<PAGE>1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MAGMA POWER COMPANY
(Name of Registrant as Specified in its Charter)
CALIFORNIA ENERGY COMPANY, INC.
CE ACQUISITION COMPANY, INC.
(Name of Person Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(i)(2).
/X/ $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration number, or the form or schedule and the date of its
filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
<PAGE>2
Preliminary Proxy Materials
As filed on November 21, 1994
DECEMBER __, 1994
PROXY STATEMENT
By
CALIFORNIA ENERGY COMPANY, INC.
CE ACQUISITION COMPANY, INC.
MAGMA POWER COMPANY
Special Meeting of Stockholders
To Be Held December 22, 1994
To Our Fellow Stockholders of Magma Power Company:
This proxy statement (the "Proxy Statement") is being furnished to
holders of the common stock, par value $0.10 per share (the "Shares"), of
Magma Power Company, a Nevada corporation (the "Company"), by California
Energy Company, Inc., a Delaware corporation ("CECI"), and CE Acquisition
Company, Inc., a Delaware corporation and a wholly owned subsidiary of CECI
(the "Purchaser"), in connection with their solicitation of proxies (the
"Proxy Solicitation") to be used for the purposes described below at a Special
Meeting of Stockholders of the Company to be held on Thursday, December 22,
1994, and at any adjournments or postponements thereof (the "Special
Meeting"), at 10:00 a.m. local time at in Omaha, Nebraska.
The record date for determining those stockholders entitled to vote at the
Special Meeting has been fixed as the close of business on December 12, 1994
(the "Record Date"). This Proxy Statement and the enclosed BLUE proxy card
are first being made available to stockholders on or about December , 1994.
At the Special Meeting, CECI will ask its fellow stockholders of the
Company to consider and vote on the following proposals (the "CECI
Proposals"):
- that (i) the number of directors on the Company's Board of Directors
(the "Company's Board" or the "Board") be increased from 11 to 15
and that (ii) Arthur M. Dubow, Richard H. Neumann, Neil L. Papiano
and Ronald L. Staskiewicz (the "CECI Nominees") be elected as
directors to fill the four newly created directorships on the
Company's Board ("Proposal I");
- that the Company's Restated Bylaws (the "Bylaws") be amended (the
"First Bylaw Amendment") to require the affirmative vote of at least
80% of the entire Board of Directors of the Company (irrespective of
vacancies) with respect to certain material actions outside the
ordinary course of business taken or committed to be taken prior to
the Company's 1995 Annual Meeting of Stockholders, including
issuances of securities, dispositions of assets, taking
compensation, benefit and employment actions, entering into material
commitments or contracts, and incurrences of debt or liens (other
than any of the foregoing entered into in connection with the Offer
and the Proposed Merger (each as defined below), or any transaction
in which all of the outstanding Shares are agreed to be acquired at
a price in excess of $38.50 per Share) ("Proposal II"); and
<PAGE>3
- that the Bylaws be amended (the "Second Bylaw Amendment") to render
the provisions of the "Control Share Statute," Sections 78.378
through 78.3793, inclusive, of the Nevada General Corporation Law
(the "NGCL"), inapplicable to the Offer ("Proposal III").
THE CECI PROPOSALS ARE DESIGNED TO ENHANCE THE LIKELIHOOD OF CONSUMMATION
OF THE PURCHASER S PENDING CASH TENDER OFFER FOR 12,400,000 SHARES (OR
APPROXIMATELY 51% OF THE OUTSTANDING SHARES) AT $38.50 PER SHARE, WHICH IS THE
FIRST STEP IN THE PROPOSED ACQUISITION BY CECI OF ALL OUTSTANDING SHARES FOR
$38.50 PER SHARE IN A COMBINATION OF CASH AND COMMON STOCK OF CECI. SEE THE
OFFER AND THE PROPOSED MERGER AND BACKGROUND OF THE OFFER, THE PROPOSED
MERGER AND THE REQUEST SOLICITATION.
ADOPTION OF THE CECI PROPOSALS WILL NOT REQUIRE YOU TO TENDER YOUR SHARES
PURSUANT TO THE OFFER. SHARES MUST BE SEPARATELY TENDERED IN ORDER TO TAKE
ADVANTAGE OF THE OFFER AND TO RECEIVE $38.50 NET PER SHARE IN CASH FOR EACH
SHARE TENDERED AND ACCEPTED FOR PAYMENT.
TO APPROVE THE CECI PROPOSALS, PLEASE SIGN, DATE AND MAIL THE BLUE PROXY
CARD TODAY IN THE ENCLOSED, PRE-PAID ENVELOPE.
Questions and requests for assistance in completing or delivering the
Blue proxy cards may be directed to MacKenzie Partners, Inc. at the following
address and telephone numbers:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
Call Toll Free 800-322-2885
THE OFFER AND THE PROPOSED MERGER
On September 19, 1994, CECI proposed to acquire all outstanding Shares
for $35 per Share, comprised of $25 in cash and $10 in market value of CECI's
common stock, par value $0.0675 per share ("CECI Common Stock"). The
Company's Board thereafter took extraordinary actions to frustrate the
stockholders' ability to act in their own interests, including authorizing the
Company to adopt what is commonly referred to as a "Poison Pill," authorizing
an amendment to the Bylaws which took away the right of stockholders to act by
written consent and purportedly requiring instead that stockholder action
occur only at a regular or special meeting of stockholders, and authorizing
the initiation of costly litigation. In addition, the Company entered into
"Golden Parachute" severance agreements with 15 of the most highly compensated
members of the Company's management and indemnification agreements with each
member of the Company's Board. Subsequently, on October 6, 1994, the
Purchaser commenced a tender offer for 12,400,000 Shares (approximately 51% of
the outstanding Shares on a fully diluted basis) and the associated preferred
share purchase rights (the "Poison Pill Rights") at $35 net per Share in cash
as a first step in implementing its acquisition proposal. Unless the context
otherwise requires, all references to Shares in this Proxy Solicitation
include the associated Poison Pill Rights.
On October 26, 1994, the Purchaser increased the price per Share to be
paid in the tender offer from $35 to $38.50, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set
forth in the offer to purchase dated October 6, 1994 (the "Offer to
Purchase"), the supplement thereto dated October
<PAGE>4
26, 1994 (the "Supplement") and in the related Letters of Transmittal (which
together with the Offer to Purchase and the Supplement constitute the
"Offer"). The $38.50 per Share Offer price represents a premium of $11.00 per
Share, or approximately 40%, over the $27.50 closing price for Shares on
September 19, 1994, the day CECI issued the press release announcing its
initial acquisition proposal. The Offer is scheduled to expire at 12:00
midnight, New York City time, on _______, December __, 1994, unless and until
the Purchaser, in its sole judgment, extends the period of time for which the
Offer is open. Copies of the Offer to Purchase, the Supplement and the
related Letters of Transmittal have already been mailed to stockholders of the
Company and may also be obtained from MacKenzie Partners, Inc. at its address
and toll-free telephone number set forth on the back cover of this Proxy
Solicitation.
The purpose of the Offer is to acquire majority control of the Company as
the first step in the acquisition of the entire equity interest in the
Company. CECI is seeking to negotiate with the Company a definitive
acquisition agreement (the "Proposed Merger Agreement") pursuant to which the
Company would, as soon as practicable following consummation of the Offer,
consummate a merger or other business combination (the "Proposed Merger") with
the Purchaser or another direct or indirect wholly owned subsidiary of CECI.
CECI expects that the Proposed Merger Agreement will, among other things,
contain customary conditions precedent to the Purchaser's and the Company's
obligations to consummate the Proposed Merger. Such conditions will be
determined pursuant to negotiations between CECI and the Company.
Under the Proposed Merger Agreement, at the effective time of the
Proposed Merger, each outstanding Share (other than Shares held by CECI, the
Purchaser or any other direct or indirect wholly owned subsidiary of CECI,
Shares held in the treasury of the Company and Shares held by stockholders who
properly exercise dissenters' rights under the NGCL) would be converted into
the right to receive cash and shares of CECI Common Stock having a combined
cash and market value of $38.50. The per Share amount of cash and CECI Common
Stock to be distributed in the Proposed Merger would be determined such that
the blended purchase price for all Shares acquired by the Purchaser and its
affiliates in the Offer and the Proposed Merger would be $28.50 in cash,
without interest thereon, and $10 in market value of CECI Common Stock,
subject to a collar provision in the Proposed Merger Agreement. Assuming that
12,400,000 Shares are purchased pursuant to the Offer, that 24,600,000 Shares
are outstanding at the effective time of the Proposed Merger and that all
Shares, other than the 200,000 shares owned by CECI, are converted in the
Proposed Merger, on a per Share basis the consideration to be paid in the
Proposed Merger would be, subject to the collar provision, approximately
$18.17 in cash and approximately $20.33 in market value of CECI Common Stock.
The Offer is conditioned upon, among other things, (1) there being
validly tendered and not withdrawn before the expiration of the Offer that
number of Shares which, together with Shares beneficially owned by the
Purchaser, represents at least a majority of the Shares outstanding on a fully
diluted basis, (2) the Company having entered into the Proposed Merger
Agreement with the Purchaser (such condition being referred to as the "Merger
Agreement Condition"), (3) the Purchaser being satisfied, in its sole
judgment, that the Purchaser has obtained financing sufficient to enable it to
consummate the Offer and the Proposed Merger, and (4) authorization by CECI's
stockholders of the issuance of CECI Common Stock sufficient to complete the
Proposed Merger. The Offer is also subject to certain other conditions which
are set forth in the Offer to Purchase, the Supplement and the related Letters
of Transmittal, copies of which may be obtained from MacKenzie Partners, Inc.
Consummation of the Proposed Merger will require approval by the
Company's Board and the affirmative vote of the holders of a majority of the
outstanding Shares. The Purchaser intends to vote all Shares acquired by it
in favor of the Proposed Merger, and, if the Purchaser were to purchase a
majority of the Shares pursuant to the Offer (and assuming satisfaction of the
Merger Agreement Condition), the Purchaser would have a sufficient number of
Shares to approve the Proposed Merger and to elect directors as described
below without the affirmative vote of any other holder of Shares. Although
the Purchaser will seek consummation of the Proposed Merger as soon as
practicable following the purchase of Shares pursuant to the Offer, the exact
timing
<PAGE>5
and details of the Proposed Merger will depend on a variety of factors and
legal requirements, including, among other things, whether the conditions to
the Offer have been satisfied or waived.
REASONS FOR THE PROXY SOLICITATION
The purpose of the Proxy Solicitation is to facilitate consummation of
the Offer and the Proposed Merger. CECI believes that this solicitation is
necessary because the Company s Board and management have taken extraordinary
steps to prevent the Company s stockholders from having an effective say in
how their investment in the Company can best be maximized and have approved a
variety of actions which CECI believes are not in the best interest of
stockholders. Apparently, the significance of the calling of the Special
Meeting, which was requested by the holders of more than % of the
outstanding Shares (representing % of the Shares not held by the Company's
management or by entities whose representatives serve on the Company's Board),
has not been understood by the Company's Board. By signing, dating and
mailing the BLUE proxy card today, stockholders can send a powerful message to
the Company s Board and management and remind them that the stockholders, and
not they, are the true owners of the Company and that the Board and management
are supposed to work FOR the Company s stockholders.
Here are some of the ways in which the Company s Board and management
have reacted to CECI s proposal to acquire the Company at a substantial
premium to its market value (which today is equivalent to $11 per Share over
the market price prior to announcement of CECI's original acquisition
proposal):
- On October 3, 1994, the Company s Board unilaterally eliminated the
right of stockholders to act by written consent and mandated that
stockholders act only at annual or special meetings.
This action was taken after CECI had indicated to the Company that it
was prepared, if necessary, to take its proposal to acquire the
Company directly to the Company's stockholders by means of a consent
solicitation. Had the Company's Board not taken this action, the
Company s stockholders would already have had the opportunity to
render the Nevada Control Share Statute - an antitakeover device that
to this day the Company's Board is hiding behind - inapplicable to the
Offer and the Proposed Merger and thereby send the Company's Board a
powerful message as to the desirability of accepting the Offer and the
Proposed Merger.
- Also on October 3, 1994, and again in response to CECI s acquisition
proposal, the Company s Board adopted a Poison Pill.
The effect of the Poison Pill (which the Company's Board can redeem at
any time) is to make it economically impossible for the Purchaser to
purchase Shares pursuant to the Offer, regardless of how many of the
Company's stockholders tender Shares.
- Also on October 3, 1994, the Company's Board initiated costly
litigation against CECI seeking, among other things, a declaratory
judgment as to the validity of a number of the measures approved by
the Company's Board which the Company is using to attempt to defeat
the Offer and the Proposed Merger.
- On October 11, 1994, the Company announced that it had entered into
"Golden Parachute" severance agreements with 15 of the most highly
compensated members of the Company's management and indemnification
agreements with the members of the Company's Board.
<PAGE>6
By affording current management financial security in the event of a
successful acquisition of the Company, these Golden Parachutes
insulate the current management from the personal consequences of a
costly fight to remain entrenched, the ultimate cost of which will be
borne by the Company's stockholders.
- On October 28, 1994, the Company's Board directed the Company's
management and financial advisor to explore all available alternatives
for the Company, including remaining independent and conducting
discussions with interested parties, including CECI, concerning
extraordinary transactions.
To date, the Company has not offered its stockholders any alternative
to the Offer and the Proposed Merger and has never attempted to
explain how the termination of CECI's $38.50 per Share offer could
possibly be in the best interest of the stockholders. Instead, the
Company has refused to meet with CECI unless CECI signs a three-year
standstill agreement, the terms of which require, among other things,
that CECI terminate the Offer and this Proxy Solicitation and not make
any bid to acquire the Company for a period of three years. The
Company has also stated that in order to recognize the true value of
Magma, a potential partner must sit down with management and study the
company from the inside. Thus, the Company has created an untenable
"Catch 22" situation by telling CECI it can only discuss a transaction
with the Company and receive vital confidential information if it
promises to not pursue acquiring Shares and to not engage in this
Proxy Solicitation for three years.
THE CECI PROPOSALS ARE INTENDED TO FACILITATE CONSUMMATION OF THE $38.50
PER SHARE OFFER AND TO INCREASE THE LIKELIHOOD THAT THE COMPANY AND THE
PURCHASER WILL ENTER INTO THE PROPOSED MERGER.
ADOPTION OF THE CECI PROPOSALS WILL NOT REQUIRE THAT YOU TENDER YOUR
SHARES PURSUANT TO THE OFFER OR PRECLUDE YOU FROM ACCEPTING OTHER OFFERS WHICH
MIGHT BE MADE BY THE PURCHASER OR THIRD PARTIES. YOUR VOTE IS EXTREMELY
IMPORTANT AND WE URGE YOU TO PROMPTLY SIGN, DATE AND MAIL THE BLUE PROXY CARD
IN FAVOR OF EACH CECI PROPOSAL.
If you have already sent a proxy to the Company's Board, you can revoke
that proxy and vote for the CECI Proposals by signing, dating and mailing the
enclosed BLUE proxy card. Only your latest dated proxy will count at the
Special Meeting. If you have tendered Shares pursuant to the Offer, such
tender does not affect your ability to vote for the CECI Proposals prior to
acceptance of such Shares by the Purchaser pursuant to the Offer.
REASONS TO APPROVE THE CECI PROPOSALS
AND VOTE THE BLUE CARD TODAY
- CECI has offered to acquire the Company for $38.50 per Share,
representing a premium of $11.00 per Share over the market price prior
to the announcement of CECI's original acquisition proposal. In
response, the Company's Board has effectively refused to meet with
CECI and has produced no alternative to CECI's $38.50 acquisition
proposal, even though __ weeks have passed since CECI made its
original proposal to acquire the Company.
- Although the Company's stockholders have already sent a strong message
to the Company's Board by requesting the call of the Special Meeting,
the Board apparently needs to receive another
<PAGE>7
powerful message from the Company's stockholders, to whom the
Company's Board ultimately must be responsible.
- Approving the CECI Proposals does NOT prevent the Company's Board from
accepting a bid from a third party that provides greater value to
stockholders than does CECI's $38.50 acquisition proposal. THERE IS
NO DOWNSIDE TO VOTING THE BLUE PROXY CARD TODAY UNLESS, OF COURSE, YOU
FAVOR THE COMPANY REMAINING INDEPENDENT DESPITE CECI'S OFFER.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, CECI and the Purchaser will propose: as Proposal
I, that the number of directors on the Company's Board be increased from 11 to
15 and that the CECI Nominees be elected as directors to fill the four newly
created directorships on the Company's Board; as Proposal II, that the First
Bylaw Amendment be adopted; and as Proposal III, that the Second Bylaw
Amendment be adopted. The CECI Proposals are intended to facilitate
consummation of the $38.50 per Share Offer and to increase the likelihood that
the Company and the Purchaser will enter into the Proposed Merger.
Proposal I: Proposal to Increase the Number of Directors of the Company from
11 to 15 and to Elect the four CECI Nominees to the Newly Created
Directorships on the Company's Board
The Proposal. "RESOLVED, that (i) the number of directors of the Company
be increased from 11 to 15, (ii) the directors to fill the
four directorships created by such increase be elected by
stockholder action at the Special Meeting, and (iii) the
CECI Nominees be elected to fill the newly created
directorships.
Reasons for Proposal I. The purpose of expanding the size of the
Company's Board from 11 to 15 directors and filling the four new directorships
created thereby with the CECI Nominees is to place on the Company's Board
directors who are committed, subject to their fiduciary duties as directors of
the Company (which may require them to consider and/or accept offers from
persons other than the Purchaser to purchase or otherwise combine with the
Company), to taking all action such nominees deem appropriate with respect to
removing any impediments to the Company's stockholders right to choose
freely whether to accept the Offer and approve the Proposed Merger, thereby
ensuring that the Offer and the Proposed Merger get a full and fair hearing.
Assuming all of the CECI Nominees are elected at the Special Meeting to serve
on the Company's Board, CECI believes it would be able to obtain majority
representation on the Company's Board (eight seats out of 15) if the Purchaser
subsequently elected all directors standing for election at the 1995 Annual
Meeting of Stockholders (the "1995 Annual Meeting"). The Purchaser would be
able to elect all such directors and obtain majority representation on the
Company's Board at the 1995 Annual Meeting if it were to purchase a majority
of the Shares pursuant to the Offer and if Proposal III rendering the Control
Share Statute inapplicable to the Offer is approved at the Special Meeting or
the Control Share Statute has otherwise been complied with or found to be
inapplicable to the Offer such that all Shares purchased pursuant to the Offer
will have full voting power.
Background of Proposal I. Pursuant to Article IV of the Company's
Restated Articles of Incorporation (the "Articles of Incorporation"), the
Company's Board may consist of not less than three nor more than 15 directors,
the exact number of which shall be fixed from time to time by resolution of
the Company's Board, or by resolution of the stockholders at an annual or
special meeting. Based on publicly available information, the Company's Board
consists of 11 directors.
<PAGE>8
Section 4, Article II of the Bylaws provides that newly created
directorships may be filled by a majority of the directors then in office.
This Bylaw provision allows the Company's Board to fill newly created
directorships on the Company's Board without any stockholder participation.
Proposal I prevents the Company's Board from filling any of these newly
created directorships by providing that the four directorships created
pursuant thereto may only be filled initially by stockholder action at the
Special Meeting.
Nomination of the CECI Nominees. At the Special Meeting, CECI and the
Purchaser intend to nominate the CECI Nominees listed below for election to
the Company's Board to fill the new directorships created upon approval of
Proposal I. Following their nomination, CECI and the Purchaser will propose
that the stockholders of the Company elect such CECI Nominees to the Company's
Board.
Each of the CECI Nominees has consented to serve as a director of the
Company if elected. Pursuant to the Articles of Incorporation, (i) the
Company's Board is divided into three classes, with one class of directors
elected each year for a three-year term, (ii) any increase in the number of
directors shall be apportioned among the classes so as to maintain the number
of directors in each class as nearly equal as possible and (iii) the term of a
director elected to fill a newly created directorship shall expire at the same
time as the terms of the other directors of the class for which the new
directorship is created. In light of these requirements, each CECI Nominee
elected to serve as a director of the Company at the Special Meeting will hold
office until the expiration of the term indicated below and until such
nominee's successor has been elected and qualified or until death,
resignation, retirement, removal or disqualification of such nominee. If any
CECI Nominee should become unable to serve as a director of the Company after
the date of this Proxy Statement, CECI intends to designate a suitable
substitute.
<PAGE>9
Information Concerning the CECI Nominees
Each of the following nominees were chosen by CECI because they are
independent of and have no business relationship with CECI.
<TABLE>
<CAPTION>
Principal Occupation and
Business Experience During
Name and Past Five Years; Other
Principal Business Address Age Directorships
<S> <C> <C>
Arthur M. Dubow. Mr. Dubow's business address is 61 Private investor in New York. Mr. Dubow is a director of
Briar Patch Road, East Hampton, New York 11937. Castle Convertible Fund Inc., Spectra Fund, Inc.,
Coolidge Investment Corporation and the Family of Alger
Mutual Funds. From 1982-1986, Mr. Dubow was President,
Director and Vice-Chairman of The Boston Company Energy
Advisors, Inc., a registered investment advisor offering
services to institutional clients regarding direct
investments in the oil and gas industry and from 1989 to
1991 was Chairman of Institutional Shareholder Services
Inc. (an institutional investor advisory firm).
Mr. Dubow received his A.B. from Harvard College, his
L.L.B. from Harvard Law School and was a Fellow at the
Center for International Affairs, Harvard University.
Mr. Dubow is also a past member of the Advisory Board of
the School of Advanced International Studies of John
Hopkins University, New American Filmmakers Series,
Whitney Museum (New York City) and the Institute for
Educational Leadership (Washington, D.C.).
Richard H. Neumann. Mr. Neumann's business address 60 Since 1992 Mr. Neumann has been a private investor and
is 60674 Teton Court, Bend, Oregon 97702. business consultant. Mr. Neumann was an employee of
California Energy Company, Inc. from 1989 to 1991 and
served as a Senior Vice President, Administration. Prior
to joining California Energy Company, Inc., Mr. Neumann
held a variety of human resource management positions at
Bechtel Group both in San Francisco and Houston before
being elected Vice President and Manager of Personnel in
1987. Mr. Neumann has a B.S. Degree in Labor Economics
from the University of Wisconsin and an M.S. Degree in
Human Resources Management from Golden Gate University,
San Francisco.
<PAGE>10
60 Senior Managing Partner at the law firm of Iverson,
Yoakum, Papiano & Hatch in Los Angeles. Mr. Papiano
Neil L. Papiano. Mr. Papiano's business address is serves as a member of the Board of Trustees of The
One Wilshire Building, 27th Floor, 684 South Grand American University (Washington, D.C.) and Orthopedic
Avenue, Los Angeles, California 90017. Hospital (Los Angeles) and is a Lecturer at the
University of California, School of Law, Davis, McGeorge
School of Law, University of the Pacific, Sacramento and
Georgetown University Law Center (Washington, D.C.). He
received his B.A. and M.A. from Stanford University and
his J.D. from Vanderbilt University. Mr. Papiano is also
Chairman of the Board, Los Angeles Civic Light Opera
Association and Los Angeles Forward (organization of 350
Los Angeles business persons and labor leaders formed to
adopt a new Charter for the City) and is a member of the
Board of Directors of the Los Angeles Performing Arts
Council and Los Angeles Music Center Operating Company.
Ronald L. Staskiewicz. Mr. Staskiewicz's business 51 Private investor and engaged in the private practice of
address is 3232 L Street, Omaha, Nebraska 68107. law in Omaha since 1992. Mr. Staskiewicz is the former
Douglas County Attorney (1987-1991) and a past member of
the National District Attorney's Association Board of
Directors, as well as a member of the Associations's Drug
Control Committee, Policy and Legislation Committee and
Environmental Control Committee. Mr. Staskiewicz is also
a former member of the Nebraska Drug Policy Board and the
Governor's Nebraska Crime Commission. Mr. Staskiewicz
received his B.A. and J.D. degrees from Creighton
University, his L.L.M. degree from Southern Methodist
University and is a graduate of the FBI National Law
Institute.
</TABLE>
CECI has designated the class of director for each CECI Nominee. Of the
four new directorships created, Mr. Dubow will serve until the 1995 Annual
Meeting, Mr. Neumann will serve until the 1996 Annual Meeting of Stockholders
and both Messrs. Papiano and Staskiewicz will serve until the 1997 Annual
Meeting of Stockholders.
According to the proxy statement relating to the Company's 1994 Annual
Meeting of Stockholders, each "outside" director of the Company is entitled to
receive an annual fee of $15,000, plus a fee of $1,500 for each meeting of the
Company's Board attended and $750 for each committee meeting attended (if such
committee
<PAGE>11
meeting is not held on the same day as a meeting of the Company's Board).
Directors who are employees of the Company or who are affiliated with a major
stockholder of the Company are not entitled to receive directors' fees.
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. According to the Company's
public filings, James D. Shepard receives an annual payment of $15,000 for
serving as a stockholder relations consultant to the Company. Other than as
set forth above, CECI is not aware of any other arrangements pursuant to which
any director of the Company was compensated for services during the Company's
most recent fiscal year.
CECI has agreed to pay each CECI Nominee (i) a retainer fee of $5,000 and
(ii) an additional retainer fee of $10,000 if such CECI Nominee is required to
attend one or more meetings of the Company's Board, in addition to any
expenses incurred in attending any such meetings. CECI believes that the CECI
Nominees, if elected, will be indemnified for their service as a director of
the Company to the same extent indemnification is available to directors of
the Company under the Bylaws. In addition, CECI believes that, upon election,
the CECI Nominees will be covered by the Company's officer and director
liability insurance. CECI also intends to indemnify each of the CECI Nominees
against any expenses (including legal fees) arising out of such nominee's
nomination and standing for election as a director, and if elected a director
of the Company, such nominee's duties as a director of the Company.
Other than as set forth above, to the knowledge of CECI and the
Purchaser, none of the CECI Nominees (i) have any arrangements or
understandings with any person or persons with respect to any future
employment by the Company or its affiliates, or with respect to any future
transactions to which the Company or any of its affiliates shall or may be a
party; (ii) have carried on any occupation or employment with the Company or
any corporation or organization which is or was a parent, subsidiary or other
affiliate of the Company, or have ever served on the Company's Board; or (iii)
have received any cash compensation, cash bonuses, deferred compensation,
compensation pursuant to plans, or other compensation, from, or in respect of,
services rendered to or on behalf of the Company. No family relationships
exist among the CECI Nominees or between any of the CECI Nominees and any
director or executive officer of the Company.
Certain additional information relating to, among other things, the
ownership, purchase and sale of securities of the Company by the CECI
Nominees, or arrangements with respect thereto, and transactions between the
Company and the CECI Nominees or their associates is set forth in the Section
below entitled "Certain Information Concerning The Participants."
Vote Required - Proposal I. The affirmative vote of the holders of a
majority of the Shares as of the Record Date entitled to vote at the Special
Meeting will be required to adopt Proposal I. Pursuant to applicable law, the
Company's stockholders may withhold authority for any individual CECI Nominee.
A vote in favor of Proposal I will constitute a vote in favor of clauses (i),
(ii) and (iii) of Proposal I, including each of the CECI Nominees, unless the
stockholder specifically withholds authority for a particular nominee. With
respect to clause (iii) of Proposal I, those nominees for director, including
the CECI Nominees and any other nominees for director nominated at the Special
Meeting, who receive the greatest number of the votes cast at the Special
Meeting, even though not receiving a majority of the votes cast, will be
elected, assuming a quorum is present at the Special Meeting. Consequently,
nominees other than those proposed by CECI or a combination of nominees
proposed by CECI and any party may be elected as directors at the Special
Meeting.
<PAGE>12
Proposal II: Proposal to Increase the Affirmative Vote Required by Directors
for Certain Corporate Action
The Proposal. "RESOLVED, that the Restated Bylaws of Magma Power
Company, a Nevada corporation, be amended by striking
ARTICLE II, SECTION 5(c) and inserting in its place a new
SECTION 5(c), as follows:
(c) Quorum and Manner of Acting. At all meetings of
the Board, a majority of the entire Board shall constitute
a quorum for the transaction of business. Except as
provided below and in cases in which the Articles or these
Bylaws otherwise provide, the vote of a majority of the
directors present at a meeting at which a quorum is present
shall be the act of the Board. The affirmative vote of at
least 80% of the entire Board shall be required with
respect to any material action outside the ordinary course
of business taken or committed to be taken prior to the
Corporation's 1995 Annual Meeting of Stockholders,
including issuances of securities, dispositions of assets,
taking compensation, benefit and employment actions,
entering into material commitments or contracts, and
incurrences of debt or liens; provided, however, that the
foregoing 80% voting requirement shall not apply to any
action entered into in connection with the tender offer of
California Energy Company, Inc. ("CECI") which commenced on
October 6, 1994 and the related proposed merger, or any
transaction in which all of the outstanding shares of
common stock of the Corporation are agreed to be acquired
at a price in excess of $38.50 per share of common stock of
the Corporation; and provided further that a majority of
the Board shall be entitled to make all determinations
hereunder whether an action is material or is outside the
ordinary course of business, such determination (which shall
be evidenced by a written resolution) to be (i) consistent
with the purpose for adoption of this provision and (ii)
presumed conclusive so long as such determination shall have
been made in good faith and shall be consistent with the
purpose for adoption of this provision."
Reasons for Proposal II. Currently, assuming a quorum of the Company's
Board is present, Article II, Section 5(c) of the Bylaws provides that the
Company's Board may act with the affirmative vote of a majority of the
directors present at a meeting of the Company's Board. Therefore, even if
Proposal I were approved and the CECI Nominees were placed on the Company's
Board, the Company's Board could still act without the affirmative vote of any
of the CECI Nominees who would be seated on the Company's Board. The purpose
of Proposal II is to require the approval of at least one of the CECI Nominees
(if all four of the CECI Nominees were to be seated on the Company's Board) of
certain actions that could adversely affect CECI's ability to consummate the
Offer and the Proposed Merger. However, since the best interests of the
stockholders may be served by the acceptance of an acquisition offer from
persons other than CECI and the Purchaser, Proposal II does not apply to
action taken by the Company's Board authorizing a transaction pursuant to
which all of the outstanding Shares will be acquired at a price in excess of
$38.50 per Share. In keeping with its purpose, Proposal II applies only to
material actions that are outside of the ordinary course of the Company's
business and does not apply to routine corporate actions taken by the
Company's Board. Furthermore, Proposal II will cease to have effect after the
1995 Annual Meeting.
Vote Required - Proposal II. The affirmative vote of the holders of a
majority of the outstanding Shares as of the Record Date entitled to vote will
be required to adopt Proposal II.
<PAGE>13
Proposal III: Proposal to Render the Provisions of the Control Share Statute
Inapplicable to the Offer
The Proposal. "RESOLVED, that the Restated Bylaws of Magma Power
Company, a Nevada corporation, be amended by inserting
a new SECTION 6 in ARTICLE V as follows:
SECTION 6. Inapplicability of Control Share Statute. The
provisions of Sections 78.378 through 78.3793, inclusive, of
the Nevada General Corporation Law do not apply to any shares
of common stock of the Corporation now owned or hereafter
acquired by California Energy Company, Inc., a Delaware
corporation ("CECI"), or CE Acquisition Company, Inc., a
Delaware corporation, pursuant to the tender offer of CECI
which commenced on October 6, 1994 and the related proposed
merger."
Reasons for Proposal III. The purpose of Proposal III is to amend the
Bylaws to state expressly that the provisions of the Control Share Statute do
not apply to the Offer and the Proposed Merger. The Control Share Statute
purports to deny voting rights to shares of an Issuing Corporation (as defined
below) that are acquired by a person and persons acting in association with
such person (together, an "Acquiring Person"), the total number of which is
sufficient to enable the Acquiring Person, directly or indirectly, to exercise
voting power in the election of directors at or above any of three thresholds
(20%, 33-1/3% or a majority of the outstanding voting power of the Issuing
Corporation), and any shares acquired by the Acquiring Person within 90 days
before such acquisition ("Control Shares"), unless, among other exceptions,
(i) the articles of incorporation or bylaws of the corporation in effect on
the tenth day following such acquisition provide that the provisions of the
Control Share Statute do not apply or (ii) voting rights for such Control
Shares have been approved at a meeting of certain disinterested stockholders
called in accordance with the provisions of the Control Share Statute (the
"Control Share Special Meeting"). Although, as noted below, CECI believes the
Control Share Statute is inapplicable to Shares purchased pursuant to the
Offer and the Proposed Merger, approval of Proposal III would obviate the need
for wasteful and costly litigation by expressly rendering the provisions of
the Control Share Statute inapplicable to the Offer and the Proposed Merger.
The Control Share Statute provides that it applies to certain
acquisitions of shares of a corporation incorporated in Nevada that has 200 or
more stockholders, at least 100 of whom are stockholders of record and
residents of Nevada and that does business in Nevada directly or through an
affiliated corporation (an "Issuing Corporation"). CECI has reviewed a list
of the record holders of the Shares as of October 26, 1994 and as of November
7, 1994, which list originally was made available by the Company by order of
the Nevada State District Court only after the Company refused to voluntarily
deliver the list. Such list indicates that the Company had, at such date,
fewer stockholders of record who are residents of Nevada than the required
minimum number for the Control Share Statute to be applicable. Accordingly,
CECI believes the Control Share Statute is inapplicable to Shares purchased
pursuant to the Offer and the Proposed Merger. CECI has made a demand to the
Company requesting concurrence with this view, but such request was denied,
and CECI has initiated court action seeking a ruling that the Control Share
Statute does not apply. See "CERTAIN LITIGATION."
If the Control Share Statute were found to be applicable to the Offer and
the Proposed Merger, approval of Proposal III would have the effect of
rendering unavailable certain rights which, under certain circumstances, might
otherwise have been available to stockholders. Pursuant to the Control Share
Statute, unless the articles of incorporation or bylaws of a corporation in
effect on the tenth day following a control share acquisition provide
otherwise, in the event shares acquired in a control share acquisition are
accorded full voting rights and the acquiring person has beneficial ownership
of shares entitled to cast a majority of the votes which could be cast in an
election of directors, all stockholders of the corporation (other than the
acquiring person) have the right to dissent from the granting of voting rights
and to demand payment of the fair value of their shares under the Control
Share Statute. Fair value under the Control Share Statute may in no event be
less than the highest price per Share paid in the control share acquisition.
Based upon publicly available information, on the date hereof,
<PAGE>14
the Company's Articles of Incorporation and Bylaws do not restrict the
dissenter's rights granted under the Control Share Statute.
The foregoing Summary does not purport to be a complete statement of the
provisions of the Control Share Statute and is qualified in its entirety by
reference to Schedule I attached hereto and to any amendments to such statute
as may be adopted after the date of this Proxy Solicitation.
Stockholders should be aware that if CECI and the Purchaser are able to
negotiate an acquisition agreement or merger agreement with the Company prior
to consummation of the Offer, the dissenters' rights under the Control Share
Statute will not be applicable. However, in such event, certain other
dissenters' rights under the NGCL relating to mergers and certain other
corporate transactions may be applicable.
The Special Meeting is not being held pursuant to the provisions of the
Control Share Statute. CECI and the Purchaser, however, reserve the right to
deliver at a future time an offeror's statement to the Company in connection
with the Offer and, contemporaneously therewith, to request that the Company
call the Control Share Special Meeting. CECI, in its sole judgment, may also
seek other means, including legal proceedings, to establish the voting rights
of Shares tendered pursuant to the Offer.
A condition to the purchase of Shares pursuant to the Offer is that the
Company shall have entered into the Proposed Merger Agreement, which will
contain the condition that the Shares purchased by the Purchaser or CECI
pursuant to the Offer and the Proposed Merger will have full voting rights in
accordance with the NGCL. The Purchaser is not willing to consummate the
Offer unless the Shares acquired by it pursuant to, and in contemplation of,
the Offer have full voting rights. Accordingly, adoption of the CECI
Proposals will remove an important impediment to the Purchaser's ability to
consummate the Offer.
Vote Required - Proposal III. The affirmative vote of the holders of a
majority of all outstanding Shares entitled to vote will be required to adopt
Proposal III.
APPROVAL OF THE CECI PROPOSALS WILL NOT ASSURE CONSUMMATION OF THE OFFER
AND WILL NOT LIMIT THE ABILITY OF THE COMPANY TO NEGOTIATE WITH CECI
CONCERNING THE TERMS OF AN ACQUISITION OF THE COMPANY BY CECI. Even if the
CECI Proposals are adopted, the Offer will remain subject to the satisfaction
of other conditions. Thus, if the CECI Proposals are adopted, CECI and the
Purchaser may still seek to negotiate an acquisition with the Company.
BACKGROUND OF THE OFFER, THE PROPOSED MERGER
AND THE REQUEST SOLICITATION
Between May 1991 and June 1994, representatives of the Company and CECI
discussed, on various occasions, the possibility of the Companies cooperating
on certain matters, engaging in a joint venture or entering into a business
combination or other acquisition transaction. These discussions did not lead
to any agreements or understandings.
On or about June 20, 1994, David L. Sokol, Chairman, President and Chief
Executive Officer of CECI contacted Ralph W. Boeker, President and Chief
Executive Officer of the Company, and proposed a meeting in person between
members of management of the two companies to discuss the possible combination
of CECI and the Company. As a result of that conversation, an August 11, 1994
meeting was scheduled to be held between Mr. Sokol and Mr. Boeker and other
representatives of their companies.
<PAGE>15
On August 9, 1994, Mr. Sokol was advised that Mr. Boeker had cancelled
the scheduled August 11 meeting. On August 10, 1994, Mr. Sokol spoke to Mr.
Boeker by telephone, and was advised that the Company's decision to cancel was
principally due to the desire of the Company's management to dedicate their
full attention to the pending financing of the Company's Malitbog project in
the Philippines. Accordingly, Mr. Boeker suggested that he would schedule a
meeting with Mr. Sokol toward the end of September 1994, which is when the
Company expected to close the financing.
On September 15, 1994, Mr. Sokol contacted a member of the Company's
Board, in an effort to determine whether the Company had a serious interest in
discussing a negotiated combination of the companies within a time frame that
would recognize CECI's desire to make certain decisions regarding the
strategic direction it wished to pursue in the changing global marketplace.
The director stated that he was aware of certain of the past discussions
between the companies, but would ask the Company's management to respond
directly to Mr. Sokol's inquiry.
Later that same day, Paul M. Pankratz, the Chairman of the Company, and
Mr. Boeker called Mr. Sokol and advised him that the closing of the financing
for the Company's Malitbog project had been delayed and was expected to occur
on or about November 18, 1994 and suggested that they would be available to
meet with Mr. Sokol shortly after the closing of such financing. Mr. Sokol
stated that CECI was considering a number of strategic alternatives, including
a possible combination with the Company, and that CECI's strategic planning
had reached a stage where a prompt decision concerning entering into
negotiations regarding any possible combination with the Company was required.
Mr. Sokol further stated his belief that it was unnecessary to wait until
after the closing of the Malitbog financing because CECI was prepared to
negotiate in good faith on a basis that would value the Company as though such
financing had closed. Messrs. Boeker and Pankratz reiterated that they would
agree to meet only after the Malitbog closing and Mr. Sokol concluded the call
by reiterating CECI's need to act upon certain of its strategic alternatives
on a prompt basis.
On September 19, 1994, Mr. Sokol sent the following letter to Messrs.
Pankratz and Boeker:
Dear Paul and Ralph:
We have discussed on several occasions during the past 12 months the
possible combination of California Energy Company, Inc. ("California
Energy") and Magma Power Company ("Magma"). As you know, California
Energy believes strongly that the strategic benefits which result
from merging our companies would enhance value for the shareholders
of both companies, while improving our shared competitive position
in an increasingly challenging business environment. While we have
been respectful of your desire to move slowly in this matter in the
past, the demands of a rapidly changing domestic and global
marketplace have led us to conclude that it is appropriate to make a
proposal to purchase Magma at this time.
Consequently, pursuant to the authority of its Board of Directors,
California Energy hereby proposes to acquire all outstanding shares
of Magma's common stock for $35 per share, comprised of $25.00 in
cash and $10.00 in market value of California Energy's common stock.
We understand from you that Magma will complete the financing of its
Malitbog geothermal project in the Philippines in mid-November and
we therefore established our proposal price to reflect fully the
value of this project although our proposal is not contingent on the
completion of such financing.
We hope that our proposed transaction can be consummated amicably
and expect to hear from you promptly. I am available to meet with
you and Magma's Board to discuss this proposal, and to answer any
questions you may have. As you know, California Energy has
substantial cash
<PAGE>16
on hand and our financial advisor has confirmed to us that we can
conclude any additional financing required to effect the
combination of our two companies on a timely basis.
As I have stressed in our past discussions, we would prefer that the
combination of Magma and California Energy be effected on a
friendly, consensual basis in which the interest of our respective
shareholders, employees, customers and business partners are fairly
served. We are, of course, prepared to negotiate in good faith all
aspects of our proposal and to work out the terms of a mutually
satisfactory merger agreement, containing terms and conditions
typical for a transaction of this type.
Under the circumstances, we believe that Magma's Board of Directors
has a fiduciary responsibility to provide its shareholders with the
opportunity to take advantage of this proposal. While we hope that
it will not become necessary for us to approach your shareholders
directly, in the event that you do not respond to this proposal
promptly, we reserve the right to approach your shareholders
directly with a tender offer and/or a consent solicitation to call a
special meeting of shareholders for purposes of acting on this
proposal and electing directors.
Our companies, and the three of us personally, have enjoyed cordial
relations for some time. While I have consistently expressed to you
our belief that a business combination of California Energy and
Magma has strong commercial advantages, my colleagues and I have
also expressed our regard for the quality of Magma's projects and
the professionalism of its management. As we are all keenly aware,
the independent power industry is undergoing fundamental change as a
result of the accelerating deregulation in the U.S. electric utility
industry. Simultaneously, our greatest growth opportunities have
shifted from the domestic market to the international arena. While
our growth prospects internationally are extremely favorable, they
also require dramatically expanded developmental, financial,
construction and operational resources and talents. We are confident
that the combination of our companies will advance us to the
forefront of the global competition and will greatly enhance our
probability of successful growth with diligent risk management. We
also believe that the combined company would obtain a powerful
strategic advantage on international projects by being able to draw
upon the engineering talents of The Dow Chemical Company and the
construction expertise and capabilities of Peter Kiewit Sons' Inc.,
California Energy's largest shareholder.
California Energy continues to experience strong growth and remains
committed to rapid international expansion. We have this year
successfully financed and placed over 300 MW of geothermal power in
construction in the Philippines and believe that Magma's experienced
management team and dedicated employees will be an important
addition to California Energy as it pursues its aggressive
development strategy.
Paul, as you, Ralph and I discussed on our phone call last Thursday,
the combination of our two companies is fundamentally an economic
decision and should additionally provide for the proper and fair
treatment of both companies' employees. I can assure you that in any
such transaction, we would work together to ensure a high level of
opportunity and satisfaction for our combined employee group. It is
my personal hope that you and your advisors will share our
enthusiasm for the combination we have proposed and that we can
promptly provide for our respective shareholders the enhanced value
which it will create.
<PAGE>17
I encourage you to contact me at your earliest convenience;
additionally, your advisors may contact directly Mr. James Goodwin
of Gleacher & Co. (212) 418-4218, California Energy Company's
financial advisor.
Sincerely yours,
/s/ David L. Sokol
David L. Sokol
Chairman, President and
Chief Executive Officer
cc: Board of Directors of Magma Power Company
c/o Magma Power Company
It should be noted that CECI's view as to the obligations of the Company's
Board have been contested by the Company's Board and are the subject of
litigation. See "CERTAIN LITIGATION."
On September 20, 1994, Mr. Pankratz sent the following letter to Mr.
Sokol:
Dear David:
We have received your letter of September 19, 1994 regarding your
unsolicited proposal to purchase Magma Power Company for a
combination of cash and securities. The purpose of this letter is to
advise you that the Magma Board of Directors will consider your
proposal in due course and inform you of its decision after
completion of its evaluation.
Very truly yours,
/s/ Paul M. Pankratz
Paul M. Pankratz
Chairman of the Board
During the week of September 19, 1994, representatives of CECI had
several telephone conversations with the management of Dow, the beneficial
owner of approximately 21% of the Shares, to determine Dow's reaction to
CECI's initial acquisition proposal of September 19, 1994. The CECI
representatives were told Dow was evaluating the Offer. During the week of
September 26, 1994, CECI's financial representatives contacted the management
of Dow to inquire as to the circumstances surrounding a recent sale by Dow of
857,143 Shares, representing approximately 4% of the total amount of Shares
outstanding and approximately 17% of the Shares beneficially owned by Dow, for
$28.25 per Share and an associated option agreement (the "Dow Option") to
acquire such Shares at the same price, which Dow had reported in filings with
the Commission, and in particular whether any impediments existed to Dow's
ability to freely dispose of such Shares and whether any structural changes to
CECI's merger proposal would be helpful in this regard. Dow reported that it
was considering such issues in the context of CECI's proposal. According to a
filing by Dow with the Commission, the sale and option transaction referred to
above was entered into for the purpose of matching Dow's book and tax basis
for the Shares involved in such transaction. Subsequently, Dow reported that
on September 30, 1994, Dow had exercised the Dow Option.
On September 26, 1994, Mr. Sokol sent the following letter to Messrs.
Boeker and Pankratz:
Dear Ralph and Paul:
<PAGE>18
As I stated in my letter of September 19, 1994, we believe that the
combination of California Energy and Magma Power is in the best
interest of the shareholders of both companies and the favorable
market reaction to our proposal would appear to validate this
belief.
Not having heard from you since Paul's letter of the 20th, I am
writing to reiterate our desire that the proposed transaction be
consummated on an amicable and consensual basis. In this spirit, I
am available to meet with you, Magma's directors or any appropriate
committee of the Board and its independent financial and legal
advisors to discuss our proposal and to answer any questions you may
have.
However, in order to be in a position to satisfy certain legal time
periods which I understand are applicable to our proposal, and as an
expression of our strong commitment to this transaction, we intend
to take this matter directly to Magma's shareholders. Please
understand that our decision to move forward in this fashion is not
intended to preclude the direct, friendly negotiation we seek.
Accordingly, if you do wish to arrange a meeting, please contact me
today directly at (402) 334-3710 or our advisors, Gleacher & Co. at
(212) 418-4200.
Sincerely yours,
/s/ David L. Sokol
David L. Sokol
Chairman, President and
Chief Executive Officer
On September 28, 1994, after telephone discussions between CECI's
financial advisors and the Company's financial advisors regarding CECI's
request to arrange a meeting between the parties, Mr. Sokol and Steven A.
McArthur, Senior Vice President, General Counsel and Secretary of CECI,
together with representatives from CECI's financial advisors, met with
representatives from the Company's financial advisor in order to introduce
CECI and to further elaborate and answer questions with respect to the details
of CECI's proposal. CECI provided the representatives from the Company's
financial advisors with copies of a draft merger agreement for review by the
Company's Board. At the end of the meeting, Mr. Sokol delivered the following
letter to Messrs. Boeker and Pankratz:
Dear Ralph and Paul:
I had hoped that we would meet directly this week to discuss the
combination of California Energy and Magma. While I am personally
disappointed that neither of you nor a representative of your Board
will be present, we have nevertheless agreed to meet with Goldman
Sachs, on Wednesday, September 28, 1994, to discuss any questions
your advisors may have regarding our proposal and deliver a draft
merger agreement for review by your Board.
As a condition to the meeting with Goldman Sachs, you have requested
that we refrain from commencing a tender offer or making any press
release about this matter until Tuesday, October 4, 1994, the day
subsequent to the completion of Magma's Board of Directors meeting
scheduled for October 2nd and 3rd. We have accepted this condition
and understand that Magma's Board will fully consider our proposal
at this extended meeting.
The decision we have made to await the outcome of the deliberations
of Magma's Board before taking further action should not be
interpreted as any willingness on our part to delay a process which,
from our perspective, has moved too slowly in the past. Although we
have acceded to
<PAGE>19
your request for more time, I want to be clear about our
intentions after Monday so that there are no surprises between us.
Accordingly, if your Board does not authorize meaningful merger
negotiations between us by the close of business on Monday, October
3, 1994, we will commence a tender offer for Magma's common shares
promptly on October 4, 1994.
Sincerely yours,
/s/ David L. Sokol
David L. Sokol
Chairman, President and
Chief Executive Officer
cc: Mr. Mac Heller
Goldman, Sachs & Co.
On October 3, 1994, the Company's financial advisors informed CECI's
financial advisors that the Company's Board had authorized the Company to
adopt the Rights Agreement at its Board meeting which concluded on such date,
but that the Company's Board had also authorized the Company's financial
advisors to meet with CECI's financial advisors as soon as possible and,
accordingly, a meeting was scheduled for the morning of October 4, 1994. CECI
subsequently learned through press reports that the Company had amended its
Bylaws to require that stockholder action occur only at a regular or special
meeting of stockholders rather than by way of a written consent solicitation
and that the Company also had filed a complaint against CECI seeking a
declaratory judgment that (i) the Company's Board had properly discharged its
fiduciary duties in adopting the Rights Agreement and an amendment to the
Company's Bylaws and, accordingly, such agreement and amendment were valid and
binding, and (ii) the Merger Moratorium Statute, as set forth in Sections
78.411 through 78.444, inclusive, of the NGCL (the "Merger Moratorium
Statute"), is valid and not in violation of the Commerce Clause and Supremacy
Clause of the United States Constitution.
On October 4, 1994, at the meeting between CECI's financial advisors and
the Company's financial advisors, the Company's financial advisors summarized
the actions taken at the Company's Board meeting held on October 2, 1994 and
October 3, 1994, and indicated that although the Company's Board had not
rejected CECI's proposal, the Company's Board would prefer that CECI withdraw
its merger proposal. The Company's financial advisors then indicated that the
Company's Board believed that CECI's proposed price was too low and referenced
the Company's future opportunities but declined to provide any specific
information or financial analysis indicating what price the Company's Board
would consider favorably with respect to a sale of the Company or as to why
CECI's proposed price did not correctly value the Company's businesses.
Subsequently, CECI announced that the Offer would commence on October 6,
1994 and issued the following press release:
CALIFORNIA ENERGY TO MAKE CASH TENDER OFFER FOR
51% OF MAGMA POWER AT $35 PER SHARE
OMAHA, NE, October 4, 1994 -- California Energy Company, Inc.
(NYSE, PSE, LSE:CE) announced today that a wholly owned subsidiary
of California Energy will commence on Thursday a cash tender offer
for 12,400,000 shares, or approximately 51%, of the common stock of
Magma Power Company (NASDAQ:MGMA) at a price of $35 net per share as
a first step in implementing its September 19 proposal to acquire
all Magma's shares for a combination of $25 in cash and $10 in
market value of California Energy common stock. The tender offer is
conditioned upon, among other things, entering into a merger
agreement with Magma Power
<PAGE>20
providing for a second-step merger, although, under certain
circumstances California Energy could waive the merger agreement
condition, in which case it would seek to obtain majority
representation on Magma's Board.
Today's announcement follows unsuccessful discussions between
representatives of the companies that occurred today following
yesterday's decision by Magma's Board of Directors to adopt a poison
pill and take certain other defensive actions in response to
California Energy's September 19 proposal. California Energy intends
to take any action necessary to have attempted impediments to its
offer set aside. David L. Sokol, California Energy's Chairman and
Chief Executive Officer, stated:
"We have attempted in every reasonable way possible to commence
merger negotiations with Magma in order to allow their
shareholders to achieve value from our proposal. At Magma's
request last week, we delayed commencement of a tender offer to
permit Magma's Board to fully consider our proposal. Following
this morning's disappointing meeting with Magma's advisors, we
have concluded that allowing the shareholders to vote through a
tender offer and consent solicitation is the only way to move
forward in an efficient manner." Sokol further stated that "We
believe that the price which we have offered is fair and
represents full value for Magma. We believe that this
transaction represents a unique fit for us and as such allows
us to value Magma at a higher value than other potential
bidders." Sokol further noted that "Our price represents a
27.3% premium to the value of Magma's stock the day we
initially made the proposal."
California Energy also intends to take appropriate action to
ensure its right to call a special meeting of Magma's shareholders
to elect directors to Magma's Board and to take other actions that
it believes will facilitate consummation of its tender offer and the
proposed second-step merger with Magma. The tender offer and consent
solicitations will be made only pursuant to definitive offering and
solicitation documents, which will be filed with the Securities and
Exchange Commission and mailed to Magma stockholders. Gleacher & Co.
Inc. is acting as Financial Advisor to California Energy and Dealer
Manager in connection with the tender offer and MacKenzie Partners,
Inc. is acting as the Information Agent for the tender offer.
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.
On October 5, 1994, Mr. Sokol sent the following letter to Messrs.
Pankratz and Boeker:
Dear Paul and Ralph:
At your request, we delayed taking any formal action to implement
our acquisition proposal dated September 19th. We did so in the hope
that you or your advisors would be willing to have good faith
discussions about our proposal.
Unfortunately, the October 3rd meeting between Gleacher & Co. and
Goldman Sachs was entirely unproductive. Goldman Sachs was unwilling
to discuss our $35 per share proposal or to share information which
would demonstrate that Magma might be worth more than $35 per share.
It now appears that your request that we delay commencing a tender
offer last week was simply a device to buy the time necessary to
adopt a poison pill in response to our offer, as well
<PAGE>21
as other by-law amendments designed to impede majority shareholder
action and to file lawsuits against us which your advisors did not
even have the courtesy to inform us of before we read about them
in the newspaper, notwithstanding the courtesies we had formerly
extended to you and to them.
We now find it necessary to make our proposal directly to
shareholders. As a first step, California Energy will be commencing
a cash tender offer on Thursday to acquire 51% of Magma's common
shares for $35 net per share, to be followed by a merger in which
all shareholders will receive $35 per Magma share, consisting of a
combination of cash and California Energy common stock. The steps
which you have taken, to litigate rather than to negotiate, leave us
no choice but to respond accordingly. Such litigation and other
steps which you have chosen to take are wasteful of corporate assets
and are in no way in your shareholders' interest. We would clearly
prefer not to engage in proxy contests and litigation in various
forums; however, you have left us no alternative.
We note your unfortunate attempt to discredit our offer by calling
it "coercive". Apparently this is a continuation of your ongoing
strategy of delay, litigation and otherwise working to keep our
offer from receiving fair consideration by Magma's shareholders.
Further, in response to a press release today from The Dow Chemical
Company, we want to once again emphasize that our merger agreement
would provide all Magma shareholders the same total consideration of
$35 per share. We also note that our proposed price of $35 per share
is substantially in excess of the price that Dow recently received
from the sale of the majority of its Magma holdings.
Moreover, as we have no assurance that your Board has had the
benefit of a fair presentation of our views, I will restate some of
the more salient points we made to your advisors:
For those of your Directors who have had only a brief introduction
to California Energy, our company operates independent power
facilities aggregating over 300MW and has over 325MW under
construction. For the year ended December 31, 1993 and the six
months ended June 30, 1994, California Energy had revenues of $149.3
million and $80.7 million, respectively, and a net income of $47.2
million and $15.0 million, respectively. As of June 30, 1994,
California Energy had cash and short-term investments of $379.5
million.
Kiewit Energy Company, a wholly owned subsidiary of Peter Kiewit
Sons' Inc. ("PKS"), is an approximate 43% stockholder (on a
fully-diluted basis) in California Energy. PKS, a Delaware
corporation, is a large employee-owned company which had
approximately $2.2 billion in revenues in 1993 from its interests in
construction, mining, energy and telecommunications. PKS is one of
the largest construction companies in North America and has been in
the construction business since 1884. PKS is a joint venture
participant in a number of California Energy's international private
power projects.
In addition, I provide the following summary of recent developments
reported by California Energy in the first nine months of 1994:
- In January 1994, California Energy signed an International
Joint Venture agreement with PKS.
<PAGE>22
- In February 1994, California Energy established a Singapore
office to oversee its Asian project development activities.
- In March 1994, California Energy closed its $400 million Senior
Note offering to fund, among other things, international
projects and corporate or project acquisitions.
- In April 1994, California Energy closed a $162 million
construction and term project financing for, and commenced
construction of, its 128MW Upper Mahiao geothermal project in
the Philippines.
- In May 1994, California Energy's wholly-owned engineering
subsidiary, The Ben Holt Co., became a 20% partner in a
construction joint venture with a subsidiary of PKS which will
construct the Mahanagdong project under a $201 million turnkey
contract.
- In June 1994, California Energy completed construction of a
50MW gas turbine cogeneration project in Yuma, Arizona and
commenced commercial operation under a 30-year power sales
contract with San Diego Gas & Electric Company.
- In August 1994, California Energy closed a $240 million
construction and term project financing for, and commenced
construction of, the 180MW Mahanagdong geothermal project in
the Philippines.
- In September 1994, California Energy submitted a definitive
proposal for the Casecnan 100MW hydroelectric and irrigation
(water sales) project in the Philippines.
- In September 1994, California Energy signed power sales
contracts for the 30MW of output from its Newberry geothermal
project in Oregon, after the final environmental impact
statement record of decision was published by the U.S. Forest
Service.
- In September 1994, California Energy opened its Manila office
to oversee its over 300MW of current Philippine power project
construction activities and new project development activities.
We believe it would also be useful for your Board to understand the
clear benefits we see from our proposal.
California Energy believes that combining the businesses of the two
companies would provide an excellent strategic fit and that the
synergies and other benefits which would result from combining the
operations of Magma and California Energy pursuant to the proposed
merger would enhance value for the stockholders of both companies,
and would strengthen the combined companies' competitive position in
the increasingly challenging business environment and global markets
in which they presently operate.
Each of Magma and California Energy have separately indicated their
respective beliefs that, in the next several years, the greatest
opportunities for financially attractive development projects will
be found in the international markets and each company is engaged
in, or otherwise pursuing, geothermal power and other power
development projects in the Philippines and Indonesia, and elsewhere
overseas where competition is strong and involves much larger
entities than either company.
<PAGE>23
California Energy believes that the combined companies'
international growth prospects would be substantially enhanced by
the expanded development, financial, construction and operational
resources and capabilities resulting from the proposed merger and
that certain domestic and international synergies would also result
from such a transaction.
The expected operational and other synergies include the following:
- Competitive Cost Advantage--Competition among independent power
producers internationally, which California Energy believes holds
the majority of attractive investment opportunities over the next
several years, is primarily based on the cost to produce power and
accordingly, geothermal energy competes directly with oil, gas and
coal-fired plants (e.g., the Pagbilao and Paiton projects in the
Philippines and Indonesia, respectively). Thus, neither California
Energy nor Magma are competing internationally only against other
"renewables," such as solar or wind, and as you know, over the last
several years domestic competition has also increasingly focused on
the low cost provider as a result of increasing domestic
deregulation. California Energy believes that a combination with
Magma would create an enterprise with the ability to reduce its
average cost per Kwh by expanding its asset base, without materially
expanding its cost structure, and therefore allowing it to be more
price competitive with traditional fossil fuel power plants, which
California Energy believes will be its primary competition in the
future. This benefit of scale associated with a combination of
California Energy and Magma should provide the resulting entity with
a competitive advantage as it pursues both international and
domestic power sales opportunities with potential customers who
consider both the price of power and the provider's capabilities as
the primary factors in their evaluation of potential power
suppliers.
- Operational Efficiencies--Combination of the businesses of
California Energy and Magma would provide an opportunity to
efficiently integrate all aspects of their respective domestic and
international operations resulting in significant expected cost
savings.
- Increased Size, Diversification And Stability--The combined
companies would be advantaged by their expanded asset base and
diversification in their resource production facilities and sources
of revenue, which the Company believes should result in an overall
long-term enhanced credit profile and an improved access to capital
at decreased costs. As a larger entity, we believe the combined
companies would have the critical mass with which to more
effectively compete against larger competitors in international
markets and an increasingly deregulated domestic market place.
- Development Opportunities--The combined companies should be able
to increase their development programs and activities, both
domestically and internationally, by pursuing additional development
opportunities rather than pursuing parallel paths with respect to
the same countries, thereby enhancing the ability of the combined
companies to obtain and successfully complete new power projects. In
addition, the expanded size and capabilities of the combined
companies is expected to enhance its reputation with sovereign
government and state utility customers and therefore enhance its
ability to successfully compete for new projects.
As your advisors know, the price we have offered is based on a
detailed financial analysis of publicly available information which
we believe fully values all projects which Magma has publicly
reported it is currently operating, constructing, financing or
developing. Moreover, as your Board is no doubt aware from its
review of the proposed merger agreement we provided to you last
week, we believe that in the context of a negotiated transaction we
had attempted
<PAGE>24
to more than fairly provide for the interests of employees in that
agreement. Lastly, in response to your advisors' questions
regarding the response of Magma's and California Energy's foreign
customers to our proposal, we are pleased to report that the
response to our inquiry from such customers, like that of the stock
market, was highly favorable and we can obtain any further assurances
in this regard that your Board desires.
In short, we believe the proposed transaction makes eminent good
sense, and we urge your Board to either (i) authorize merger
discussions with us, (ii) auction the company to the highest bidder,
or (iii) let the shareholders decide freely whether to accept our
proposal without attempting to impose artificial impediments which
will simply add additional costs, time, needless and unproductive
litigation and distraction of management to a process in which the
majority of Magma's owners will eventually decide the issue on the
merits. Let me once more extend to you my willingness, now or in the
future, to meet with you at any time in order to negotiate a
successful merger of our companies which will best serve our
shareholders, customers and employees.
Sincerely,
/s/ David L. Sokol
David L. Sokol
Chairman, President and
Chief Executive Officer
cc: Board of Directors of Magma Power Company
c/o Magma Power Company
The fifth paragraph of the foregoing letter refers to (i) the sale by Dow
in July 1993 of 3,635,000 Shares at $30.88 per Share, which amount is net of
underwriting discounts and commissions, and (ii) the sale by Dow in September
1994 of 857,143 Shares at $28.25 per Share, subject to the Dow Option that was
subsequently exercised. CECI's expectation regarding the operational and
other synergies described in the foregoing letter are based on the knowledge
and experience of CECI's officers, who, on average, have over ten years of
experience in the independent power production industry. Nevertheless, as
with any expectation of future events, there can be no assurance that any or
all of the expected operational or other synergies described above will be
obtained.
On October 5, 1994, Mr. Ben Holt, a director of CECI and a record holder
of Shares, made a demand to the Company for access to the Company's
stockholder list and other stockholder information necessary to communicate
with stockholders pursuant to the NGCL.
On October 6, the Purchaser commenced the Offer by filing with the
Commission a Tender Offer Statement on Schedule 14D-1 pursuant to the Exchange
Act.
On October 10, 1994, CECI learned through press reports that the
Company's Board had recommended that its stockholders reject the Offer and had
further stated that the Offer at a price of $35 per Share (and associated
Poison Pill Right) was less attractive than remaining independent.
On October 11, 1994, the Company filed with the Commission a
Solicitation/Recommendation Statement on Schedule 14D-9 pursuant to the
Exchange Act, formally rejecting the Offer and disclosing, among other things,
that the Company's Board had (i) authorized the Company to enter into "golden
parachute" severance agreements with 15 of the most highly compensated members
of the Company's management, (ii) authorized the Company to enter into
indemnification agreements with each member of the Company's Board, (iii)
amended the
<PAGE>25
Company's Bylaws purporting to eliminate the ability of the Company's
stockholders to act by written consent and (iv) hired Goldman, Sachs to assist
the Company's Board with respect to CECI's proposal.
On October 12, 1994, the Company informed CECI that it had denied Mr.
Holt's demand for the Company's stockholder information under the NGCL, and
that the Company would not currently provide such information to Mr. Holt.
On October 13, 1994, CECI issued the following press release announcing
the filing of a preliminary proxy statement with the Commission pursuant to
the Exchange Act:
CALIFORNIA ENERGY TO SOLICIT CALL OF SPECIAL MEETING
OF MAGMA STOCKHOLDERS
OMAHA, NEBRASKA, October 13, 1994 -- California Energy Company, Inc.
(NYSE, PSE and LSE: CE) ("CECI") announced today that in order to
facilitate consummation of its pending cash tender offer ("Offer") for
12,400,000 shares, or approximately 51%, of the common stock of Magma
Power Company (NASDAQ:MGMA) ("Magma") at a price of $35 net per share,
CECI has filed materials with the Securities and Exchange Commission
("SEC") to solicit written requests from Magma shareholders to require
Magma to call a Special Meeting of shareholders. A Special Meeting will
provide Magma stockholders the opportunity to consider and vote on CECI's
Special Meeting proposals which, if approved, would result in certain
By-law amendments that would facilitate CECI's proposal and the election
of four (4) CECI nominees to Magma's Board, who would be committed to
removing any impediments to shareholders being able to freely choose
whether to accept the Offer and approve the proposed merger, thereby
ensuring that the Offer and proposed merger get a full and fair hearing.
As previously announced, CECI's tender offer is to be followed by a
second step merger in implementing its September 19 proposal to acquire
all Magma shares for a combination of $25 in cash and $10 in market value
of California Energy common stock.
Today's announcement by CECI to commence a Special Meeting Request
Solicitation follows the decision by Magma's Board of Directors to
recommend that Magma shareholders not tender into CECI's $35 per share
Offer because remaining independent was more attractive to shareholders.
In its SEC filing recommending against CECI's Offer, Magma also disclosed
that it had entered into "Golden Parachute" severance agreements with 15
of the most highly compensated members of Magma's management as well as
indemnity agreements with Board members in response to CECI's September
19 proposal. CECI intends to take any appropriate action necessary to
have any impediments to its Offer set aside. David L. Sokol, California
Energy's Chairman and Chief Executive Officer, stated:
"Magma's rejection of our offer, without any attempted negotiation
with us, demonstrates their disregard for Magma shareholders. Rather
than maximizing shareholder value, they have implemented Golden
Parachutes for the top 15 members of management, entered into an
excessive fee arrangement with Goldman Sachs and initiated wasteful
litigation. These actions alone are estimated to cost Magma's
shareholders between 0.75 and $1.00 per share. We believe that
Magma's Board of Directors have a fiduciary obligation to maximize
shareholder value, not the lifestyles of their friends and
co-workers.
It is our understanding that the Magma Board Chairman, President and
Chief Financial Officer began a "road show" presentation for
investors yesterday directed at misrepresenting and discrediting our
offer, disparaging California Energy, and offering extraordinary and
unsustainable projections for Magma's future. Much of the
information which Magma presented
<PAGE>26
is inaccurate, misleading and in our view in violation of
the proxy solicitation rules established by the Securities and
Exchange Commission.
Magma's management, again yesterday, stated their hope to investors
that we would just go away. This will not happen unless the
shareholders reject our ultimate offer. It is our belief that
Magma's shareholders recognize the value of our offer and will not
allow the Magma management to prosper to their detriment."
The Special Meeting Request Solicitation will be made only pursuant
to definitive solicitation documents, which will be filed with the
Securities and Exchange Commission and mailed to Magma stockholders.
Gleacher & Co. Inc. is acting as Financial Advisor to California
Energy and Dealer Manager in connection with the tender offer and
Request Solicitation and MacKenzie Partners, Inc. is acting as the
Information Agent for the tender offer and Request Solicitation.
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 325 MW of power with an additional 300 MW under construction.
On October 13, 1994, CECI issued the following press release regarding
the Company's refusal to provide Mr. Holt with the requested stockholder
information:
MAGMA TO BE SUED TO OBTAIN RELEASE OF MAGMA STOCKHOLDER LIST
OMAHA, Neb., Oct. 13 -- California Energy Company, Inc. (NYSE, PSE
and LSE: CE) ("CECI") announced today that Magma Power Company (Nasdaq:
MGMA) ("Magma"), in an apparent effort to delay the ability of Magma
shareholders to call a special meeting, has denied the request of one of
CECI's directors who is a long-time Magma shareholder, for the Magma
shareholder list. As previously announced, CECI is soliciting requests to
call a Special Meeting of Magma's shareholders in order to provide Magma
stockholders the opportunity to consider and vote on CECI's Special
Meeting proposals which, if approved, would result in certain By-law
amendments that would facilitate CECI's proposal to acquire Magma and the
election of four (4) CECI nominees to Magma's Board, who would be
committed to removing any impediments to shareholders being able to
freely choose whether to accept CECI's pending cash tender offer for
12,400,000 shares at $35 net per share and approve the proposed second
step merger, thereby ensuring that the offer and proposed merger get a
full and fair hearing.
David L. Sokol, California Energy's Chairman and Chief Executive
Officer, stated:
"Magma's denial of access to the list of shareholders is, at best,
an attempt to delay the inevitable, when Magma's Board and
management will have to account for their recent actions in front of
their shareholders. Such obstructionist tactics viewed in light of
recent actions to implement "Golden Parachutes" for 15 of the most
highly compensated members of management simply serve as further
evidence of management's improper entrenchment motive in
recommending against CECI's acquisition proposal." Sokol added:
"This sort of irresponsible corporate behavior simply demonstrates
the fact that Magma's management is apparently unwilling to permit
its actions to be judged by the Company's owners and will result in
another wasteful lawsuit to the detriment of Magma's shareholders."
The Special Meeting Request Solicitation (the "Request
Solicitation") will be made only pursuant to definitive solicitation
documents, which were filed with the Commission on November 4, 1994 and
are being mailed to Magma stockholders. Gleacher & Co. Inc. is acting as
Financial Advisor to California
<PAGE>27
Energy and Dealer Manager in connection with the Offer and
Request Solicitation and MacKenzie Partners, Inc. is acting as the
Information Agent for the Offer and Request Solicitation.
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 325 MW of power with an additional 300 MW under construction.
On October 14, Mr. Holt commenced an action in the Second Judicial
District Court for the State of Nevada in and for the County of Washoe (the
"Court"), seeking an order requiring the Company, pursuant to the NGCL, to
turn over to him the stockholder information requested in his demand letter to
the Company. The Court entered an order setting a briefing schedule which
would permit consideration of the matter on an expedited basis. See "CERTAIN
LITIGATION."
On October 17, 1994, CECI issued the following press release announcing
that it had sued the directors of the Company's Board for, among other things,
breach of their fiduciary duties in failing to consider CECI's proposal to
acquire Magma and for taking obstructionist actions in response to CECI's
proposal:
CALIFORNIA ENERGY SUES MAGMA'S
DIRECTORS FOR BREACH OF FIDUCIARY DUTY
OMAHA, NEBRASKA, October 17, 1994 -- California Energy Company, Inc.
(NYSE, PSE and LSE: CE) ("CECI") announced today that it has sued the
Directors of Magma Power Company (NASDAQ: MGMA) ("Magma"), for, among
other things, breach of their fiduciary duties in failing to properly
consider CECI's proposal to acquire Magma and for taking obstructionist
actions in response to CECI's proposal, such as adopting special
indemnity agreements for themselves, "Golden Parachutes" for 15 Magma
executives, a discriminatory "poison pill" and by-law amendments which
are intended to impede the right of the majority of Magma's shareholders
to freely consider CECI's offer and to entrench current Magma management.
In addition, CECI's suit notes that the Board (which includes five (5)
present or former Dow employees out of an 11 member Board) breached its
duties by not disclosing to Magma's shareholders Dow's conflict of
interest in the transaction due to the fact that Dow cannot obtain the
same benefit from the tender offer price as other shareholders because of
recent Dow transactions that would invoke the SEC's Section 16(b)
short-swing profit disgorgement rule.
David L. Sokol, California Energy's Chairman and Chief Executive
Officer, stated:
"We find it astounding that Magma's Board has not even given serious
consideration to a proposal which would pay shareholders a $7.50 per
share premium over Magma's trading price prior to making the
proposal. Moreover, the Board, while stating our price to be
"inadequate," has declined to engage in a discussion about what
price would constitute an adequate offer. Although we have indicated
that we are prepared to negotiate all aspects of our offer, Magma
has refused to engage in price discussions, merely stating that it
is somehow in the best interest of shareholders to remain
"independent." At the same time Magma's Board has also taken actions
to impede majority shareholder action (such as adopting a poison
pill and by-law amendments and refusing access to a shareholder
list) which indicate the Board's apparent belief that shareholders
shouldn't be permitted to make up their own minds as to what is in
their best economic interest and which only serve to entrench
current management.
It is also noteworthy that, while attempting to deny shareholders
the right to consider our offer, Magma's Board has taken steps to
provide for management's economic self-interest, such as approving
"Golden Parachute" severance agreements for the 15 most highly
compensated
<PAGE>28
members of Magma's management. These and other obstructionist
actions are estimated to cost shareholders between $0.75 and
$1.00 per share. Such actions, viewed in the context of Dow's
conflict of interest, due to its inability to fully benefit from
the tender offer as a result of Section 16(b), paint a picture of
management entrenchment plain and simple."
Sokol added:
"It is curious to note that the five (5) Dow Board members
recommended against our $35 per share offer in light of Dow's
liquidation of a significant amount of its Magma holdings (3,635,000
shares) in 1993 at a net price of $30.88 per share and Dow's recent
sale in September 1994 of 857,143 Magma shares at $28.25. Assuming
the Section 16(b) problems which prevent Dow from fully benefitting
from our offer were fully disclosed to the independent Magma Board
members, we do find it surprising that Magma's Board could be
advised that there was not a conflict that would require the five
(5) Dow members to abstain from voting on our proposal."
As previously announced, CECI is soliciting requests to call a
Special Meeting of Magma's shareholders in order to provide Magma
stockholders the opportunity to consider and vote on CECI's Special
Meeting proposals which, if approved, would result in certain by-law
amendments that would facilitate CECI's proposal to acquire Magma and the
election of four (4) CECI nominees to Magma's Board, who would be
committed to removing any impediments to shareholders being able to
freely choose whether to accept CECI's pending cash tender offer for
12,400,000 shares at $35 net per share and to approve the proposed second
step merger, thereby ensuring that the offer and proposed merger get a
full and fair hearing. The Special Meeting Request Solicitation will be
made only pursuant to definitive solicitation documents, which will be
filed with the Securities and Exchange Commission and mailed to Magma
stockholders. Gleacher & Co. Inc. is acting as Financial Advisor to
California Energy and Dealer Manager in connection with the tender offer
and request solicitation and MacKenzie Partners, Inc. is acting as the
Information Agent for the tender offer and request solicitation.
California Energy Company is a leading international developer,
owner and operator of geothermal and other environmentally responsible
power generation facilities. Its six existing facilities currently
produce in excess of 325 MW with an additional 300 MW under construction.
On October 21, 1994, CECI issued the following press release announcing
that the Purchaser had increased the price per Share (and associated Right) to
$38.50 per Share (and associated Right), net to the seller in cash and without
interest thereon:
CALIFORNIA ENERGY INCREASES ITS OFFER
FOR MAGMA POWER TO $38.50 PER SHARE
Omaha, Nebraska, October 21, 1994 -- California Energy Company, Inc.
(NYSE, PSE, LSE: CE) ("CECI") announced today that it has increased its
offer to purchase Magma Power Company to $38.50 per share, consisting of
$28.50 per share in cash and $10.00 per share of CECI stock.
In connection with this enhanced proposal, CECI has extended the
expiration date of its pending cash tender offer for 51%, or 12,400,000
of Magma's shares to Friday, November 4, 1994 and has increased the cash
price to $38.50 net per share.
CECI also confirmed its intention to solicit consents to call a
special meeting of Magma's shareholders to elect four new members to
Magma's Board of Directors who would ensure that Magma
<PAGE>29
gives proper consideration to this enhanced offer. CECI also
announced it would commence a series of investor and shareholder
presentations beginning Tuesday, October 25, 1994. These
presentations would highlight to Magma shareholders the benefits of
the CECI acquisition proposal.
David L. Sokol, CECI's Chairman and Chief Executive Officer, stated:
"We sincerely hope that Magma's Board of Directors will negotiate and
sign a merger agreement with us so that all Magma shareholders can
receive the benefits of our acquisition offer. In any event, we are now
putting forth our best acquisition proposal, and are beginning a consent
solicitation to provide Magma's shareholders the right to express their
views directly on the merits of our proposal. We have increased the cash
price of our Tender Offer which should provide Magma shareholders with an
additional mechanism to communicate to Magma's Board their support of
CECI's acquisition offer."
California Energy Company is a leading international developer,
owner and operator of geothermal and other environmentally responsible
power generation facilities. Its six existing facilities currently
produce in excess of 325 MW of power with an additional 300 MW under
construction.
On October 21, 1994, the Company announced that its local Indonesian
partner on the smaller of its two proposed development stage projects in
Indonesia, the Karaha project, had terminated its joint venture with the
Company. On October 25, 1994, CECI and the Purchaser filed their second
amended counterclaims which, among other things, seek an injunction requiring
the Company to refrain from taking actions to damage its international
development projects, including the Karaha project. See "CERTAIN LITIGATION".
On October 25, 1994, CECI issued the following press release announcing
the receipt of a fully underwritten $500,000,000 financing commitment from
Credit Suisse:
CALIFORNIA ENERGY ANNOUNCES RECEIPT OF
FULLY UNDERWRITTEN $500,000,000 FINANCING COMMITMENT
FOR MAGMA ACQUISITION
OMAHA, NE, October 25, 1994 -- California Energy Company, Inc.
(NYSE, PSE, LSE:CE) ("CECI") today announced that it has received a
fully-underwritten $500,000,000 financing commitment from Credit Suisse
in connection with CECI's proposed acquisition of Magma Power Company
(NASDAQ:MGMA) ("Magma"). The financing commitment contains two facilities
and provides funding both for the purchase of tendered Magma common
shares pursuant to CECI's pending cash tender offer for 51%, or
12,400,000 shares of Magma at $38.50 net per share, and for permanent
financing in order to consummate a merger of the two companies.
David L. Sokol, Chairman and Chief Executive Officer of CECI,
stated, "We believe this $500,000,000 financing commitment, together with
over $300,000,000 of existing cash on hand, demonstrates the strength of
our offer to Magma's shareholders and reinforces our capability to
expeditiously consummate the proposed transaction."
The tender offer facility has a final maturity of 12 months
(extendable to three years) and the permanent financing facility has a
final maturity of 8 years with semi-annual amortization from
internally-generated funds. Pricing is based upon Libor or an alternative
base rate.
California Energy Company is a leading international developer,
owner and operator of geothermal and other environmentally responsible
power generation facilities. Its six existing facilities currently
produce in excess of 325 MW of power with an additional 300 MW under
construction.
<PAGE>30
Also on October 25, 1994, the Court issued an order in the action filed
by Mr. Holt, granting the relief requested by Mr. Holt by directing that the
Company turn over to Mr. Holt without delay the stockholder list and other
information sought in his demand letter.
On October 28, 1994, CECI issued the following press release announcing
the record date for the Request Solicitation:
CALIFORNIA ENERGY SETS NOVEMBER 7, 1994
AS RECORD DATE FOR MAGMA SOLICITATION
OMAHA, NEBRASKA, October 28, 1994 -- California Energy Company, Inc.
(NYSE, PSE and LSE: CE) ("CECI") announced today that it has set a record
date of November 7, 1994 for the Request Solicitation to call a special
meeting of the shareholders of Magma Power Company (NASDAQ: MGMA)
("Magma"). As previously announced, the Special Meeting Request
Solicitation is intended to provide Magma stockholders the opportunity to
call a special meeting at which they can elect new directors who will
take steps to enable shareholders to freely choose whether to accept
CECI's $38.50 per share acquisition proposal.
The Special Meeting Request Solicitation will be made only pursuant
to definitive solicitation documents, which have been filed with the
Securities and Exchange Commission and will be mailed to Magma
stockholders. Gleacher & Co. Inc. is acting as Financial Advisor to
California Energy and Dealer Manager in connection with the tender offer
and request solicitation and MacKenzie Partners, Inc. is acting as the
Information Agent for the tender offer and request solicitation.
California Energy Company is a leading international developer,
owner and operator of geothermal and other environmentally responsible
power generation facilities. Its six existing facilities currently
produce in excess of 325 MW of power with an additional 300 MW under
construction.
On October 31, 1994, CECI learned through press reports that the
Company's Board had again recommended that its stockholders reject the Offer.
The Company's Board stated that, in rejecting the revised Offer, it considered
a variety of factors, including the opinion of its advisor, Goldman, Sachs &
Co., that the consideration offered in the revised Offer was inadequate. The
Company said that its Board had authorized the Company's management and its
financial advisor to explore all available alternatives to further the best
interests of the Company's stockholders, including remaining independent,
conducting discussions with interested parties, including CECI, concerning
possible business combinations, strategic partnerships or equity investments,
recapitalizing or restructuring the Company and similar transactions.
On November 1, 1994, CECI issued the following press release regarding
its extension of the expiration date of the Offer:
CALIFORNIA ENERGY RESPONDS TO MAGMA;
CONFIRMS PLAN TO CALL SPECIAL MEETING
Omaha, Nebraska, November 1, 1994 -- California Energy Company, Inc.
(NYSE, PSE, LSE: CE) ("CECI") responded today to the announcement that
the Board of Magma Power Company (NASDAQ: MGMA) ("Magma") has recommended
that stockholders not accept CECI's pending cash tender offer for 51%, or
12,400,000 of Magma's shares at $38.50 net per share, which constitutes
the first step in CECI's $38.50 per share acquisition proposal,
consisting of a blended consideration of $28.50 per share in cash and
$10.00 per share of CECI stock for all Magma shares.
<PAGE>31
CECI indicated that the Magma Board's recommendation against CECI's
offer had no impact on CECI's plan to call a special meeting of Magma's
shareholders and proceed with its pending $38.50 per share cash tender
offer. CECI also confirmed that it has established November 7, 1994 as
the record date for its solicitation of requests to call a special
meeting of Magma's shareholders to elect new members to Magma's Board of
Directors who would take steps to enable Magma shareholders to freely
choose whether to accept CECI's acquisition offer. CECI also stated that
it was extending the expiration date of its pending cash tender to
December 2, 1994.
David L. Sokol, CECI's Chairman and Chief Executive Officer, stated:
"We have received strong expressions of support and approval for our
fully-financed acquisition proposal from Magma's stockholders. In order
to determine whether Magma's stated decision to explore ways to maximize
shareholder value is genuine or is just another delaying tactic, we
believe that the process must be brought to a conclusion in a timely
manner since it has already been over six (6) weeks since our initial
offer and Goldman has not yet produced another bidder or feasible
alternative for Magma's shareholders. Accordingly, we intend to conclude
our request solicitation for the purposes of calling a special meeting of
Magma's shareholders on December 2, 1994. By extending our tender offer
until this date as well, we are giving Magma's shareholders five (5)
additional weeks to review whether the company makes any legitimate
progress in developing a feasible alternative to our offer which
maximizes shareholder value rather than entrenches management. We do,
however, reserve the right to reduce our offer in the event Magma
inflicts damage upon itself or in any other way reduces the value of
Magma's assets in the interim. In addition, Magma's Board and its
shareholders should be aware that we 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. We look forward to engaging
in discussions with the Magma Board or their advisors as soon as
possible".
The Special Meeting Request Solicitation will be made only pursuant
to definitive solicitation documents, which have been filed with the
Securities and Exchange Commission and will be mailed to Magma
stockholders. Gleacher & Co. Inc. is acting as Financial Advisor to
California Energy and Dealer Manager in connection with the tender offer
and request solicitation and MacKenzie Partners, Inc. is acting as the
Information Agent for the tender offer and request solicitation.
California Energy Company is a leading international developer,
owner and operator of geothermal and other environmentally responsible
power generation facilities. Its six existing facilities currently
produce in excess of 325 MW of power with an additional 300 MW under
construction.
On November 4, 1994, CECI issued the following press release announcing
that it was seeking a court ruling to confirm that the Control Share Statute
does not apply to the Offer because the Company does not have the requisite
number of record holders in the state of Nevada for the statute to apply.
CALIFORNIA ENERGY SEEKS COURT RULING THAT
NEVADA STATUTE DOES NOT APPLY TO ITS MAGMA OFFER
Omaha, NE, November 4, 1994 -- California Energy Company, Inc.
(NYSE, PSE, LSE: CE) ("CECI") announced today that it has made a
court filing requesting a ruling that the Control Share Statute (a
Nevada anti-takeover statute) does not apply to its $38.50 per share
offer to acquire Magma Power Company (NASDAQ:MGMA) ("Magma"),
because Magma Power Company does not have the requisite 100 resident
Nevada record holders for the statute to apply. As previously
reported by CECI, the Nevada State District Court last week ordered
<PAGE>32
Magma to turn over its stockholder list and the list disclosed that
Magma has well short of the required 100 Nevada resident holders
of record. CECI indicated the Court ruling was being sought as a
result of Magma's failure to voluntarily acknowledge that the
statute does not apply. The Court papers also allege that Magma's
SEC filings and mailings to shareholders are misleading in their
failure to disclose all applicable facts regarding the Control Share
Statute.
California Energy Company is a leading international developer,
owner and operator of geothermal and other environmentally
responsible power generation facilities. Its six existing
facilities currently produce in excess of 325 MW of power with an
additional 300 MW under construction.
On November 8, 1994, CECI issued the following press release announcing
that the Company has placed CECI in a "Catch 22" situation by refusing to
provide confidential information to or hold discussions with CECI unless CECI
signed a three-year standstill agreement.
CALIFORNIA ENERGY ANNOUNCES MAGMA REFUSES TO SHARE CONFIDENTIAL
INFORMATION WITHOUT A STANDSTILL AGREEMENT
OMAHA, Neb., Nov. 8 /PRNewswire/ -- California Energy Company,
Inc. (NYSE" CE) ("CECI") was notified, in writing, by Magma Power
Company (Nasdaq: MGMA) ("Magma") today that Magma would not provide
confidential information or hold discussions with CECI unless CECI
executes an agreement containing provisions which would require CECI
to "standstill." As formulated by Magma, the standstill agreement
would require CECI to withdraw its acquisition proposal, to cease
its efforts to call a special meeting of shareholders and to agree
not to make any uninvited acquisition proposals for a period of
three years.
David L. Sokol, CECI's Chairman and Chief Executive Officer,
stated, "Obviously Magma knows California Energy will not sign a
three year standstill agreement. Instead, we have provided Magma
with a standard confidentiality agreement which provides for a
mutual exchange of information between Magma and CECI. We question
Magma's sincerity in sending us a three-year standstill agreement.
If Magma has a legitimate interest in maximizing shareholder value,
they will move forward promptly, recognizing as most industry
analysts do, that California Energy is the most logical company to
acquire Magma. Magma's failure to engage in discussions with us on
any substantive issues, and Magma's gamesmanship with the standstill
agreement, is a continuation of their behavior of the past eight
weeks, which consists of attempting to frustrate our acquisition
proposal." Mr. Sokol added, "We will continue our efforts to
acquire Magma for $38.50 per share and are looking forward to the
results of CECI's solicitation efforts to call a special meeting of
shareholders so that new Magma directors can be elected."
California Energy Company is a leading international developer,
owner and operator of geothermal and other environmentally
responsible power generation facilities. Its six existing
facilities currently produce in excess of 325 MW of power with an
additional 300 MW under construction.
On November 8, 1994, Mr. Sokol sent the following letter asking the
Company's stockholders to vote in favor of the calling of the Special Meeting.
<PAGE>33
I am writing to ask that you give your prompt attention to our
Request Solicitation statement which was distributed early this
week. In addition, you will shortly be receiving a GREEN request
card or voting form from your brokerage firm or custodial bank.
PLEASE COMPLETE THE GREEN REQUEST CARD OR VOTING FORM
IMMEDIATELY.
You have a critical role to play in helping us send a strong
message to Magma's Board of Directors to maximize shareholder value.
In recent press releases, Magma continues to reserve the right to
"stay independent" and, in any event, is seeking to unduly prolong
its "exploration of alternatives." An EARLY vote will send an
unmistakable message to Magma's Directors: expeditiously negotiate
the sale of the company at the highest available price.
Please understand that today's vote is ONLY to call a Special
Meeting of Magma's shareholders and does not commit you to a
particular slate of director-nominees or to vote for any other
proposals. I wish to emphasize that without a Special Meeting, the
shareholders of Magma will not have the opportunity to elect
Directors who are willing to sell the company for the highest price.
With the support of you and a majority of shareholders, I can assure
you that California Energy will continue its efforts to acquire
Magma.
The Special Meeting is currently scheduled by us for December
22, or more than three months after California Energy made its first
acquisition proposal. We believe that three months is more than
sufficient time for Magma to attract a better offer, if one exists.
MacKenzie Partners will be contacting you shortly to ensure
that you received your GREEN card and to offer their assistance. If
you have questions, please contact Mark Harnett at (212) 929-5877 or
Dan Burch at (212) 929-5748 of MacKenzie.
Sincerely,
/s/ David L. Sokol
David L. Sokol
Chairman, President and
Chief Executive Officer
On November 9, 1994, CECI issued the following press release announcing
that a leading institutional advisory firm had recommended that the Company's
stockholders request the call of the Special Meeting.
LEADING INSTITUTIONAL ADVISORY FIRM RECOMMENDS MAGMA SHAREHOLDERS
SUPPORT CALIFORNIA ENERGY'S REQUEST TO CALL SPECIAL MEETING
OMAHA, NE, November 9, 1991 -- California Energy Company, Inc.
(NYSE, PSE, LSE:CE) ("CECI") announced today that Institutional
Shareholders Services, Inc. has published a report recommending
that shareholders of Magma Power Company (NASDAQ:MGMA)
("Magma") support California Energy Company's effort to
requests a Special Meeting. The report stated that "the issues
raised by CECI's offer and Magma Power's lack of interest in
negotiating with CECI, as well as its adoption of several
antitakeover defenses, are ripe for consideration by the
company's shareholders."
<PAGE>34
ISS's report noted that voting in favor of the request does not
commit any Magma shareholder to accepting CECI's tender offer.
The report concludes that "a vote for the request will preserve
and enhance the shareholders' ability to influence the board's
action with respect to the offer" and recommends Magma
shareholders vote to request the Special Meeting on the green
card.
Institutional Shareholders Services, Inc. (ISS), based in
Bethesda, Maryland, is a respected and independent advisor to
many institutional investors in the areas of proxy voting,
corporate governance and other shareholder-related issues.
David L. Sokol, CECI's Chairman and Chief Executive Officer,
commented, "We are pleased that ISS, after careful
consideration of the issues related to the request
solicitation, recommends that shareholders support our
position. We strongly urge shareholders to vote without delay
so that we can call the Special Meeting and continue our
efforts to acquire Magma." Sokol urged shareholders who need
materials or assistance in voting to contact CECI's Information
Agent, MacKenzie Partners, Inc. at (800) 322-2885, toll-free.
California Energy Company is a leading international developer,
owner and operator of geothermal and other environmentally
responsible power generation facilities. Its six existing
facilities currently produce in excess of 325 MW of power with an
additional 300 MW under construction. CECI has neither sought nor
obtained permission from ISS to quote from their report.
The Special Meeting was called on November __, 1994 by CECI on behalf of
the holders of more than __% of the outstanding Shares (representing __% of
the Shares not held by the Company's management or by entities whose
representatives serve on the Company's Board).
<PAGE>35
PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA
The following Pro Forma Unaudited Condensed Combined Balance Sheet as of
June 30, 1994 and the Pro Forma Unaudited Condensed Combined Statements of
Earnings for the year ended December 31, 1993 and the six months ended June
30, 1994 combine the historical consolidated balance sheets of CECI and the
Company as if the acquisition had been effective on June 30, 1994, and the
historical statements of income as if the acquisition had been effective at
the beginning of the period. The acquisition is reflected under the purchase
method of accounting, after giving effect to the pro forma adjustments and
assumptions described in the accompanying notes. Under this method of
accounting, which is generally accepted accounting principles, assets and
liabilities of the Company are adjusted to their estimated fair value, and
combined with the recorded values of the assets and liabilities of CECI.
CECI has not had access to the Company's records in order to make its
determination of the fair value of the Company's assets and liabilities. The
fair value adjustments reflected in the accompanying pro forma combined
financial data reflect, among other things, estimates of fair value made by
CECI based on market quotations and assumptions it believes to be reasonable.
It should be noted, however, that the actual fair values will be
determined on the basis of the financial condition of the Company at the time
the Shares are purchased.
Assuming the consummation of the Offer, the actual financial position and
results of operations will differ from the amounts reflected herein because of
a variety of factors, including access to additional information, changes in
value, changes in the Company's stockholders' equity between June 30, 1994 and
the date the Shares are purchased.
The pro forma data do not reflect operating efficiencies and cost
reductions which CECI anticipates are achievable as a result of a combination
of CECI and the Company. The savings would be largely attributable to the
economies of scale obtained through the combination of CECI's operations with
the Company's operations, and the resulting decrease in employment and
occupancy costs, as well as general overhead expenses.
The pro forma combined financial data are not intended to present the
results that would have actually occurred if the acquisition had been in
effect on the assumed dates and for the assumed periods, and are not
necessarily indicative of the results that may be obtained in the future.
<PAGE>36
<TABLE>
<CAPTION>
Pro Forma Unaudited Condensed Combined Balance Sheet
CECI and the Company
As of June 30, 1994
(In thousands)
CECI Company Adjustments Combined
---- ------- ----------- --------
Assets
<S> <C> <C> <C> <C>
Cash and short term investments. . . . . . . . . . . . . $379,461 $ 2,717 $(220,400)(3C) $161,778
Marketable securities. . . . . . . . . . . . . . . . . . - 36,367 - 36,367
Joint venture cash and short term investments. . . . . . 3,361 25,069 - 28,430
Restricted cash and short term investments . . . . . . . 98,476 - - 98,476
Accounts receivable-trade and other. . . . . . . . . . . 30,445 47,473 - 77,918
Prepaid expenses and other assets. . . . . . . . . . . . - 11,615 - 11,615
Due from joint ventures. . . . . . . . . . . . . . . . . 1,090 - - 1,090
Property and plant, net. . . . . . . . . . . . . . . . . 487,653 394,447 340,000(3B) 1,222,100
Equipment, net . . . . . . . . . . . . . . . . . . . . . 4,266 - - 4,266
Notes receivable-joint venture . . . . . . . . . . . . . 11,884 - - 11,884
Other investments. . . . . . . . . . . . . . . . . . . . 2,383 44,892 - 47,275
Power purchase contracts . . . . . . . . . . . . . . . . - 21,604 60,000(3B) 81,604
Deferred charges and other assets. . . . . . . . . . . . 28,123 25,773 12,500(3C) 66,396
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . - 9,095 334,485(3B) 343,580
Total Assets. . . . . . . . . . . . . . . . . . . . $1,047,142 $619,052 $526,585 $2,192,779
Liabilities and Stockholders' Equity
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . $ 811 $ 8,655 $ - $ 9,466
Other accrued liabilities. . . . . . . . . . . . . . . 20,058 1,816 - 21,874
Income taxes payable . . . . . . . . . . . . . . . . . 230 - - 230
Construction loans . . . . . . . . . . . . . . . . . . 5,811 - - 5,811
Project loans. . . . . . . . . . . . . . . . . . . . . 233,080 209,548 - 442,628
Senior discount notes. . . . . . . . . . . . . . . . . 410,850 - - 410,850
Convertible subordinated debenture . . . . . . . . . . 100,000 - - 100,000
Deferred income taxes. . . . . . . . . . . . . . . . . 20,761 11,784 158,000(3B) 190,545
Other long term liabilities. . . . . . . . . . . . . . - 11,834 500,000(3C) 511,834
Total liabilities . . . . . . . . . . . . . . . . . 791,601 243,637 658,000 1,693,238
Deferred income. . . . . . . . . . . . . . . . . . . . 19,849 - - 19,849
Redeemable preferred stock . . . . . . . . . . . . . . 61,150 - - 61,150
Commitments and contingencies. . . . . . . . . . . . . - - - -
Stockholders' Equity
Preferred stock
Common Stock . . . . . . . . . . . . . . . . . . . . . 2,407 2,400 (1,655)(3A) 3,152
Additional paid in capital . . . . . . . . . . . . . . 101,343 145,457 44,992 (3A) 291,792
Unrealized gain from marketable securities . . . . . . - (378) 378 (3A) -
Retained earnings. . . . . . . . . . . . . . . . . . . 123,598 227,936 (227,936)(3A) 123,598
Treasury stock . . . . . . . . . . . . . . . . . . . . (52,806) - 52,806 (3A) -
Total stockholders' equity. . . . . . . . . . . . . 174,542 375,415 (131,415) 418,542
Total liabilities and stockholders' equity. . . . . $1,047,142 $619,052 $526,585 $2,192,779
The accompanying notes to the pro forma unaudited condensed combined financial statements are an integral part of these
statements.
</TABLE>
<PAGE>37
Pro Forma Unaudited Condensed Combined Statements of Earnings
CECI and the Company
For the Year Ended December 31, 1993 and the Six Months Ended June 30, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Six Months Ended June 30, 1994
---------------------------- ------------------------------
Pro Forma Pro Pro Forma
Adjustment Forma Adjustment Pro Forma
CECI Company (3D) Combined CECI Company (3D) Combined
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Sales of electricity
and steam . . . . . . $132,059 $137,882 $ - $269,941 $67,669 $73,494 $ - $141,163
Royalties . . . . . . . - 19,629 - 19,629 - 9,434 - 9,434
Interest and other
income . . . . . . . 17,194 4,195 (11,020) 10,369 12,995 2,466 (5,510) 9,951
Management services . . - 5,432 - 5,432 - 1,827 - 1,827
Total Revenue . . . . . 149,253 167,138 (11,020) 305,371 80,664 87,221 (5,510) 162,375
Costs and Expenses
Plant operations . . . 25,362 49,493 - 74,855 14,041 28,485 - 42,526
General and
administrative . . . 13,158 10,943 - 24,101 6,320 5,872 - 12,192
Royalties . . . . . . . 8,274 - - 8,274 4,394 - - 4,394
Depreciation and
amortization . . . . . 17,812 21,692 21,503 61,007 9,800 11,862 10,751 32,413
Other non plant costs . - 471 - 471 - 265 - 265
Interest expense . . . 30,205 9,626 45,000 84,831 26,827 5,961 22,500 55,288
Less interest
capitalized. . . . . . (6,816) - - (6,816) (5,431) - - (5,431)
Total costs and
expenses. . . . . . . 87,995 92,225 66,503 246,723 55,951 52,445 33,251 141,647
Income before income
taxes . . . . . . . . 61,258 74,913 (77,523) 58,648 24,713 34,776 (38,761) 20,728
Provision for income
taxes. . . . . . . . . 18,184 22,778 (26,242) 14,720 7,727 10,782 (13,121) 5,388
Income from continuing
operations . . . . . 43,074 52,135 (51,281) 43,928 16,986 23,994 (25,640) 15,340
Preferred dividends . . 4,630 - - 4,630 2,436 - - 2,436
Income available to
common stockholders. . $38,444 $52,135 $(51,281) $39,298 $14,550 $23,994 $(25,640) $12,904
Income per common and
common equivalent share $1.00 $2.17 - $0.75 $0.40 $1.00 - $0.25
Weighted average common
shares outstanding. . . 38,485 24,063 - 52,528 36,827 24,011 - 50,870
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined
financial statements are an integral part of these statements.
<PAGE>38
Notes To Pro Forma Unaudited Condensed Combined Financial Data
CECI and the Company
(In thousands, except per share data)
The Proposed Merger will be accounted for as a purchase. The resulting
adjustments are based on the historical consolidated financial statements of
CECI and the Company. The final adjustments will be based on the fair value
of the CECI Common Stock and the fair value of the assets and liabilities of
the Company at or near the closing. For purposes of the pro forma combined
financial statements, it is assumed that one hundred percent of the Shares
will be acquired and that the fair value of the CECI Common Stock will be
$17.375 (the closing price on September 23, 1994) per share at or near
closing.
The pro forma unaudited condensed combined financial statements are based
on the following assumptions:
1. The Proposed Merger occurred as of June 30, 1994 for balance sheet
purposes and at the beginning of the periods presented for statement of
earnings purposes.
2. 24,400,000 Shares outstanding as of June 30, 1994 (which includes an
estimate of the Shares necessary to retire outstanding options) will be
purchased for $38.50 per Share, consisting of $28.50 per share in cash
and $10 in market value per share of CECI Common Stock.
3. The pro forma adjustments to reflect the effect of the transaction are as
follows:
A. The adjustments reflect the elimination of the Company's equity
accounts and the issuance of CECI Common Stock.
B. The adjustments which have been made to the net assets of the
Company and CECI to give effect to the Proposed Merger follow:
Assumed value of the
CECI Common Stock and cash consideration
plus estimated direct costs to be
incurred in consummating the Proposed
Merger . . . . . . . . . . . . . . $951,900
Net assets of the Company . . . . . . $375,415
Adjustment to eliminate goodwill
of the Company . . . . . . . . . . (9,095) 366,320
----- -------
Excess of purchase price over carrying
value of net assets acquired . . . 585,580
Allocated to:
Property and plant . . . . . . . . (340,000)
Power purchase contracts . . . . . (60,000)
Deferred income taxes on
allocated costs . . . . . . . . . 158,000
_______
Goodwill . . . . . . . . . . . . . . $343,580
<PAGE>39
C. The cash which CECI will be required to pay in order to effect the
Proposed Merger has been provided for in the pro forma adjustments
as follows:
Reduce cash on hand . . . . . . . . . $220,400
Increase long-term debt . . . . . . . 500,000
________
$720,400
Represents:
Payments to common stockholders of
the Company . . . . . . . . . . . $695,400
Other direct acquisition costs . . 12,500
Finance costs . . . . . . . . . . . 12,500
________
$720,400
D. The pro forma adjustments to pro forma combined statement of
earnings include the following:
i. Record amortization of the excess of purchase price over net
assets acquired over a 30-year period, eliminate the
amortization of goodwill from the historical operating results
of the Company and provide depreciation expense on costs
allocated to property and plant. CECI's policy is to provide
depreciation and amortization expense beginning upon the
commencement of energy production over the estimated remaining
useful life of plant and equipment or the contract period for
costs applicable to power sales and development contracts.
Costs of $150 million have been allocated to power sales and
development contracts for which energy production is not
expected to commence until 1996 or later. Accordingly,
revenues, period operating costs and amortization of future
costs to be incurred in the completion of such facilities
together with amortization of this allocation of acquisition
costs are not included in the pro forma combined statements of
earnings.
ii. Increase interest expense relating to amortization of deferred
financing costs over ten years and to additional borrowings
undertaken to finance the merger, utilizing an 8.75 percent
annual interest rate assumption applied to additional
borrowings and a 5 percent annual interest rate assumption
applicable to the reduction of cash on hand.
iii. Change income tax expense as a result of pro forma adjustments
which affect taxable income.
The pro forma income per common share has been determined on
the basis of weighted average outstanding shares which have
been adjusted to include the number of shares of CECI Common
Stock to be exchanged for the outstanding Shares.
4. The pro forma combined income from continuing operations available to
common shareholders per share for the year ended December 31, 1993, and
six months ended June 30, 1994, would be $0.77 and $0.26 respectively,
based upon the assumption that (1) 100% of the Shares are acquired by
CECI and (2) the market value of the CECI Common Stock issued to the
present shareholders of the Company is $19.00 per share. The pro forma
combined book value per share at June 30, 1994, would be $9.20 under the
same assumptions.
5. The pro forma combined income from continuing operations available to
common shareholders per share for the year ended December 31, 1993, and
six months ended June 30, 1994, would be $0.72 and $0.24, respectively,
based upon the assumption that (1) 100% of the Shares are acquired by
CECI and (2) the market value of CECI Common Stock issued to the present
shareholders of the Company is $15.00 per
<PAGE>40
share. The pro forma combined book value per share at June 30, 1994, would be
$8.56 under the same assumptions.
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
CECI, the CECI Nominees, the Purchaser, Gleacher & Co. Inc. ("Gleacher"),
David L. Sokol, Steven A. McArthur, John G. Sylvia, Dale R. Schuster, Eric
Gleacher, Charles G. Phillips and James Goodwin may be deemed to be
"participants" (as defined in Instruction 3 to Item 4 of Rule 14a-101 of the
Exchange Act), and thereby are required to disclose the following information.
Messrs. Sokol, McArthur, Sylvia and Schuster (the "CECI Employees") are
employees of CECI and Messrs. Gleacher, Phillips and Goodwin (the "Gleacher
Employees") are employees of Gleacher. The CECI Employees, the CECI Nominees
and the Gleacher Employees are collectively referred to herein as the
"Individuals".
The Purchaser was recently incorporated in Delaware and has not engaged
in any business since its incorporation other than that incident to its
organization and in connection with the Purchaser's Offer to Purchase. The
Purchaser is a direct wholly owned subsidiary of CECI. The principal
executive offices of CECI and the Purchaser are located at 10831 Old Mill
Road, Omaha, Nebraska 68154.
CECI commenced business in 1971 and, together with its subsidiaries, is
primarily engaged in the exploration for and development of geothermal
resources and the development, ownership and operation of environmentally
responsible independent power production facilities worldwide utilizing
geothermal resources or other energy sources, such as hydroelectric, natural
gas, oil and coal. CECI was an early participant in the domestic independent
power market and is now one of the largest geothermal power producers in the
United States. CECI is also actively pursuing opportunities in the
international independent power market. For the year ended December 31, 1993
and the six months ended June 30, 1994, CECI had revenues of $149.3 million
and $80.7 million, respectively, and net income of $47.2 million and $17.0
million, respectively. As of June 30, 1994, CECI had cash and short-term
investments of $379.5 million.
As of the date hereof, CECI is the record owner of 200,000 Shares.
Except as set forth above, and other than the record ownership by Mr. Ben
Holt, a director of CECI, of 3,763 Shares, none of CECI, the Purchaser or any
of its directors or officers, Gleacher, the Individuals or any associate of
any of the foregoing persons or any other person who may be deemed a
"participant" is the beneficial or record owner of any Shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AS A GROUP
Schedule II sets forth, as of April 15, 1994, the name and address, the
total number of Shares (if any) beneficially owned (as defined in Rule 13d-3
under the Exchange Act) and the percentage of the outstanding Shares so owned
(i) by each person who is known to the Company to own beneficially 5% or more
of the outstanding Shares, (ii) by each director on 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.
CERTAIN LITIGATION
Magma Power Company v. California Energy Company, Inc.
On October 3, 1994, the Company filed a complaint entitled Magma Power
Company v. California Energy Company, Inc., Case No. CV-N-94-06160, against
CECI in the Second Judicial District Court of the State of Nevada in and for
the County of Washoe. The complaint seeks a declaratory judgment that (i) the
Company's
<PAGE>41
Board properly discharged its fiduciary obligations in adopting the Poison
Pill and amendments to the Bylaws and, accordingly, such documents were valid
and binding, and (ii) the Merger Moratorium Statute is valid and not in
violation of the Commerce Clause and Supremacy Clause of the United States
Constitution. CECI subsequently removed this action to the United States
District Court for the District of Nevada.
On October 17, 1994, CECI filed its answer and counterclaims in response
to the Company's complaint. The counterclaims name the Purchaser as an
additional counterclaim plaintiff and the Company's directors as counterclaim
defendants in addition to the Company. CECI's counterclaims seek primarily:
(i) a declaratory judgment that certain actions taken by the Company,
including the amendment to the Company's Bylaws purporting to preclude the
Company's stockholders from taking action by written consent, and
implementation of its Poison Pill, are void and ultra vires, and constitute a
breach of fiduciary duty by the Company's Board; (ii) an injunction requiring
the Company's Board to rescind the amendment to the Company's Bylaws which
purports to eliminate the power of stockholders to act by written consent, the
"golden parachute" severance agreements granted to 15 members of the Company's
management and the indemnification agreements granted to each member of the
Company's Board; (iii) an injunction enjoining the operation of the Poison
Pill and directing the Company's Board to redeem the Poison Pill Rights; (iv)
a declaratory judgment that the Merger Moratorium Statute is unconstitutional
under the Supremacy Clause and the Commerce Clause of the United States
Constitution; (v) an injunction enjoining the Company's Board from invoking
the terms of the Merger Moratorium Statute or otherwise obstructing the Offer;
and (vi) an injunction requiring the Company to correct all false and
misleading statements in its Schedule 14D-9 and the amendments thereto.
On October 17, 1994, the Company filed an amended complaint, which, in
addition to the relief requested in its original complaint, seeks (i)
declaratory and injunctive relief with respect to certain purportedly false
and misleading disclosures in CECI's and the Purchaser's Schedule 14D-1 and
the Offer to Purchase therein; and (ii) declaratory and injunctive relief with
respect to certain allegedly false and misleading statements made in CECI's
preliminary Request Solicitation Statement filed with the Commission pursuant
to Section 14(a) of the Exchange Act on October 13, 1994.
On October 19, 1994, CECI and the Purchaser filed their answer to the
Company's amended complaint and amended their counterclaims which, in addition
to the relief requested in the original counterclaims, seek an injunction
requiring the Company to correct additional false and misleading statements
reflected in an amendment to its Schedule 14D-9 and in other statements made
by the Company.
On October 25, 1994, CECI and the Purchaser filed their second amended
counterclaims which, in addition to the relief requested in the original and
amended counterclaims, seek an injunction requiring the Company to refrain
from (i) taking actions to damage its international development projects,
including the Karaha project, or (ii) taking other actions designed to waste
corporate assets and block the Offer and the Proposed Merger.
On November 3, 1994, CECI and the Purchaser filed their third amended
counterclaims which, among other things, seeks a ruling that the Control Share
Statute does not apply to the Offer.
CECI intends to take any action necessary to have attempted impediments
to the Offer and the Proposed Merger set aside.
Ben Holt v. Magma Power Company
On October 14, 1994, Ben Holt, a stockholder of the Company, and a
director of CECI, filed a complaint entitled Ben Holt v. Magma Power Company,
Case No. CV94-06432, against the Company in the Second Judicial District Court
for the State of Nevada in and for the County of Washoe (the "Court"),
alleging, among other things, that the Company has infringed the plaintiff's
right as a stockholder by denying his statutory right under the NGCL to demand
access to the Company's stockholder list and certain related material
necessary to communicate with
<PAGE>42
the Company's stockholders. The plaintiff sought an order directing the
Company to comply with the demand for the stockholder list and related
information necessary to communicate with stockholders.
On October 25, 1994, the Court issued an order directing the Company
forthwith and without delay to turn over to Mr. Holt a complete record or list
of the Company's stockholders together with certain other information
concerning stockholders of the Company requested by Mr. Holt in his demand
letter to the Company. The Court ruled expressly that Mr. Holt satisfied the
requirements of the NGCL governing requests for stockholder information in
that he had been a stockholder of the Company for more than six months as of
the time of his demand, and had complied with the Company's request for an
affidavit concerning his request; that Mr. Holt's purpose for requesting
stockholder information of the Company, which was to facilitate CECI's request
for a special meeting of stockholders of the Company and otherwise to
communicate with the other stockholders of the Company concerning CECI's
proposal to acquire the Company through the Offer and the Proposed Merger was
a proper purpose for which to request stockholder information; and that the
public interest is served by granting Mr. Holt's request for stockholder
information.
Other Stockholder Litigation
On September 20, 1994, William Steiner, a stockholder of the Company,
filed a class action complaint entitled William Steiner, et al. v. Paul M.
Pankratz, et al., Case No. 680986, 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, and continue to be, 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 CECI's offer for the Company, 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 CECI or any other entity making a bona fide offer for the Company,
as well as damages and costs.
On October 4, 1994, Charles Miller, a stockholder of the Company, filed a
class action complaint entitled Charles Miller, et al. v. Magma Power Company,
et al., Case No. CV94-06187, against the Company, its directors and The Dow
Chemical Company 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 CECI's proposal to acquire the
Company and its implementation of defensive measures 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 Company's Poison Pill or other
defensive measures, as well as damages and costs.
On November 2, 1994, the plaintiffs in Charles Miller voluntarily
dismissed their state court action, in favor of bringing an action in the
United States District Court for the District of Nevada.
On October 28, 1994, stockholders William Steiner and Charles Miller
filed a class action complaint entitled William Steiner and Charles Miller v.
Magma Power Co., Case No. CV-N-94-773-ECR, against the Company, its directors
and the Dow Chemical Company, in the United States District Court for the
District of Nevada, alleging essentially the same facts as in the two
previously filed stockholder litigations. As relief, the complaint seeks an
order directing the defendants to fairly evaluate alternatives designed to
maximize shareholder value, an injunction with respect to implementation of
the Company's Poison Pill, declaration that the Company has violated Sections
14(d) and 14(e) of the Exchange Act, and an injunction barring the defendants
from engaging in any solicitation in opposition to CECI until they comply with
the provisions of the Exchange Act, as well as damages and costs.
<PAGE>43
VOTING AND PROXY PROCEDURES
Shares represented by properly executed BLUE proxies will be voted as
directed or, if no direction is indicated, will be voted in favor of the
election of the CECI Nominees and each of the proposals described in this
Proxy Statement. A BLUE proxy will not be voted for the election of all the
nominees as directors if authority to do so is specifically withheld on the
proxy, and will not be used for the election of any nominees whose names are
written in the indicated space on the proxy. For purposes of determining
whether a proposal has received the required number of votes for approval,
abstentions will be included in the vote totals with the result that an
abstention has the same effect as a negative vote. In instances where nominee
recordholders, such as brokers, are prohibited from exercising discretionary
authority for the beneficial owners who have not returned a proxy, those
Shares will not be included in the vote totals and, therefore, will have no
effect on the vote.
CECI is not aware of any other matter to be considered at the Special
Meeting. However, if any other matter properly comes before the Special
Meeting, the persons named as proxies on the BLUE proxy card to be issued to
you will have discretionary authority to vote all proxies with respect to such
matter.
REVOCATION OF PROXIES
Whether or not you plan to attend the Special Meeting, we urge you to
vote FOR approval of each CECI Proposal by so indicating on the BLUE proxy
card to be issued to you and immediately mailing it in the envelope included
therewith. You may do this even if you have already sent in a different proxy
card solicited by the Company's Board. It is the last dated proxy that
counts.
You may revoke your proxy at any time prior to its exercise by attending
the Special Meeting and voting in person (although attendance at the Special
Meeting will not in and of itself constitute revocation of a proxy), by giving
oral notice of termination of your proxy at the Special Meeting, or by
delivering a written notice of revocation or a duly executed proxy relating to
the matters to be considered at the Special Meeting and bearing a later date
to the Secretary of the Company at 4365 Executive Drive, Suite 900, San Diego,
California 92121, or to CECI at 10831 Old Mill Road, Omaha, Nebraska 68154, or
another person or persons appointed by the Company to count the votes of
stockholders and determine the validity of proxies and ballots. Unless
revoked in the manner set forth above, proxies in the form enclosed will be
voted at the Special Meeting in accordance with your instructions. In the
absence of such instructions, such proxies will be voted for the approval of
the CECI Proposals.
YOUR VOTE IS IMPORTANT!!
PLEASE SIGN, DATE AND RETURN THE BLUE PROXY CARD.
IF YOU HAVE ALREADY SENT A PROXY TO THE COMPANY'S BOARD, YOU MAY REVOKE
THAT PROXY AND VOTE FOR THE CECI PROPOSALS BY SIGNING, DATING AND MAILING THE
BLUE PROXY CARD. WHETHER OR NOT YOU HAVE ALREADY SENT A PROXY TO THE
COMPANY'S BOARD, WE URGE YOU TO VOTE FOR EACH CECI PROPOSAL BY SIGNING, DATING
AND MAILING THE BLUE PROXY CARD. YOU ARE URGED TO SUBMIT YOUR PROXY OR VOTE
BECAUSE THE FAILURE TO DO SO IS THE EQUIVALENT OF A VOTE IN FAVOR OF
CONTINUATION OF THE BOARD'S REFUSAL TO PURSUE DISCUSSIONS WITH CECI REGARDING
CECI'S ACQUISITION PROPOSAL.
REMEMBER, ONLY YOUR LATEST DATED PROXY COUNTS.
If you have any questions about the voting of Shares or the Offer, please
call:
<PAGE>44
[INSERT CAMERA READY PROOF
FOR MACKENZIE PARTNERS, INC.]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
Call Toll Free 800-322-2885
SOLICITATION EXPENSES AND PROCEDURES
The entire expense of preparing, assembling, printing and mailing the
Proxy Statement and the accompanying proxy card, and the cost of soliciting
consents, will be borne by CECI. CECI does not intend to seek reimbursement
from the Company for these expenses if the CECI Nominees are elected to the
Board.
In addition to the use of the mails, proxies may be solicited by certain
officers, directors and other employees or affiliates of CECI by telephone,
facsimile, telegraph and personal interviews, for which no compensation will
be paid to such individuals. Banks, brokerage houses and other custodians,
nominees and fiduciaries will be requested to forward the solicitation
material to the customers for whom they hold Shares, and CECI will reimburse
them for their reasonable out-of-pocket expenses.
CECI has retained MacKenzie Partners, Inc. ("MacKenzie") for advisory,
information agent and consent solicitation services, for which MacKenzie will
be paid reasonable and customary compensation, and will be reimbursed for
certain reasonable out-of-pocket expenses. CECI has also agreed to indemnify
MacKenzie against certain liabilities and expenses in connection with its
engagement, including certain liabilities under the federal securities laws.
MacKenzie will solicit proxies from individuals, brokers, bank nominees and
other institutional holders. Approximately 35 persons will be utilized by
MacKenzie in its solicitation efforts, which may be made by telephone,
telegram, facsimile and in person.
CECI estimates that total expenditures relating to the solicitation will
be approximately $225,000, including $75,000 payable to MacKenzie directly
attributable to the proxy solicitations. To date, CECI has spent
approximately $100,000 of such total estimated expenditures.
In addition, Gleacher & Co. Inc. ("Gleacher") is acting as financial
advisor to CECI and the Purchaser in connection with the transactions
described in the Offer to Purchase, as Dealer Manager for the Offer and as co-
arranger of the debt financing described in the Offer to Purchase.
Approximately three persons will be utilized by Gleacher in its solicitation
efforts, which may be made by telephone, telegram, facsimile and in person.
CECI has agreed to pay Gleacher a fee of (a) $250,000 payable upon the
public announcement of an offer to acquire at least 50.1% of the Shares; (b)
$500,000 payable 45 calendar days after the commencement of a tender or
exchange offer, assuming the offer is outstanding at such time; and (c)
$4,000,000 payable upon completion of the direct or indirect acquisition by
CECI, whether alone or in partnership with another company, by merger,
acquisition of securities, or otherwise, of 50.1% or more of the equity
securities of the Company. Any fees payable in (a) or (b) above will be
credited against the fee described in (c). CECI has also agreed to pay
Gleacher a fee equal to .25% of the principal amount of debt financing
arranged in connection with such acquisition. Gleacher will also be
reimbursed for its out-of-pocket expenses in connection with its engagement in
connection with the Offer, including the reasonable fees and expenses of its
counsel. CECI has also agreed to indemnify Gleacher and certain related
persons against certain losses, claims, damages or liabilities and expenses in
connection with the Offer, including certain liabilities under the federal
securities laws.
Neither CECI nor the Purchaser will pay any fees or commissions to any
broker or dealer or other person (other than to Gleacher and MacKenzie) for
soliciting tenders of Shares pursuant to the Offer or for soliciting
<PAGE>45
proxies pursuant to the Proxy Statement. Brokers, dealers, commercial banks
and trust companies will be reimbursed by the Purchaser for customary mailing
and handling expenses incurred by them in forwarding offering materials to
their customers.
STOCKHOLDER PROPOSALS
Any stockholder of the Company who wishes to submit a proposal for
presentation at the 1995 Annual Meeting of Stockholders must submit the
proposal to Magma Power Company, 4365 Executive Drive, Suite 900, San Diego,
California 92121, Attention: Secretary, not later than January 11, 1995, for
inclusion, if appropriate, in the Company's proxy statement and the form of
proxy relating to such meeting.
OTHER MATTERS
The information concerning the Company contained in this Proxy Statement
has been taken from or is based upon documents and records on file with the
Commission and other publicly available information. Although neither CECI
nor the Purchaser has any knowledge that would indicate that any statements
contained herein based upon such documents and records and other publicly
available information are untrue, neither CECI nor the Purchaser takes any
responsibility for the accuracy or completeness of any such information
contained herein, or for any failure by the Company to disclose events that
may have occurred and may affect the significance or accuracy of any such
information but which are unknown to CECI or the Purchaser.
The Schedules to this Proxy Solicitation contain important information
and should be read by stockholders before any decision is made with respect to
the voting of Shares at the Special Meeting.
CALIFORNIA ENERGY COMPANY, INC.
CE ACQUISITION COMPANY, INC.
Date: December ___, 1994.
<PAGE>46
SCHEDULE I
ACQUISITION OF CONTROLLING INTEREST
78.378 APPLICABILITY; IMPOSITION OF STRICTER REQUIREMENTS; PROTECTION OF
CORPORATION AND ITS STOCKHOLDERS. 1. The provisions of NRS 78.378 to 78.3793,
inclusive, are applicable to any acquisition of a controlling interest in an
issuing corporation, unless, before an acquisition is made, the articles of
incorporation or bylaws of the corporation in effect on the 10th day following
the acquisition of a controlling interest by an acquiring person provide that
the provisions of those sections do not apply.
2. The articles of incorporation, the bylaws or a resolution adopted by
the directors of the issuing corporation may impose stricter requirements on
the acquisition of a controlling interest in the corporation than the
provisions of NRS 78.378 to 78.3793, inclusive.
3. The provisions of NRS 78.378 to 78.3793, inclusive, do not restrict
the directors of an issuing corporation from taking action to protect the
interests of the corporation and its stockholders, including, but not limited
to, adopting or executing plans, arrangements or instruments that deny rights,
privileges, power or authority to a holder of a specified number of shares or
percentage of share ownership or voting power.
78.3781 DEFINITIONS. As used in NRS 78.378 to 78.3793, inclusive unless
the context otherwise requires, the words and terms defined in NRS 78.3782 to
78.3788, inclusive, have the meanings ascribed to them in those sections.
78.3782 "ACQUIRING PERSON" DEFINED. "Acquiring person" means any person
who, individually or in association with others, acquires or offers to
acquire, directly or indirectly, a controlling interest in an issuing
corporation. The term does not include any person who, in the ordinary
course of business and without an intent to avoid the requirements of NRS
78.378 to 78.3793, inclusive, acquires voting shares for the benefit of
others, in respect of which he is not specifically authorized to exercise or
direct the exercise of voting rights.
78.3783 "ACQUISITION" DEFINED. 1. Except as provided in subsection 2,
"acquisition" means the direct or indirect acquisition of a controlling
interest.
2. "Acquisition" does not include any acquisition of shares in good
faith, and without an intent to avoid the requirements of NRS 78.378 to
78.3793, inclusive:
(a) By an acquiring person authorized pursuant to NRS 78.378 to 78.3793,
inclusive, to exercise voting rights, to the extent that the new acquisition
does not result in the acquiring person obtaining a controlling interest
greater than that previously authorized; or
(b) Pursuant to:
(1) The laws of descent and distribution;
(2) The enforcement of a judgment;
(3) The satisfaction of a pledge or other security interest; or
(4) A merger or reorganization effected in compliance with the
provisions of NRS 78.622, or NRS 78.451 to 78.466, inclusive, to which the
issuing corporation is a party.
78.3784 "CONTROL SHARES" DEFINED. "Control shares" means those
outstanding voting shares of an issuing corporation which an acquiring person
and those persons acting in association with an acquiring person:
1. Acquire in an acquisition or offer to acquire in an acquisition; and
2. Acquire within 90 days immediately preceding the date when the
acquiring person became an acquiring person.
78.3785 "CONTROLLING INTEREST" DEFINED. "Controlling interest" means the
ownership of outstanding voting shares of an issuing corporation sufficient,
but for the provisions of NRS 78.378 to 78.3793, inclusive, to enable the
acquiring person, directly or indirectly and individually or in association
with others, to exercise:
<PAGE>47
1. One-fifth or more but less than one-third;
2. One-third or more but less than a majority; or
3. A majority or more,
of all the voting power of the corporation in the election of directors.
78.3786 "FAIR VALUE" DEFINED. "Fair value" means a value not less than
the highest price per share paid by the acquiring person in an acquisition.
78.3787 "INTERESTED STOCKHOLDER" DEFINED. "Interested stockholder" means
a person who directly or indirectly exercises the voting power of an issuing
corporation and who is:
1. An acquiring person;
2. An officer of the corporation; or
3. An employee and director of the corporation.
78.3788 "ISSUING CORPORATION" DEFINED. "Issuing corporation" means a
corporation which is organized in this state and which:
1. Has 200 or more stockholders, at least 100 of whom are stockholders
of record and residents of this state; and
2. Does business in this state directly or through an affiliated
corporation.
78.3789 DELIVERY OF OFFEROR'S STATEMENT BY ACQUIRING PERSON; CONTENTS OF
STATEMENT. An acquiring person who has made or offered to make an acquisition
of a controlling interest in an issuing corporation may deliver an offeror's
statement to the registered office of the corporation. The acquiring person
may request in the statement that the directors of the corporation call a
special meeting of the stockholders of the corporation, as provided in NRS
78.379. The statement must set forth:
1. A recital that the statement is given pursuant to this section;
2. The name of the acquiring person and of every person associated with
him in the acquisition;
3. The number of shares in any class of voting securities owned, as of
the date of the statement, by the acquiring person and each person with whom
he is associated, or which the acquiring person intends to acquire;
4. The percentage of the voting securities of the corporation owned, as
of the date of the statement, by the acquiring person and each person with
whom he is associated, or which the acquiring person intends to acquire; and
5. If the acquiring person has not yet acquired the securities of the
corporation, a detailed description of:
(a) The terms and conditions of the proposed acquisition; and
(b) The means by which any required consideration, and any indebtedness
incurred to consummate the transaction, are to be paid.
78.3790 VOTING RIGHTS OF ACQUIRING PERSON; MEETING OF STOCKHOLDERS;
STATEMENTS TO ACCOMPANY NOTICE OF MEETING. 1. An acquiring person and those
acting in association with an acquiring person obtain only such voting rights
in the control shares as are conferred by a resolution of the stockholders of
the corporation, approved at a special or annual meeting of the stockholders.
2. If an acquiring person so requests in an offeror's statement
delivered pursuant to NRS 78.3789, and if he gives an undertaking to pay the
expenses of the meeting, the directors of the corporation shall, within 10
days after delivery of the statement, call a special meeting of the
stockholders to determine the voting rights to be accorded the control shares.
3. A notice of any meeting of stockholders at which the question of
voting rights is to be determined must be accompanied by:
(a) A complete copy of the offeror's statement; and
(b) A statement of the board of directors of the corporation setting
forth the position of the board with respect to the acquisition or, if it is
the case, stating that the board makes no recommendation concerning the
matter.
4. A special meeting of stockholders called pursuant to this section:
<PAGE>48
(a) Must not be held before the expiration of 30 days after the delivery
of the offeror's statement, unless the statement contains a request that the
meeting be held sooner.
(b) Must be held within 50 days after the delivery of the statement,
unless the acquiring person otherwise agrees in writing that the meeting may
be held after that time.
5. If the offeror's statement does not include a request that a special
meeting be called, the question of voting rights must be presented to the next
special or annual meeting of the stockholders.
78.3791 APPROVAL OF VOTING RIGHTS OF ACQUIRING PERSON. Except as
otherwise provided by the articles of incorporation of the issuing
corporation, a resolution of the stockholders granting voting rights to the
control shares acquired by an acquiring person must be approved by:
1. The holders of a majority of the voting power of the corporation; and
2. If the acquisition will result in any change of the kind described in
subsection 3 of NRS 78.390, the holders of a majority of each class or series
affected,
excluding those shares held by any interested stockholder.
78.3792 REDEMPTION OF CONTROL SHARES. 1. If so provided in the articles
of incorporation or the bylaws of the issuing corporation in effect on the
10th day following the acquisition of a controlling interest by an acquiring
person, the issuing corporation may call for redemption of not less than all
the control shares at the average price paid for the control shares, if:
(a) An offeror's statement is not delivered with respect to the
acquisition as provided in NRS 78.3789 on or before the 10th day after the
acquisition of the control shares; or
(b) An offeror's statement is delivered, but the control shares are not
accorded full voting rights by the stockholders.
2. The issuing corporation shall call for redemption within 30 days
after the occurrence of the event prescribed in paragraph (a) or (b) of
subsection 1, and the shares must be redeemed within 60 days after the call.
78.3793 NOTICE TO STOCKHOLDERS; PURCHASE OF SHARES BY CORPORATION. 1.
Unless otherwise provided in the articles of incorporation or the bylaws of
the issuing corporation in effect on the 10th day following the acquisition of
a controlling interest by an acquiring person, if the control shares are
accorded full voting rights pursuant to NRS 78.378 to 78.3793, inclusive, and
the acquiring person has acquired control shares with a majority or more of
all the voting power, any stockholder of record, other than the acquiring
person, who has not voted in favor of authorizing voting rights for the
control shares is entitled to demand payment for the fair value of his shares.
2. The board of directors of the issuing corporation shall, within 20
days after the vote of the stockholders authorizing voting rights for the
control shares, cause a notice to be sent to any stockholder, other than the
acquiring person, who has not voted in favor of authorizing voting rights for
the control shares, advising him of the fact and of his right to receive fair
value for his shares as provided in subsection 3.
3. Within 20 days after the mailing of the notice described in
subsection 2, any stockholder of the corporation, other than the acquiring
person, who has not voted in favor of authorizing voting rights for the
control shares, may deliver to the registered office of the corporation a
written demand that the corporation purchase, for fair value, all or any
portion of his shares. The corporation shall comply with the demand within 30
days after its delivery.
<PAGE>49
SCHEDULE II
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AS A GROUP
The following table sets forth (i) the security ownership of certain
persons that "beneficially" owned more than 5% of the outstanding Shares, and
(ii) the beneficial ownership of Shares by all directors and officers of the
Company and its subsidiaries as a group as of October 1, 1994. The
information presented below has been taken from or is based upon documents and
records on file with the Commission and other publicly available information.
Although CECI does not have any knowledge that would indicate that any
statement contained herein based upon such documents and records is untrue,
CECI does not take any responsibility for the accuracy or completeness of the
information contained in such documents and records, or for any failure by the
Company to disclose events that may affect the significance or accuracy of
such information.
<TABLE> <CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNERS(1) BENEFICIAL OWNERSHIP (2) CLASS (3)
<S> <C> <C>
The Dow Chemical Company
2030 Dow Center
Midland, Michigan 48674 5,032,430(4) 21.0%
B.C. McCabe Foundation
7624 S. Painter Ave.,
Suite A
Whittier, CA 90602-2313 2,752,641(5) 11.5
Firstar Investment Research
& Management Company
777 E. Wisconsin Ave.
Milwaukee, WI 53202 1,975,500 8.2
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(1) *
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 *
</TABLE>
<PAGE>50
<TABLE> <CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNERS(1) BENEFICIAL OWNERSHIP (2) CLASS (3)
<S> <C> <C>
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 Company's 401(k) Plan. All 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 Commission or information provided to the Company by such
beneficial owners.
(3) Unless otherwise noted, the number of Shares 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 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. James D. 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.
(8) Includes 3,000 shares of deferred stock subject to vesting requirements
based on continuing employment. The holder of such deferred stock is
not entitled to vote or receive dividends on until vested. Also
includes Mr. Boeker's options to purchase 45,000 Shares.
(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.
<PAGE>51
(10) 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.
Dieckmann's options to purchase 13,859 Shares.
(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's options to purchase 5,750 Shares.
(12) Includes 10,000 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. Kerr's options to purchase 5,000 Shares.
(13) Includes 8,600 shares of deferred stock subject to vesting requirements
based on continuing employment, and which the holder is not entitled to
vote or receive dividends until vested. Also includes Mr. Aschehoug's
options to purchase 6,000 Shares.
(14) Includes Mr. Simpson's options to purchase 819 Shares.
(15) Includes Mr. Roach's options to purchase 1,250 Shares.
(16) Includes Mr. Coleman's options to purchase 819 Shares.
(17) Includes 38,100 shares of deferred stock held by all directors and
executive officers as a group. Also includes options to purchase 219,998
Shares 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 referred to in Note 14 above. The number of
outstanding Shares for this purpose is 24,272,812.
<PAGE>52
Form of Proxy [Front]
PROXY SOLICITATION
MAGMA POWER COMPANY
THIS PROXY IS SOLICITED BY
CALIFORNIA ENERGY COMPANY, INC.
AND
CE ACQUISITION COMPANY, INC.
The undersigned hereby appoints David L. Sokol, Steven A. McArthur and
John G. Sylvia and each of them proxies for the undersigned with full power of
substitution, to vote all shares of common stock of Magma Power Company which
the undersigned is entitled to vote at the Special Meeting of Stockholders of
the Company to be held on December 22, 1994, and any adjournments or
postponements thereof, hereby revoking all prior proxies on the matters set
forth below as follows:
I. PROPOSAL TO INCREASE THE NUMBER OF DIRECTORS OF THE COMPANY FROM 11 TO
15, TO ELECT DIRECTORS TO FILL THE FOUR DIRECTORSHIPS AND TO ELECT ALL
NOMINEES LISTED BELOW AT THIS SPECIAL MEETING:
/ / FOR / / AGAINST / / ABSTAIN
(except as marked to the contrary below)
CALIFORNIA ENERGY COMPANY and CE ACQUISITION COMPANY, INC.
recommend a vote FOR the above proposal
/ / WITHHOLD AUTHORITY to vote for all nominees
listed below
Arthur M. Dubow Richard H. Neumann Neil L. Papiano Ronald L. Staskiewicz
(to withhold authority for any individual nominee, check
the "FOR" box and the "WITHHOLD AUTHORITY" box above and write
that nominee's name in the space provided below.)
______________________________________________________________________________
CALIFORNIA ENERGY COMPANY and CE ACQUISITION COMPANY, INC.
recommend a vote FOR all of the nominees listed above
II. PROPOSAL TO INCREASE THE AFFIRMATIVE VOTE REQUIRED BY DIRECTORS TO AT
LEAST 80% OF THE ENTIRE BOARD FOR ANY MATERIAL ACTION OUTSIDE THE
ORDINARY COURSE OF BUSINESS TAKEN OR COMMITTED TO BE TAKEN PRIOR TO
MAGMA POWER COMPANY'S 1995 ANNUAL MEETING OF STOCKHOLDERS.
/ / FOR / / AGAINST / / ABSTAIN
CALIFORNIA ENERGY COMPANY and CE ACQUISITION COMPANY, INC.
recommend a vote FOR the above proposal
III. PROPOSAL TO RENDER THE PROVISIONS OF THE CONTROL SHARE STATUTE
INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER.
/ / FOR / / AGAINST / / ABSTAIN
CALIFORNIA ENERGY COMPANY and CE ACQUISITION COMPANY, INC.
recommend a vote FOR the above proposal
(Continued on the reverse side)
<PAGE>53
[Back]
THE SUBMISSION OF THIS PROXY IF PROPERLY EXECUTED REVOKES ALL PRIOR
PROXIES.
IF THIS PROXY CARD IS EXECUTED AND RETURNED BUT NO INDICATION IS MADE AS
TO WHAT ACTION IS TO BE TAKEN, IT WILL BE DEEMED TO CONSTITUTE A VOTE IN FAVOR
OF EACH OF THE PROPOSALS SET FORTH ON THE FRONT OF THIS CARD.
Dated: _________________________, 1994
Signature: ___________________________
Signature
(if held jointly): ______________________
Title: _______________________________
Please sign exactly as your name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as an attorney,
executor, administrator, trustee or guardian,
give full title as such. If a corporation, sign
in full corporate name by president or other
authorized officer. If a partnership, sign in
partnership name by authorized person.
PLEASE MARK, DATE, SIGN, AND MAIL PROMPTLY IN THE POSTAGE-PAID ENVELOPE
ENCLOSED.
