of gain realizable
therefrom, although they can be imposed by the Committee in the SAR agreements.
The Committee may elect to pay SARs in cash or in Common Stock or in a
combination of cash and Common Stock.
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Dividend equivalents may be credited to a participant in the 1994 Plan. They
represent the value of the dividends per share paid by the Company, calculated
with reference to the number of shares covered by the stock options, SARs or
other awards held by the participant.
Performance awards may be granted by the Committee on an individual or group
basis. Generally, these awards will be based upon specific agreements and may be
paid in cash or in Common Stock or in a combination of cash and Common Stock.
Performance awards may include "phantom" stock awards that provide for payments
based upon increases in the price of the Company's Common Stock over a
predetermined period. Performance awards may also include bonuses which may be
granted by the Committee on an individual or group basis and which may be
payable in cash or in Common Stock or in a combination of cash and Common Stock.
Stock payments may be authorized by the Committee in the form of shares of
Common Stock or an option or other right to purchase Common Stock as part of a
deferred compensation arrangement in lieu of all or any part of compensation,
including bonuses, that would otherwise be payable to a key employee or
consultant in cash.
Miscellaneous Provisions
Options and other rights to acquire Common Stock of the Company granted
under the 1994 Plan may provide for their termination upon dissolution or
liquidation of the Company, the merger or consolidation of the Company into
another corporation, the acquisition by another corporation of all or
substantially all of the Company's assets, or the acquisition by another
corporation of 80% or more of the Company's then outstanding voting stock; but
in such event the Committee may also give optionees and other grantees the right
to exercise their outstanding options or rights in full during some period
prior to such event, even though the options or rights have not yet become fully
exercisable. Options and other rights granted under the 1994 Plan may provide
that in the event of a "change in control" of the Company (as defined in the
option or grant agreement) all previously unexercisable options and rights
become immediately exercisable unless such options and rights, or portions
thereof, are determined by the Committee to constitute, when exercised, "excess
parachute payments" (as defined in Section 280G of the Code). If any option or
other right does not contain such limitation, and its exercisability is
accelerated upon a change in control, it is possible that an optionee may be
liable for an excise tax on the amount attributable to such acceleration (and
any other payments made in connection with such change in control).
The 1994 Plan specifies that the Company may make loans to Plan participants
to enable them to exercise options, purchase shares or realize the benefits of
other awards granted under the Plan. The terms and conditions of such loans, if
any are made, are to be set by the Committee.
In consideration of the granting of a stock option, SAR, dividend
equivalent, performance award, stock payment, or right to receive restricted or
deferred stock, the employee or consultant must agree in the written agreement
embodying such award to remain in the employ of, or to continue as a consultant
for, the Company or a subsidiary of the Company for at least one year after the
award is granted.
The dates on which options or other awards under the 1994 Plan first become
exercisable and on which they expire will be set forth in individual stock
options or other agreements setting forth the terms of the awards. Such
agreements generally will provide that options and other awards expire upon
termination of the optionee's status as an employee, consultant or director,
although the Committee may provide that such options continue to be exercisable
following a termination without cause, or following a change in control of
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<PAGE>
the Company, or because of the grantee's retirement, death, disability or
otherwise. Similarly, restricted stock granted under the 1994 Plan which has
not vested generally will be subject to repurchase by the Company in the
event of the grantee's termination of employment or consultancy, although
the Committee may make exceptions, based on the reason for termination or
on other factors, in the terms of an individual restricted stock agreement.
No option, SAR or other right to acquire Common Stock granted under the
1994 Plan may be assigned or transferred by the grantee, except by will or
the laws of intestate succession, although the shares underlying such rights
may be transferred if all applicable restrictions have lapsed. During the
lifetime of the holder of any option or right, the option or right may be
exercised only by the holder.
The Company requires participants to discharge withholding tax obligations
in connection with the exercise of any option or other right granted under the
1994 Plan, or the lapse of restrictions on restricted stock, as a condition to
the issuance or delivery of stock or payment of other compensation pursuant
thereto. Shares held by or to be issued to a participant may also be used to
discharge tax withholding obligations related to exercise of options or
receipt of other awards, subject to the discretion of the Committee to
disapprove such use. In addition, the Committee may grant to employees a cash
bonus in the amount of any tax related to awards.
FEDERAL INCOME TAX CONSEQUENCES
The tax consequences of the 1994 Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the 1994 Plan, and is intended for general
information only. In addition, the tax consequences described below are
subject to the limitation of the 1993 Omnibus Budget Reconciliation Act
("OBRA"), as discussed in further detail below. Alternative minimum tax
and state and local income taxes are not discussed, and may vary
depending on individual circumstances and from locality to locality.
Nonqualified Stock Options. For Federal income tax purposes, the recipient
of NQSOs granted under the 1994 Plan will not have taxable income upon the
grant of the option, nor will the Company then be entitled to any deduction.
Generally, upon exercise of NQSOs the optionee will realize ordinary income,
and the Company will be entitled to a deduction, in an amount equal to the
difference between the option exercise price and the fair market value of the
stock at the date of exercise. An optionee's basis in the stock for purposes
of determining his gain or loss on his subsequent disposition of the shares
generally will be the fair market value of the stock on the date of exercise
of the NQSO. Special rules are applicable to NQSOs granted to directors in
lieu of directors' fees, as discussed below under "Director Elections."
Incentive Stock Options. There is no taxable income to an employee when an
ISO is granted to him or when that option is exercised; however, the amount by
which the fair market value of the shares at the time of exercise exceeds the
option price will be an "item of tax preference" for the optionee. Gain
realized by an optionee upon sale of stock issued on exercise of an ISO is
taxable at capital gains rates, and no tax deduction is available to the
Company, unless the optionee disposes of the shares within two years after the
date of grant of the option or within one year of the date the shares were
transferred to the optionee. In such event the difference between the option
exercise price and the fair market value of the shares on the date of the
option's exercise will be taxed at ordinary income rates, and the Company will
be entitled to a deduction to the extent the employee must recognize ordinary
income. An ISO exercised more than three months after an
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optionee's retirement from employment, other than by reason of death or
disability, will be taxed as an NQSO, with the optionee deemed to have received
income upon such exercise taxable at ordinary income rates. The Company will be
entitled to a tax deduction equal to the ordinary income, if any, realized by
the optionee.
Stock Appreciation Rights. No taxable income is realized upon the receipt of
an SAR, but upon exercise of the SAR the fair market value of the shares (or
cash in lieu of shares) received must be treated as compensation taxable as
ordinary income to the recipient in the year of such exercise. The Company will
be entitled to a deduction for compensation paid in the same amount which the
recipient realized as ordinary income.
Restricted Stock and Deferred Stock. An employee to whom restricted or
deferred stock is issued will not have taxable income upon issuance and the
Company will not then be entitled to a deduction, unless in the case of
restricted stock an election is made under Section 83(b) of the Code. However,
when restrictions on shares of restricted stock lapse, such that the shares are
no longer subject to repurchase by the Company, the employee will realize
ordinary income and the Company will be entitled to a deduction in an amount
equal to the fair market value of the shares at the date such restrictions
lapse, less the purchase price therefor. Similarly, when deferred stock vests
and is issued to the employee, the employee will realize ordinary income and
the Company will be entitled to a deduction in an amount equal to the fair
market value of the shares at the date of issuance. If an election is made
under Section 83(b) with respect to restricted stock, the employee will
realize ordinary income at the date of issuance equal to the difference
between the fair market value of the shares at that date less the purchase
price therefor and the Company will be entitled to a deduction in the same
amount. The Code does not permit a Section 83(b) election to be made with
respect to deferred stock.
Dividend Equivalents. A recipient of a dividend equivalent award will not
realize taxable income at the time of grant, and the Company will not be
entitled to a deduction at that time. When a dividend equivalent is paid,
the participant will recognize ordinary income, and the Company will be
entitled to a corresponding deduction.
Performance Awards. A participant who has been granted a performance award
will not realize taxable income at the time of grant, and the Company will not
be entitled to a deduction at that time. When an award is paid, whether in
cash or Common Stock, the participant will have ordinary income, and the
Company will be entitled to a corresponding deduction.
Stock Payments. A participant who receives a stock payment in lieu of a
cash payment that would otherwise have been made will be taxed as if the cash
payment had been received, and the Company will have a deduction in the same
amount.
Deferred Compensation. Participants who defer compensation generally will
recognize no income, gain or loss for federal income tax purposes when
nonqualified stock options are granted in lieu of amounts otherwise payable,
and the Company will not be entitled to a deduction at that time. When and
to the extent options are exercised, the ordinary rules regarding nonqualified
stock options outlined above will apply.
Director Elections. A director who elects to receive NQSOs in lieu of
directors' fees will be subject to the foregoing rules described above under
"Nonqualified Stock Options," and will not realize income until the date of
exercise, if his or her election to receive NQSOs is properly made in advance
of the time he or she renders the services to which the option grant relates.
A director who does not make such election in advance of rendering services,
or a director who elects to receive shares of Common Stock rather than NQSOs,
will realize ordinary income upon the date of grant.
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Effect of 1993 Omnibus Budget Reconciliation Act ("OBRA") on the 1994 Plan.
Under OBRA, which became law in August 1993, income tax deductions of
publicly-traded companies may be limited to the extent total compensation
(including base salary, annual bonus, stock option exercises and non-qualified
benefits paid in 1994 and thereafter) for certain executive officers exceeds $1
million (less the amount of any "excess parachute payments" as defined in
Section 280G of the Code) in any one year. However, under OBRA, the deduction
limit does not apply to certain "performance-based" compensation established by
an independent compensation committee which conforms to certain restrictive
conditions stated under the Code and related regulations. Because the Company
currently does not expect to pay total compensation to any one executive officer
in excess of $1 million per year, the Company is not seeking to conform the 1994
Plan to the restrictive conditions of the OBRA legislation and related
regulations.
REASONS FOR ADOPTION OF THE 1994 PLAN
The 1987 Plan currently provides that 1,000,000 shares of Common Stock are
authorized for issuance. As of December 31, 1993, approximately 57,081 shares
remained available for future awards under the 1987 Plan. Also on that date,
options held by approximately 77 officers and key employees and covering
approximately 598,250 shares were outstanding under the 1987 Plan, of which
approximately 216,249 were exercisable. The Board of Directors has determined
that it is advisable to continue to provide stock-based incentive compensation
to the Company's key employees and consultants, thereby continuing to align the
interests of such employees and consultants with those of the stockholders, and
that awards under the 1994 Plan are an effective means of providing such
compensation. In addition, the Board has determined that it is advisable to
provide non-employee directors of the Company with the opportunity to convert
their regular cash directors' fees into stock-based incentive compensation. The
Board recommends that the 1994 Plan be adopted, and that 1,000,000 shares of
Common Stock be reserved for issuance on exercise of options and other awards
thereunder.
REQUIRED VOTE FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of a majority of the shares present or represented
and entitled to vote at the Annual Meeting is required to approve the 1994 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE 1994
PLAN.
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EXHIBIT 99.2
MAGMA POWER COMPANY
CHANGE IN CONTROL AGREEMENT
The AGREEMENT, dated September __, 1994, is made by and between _________
________________ (hereinafter referred to as the "Executive") and MAGMA POWER
COMPANY (the "Company"), a Nevada corporation.
RECITALS
--------
A. The Board of Directors of the Company (the "Board of Directors") has
determined that it is in the best interest of the Company's shareholders that
appropriate steps should be taken to reinforce and encourage the continued
dedication of the Executive to the Executive's assigned duties without
distraction in case of potentially disturbing circumstances arising from the
possibility of a Change in Control of the Company.
B. In order to induce the Executive to remain in the employ of the Company
and to induce the Executive to give the Executive's continued attention and
dedication to the Executive's assigned duties in the event of a Change in
Control of the Company, the Company desires to provide the Executive with
certain benefits and inducements, as set forth herein.
C. The Executive covenants to perform the Executive's assigned duties with
continued attention, zeal and dedication in the event of a Change in Control of
the Company.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the Company and the Executive do hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used below in this Agreement, they shall
have the meaning specified below, and no other, unless the context clearly
indicates to the contrary. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
Section 1.1 - Auditors.
"Auditors" shall mean Coopers & Lybrand, or an independent certified public
accounting firm that is duly selected by the Board of Directors and is
acceptable to the Executive.
Section 1.2 - Board of Directors.
"Board of Directors" shall have the meaning provided in the first recital
of this Agreement.
Section 1.3 - Cause.
"Cause" shall mean termination of employment with the Company because of (i)
conviction of a crime involving moral turpitude, (ii) theft or embezzlement of
property from the Company or (iii) willful misconduct or willful failure
substantially to perform the duties of his or her position, provided that the
individual shall have received written notice from the Board of the specific
acts of misconduct or failures to perform and such acts or failure shall have
continued after receipt of such notice.
Section 1.4 - Change in Control.
A "Change in Control" shall be deemed to have occurred in the event of (i)
the acquisition by any person, together with its affiliates, of beneficial
ownership of capital stock of the Company possessing 30% or more of the combined
voting power of the Company's outstanding capital stock, (ii) within any
two-year period, the majority of the members of the Board were to be comprised
of individuals other than those who were members at the beginning of such
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<PAGE>
period, unless the members elected during such period were approved by a
majority of the Board in office immediately prior to the beginning of such
period, (iii) all or substantially all of the Company's assets are sold as
an entirety to any person or related group of persons or (iv) the Company
is merged with or into another corporation or another corporation is
merged into the Company with the effect that immediately after such
transaction the shareholders of the Company immediately prior to such
transaction hold less than a majority in interest of the total voting power
entitled to vote in the election of directors, managers or trustees of the
entity surviving such transaction.
Section 1.5 - Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.6 - Company.
"Company" shall mean Magma Power Company, a Nevada corporation, its
subsidiaries and affiliates, and any successor to its business, whether direct
or indirect, by purchase of securities, merger, consolidation, purchase of all
or substantially all of the Company's assets or otherwise.
Section 1.7 - Date of Termination.
"Date of Termination" shall mean (i) in the case of the Executive's
termination of employment by the Company for Disability, thirty days after
Notice of Termination is given, provided that the Executive shall not have
returned to the performance of the Executive's assigned duties on a full-time
basis during such thirty-day period; or (ii) in the case of termination of
the Executive's employment by the Company for Cause or termination by the
Executive for Good Reason or termination for any other reason, the date
specified in the Notice of Termination, which date shall not be less than
thirty days after the date such Notice of Termination is given.
Section 1.8 - Disability.
"Disability" shall mean absence from performance of assigned duties for
the Company on a full-time basis for six consecutive calendar months as a
result of incapacity due to
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<PAGE>
medically documented physical or mental illness; provided that the Executive
shall not have returned to the full-time performance of the Executive's duties
within 30 calendar days of actual receipt of written Notice of Termination
for the reason of Disability. Such Notice of Termination may not be given
prior to the expiration of the six month period of Disability.
Section 1.9 - Executive.
"Executive" shall have the meaning provided in the first paragraph of
this Agreement.
Section 1.10 - Good Reason.
"Good Reason" shall mean the occurrence of any of the following events
without the Executive's express written consent:
(a) the assignment to the Executive of duties inconsistent with the
Executive's position and status as an executive of the Company
immediately prior to a Change in Control, or a substantial adverse
alteration in the nature or status of the Executive's responsibilities
as ____________________ of the Company from those in effect immediately
prior to a Change in Control (other than any such alteration primarily
attributable to the fact that the Company, at the time of such
alteration, is no longer a publicly-held company); or
(b) a reduction by the Company in the Executive's base salary or
targeted bonuses payable under the Company's Management Incentive Plan
("MIP") or other executive bonus plan or arrangement as in effect
immediately prior to the occurrence of a Change in Control or as the
same may be increased from time to time during the term of this
Agreement; or
(c) any purported termination of the employment of the Executive by
the Company which is not effected according to the requirements of a
Notice of Termination as defined in Section 1.11 herein; or
(d) in the case that Executive is assigned to the Company's principal
executive office immediately prior to the Change in Control, a
relocation of the Company's principal executive office more than 50 miles
from its prior location or
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<PAGE>
the assignment of the Executive to a location other than the Company's
principal executive office; in the case that Executive is assigned to
a location other than the Company's principal executive office
immediately prior to the Change in Control, assignment of the Executive
to a location more than 50 miles from the Executive's prior location.
Section 1.11 - Notice of Termination.
"Notice of Termination" shall mean a notice, in writing, to the Executive
from the Company or to the Company from the Executive, which indicates the
specific termination provision enumerated in this Agreement relied upon, and
which sets forth in reasonable detail the facts and circumstances alleged to
provide a basis for termination of the Executive's employment by the Company
or by the Executive. Such notice must be communicated to the Executive in
accordance with Section 4.3 herein.
Section 1.12 - Retirement.
"Retirement" shall mean termination of the Executive's employment on or
after the date on which the Executive terminates in accordance with any
retirement agreement/plan entered into between the Executive and the Company.
Section 1.13 - Tax Counsel.
"Tax Counsel" shall mean legal counsel, selected by the Auditors and which
is acceptable to the Executive, for the purpose of rendering legal advice and
services on tax issues arising under this Agreement.
Section 1.14 - Termination Period.
"Termination Period" shall mean the period beginning fifteen days prior to
the occurrence of a Change in Control and ending twenty-four (24) months
following the date of any such occurrence.
Page 5 of 12
<PAGE>
ARTICLE II
TERM
----
This Agreement shall be effective commencing on the date indicated in the
first paragraph of this Agreement and shall continue in effect through December
31, 1997; provided, however, that this initial term may be extended in the sole
discretion of the Compensation Committee of the Board of Directors; and
provided, further, that if a Change in Control shall have occurred during the
term of this Agreement, then this Agreement shall continue in effect for the
lesser of (i) the end of the Termination Period, or (ii) a period ending on the
date of the Retirement of the Executive.
ARTICLE III
BENEFITS AND COMPENSATION
-------------------------
Section 3.1 - When Benefits Payable.
No benefits shall be payable under this Agreement and the provisions of this
Agreement shall be of no force or effect unless there shall have been a Change
in Control, and the Executive's employment with the Company shall have been
terminated within two years after the Change in Control during the term of this
Agreement. If such a Change in Control has occurred and the Executive's
employment with the Company is terminated within two years after the Change in
Control during the term of this Agreement, unless such termination is (i)
because of the death of the Executive, or (ii) by the Executive other than for
Good Reason, the Executive shall be entitled to the benefits enumerated in this
Article 3 no later than 30 days from the Date of Termination, under the
conditions imposed herein. The Executive's rights to the benefits enumerated
under this Article III, and the specific type of benefits to be received, shall
be determined and shall vest upon delivery of the applicable Notice of
Termination, and no event that occurs thereafter (including Executive's death or
disability) shall affect Executive's entitlement to, or the type of, benefits
hereunder. All benefits under this Article III shall be paid within thirty days
of the applicable Date of Termination.
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<PAGE>
Section 3.2 - Benefits Upon Disability.
During any period within the term of this Agreement that the Executive is or
becomes subject to a Disability, the Executive shall continue to receive the
Executive's full base compensation and other benefits at the rate then in effect
until the Executive's employment is terminated pursuant to Section 1.11 herein.
After termination for Disability, benefits accruing to the Executive shall be
determined in accordance with the Company's disability policy as in effect
immediately prior to any Change in Control.
Section 3.3 - Benefits Upon Termination for Cause.
In the event that the Executive's employment with the Company is terminated
for Cause, the Executive shall receive the Executive's full base compensation as
earned through the Date of Termination at the rate in effect at the time Notice
of Termination is given. Following payment of said amount, the Company shall
have no further obligations to the Executive under this Agreement.
Section 3.4 - Benefits Upon Retirement.
In the event that the Executive's employment with the Company is terminated
by reason of the Executive's Retirement, the Executive shall be entitled to the
benefits under the Company's regular retirement program, or, if a separate
retirement agreement has been entered into between the Executive and the
Company, benefits shall be provided according to the terms of that agreement.
Section 3.5 - Benefits Upon Termination Other Than For Cause, Retirement or
Disability; or Termination For Good Reason.
In the event that the employment of the Executive shall be terminated during
the term of this Agreement (i) by the Company for any reason other than for
Cause, Disability or Retirement within two years after the occurrence of such
Change in Control or (ii) by the Executive for Good Reason within two years
after the occurrence of such Change in Control, then
(a) the Executive shall be entitled to receive: (I) the Executive's full
base compensation as earned through the Date of Termination at the rate in
effect at the time
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<PAGE>
Notice of Termination is given; (II) for a 24-month period after such
termination (or such lesser number of months up to the date of the
Executive's Retirement), group health insurance coverage for the Executive
and his or her dependents substantially the same as that in effect
immediately prior to the Change in Control but increased to the extent that
such benefits were increased following the Change in Control; and (III) a
lump sum payment (the "Severance Payment") from the Company to the Executive
of a dollar amount equal to 200% of the sum of (x) base salary of the
Executive for the twelve month period immediately preceding the Change in
Control (if the Executive has not been employed by the Company for twelve
months, this portion of the Severance Payment shall be equal to 100% of the
annualized base compensation of the Executive during the period for which
the Executive has been employed with the Company) and (y) 100% of both
halves of his or her targeted bonus payable under the Company's MIP or other
executive bonus plan then in effect; and
(b) all deferred shares or similar securities of the Company and all
options to purchase securities of the Company then held by the Executive
shall be immediately vested and exercisable, without regard to whether such
shares or options are vested or exercisable at such time pursuant to the
terms of the documents under which such shares or options were granted;
provided that if such Change in Control is to be accomplished through a
tender offer or an exchange offer, such shares or options shall be vested
and exercisable for a period of time that shall permit the Executive to
tender such shares and/or the shares received upon the exercise of the
options in such tender or exchange offer.
Section 3.6 - Tax Deductibility of Benefit Payments.
In the event that any payment or benefit received or to be received by the
Executive in connection with the termination of the Executive's employment
pursuant to the terms of this Agreement would not be deductible (in whole or in
part) by the Company as a result of the operation of Section 280G of the Code,
the amount of the Severance Payment shall be reduced (but not below zero) until
no portion of the Severance Payment is not deductible as a result of Section
280G of the Code. For purposes of this section, the value of any non-cash
benefit or any deferred cash payment to which the Executive is entitled
hereunder shall be determined by the Auditors in
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<PAGE>
accordance with Sections 280G(d)(3) and 280G(d)(4) of the Code. If such a
reduction is deemed necessary, the nature and extent of such reductions
shall be determined by the Auditors with the advice and assistance of the
Tax Counsel, and such determination shall be binding and conclusive,
provided that the Auditors and Tax Counsel consult with the Executive prior
to the final determination, and use their best efforts to ensure that the
final determination comports with the Executive's wishes to the greatest
extent possible. In connection with such determinations, the Executive
shall be entitled to waive any benefit the receipt of which otherwise
would require a reduction in the amount of the Severance Payment under
this Section 3.5.
Section 3.7 - Underpayment of the Severance Payment.
In the event that the initial determination of the Auditors and Tax Counsel
results in a payment to the Executive of a smaller Severance Payment than the
Executive was actually entitled to receive (as determined by the Auditors and
Tax Counsel based on controlling precedent), such underpayment shall be
promptly disbursed to the Executive or for the Executive's benefit together
with interest at the highest rate that will not cause such interest payments
not to be deductible as a result of Section 280G of the Code.
Section 3.8 - Legal Fees and Expenses.
If, following termination of the employment of the Executive within two
years after a Change in Control, the Executive shall incur any legal fees or
expenses as a result of the termination of the Executive's employment
(including any such fees or expenses incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement), the Company shall pay or reimburse the Executive
for all such fees or expenses.
Section 3.9 - No Mitigation.
The Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Agreement be
reduced or offset by any compensation
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<PAGE>
earned by the Executive as a result of employment by another employer or by
retirement benefits after the Date of Termination or otherwise.
ARTICLE IV
MISCELLANEOUS
Section 4.1 - Successors; Binding Agreement.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. The failure of the Company to obtain such assumption agreement prior
to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company
in the same amount and on the same terms as the Executive would be entitled
to hereunder if the Executive had terminated the Executive's employment for
Good Reason, except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the
Date of Termination.
Section 4.2 - Successors and Assigns.
This Agreement shall inure to the benefit of, and be enforceable by, the
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees of the Executive. If the Executive
should die within two years after a Change in Control and during the term of
this Agreement and while any amount would still be payable to the Executive
hereunder if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee or other designee or if
there is no such designee, to the Executive's estate.
Section 4.3 - Notice.
Notices and all communications provided for in this Agreement shall be in
writing and shall be deemed to have been received when delivered or mailed
by United States registered
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<PAGE>
mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth at the end of this Agreement, provided
that all notices to the Company shall be directed to the attention of
the Board of Directors with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
Section 4.4 - No Waiver.
No provision of this Agreement may be modified, waived or discharged
unless in writing and signed by the Executive and such officer of the
Company as may be specifically designated or authorized by the Board of
Directors or by a Committee of the Board of Directors. No waiver by
either party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time.
Section 4.5 - Entire Agreement.
No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party
which are not expressly set forth in this Agreement and this Agreement
constitutes the entire agreement of the parties.
Section 4.6 - Controlling Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California.
Section 4.7 - Invalid Provision.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement, which shall remain in full force and effect.
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<PAGE>
Section 4.8 - Counterparts.
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original, and all such counterparts together shall constitute
but one and the same instrument.
Section 4.9 - The Executive's Employment by the Company.
Nothing contained in this Agreement (i) obligates the Company or any
subsidiary of the Company to employ the Executive in any capacity whatsoever,
or (ii) prohibits or restricts the Company (or any such subsidiary) from
terminating the employment, if any, of the Executive at any time or for any
reason whatsoever, with or without cause.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
MAGMA POWER COMPANY, a Nevada Corporation
By: ______________________________________
President and Chief Executive Officer
By: ______________________________________
Secretary of the Corporation
Address:
4365 Executive Drive, Suite 900
San Diego, California 92121
EXECUTIVE
__________________________________________
Address:
__________________________________________
__________________________________________
__________________________________________
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<PAGE>
EXHIBIT 99.3
MAGMA POWER COMPANY
CHANGE IN CONTROL AGREEMENT
This AGREEMENT, date September __, 1994, is made by and between,
_________________, (hereinafter referred to as the "Executive") and MAGMA POWER
COMPANY (the "Company"), a Nevada corporation.
RECITALS
A. The Board of Directors of the Company (the "Board of Directors") has
determined that it is in the best interest of the Company's shareholders that
appropriate steps should be taken to reinforce and encourage the continued
dedication of the Executive to the Executive's assigned duties without
distraction in case of potentially disturbing circumstances arising from the
possibility of a Change in Control of the Company.
B. In order to induce the Executive to remain in the employ of the Company
and to induce the Executive to give the Executive's continued attention and
dedication to the Executive's assigned duties in the event of a Change in
Control of the Company, the Company desires to provide the Executive with
certain benefits and inducements, as set forth herein.
C. The Executive covenants to perform the Executive's assigned duties with
continued attention, zeal and dedication in the event of a Change in Control of
the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the Company and the Executive do hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Whenever the following terms are used below in this Agreement, they shall
have the meaning specified below, and no other, unless the context clearly
indicates to the contrary. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
Section 1.1-Auditors.
"Auditors" shall mean Coopers & Lybrand, or an independent certified public
accounting firm that is duly selected by the Board of Directors and is
acceptable to the Executive.
Section 1.2-Board of Directors.
"Board of Directors" shall have the meaning provided in the first recital of
this Agreement.
Section 1.3-Cause.
"Cause" shall mean termination of employment with the Company because of (i)
conviction of a crime involving moral turpitude, (ii) theft or embezzlement of
property from the Company or (iii) willful misconduct or willful failure
substantially to perform the duties of his or her position, provided that the
individual shall have received written notice from the Board of the specific
acts of misconduct or failures to perform and such acts or failure shall have
continued after receipt of such notice.
Section 1.4-Change in Control.
A "Change in Control" shall be deemed to have occurred in the event of (i)
the acquisition by any person, together with its affiliates, of beneficial
ownership of capital stock of the Company possessing 30% or more of the combined
voting power of the Company's outstanding capital stock, (ii) within any
two-year period, the majority of the members of the Board were to be comprised
of individuals other than those who were members at the beginning of such
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<PAGE>
period, unless the members elected during such period were approved by a
majority of the Board in office immediately prior to the beginning of such
period, (iii) all or substantially all of the Company's assets are sold as an
entirety to any person or related group of persons or (iv) the Company is merged
with or into another corporation or another corporation is merged into the
Company with the effect that immediately after such transaction the shareholders
of the Company immediately prior to such transaction hold less than a majority
in interest of the total voting power entitled to vote in the election of
directors, managers or trustees of the entity surviving such transaction.
Section 1.5-Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.6-Company.
"Company" shall mean Magma Power Company, a Nevada corporation, its
subsidiaries and affiliates, and any successor to its business, whether direct
or indirect, by purchase of securities, merger, consolidation, purchase of all
or substantially all of the Company's assets or otherwise.
Section 1.7-Date of Termination.
"Date of Termination" shall mean (i) in the case of the Executive's
termination of employment by the Company for Disability, thirty days after
Notice of Termination is given, provided that the Executive shall not have
returned to the performance of the Executive's assigned duties on a full-time
basis during such thirty-day period; or (ii) in the case of termination of the
Executive's employment by the Company for Cause or termination by the Executive
for Good Reason or termination for any other reason, the date specified in the
Notice of Termination, which date shall not be less than thirty days after the
date such Notice of Termination is given.
Section 1.8-Disability.
"Disability" shall mean absence from performance of assigned duties for the
Company on a full-time basis for six consecutive calendar months as a result of
incapacity due to
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<PAGE>
medically documented physical or mental illness; provided that the Executive
shall not have returned to the full-time performance of the Executive's duties
within 30 calendar days of actual receipt of written Notice of Termination for
the reason of Disability. Such Notice of Termination may not be given prior to
the expiration of the six month period of Disability.
Section 1.9-Executive.
"Executive" shall have the meaning provided in the first paragraph of this
Agreement.
Section 1.10-Good Reason.
"Good Reason" shall mean the occurrence of any of the following events
without the Executive's express written consent:
(a) the assignment to the Executive of duties inconsistent with the
Executive's position and status as an executive of the Company immediately
prior to a Change in Control, or a substantial adverse alteration in the
nature or status of the Executive's responsibilities as _______________ of
the Company from those in effect immediately prior to a Change in Control
(other than any such alteration primarily attributable to the fact that the
Company, at the time of such alteration, is no longer a publicly-held
company); or
(b) a reduction by the Company in the Executive's base salary or
targeted bonuses payable under the Company's Management Incentive Plan
("MIP") or other executive bonus plan or arrangement as in effect
immediately prior to the occurrence of a Change in Control or as the same
may be increased from time to time during the term of this Agreement; or
(c) any purported termination of the employment of the Executive by the
Company which is not effected according to the requirements of a Notice of
Termination as defined in Section 1.11 herein; or
(d) in the case that Executive is assigned to the Company's principal
executive office immediately prior to the Change in Control, a relocation of
the Company's principal executive office more than 50 miles from its prior
location or the assignment of
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<PAGE>
the Executive to a location other than the Company's principal executive
office; in the case that Executive is assigned to a location other than the
Company's principal executive office immediately prior to the Change in
Control, assignment of the Executive to a location more than 50 miles from
the Executive's prior location.
Section 1.11-Notice of Termination.
"Notice of Termination" shall mean a notice, in writing, to the Executive
from the Company or to the Company from the Executive, which indicates the
specific termination provision enumerated in this Agreement relied upon, and
which sets forth in reasonable detail the facts and circumstances alleged to
provide a basis for termination of the Executive's employment by the Company or
by the Executive. Such notice must be communicated to the Executive in
accordance with Section 4.3 herein.
Section 1.12-Retirement.
"Retirement" shall mean termination of the Executive's employment on or
after the date on which the Executive terminates in accordance with any
retirement agreement/plan entered into between the Executive and the Company.
Section 1.13-Tax Counsel.
"Tax Counsel" shall mean legal counsel, selected by the Auditors and which
is acceptable to the Executive, for the purpose of rendering legal advice and
services on tax issues arising under this Agreement.
Section 1.14-Termination Period.
"Termination Period" shall mean the period beginning fifteen days prior to
the occurrence of a Change in Control and ending twenty-four (24) months
following the date of any such occurrence.
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<PAGE>
ARTICLE II
TERM
This Agreement shall be effective commencing on the date indicated in the
first paragraph of this Agreement and shall continue in effect through December
31, 1997; provided, however, that this initial term may be extended in the sole
discretion of the Compensation Committee of the Board of Directors; and
provided, further, that if a Change in Control shall have occurred during the
term of this Agreement, then this Agreement shall continue in effect for the
lesser of (i) the end of the Termination Period, or (ii) a period ending on the
date of the Retirement of the Executive.
ARTICLE III
BENEFITS AND COMPENSATION
Section 3.1-When Benefits Payable.
No benefits shall be payable under this Agreement and the provisions of this
Agreement shall be of no force or effect unless there shall have been a Change
in Control, and the Executive's employment with the Company shall have been
terminated within two year after the Change in Control during the term of this
Agreement. If such a Change in Control has occurred and the Executive's
employment with the Company is terminated within two years after the Change in
Control during the term of this Agreement, unless such termination is (i)
because of the death of the Executive, or (ii) by the Executive other than for
Good Reason, the Executive shall be entitled to the benefits enumerated in this
Article 3 no later than 30 days from the Date of Termination, under the
conditions imposed herein. The Executive's rights to the benefits enumerated
under this Article III, and the specific type of benefits to be received, shall
be determined and shall vest upon delivery of the applicable Notice of
Termination, and no event that occurs thereafter (including Executive's death or
disability) shall affect Executive's entitlement to, or the type of, benefits
hereunder. All benefits under this Article III shall be paid within thirty days
of the applicable Date of Termination.
Page 6 of 12
<PAGE>
Section 3.2-Benefits Upon Disability.
During any period within the term of this Agreement that the Executive is or
becomes subject to a Disability, the Executive shall continue to receive the
Executive's full base compensation and other benefits at the rate then in effect
until the Executive's employment is terminated pursuant to Section 1.11 herein.
After termination for Disability, benefits accruing to the Executive shall be
determined in accordance with the Company's disability policy as in effect
immediately prior to any Change in Control.
Section 3.3-Benefits Upon Termination for Cause.
In the event that the Executive's employment with the Company is terminated
for Cause, the Executive shall receive the Executive's full base compensation as
earned through the Date of Termination at the rate in effect at the time Notice
of Termination is given. Following payment of said amount, the Company shall
have no further obligations to the Executive under this Agreement.
Section 3.4-Benefits Upon Retirement.
In the event that the Executive's employment with the Company is terminated
by reason of the Executive's Retirement, the Executive shall be entitled to the
benefits under the Company's regular retirement program, or, if a separate
retirement agreement has been entered into between the Executive and the
Company, benefits shall be provided according to the terms of that agreement.
Section 3.5-Benefits Upon Termination Other Than For Cause, Retirement or
Disability; or Termination For Good Reason.
In the event that the employment of the Executive shall be terminated during
the term of this Agreement (i) by the Company for any reason other than for
Cause, Disability or Retirement within two years after the occurrence of such
Change in Control or (ii) by the Executive for Good Reason within two years
after the occurrence of such Change in Control, then
(a) the Executive shall be entitled to receive: (I) the Executive's full
base compensation as earned through the Date of Termination at the rate in
effect at the time
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<PAGE>
Notice of Termination is given; (II) for a 12-month period after such
termination (or such lesser number of months up to the date of the
Executive's Retirement), group health insurance coverage for the Executive
and his or her dependents substantially the same as that in effect
immediately prior to the Change in Control but increased to the extent that
such benefits were increased following the Change in Control; and (III) a
lump sum payment (the "Severance Payment") from the Company to the Executive
of a dollar amount equal to 100% of the sum of (x) base salary of the
Executive for the twelve month period immediately preceding the Change in
Control (if the Executive has not been employed by the Company for twelve
months, this portion of the Severance Payment shall be equal to 100% of the
annualized base compensation of the Executive during the period for which
the Executive has been employed with the Company) and (y) 100% of both
halves of his or her targeted bonus payable under the Company's MIP or other
executive bonus plan then in effect; and
(b) all deferred shares or similar securities of the Company and all
options to purchase securities of the Company then held by the Executive
shall be immediately vested and exercisable, without regard to whether such
shares or options are vested or exercisable at such time pursuant to the
terms of the documents under which such shares or options were granted;
provided that if such Change in Control is to be accomplished through a
tender offer or an exchange offer, such shares or options shall be vested
and exercisable for a period of time that shall permit the Executive to
tender such shares and/or the shares received upon the exercise of the
options in such tender or exchange offer.
Section 3.6-Tax Deductibility of Benefit Payments.
In the event that any payment or benefit received or to be received by the
Executive in connection with the termination of the Executive's employment
pursuant to the terms of this Agreement would not be deductible (in whole or in
part) by the Company as a result of the operation of Section 280G of the Code,
the amount of the Severance Payment shall be reduced (but not below zero) until
no portion of the Severance Payment is not deductible as a result of Section
280G of the Code. For purposes of this section, the value of any non-cash
benefit or any deferred cash payment to which the Executive is entitled
hereunder shall be determined by the Auditors in
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<PAGE>
accordance with Sections 280G(d)(3) and 280G(d)(4) of the Code. If such a
reduction is deemed necessary, the nature and extent of such reductions shall be
determined by the Auditors with the advice and assistance of the Tax Counsel,
and such determination shall be binding and conclusive, provided that the
Auditors and Tax Counsel consult with the Executive prior to the final
determination, and use their best efforts to ensure that the final determination
comports with the Executive's wishes to the greatest extent possible. In
connection with such determinations, the Executive shall be entitled to waive
any benefit the receipt of which otherwise would require a reduction in the
amount of the Severance Payment under this Section 3.5.
Section 3.7-Underpayment of the Severance Payment.
In the event that the initial determination of the Auditors and Tax Counsel
results in a payment to the Executive of a smaller Severance Payment than the
Executive was actually entitled to receive (as determined by the Auditors and
Tax Counsel based on controlling precedent), such underpayment shall be promptly
disbursed to the Executive or for the Executive's benefit together with interest
at the highest rate that will not cause such interest payments not to be
deductible as a result of Section 280G of the Code.
Section 3.8-Legal Fees and Expenses.
If, following termination of the employment of the Executive within two
years after a Change in Control, the Executive shall incur any legal fees or
expenses as a result of the termination of the Executive's employment
(including any such fees or expenses incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement), the Company shall pay or reimburse the Executive
for all such fees or expenses.
Section 3.9-No Mitigation.
The Executive shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Agreement be
reduced or offset by any compensation
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<PAGE>
earned by the Executive as a result of employment by another or by retirement
benefits after the Date of Termination or otherwise.
ARTICLE IV
MISCELLANEOUS
Section 4.1-Successors: Binding Agreement.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. The failure of
the Company to obtain such assumption agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as the Executive would be entitled to hereunder if the Executive had
terminated the Executive's employment for Good Reason, except that for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
Section 4.2-Successors and Assigns.
This Agreement shall inure to the benefit of, and be enforceable by, the
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees of the Executive. If the Executive should
die within two years after a Change in Control and during the term of this
Agreement and while any amount would still be payable to the Executive hereunder
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the Executive's devisee, legatee or other designee or if there is no such
designee, to the Executive's estate.
Section 4.3-Notice.
Notices and all communications provided for in this Agreement shall be in
writing and shall be deemed to have been received when delivered or mailed by
United States registered
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<PAGE>
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth at the end of this Agreement, provided that all notices to
the Company shall be directed to the attention of the Board of Directors with a
copy to the Secretary of the Company, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
Section 4.4-No Waiver.
No provision of this Agreement may be modified, waived or discharged unless
in writing and signed by the Executive and such officer of the Company as may be
specifically designated or authorized by the Board of Directors or by a
Committee of the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
Section 4.5-Entire Agreement.
No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement and this Agreement constitutes the
entire agreement of the parties.
Section 4.6-Controlling Law.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of California.
Section 4.7-Invalid Provision.
The invalidity or unenforceability of any provisions of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
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<PAGE>
Section 4.8-Counterparts.
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original, and all such counterparts together shall constitute
but one and the same instrument.
Section 4.9-The Executive's Employment by the Company.
Nothing contained in this Agreement (i) obligates the Company or any
subsidiary of the Company to employ the Executive in any capacity whatsoever, or
(ii) prohibits or restricts the Company (or any such subsidiary) from
terminating the employment, if any, of the Executive at any time or for any
reason whatsoever, with or without cause.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
MAGMA POWER COMPANY, a Nevada Corporation
By:______________________________________
President and Chief Executive Officer
By:______________________________________
Secretary of the Corporation
Address:
4365 Executive Drive, Suite 900
San Diego, California 92121
EXECUTIVE
_________________________________________
Address:
_________________________________________
_________________________________________
_________________________________________
Page 12 of 12
<PAGE>
EXHIBIT 99.4
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of this ____ day
of ________, 1994 by and between Magma Power Company, a Nevada corporation
(the "Company") and ________________________ ("Indemnitee").
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors unless they are provided with
adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons;
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, Indemnitee is willing to serve and continue to serve as a
director of the Company on the condition that he be so indemnified;
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director of the Company or any subsidiary of the Company, by reason of any
action or inaction on the part of Indemnitee while a director of the Company
or any subsidiary of the Company, by reason of the fact that the Indemnitee is
or was an officer of the Company or any subsidiary of the Company, or by
reason of the fact that Indemnitee is or was serving at the request of the
Company as a director of another corporation or other enterprise, against
expenses (including without limitation attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs,
expenses of investigations, judicial or administrative proceedings or appeals
actually and reasonably incurred by him in connection with the defense or
settlement thereof), judgments, fines, penalties, excise taxes under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by Indemnitee in connection with such action or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in the best interests of the Company,
or, with respect to any criminal action or proceeding, had no reasonable cause
to believe that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be
made a party to any threatened, pending or completed action or proceeding
by or in the right of the Company or any subsidiary of the Company to
procure a judgment in its favor by reason of the fact that Indemnitee is or
was a director of the Company or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while a director of the
Company or any
<PAGE>
subsidiary of the Company, by reason of the fact that the Indemnitee is or was
an officer of the Company or any subsidiary of the Company, or by reason of the
fact that Indemnitee is or was serving at the request of the Company as a
director of another corporation or other enterprise, against expenses (including
without limitation attorneys' fees, disbursements and retainers, accounts and
witness fees, travel and deposition costs, expenses of investigation, judicial
or administrative proceedings, or appeals actually and reasonably incurred by
him in connection with the defense or settlement thereof) and, to the fullest
extent permitted by law, amounts paid in settlement, in each case to the extent
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action or proceeding if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and its shareholders, except that no indemnification
shall be made in respect of any claim, issue or matter as to which Indemnitee
shall have been adjudged to be liable to the Company in the performance of
Indemnitee's duty to the Company and its shareholders unless and only to the
extent that the court in which such action or proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for expenses and then
only to the extent that the court shall determine.
2. Agreement to Serve. Indemnitee agrees to continue to serve as a director
of the Company and/or the Company's subsidiaries, as the case may be, so long as
he is duly appointed or elected and qualified in accordance with the applicable
provisions of the By-laws of the Company or any subsidiary of the Company or
until such time as he tenders his registration in writing. Nothing contained in
this Agreement is intended to create in Indemnitee any right to continued
employment.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses incurred
by Indemnitee in connection with the investigation, defense, settlement or
appeal of any civil or criminal action or proceeding referenced herein (but only
amounts actually paid in settlement of any such action or proceeding).
Indemnitee hereby undertakes to repay such amounts advanced only if, and to the
extent that, it shall ultimately be determined that Indemnitee is not entitled
to be indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to Indemnitee within twenty (20) days
following delivery of a written request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to the President of the Company at the address
shown on the signature page of this Agreement (or such other address as the
Company shall designate in writing to the Indemnitee). Notice shall be deemed
received three business days after the date postmarked if sent by domestic
certified or registered mail, properly addressed; otherwise notice shall be
deemed received when such notice shall actually be received by the Company. The
omission to so notify the Company will not relieve the Company from any
liability which it may have under this Agreement or otherwise. In addition,
Indemnitee shall give the Company such information and cooperation as it may
reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification under this Agreement, other than pursuant
to Section 4, shall be made no later than 45 days after receipt by the Company
of the written request of Indemnitee, accompanied by substantiating
documentation, unless a determination is made within said 45-day period by (1)
the Board of Directors by a majority vote of a quorum consisting of directors
who are or were not parties to such Proceeding, or (2) independent legal counsel
in a written opinion (which counsel shall be appointed if such quorum is not
obtainable), that Indemnitee has not met the relevant standards for
indemnification set forth herein.
In the event the Company does not indemnify Indemnitee within such 45-day
period, whether or not the Company (including its Board of Directors or
independent legal counsel) has made a determination that
2
<PAGE>
Indemnitee has not met the applicable standard of conduct, Indemnitee may at any
time thereafter bring suit against the Company to recover the unpaid amount in
any court of competent jurisdiction. The burden of proving by clear and
convincing evidence that indemnification is not appropriate shall be on the
Company. Neither the failure of the Company (including its Board of Directors or
independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Company (including its Board of Directors or independent
legal counsel) that Indemnitee has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that Indemnitee has not
met the applicable standard of conduct. Indemnitee's expenses reasonably
incurred in connection with successfully establishing his right to
indemnification hereunder, in whole or in part, shall also be indemnified by the
Company.
(d) Notice to Insurers. If, at the time of receipt of a notice of a claim
pursuant to Section 3(b) hereof, the Company has director and officer liability
insurance in effect, the Company shall give prompt notice of the commencement of
such proceeding to the insurers in accordance with the procedures set forth in
the respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this Agreement, the
Company agrees to indemnify the Indemnitee to the fullest extent permitted by
law, notwithstanding that such indemnification is not specifically authorized by
the other provisions of this Agreement, the Company's or any subsidiary's
Articles of Incorporation, the Company's or any subsidiary's Bylaws or by
statute. In the event of any change, after the date of this Agreement, in any
applicable law, statute or rule which expands the right of a Nevada
corporation to indemnify a member of its board of directors, such changes shall
be, ipso facto, within the purview of Indemnitee's rights and Company's
obligations, under this Agreement. In the event of any change in any applicable
law, statute or rule which narrows the right of a Nevada corporation to
indemnify a member of its Board of Directors, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement shall not
be deemed exclusive of any rights to which Indemnitee may be entitled under the
Company's Articles of Incorporation, its Bylaws, any agreement, any vote of
shareholders or disinterested directors, the General Corporation Law of the
State of Nevada, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action or
other covered proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of the
judgments, fines, penalties, ERISA excise taxes or amounts paid in settlement
actually or reasonably incurred by him in any civil or criminal action or
proceeding, or the settlement thereof, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such judgments, fines, penalties, ERISA excise taxes or amounts paid in
settlement to which Indemnitee is entitled and shall indemnify Indemnitee for
100% of the expenses (including without limitation attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, expenses of investigations, judicial or administrative proceedings or
appeals) actually and reasonably incurred by him in connection with the defense
of any such civil or criminal action or proceeding.
3
<PAGE>
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that
in certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy to
indemnify Indemnitee.
7. Directors' and Officers' Liability Insurance. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among
other considerations, the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain such insurance if the Company determines in good faith that such
insurance is not reasonably available, if the premium costs for such insurance
are disproportionate to the amount of coverage provided, or if the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit.
8. Severability. Nothing in this Agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided in
this Section 8. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement, under any provision of the Articles of Incorporation or the
Bylaws of the Company or under or any of the Nevada General Corporation Law,
but such indemnification or advancement of expenses may be provided by the
Company in specific cases if the Board of Directors has approved the
initiation or bringing of such suit; or
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
or
(c) Insured Claims. To indemnify Indemnitee for expenses or liabilities
of any type whatsoever (including, but not limited to: judgments, fines,
penalties or ERISA excise taxes, and amounts paid in settlement) which have
been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability maintained by the Company; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar provisions of any federal, state or local
statutory law; or
4
<PAGE>
(e) To indemnify the Indemnitee for any expenses or liabilities of any
type whatsoever (including but not limited to: judgments, fines, penalties
or ERISA excise taxes and amounts paid in settlement) for which the
Indemnitee has been or is indemnified by the Company otherwise than pursuant
to this Agreement.
10. Effectiveness of Agreement. This Agreement shall be effective as of the
date set forth on the first page and will apply to acts or omissions of
Indemnitee which occurred prior to such date if Indemnitee was a director of
the Company at the time such act or omission occurred.
11. Construction of Certain Phrases. For purposes of this Agreement,
references to the "Company" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger with, if its separate
existence had continued, would have had power and authority to indemnify its
directors so that if Indemnitee is or was a director of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director of another corporation or other enterprise, Indemnitee shall stand
in the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
13. Successors and Assigns. This Agreement shall be binding upon the Company
and its successors and assigns, and shall inure to the benefit of Indemnitee
and Indemnitee's estate, heirs, legal representatives and assigns.
14. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled
to be paid all court costs and expenses, including attorneys' fees, incurred
by Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of the Indemnitee's material defenses
to such action were made in bad faith or were frivolous.
15. Notice. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of
such receipt, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Nevada for
all purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Nevada.
17. Choice of Law. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Nevada as applied to
contracts between Nevada residents entered into and to be performed entirely
within Nevada.
5
<PAGE>
18. Subrogation. In the event of any payment under this Agreement to or
on behalf of the Indemnitee, the Company shall be subrogated to the extent
of such payment to all of the rights of recovery of the Indemnitees against
any person, firm, corporation or other entity (other than the Company) and
the Indemnitee shall execute all papers requested by the Company and shall
do any and all things that may be necessary or desirable to secure such
rights for the Company, including the execution of such documents necessary
or desirable to enable the Company to effectively bring suit to enforce
such rights.
19. Subject Matter and Parties. The intended purpose of this Agreement is
to provide for indemnification and advancement of expenses, and this Agreement
is not intended to affect any other aspect of any relationship between the
Indemnitee and the Company and is not intended to and shall not create any
rights in any person as a third party beneficiary hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Magma Power Company
4365 Executive Drive, Suite 900
San Diego, CA 92121
By: _____________________________
Title: _____________________________
AGREED TO AND ACCEPTED:
INDEMNITEE:
- -----------------------------------
(type name)
- -----------------------------------
(signature)
- -----------------------------------
- -----------------------------------
(address)
6
<PAGE>
EXHIBIT 99.5
FINAL CONFORMED COPY
--------------------
CALIFORNIA ENERGY COMPANY, INC.,
CE ACQUISITION COMPANY, INC.
and
MAGMA POWER COMPANY
AGREEMENT AND PLAN OF MERGER
Dated as of December 5, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE I
THE TENDER OFFER
SECTION 1.01. The Offer........................................... 2
SECTION 1.02. Company Action...................................... 3
SECTION 1.03. Directors........................................... 4
ARTICLE II
THE MERGER
SECTION 2.01. The Merger.......................................... 5
SECTION 2.02. Effective Time...................................... 5
SECTION 2.03. Effect of the Merger................................ 6
SECTION 2.04. Subsequent Actions.................................. 6
SECTION 2.05. Certificate of Incorporation; By-Laws; Directors
and Officers........................................ 6
SECTION 2.06. Merger Consideration................................ 7
SECTION 2.07. Dissenting Company Common Stock..................... 8
SECTION 2.08. Surrender of Company Common Stock; Stock
Transfer Books...................................... 8
SECTION 2.09. No Fractional Shares................................ 10
SECTION 2.10. Stock Options; Deferred Stock....................... 10
SECTION 2.11. Dividends; Transfer Taxes........................... 11
SECTION 2.12. Stockholders' Meetings.............................. 11
SECTION 2.13. Board Nominees; Assistance in Consummation of the
Merger.............................................. 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
SECTION 3.01. Corporate Organization; Subsidiaries................ 12
SECTION 3.02. Certificate of Incorporation and By-Laws............ 13
SECTION 3.03. Capitalization...................................... 13
SECTION 3.04. Authority Relative to this Agreement................ 14
SECTION 3.05. No Conflict; Required Filings and Consents.......... 14
SECTION 3.06. SEC Filings; Financial Statements................... 15
SECTION 3.08. Title to Property................................... 17
SECTION 3.09. Litigation.......................................... 17
SECTION 3.10. Financing Arrangements.............................. 17
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 3.11. No Prior Activities.................................. 17
SECTION 3.12. Brokers.............................................. 17
SECTION 3.13. Information in Disclosure Documents; Registration
Statement; Etc....................................... 17
SECTION 3.14. Conduct of Business.................................. 18
SECTION 3.15. Environment.......................................... 18
SECTION 3.16. Energy Regulatory Status............................. 19
SECTION 3.17. Employee Benefit Plans; Labor Matters................ 19
SECTION 3.18. Insurance............................................ 21
SECTION 3.19. Taxes................................................ 21
SECTION 3.20. Trademarks, Licenses, Patents and Copyrights......... 22
SECTION 3.21. Related Party Transactions........................... 22
SECTION 3.22. Status of Development and Construction Projects...... 23
SECTION 3.23. Status of Operating Projects......................... 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Corporate Organization; Subsidiaries................. 24
SECTION 4.02. Articles of Incorporation and Bylaws................. 25
SECTION 4.03. Capitalization....................................... 25
SECTION 4.04. Authority Relative to this Agreement................. 26
SECTION 4.05. No Conflict; Required Filings and Consents........... 26
SECTION 4.06. SEC Filings; Financial Statements.................... 27
SECTION 4.07. Absence of Certain Changes or Events................. 28
SECTION 4.08. Title to Property.................................... 29
SECTION 4.09. Litigation........................................... 29
SECTION 4.10. Information in Disclosure Documents.................. 30
SECTION 4.11. Fairness Opinion..................................... 30
SECTION 4.12. Brokers.............................................. 30
SECTION 4.13. Takeover Provisions Inapplicable; Rights Agreement
Amendment............................................ 30
SECTION 4.14. Conduct of Business.................................. 31
SECTION 4.15. Environment.......................................... 31
SECTION 4.16. Energy Regulatory Status............................. 31
SECTION 4.17. Employee Benefit Plans; Labor Matters................ 32
SECTION 4.18. Insurance............................................ 34
SECTION 4.19. Taxes................................................ 34
SECTION 4.20. Trademarks, Licenses, Patents and Copyrights......... 35
SECTION 4.21. Related Party Transactions........................... 35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 4.22. Status of Development and Construction Projects.......... 35
SECTION 4.23. Status of Operating Projects............................. 36
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Acquisition Proposals.................................... 36
SECTION 5.02. Conduct of Business by the Parties Pending the Merger.... 37
SECTION 5.03. No Shopping.............................................. 40
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement/Proxy Statement................... 41
SECTION 6.02. Stock Exchange Listing................................... 42
SECTION 6.03. Additional Agreements.................................... 42
SECTION 6.04. Notification of Certain Matters.......................... 42
SECTION 6.05. Access to Information.................................... 42
SECTION 6.06. Public Announcements..................................... 43
SECTION 6.07. Best Efforts; Cooperation................................ 43
SECTION 6.08. Agreement to Defend and Indemnify........................ 43
SECTION 6.09. Disposition of Litigation................................ 44
SECTION 6.10. Employee Benefits........................................ 45
SECTION 6.11. Certain Action of Parent and Merger Sub.................. 46
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.01. Conditions to Obligation of Each Party to
Effect the Merger........................................ 46
SECTION 7.02. Additional Conditions to Obligations of
the Company.............................................. 47
SECTION 7.03. Additional Conditions to Obligations of
Parent and Merger Sub.................................... 47
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination.............................................. 48
SECTION 8.02. Effect of Termination.................................... 49
SECTION 8.03. Agreement Termination Fee................................ 49
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 8.04. Offer Fee........................................... 50
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties
and Agreements...................................... 51
SECTION 9.02. Notices...... .................................. 51
SECTION 9.03. Expenses............................................ 52
SECTION 9.04. Certain Definitions................................. 52
SECTION 9.05. Headings............................................ 52
SECTION 9.06. Severability........................................ 52
SECTION 9.07. Entire Agreement; No Third-Party Beneficiaries...... 52
SECTION 9.08. Waiver.............................................. 53
SECTION 9.09. Amendment........................................... 53
SECTION 9.10. Assignment.......................................... 53
SECTION 9.12. Counterparts........................................ 53
</TABLE>
Annex I
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 5, 1994 (this
"Agreement"), among CALIFORNIA ENERGY COMPANY, INC., a Delaware corporation
- ----------
("Parent"), CE ACQUISITION COMPANY, INC., a Delaware corporation and a wholly
- --------
owned subsidiary of Parent ("Merger Sub"), and MAGMA POWER COMPANY, a Nevada
----------
corporation (the "Company").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each approved the acquisition of the Company by Parent upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, in furtherance thereof, it is proposed that Merger Sub will
make a cash tender offer (the "Offer") to acquire 12,400,000 shares of the
-----
issued and outstanding common stock, $0.10 par value, of the Company, including
the associated Preferred Stock purchase rights (the "Rights") issued pursuant to
------
the Rights Agreement dated October 6, 1994 between the Company and Chemical
Trust Company of California, as Rights Agent (the "Rights Agreement") (the
----------------
"Company Common Stock"; all issued and outstanding shares of Company Common
- ---------------------
Stock and the associated Rights being hereinafter collectively referred to as
the "Shares") for $39.00 per Share, or such higher price as may be paid in the
------
Offer (the "Per Share Cash Amount"), net to the seller in cash, subject to (i)
---------------------
there being validly tendered and not withdrawn before the expiration of the
Offer that number of Shares which, together with Shares beneficially owned by
Merger Sub, represents at least a majority of the Shares outstanding on a fully
diluted basis (the "Minimum Tender Condition") and (ii) Merger Sub having
------------------------
obtained sufficient financing to enable it to consummate the Offer (the
"Financing Condition");
- --------------------
WHEREAS, also in furtherance of such acquisition, the Boards of
Directors of the Company and Merger Sub have each approved the merger (the
"Merger") of Merger Sub with and into the Company following completion of the
- -------
Offer in accordance with the General Corporation Law of the State of Delaware
("Delaware Law") and the General Corporation Law of the State of Nevada ("Nevada
- -------------- ------
Law") and upon the terms and subject to the conditions set forth in this
- ---
Agreement; and
WHEREAS, the Board of Directors of the Company has resolved to
recommend acceptance of the Offer and the Merger to the holders of Shares and
has determined that the consideration to be paid for each Share in the Offer and
the Merger is fair to the holders of such Shares;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub and the Company hereby agree as follows:
<PAGE>
2
ARTICLE I
THE TENDER OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement shall not
---------
have been terminated in accordance with Section 8.01 hereof and none of the
events set forth in Annex I hereto shall have occurred or be existing, Parent
shall cause Merger Sub to, and Merger Sub shall, commence the Offer as promptly
as practicable, but in no event later than five business days after the date
hereof. The obligation of Parent to accept for payment any Shares tendered
shall be subject to the satisfaction of the conditions set forth in Annex I,
including the Minimum Tender Condition. Parent expressly reserves the right to
waive any such condition, to increase the price per Share payable in the Offer,
or to make any other changes in the terms and conditions of the Offer (provided
that no change may be made that decreases the price per Share payable in the
Offer or that imposes additional conditions to the Offer from those set forth in
Annex I hereto). Merger Sub covenants and agrees that, subject to the terms and
conditions of this Agreement, unless the Company otherwise consents in writing,
Merger Sub will accept for payment and pay for Shares as soon as it is permitted
to do so under applicable law. The Per Share Cash Amount shall be net to the
seller in cash, subject to reduction only for any applicable Federal back-up
withholding or stock transfer taxes payable by the seller. The Company agrees
that no Shares held by the Company or any of its subsidiaries (as hereinafter
defined) will be tendered pursuant to the Offer.
(b) The Offer shall be made by means of an offer to purchase (the
"Offer to Purchase") having the conditions and provisions set forth in Annex I
- ------------------
hereto. As soon as practicable on the date the Offer is commenced, Parent and
Merger Sub shall file with the Securities and Exchange Commission (the "SEC") a
---
Tender Offer Statement on Schedule 14D-1 (together with all amendments and
supplements thereto, the "Schedule 14D-1") with respect to the Offer. The
--------------
Schedule 14D-1 will comply in all material respects with the provisions of, and
satisfy in all material respects the requirements of, such Schedule 14D-1 and
all applicable Federal securities laws and will contain (including as an
exhibit) or incorporate by reference the Offer to Purchase (or portions thereof)
and forms of the related letter of transmittal (which documents, together with
any supplements or amendments thereto, and any other SEC schedule or form that
is filed in connection with the Offer and related transactions, are referred to
collectively herein as the "Offer Documents"). Each of Parent, Merger Sub and
---------------
the Company represents and warrants that the information provided and to be
provided by it and/or by its auditors, attorneys, financial advisors or other
consultants or advisors specifically for use in the Schedule 14D-1 and the Offer
Documents on the date filed with the SEC and on the date first published, sent
or given to the Company's stockholders shall not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of Parent,
Merger Sub and the Company agrees promptly to correct any
<PAGE>
3
information provided by it for use in the Schedule 14D-1 or the Offer Documents
if and to the extent that it shall have become false or misleading in any
material respect and to supplement the information provided by it specifically
for use in the Schedule 14D-1 or the Offer Documents to include any information
that shall become necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and Parent and
Merger Sub further agree to take all steps necessary to cause the Schedule 14D-
1, as so corrected or supplemented, to be filed with the SEC and the Offer
Documents, as so corrected or supplemented, to be disseminated to holders of
Shares, in each case as and to the extent required by applicable Federal
securities laws. The Company and its counsel shall be given the right to review
and comment on the Schedule 14D-1 before filing with the SEC.
SECTION 1.02. Company Action. (a) The Company hereby approves of
--------------
and consents to the Offer and represents and warrants that the Board of
Directors of the Company, at a meeting duly called and held on December 5, 1994,
at which a majority of the Directors were present, duly approved and adopted
this Agreement and the transactions contemplated hereby, including the Offer and
the Merger, recommended that the stockholders of the Company accept the Offer
and tender their Shares pursuant to the Offer, and determined that this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger, are fair to and in the best interests of the stockholders of the
Company. The Company further represents that Goldman, Sachs & Co. ("Goldman
-------
Sachs") has rendered to the Board of Directors of the Company its opinion as of
- -----
December 5, 1994, to the effect that the consideration to be received by the
stockholders of the Company pursuant to the Offer and the Merger is fair to such
stockholders (other than Parent and its affiliates).
(b) The Company hereby agrees to file with the SEC, as promptly as
practicable after the filing by Parent and Merger Sub of the Schedule 14D-1 with
respect to the Offer, a Tender Offer Solicitation/Recommendation Statement on
Schedule 14D-9 (together with any amendments or supplements thereto, the
"Schedule 14D-9") that will comply in all material respects with the provisions
- ---------------
of all applicable Federal securities laws. The Company agrees to mail such
Schedule 14D-9 to the stockholders of the Company promptly after the
commencement of the Offer. The Schedule 14D-9 and the Offer Documents shall
contain the recommendations of the Board of Directors of the Company described
in Section 1.02(a) hereof. The Schedule 14D-9, on the date filed with the SEC
and on the date first published, sent or given to the Company's stockholders,
shall not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to written information
supplied by Parent or Merger Sub specifically for inclusion in the Schedule 14D-
9. The Company agrees promptly to correct the Schedule 14D-9 if and to the
extent that it shall become false or misleading in any material respect, and
each of Parent and Merger Sub, with respect to written information supplied by
it specifically for use in the
<PAGE>
4
Schedule 14D-9, shall promptly notify the Company of any required corrections of
such information and cooperate with the Company with respect to correcting such
information and to supplement the information contained in the Schedule 14D-9 to
include any information that shall become necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and the Company shall take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to the
Company's stockholders to the extent required by applicable Federal securities
laws. Parent and Merger Sub, and their counsel, shall be given an opportunity
to review and comment on the Schedule 14D-9 before filing with the SEC.
(c) In connection with the Offer, the Company shall promptly upon
execution of this Agreement furnish Parent and Merger Sub with mailing labels
containing the names and addresses of all record holders of Shares and security
position listings of Shares held in stock depositories, each as of a recent
date, and shall promptly furnish Parent and Merger Sub with such additional
information, including updated lists of stockholders, mailing labels and
security position listings, and such other information and assistance as Parent
and Merger Sub or their agents may reasonably request for the purpose of
communicating the Offer to the record and beneficial holders of Shares.
SECTION 1.03. Directors. (a) Promptly upon the purchase by Merger
---------
Sub of a majority of the outstanding Shares pursuant to the Offer, and from time
to time thereafter as Shares are acquired by Merger Sub, Merger Sub shall be
entitled, subject to compliance with Section 14(f) of the Securities Exchange
Act of 1934 (the "Exchange Act"), to designate such number of directors, rounded
------------
to the nearest whole number (any number ending with .5 being rounded to the next
highest whole number), on the Board of Directors of the Company as will give
Merger Sub representation on the Board of Directors equal to that number of
directors which equals the product of the total number of directors on the Board
of Directors (giving effect to the directors appointed or elected pursuant to
this sentence and including current directors serving as officers of the
Company) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Merger Sub or any affiliate of Merger Sub (including for
purposes of this Section 1.03 such Shares as are accepted for payment pursuant
to the Offer, but excluding Shares held by the Company or any of its affiliates)
bears to the number of Shares outstanding, but in no event less than a majority
of the entire Board of Directors of the Company (regardless of vacancies). At
such times, the Company will also cause (i) each committee of the Board of
Directors, (ii) if requested by Merger Sub, the board of directors of each of
the Company's Subsidiaries (as defined below) and (iii) if requested by Merger
Sub, each committee of such board to include persons designated by Merger Sub
constituting the same percentage of each such committee or board as Merger Sub's
designees are of the Board of Directors. The Company shall, upon request by
Merger Sub, promptly increase the size of the Board of Directors or exercise its
best efforts to secure the resignations of such number of directors as is
necessary to enable Merger Sub designees to be elected to the Board of Directors
and shall cause
<PAGE>
5
Merger Sub's designees to be so elected; provided, however, that such
-------- -------
resignations shall not cause the number of Disinterested Directors (as defined
below) to be less than two. Subject to applicable law, the Company shall
promptly take all action necessary pursuant to Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder in order to fulfill its obligations under
this Section 1.03 and shall include in the Schedule 14D-9 mailed to stockholders
promptly after the commencement of the Offer (or an amendment thereof or an
information statement pursuant to Rule 14f-1 if Merger Sub has not theretofore
designated directors) such information with respect to the Company and its
officers and directors as is required under Section 14(f) and Rule 14f-1 in
order to fulfill its obligations under this Section 1.03. Parent and Merger Sub
will supply the Company and be solely responsible for any information with
respect to itself and its nominees, officers, directors and affiliates required
by Section 14(f) and Rule 14f-1.
(b) Following the election or appointment of Parent's designees
pursuant to this Section 1.03 and prior to the Effective Time, any amendment of
this Agreement or the Restated Articles of Incorporation or Restated Bylaws of
the Company, any termination of this Agreement by the Company, any extension by
the Company of the time for the performance of any of the obligations or other
acts of Parent or Merger Sub or waiver of any of the Company's rights hereunder,
and any other consent or action by the Board of Directors hereunder, will
require the concurrence of a majority (which shall be at least two) of the
directors of the Company then in office who are not designees of Parent or
Merger Sub (the "Disinterested Directors").
-----------------------
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. At the Effective Time and subject to and
----------
upon the terms and conditions of this Agreement, Delaware Law and Nevada Law,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the
Merger hereinafter sometimes is referred to as the "Surviving Corporation".
---------------------
SECTION 2.02. Effective Time. As promptly as practicable after the
--------------
satisfaction or waiver of the conditions set forth in Article VII, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or a
Certificate of Merger with the Secretary of State of the State of Delaware and
the Secretary of State of the State of Nevada, in such form as required by, and
executed in accordance with the relevant provisions of, Delaware Law and Nevada
Law, respectively (the time of such later filing being the "Effective Time").
--------------
Prior to such filings, a closing shall be held at the offices of Willkie Farr &
Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
or
<PAGE>
6
such other place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver of the conditions set forth in Article VII.
SECTION 2.03. Effect of the Merger. At the Effective Time, the
--------------------
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law and Nevada Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 2.04. Subsequent Actions. If, at any time after the
------------------
Effective Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Company or Merger Sub acquired or
to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of either the Company or Merger Sub, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of such corporations or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
of the Surviving Corporation or otherwise to carry out this Agreement.
SECTION 2.05. Certificate of Incorporation; By-Laws; Directors and
----------------------------------------------------
Officers. (a) Unless otherwise determined by Parent before the Effective Time,
- --------
at the Effective Time the Certificate of Incorporation of Merger Sub, as in
effect immediately before the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as permitted
by law and such Articles of Incorporation; provided, however, that Article One
-------- -------
of the Articles of Incorporation of the Surviving Corporation shall be amended
to read as follows: "FIRST: The name of the corporation is Magma Power
Company".
(b) The By-Laws of Merger Sub, as in effect immediately before the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as permitted by law, the Articles of Incorporation of the
Surviving Corporation and such By-Laws.
(c) The directors of Merger Sub immediately before the Effective Time
will be the initial directors of the Surviving Corporation, and the officers of
the Company immediately before the Effective Time will be the initial officers
of the Surviving
<PAGE>
7
Corporation, in each case until their successors are elected or appointed and
qualified. If, at the Effective Time, a vacancy shall exist on the Board of
Directors or in any office of the Surviving Corporation, such vacancy may
thereafter be filled in the manner provided by law or the By-laws of Merger Sub.
SECTION 2.06. Merger Consideration. At the Effective Time, by virtue
--------------------
of the Merger and without any action on the part of Merger Sub, the Company or
the holder of any of the following securities:
(a) All Shares which are held by the Company or any subsidiary of the
Company, and any Shares owned by Parent, Merger Sub or any other subsidiary of
Parent, shall cease to be outstanding, shall be canceled and retired without
payment of any consideration therefor and shall cease to exist.
(b) Subject to Section 2.09, each remaining outstanding Share shall be
converted in the Merger into the right to receive that amount of cash and that
number of shares of common stock, par value $0.0675 per share, of Parent (the
"Parent Common Stock") equal to, at the option of Parent, (i) the All Cash
- --------------------
Component Amount (as defined below), net in cash, without interest thereon, or
(ii) both (A) the Mixed Cash Component Amount (as defined below), net in cash,
without interest thereon, and (B) the number of fully paid and nonassessable
shares of Parent Common Stock equal to the quotient of (I) $39.00 less (II) the
Mixed Cash Component Amount divided by the Average Closing Price (as defined
below) (the All Cash Component Amount or (ii)(A) and (ii)(B), collectively, as
applicable, being the "Merger Consideration"). The "Mixed Cash Component
-------------------- --------------------
Amount" shall mean an amount equal to the quotient of (A) (x) $28.50 multiplied
- ------
by the number of Shares outstanding at the Effective Time less (y) $39.00
multiplied by the number of Shares owned by Parent and any of its affiliates
immediately prior to the Effective Time, divided by (B) the number of Shares
outstanding at the Effective Time (other than Shares owned by Parent and any of
its affiliates). The "All Cash Component Amount" shall mean an amount equal to
-------------------------
the quotient of (A) (x) $38.75 multiplied by the number of Shares outstanding at
the Effective Time less (y) $39.00 multiplied by the number of Shares owned by
Parent and any of its affiliates immediately prior to the Effective Time,
divided by (B) the number of Shares outstanding at the Effective Time (other
than Shares owned by Parent and any of its affiliates). The "Average Closing
---------------
Price" shall mean the average closing price of Parent Common Stock on the New
- -----
York Stock Exchange (the "NYSE") during the 15 consecutive trading days ending
----
on the fifth business day prior to the Effective Time; provided, however, that
-------- -------
if such average closing price exceeds $18.73, the Average Closing Price shall be
$18.73, and if such average closing price is less than $14.27, the Average
Closing Price shall be $14.27.
(c) All Shares to be converted into the right to receive the Merger
Consideration pursuant to this Section 2.06 shall cease to be outstanding, shall
be canceled
<PAGE>
8
and retired and shall cease to exist, and each holder of a certificate
representing any such Shares shall thereafter cease to have any rights with
respect to such shares, except the right to receive for each of the Shares, upon
the surrender of such certificate in accordance with Section 2.08, the Merger
Consideration and cash in lieu of fractional shares of Parent Common Stock as
contemplated by Section 2.09.
(d) Each issued and outstanding share of capital stock of Merger Sub
shall be converted into and become one fully paid and nonassessable share of
common stock, $.01 par value, of the Surviving Corporation.
SECTION 2.07. Dissenting Company Common Stock. (a) Notwithstanding
-------------------------------
any provision of this Agreement to the contrary, any Shares held by a holder who
has demanded and perfected his demand for appraisal of his shares of Company
Common Stock in accordance with Nevada Law and as of the Effective Time has
neither effectively withdrawn nor lost his right to such appraisal ("Dissenting
----------
Shares") shall not be converted into or represent a right to receive the Merger
- ------
Consideration pursuant to Section 2.06(b), but the holder thereof shall be
entitled to only such rights as are granted by Nevada Law.
(b) Notwithstanding the provisions of subsection (a) of this Section
2.07, if any holder of shares of Company Common Stock who demands appraisal of
his shares under Nevada Law shall effectively withdraw or lose (through failure
to perfect or otherwise) his right to appraisal, then, as of the Effective Time
or the occurrence of such event, whichever later occurs, such holder's shares of
Company Common Stock shall automatically be converted into and represent only
the right to receive the Merger Consideration as provided in Section 2.06(b),
without interest thereon, upon surrender of the certificate or certificates
representing such shares of Company Common Stock.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal or payment of the fair value of any Company Common Stock,
withdrawals of such demands, and any other instruments served pursuant to Nevada
Law received by the Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under Nevada Law. The
Company shall not voluntarily make any payment with respect to any demands for
appraisal and shall not, except with the prior written consent of Parent, settle
or offer to settle any such demands.
SECTION 2.08. Surrender of Company Common Stock; Stock Transfer
-------------------------------------------------
Books. (a) Before the Effective Time, the Company and Parent shall designate a
- -----
bank or trust company to act as agent for the holders of Company Common Stock
(the "Exchange Agent") to receive the funds and securities necessary to make the
--------------
payments contemplated by Section 2.06. Such funds shall be invested by the
Exchange Agent as directed by the Surviving Corporation, provided that such
investments shall be in obligations of or guaranteed by the United States of
America or of any agency thereof and backed by the full
<PAGE>
9
faith and credit of the United States of America, in commercial paper
obligations rated A-1 or P-1 or better by Moody's Investors Services, Inc. or
Standard & Poor's Corporation, respectively, or in deposit accounts,
certificates of deposit or banker's acceptances of, repurchase or reverse
repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital, surplus and undivided profits aggregating in
excess of $200 million (based on the most recent financial statements of such
bank which are then publicly available at the SEC or otherwise).
(b) Each holder of a certificate or certificates representing any
outstanding shares of Company Common Stock ("Certificates") canceled upon the
------------
Merger pursuant to Section 2.06(b) may thereafter surrender such Certificate or
Certificates to the Exchange Agent, as agent for such holder, to effect the
surrender of such Certificate or Certificates on such holder's behalf for a
period ending one year after the Effective Time.
Any portion of the Merger Consideration which remains unclaimed by the
former stockholders of the Company for one year after the Effective Time shall
be delivered to Parent, upon demand of Parent. Parent agrees that promptly
after the Effective Time it shall cause the distribution to holders of record of
Company Common Stock as of the Effective Time appropriate materials to
facilitate such surrender, including (i) a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and (ii) instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender of Certificates for
cancellation to the Exchange Agent, together with such letter of transmittal
duly executed and any other required documents, the holder of such Certificates
shall be entitled to receive for each of the shares of Company Common Stock
represented by such Certificates the Merger Consideration and the Certificates
so surrendered shall forthwith be canceled. Until so surrendered, Certificates
shall represent solely the right to receive the Merger Consideration and any
cash in lieu of fractional shares of Parent Common Stock as contemplated by
Section 2.09 with respect to each of the shares contemplated thereby.
(c) If payment of the Merger Consideration in respect of canceled
Shares is to be made to a person other than the person in whose name a
surrendered Certificate or instrument is registered, it shall be a condition to
such payment that the Certificate or instrument so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes required by
reason of such payment in a name other than that of the registered holder of the
Certificate or instrument surrendered or shall have established to the
satisfaction of the Surviving Corporation that such tax either has been paid or
is not payable.
(d) At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed and there shall not be any
further registration
<PAGE>
10
of transfers of Shares thereafter on the records of the Company. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged for the Merger Consideration as provided in
Section 2.06(b). No interest shall accrue or be paid on any cash payable upon
the surrender of a Certificate or Certificates which immediately before the
Effective Time represented outstanding shares of Company Common Stock.
SECTION 2.09. No Fractional Shares. No Certificates or scrip
--------------------
representing less than one share of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates representing shares of Company Common
Stock pursuant to Section 2.06(b). In lieu of any such fractional share, each
holder of Shares who would otherwise have been entitled to a fraction of a share
of Parent Common Stock upon surrender of Certificates for exchange pursuant to
Section 2.06(b) shall be paid upon such surrender cash (without interest) in an
amount equal to such holder's proportionate interest in the net proceeds from
the sale or sales in the open market by the Exchange Agent, on behalf of all
such holders, of the aggregate fractional Parent Common Stock issued pursuant to
this Section 2.09. As soon as practicable following the Effective Time the
Exchange Agent shall determine the excess of (i) the number of full shares of
Parent Common Stock delivered to the Exchange Agent by Parent over (ii) the
aggregate number of full shares of Parent Common Stock to be distributed to
holders of Company Common Stock (such excess being herein called the "Excess
------
Shares"), and the Exchange Agent, as agent for the former holders of Company
- ------
Common Stock, shall sell the Excess Shares at the prevailing prices on the NYSE.
The sale of the Excess Shares by the Exchange Agent shall be executed on the
NYSE and shall be executed in round lots to the extent practicable. The
Exchange Agent shall deduct from the proceeds of the sale of the Excess Shares
all commissions, transfer taxes and other reasonable out-of-pocket transaction
costs, including any expenses of the Exchange Agent, incurred in connection with
such sale of Excess Shares. Until the net proceeds of such sale have been
distributed to the former stockholders of the Company, the Exchange Agent will
hold such proceeds in trust for such former stockholders. As soon as
practicable after the determination of the amount of cash to be paid to former
stockholders of the Company in lieu of any fractional interests, the Exchange
Agent shall make available in accordance with this Agreement such amounts to
such former stockholders.
SECTION 2.10. Stock Options; Deferred Stock. Immediately prior to
-----------------------------
the Effective Time, (a) each unexpired and unexercised option to purchase Shares
(each, a "Company Option"), under the Company's 1987 Stock Option Plan and 1994
--------------
Equity Participation Plan (collectively, the "Company Stock Option Plans"),
--------------------------
whether or not then exercisable, shall be cancelled by the Company, and each
holder of a cancelled Company Option shall be entitled to receive at the
Effective Time or as soon as practicable thereafter from the Company in
consideration for the cancellation of such Company Option an amount in cash
equal to the product of (i) the number of Shares previously subject to such
Company Option and (ii) the excess, if any, of the Per Share Cash Amount or, if
the election
<PAGE>
11
contemplated by Section 2.06(b)(i) has been made by Parent, $38.75, over the
exercise price per Share previously subject to such Company Option, and (b) each
outstanding unvested share of deferred stock under the Company's 1994 Equity
Participation Plan or otherwise identified on Schedule 4.03 (each, a "Deferred
------------- --------
Share") shall be cancelled by the Company, and each holder of a cancelled
- -----
Deferred Share shall be entitled to receive at the Effective Time or as soon as
practicable thereafter from the Company in consideration for the cancellation of
such Deferred Share an amount in cash equal to the Per Share Cash Amount or, if
the election contemplated by Section 2.06(b)(i) has been made by Parent, $38.75.
SECTION 2.11. Dividends; Transfer Taxes. No dividends or other
-------------------------
distributions that are declared or made on Parent Common Stock will be paid to
persons entitled to receive certificates representing Parent Common Stock
pursuant to this Agreement until such persons surrender their Certificates
representing Company Common Stock. Upon such surrender, there shall be paid to
the person in whose name the certificates representing such Parent Common Stock
shall be issued any dividends or other distributions that shall have become
payable with respect to such Parent Common Stock in respect of a record date
after the Effective Time. In no event shall the person entitled to receive such
dividends be entitled to receive interest on such dividends. Neither the
Exchange Agent nor any party hereto shall be liable to a holder of Shares for
any shares of Parent Common Stock or dividends thereon delivered to a public
official pursuant to any applicable escheat laws.
SECTION 2.12. Stockholders' Meetings. (a) The Company shall take
----------------------
all action necessary, in accordance with applicable law and its Articles of
Incorporation and Bylaws, to convene a special meeting of the holders of Shares
(the "Company Meeting") as promptly as practicable after consummation of the
---------------
Offer for the purpose of considering and taking action upon this Agreement and
the Merger. The stockholder vote required for approval of the Merger will be no
greater than that set forth in Nevada Law. The Board of Directors of the
Company will recommend that holders of Shares vote in favor of and approve the
Merger. The Company will use its best efforts to solicit from stockholders of
the Company proxies in favor of the Merger and will take all other action
necessary or, in the reasonable opinion of Parent, advisable to secure any vote
of stockholders required by Nevada Law to effect the Merger. At the Company
Meeting, all of the Shares then owned by Parent, Merger Sub, or any other
subsidiary of Parent, or with respect to which Parent, Merger Sub, or any other
subsidiary of Parent holds the power to direct the voting, will be voted in
favor of approval of the Merger and adoption of this Agreement.
(b) Parent shall take all action necessary, unless Parent has elected
the All Cash Component under Section 2.06(b)(i), in accordance with applicable
law and its Certificate of Incorporation and Bylaws, to convene a special
meeting of the holders of Parent Common Stock (the "Parent Meeting") as promptly
--------------
as practicable after consummation of the Offer for the purpose of considering
and taking action to (i) authorize the issuance of Parent Common Stock pursuant
to the Merger under the applicable guidelines of the NYSE
<PAGE>
12
(the "Parent Share Proposal") and (ii) authorize the increase of the authorized
---------------------
Parent Common Stock from 60,000,000 shares to no more than 80,000,000 shares or
such greater number of shares as shall be required to issue the Parent Common
Stock in the Merger. The Board of Directors of Parent will (i) recommend that
holders of Parent Common Stock vote in favor of and approve the Parent Share
Proposal at the Parent Meeting and (ii) recommend that holders of Parent Common
Stock vote in favor of and approve an amendment to its Certificate of
Incorporation increasing the authorized Parent Common Stock from 60,000,000
shares to no more than 80,000,000 shares or such greater number of shares as
shall be required to issue the Parent Common Stock in the Merger (the "Charter
-------
Amendment"). Parent will use its reasonable best efforts to solicit from
- ---------
stockholders of Parent proxies in favor of the Parent Share Proposal and the
Charter Amendment and will take all other action necessary or, in the reasonable
opinion of the Company, advisable to secure any vote of stockholders required by
Delaware Law to effect the Merger.
SECTION 2.13. Board Nominees; Assistance in Consummation of the
-------------------------------------------------
Merger. (a) Parent will nominate and use its best efforts to cause up to two
- ------
nominees of the Company designated in writing to Parent prior to the closing of
the Merger to be elected or appointed as members of the Board of Directors of
Parent.
(b) Each of Parent, Merger Sub and the Company shall provide all
reasonable assistance to, and shall cooperate with, each other to bring about
the consummation of the Offer and the Merger as soon as possible in accordance
with the terms and conditions of this Agreement. Parent shall cause Merger Sub
to perform all of its obligations in connection with this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Except as set forth on the Parent Disclosure Schedule previously
delivered by Parent to the Company (the "Parent Disclosure Schedule"), Parent
--------------------------
and Merger Sub hereby jointly and severally represent and warrant to the Company
as follows:
SECTION 3.01. Corporate Organization; Subsidiaries. Each of Parent
------------------------------------
and the Parent Subsidiaries (as defined below) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental authority to own, operate or lease the properties that it
purports to own, operate or lease and to carry on its business as it is now
being conducted, and is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned, operated or leased or the nature of its activities makes such
qualification necessary,
<PAGE>
13
except for such failure which, when taken together with all other such failures,
would not have a Material Adverse Effect (as defined below) on Parent and Merger
Sub. The term "Parent Subsidiary" means any corporation, partnership, joint
-----------------
venture or other legal entity of which Parent (either alone or through or
together with any other Parent Subsidiary) owns, directly or indirectly, 50% or
more of the stock or other equity interests, or owns, directly or indirectly,
interests such that the holders are generally entitled to vote for the election
of 50% of the board of directors or other governing body, of such corporation,
partnership, joint venture or other legal entity. When used in connection with
Parent and Merger Sub, the term "Material Adverse Effect" means any change or
-----------------------
effect, when taken together with all other adverse changes and effects relating
to Parent or Merger Sub, which are not individually or in the aggregate deemed
to have a Material Adverse Effect, that is or is reasonably likely to be
materially adverse to the business, operations, properties, condition (financial
or otherwise), assets or liabilities (including, without limitation, contingent
liabilities) of Parent and the Parent Subsidiaries taken as a whole; provided,
--------
however, that the occurrence of any or all of the following shall not constitute
- -------
a Material Adverse Effect: (i) any change in any law applicable to Parent or
any Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is bound, (ii) a failure to receive any contract for which Parent or
any Parent Subsidiary has submitted or will submit a competitive bid, (iii) the
loss of any contract or arrangement (whether by revocation, lapse or invalidity)
with respect to a project that Parent or a Parent Subsidiary has under
development other than any such loss resulting from a breach by Parent of the
representations and warranties set forth in Section 3.22 or 3.23 hereof, (iv) a
failure to close any public or private financing of any project in which Parent
or any Parent Subsidiary owns a direct or indirect interest or (v) the
termination of the employment of any employee, officer, director or consultant
of Parent or any Parent Subsidiary.
SECTION 3.02. Certificate of Incorporation and By-Laws. Parent has
----------------------------------------
heretofore furnished to the Company a complete and correct copy of Parent's and
Merger Sub's Certificates of Incorporation and By-Laws, each as amended to the
date hereof. Such Certificates of Incorporation and By-Laws are in full force
and effect. Neither Parent nor Merger Sub is in violation of any of the
provisions of its Certificate of Incorporation or By-laws or equivalent
organizational documents.
SECTION 3.03. Capitalization. As of the date hereof, the authorized
--------------
capital stock of Parent consists of 60,000,000 shares of Parent Common Stock and
1,000,000 shares of preferred stock ("Parent Preferred Stock"). As of September
----------------------
30, 1994, (i) 35,649,278 shares of Parent Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
3,816,686 shares of Parent Common Stock held in treasury, (ii) 1,247 shares of
Series C Redeemable Preferred Stock of Parent were outstanding and 3,529,252
shares of Parent Common Stock reserved for issuance upon conversion of such
shares of Series C Redeemable Preferred Stock, (iii) there were 3,541,166 shares
of Parent Common Stock reserved for issuance pursuant to options granted
<PAGE>
14
under Parent's 1986 Stock Option Plan (the "Parent Stock Option Plan"), (iv)
------------------------
there were 6,064,154 shares of Parent Common Stock reserved for issuance under
options other than those granted under the Parent Stock Option Plan, and (v)
4,444,444 shares of Parent Common Stock reserved for issuance pursuant to the 5%
Convertible Subordinated Debentures due July 31, 2000 of Parent . There has
been no material change in the capitalization of Parent since September 30,
1994. All of the outstanding shares of Parent Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights or other similar obligations. Except as set forth in this
Section 3.03 or on Schedule 3.03, there are not, as of the date hereof, any
-------------
outstanding or authorized subscriptions, options, warrants, convertible
securities, calls, rights, commitments to issue or any other agreements of any
character relating to the issued or unissued capital stock or other securities
of Parent to which Parent is party or by which Parent is bound obligating Parent
to issue, deliver, or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Parent or obligating Parent to grant, extend or enter
into any subscription, option, warrant, call, right, commitment or other such
agreement. All the outstanding capital stock or partnership or other equity
interest of each of the Parent Subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and, except as disclosed on Schedule 3.01, is owned
-------------
by Parent or a Parent Subsidiary free and clear of any liens, security
interests, pledges, agreements, claims, charges or encumbrances of any nature
whatsoever. There are no existing options, calls or commitments of any
character relating to the issued or unissued capital stock or other securities
of any Parent Subsidiary. Except for the Parent Subsidiaries and except as
previously disclosed in the Parent SEC Reports (as defined below), Parent does
not directly or indirectly own a 50% or greater equity interest in any other
corporation, partnership, joint venture or other business association or entity.
SECTION 3.04. Authority Relative to this Agreement. The execution
------------------------------------
and delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby (the
"Transactions") have been duly authorized by all necessary corporate action on
------------
the part of Parent and Merger Sub and by Parent as the sole stockholder of
Merger Sub, and no other corporate proceeding is necessary for the execution and
delivery of this Agreement by Parent or Merger Sub, the performance by Parent or
Merger Sub of their obligations hereunder and the consummation by Parent or
Merger Sub of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Parent and Merger Sub and constitutes a legal, valid
and binding obligation of each, enforceable against each of them in accordance
with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by Parent and Merger Sub do not, and
the performance of this Agreement by Parent and Merger Sub will not, (i)
conflict with or violate any law, regulation, court order, judgment or decree
applicable to Parent or any Parent Subsidiary or by which any of their property
is bound or affected, (ii) violate or conflict with either the Certificate of
Incorporation or By-Laws of either Parent or any Parent
<PAGE>
15
Subsidiary, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination or cancellation of, or result in the
creation of a lien or encumbrance on any of the property or assets of Parent or
any Parent Subsidiary pursuant to, any contract, instrument, permit, license or
franchise to which Parent or any Parent Subsidiary is a party or by which Parent
or any Parent Subsidiary or any of their property is bound or affected, except
in the case of (i) or (iii) for conflicts, violations, breaches or defaults
that, in the aggregate, would not have a Material Adverse Effect.
(b) Except for applicable requirements, if any, of the Securities Act
of 1933, as amended (the "Securities Act"), the Exchange Act, "blue sky" laws of
--------------
various states, the New York Stock Exchange, Inc. and filing and recordation of
appropriate merger documents as required by Delaware Law and Nevada Law, neither
Parent nor Merger Sub is required to submit any notice, report or other filing
with any governmental authority, domestic or foreign, in connection with the
execution, delivery or performance of this Agreement or the consummation of the
transactions contemplated hereby. Except as aforesaid, no waiver, consent,
approval or authorization of any governmental or regulatory authority, domestic
or foreign, is required to be obtained or made by either Parent or Merger Sub in
connection with its execution, delivery or performance of this Agreement.
SECTION 3.06. SEC Filings; Financial Statements. (a) Parent has
---------------------------------
filed all forms, reports and documents required to be filed with the SEC since
January 1, 1992, and has heretofore delivered (or made available) to the
Company, in the form filed with the SEC, its (i) Annual Reports on Form 10-K for
the fiscal years ended December 31, 1993 and December 31, 1992, respectively,
(ii) all proxy statements relating to the Company's meetings of stockholders
(whether annual or special) held since January 1, 1992, and (iii) all other
reports or registration statements (including Quarterly Reports on Form 10-Q)
filed by Parent with the SEC since January 1, 1992 (collectively, the "Parent
------
SEC Reports"). The Parent SEC Reports (i) were prepared in all material
- -----------
respects in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under that they were made, not
misleading. No Parent Subsidiary is required to file any statements or reports
with the SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act.
(b) The consolidated financial statements contained in the Parent SEC
Reports have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto) and fairly present the consolidated
financial position of Parent and the Parent Subsidiaries as at the respective
dates thereof and the consolidated results of operations and changes in
financial position of Parent and the Parent Subsidiaries for the
<PAGE>
16
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
(c) Except as reflected or reserved against in the consolidated
financial statements contained in the Parent SEC Reports, and except as set
forth on Schedule 3.06, Parent and the Parent Subsidiaries have no liabilities
-------------
of any nature (whether accrued, absolute, contingent or otherwise) that in the
aggregate could have a Material Adverse Effect or any bonds, debentures, notes,
letters of credit or other indebtedness (including guarantees) for any amount
greater than $1,000,000. Since September 30, 1994, neither Parent nor any of
the Parent Subsidiaries has incurred any liabilities material to Parent and the
Parent Subsidiaries taken as a whole, except (i) liabilities incurred in the
ordinary course of business and consistent with past practice, (ii) liabilities
incurred in connection with or as a result of the Offer or the Merger or (iii)
liabilities disclosed on Schedule 3.06.
-------------
SECTION 3.07. Absence of Certain Changes or Events. Since September
------------------------------------
30, 1994, except as contemplated in this Agreement or as specifically disclosed
in the Parent SEC Reports or the Tender Offer Statement on Schedule 14D-1 that
was originally filed by Parent and Merger Sub with the SEC on October 6, 1994
(as amended to the date hereof) (the "Previous 14D-1") or as appears on Schedule
-------------- --------
3.07, there has not been:
- ----
(a) any Material Adverse Effect;
(b) any redemption or other acquisition of Parent Common Stock by
Parent or any of the Parent Subsidiaries (other than pursuant to a plan of
repurchase under Rule 10b-18 of the Exchange Act) or any declaration or
payment of any dividend or other distribution in cash, stock or property
with respect to Parent Common Stock;
(c) any entry into any material commitment or transaction (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business or as contemplated by this Agreement; or
(d) any change by Parent in accounting principles or methods except
insofar as such change may have been required by a change in generally
accepted accounting principles and disclosed in the Parent SEC Reports.
Since September 30, 1994, except as disclosed on Schedule 3.07, the Previous
-------------
14D-1 or in the Parent SEC Reports, Parent and the Parent Subsidiaries have
conducted their business only in the ordinary course and in a manner consistent
with past practice and have not made any material change in the conduct of the
business or operations of Parent and the Parent Subsidiaries taken as a whole.
<PAGE>
17
SECTION 3.08. Title to Property. Parent and the Parent Subsidiaries
-----------------
have good and marketable title, or valid leasehold rights in the case of leased
property, to all real property and all personal property purported to be owned
or leased by them, except where the failure to have such title or rights would
not have a Material Adverse Effect.
SECTION 3.09. Litigation. Except as disclosed in the Parent SEC
----------
Reports, the Previous 14D-1, or as disclosed on Schedule 3.09, there are no
-------------
claims, actions, suits, proceedings or investigations pending or, to the best
knowledge of Parent, threatened against Parent or any of the Parent
Subsidiaries, or any properties or rights of Parent or any of the Parent
Subsidiaries, before any court, administrative, governmental or regulatory
authority or body, domestic or foreign, which are reasonably likely, in the
aggregate, to have a Material Adverse Effect or would, and are reasonably likely
to, prevent or delay the performance of this Agreement. As of the date hereof,
neither Parent nor any of the Parent Subsidiaries nor any of their property is
subject to any order, judgment, injunction or decree having a Material Adverse
Effect.
SECTION 3.10. Financing Arrangements. Parent and Merger Sub have
----------------------
obtained a commitment letter from Credit Suisse with respect to the financing
for the Offer and the Merger (the "Commitment Letter"). The Commitment Letter
-----------------
is in full force and effect on the date of this Agreement, and Parent and Merger
Sub know of no reason why the financing contemplated by the Commitment Letter
will not be consummated in accordance with its terms.
SECTION 3.11. No Prior Activities. Except for obligations or
-------------------
liabilities incurred in connection with its incorporation or organization or the
negotiation and consummation of this Agreement and the transactions contemplated
hereby (including any financing), Merger Sub has not incurred any obligations or
liabilities, and has not engaged in any business or activities of any type or
kind whatsoever or entered into any agreements or arrangements with any person
or entity.
SECTION 3.12. Brokers. No broker, finder or investment banker (other
-------
than Gleacher & Co. Inc. ("Gleacher") and Lehman Brothers Inc. ("Lehman
-------- ------
Brothers")) is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of Parent or Merger Sub.
SECTION 3.13. Information in Disclosure Documents; Registration
-------------------------------------------------
Statement; Etc. None of the information supplied by Parent or Merger Sub for
- ---------------
inclusion in (i) the Registration Statement to be filed with the SEC by Parent
on Form S-4 under the Securities Act for the purpose of registering the shares
of Parent Common Stock to be issued in the Merger (the "Registration Statement")
----------------------
and (ii) the joint prospectus/proxy statement of the Company and Parent (the
"Proxy Statement") required to be mailed to the stockholders of
- ----------------
<PAGE>
18
the Company and Parent in connection with the Merger will, in the case of the
Proxy Statement or any amendments or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the Parent Meeting to be held in connection with the Merger, or, in
the case of the Registration Statement, at the time it becomes effective and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act, and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the provisions of the Exchange Act and the rules
and regulations thereunder.
SECTION 3.14. Conduct of Business. Except as disclosed in Schedule
------------------- --------
3.14 hereto, the business of Parent and each of the Parent Subsidiaries is not
- ----
being conducted in default or violation of any term, condition or provision of
(i) its respective Articles of Incorporation or Bylaws or similar organizational
documents, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease or other instrument or agreement of any kind to which Parent or any of the
Parent Subsidiaries is now a party or by which Parent or any of the Parent
Subsidiaries or any of their respective properties or assets may be bound, or
(iii) any Federal, state, local or foreign statute, law, ordinance, rule,
regulation, judgment, decree, order, concession, grant, franchise, permit or
license or other governmental authorization or approval applicable to Parent or
any of the Parent Subsidiaries, except, with respect to the foregoing clauses
(ii) and (iii), defaults or violations that would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.15. Environment. (a) As used herein, the term
-----------
"Environmental Laws" means all Federal, state, local or foreign laws relating to
- -------------------
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or
industrial, toxic or hazardous substances or wastes into the environment, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of chemicals, pollutants, contaminants,
or industrial, toxic or hazardous substances or wastes, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(b) Except as disclosed on Schedule 3.15 hereto, to the knowledge of
-------------
Parent there are, with respect to Parent or any of the Parent Subsidiaries, or
any real property currently or formerly owned, leased, or otherwise used by
Parent or any of the Parent Subsidiaries, no past or present violations of
Environmental Laws, releases of any material into the environment, actions,
activities, circumstances, conditions, events,
<PAGE>
19
incidents, or contractual obligations which may give rise to any common law or
other legal liability, including, without limitation, liability under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA") or similar state or local laws, which liabilities, either
- --------
individually or in the aggregate, would have a Material Adverse Effect.
SECTION 3.16. Energy Regulatory Status. (a) Each of the operational
------------------------
electric generation facilities ("Plants") owned in whole or part, directly or
------
indirectly by: (i) Parent, or (ii) any legal entity in which Parent directly or
indirectly owns more than 50% of the voting stock or other equity interest,
including any partnership in which Parent has an interest, is a "qualifying
small power production facility" ("Small Power QF"), as such term is defined in
--------------
the Federal Power Act, as amended ("FPA"), and the regulations thereunder, and
---
has continuously been in compliance with the requirements for being a Small
Power QF since it commenced sales of electricity.
(b) The owner of each of the Plants under development by Parent or any
Parent Subsidiary and located in the United States will, no later than the date
operations commence, either qualify as a "qualifying small power producer" or an
"exempt wholesale generator" ("EWOG"), as such terms are defined in FPA, the
----
regulations under the FPA, and the Public Utility Holding Company Act of 1935,
as amended ("PUHCA").
-----
(c) The owner of each of the Plants under development by Parent or any
Parent Subsidiary and located outside the United States will, no later than the
date operations commence, either qualify as an EWOG or a "foreign utility
company", as such term is defined under PUHCA and the regulations thereunder.
(d) Neither Parent nor any "affiliate" of Parent is a "public utility
company" or a "public utility holding company", as such terms are defined in
PUHCA and the regulations thereunder, a "public utility" as defined in the FPA
and the regulations thereunder, or subject to regulations by any state public
utilities commission or similar state regulatory body.
(e) Each of the Plants obtained any necessary certificates or permits
from state regulatory authorities for construction of each of the operational
Plants and associated transmission equipment owned by the owners of such Plant,
and each other entity constructing, owning or operating any of the foregoing has
obtained each required certificate or permit.
SECTION 3.17. Employee Benefit Plans; Labor Matters. (a) With
-------------------------------------
respect to each U.S. or foreign employee benefit plan, program, arrangement and
contract (including, without limitation, any "employee benefit plan", as defined
---------------------
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) and any executive
-----
<PAGE>
20
compensation arrangement, whether or not funded, maintained or contributed to by
Parent or any Parent Subsidiary, or with respect to which Parent or any Parent
Subsidiary could incur liability under Section 4069, 4212(c) or 4204 of ERISA,
as well as any employee benefit plan that is subject to Section 412 of the Code
or Title IV of ERISA and which is maintained or contributed to by any other
trade or business (whether or not incorporated) which is treated as a single
employer with Parent under Section 414(b), (c), (m) or (o) of the Code (each
such trade or business being referred to herein as a "Code Affiliate") (the
--------------
"Parent Benefit Plans"), Parent has made available to the Company a true and
- ---------------------
correct copy of (i) the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), (ii) such Parent Benefit Plan, (iii) each
---
trust agreement relating to such Parent Benefit Plan, (iv) the most recent
summary plan description for each Parent Benefit Plan for which a summary plan
description is required, (v) the most recent actuarial report or valuation
relating to a Parent Benefit Plan subject to Title IV of ERISA, if any, (vi) the
most recent determination letter, if any, issued by the IRS with respect to any
Parent Benefit Plan qualified under Section 401(a) of the Code and (vii) the
most recent annual and periodic accounting of related plan assets, if any.
(b) With respect to the Parent Benefit Plans, no event has occurred
and, to the knowledge of Parent, there exists no condition or set of
circumstances, in connection with which Parent or any Parent Subsidiary could be
subject to any liability under the terms of such Parent Benefit Plans, ERISA,
the Code or any other applicable Law which would have a Material Adverse Effect.
No claim has been asserted or, to the knowledge of Parent, threatened, by the
IRS, the Department of Labor or any participant of a Parent Benefit Plan that
Parent or any Parent Subsidiary has, with respect to any Parent Benefit Plan,
engaged in or been a party to any "prohibited transaction," as such term is
defined in Section 4975 of the Code and Section 406 of ERISA, which would result
in the imposition of either a penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by section 4975 of the Code, in each case applicable to
Parent, any Parent Subsidiary or any Parent Benefit Plan. Each Parent Benefit
Plan intended to qualify under Section 401(a) of the Code does so qualify, and
the trusts created thereunder are exempt from tax under Section 501(a) of the
Code, and each such Parent Benefit Plan will be amended in the manner required
by the Code by December 31, 1994, and has been or will be submitted to the IRS
on or prior to March 31, 1995 for a determination letter confirming that such
Parent Benefit Plan meets the currently applicable requirements for
qualification and exemption from taxation under Section 401(a) and 501(a) of the
Code. No Parent Benefit Plan has plan assets invested in any insurance company
which is or has been in insolvency proceedings within the last 3 years. No
Parent Benefit Plan subject to Section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in ERISA), whether or not waived.
Neither Parent nor any of the Parent Subsidiaries or Code Affiliates has at any
time since 1987 maintained or contributed to any Parent Benefit Plan, including
without limitation any "multiemployer plan" (as defined in Section 3(37) of
ERISA), which (i) is a "defined benefit plan" (as defined in Section 414(j) of
the Code) or (ii) is subject to Title IV of ERISA.
<PAGE>
21
(c) Except as set forth in Schedule 3.17, neither Parent nor any
-------------
Parent Subsidiary is a party to any collective bargaining or other labor union
contract applicable to persons employed by Parent or any Parent Subsidiary, no
collective bargaining agreement is being negotiated by Parent or any Parent
Subsidiary and neither Parent nor any Parent Subsidiary knows of any activities
or proceedings of any labor union to organize any of their respective employees.
As of the date hereof, (i) Parent and all of the Parent Subsidiaries are in
compliance in all material respects with all applicable laws relating to
employment and employment practices, wages, hours, and terms and conditions of
employment, (ii) there are no material charges with respect to or relating to
Parent or any of the Parent Subsidiaries pending before the Equal Employment
Opportunity Commission or any state, local or foreign agency responsible for the
prevention of unlawful employment practices, and (iii) there is no labor
dispute, strike or work stoppage against Parent or any Parent Subsidiary pending
or, to Parent's knowledge, threatened which may interfere with the respective
business activities of Parent or the Parent Subsidiaries, except where such non-
compliance, charge, dispute, strike or work stoppage would not have a Material
Adverse Effect. As of the date hereof, to the knowledge of Parent, none of
Parent or any Parent Subsidiary, or their respective representatives or
employees, has committed any unfair labor practices in connection with the
operation of the respective businesses of Parent or the Parent Subsidiaries, and
there is no charge or complaint against Parent or the Parent Subsidiaries by the
National Labor Relations Board or any comparable state agency pending or
threatened in writing, except where such unfair labor practice, charge or
complaint would not have a Material Adverse Effect.
SECTION 3.18. Insurance. The insurance policies in force at the date
---------
hereof, with respect to the assets, properties or operations of each of Parent
and the Parent Subsidiaries are set forth on Schedule 3.18 and are in full force
-------------
and effect with reputable insurers in such amounts and insure against such
losses and risks (including product liability) as are customary to protect the
properties and business of each of Parent and Parent Subsidiaries.
SECTION 3.19. Taxes. (a) Except as set forth in Schedule 3.19, and
----- -------------
except as would not, either individually or in the aggregate, have a Material
Adverse Effect, (i) Parent and each of the Parent Subsidiaries have timely filed
with the appropriate governmental authorities all Tax Returns (as defined below)
required to be filed by or with respect to the Company and each of the
Subsidiaries or their respective operations or assets, and such Tax Returns are
true, correct and complete in all material respects and (ii) all Taxes (as
defined below) shown to be due on such Tax Returns, all Taxes required to be
paid on an estimated or installment basis, and all Taxes required to be withheld
with respect to the Parent or any of the Parent Subsidiaries or their respective
operations or assets have been timely paid or, if applicable, withheld and paid
to the appropriate taxing authority in the manner provided by law, except in
each case for such Taxes which are not material in the aggregate.
<PAGE>
22
(b) Neither Parent nor any of the Parent Subsidiaries has filed a
consent to the application of Section 341(f) of the Code.
(c) No indebtedness of the Parent or any of the Parent Subsidiaries is
"corporate acquisition indebtedness" within the meaning of Section 279(b) of the
Code.
(d) For purposes of this Agreement, "Taxes" means all taxes, charges,
-----
fees, levies or other assessments imposed by any United States Federal, state,
or local taxing authority or by any foreign taxing authority, including, but not
limited to, income, gross receipts, excise, property, sales, use transfer,
payroll, license, ad valorem, value added, withholding, social security,
license, ad valorem, value added, withholding, social security, national
insurance (or other similar contributions or payments), franchises, estimated,
severance, stamp, and other taxes (including any interest, fines, penalties or
additions attributable to or imposed on or with respect to any such taxes,
charges, fees, levies or other assessments).
(e) For purposes of this Agreement, "Tax Return" means any return,
----------
report, information return or other document (including any related or
supporting information and, where applicable, profit and loss accounts and
balance sheets) with respect to Taxes.
SECTION 3.20. Trademarks, Licenses, Patents and Copyrights. Except
--------------------------------------------
as set forth on Schedule 3.20, Parent or the Parent Subsidiaries own or possess
-------------
adequate licenses or other valid rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights and proprietary
information used or held for use in connection with, and material to, its
business as currently being conducted and are unaware of any assertions or
claims challenging the validity of any of the foregoing which are reasonably
likely to have a Material Adverse Effect; and, to the best knowledge of Parent,
the conduct of Parent's business as now conducted or proposed to be conducted
does not and will not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others known to the Parent or the Parent Subsidiaries in any way reasonably
likely to have a Material Adverse Effect. No material infringement of any
proprietary right owned by or licensed by or to Parent or any of the Parent
Subsidiaries is known to Parent or any Parent Subsidiary which is reasonably
likely to have a Material Adverse Effect.
SECTION 3.21. Related Party Transactions. Except as is set forth in
--------------------------
the Parent SEC Reports and the Previous 14D-1, to the knowledge of Parent,
Schedule 3.21 sets forth the material transactions since September 1, 1994
- -------------
between Parent and the Parent Subsidiaries on the one hand, and (i) an officer
or director of Parent or any of the Parent Subsidiaries, (ii) a record or
beneficial owner of five percent (5%) or more of the Parent Common Stock, or
(iii) an affiliate of any such officer, director or beneficial owner, on the
<PAGE>
23
other hand, other than payment of compensation for services rendered to the
Parent and the Parent Subsidiaries in the ordinary course of business.
SECTION 3.22. Status of Development and Construction Projects. To
-----------------------------------------------
Parent's knowledge, except as specifically disclosed on Schedule 3.22, the
-------------
following statements, as applicable, are true and correct as of the date hereof,
with respect to each of the following development and construction projects:
Upper Mahiao 120 MW and Mahanagdong 180 MW:
(i) There is no pending or threatened revocation or loss of such project
award, whether as a result of government action or otherwise;
(ii) The executed power sales contract and construction contract for such
project is in full force and effect and there is no oral or written threat
to its validity, whether as a result of government action or otherwise;
(iii) For any project with an executed construction contract, the
estimated total capital cost for construction of such project (without
well-field development expenses), including any existing or expected change
orders, is set forth on Schedule 3.22;
-------------
(iv) The joint venture or partnership or similar agreements with local
partners or contractors are in full force and effect and the Parent's
percentage equity ownership pursuant to such contracts are as set forth on
Schedule 3.22, and there is no threat of loss or invalidity to such
-------------
contracts, whether as a result of consummating this transaction or
otherwise;
(v) The status of the financing and political risk insurance arrangements
for each such project is set forth on Schedule 3.22; and
-------------
(vi) Parent has not taken any actions which violate the Foreign Corrupt
Practices Act ("FCPA") and is not aware of any actions taken by foreign
----
Parent Subsidiaries or local partners which if taken by a U.S. company
would constitute a violation of the FCPA.
SECTION 3.23. Status of Operating Projects. To Parent's knowledge,
----------------------------
as of the date hereof, with respect to each operating project, except as set
forth on Schedule 3.23:
-------------
(i) Parent is not aware of any event or occurrence which would create a
material impairment to the operating performance or a material increase in
operating expenses or material non-compliance with regulatory or
contractual requirements;
<PAGE>
24
(ii) Parent and any of the Parent Subsidiaries or joint ventures has not
changed in any material adverse respect such project's operating,
maintenance reserves or procedures; and
(iii) Parent is not aware of any events which, with lapse of time or
otherwise could reasonably be expected to result in a material impairment
to the project's operating performance or a material increase in operating
expenses or material non-compliance with regulatory or contractual
requirements.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Company Disclosure Schedule previously
delivered by the Company to Parent (the "Company Disclosure Schedule"), the
---------------------------
Company hereby represents and warrants to Parent and Merger Sub as follows:
SECTION 4.01. Corporate Organization; Subsidiaries. Each of the
------------------------------------
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and any material necessary
governmental authority to own, operate or lease the properties that it purports
to own, operate or lease and to carry on its business as it is now being
conducted, and is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned, operated or leased or the nature of its activities makes such
qualification necessary, except for such failure which, when taken together with
all other such failures, would not have a Material Adverse Effect (as defined
below) on the Company. The term "Subsidiary" means any corporation,
----------
partnership, joint venture or other legal entity of which the Company or, if the
context requires, the Surviving Corporation (either alone or through or together
with any other Subsidiary) owns, directly or indirectly, 50% or more of the
stock or other equity interests, or owns, directly or indirectly, interests such
that the holders are generally entitled to vote for the election of 50% of the
board of directors or other governing body, of such corporation, partnership,
joint venture or other legal entity. When used in connection with the Company
or any of its Subsidiaries, the term "Material Adverse Effect" means any change
-----------------------
or effect, when taken together with all other adverse changes and effects
relating to the Company and its Subsidiaries, that is or is reasonably likely to
be materially adverse to the business, operations, properties, condition
(financial or otherwise), assets or liabilities (including, without limitation,
contingent liabilities) of the Company and the Subsidiaries taken as a whole;
provided, however, that the occurrence of any or all of the following shall not
- -------- -------
constitute a Material Adverse Effect: (i) any change in any law applicable to
the Company or any Subsidiary or by which any property or asset of the Company
or any
<PAGE>
25
Subsidiary is bound, (ii) a failure to receive any contract or award for which
the Company or any Subsidiary has submitted or will submit a competitive bid,
(iii) the loss of any contract or arrangement (whether by revocation, lapse or
invalidity) with respect to a project that the Company or any Subsidiary has
under development, other than any such loss related to the Malitbog project or
Fish Lake project and other than any such loss resulting from a breach by the
Company of the representations and warranties set forth in Sections 4.22 and
4.23 hereof, (iv) an unfavorable ruling by the California Public Utilities
Commission with respect to the Company's California plants under the pending
Biennial Resource Plan Update, (v) a loss of, or unfavorable ruling in, the
Company's pending litigation against Southern California Edison Company, but
only insofar as such litigation seeks to increase the energy price payable for
deliveries over nameplate capacity and not insofar as any unfavorable ruling
affects the validity or enforceability of any contract subject thereto or the
enforceability of any material term thereof, (vi) a failure to close any public
or private financing of any project in which the Company or any Subsidiary owns
a direct or indirect interest (other than as a result of a loss with respect to
the Malitbog project or the Fish Lake project or as a result of a breach by the
Company of the representation and warranties set forth in Section 4.22 or 4.23
hereof), or (vii) the termination of the employment of any employee, officer,
director or consultant of the Company or any Subsidiary. A true and complete
list of all the Subsidiaries, together with the jurisdiction of incorporation or
formation of each Subsidiary is set forth in Schedule 4.01 hereto.
-------------
SECTION 4.02. Articles of Incorporation and Bylaws. The Company has
------------------------------------
heretofore furnished to Parent a complete and correct copy of the Articles of
Incorporation and Bylaws or equivalent organizational documents, each as amended
to the date hereof, of the Company, and the Company has made available to Parent
such documents with respect to all Subsidiaries. Such Articles of
Incorporation, Bylaws and equivalent organizational documents are in full force
and effect. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents.
SECTION 4.03. Capitalization. As of the date hereof, the authorized
--------------
capital stock of the Company consists of 30,000,000 shares of Company Common
Stock and 1,000,000 shares of preferred stock ("Company Preferred Stock"). As
-----------------------
of September 30, 1994, 24,042,915 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable, and
no shares of Company Preferred Stock were outstanding. As of December 1, 1994,
there were 582,478 shares of Company Common Stock reserved for issuance pursuant
to options and deferred stock awards granted under the Stock Option Plans or
otherwise identified on Schedule 4.03, and there were 996,943 shares of Company
-------------
Common Stock reserved for future issuance under the Stock Option Plans. There
have been no material changes in the capitalization of the Company since
September 30, 1994. Schedule 4.03 separately identifies as of December 1, 1994
-------------
the option holders, the number of shares subject to each option held, the
exercise
<PAGE>
26
prices, vesting schedules and expiration dates of the outstanding options
granted under the Stock Option Plans. All of the outstanding shares of Company
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights or other similar obligations.
Except as set forth in this Section 4.03 or on Schedule 4.03, there are not, as
-------------
of the date hereof, any outstanding or authorized subscriptions, options,
warrants, convertible securities, calls, rights, commitments to issue or any
other agreements of any character relating to the issued or unissued capital
stock or other securities of the Company to which the Company is party or by
which the Company is bound obligating the Company to issue, deliver, or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of the
Company or obligating the Company to grant, extend or enter into any
subscription, option, warrant, call, right, commitment or other such agreement.
All the outstanding capital stock or partnership or other equity interest of
each of the Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and, except as disclosed on Schedule 4.01, is owned by the Company
-------------
or a Subsidiary free and clear of any liens, security interests, pledges,
agreements, claims, charges or encumbrances of any nature whatsoever. There are
no existing options, calls or commitments of any character relating to the
issued or unissued capital stock or other securities of any Subsidiary. Except
for the Subsidiaries and except as previously disclosed to Parent on the
Disclosure Schedule and in the Company SEC Reports (as defined below), the
Company does not directly or indirectly own a 50% or greater equity interest in
any other corporation, partnership, joint venture or other business association
or entity.
SECTION 4.04. Authority Relative to this Agreement. The Company has
------------------------------------
the necessary corporate power and authority to enter into this Agreement and,
subject to obtaining any necessary stockholder approval of the Merger, to carry
out its obligations hereunder. The execution and delivery of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company, subject to the approval of the Merger by the Company's
stockholders in accordance with Nevada Law. This Agreement has been duly
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate any law, regulation, court order, judgment or decree applicable to the
Company or any of the Subsidiaries or by which its or any of their property is
bound or affected, (ii) violate or conflict with the Certificate of
Incorporation or Bylaws or equivalent organizational documents of the Company or
any Subsidiary, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination or cancellation of, or result in the
creation of a lien or
<PAGE>
27
encumbrance on any of the properties or assets of the Company or any of the
Subsidiaries pursuant to, any contract, instrument, permit, license or franchise
to which the Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries or its or any of their property is bound or
affected, except as set forth on Schedule 4.05 and except in the case of (i) or
-------------
(iii) for conflicts, violations, breaches or defaults which, in the aggregate,
would not have a Material Adverse Effect.
(b) Except for applicable requirements, if any, of the Exchange Act
and filing and recordation of appropriate merger or other documents as required
by Nevada Law, and except for any notice, filings, authorizations, consents or
approvals which are required because of the regulatory status of the Company or
any of its Subsidiaries or facts specifically applicable to them, and except as
set forth on Schedule 4.05, the Company is not required to submit any notice,
-------------
report or other filing with any governmental authority, domestic or foreign, in
connection with the execution, delivery or performance of this Agreement.
Except as aforesaid, no waiver, consent, approval or authorization of any
governmental or regulatory authority, domestic or foreign, is required to be
obtained or made by the Company in connection with its execution, delivery or
performance of this Agreement.
SECTION 4.06. SEC Filings; Financial Statements. (a) The Company
---------------------------------
has filed all forms, reports and documents required to be filed with the SEC
since January 1, 1992, and has heretofore delivered (or made available) to
Parent, in the form filed with the SEC, its (i) Annual Reports on Form 10-K for
the fiscal years ended December 31, 1993 and December 31, 1992, respectively,
(ii) all proxy statements relating to the Company's meetings of stockholders
(whether annual or special) held since January 1, 1992, and (iii) all other
reports or registration statements (including Quarterly Reports on Form 10-Q)
filed by the Company with the SEC since January 1, 1992 (collectively, the
"Company SEC Reports"). The Company SEC Reports (i) were prepared in all
- --------------------
material respects in accordance with the requirements of the Securities Act, or
the Exchange Act, as the case may be and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. No Subsidiary is required to file any statements or
reports with the SEC pursuant to Sections 13(a) or 15(d) of the Exchange Act.
(b) The consolidated financial statements contained in the Company SEC
Reports have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its Subsidiaries as at the respective
dates thereof and the consolidated results of operations and changes in
financial position of the Company and its Subsidiaries for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal
<PAGE>
28
and recurring year-end adjustments which were not or are not expected to be
material in amount.
(c) Except as reflected or reserved against in the consolidated
financial statements contained in the Company SEC Reports, and except as set
forth on Schedule 4.06, the Company and its Subsidiaries have no liabilities of
-------------
any nature (whether accrued, absolute, contingent or otherwise) which in the
aggregate could have a Material Adverse Effect or any bonds, debentures, notes,
letters of credit or other indebtedness (including guarantees) for any amount
greater than $1,000,000. Since September 30, 1994, neither the Company nor any
of the Subsidiaries has incurred any liabilities material to the Company and the
Subsidiaries taken as a whole, except (i) liabilities incurred in the ordinary
course of business and consistent with past practice, (ii) liabilities incurred
in connection with or as a result of the Offer or the Merger or (iii)
liabilities disclosed on Schedule 4.06.
-------------
SECTION 4.07. Absence of Certain Changes or Events. Since September
------------------------------------
30, 1994, except as contemplated in this Agreement or as specifically disclosed
in the Company SEC Reports or the Tender Offer Solicitation/Recommendation
Statement on Schedule 14D-9 that was originally filed by the Company with the
SEC on October 11, 1994 with respect to Parent's previous tender offer (as
amended to the date hereof) (the "Previous 14D-9"), or as appears on Schedule
-------------- --------
4.07, there has not been:
- ----
(a) any Material Adverse Effect;
(b) any redemption or other acquisition of Company Common Stock by the
Company or any of the Subsidiaries or any declaration or payment of any
dividend or other distribution in cash, stock or property with respect to
Company Common Stock;
(c) any entry into any material commitment or transaction (including,
without limitation, any borrowing or capital expenditure) other than in the
ordinary course of business or as contemplated by this Agreement;
(d) any transfer of, or rights granted under, any material leases,
licenses, agreements, patents, trademarks, trade names or copyrights other
than those transferred or granted in the ordinary course of business and
consistent with past practice;
(e) any mortgage, pledge, security interest or imposition of lien or
other encumbrance on any asset of the Company or any of the Subsidiaries
that when viewed in the aggregate with all such other encumbrances is
material to the business, financial condition or operations of the Company
and the Subsidiaries taken as a whole; or
<PAGE>
29
(f) any change by the Company in accounting principles or methods
except insofar as such change may have been required by a change in
generally accepted accounting principles and disclosed in the Company SEC
Reports.
Since September 30, 1994, except as disclosed on Schedule 4.07, in the Company
-------------
SEC Reports or the Previous 14D-9, the Company and its Subsidiaries have
conducted their business only in the ordinary course and in a manner consistent
with past practice and have not made any material change in the conduct of the
business or operations of the Company and its Subsidiaries taken as a whole.
Without limiting the generality of the foregoing, the Company has not, since
such date, except for the contracts referred to in the Company SEC Reports or as
disclosed on Schedule 4.07 or in the Previous 14D-9, made any changes in
-------------
executive compensation levels (other than increases in the ordinary course of
business and consistent with past practice) or in the manner in which other
employees of the Company or the Subsidiaries are compensated, paid or agreed to
pay any pension, retirement allowance or other employee benefit not required or
permitted by the terms of any plan, agreement or arrangement existing on such
date to any director, officer or employee, whether past or present, or committed
itself to any collective bargaining agreement (except for renewals of existing
collective bargaining agreements) or to any additional pension, profit-sharing,
bonus, incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or to any employment or consulting
agreement with or for the benefit of any person, or to amend any of such plans
or any of such agreements in existence on such date.
SECTION 4.08. Title to Property. The Company and its Subsidiaries
-----------------
have good and marketable title, or valid leasehold rights in the case of leased
property, to all real property and all personal property purported to be owned
or leased by them, except where the failure to have such title or right would
not have a Material Adverse Effect. There are no material mechanics',
materialmen's, laborers', employees', suppliers' or other liens arising by
operation of law on any of the Company's properties.
SECTION 4.09. Litigation. Except as disclosed in the Company SEC
----------
Reports, the Previous 14D-9 or as disclosed on Schedule 4.09, there are no
-------------
claims, actions, suits, proceedings or investigations pending or, to the best
knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or any properties or rights of the Company or any of its
Subsidiaries, before any court, administrative, governmental or regulatory
authority or body, domestic or foreign, which are reasonably likely, in the
aggregate, to have a Material Adverse Effect or would, and are reasonably likely
to, prevent or delay the performance of this Agreement. As of the date hereof,
neither the Company nor any of its Subsidiaries nor any of their property is
subject to any order, judgment, injunction or decree, having a Material Adverse
Effect.
<PAGE>
30
SECTION 4.10. Information in Disclosure Documents. None of the
-----------------------------------
information with respect to the Company or its Subsidiaries to be included or
incorporated by reference in the Proxy Statement or the Registration Statement
will, in the case of the Proxy Statement or any amendments or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments or
supplements thereto, and at the time of the Company Meeting to be held in
connection with the Merger, or, in the case of the Registration Statement, at
the time it becomes effective and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
SECTION 4.11. Fairness Opinion. The Company has received the opinion
----------------
of Goldman Sachs, to the effect that the consideration to be received by the
Company's stockholders pursuant to the Offer and the Merger is fair to the
stockholders of the Company (other than Parent and its affiliates).
SECTION 4.12. Brokers. No broker, finder or investment banker (other
-------
than Goldman Sachs) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company. The Company has
heretofore furnished to Parent true and complete information concerning the
financial arrangements between the Company and Goldman Sachs, pursuant to which
such firm would be entitled to any payment as a result of the transactions
contemplated hereunder.
SECTION 4.13. Takeover Provisions Inapplicable; Rights Agreement
--------------------------------------------------
Amendment. (a) As of the date hereof and at all times on or prior to the
- ---------
Effective Time, Sections 78.378 through 78.3793, inclusive, and Sections 78.411
through 78.444, inclusive, of Nevada Law are, and shall be, inapplicable to the
Offer, the Merger and the transactions contemplated by this Agreement including,
without limitation, the pledge of the shares of Company Common Stock acquired in
the Offer to the lending institutions providing the financing for the Offer, and
the transfer of such shares upon the exercise of remedies under the applicable
agreements. The Company has heretofore delivered to Parent a complete and
correct copy of the resolutions of the Board of Directors of the Company to the
effect that such sections of Nevada Law are, and shall be, inapplicable to the
Offer, the Merger and the transactions contemplated by this Agreement.
(b) The Board of Directors of the Company has taken all necessary
action with respect to the Rights Agreement, such that none of the execution or
delivery of this Agreement, the purchase of Shares pursuant to the Offer, the
exchange of the Shares for the shares of Parent Common Stock and cash in
accordance with this Agreement or any transaction contemplated by this agreement
will cause (A) the rights (the "Rights") issued
<PAGE>
31
pursuant to the Rights Agreement to become exercisable under the Rights
Agreement, (B) Parent, Merger Sub and any of their associates or affiliates (as
such terms are defined in the Rights Agreement) to be deemed an "Acquiring
Person" (as defined in the Rights Agreement), or (C) the "Stock Acquisition
Date" or "Distribution Date" (as such terms are defined in the Rights Agreement)
to occur upon any such event.
SECTION 4.14. Conduct of Business. Except as disclosed in Schedule
------------------- --------
4.14 hereto, the business of the Company and each of the Subsidiaries is not
- ----
being conducted in default or violation of any term, condition or provision of
(i) its respective Articles of Incorporation or Bylaws or similar organizational
documents, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease or other instrument or agreement of any kind to which the Company or any
of the Subsidiaries is now a party or by which the Company or any of the
Subsidiaries or any of their respective properties or assets may be bound, or
(iii) any Federal, state, local or foreign statute, law, ordinance, rule,
regulation, judgment, decree, order, concession, grant, franchise, permit or
license or other governmental authorization or approval applicable to the
Company or any of the Subsidiaries, except, with respect to the foregoing
clauses (ii) and (iii), defaults or violations that would not, individually or
in the aggregate, have a Material Adverse Effect.
SECTION 4.15. Environment. Except as disclosed on Schedule 4.15
----------- -------------
hereto, to the knowledge of the Company, there are, with respect to the Company
or any of its Subsidiaries, or any real property currently or formerly owned,
leased, or otherwise used by the Company or any of its Subsidiaries, no past or
present violations of Environmental Laws, releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law or other legal
liability, including, without limitation, liability under CERCLA or similar
state or local laws, which liabilities, either individually or in the aggregate,
would have a Material Adverse Effect.
SECTION 4.16. Energy Regulatory Status. (a) Each of the Plants
------------------------
owned in whole or part, directly or indirectly by: (i) the Company or (ii) any
legal entity in which the Company directly or indirectly owns 50% or greater of
the voting stock or other equity interest, including any partnership in which
the Company has an interest, is a Small Power QF, as such term is defined in the
FPA, and the regulations thereunder, and has continuously been in compliance
with the requirements for being a Small Power QF since it commenced sales of
electricity.
(b) The owner of each of the Plants under development by the Company
or any Subsidiary and located in the United States will, no later than the date
operations commence, either qualify as a "qualifying small power producer" or an
EWOG, as such terms are defined in the FPA, the regulations under the FPA, and
the PUHCA.
<PAGE>
32
(c) The owner of each of the Plants under development by the Company
or any Subsidiary and located outside the United States will, no later than the
date operations commence, either qualify as an EWOG or a "foreign utility
company", as such term is defined under PUHCA and the regulations thereunder.
(d) Neither the Company nor any "affiliate" of the Company is a
"public utility company" or a "public utility holding company", as such terms
are defined in PUHCA and the regulations thereunder, a "public utility" as
defined in the FPA and the regulations thereunder, or subject to regulations by
any state public utilities commission or similar state regulatory body.
(e) Each of the Plants obtained any necessary certificates or permits
from state regulatory authorities for construction of each of the operational
Plants and associated transmission equipment owned by the owners of the Plant,
and each other entity constructing, owning or operating any of the foregoing has
obtained each required certificate or permit.
SECTION 4.17. Employee Benefit Plans; Labor Matters. (a) With
-------------------------------------
respect to each U.S. or foreign employee benefit plan, program, arrangement and
contract (including, without limitation, any "employee benefit plan", as defined
---------------------
in Section 3(3) of ERISA) and any executive compensation arrangement, whether or
not funded, maintained or contributed to by the Company or any of its
Subsidiaries, or with respect to which the Company or any of its Subsidiaries
could incur liability under Section 4069, 4212(c) or 4204 of ERISA, as well as
any employee benefit plan that is subject to Section 412 of the Code or Title IV
of ERISA and which is maintained or contributed to by any other trade or
business (whether or not incorporated) which is treated as a single employer
with the Company under Section 414(b), (c), (m) or (o) of the Code (each such
trade or business being referred to herein as a "Code Affiliate") (the "Company
-------------- -------
Benefit Plans"), the Company has made available to Parent a true and correct
- -------------
copy of (i) the most recent annual report (Form 5500) filed with the IRS, (ii)
such Company Benefit Plan, (iii) each trust agreement relating to such Company
Benefit Plan, (iv) the most recent summary plan description for each Company
Benefit Plan for which a summary plan description is required, (v) the most
recent actuarial report or valuation relating to a Company Benefit Plan subject
to Title IV of ERISA, if any, (vi) the most recent determination letter, if any,
issued by the IRS with respect to any Company Benefit Plan qualified under
Section 401(a) of the Code and (vii) the most recent annual and periodic
accounting of related plan assets, if any.
(b) With respect to the Company Benefit Plans, no event has occurred
and, to the knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company or any of its Subsidiaries
could be subject to any liability under the terms of such Company Benefit Plans,
ERISA, the Code or any other applicable Law which would have a Material Adverse
Effect. No claim has been asserted, or, to the knowledge of the Company,
threatened by the IRS, the Department of Labor or
<PAGE>
33
any participant of a Company Benefit Plan that the Company or any of the
Subsidiaries has, with respect to any Company Benefit Plan, engaged in or been a
party to any "prohibited transaction", as such term is defined in Section 4975
of the Code and Section 406 of ERISA, which could result in the imposition of
either a penalty assessed pursuant to Section 502 of ERISA or a tax imposed by
Section 4975 of the Code, in each case applicable to the Company, any Subsidiary
or any Company Benefit Plan. Each Company Benefit Plan intended to qualify
under Section 401(a) of the Code does so qualify, and the trusts created
thereunder are exempt from tax under Section 501(a) of the Code, and each such
Company Benefit Plan will be amended in the manner required by the Code by
December 31, 1994, and has been or will be submitted to the IRS on or prior to
March 31, 1995 for a determination letter confirming that such Company Benefit
Plan meets the currently applicable requirements for qualification and exemption
from taxation under Sections 401(a) and 501(a) of the Code. No Company Benefit
Plan has plan assets invested in any insurance company which is or has been in
insolvency proceedings within the last 3 years. No Company Benefit Plan subject
to Section 412 of the Code has incurred any "accumulated funding deficiency" (as
defined in ERISA), whether or not waived. Neither the Company nor any of its
Subsidiaries or Code Affiliates has at any time since 1987 maintained or
contributed to any Company Benefit Plan, including without limitation any
"multiemployer plan" (as defined in Section 3(37) of ERISA), which (i) is a
"defined benefit plan", (as defined in Section 414(j) of the Code) or (ii) is
subject to Title IV of ERISA.
(c) Except as set forth in Schedule 4.17, (i) neither the Company nor
-------------
any of its Subsidiaries is a party to any collective bargaining or other labor
union contract applicable to persons employed by the Company or its
Subsidiaries, (ii) no collective bargaining agreement is being negotiated by the
Company or any of its Subsidiaries and (iii) neither the Company nor any of its
Subsidiaries knows of any activities or proceedings of any labor union to
organize any of their respective employees. As of the date hereof, the Company
and all of its Subsidiaries are in compliance in all material respects with all
applicable laws relating to employment and employment practices, wages, hours,
and terms and conditions of employment, there are no material charges with
respect to or relating to the Company or any of its Subsidiaries pending before
the Equal Employment Opportunity Commission or any state, local or foreign
agency responsible for the prevention of unlawful employment practices, and
there is no labor dispute, strike or work stoppage against the Company or any of
its Subsidiaries pending or, to the Company's knowledge, threatened which may
interfere with the respective business activities of the Company or its
Subsidiaries, except where such noncompliance, charge, dispute, strike or work
stoppage would not have a Material Adverse Effect. As of the date hereof, to
the knowledge of the Company, none of the Company or any of its Subsidiaries, or
their respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective businesses of the
Company or its Subsidiaries, and there is no charge or complaint against the
Company or its Subsidiaries by the National Labor Relations Board or
<PAGE>
34
any comparable state agency pending or threatened in writing, except where such
unfair labor practice, charge or complaint would not have a Material Adverse
Effect.
(d) The Company has made available to Parent (i) copies of all
employment agreements with officers of the Company and its Subsidiaries; (ii)
copies of all severance agreements, programs and policies of the Company with or
relating to its employees; and (iii) copies of all plans, programs, agreements
and other arrangements of the Company with or relating to its employees which
contain change in control provisions (which plans, programs, agreements and
arrangements are set forth in Schedule 4.17 or have been disclosed in the
Company SEC Reports or the Previous 14D-9).
(e) Except as provided in Schedule 4.17 or as otherwise required by
-------------
Law, no Company Benefit Plan provides retiree medical or retiree life insurance
benefits to any person.
SECTION 4.18. Insurance. The insurance policies in force at the date
---------
hereof, with respect to the assets, properties or operations of each of the
Company and the Subsidiaries are set forth on Schedule 4.18 and are in full
-------------
force and effect with reputable insurers in such amounts and insure against such
losses and risks (including product liability) as are customary to protect the
properties and businesses of each of the Company and the Subsidiaries.
SECTION 4.19. Taxes. (a) Except as set forth in Schedule 4.19, and
----- -------------
except as would not, either individually or in the aggregate, have a Material
Adverse Effect, (i) the Company and each of the Subsidiaries have timely filed
with the appropriate governmental authorities all Tax Returns (as defined below)
required to be filed by or with respect to the Company and each of the
Subsidiaries or their respective operations or assets, and such Tax Returns are
true, correct and complete in all material respects and (ii) all Taxes shown to
be due on such Tax Returns and all Taxes required to be withheld with respect to
the Company or any of the Subsidiaries or their respective operations or assets
have been timely paid or, if applicable, withheld and paid to the appropriate
taxing authority in the manner provided by law, except in each case for such
Taxes which are not material in the aggregate.
(b) Neither the Company nor any of the Subsidiaries has filed a
consent to the application of Section 341(f) of the Code.
(c) Except as set forth on Schedule 4.19, no property of either of the
-------------
Company or any of the Subsidiaries is "tax exempt use property" within the
meaning of Section 168(h) of the Code or property that either of the Company or
any of the Subsidiaries will be required to treat as being owned by another
person pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended, in effect immediately before the enactment of the Tax Reform Act of
1986.
<PAGE>
35
SECTION 4.20. Trademarks, Licenses, Patents and Copyrights. Except
--------------------------------------------
as set forth on Schedule 4.20, the Company or the Subsidiaries own or possess
-------------
adequate licenses or other valid rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade name rights and proprietary
information used or held for use in connection with, and material to, its
business as currently being conducted and are unaware of any assertions or
claims challenging the validity of any of the foregoing which are reasonably
likely to have a Material Adverse Effect; and, to the best knowledge of the
Company, the conduct of the Company's business as now conducted or proposed to
be conducted does not and will not conflict with any patents, patent rights,
licenses, trademarks, trademark rights, trade names, trade name rights or
copyrights of others known to the Company or the Subsidiaries in any way
reasonably likely to have a Material Adverse Effect. No material infringement
of any proprietary right owned by or licensed by or to the Company or any of the
Subsidiaries is known to the Company or any Subsidiary which is reasonably
likely to have a Material Adverse Effect.
SECTION 4.21. Related Party Transactions. Except as is set forth in
--------------------------
the Company SEC Reports or in the Previous 14D-9, to the Company's knowledge,
Schedule 4.21 sets forth the material transaction since September 1, 1994
- -------------
between the Company and its Subsidiaries, on the one hand, and (i) an officer or
director of the Company or any of its Subsidiaries, (ii) a record or beneficial
owner of five percent (5%) or more of Company Common Stock, or (iii) an
affiliate of any such officer, director or beneficial owner, on the other hand,
other than payment of compensation for services rendered to the Company and its
Subsidiaries in the ordinary course of business.
SECTION 4.22. Status of Development and Construction Projects. To
-----------------------------------------------
the Company's knowledge, except as specifically disclosed on Schedule 4.22, the
following statements, as applicable, are true and correct as of the date hereof
with respect to each of the following development and construction projects:
(Malitbog 231 MW, Alto Peak 70 MW, Fish Lake 16 MW and 20MW Salton Sea Unit 1
expansion):
(i) There is no pending or threatened revocation or loss of such project
award, whether as a result of government action or otherwise;
(ii) The executed power sales contract and construction contract for such
project is in full force and effect and there is no oral or written threat
to its validity, whether as a result of government action or otherwise;
(iii) For any project with an executed construction contract, the
estimated total capital cost for construction of such project (without
well-field development expenses), including any existing or expected change
orders is set forth on Schedule 4.22;
-------------
<PAGE>
36
(iv) The joint venture or partnership or similar agreements with local
partners or contractors are in full force and effect, and the Company's
percentage equity ownership pursuant to such contracts is as set forth on
Schedule 4.22, and there is no threat of loss or invalidity to such
-------------
contracts, whether as a result of consummating this transaction or
otherwise;
(v) The status of the financing and political risk insurance arrangements
for each such project is set forth on Schedule 4.22; and
-------------
(vi) The Company has not taken any actions which violate the FCPA and is
not aware of any actions taken by foreign Subsidiaries or local partners
which if taken by a U.S. company would constitute a violation of the FCPA.
SECTION 4.23. Status of Operating Projects. With respect to each
----------------------------
operating project, except as set forth on Schedule 4.23:
-------------
(i) The Company is not aware of any event or occurrence which would
create a material impairment to the operating performance or a material
increase in operating expenses or material non-compliance with regulatory
or contractual requirements;
(ii) The Company and any of its Subsidiaries or joint ventures have not
changed in any material adverse respect such project's operating,
maintenance reserves or procedures; and
(iii) The Company is not aware of any events which, with lapse of time or
otherwise, could reasonably be expected to result in a material impairment
to the project's operating performance or a material increase in operating
expenses or material non-compliance with regulatory or contractual
requirements.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Acquisition Proposals. The Company will notify Parent
---------------------
immediately if any inquiries or proposals are received by, any information is
requested from, or any negotiations or discussions are sought to be initiated or
continued with the Company, in each case in connection with any acquisition,
business combination or purchase of all or any significant portion of the assets
of, or any equity interest in, the Company or any Subsidiary. The Company shall
provide a copy of any such written inquiries or proposals to Parent immediately
after receipt thereof and thereafter keep Parent and Merger Sub promptly advised
of any development with respect thereto.
<PAGE>
37
SECTION 5.02. Conduct of Business by the Parties Pending the Merger.
-----------------------------------------------------
(I) The Company covenants and agrees that, between the date of this Agreement
and the Effective Time, unless Parent shall otherwise consent in writing and
except as is otherwise permitted hereby, the businesses of the Company and its
Subsidiaries shall be conducted only in, and the Company and its Subsidiaries
shall not take any action except in, the ordinary course of business and in a
manner consistent with past practice; and the Company will use its best efforts
to preserve substantially intact its business organization, to keep available
the services of its present officers, employees and consultants and to preserve
its present relationships with customers, suppliers and other persons with which
it or any of its subsidiaries has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any of its Subsidiaries shall, between the date of this
Agreement and the Effective Time, directly or indirectly, do any of the
following without the prior written consent of Parent:
(a) (i) issue, sell, pledge, dispose of, encumber, authorize, or
propose the issuance, sale, pledge, disposition, encumbrance or
authorization of any shares of its or its subsidiaries' capital stock of
any class, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of its or its subsidiaries' capital
stock, or any other ownership interest (except with respect to Company
Common Stock previously reserved for issuance as disclosed in Section 4.03
hereof); (ii) amend or propose to amend its articles of incorporation or
bylaws or equivalent organizational documents; (iii) split, combine or
reclassify any of its outstanding common stock, or declare, set aside or
pay any dividend or distribution payable in cash, stock, property or
otherwise with respect to the common stock; (iv) redeem, purchase or
otherwise acquire or offer to redeem, purchase or otherwise acquire any
shares of its capital stock, except in the performance of its obligations
under existing employee plans; or (v) authorize or propose or enter into
any contract, agreement, commitment or arrangement with respect to any of
the matters set forth in this Section 5.02(I)(a);
(b) (i) acquire (by merger, consolidation, or acquisition of stock,
partnership interests or assets) any corporation, partnership or other
business organization or division thereof or any other interests in
operating properties; (ii) except in the ordinary course of business and in
a manner consistent with past practices, and except as set forth on
Schedule 5.02(I)(b), sell, pledge, lease, transfer, dispose of, or encumber
-------------------
or authorize or propose the sale, pledge, lease, transfer disposition or
encumbrance of any of its or its Subsidiaries' assets (including intangible
assets); (iii) create, incur, assume or guarantee any indebtedness or other
similar obligation, or enter into any contract or agreement, except in the
ordinary course of business and consistent with past practice, and except
as set forth on Schedule 5.02(I)(b); (iv) enter into any new line of
-------------------
business or make any bid or enter into any commitment in respect of any new
or proposed projects; (v) prepay or
<PAGE>
38
refinance any part of the principal or interest of any existing
indebtedness before the due date thereof; (vi) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently
or otherwise) for the obligations of any other person or entity, except for
endorsements in the ordinary course of business in connection with the
deposit of items for collection; (vii) make any loans, advances or capital
contributions to or investments in any person or entity; (viii) waive,
release, grant or transfer any rights of value or modify or change in any
material respect any existing license, material lease or commitment; (ix)
make or commit to or guarantee any single capital expenditure or
obligations which are not consistent with past practice and currently
budgeted; or (x) enter into or amend any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this Section
5.02(I)(b);
(c) take any action other than in the ordinary course of business and
in a manner consistent with past practice (none of which actions shall be
unreasonable or unusual) with respect to the grant of any severance or
termination pay (otherwise than pursuant to policies of the Company or any
of its Subsidiaries in effect on November 30, 1994) or with respect to any
increase of benefits payable under its severance or termination pay
policies in effect on November 30, 1994;
(d) make any payments (except in the ordinary course of business and
in amounts and in a manner consistent with past practice) under any of its
employee plans to any of its or its subsidiaries' employees, independent
contractors or consultants, enter into any new employee plan, any new
employment or consulting agreement, grant or establish any new awards under
such plan or agreement, or adopt or otherwise amend any of the foregoing;
(e) take any action except in the ordinary course of business and in
a manner consistent with past practice (none of which actions shall be
unreasonable or unusual) with respect to accounting policies or procedures
(including without limitation its procedures with respect to the payment of
accounts payable);
(f) before the purchase of Company Common Stock pursuant to the Offer
and other than pursuant to this Agreement, take any action to cause the
shares of its common stock to cease to be listed on the Nasdaq National
Market;
(g) cause or permit any of their current insurance (or reinsurance)
policies to be cancelled or terminated or any of the coverage thereunder to
lapse, unless forthwith upon notice of such termination, cancellation or
lapse, the Company or such Subsidiary used its best efforts to obtain
commercially reasonable replacement policies from the same or comparable
insurers providing coverage which is the same as or comparable to that
provided under the cancelled, terminated or lapsed policies;
<PAGE>
39
(h) enter into any agreement or transaction with any affiliate of the
Company upon terms and conditions less favorable to the Company or such
affiliate than could be obtained on an arm's length basis, except for
agreements or transactions in the ordinary course of business and
consistent with past practice;
(i) settle any material pending litigation; or
(j) enter into any oral or written agreement, contract, commitment,
arrangement or understanding with respect to any of the foregoing.
Notwithstanding any other term or provision of this Section 5.02(I):
(i) the Company may close the financing of its Maltibog project
without the prior consent of Parent provided that Parent has been
--------
given the opportunity to review the relevant financing documents and
Company has given Parent at least two days' prior notice of the
anticipated closing date;
(ii) the Company may make and commit to ordinary course budgeted
operational capital and other expenditures relating to projects in
operation or construction without the consent of Parent;
(iii) the Company may make planned capital and operational
expenditures with respect to its Maltibog project, without the consent
of Parent;
(iv) the Company will not make any capital or other expenditures
in excess of $500,000 in the aggregate with respect to its Nevada
Power Pumped Storage contract, its Alto Peak contract and any other
contract related to a development project without prior consultation
with Parent and Parent's consent;
(v) the Company may honor all existing contractual obligations
relating to projects in operation or construction without the consent
of Parent; and
(vi) the Company will not incur any additional indebtedness
(secured or unsecured) or make new project or capital commitments in
excess of $1,000,000 without prior consultation with Parent and
Parent's consent.
(II) Parent covenants and agrees that, between the date of this
Agreement and the Effective Time (unless the election contemplated by Section
2.06(b)(i) has been made), unless the Company shall otherwise consent in writing
and except as is otherwise permitted
<PAGE>
40
hereby, neither Parent nor any of the Parent Subsidiaries shall, directly or
indirectly, do any of the following:
(a) (i) issue or sell, or propose the issuance or sale of, any
shares of its or its subsidiaries' capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of its or its subsidiaries' capital stock, or any other
ownership interest (except with respect to Parent Common Stock previously
reserved for issuance as disclosed in Section 3.03 hereof) if (A) the
proceeds of any such issuance or sale ("Proceeds") exceed $50,000,000, and
--------
(B) such Proceeds are not applied, if necessary, so as to allow Parent to
exercise the election contemplated by Section 2.06(b)(i); (ii) split,
combine or reclassify any of its outstanding common stock, or declare, set
aside or pay any dividend or distribution payable in cash, stock, property
or otherwise with respect to the common stock; (iii) redeem, purchase or
otherwise acquire or offer to redeem, purchase or otherwise acquire any
shares of its capital stock, except in the performance of its obligations
under existing employee plans or pursuant to a repurchase program under
Rule 10b-18 promulgated under the Exchange Act; or (iv) authorize or
propose or enter into any contract, agreement, commitment or arrangement
with respect to any of the matters set forth in this Section 5.02(II)(a);
(b) in the case of Parent, merge or consolidate with or into another
person or engage in a recapitalization or other similar extraordinary
business transaction;
(c) make any material change in accounting policies, other than as
required by generally accepted accounting principles; or
(d) enter into any oral or written agreement, contract, commitment,
arrangement or understanding with respect to any of the foregoing.
SECTION 5.03. No Shopping. The Company and its Subsidiaries will
-----------
not, directly or indirectly, through any officer, director, agent, financial
adviser or otherwise, solicit, initiate or encourage submission of proposals or
offers from any person relating to any Competing Transaction (as defined below),
or participate in any negotiations regarding, or furnish to any other person any
information (except for information which has been previously publicly
disseminated by the Company in the ordinary course of business) with respect to,
or otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other person to do or seek any of the
foregoing. Notwithstanding the foregoing, the parties hereby agree that the
Board of Directors of the Company may (i) review and act upon (which actions may
include, without limitation, providing confidential information, negotiating a
transaction and entering into an agreement for a transaction) an unsolicited
proposal by any other person relating to any of the transactions referred to in
the preceding sentence, if the Board of Directors determines in
<PAGE>
41
good faith, after consultation with and based upon the advice of its financial
and legal advisors, that failing to review and act upon such proposal would
constitute a breach of fiduciary duty and (ii) comply with Rule 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer,
and such review, conduct or compliance will not violate this Section 5.03. For
purposes of this Agreement, "Competing Transaction" shall mean any of the
---------------------
following involving the Company or any Subsidiary: (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 50% or more of the assets of the Company and the Subsidiaries,
taken as a whole, in a single transaction or series of transactions; (iii) any
tender offer or exchange offer for 50% or more of the Shares or the filing of a
registration statement under the Securities Act in connection therewith; (iv)
any person having acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under Section
-----
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
having been formed which beneficially owns or has the right to acquire
beneficial ownership of, 50% or more of the Shares; or (v) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement/Proxy Statement. (a) As
--------------------------------------
promptly as practicable after the consummation of the Offer, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials which
shall constitute the preliminary Proxy Statement and a preliminary prospectus
with respect to the Parent Common Stock to be issued in connection with the
Merger. As promptly as practicable after comments are received from the SEC
with respect to such preliminary materials and after the furnishing by the
Company and Parent of all information required to be contained therein, the
Company shall file with the SEC the definitive Proxy Statement and Parent shall
file with the SEC the Registration Statement (which shall include the definitive
Proxy Statement), and Parent and the Company shall use their best efforts to
cause the Registration Statement to become effective and to mail the definitive
Proxy Statement to their respective stockholders as soon thereafter as
practicable.
(b) Parent and the Company shall make all necessary filings with
respect to the Merger and the Parent Share Proposal under the Securities Act and
the Exchange Act and the rules and regulations thereunder, under applicable blue
sky or similar securities laws and the New York Stock Exchange, Inc. and shall
use all reasonable efforts to obtain required approvals and clearances with
respect thereto.
<PAGE>
42
SECTION 6.02. Stock Exchange Listing. Parent shall use its best
----------------------
efforts to list on the NYSE, upon official notice of issuance, the Parent Common
Stock to be issued pursuant to the Merger.
SECTION 6.03. Additional Agreements. The Company, Parent and Merger
---------------------
Sub will each comply in all material respects with all applicable laws and with
all applicable rules and regulations of any governmental authority in connection
with its respective execution, delivery and performance of this Agreement and
the transactions contemplated hereby. Each of the parties hereto agrees to use
all reasonable efforts to obtain in a timely manner all necessary waivers,
consents and approvals and to effect all necessary registrations and filings,
and to use all reasonable efforts to take, or cause to be taken, all other
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement.
SECTION 6.04. Notification of Certain Matters. The Company shall
-------------------------------
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event whose occurrence
or non-occurrence would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time and (ii) any material
failure of the Company, Parent or Merger Sub, as the case may be, or any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
-------- -------
Section 6.04 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 6.05. Access to Information. (a) From the date hereof to
---------------------
the Effective Time, each of Parent and the Company shall, and shall cause their
respective subsidiaries, officers, directors, employees, auditors, attorneys and
agents to, afford the officers, employees, auditors, attorneys and agents of the
other party (the "Respective Representatives") complete access at all reasonable
--------------------------
times and on reasonable notice to its officers, employees, agents, accountants,
properties, offices and other facilities and to all books and records, and shall
furnish such Respective Representatives with all financial, operating and other
data and information and all information relating to the regulatory status of
its Plants (whether held by it, a subsidiary, or agents thereof) as the other
party, through its officers, employees, agents or accountants, may reasonably
request.
(b) All information obtained by Parent or the Company pursuant to this
Section 6.05 shall be kept confidential in accordance with the confidentiality
agreements dated December 4, 1994 between Parent and the Company.
<PAGE>
43
(c) In the event of the termination of this Agreement, each of Parent
and the Company shall, and shall cause its affiliates to, return promptly every
document furnished to them by the other party or its Respective Representatives
in connection with the transactions contemplated hereby and any copies thereof
which may have been made, and shall cause its Respective Representatives to whom
such documents were furnished promptly to return such documents and any copies
thereof any of them may have made, other than documents filed with the
Commission or otherwise publicly available.
SECTION 6.06. Public Announcements. Parent and the Company shall
--------------------
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement before such consultation, except as
may be required by law.
SECTION 6.07. Best Efforts; Cooperation. Upon the terms and subject
-------------------------
to the conditions hereof, each of the parties hereto agrees to use its best
efforts to take or cause to be taken all actions and to do or cause to be done
all things necessary, proper or advisable to consummate the transactions
contemplated by this Agreement and shall use its best efforts to obtain all
necessary waivers, consents and approvals, and to effect all necessary filings
under the Exchange Act. The parties shall cooperate in responding to inquiries
from, and making presentations to, regulatory authorities.
SECTION 6.08. Agreement to Defend and Indemnify. (a) If any action,
---------------------------------
suit, proceeding or investigation relating hereto or to the transactions
contemplated hereby is commenced, whether before or after the Effective Time,
the parties hereto agree to cooperate and use their best efforts to defend
against and respond thereto. It is understood and agreed that, subject to the
limitations, if any, on indemnification contained in applicable law, the Company
shall, to the fullest extent permitted under applicable law and regardless of
whether the Merger becomes effective, indemnify and hold harmless, and after the
Effective Time, the Surviving Corporation and Parent shall, to the fullest
extent permitted under applicable law, indemnify and hold harmless, each
director, officer, employee, fiduciary and agent of the Company or any
Subsidiary and their respective subsidiaries and controlled affiliates,
including, without limitation, officers and directors serving as such on the
date hereof (collectively, the "Indemnified Parties"), from and against any
-------------------
costs or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation arising out of or pertaining to
any of the transactions contemplated hereby, including without limitation
liabilities arising under the Securities Act or the Exchange Act in connection
with the Merger. Parent shall cause the Surviving Corporation to continue in
effect the indemnification provisions currently provided (or provisions that are
no less favorable to the Indemnified Parties than those currently provided) by
the Articles of Incorporation, Bylaws or any written indemnification agreement
of the Company for a period of not less than six years following the Effective
Time. This Section shall survive the consummation of the
<PAGE>
44
Merger. This covenant shall survive any termination of this Agreement pursuant
to Section 8.01 hereof. Notwithstanding Section 9.07 hereof, this Section is
intended to be for the benefit of and to grant third party rights to Indemnified
Parties whether or not parties to this Agreement, and each of the Indemnified
Parties shall be entitled to enforce the covenants contained herein.
(b) Parent shall cause to be maintained in effect for not less than
three years after the Effective Time the current policies of directors' and
officers' liability insurance maintained by the Company and its Subsidiaries
with respect to matters occurring prior to the Effective Time; provided,
--------
however, that Parent may substitute therefor its current policies or other
- -------
policies of at least the same coverage containing terms and conditions which are
no less advantageous to the Indemnified Parties; provided, however, that in no
-------- -------
event shall Parent be required to expend pursuant to this Section 6.08(b) more
than an amount equal to 125% of current annual premiums paid by the Company for
such insurance.
(c) If Parent, the Surviving Corporation or any of either of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provision shall be made so that the successors and assigns of Parent or
Surviving Corporation assume the obligations set forth in this Section 6.08.
SECTION 6.09. Disposition of Litigation. (a) The parties agree to
-------------------------
file jointly a stipulation of dismissal without prejudice, or take other
reasonable steps necessary to terminate without prejudice, the action entitled
Magma Power Company, et al. v. California Energy Company, Inc., et al., Case No.
- ----------------------------------------------------------------------
CV-N-94-00719-DWH pending in the United States District Court for the District
of Nevada, including any and all claims and counterclaims asserted against the
Company, its directors, its officers, Parent and Merger Sub, with each party
bearing its own costs and attorneys' fees. The Company agrees that it will not
settle any litigation currently pending, or commenced after the date hereof,
against the Company or any of its directors by any stockholder of the Company
relating to the Offer or this Agreement, without the prior written consent of
Parent.
(b) The Company will not voluntarily cooperate with any third party
that has sought or may hereafter seek to restrain or prohibit or otherwise
oppose the Offer or the Merger and will cooperate with Parent and Merger Sub to
resist any such effort to restrain or prohibit or otherwise oppose the Offer or
the Merger, unless failing to so cooperate with such third party or cooperating
with Parent or Merger Sub, as the case may be, would constitute a breach of
fiduciary duty of the Board of Directors of the Company or otherwise violate any
applicable law or rules.
<PAGE>
45
SECTION 6.10. Employee Benefits. (a) Parent shall cause the
-----------------
Surviving Corporation and its Subsidiaries to (x) honor all employment, change
in control, deferred compensation, pension, retirement and severance agreements
in effect on the date hereof between the Company or one of its Subsidiaries and
any employee of the Company or one of its Subsidiaries, or maintained for the
benefit of any employee of the Company or one of its Subsidiaries, all of which
have been made available to Parent, and (y) honor all bonus determinations for
the fiscal year ending December 31, 1994 made by the Company or any of its
Subsidiaries prior to the date hereof with respect to the bonus plans and
arrangements of the Company and its Subsidiaries.
(b) For a period of one year commencing on the Effective Time,
Parent shall cause the Surviving Corporation to provide active employees of the
Company and its Subsidiaries with benefits (including, without limitation,
welfare benefits) that are no less favorable, taken as a whole, than the
benefits provided under the Company Benefit Plans (other than equity-based plans
and bonus plans) as in effect immediately prior to the Effective Time. To the
extent that service is relevant for eligibility, vesting or benefit calculations
or allowances (including, without limitation, entitlements to vacation and sick
days) under any plan or arrangement maintained in order to provide the benefits
described in the preceding sentence, such plan or arrangement shall credit
employees for service on or prior to the Effective Time with the Company or any
of its Subsidiaries.
(c) Parent shall as promptly as practicable after the Effective Time
cause the Surviving Corporation to (or the Company may prior to the Effective
Time) amend each demand note made in favor of the Company by an employee of the
Company or one of its Subsidiaries (each of which has been made available to
Parent) to provide that (x) such demand note will not be repayable on demand
from the Company and (y) upon the involuntary termination without cause of the
employment of such employee, all sums owed under such demand note shall be
payable in equal quarterly installments over a period of not less than 36
months.
(d) With respect to each employee of the Company (other than employees
of the Company which are parties to a "change in control" or "severance"
agreements referred to in the Previous 14D-9) who is, within the one year period
following the closing of the Offering, either (i) terminated without cause or
(ii) terminated as a result of a reduction in force, Parent shall cause the
Surviving Corporation to make the following payments:
(1) if, upon the effective date of such employee's termination,
such employee has less than one year's service with the Company, a
payment equal to three months base salary plus an amount equal to one-
fourth of the prior years targeted bonus for such employee, payable in
twelve equal installments over the twelve months following such
termination; or
<PAGE>
46
(2) if, upon the effective date of such employee's termination, such
employee has one year or more of service with the company, a payment
equal to six months base salary plus an amount equal to one-fourth of
the prior years targeted bonus for each such employee, payable in
twelve equal installments over the twelve months following such
termination.
For the purposes of subclauses (1) and (2), if an employee was not
eligible for a bonus in the referenced prior year, then the targeted bonus for
the current year shall be used. An employee shall not be eligible for the
payments specified in subclauses (1) or (2) if such employee's termination
relates to a reduction in force referred to subclause (ii) above and such
employee has been offered a comparable position (in terms of compensation) by
Parent at any location; provided however, that no such amounts referenced in (1)
-------- -------
and (2) will be payable if, in the good faith determination of the Company, the
employee's job performance did not merit continued employment or offer of
relocation to a comparable position. An employee may not receive the severance
payments contemplated by this Section 6.10(d) and also receive any severance
payments under the Company's severance policy covered by Sections 6.10(a) and
(b) and identified on a schedule hereto.
SECTION 6.11. Certain Action of Parent and Merger Sub. Promptly
---------------------------------------
following the execution of this Agreement, Parent and Merger Sub shall suspend
their solicitation of requests for the call of a special meeting of the
Company's stockholders and their solicitation of proxies to elect nominees to
the Company's Board of Directors.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.01. Conditions to Obligation of Each Party to Effect the
----------------------------------------------------
Merger. The respective obligations of each party to effect the Merger shall be
- ------
subject to the following conditions:
(a) Offer. Parent shall have made, or caused to be made, the Offer
-----
and shall have purchased, or caused to be purchased, Shares pursuant to the
Offer;
(b) Company Stockholder Approval. This Agreement and the transactions
----------------------------
contemplated hereby shall have been approved and adopted by the requisite vote
of the holders of the Company Common Stock.
(c) Parent Stockholder Approval. The Parent Share Proposal shall have
---------------------------
been approved by the requisite vote of the holders of Parent Common Stock.
<PAGE>
47
(d) Stock Exchange Listing. The Parent Common Stock issuable in the
----------------------
Merger shall have been authorized for listing on the NYSE upon official notice
of issuance.
(e) Effectiveness of Registration Statement. The Registration
---------------------------------------
Statement shall have become effective in accordance with the provisions of the
Securities Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission and remain in effect.
(f) No Prohibition. There shall not be in effect (i) any judgment
--------------
decree or order issued by any Federal, state or local court of competent
jurisdiction, or (ii) any statute, rule or regulation enacted or promulgated by
any Federal, state, local or legislative, administrative or regulatory body of
competent jurisdiction, that in either of cases (i) or (ii) prohibits the
consummation of the Merger or makes such consummation illegal.
SECTION 7.02. Additional Conditions to Obligations of the Company.
---------------------------------------------------
The obligation of the Company to effect the Merger is also subject to the
fulfillment of the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct in all material respects on the date hereof and shall also
be true and correct in all material respects on and as of the Effective
Time, except for changes contemplated by this Agreement, with the same
force and effect as if made on and as of the Effective Time, except to the
extent that the failure of such representations and warranties to be so
true and correct, individually and in the aggregate, does not have a
Material Adverse Effect; provided, however, that any inaccuracy of a
-------- -------
representation or warranty, on the date hereof or at the Effective Time,
shall not result in the non-satisfaction of this Section 7.02(a) unless any
such inaccuracy or inaccuracies, either (i) individually or in the
aggregate, constitute facts or circumstances having a Material Adverse
Effect (it being understood that such facts or circumstances shall be
deemed to be so constituted if the particular representation or warranty
which is inaccurate contains a Material Adverse Effect standard) or (ii)
are clearly intentional misrepresentations; and
(b) Agreements, Conditions and Covenants. Parent and Merger Sub shall
------------------------------------
have performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or
complied with by them on or before the Effective Time.
SECTION 7.03. Additional Conditions to Obligations of Parent and
--------------------------------------------------
Merger Sub. The obligations of Parent and Merger Sub to effect the Merger are
- ----------
also subject to the following conditions:
<PAGE>
48
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Company contained in this Agreement shall be true and correct in all
material respects on the date hereof and shall also be true and correct in
all material respects on and as of the Effective Time, except for changes
contemplated by this Agreement, with the same force and effect as if made
on and as of the Effective Time, except to the extent that the failure of
such representations and warranties to be so true and correct, individually
and in the aggregate, does to have a Material Adverse Effect; provided,
--------
however that any inaccuracy of a representation or warranty, on the date
-------
hereof or at the Effective Time, shall not result in the non-satisfaction
of this Section 7.03(a) unless any such inaccuracy or inaccuracies, either
(i) individually or in the aggregate, constitute facts or circumstances
having a Material Adverse Effect (it being understood that such facts or
circumstances shall be deemed to be so constituted if the particular
representation or warranty which is inaccurate contains a Material Adverse
Effect standard) or (ii) are clearly intentional misrepresentations; and
(b) Agreements; Conditions and Covenants. The Company shall have
------------------------------------
performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or
complied with by it on or before the Effective Time.
(c) Funding. Parent and/or Merger Sub shall have received the
-------
proceeds of the financing contemplated by Section 3.10 hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any
-----------
time before the Effective Time:
(a) By mutual consent of the Boards of Directors of Parent and the
Company; or
(b) By the Company or Parent if the Offer shall not have been
consummated by February 28, 1995; or
(c) By the Company or Parent if the Effective Time shall not have
occurred on or prior to September 30, 1995; or
(d) By either Parent or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto
<PAGE>
49
shall use their best efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action shall have become final
and nonappealable; or
(e) By Parent if (i) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of this Agreement or any of the
transactions contemplated by this Agreement or shall have resolved to do any of
the foregoing, or (ii) the Board of Directors of the Company recommends to the
holders of Shares any proposal with respect to a merger, consolidation, share
exchange or similar transaction involving the Company or any of its
Subsidiaries, other than the transactions contemplated by this Agreement; or
(f) By Parent if, without the Company's consent, any person has
acquired beneficial ownership or the right to acquire beneficial ownership of or
any "group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder) has been formed which beneficially owns,
or has the right to acquire "beneficial ownership" (as defined in the Rights
Agreement) of, more than 10% of the Shares; or
(g) By the Company or Parent if (i) a corporation, partnership, person
or other entity or group shall have made a bona fide offer that the Board of
Directors of the Company determines in its good faith judgment and in the
exercise of its fiduciary duties, after consultation with and based upon the
advice of its financial and legal advisors, is more favorable to the Company's
stockholders than the Offer and the Merger or (ii) any person (including,
without limitation, the Company or any affiliate thereof), other than Parent or
any affiliate of Parent, shall have become the beneficial owner of more than 50%
of the then outstanding Shares; or
(h) By either Parent or the Company if the other party shall have
breached this Agreement hereunder in any material respect and such breach
continues for a period of ten days after the receipt of notice of the breach
from the nonbreaching party.
SECTION 8.02. Effect of Termination. In the event of termination of
---------------------
this Agreement as provided in Section 8.01 hereof, this Agreement shall
forthwith become void and there shall be no liability on the part of Parent,
Merger Sub or the Company, except (i) as set forth in Sections 8.03, 8.04 and
9.01 hereof, and (ii) nothing herein shall relieve any party from liability for
any willful breach hereof.
SECTION 8.03. Agreement Termination Fee. (a) If this Agreement is
-------------------------
terminated pursuant to Section 8.01(e) or (g) or terminated by Parent pursuant
to Section 8.01(h), the Company shall pay Parent a fee of $8,000,000 plus
Parent's actual documented out-of-pocket expenses incurred since September 13,
1994 in connection with this Agreement
<PAGE>
50
and the transactions contemplated hereby (including the previous offer referred
to in the Previous 14D-9), including, without limitation legal and professional
fees and expenses.
(b) Any payment required to be made pursuant to Section 8.03(a) shall
be made not later than one business day after termination of this Agreement and
shall be made by wire transfer of immediately available funds to an account
designated by Parent.
SECTION 8.04. Offer Fee. (a) If, by December 19, 1994, Parent has
---------
not delivered to the Company either a revised Commitment Letter or definitive
loan documentation reflecting the financing contemplated by such Commitment
Letter which, in each case (i) do not contain any due diligence conditions
regarding Parent and the Company and its Subsidiaries and (ii) have a definition
of "material adverse effect" and/or "material adverse change" that substantially
conforms in all material respects with the definition of Material Adverse Effect
(other than as provided in subclause (i) thereof) contained herein with respect
to Parent and the Company, then Parent shall owe the Company a fee of $8,000,000
payable in accordance with and to the extent provided in subsection (b) below.
(b) The $8,000,000 fee referred to in Section 8.04(a) shall be paid by
Parent to the Company only upon (i) termination or expiration of the Offer
without Merger Sub having accepted for payment the shares tendered pursuant
thereto or (ii) termination of this Agreement pursuant to Section 8.01(b)
(collectively, the "Offer Termination Events") unless failure to close the Offer
------------------------
results from one or more of the following:
(i) A Material Adverse Effect with respect to the Company
shall exist or shall have occurred and be continuing on or prior to
the relevant Offer Termination Event;
(ii) The Company shall have materially breached this Agreement
and Parent shall have terminated this Agreement under Section 8.01(h),
in each case on or prior to the relevant Offer Termination Event; or
(iii) Generally accepted accounting principles would require a
restatement of the Company's audited financial statements contained in
the Company SEC Reports.
(c) Any payment required to be made pursuant to Section 8.04 shall be
made not later than one business day after the occurrence of an Offer
Termination Event and shall be made by wire transfer of immediately available
funds to an account designated by the Company.
<PAGE>
51
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
-----------------------------------------------
Agreements. The representations, warranties and agreements in this Agreement
- ----------
shall terminate at the Effective Time or the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements set
forth in Article I and Section 6.08 shall survive the Effective Time
indefinitely and those set forth in Sections 6.05(b), 6.05(c), 6.10 and 9.03
shall survive termination indefinitely.
SECTION 9.02. Notices. All notices and other communications given or
-------
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered or mailed if delivered personally or
mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice, except that notices of changes
of address shall be effective upon receipt):
(a) if to Parent or Merger Sub
California Energy Company, Inc.
10831 Old Mill Road
Omaha, Nebraska 68154
Attention: Steven A. McArthur, Esq.
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Peter J. Hanlon, Esq.
(b) if to the Company:
Magma Power Company
4365 Executive Drive, Suite 900
San Diego, California 92121
Attention: Jon R. Peele, Esq.
with a copy to:
Shearman & Sterling
<PAGE>
52
555 California Street
San Francisco, California 94104
Attention: Michael J. Kennedy, Esq.
SECTION 9.03. Expenses. Except as is provided in Section 8.03
--------
hereof, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
costs and expenses.
SECTION 9.04. Certain Definitions. For purposes of this Agreement,
-------------------
the term: (a) "affiliate" of a person means a person that directly or
---------
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person;
(b) "control" (including the terms "controlled by" and "under common
------- ------------- ------------
control with") means the possession, direct or indirect, of the power to direct
- ------------
or cause the direction of the management and policies of a person, whether
through the ownership of stock, as trustee or executor, by contract or credit
arrangement or otherwise; and
(c) "person" means an individual, corporation, partnership,
------
association, trust or any unincorporated organization.
SECTION 9.05. Headings. The headings contained in this Agreement are
--------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.06. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the maximum extent
possible.
SECTION 9.07. Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement constitutes the entire agreement and supersedes any and all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein and for the provisions of Sections 2.10, 6.05 and 6.10
hereof, is not intended to confer upon any other person any rights or remedies
hereunder.
<PAGE>
53
SECTION 9.08. Waiver. At any time before the Effective Time, any
------
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only as against such party
and only if set forth in an instrument in writing signed by such party.
SECTION 9.09. Amendment. This Agreement may be amended by the
---------
parties hereto by action taken by Parent and Merger Sub, and by action taken by
or on behalf of the Company's Board of Directors at any time before the
Effective Time, provided, however, that, after approval of the Merger by the
-------- -------
stockholders of the Company, no amendment may be made which would materially
adversely impact the interests of the Company's stockholders or reduce the
amount or change the type of consideration into which each Share will be
converted upon consummation of the Merger. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 9.10. Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise, except that Parent and Merger Sub may assign all
or any of their rights hereunder to any affiliate of Parent provided that no
such assignment shall relieve the assigning party of its obligations hereunder.
SECTION 9.11. Governing Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the internal laws of the State of Delaware.
SECTION 9.12. Counterparts. This Agreement may be executed in one or
------------
more counterparts and by facsimile, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which shall constitute one and the same agreement.
<PAGE>
54
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
CALIFORNIA ENERGY COMPANY, INC.
By: /s/ DAVID L. SOKOL
----------------------------------------------
Name: David L. Sokol
Title: Chairman, President and
Chief Executive Officer
CE ACQUISITION COMPANY, INC.
By: /s/ DAVID L. SOKOL
----------------------------------------------
Name: David L. Sokol
Title: Chairman, President and
Chief Executive Officer
MAGMA POWER COMPANY
By: /s/ RALPH W. BOEKER
----------------------------------------------
Name: Ralph W. Boeker
Title: President and Chief Executive
Officer
<PAGE>
ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Merger Sub shall not be
required to accept for payment or pay for, or may delay the acceptance for
payment of or payment for, tendered Shares, or may, in the sole discretion of
Merger Sub, terminate or amend the Offer as to any Shares not then paid for if
(i) at the Expiration Date the Minimum Tender Condition or the Financing
Condition shall not have been satisfied or waived, or (ii) on or after December
9, 1994, and at or before the acceptance for payment for any of such Shares, any
of the following events shall occur:
(a) there shall be instituted or pending any action or proceeding by
any government or governmental authority or agency, domestic or foreign, or by
any other person, domestic or foreign, before any court or governmental
authority or agency, domestic or foreign, (i) challenging or seeking to make
illegal, to delay or otherwise directly or indirectly to restrain or prohibit
the making of the Offer, the acceptance for payment of or payment for some of or
all the Shares by Merger Sub or any other affiliate of Parent, the consummation
by Merger Sub of the Merger or seeking to obtain material damages, (ii) seeking
to prohibit the ownership or operation by Merger Sub of all or any material
portion of the business or assets of the Company and its subsidiaries or of
Merger Sub, or to compel Merger Sub to dispose of or hold separately all or any
material portion of the business or assets of Merger Sub or the Company or any
of its subsidiaries or seeking to impose any material limitation on the ability
of Merger Sub or any other affiliates of Parent to conduct their business or own
such assets, (iii) seeking to impose or confirm limitations on the ability of
Merger Sub or any other affiliates of Parent effectively to exercise full rights
of ownership of the Shares, including, without limitation, the right to vote any
Shares acquired by any such person on all matters properly presented to the
Company's stockholders, (iv) seeking to require divestiture by Merger Sub or any
other affiliates of Parent of any Shares, or (v) seeking any material diminution
in the benefits expected to be derived by Merger Sub or any other affiliates of
Parent as a result of the transactions contemplated by the Offer or the Merger;
(b) there shall be any action taken, or any statute, rule, regulation,
interpretation, judgment, order or injunction enacted, enforced, promulgated,
amended, issued or deemed applicable (i) to Merger Sub or (ii) to the Offer or
the Merger by any court, government or governmental, administrative or
regulatory authority or agency, domestic or foreign, other than the routine
application of the waiting period provisions of the HSR Act to the Offer or to
the Merger, which might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) it shall have been publicly disclosed or Merger Sub shall have
otherwise learned that (i) any person, entity (including the Company or any of
its subsidiaries) or "group" (within the meaning of Section 13(d)(3) of the
Exchange Act) shall have acquired beneficial ownership of more than 20% of any
class or series of capital stock
I-1
<PAGE>
of the Company (including the Shares), through the acquisition of stock, the
formation of a group or otherwise, or shall have been granted any right, option
or warrant, conditional or otherwise, to acquire beneficial ownership of more
than 20% or any class or series of capital stock of the Company (including the
Shares) other than acquisitions for bona fide arbitrage purposes only and except
as disclosed in a Schedule 13D or 13G on file with the SEC on December 5, 1994
or (ii) any such person, entity or group which before December 5, 1994, had
filed such a Schedule with the SEC has acquired or proposes to acquire, through
the acquisition of stock, the formation of a group or otherwise, beneficial
ownership of an additional 5% or more of any class or series of capital stock of
the Company (including the Shares), or shall have been granted any right, option
or warrant, conditional or otherwise, to acquire beneficial ownership of an
additional 5% or more of any class or series of capital stock of the Company
(including the Shares); provided, however, that if such person or group acquired
-------- -------
the shares without the Company's consent and the Company has not taken any
action under its Rights Plan to exempt such acquisition from the terms thereof,
then the foregoing condition shall be inapplicable;
(d) the Company shall have failed to comply with in any material
respect any of its obligations under the Agreement or any representation or
warranty of the Company in such Agreement shall not be true and correct in any
material respect and such failure to comply or be true and correct shall have a
Material Adverse Effect;
(e) a Material Adverse Effect with respect to the Company shall have
occurred;
(f) this Agreement shall have been terminated in accordance with its
terms; or
(g) the Company's Board of Directors shall have withdrawn, modified
or amended in any unfavorable respect its recommendation of the Offer or shall
have resolved to do so or shall have entered into an agreement with a third
party with respect to a Competing Transaction;
which, in the good faith judgment of Parent and Merger Sub with respect to each
and every matter referred to above and regardless of the circumstances
(including any action or inaction by Parent or Merger Sub) giving rise to any
such condition, makes it inadvisable to proceed with the Offer or with such
acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Parent and Merger
Sub and may be asserted by Parent or Merger Sub or may be waived by Parent or
Merger Sub in whole or in part at any time and from time to time in its sole
discretion.
I-2
<PAGE>
EXHIBIT 99.6
[LETTERHEAD OF MAGMA POWER COMPANY]
December 9, 1994
Dear Fellow Magma Stockholder:
We are pleased to inform you that on December 5, 1994 Magma entered into a
merger agreement with California Energy Company, Inc. ("CECI") pursuant to
which CECI has commenced a new tender offer to purchase 12,400,000, or
approximately 51% of, Magma shares for $39.00 per share in cash. The merger
agreement provides that each outstanding Magma share not purchased in the
tender offer will be converted into the right to receive, at CECI's option,
either (A) cash such that the blended average price paid in the tender offer
and merger is $38.75 per share or (B) a mixture of cash and shares of CECI
common stock such that the blended average price paid in the tender offer and
the merger is $28.50 in cash and $10.50 in CECI common stock per share, based
on the closing price of CECI common stock over the 15 trading days ending 5
trading days prior to consummation of the merger. The number of CECI shares to
be received in the merger, if any, will become fixed if the average CECI price
exceeds $18.73 or is less than $14.27.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THIS NEW OFFER AND THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF MAGMA AND ITS STOCKHOLDERS AND RECOMMENDS
THAT YOU ACCEPT THE NEW OFFER AND TENDER YOUR SHARES PURSUANT TO THE NEW OFFER.
In arriving at its recommendation, the Magma Board of Directors considered
the factors described in the accompanying Schedule 14D-9, including the opinion
of Magma's financial advisor, Goldman, Sachs & Co., that the consideration
provided in the new offer and the merger, taken as a unitary transaction, is
fair to the stockholders of Magma (other than CECI and its affiliates). We urge
you to read the enclosed Schedule 14D-9 and the related CECI tender offer
materials carefully.
On behalf of Magma's Board of Directors, we thank you for the support you
have given to Magma over the years.
Sincerely,
Paul M. Pankratz Ralph W. Boeker
Chairman President and C.E.O.
<PAGE>
EXHIBIT 99.7
FOR IMMEDIATE RELEASE
Contact:
For California Energy
David L. Sokol - Chairman and Chief Executive Officer (402) 330-8900
Mark H. Harnett, MacKenzie Partners (212) 929-5500
Contact:
For Magma Power
Thomas Davies, Kekst & Co. (212) 593-2655
Andrea Bergofin, Kekst & Co.
CALIFORNIA ENERGY AND MAGMA POWER REACH
MERGER AGREEMENT AT $39 PER SHARE
Omaha, Nebraska and San Diego, California, December 5, 1994 - California
Energy Company, Inc. (NYSE, PSE, LSE: CE) and Magma Power Company (NASDAQ: MGMA)
today announced that they have entered into a definitive merger agreement which
provides for Magma shareholders to receive a price of $39 net per share in a
combination of $28.50 in cash and $10.50 in market value of California Energy
common stock, or approximately $950 million in aggregate value on a fully
diluted basis.
Pursuant to the terms of the agreement, California Energy will commence no
later than Friday, December 9 a cash tender offer for a majority of Magma's
common stock at $39 per share in cash. The tender offer will remain open for 20
days, and if over-subscribed, will be pro-rated. As soon as practicable
thereafter, California Energy will complete the acquisition of all remaining
1
<PAGE>
shares in a second step merger transaction by issuing for each Magma share a
combination of cash and California Energy common shares totalling $39, or, at
its option, approximately $38.50 per share in cash. If California Energy stock
is to be received in the merger, the number of shares to be issued will be
increased or decreased by up to 13.5% based on the difference between $16.50 and
the average daily closing price of California Energy during the fifteen trading
days ending on the fifth business day prior to the consummation of the merger.
California Energy's tender offer is subject to valid tender of shares
representing a majority of the voting power of Magma, funding of financing, and
other customary closing conditions. In addition, the merger (though not the
tender) is conditioned, if California Energy shares are to be issued, on
approval of California Energy's shareholders. Under the agreement, Magma has
agreed to render Magma's shareholders rights plan inapplicable to the tender
offer and merger and to waive applicable Nevada anti-takeover statutes. The
Hart-Scott-Rodino antitrust waiting period has expired with respect to the
transaction. The parties have also agreed to terminate all litigation between
them.
The agreement has been approved by the Boards of Directors of both
companies. Magma Power's Board has determined, after thoroughly exploring
alternatives in consultation with its independent financial advisors, that the
terms of the offer and merger are fair to, and in the best interests of, its
stockholders and recommends that stockholders tender their Magma shares into
California Energy's tender offer.
2
<PAGE>
Following the merger, the combined companies will have projected annual
revenues in excess of $400 million, its facilities will produce in excess of
545MW of power and will have an additional 530MW of power under construction.
The combined companies will constitute the largest independent geothermal power
company in the world with operations in the U.S., Philippines and Indonesia.
David L. Sokol, Chairman and Chief Executive Officer of California Energy,
said: "The combination of our two organizations creates a geothermal company
with unparalleled technical, geological, developmental and operational skills.
We fully believe that this merger will accelerate the achievement of our
strategic objectives and will enhance our international expansion efforts. We
welcome the family of talented Magma employees onto our team and we anticipate a
smooth transition."
Paul Pankratz, Chairman of Magma, said: "We believe this transaction
reflects Magma's inherent strengths and outstanding prospects. The combined
company will be the largest and most technically advanced global competitor in
the geothermal energy industry -- well positioned to capitalize on growth
opportunities worldwide.
Ralph Boeker, President and Chief Executive Officer of Magma, said: "Magma
brings excellent people, technology and projects into this combination. We look
forward to working with California Energy to ensure the success of this great
combined company."
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California Energy Company is an international developer, owner and operator
of geothermal and other environmentally responsible power generation facilities.
Its six existing facilities currently produce in excess of 325MW of power with
an additional 300MW under construction.
Magma Power Company is a leader in the geothermal industry. The company
currently operates seven geothermal plants in Southern California on geothermal
leaseholds and fee interests in other parts of California and Nevada. Magma is
also currently constructing a power plant in the Philippines with a total
capacity of 231MW.
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EXHIBIT 99.8
December 9, 1994
The Board of Directors
Magma Power Company
4365 Executive Drive
Suite 900
San Diego, CA 92121
Gentlemen:
You have requested that we confirm our oral opinion as to the fairness to the
holders (other than California Energy Company, Inc. ("California Energy") and
its affiliates) of the outstanding shares of Common Stock, par value $0.10 per
share (the "Shares"), of Magma Power Company (the "Company") of the Cash
Consideration and the Merger Consideration (as defined below) proposed to be
paid by CE Acquisition Company, Inc. ("Purchaser"), a wholly owned subsidiary of
California Energy, and California Energy in the Offer and the Merger (as defined
below) pursuant to the Agreement and Plan of Merger dated as of December 5, 1994
among California Energy, Purchaser and the Company (the "Merger Agreement").
The Merger Agreement provides for a tender offer for 12,400,000 Shares (the
"Offer") pursuant to which Purchaser will pay $39.00 per Share in cash for each
Share accepted (the "Cash Consideration"). The Merger Agreement further provides
that following completion of the Offer, Purchaser will be merged with and into
the Company (the "Merger") and each outstanding Share (other than Shares already
owned by California Energy or Purchaser) will be converted into the right to
receive, at the option of California Energy:
(i) an amount in cash equal to the quotient of (A) $38.75 multiplied
by the number of Shares outstanding at the effective time of the
Merger (the "Effective Time"), less $39.00 multiplied by the number of
Shares owned by California Energy and its affiliates immediately prior
to the Effective Time, divided by (B) the number of Shares outstanding
at the Effective Time (other than Shares owned by California Energy
and its affiliates) (the "All Cash Component Amount"); or
(ii) both (A) an amount in cash equal to the quotient of $28.50
multiplied by the number of Shares outstanding at the Effective Time,
less $39.00 multiplied by the number of Shares owned by California
Energy and its affiliates immediately prior to the Effective Time,
divided by the number of Shares outstanding at the Effective Time
(other than Shares owned by California Energy and its affiliates)
(such amount, the "Mixed Cash Component Amount"),
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Magma Power Company
December 9, 1994
Page Two
and (B) the number of shares of Common Stock, par value $0.0675 per
share (the "California Energy Common Stock"), of California Energy
equal to the quotient of (I) $39.00 less (II) the Mixed Cash Component
Amount, divided by the average closing price (the "Average Closing
Price") of California Energy Common Stock on the New York Stock
Exchange during the 15 consecutive trading days ending the fifth
business day prior to the Effective Time, provided, however, that if
such average closing price exceeds $18.73, the Average Closing Price
will be $18.73, and if such average closing price is less than $14.27,
the Average Closing Price will be $14.27.
The consideration to be received by the holders of Shares in the Merger, under
either the All Cash Component Amount or (ii) (A) and (ii) (B), collectively, as
applicable, is referred to herein as the "Merger Consideration". The Cash
Consideration and the Merger Consideration are collectively referred to herein
as the "Consideration".
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to the Merger Agreement. In
the course of the trading activities of Goldman, Sachs & Co. prior to our
retention in connection with this matter, the Firm accumulated a long position
of 60,100 Shares.
In connection with this opinion, we have reviewed, among other things, the
Merger Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K
of the Company and California Energy for the five years ended December 31, 1993;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
the Company and California Energy; certain other communications from the Company
and California Energy to their respective stockholders; certain internal
financial analyses and forecasts for the Company prepared by the management of
the Company; and certain internal financial analyses and forecasts for the
Company and California Energy prepared by the management of California Energy.
We also have held discussions with members of the senior managements of each of
the Company and California Energy regarding the past and current business
operations, financial condition and future prospects of their respective
companies and as combined in the contemplated Merger. We have reviewed the
reported price and trading activity for both the Shares and the California
Energy Common Stock, compared certain financial and stock market information for
the Company and California Energy, respectively, with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the independent
power production industry specifically and in other industries generally and
considered such other information, held such other discussions and performed
such other studies and analyses as we considered appropriate.
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Magma Power Company
December 9, 1994
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We have relied without independent verification upon the accuracy and
completeness of all of the financial information and other information reviewed
by us for purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of either the Company or
California Energy or any of their subsidiaries and we have not been furnished
with any such evaluation or appraisal.
Based upon and subject to the foregoing and such other matters as we considered
relevant, we confirm our oral opinion that, as of December 5, 1994, the Cash
Consideration and the Merger Consideration to be received by the holders of
Shares in the Offer and the Merger, taken as a unitary transaction, are fair to
the holders of Shares receiving such Consideration (other than California Energy
and its affiliates).
Very truly yours,
