As filed with the Securities and Exchange Commission on January 9, 1995
REVISED PRELIMINARY PROXY MATERIALS
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Checked the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Section 240.14a-11(c) or Section
240.14a-12
CALIFORNIA ENERGY COMPANY, INC.
(Name of Registrant as specified in its Charter)
CALIFORNIA ENERGY COMPANY, INC.
(Name of person(s) filing proxy statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(i)(2).
/ / $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:
- ----------------------------------------------------------------
/X/ 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 statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$125
- -------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
Schedule 14A
---------------------------------------------------------------
3) Filing Party:
California Energy Company, Inc.
---------------------------------------------------------------
4) Date Filed:
December 21, 1994
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<PAGE>
[LOGO]
CALIFORNIA ENERGY COMPANY, INC.
10831 Old Mill Road
Omaha, NE 68154
January 18, 1995
Dear Fellow Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
of California Energy Company, Inc. (the "Company") to be held at the Red Lion
Hotel, 1616 Dodge Street, in Omaha, Nebraska on February 10, 1995 at 10:00
A.M., local time.
The following matters will be considered and acted upon at the Special
Meeting: (i) amendment of the Company's Restated Certificate of Incorporation
to increase by 20,000,000 the number of shares of common stock of the Company
authorized to be issued from 60,000,000 to 80,000,000; (ii) approval of the
issuance of up to 17,700,000 shares of common stock of the Company to holders
of common stock of Magma Power Company, a Nevada corporation ("Magma"), in
connection with the pending acquisition of Magma by the Company; and (iii)
transaction of such other business as may properly come before the Special
Meeting.
Information concerning the matters to be considered and voted upon at
the Special Meeting is set forth in the attached Notice of Special Meeting and
Proxy Statement. We encourage you to review the attached material carefully
and to sign, date and return the enclosed proxy card in the enclosed postage
paid envelope. Each proxy is revocable and will not affect your right to vote
in person if you attend the meeting.
Sincerely,
David L. Sokol
Chairman of the Board, President and Chief
Executive Officer
<PAGE>
[LOGO]
CALIFORNIA ENERGY COMPANY, INC.
Notice of Special Meeting of Stockholders
To Be Held on February 10, 1995
To the Stockholders of California Energy Company, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of
California Energy Company, Inc. (the "Company") will be held at the Red Lion
Hotel, 1616 Dodge Street, in Omaha, Nebraska on February 10, 1995 at 10:00 A.M.
local time for the following purposes:
1. To amend the Company's Amended and Restated Certificate of
Incorporation to increase the number of shares of common stock of the Company
(the "Common Stock") authorized to be issued by the Company from 60,000,000 to
80,000,000;
2. To approve the issuance of up to 17,700,000 shares of
Common Stock as part of the Merger Consideration in the pending acquisition of
Magma Power Company, a Nevada corporation, by the Company; and
3. To act upon such other matters as may properly come before
the meeting.
All Stockholders of record at the close of business on January 17, 1995
are entitled to vote at the Special Meeting.
To ensure that your shares are represented, you are urged to please
fill in, sign, date and return the enclosed proxy card promptly in the enclosed
postage paid envelope. You may revoke your proxy at any time before it is
voted at the Special Meeting. If you attend the meeting, you may vote your
shares in person.
Please date your proxy card and sign it exactly as your name appears on
the proxy card.
By Order of the Board of Directors
David L. Sokol
Chairman of the Board, President and
Chief Executive Officer
January 18, 1995
<PAGE>
As filed with the Securities and Exchange Commission on January 9, 1995
REVISED PRELIMINARY PROXY MATERIALS
CALIFORNIA ENERGY COMPANY, INC.
10831 Old Mill Road
Omaha, NE 68154
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
February 10, 1995
SOLICITATION AND VOTING
The Special Meeting
This Proxy Statement ("Proxy Statement") is furnished in connection
with the solicitation of proxies on behalf of the Board of Directors (the
"Board") of California Energy Company, Inc. (the "Company") to be voted at the
Special Meeting of Stockholders to be held on February 10, 1995, or any
adjournment or postponement thereof (the "Special Meeting"). The purpose of
the Special Meeting of Stockholders is:
1. To amend the Company's Amended and Restated Certificate of
Incorporation to increase the number of shares of common stock, $0.0675 par
value, of the Company ("Common Stock") authorized to be issued by the Company
from 60,000,000 to 80,000,000;
2. To approve the issuance of up to 17,700,000 shares of
Common Stock in connection with the acquisition (the "Pending Acquisition") by
the Company of Magma Power Company, a Nevada corporation ("Magma"), pursuant to
an Agreement and Plan of Merger, dated as of December 5, 1994 (the "Merger
Agreement"), among the Company, CE Acquisition Company, Inc., a wholly owned
subsidiary of the Company (the "Purchaser"), and Magma; and
3. To act upon such other matters as may properly come before
the meeting.
This Proxy Statement, the attached Notice of Special Meeting and the
accompanying Proxy are being mailed to stockholders of the Company on or about
January 18, 1995.
Voting and Vote Required
The voting stock of the Company (the "Voting Stock") consists of the
Common Stock and the Series C Redeemable Convertible Exchangeable Preferred
Stock of the Company (the "Series C Preferred Stock"). Holders of the Common
Stock and holders of the Series C Preferred Stock will vote together as a
single class at the Special Meeting. Each share of Common Stock will be
entitled to one vote on all matters presented at the Special Meeting. Each
share of Series C Preferred Stock will be entitled to vote on an "as converted"
basis on all matters presented at the Special Meeting.
The close of business on January 17, 1995 is the record date (the
"Record Date") for determining holders of the outstanding Voting Stock (the
"Stockholders") entitled to vote at the Special Meeting. On the Record Date,
[31,835,592] shares of Common Stock and 1,272 shares of Series C Preferred
Stock, entitled to [3,461,224] votes, were outstanding.
The approval of sixty-six and two-thirds percent (66 2/3%) of the
Voting Stock (whether or not present at the Special Meeting) is required to
approve the amendment of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") to increase the amount of
authorized Common Stock ("Proposal 1"). A quorum equal to sixty-six and two-
thirds percent (66 2/3%) of the Voting Stock must be present in person or by
proxy at the Special Meeting in order to consider Proposal 1. The approval by
a majority of the Voting Stock cast is required to approve the issuance of
Common Stock for purposes of the Pending Acquisition ("Proposal 2"), provided
that the total Voting Stock cast on Proposal 2 represents over 50% in interest
of all the Voting Stock. PKS, the beneficial owner of approximately 39.1% of
the voting power of the outstanding Voting Stock, has agreed to vote in favor
of Proposal 1 and Proposal 2.
All shares of Voting Stock represented by properly executed proxies,
which are returned and not revoked will be voted in accordance with the
instructions, if any, given therein. If no instructions are provided in a
proxy, it will be voted FOR the approval of Proposals 1 and 2, and in
accordance with the proxy-holders' best judgment as to any other matters raised
at the Special Meeting. 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 beneficial
owners who have not returned a proxy ("broker non-votes"), those shares will
not be included in the vote totals and, therefore, will have no effect on the
vote. The proxy is revocable and any Stockholder who executes a proxy may
revoke it at any time before it is voted by delivering to the Secretary of the
Company a written statement revoking the proxy, by executing and delivering to
the Secretary of the Company a later dated proxy or by voting in person at the
Special Meeting.
<PAGE>
Expenses in connection with this solicitation of proxies will be paid
by the Company. Upon request, the Company will reimburse brokers, dealers,
banks or similar entities acting as nominees for reasonable expenses incurred
in forwarding copies of these proxy materials to the beneficial owners of
shares which such persons hold of record. The Company has engaged MacKenzie
Partners, Inc. ("MacKenzie") to solicit proxies for the Special Meeting for a
fee of $____ plus reimbursement of reasonable expenses. In addition,
solicitation of proxies may be made through the mail, in person and by
facsimile and telephone by certain directors, officers and regular employees of
the Company.
PROPOSAL 1
AMENDMENT OF CERTIFICATE OF INCORPORATION -- INCREASE
IN AUTHORIZED COMMON STOCK IN CONNECTION WITH
THE PENDING ACQUISITION
The Company's Board has unanimously approved and recommended to the
Stockholders an amendment to the Certificate of Incorporation to increase by
20,000,000 shares the number of shares of Common Stock the Company is
authorized to issue.
The Certificate of Incorporation currently authorizes the Company to
issue 60,000,000 shares of Common Stock. If Proposal 1 is approved, the
Certificate of Incorporation would be amended to authorize the Company to issue
80,000,000 shares of Common Stock. As of the Record Date, (i) [31,835,592]
shares of Common Stock were outstanding, (ii) 1,272 shares of Series C
Preferred Stock were outstanding and 3,529,252 shares of Common Stock have been
reserved for issuance upon conversion of such shares of Series C Preferred
Stock, (iii) 3,541,166 shares of Common Stock have been reserved for issuance
pursuant to options granted under the Company's Amended and Restated 1986 Stock
Option Plan (the "Stock Option Plan"), (iv) 6,064,154 shares of Common Stock
have been reserved for issuance under options other than those granted under
the Stock Option Plan, (v) 4,444,444 shares of Common Stock have been reserved
for issuance pursuant to the 5% Convertible Subordinated Debentures due July
31, 2000 of the Company and (vi) 738,064 shares of Common Stock have been
reserved for issuance pursuant to the Company's Employee Stock Purchase Plan.
As a result, as of the Record Date an insufficient number of authorized but
unissued shares of Common Stock remained available to permit payment of the
Merger Consideration (as defined below).
If Proposal 1 is adopted, the Certificate of Incorporation will be
amended accordingly.
The approval of sixty-six and two-thirds percent (66 2/3%) of the
Voting Stock (whether or not present at the Special Meeting) is required for
approval of Proposal 1. A quorum equal to sixty-six and two-thirds percent (66
2/3%) of the Voting Stock must be present in person or by proxy at the Special
Meeting in order to consider Proposal 1. If no instructions are provided in a
proxy, such proxy will be voted FOR the approval of Proposal 1.
PKS, the beneficial owner of approximately 39.1% of the voting power of
the outstanding Voting Stock, has agreed to vote in favor of Proposal 1.
The Company's Board unanimously recommends a vote FOR this proposal.
PROPOSAL 2
APPROVAL OF THE ISSUANCE OF COMMON STOCK TO HOLDERS OF MAGMA
SHARES AS PART OF THE MERGER CONSIDERATION IN THE PENDING ACQUISITION
Proposal 2 is to authorize the issuance by the Company of up to
17,700,000 shares of Common Stock in connection with the Pending Acquisition.
Under the Merger Agreement, the Company has the option of paying the Merger
Consideration (as defined below) in a mixture of cash and Common Stock or all
in cash. It is the Company's current intention to pay the Merger Consideration
solely in cash, although such intention is subject to change based on market
conditions and other factors. If the Company opts to pay the Merger
Consideration all in cash, the Company intends to issue Common Stock in a
private placement or public offering and to use the cash proceeds of such sales
to fund a portion of the Merger Consideration. Such sales will be based on
market conditions at the time. If the Company determines to issue Common Stock
in the Merger pursuant to the Merger Agreement, the precise number of shares to
be issued will depend on market conditions, but in no event will the Merger
Consideration consist of more than 17,700,000 shares of Common Stock or less
than 13,477,000 shares of Common Stock. On January 6, 1995, the Company filed
with the Securities and Exchange Commission (the "Commission") a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
for the purpose of registering shares of Common Stock that may be issued in an
underwritten public offering (the "Public Offering") in order to enable the
Company to pay the Merger Consideration solely in cash. See "Description of
Merger Agreement".
It is the policy of The New York Stock Exchange, Inc. (the "NYSE"),
which lists the Company's outstanding Common Stock, to require stockholder
approval of an issuance of common stock or securities convertible into common
stock, other than in a public offering for cash, if such issuance could result
in an increase of 20% or more in the outstanding common stock of a company. If
all of the Common Stock issuable pursuant to the Pending Acquisition were
outstanding, such Common Stock would represent approximately 40% of the Common
Stock outstanding prior to such issuance, or approximately ___% of the Common
Stock prior to such issuance on a fully diluted basis.
Stockholders are being asked to approve the issuance and reservation
<PAGE>
for issuance by the Company of the Common Stock to be issued as part of the
Merger Consideration in the Pending Acquisition in response to the policy of
the NYSE. If the Company elects to pay the Merger Consideration solely in
cash, no approval pursuant to Proposal 2 will be required. The issuance of the
Common Stock in connection with the Pending Acquisition would not affect the
rights of the existing stockholders of the Company with respect to Common Stock
or Series C Preferred Stock which they hold. Approval by a majority of the
votes cast on this proposal will be required provided that the total vote cast
represents at least a majority of the Voting Stock entitled to vote on this
proposal. If the required affirmative vote of the stockholders is obtained, no
further authorization for the issuance of the Common Stock as part of the
Merger Consideration in the Pending Acquisition will be solicited prior to the
issuance. If the required affirmative vote by the stockholders is not obtained
and the NYSE commences delisting proceedings or refuses to list the Common
Stock of the Company, the Company intends promptly to apply to list the Common
Stock on the Nasdaq National Market ("NNM"). Although there can be no
assurance that the NNM would approve the Common Stock for listing thereon, the
Company is unaware of any reason why the Common Stock would not be eligible for
listing thereon.
PKS, the beneficial owner of approximately 39.1% of the voting power of
the outstanding Voting Stock, has agreed to vote in favor of Proposal 2.
The Company's Board unanimously recommends a vote FOR this proposal.
THE PENDING ACQUISITION AND THE MERGER AGREEMENT
The Pending Acquisition
Pursuant to the Merger Agreement, on January 10, 1995, the Purchaser
purchased 12,400,000 shares of common stock, par value $0.10 per share ("Magma
Shares"), of Magma at $39.00 per Magma Share, net to the seller in cash,
without interest thereon, pursuant to a tender offer commenced on December 9,
1994 (the "Offer"). As a result of consummation of the Offer, the Purchaser
acquired majority control of Magma as the first step in the acquisition of the
entire equity interest in Magma. Pursuant to the Merger Agreement, the
Purchaser will, as soon as practicable, consummate a merger (the "Merger") with
Magma by filing the Merger Agreement or a Certificate of Merger with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of Nevada (the time of such later filing being the "Effective Time") .
The purpose of the Merger is to acquire all Magma Shares not beneficially owned
by the Purchaser.
As a result of the Merger, Magma will continue as the surviving
corporation (the "Surviving Corporation") and will become a wholly owned
subsidiary of the Company. In addition, the directors of the Purchaser
immediately prior to the Merger will become the initial directors of the
Surviving Corporation, and the officers of Magma immediately before the Merger
will become the initial officers of the Surviving Corporation, in each case
until their successors are duly elected or appointed and qualified.
Reasons for the Pending Acquisition
The Company believes that combining the businesses of the Company and
Magma will provide an excellent strategic fit due to the synergies and other
benefits which will result from combining the operations of Magma and the
Company pursuant to the Merger Agreement and will strengthen the combined
companies' competitive position in the increasingly challenging business
environment and global markets in which they presently operate.
Each of Magma and the Company 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.
The Company believes that the combined companies' international growth
prospects will be substantially enhanced by the expanded development,
financial, construction and operational resources and capabilities resulting
from the Merger and that certain domestic and international synergies will also
result from such a transaction.
Opinion of the Company's Financial Advisor
On December 6, 1994, Gleacher delivered its written opinion to the
Company's Board (the "Gleacher Opinion") to the effect that, as of December 6,
1994, and based upon the assumptions made, matters considered and limits of the
review, as set forth in the Gleacher Opinion, the Consideration (as defined
below) to be paid by the Company pursuant to the Offer and the Merger is fair
to the Company from a financial point of view. For purposes of the Gleacher
Opinion, the term "Consideration" means the consideration paid by the Company
pursuant to the Offer together with, at the Company's option, either (i) $39.00
per Magma Share in a combination of cash and a number of shares of Common Stock
to be determined in accordance with the Merger Agreement, or (ii) $38.50 per
Magma Share in cash, in either case to be paid by the Company pursuant to the
Merger Agreement.
A copy of the Gleacher Opinion, which sets forth the assumptions made,
matters considered and the limits of the review by Gleacher, is set forth in
the Company's Registration Statement on Form S-4 dated December 23, 1994, as
amended. The Gleacher Opinion is directed only to the fairness of the
Consideration to be paid by the Company from a financial point of view. The
summary of the Gleacher Opinion set forth in this Proxy Statement is qualified
<PAGE>
in its entirety by reference to the full text of such Opinion.
In arriving at its opinion, Gleacher, among other things, (i) reviewed
the audited financial statements and public Commission filings for the three
most recent fiscal years and interim periods to date of Magma and the Company
(the "SEC Reports"); (ii) on an operating and trading basis, compared financial
information relating to Magma's businesses with published financial information
concerning certain companies whose businesses Gleacher deemed to be reasonably
similar, in whole or in part, to those of Magma; (iii) analyzed the market
prices and trading characteristics of the Magma Shares and the Common Stock for
recent periods to date; (iv) conducted discussions with members of senior
management of the Company concerning its businesses and prospects; (v) reviewed
certain financial forecasts for Magma and the Company, and projections of
expected cost savings in a business combination (together, the "Projections"),
in each case as prepared by the Company; (vi) based on the Projections,
performed a discounted cash flow analysis of Magma including the expected cost
savings arising from a business combination; (vii) based on the Projections,
analyzed the pro forma financial effects to the Company of the proposed
business combination; (viii) assumed without independent investigation that no
material contingent liability exists with respect to Magma or the Company which
is not disclosed in the SEC Reports; (ix) reviewed the Merger Agreement and
related transaction documentation; and (x) reviewed certain other financial
studies, performed such other analyses and took into account certain other
matters as deemed appropriate.
Gleacher relied upon the accuracy and completeness of all information
supplied or otherwise made available to it by the Company, and did not
independently verify such information or make or obtain an independent
evaluation or appraisal of the assets of the Company or Magma. With respect to
the Projections, Gleacher assumed without independent investigation that the
Projections were reasonably prepared by the Company, and were generated on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the expected future financial performance of the
Company or Magma, as the case may be. The Gleacher Opinion was based upon
prevailing market conditions and other circumstances and conditions as they
existed as of the date of the Gleacher Opinion.
In arriving at the Gleacher Opinion and making its presentation to the
Company's Board at the meeting held on December 6, 1994, Gleacher considered
and discussed certain financial analyses and other factors. In connection with
its presentation, Gleacher provided the Company's Board with a summary of
valuation results obtained by using several different valuation methods as well
as other materials concerning Magma (the "Gleacher Report"), the material
portions of which are summarized below.
Purchase Price Multiples. Gleacher compared the Consideration to be
paid by the Company assuming that the All Cash Component was exercised by the
Company to the price per Magma Share as of the close of business the day before
the Offer commenced (resulting in an implied premium to Magma stockholders of
approximately 41%) and the average closing price per Magma Share during the
six-month period before the Offer commenced (resulting in an implied premium to
Magma stockholders of approximately 30%). Gleacher also calculated the value
of such Consideration as a multiple of (i) Magma's trailing twelve-month
earnings before interest and taxes (10.5x), (ii) net income (14.6x), (iii) book
value (2.4x), and (iv) projected net income for 1994 (15.5x) and 1995 (14.4x).
Discounted Cash Flow Analysis. Gleacher performed two discounted cash
flow analyses of Magma based upon (i) estimates of financial performance as
prepared by the Company for each of Magma's power projects in operation,
financed and in construction, excluding any other projects under development
and (ii) estimates of financial performance as prepared by Magma for each of
Magma's power projects including (a) certain projects under development and (b)
benefits of a specific technology expected to be implemented. Using these
projections, Gleacher discounted to the present (i) the projected stream of
proportionate cash flows through year 2012 and (ii) the projected terminal
value of Magma at such year based upon a multiple of projected after-tax cash
flows. After-tax cash flows were calculated as projected earnings adjusted for
all non-cash items, less capital expenditures and principal payments on debt
obligations. Gleacher applied several discount rates (ranging from 10% to 15%)
and an after-tax cash flow multiple of 14x to Magma's after-tax cash flows.
The discount rates and after-tax cash flow multiple used by Gleacher in its
analysis were based upon discussions with the management of the Company and
Gleacher's judgments as to the manner in which companies in the Comparable
Group are valued. The "Comparable Group" included the Company, The AES
Corporation, Destec Energy, Inc. and Sithe Energies, Inc. Using this valuation
method, the implied value of the common stock of Magma ranged between
approximately $30 per share and over $50 per share, respectively.
Trading Valuation. Gleacher reviewed and compared certain actual and
estimated financial and operating results and stock market performance of Magma
and the Comparable Group. Applying trading multiples of the Comparable Group
to Magma's financial performance, and adding an assumed control premium of 25%
- - 50% to Magma's trading value, the implied value of the Common Stock of Magma
was estimated to be in excess of $40 per Magma Share.
Pro Forma Analyses. Gleacher analyzed the pro forma impact of the
Merger on earnings per share of Common Stock for periods following consummation
of the Merger, and compared such amounts to projected earnings per share on a
stand-alone basis for the Company based on the Company's base operating plan.
Assuming that the Company achieves a modest level of synergies in 1995
resulting from the Merger, and assuming that the All Cash Component Amount was
exercised by the Company, such analyses estimated that the Merger would be
accretive to earnings per share for the Common Stock by 1.0% in 1995, 10.6% in
1996 and 22.6% in 1997.
Stock Trading Analysis. Gleacher reviewed and analyzed the historical
<PAGE>
trading prices and volumes for the common stock of Magma during the 30-month
period preceding the Offer.
In arriving at the Gleacher Opinion and in presenting the Gleacher
Report, Gleacher performed a variety of financial analyses, the material
portions of which are summarized above. The summary set forth above does not
purport to be a complete description of the analyses performed by Gleacher. In
addition, Gleacher believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all such factors and analyses, could create a misleading
view of the process underlying its analyses set forth in the Gleacher Opinion
and the Gleacher Report. The matters considered by Gleacher in arriving at the
Gleacher Opinion that, as of the date of such opinion, the Consideration to be
paid by the Company pursuant to the Offer and the Merger is fair to the Company
from a financial point of view, are based on numerous macroeconomic, operating
and financial assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the Company's control. Any estimates incorporated in the analyses performed by
Gleacher are not necessarily indicative of actual past or future results or
values, which may be significantly more or less favorable than such estimates.
Estimated values do not purport to be appraisals and do not necessarily reflect
the prices at which businesses or companies may be acquired in the future, and
such estimates are inherently subject to uncertainty. Arriving at a fairness
opinion is a complex process not necessarily susceptible to partial or summary
description. No public company utilized as a comparison is identical to Magma.
Accordingly, an analysis of publicly traded comparable companies is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Gleacher is a recognized investment banking firm routinely engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions and other purposes. The Company's Board selected Gleacher to act
as the Company's exclusive financial advisor based on Gleacher's familiarity
with the Company and Gleacher's substantial experience in mergers and
acquisitions and in securities valuation generally. No limitations were
imposed by the Company's Board upon Gleacher with respect to the investigations
made or procedures followed by Gleacher in rendering its opinion.
Pursuant to the terms of a letter agreement dated September 18, 1994,
between the Company and Gleacher (the "Gleacher Engagement Letter"), the
Company paid Gleacher a fee of $250,000 and has agreed to pay Gleacher (i) a
fee of $4,000,000 payable upon the completion of the direct or indirect
acquisition by the Company, either alone or in partnership with another entity,
by merger, acquisition of securities, or otherwise, of 50.1% or more of the
equity securities of Magma, which fee shall be offset by the $250,000
previously paid to Gleacher by the Company; and (ii) a fee equal to 0.25% of
the principal amount of debt directly arranged by Gleacher and Lehman Brothers
in connection with the proposed transaction, which is estimated to be
$1,250,000, assuming the full amount of the Merger Facilities is drawn down by
the Company.
In addition to any fees payable to Gleacher pursuant to the terms of
the Gleacher Engagement Letter, the Company shall reimburse Gleacher for all
reasonable travel and other reasonable out-of-pocket expenses incurred by
Gleacher thereunder, including all reasonable fees and disbursements of
Gleacher's legal counsel and any other professional advisors.
In connection with the matters described in the Gleacher Engagement
Letter, the Company and Gleacher entered into a separate letter agreement,
dated September 18, 1994, providing for the indemnification, contribution, and
reimbursement of Gleacher and certain other entities and individuals for a
period of six years from the date of termination of Gleacher's engagement
pursuant to the terms of the Gleacher Engagement Letter.
Description of the Merger Agreement
Conditions to the Obligations of Each Party to Effect the Merger.
Consummation of the Merger remains subject to certain conditions, including,
(i) approval and adoption of the Merger and the Merger Agreement by the
requisite vote of Magma's stockholders, (ii) approval of the issuance of Common
Stock in order to effectuate the Merger by the requisite vote of the Company's
stockholders, (iii) the Common Stock issuable to Magma's stockholders in the
Merger having been authorized for listing on the NYSE upon official notice of
issuance, (iv) the registration statement to be filed with the Commission by
the Company on Form S-4 under the Securities Act for the purpose of registering
the shares of Common Stock to be issued in the Merger shall have become
effective in accordance with the provisions of the Securities Act and no stop
order suspending such effectiveness shall have been issued by the Commission
and remain in effect, and (v) that there shall not be in effect (a) any
judgment, decree or order issued by any Federal, state or local court of
competent jurisdiction, or (b) any statute, rule or regulation enacted or
promulgated by any Federal, state, local or legislative, administrative or
regulatory body of competent jurisdiction, that in either of cases (a) or (b)
prohibits the consummation of the Merger or makes such consummation illegal.
The Merger Consideration. In the Merger, each outstanding Magma Share
(other than Magma Shares held by the Company and the Purchaser or any other
direct or indirect subsidiary of the Company and Magma Shares held in the
treasury of Magma), will be converted into the right to receive, at the
Company's option, either (i) the All Cash Component Amount (as defined below),
net in cash, without interest thereon, or (ii) both (A) the Mixed Cash
Component Amount (as defined below), net in cash, without interest thereon, and
(B) the number of fully paid and nonassessable shares of Common Stock equal to
<PAGE>
the quotient of (I) $39.00 less (II) the Mixed Cash Component Amount divided by
the Average Closing Price (as defined below) (the All Cash Component Amount or
(ii)(A) and (ii)(B), collectively, as applicable, being the "Merger
Consideration"). The "Mixed Cash Component Amount" shall mean an amount equal
to the quotient of (A) (x) $28.50 multiplied by the number of Magma Shares
outstanding at the Effective Time less (y) $39.00 multiplied by the number of
Magma Shares owned by the Company and any of its affiliates immediately prior
to the Effective Time, divided by (B) the number of Magma Shares outstanding at
the Effective Time (other than Magma Shares owned by the Company and any of its
affiliates). The "All Cash Component Amount" shall mean an amount equal to the
quotient of (A) (x) $38.75 multiplied by the number of Magma Shares outstanding
at the Effective Time less (y) $39.00 multiplied by the number of Magma Shares
owned by the Company and any of its affiliates immediately prior to the
Effective Time, divided by (B) the number of Magma Shares outstanding at the
Effective Time (other than Magma Shares owned by the Company and any of its
affiliates). The "Average Closing Price" shall mean the average closing price
of Common Stock on the NYSE during the 15 consecutive trading days ending on
the fifth business day prior to the Effective Time; provided, however, that,
for purposes of the calculation, if such average closing price exceeds $18.73,
the Average Closing Price shall be deemed to be $18.73, and if such average
closing price is less than $14.27, the Average Closing Price shall be deemed to
be $14.27.
The foregoing formula for determining the consideration to be paid in
the Merger was determined so that (i) if the Company determines to pay the
Merger Consideration with a combination of cash and Common Stock, the
consideration paid by the Company in the Offer and the Merger would consist, on
a blended basis, of $28.50 per Magma Share in cash and $10.50 per Magma Share
in market value of Common Stock, based on the Average Closing Price and subject
to the Collar Provision, and (ii) if the Company determines to pay only cash
consideration in the Merger, the blended consideration paid by the Company in
the Offer and the Merger would be $38.75 per Magma Share. The consideration to
be paid in the Offer and the Merger, including the terms of the Collar
Provision, was negotiated on an arms' length basis between the Company and
Magma. The purpose of the Collar Provision is to limit the number of shares of
Common Stock required to be issued in the Merger if the Average Closing Price
is less than $14.27 and to establish a minimum number of shares of Common Stock
required to be issued in the Merger if the Average Closing Price exceeds
$18.73. It is the Company's current intention to pay the Merger Consideration
solely in cash, although such intention is subject to change based on market
conditions and other factors.
Company Stock Options. Each option outstanding immediately prior to the
Effective Time under Magma Stock Option Plans (as defined in the Merger
Agreement), whether or not then exercisable, shall be cancelled by Magma and,
in exchange therefor, each holder of any such option shall be entitled to
receive from Magma at the Effective Time, or as soon as practicable thereafter,
an amount in cash equal to the product of (x) the number of Magma Shares
previously subject to such option and (y) the excess, if any, of $39.00 or, if
the Company has elected the All Cash Component Amount, $38.75, over the
exercise price per Magma Share previously applicable to such option. Each
unvested share of deferred stock under Magma's 1994 Equity Participation Plan
(as defined in the Merger Agreement) or as otherwise described in Magma
Disclosure Schedule (as defined in the Merger Agreement) outstanding
immediately prior to the Effective Time (each, a "Deferred Share") shall be
cancelled by Magma and each holder of a cancelled Deferred Share shall be
entitled to receive at the Effective Time or as soon as practicable thereafter
from Magma an amount in cash equal to $39.00 or, if the Company has elected the
All Cash Component Amount, $38.75.
Board Representation. Pursuant to the Merger Agreement, on January 10,
1995, the Company obtained majority representation on the Magma Board of
Directors (the "Magma Board"). The Magma Board currently consists of six
designees of the Company and two individuals of Magma who were directors of
Magma at the time the Merger Agreement was executed. Prior to the Effective
Time, any amendment of the Merger Agreement or Magma's Restated Articles of
Incorporation or Restated Bylaws, any extension by Magma of the time for the
performance of any of the obligations or other acts of the Company or the
Purchaser, or waiver of any of Magma's rights under the Merger Agreement, and
any other consent or action of the Magma Board under the Merger Agreement will
require the concurrence of a majority (which shall be at least two) of the
directors of Magma then in office who are not designees of the Company or the
Purchaser ("Disinterested Directors").
The Company has agreed to use its best efforts to nominate and cause up
to two nominees of Magma to be elected or appointed as members of the Company's
Board.
Other Proposals. The Merger Agreement further provides that neither
Magma nor any of its subsidiaries, or any of their respective directors,
officers, agents, financial advisors or otherwise may, directly or indirectly,
solicit, initiate or knowingly encourage the submission of proposals or offers
from any person relating to any Competing Transaction (as defined below), or
participate in any negotiations regarding, or furnish to any other person any
information (except for information which has been previously publicly
disseminated by Magma in the ordinary course of business) with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. The Magma Board may (i) review and act upon (which actions may
include, without limitation, providing confidential information, negotiating a
transaction and entering into an agreement for a transaction) an unsolicited
proposal by any other person relating to any of the transactions referred to in
the preceding sentence, if the Magma Board determines in good faith, after
consultation with and based upon the advice of its financial and legal
advisors, that failing to review and act upon such proposal would constitute a
breach of fiduciary duty, and (ii) comply with Rule 14e-2 promulgated under the
<PAGE>
Exchange Act with regard to a tender or exchange offer, and such review,
conduct or compliance will not violate the Merger Agreement. "Competing
Transaction" shall mean any of the following involving Magma or any of its
subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 50% or more of the assets of
Magma and its subsidiaries, taken as a whole, in a single transaction or series
of transactions; (iii) any tender offer or exchange offer for 50% or more of
the Magma Shares or the filing of a registration statement under the Securities
Act in connection therewith; (iv) any person having acquired beneficial
ownership or the right to acquire beneficial ownership of, or any "group" (as
such term is defined under Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) having been formed which beneficially owns
or has the right to acquire beneficial ownership of, 50% or more of the Magma
Shares; or (v) any public announcement of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of the parties thereto, including
representations by each of Magma and the Company as to the absence of certain
changes or events concerning its business, compliance with law, approval of the
Offer and the Merger by Magma for purposes of certain Nevada antitakeover
statutes, energy regulatory status, environment, employee benefit plans,
insurance, taxes, related party transactions, the status of development and
construction projects and the status of operating projects.
Certain Covenants of Magma, the Company and the Purchaser. Magma has
agreed that, prior to the Effective Time, unless the Company shall otherwise
consent in writing and except as is otherwise permitted by the Merger
Agreement, the businesses of Magma and its subsidiaries shall be conducted only
in, and Magma and its subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice; and
Magma will use its best efforts to preserve substantially intact its business
organization, to keep available the services of its present officers, employees
and consultants and to preserve its present relationships with customers,
suppliers and other persons with which it or any of its subsidiaries has
significant business relations. Except as contemplated by the Merger Agreement,
Magma has agreed that neither it nor any of its subsidiaries will, prior to the
Effective Time, directly or indirectly, do any of the following without the
prior written consent of the Company: (a) (i) issue, sell, pledge, dispose of,
encumber, authorize, or propose the issuance, sale, pledge, disposition,
encumbrance or authorization of any Magma Shares or shares of its subsidiaries'
capital stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of its or its subsidiaries'
capital stock, or any other ownership interest (except with respect to Magma
Shares previously reserved for issuance as disclosed in Section 4.03 of the
Merger Agreement); (ii) amend or propose to amend its articles of incorporation
or bylaws or equivalent organizational documents; (iii) split, combine or
reclassify any of its outstanding common stock, or declare, set aside or pay
any dividend or distribution payable in cash, stock, property or otherwise with
respect to the common stock; (iv) redeem, purchase or otherwise acquire or
offer to redeem, purchase or otherwise acquire any shares of its capital stock,
except in the performance of its obligations under existing employee plans; or
(v) authorize or propose or enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this section (a);
(b) (i) acquire (by merger, consolidation, or acquisition of stock, partnership
interests or assets) any corporation, partnership or other business
organization or division thereof or any other interests in operating
properties; (ii) except in the ordinary course of business and in a manner
consistent with past practices, sell, pledge, lease, transfer, dispose of, or
encumber or authorize or propose the sale, pledge, lease, transfer, disposition
or encumbrance of any of its or its subsidiaries' assets (including intangible
assets); (iii) create, incur, assume or guarantee any indebtedness or other
similar obligation, or enter into any contract or agreement, except in the
ordinary course of business and consistent with past practice; (iv) enter into
any new line of business or make any bid or enter into any commitment in
respect of any new or proposed projects; (v) prepay or refinance any part of
the principal or interest of any existing indebtedness before the due date
thereof; (vi) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations
of any other person or entity, except for endorsements in the ordinary course
of business in connection with the deposit of items for collection; (vii) make
any loans, advances or capital contributions to or investments in any person or
entity; (viii) waive, release, grant or transfer any rights of value or modify
or change in any material respect any existing license, material lease or
commitment; (ix) make or commit to or guarantee any single capital expenditure
or obligation which is not consistent with past practice and currently
budgeted; or (x) enter into or amend any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this section (b);
(c) take any action other than in the ordinary course of business and in a
manner consistent with past practice (none of which actions shall be
unreasonable or unusual) with respect to the grant of any severance or
termination pay (otherwise than pursuant to policies of Magma or any of its
subsidiaries in effect on November 30, 1994) or with respect to any increase of
benefits payable under its severance or termination pay policies in effect on
November 30, 1994; (d) make any payments (except in the ordinary course of
business and in amounts and in a manner consistent with past practice) under
any of its employee plans to any of its or its subsidiaries' employees,
independent contractors or consultants, enter into any new employee plan, any
new employment or consulting agreement, grant or establish any new awards under
such plan or agreement, or adopt or otherwise amend any of the foregoing; (e)
take any action except in the ordinary course of business and in a manner
consistent with past practice (none of which actions shall be unreasonable or
unusual) with respect to accounting policies or procedures (including without
limitation its procedures with respect to the payment of accounts payable); (f)
before the purchase of Magma Shares pursuant to the Offer and other than
<PAGE>
pursuant to the Merger Agreement, take any action to cause the shares of its
common stock to cease to be listed on the NNM; (g) cause or permit any of its
current insurance (or reinsurance) policies to be cancelled or terminated or
any of the coverage thereunder to lapse, unless forthwith upon notice of such
termination, cancellation or lapse, Magma or such subsidiary used its best
efforts to obtain commercially reasonable replacement policies from the same or
comparable insurers providing coverage which is the same as or comparable to
that provided under the cancelled, terminated or lapsed policies; (h) enter
into any agreement or transaction with any affiliate of Magma upon terms and
conditions less favorable to Magma or such affiliate than could be obtained on
an arm's length basis, except for agreements or transactions in the ordinary
course of business and consistent with past practice; (i) settle any material
pending litigation; or (j) enter into any oral or written agreement, contract,
commitment, arrangement or understanding with respect to any of the foregoing.
Notwithstanding the foregoing: (i) Magma may close the financing of its
Malitbog project without the prior consent of the Company provided that the
Company has been given the opportunity to review the relevant financing
documents and Magma has given the Company at least two days prior notice of the
anticipated closing date; (ii) Magma may make and commit to ordinary course
budgeted operational capital and other expenditures relating to projects in
operation or construction without the consent of the Company; (iii) Magma may
make planned capital and operational expenditures with respect to its Malitbog
project, without the consent of the Company; (iv) Magma will not make any
capital or other expenditures in excess of $500,000 in the aggregate with
respect to its Nevada Power Pumped Storage contract, its Alto Peak contract and
any other contract related to a development project without prior consultation
with the Company and the Company's consent; (v) Magma may honor all existing
contractual obligations relating to projects in operation or construction
without the consent of the Company; and (vi) Magma will not incur any
additional indebtedness (secured or unsecured) or make new project or capital
commitments in excess of $1,000,000 without prior consultation with the Company
and the Company's consent.
The Company has agreed that, prior to the Effective Time, unless the
All Cash Component election has been made or unless Magma shall otherwise
consent in writing, and except as is otherwise permitted by the Merger
Agreement, neither the Company nor any of the Company Subsidiaries shall,
directly or indirectly, do any of the following: (a) (i) issue or sell, or
propose the issuance or sale of, any shares of its or its subsidiaries' capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of its or its subsidiaries' capital
stock, or any other ownership interest (except with respect to Common Stock
previously reserved for issuance as disclosed in Section 3.03 of the Merger
Agreement) if (A) the proceeds of any such issuance or sale ("Proceeds") exceed
$50,000,000, and (B) such Proceeds are not applied, if necessary, so as to
allow the Company to exercise the All Cash Component election; (ii) split,
combine or reclassify any of its outstanding common stock, or declare, set
aside or pay any dividend or distribution payable in cash, stock, property or
otherwise with respect to the common stock; (iii) redeem, purchase or otherwise
acquire or offer to redeem, purchase or otherwise acquire any shares of its
capital stock, except in the performance of its obligations under existing
employee plans or pursuant to a repurchase program under Rule 10b-18
promulgated under the Exchange Act; or (iv) authorize or propose or enter into
any contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this section (a); (b) in the case of the Company, merge or
consolidate with or into another person or engage in a recapitalization or
other similar extraordinary business transaction; (c) make any material change
in accounting policies, other than as required by generally accepted accounting
principles; or (d) enter into any oral or written agreement, contract,
commitment, arrangement or understanding with respect to any of the foregoing.
Employee Benefits. The Merger Agreement provides that the Company shall
cause the Surviving Corporation and its subsidiaries to (x) honor all
employment, change in control, deferred compensation, pension, retirement and
severance agreements in effect on December 5, 1994 between Magma or one of its
subsidiaries and any employee of Magma or one of its subsidiaries, or
maintained for the benefit of any employee of Magma or one of its subsidiaries,
and (y) honor all bonus determinations for the fiscal year ending December 31,
1994 made by Magma or any of its subsidiaries prior to December 5, 1994 with
respect to the bonus plans and arrangements of Magma and its subsidiaries. For
a period of one year commencing on the Effective Time, the Company shall cause
the Surviving Corporation to provide active employees of Magma and its
subsidiaries with benefits (including, without limitation, welfare benefits)
that are no less favorable, taken as a whole, than the benefits provided under
Magma Benefit Plans (as defined in the Merger Agreement) (other than equity-
based plans and bonus plans) as in effect immediately prior to the Effective
Date. To the extent that service is relevant for eligibility, vesting or
benefit calculations or allowances (including, without limitation, entitlements
to vacation and sick days) under any plan or arrangement maintained in order to
provide the benefits described in the preceding sentence, such plan or
arrangement shall credit employees for service on or prior to the Effective
Time with Magma or any of its subsidiaries. The Company shall as promptly as
practicable after the Effective Time cause the Surviving Corporation to (or
Magma may prior to the Effective Time) amend each demand note made in favor of
Magma by an employee of Magma or one of its subsidiaries to provide that (x)
such demand note will not be repayable on demand from Magma and (y) upon the
involuntary termination without cause of the employment of such employee, all
sums owed under such demand note shall be payable in equal quarterly
installments over a period of not less than 36 months. With respect to each
employee of Magma (other than employees of Magma which are parties to a "change
in control" or "severance" agreement) who is, within the one year period
following the closing of the Offer, either (i) terminated without cause or (ii)
terminated as a result of a reduction in force, the Company shall cause the
Surviving Corporation to make the following payments: (1) if, upon the
effective date of such employee's termination, such employee has less than one
<PAGE>
year's service with Magma, a payment equal to three months base salary plus an
amount equal to one-fourth of the prior year's targeted bonus for such
employee, payable in twelve equal installments over the twelve months following
such termination; or (2) if, upon the effective date of such employee's
termination, such employee has one year or more of service with Magma, a
payment equal to six months base salary plus an amount equal to one-fourth of
the prior year's targeted bonus for each such employee, payable in twelve equal
installments over the twelve months following such termination. For the
purposes of subclauses (1) and (2), if an employee was not eligible for a bonus
in the referenced prior year, then the targeted bonus for the current year
shall be used. An employee shall not be eligible for the payments specified in
subclauses (1) or (2) if such employee's termination relates to a reduction in
force referred to subclause (ii) above and such employee has been offered a
comparable position (in terms of compensation) by the Company at any location;
provided, however, that no such amounts referenced in (1) and (2) will be
payable if, in the good faith determination of the Company, the employee's job
performance did not merit continued employment or offer of relocation to a
comparable position. An employee may not receive the foregoing severance
payments and simultaneously receive any severance payments under Magma's
severance policy described in the first two sentences of this paragraph.
Amendment. The Merger Agreement may be amended by action taken by the
Company and the Purchaser, and by action taken by or on behalf of the Magma
Board at any time before the Effective Time; provided, however, that, after
approval of the Merger by the stockholders of Magma, no amendment may be made
which would materially adversely impact the interests of Magma's stockholders
or reduce the amount or change the type of consideration into which each Magma
Share will be converted upon consummation of the Merger.
Termination. The Merger Agreement provides that it may be terminated
before the Effective Time in the following circumstances: (a) by mutual consent
of the Boards of Directors of the Company and Magma; or (b) by Magma or the
Company if the Effective Time shall not have occurred on or prior to September
30, 1995; or (c) by either the Company or Magma if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto shall use their best efforts to
lift), in each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by the Merger Agreement and such order, decree,
ruling or other action shall have become final and nonappealable; or (d) by the
Company if (i) the Magma Board withdraws, modifies or changes its
recommendation of the Merger Agreement or any of the transactions contemplated
thereby or shall have resolved to do any of the foregoing or (ii) the Magma
Board recommends to the holders of Magma Shares any proposal with respect to a
merger, consolidation, share exchange or similar transaction involving Magma or
any of its subsidiaries, other than the transactions contemplated by the Merger
Agreement; or (e) by the Company if, without Magma's consent, any person has
acquired beneficial ownership or the right to acquire beneficial ownership of
or any "group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) has been formed which
beneficially owns, or has the right to acquire beneficial ownership of, more
than 10% of the Magma Shares; or (f) by Magma or the Company if (i) a
corporation, partnership, person or other entity or group shall have made a
bona fide offer that the Magma Board determines in its good faith judgment and
in the exercise of its fiduciary duties, after consultation with and based upon
the advice of its financial and legal advisors, is more favorable to Magma's
stockholders than the Offer and the Merger or (ii) any person (including,
without limitation, Magma or any affiliate thereof), other than the Company or
any affiliate of the Company, shall have become the beneficial owner of more
than 50% of the then outstanding Magma Shares; or (g) by either the Company or
Magma if the other party shall have breached the Merger Agreement in any
material respect and such breach continues for a period of ten days after the
receipt of notice of the breach from the nonbreaching party.
Termination Fee for the Company. The Merger Agreement provides that if
it is terminated pursuant to clauses (d) or (f) or terminated by the Company
pursuant to clause (g) of the preceding paragraph, Magma will be required to
pay the Company a termination fee of $8,000,000 plus the Company's actual
documented out-of-pocket expenses incurred since September 13, 1994 in
connection with the Merger Agreement and the transactions contemplated thereby,
including, without limitation, legal and professional fees and expenses.
Miscellaneous. The Merger Agreement contains customary indemnification
provisions pursuant to which the directors, officers, employees, fiduciaries
and agents of Magma and its subsidiaries are required to be indemnified to the
fullest extent permitted by applicable law, and regardless of whether the
Merger becomes effective, by Magma and, after the Effective Time, by the
Surviving Corporation and the Company, from costs or expenses (including
attorney's fees), judgments, fines, losses, claims, damages, and liabilities
and amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to the transactions
contemplated by the Merger Agreement, including liabilities under the
securities laws in connection with the Merger. In addition, except as set forth
above, all costs and expenses incurred in connection with the Merger Agreement
and the transactions contemplated thereby will be paid by the party incurring
such costs and expenses.
The foregoing description of the Merger Agreement omits provisions that
have been rendered inapplicable as a result of consummation of the Offer and is
qualified in its entirety by reference to the text of the Merger Agreement,
which has been filed by the Purchaser and the Company as Exhibit (c)(3) to the
Tender Offer Statement on Schedule 14D-1 of the Purchaser and the Company filed
with the Commission in connection with the Offer (the "Schedule 14D-1").
Confidentiality and Standstill Agreements. The Company and Magma have
entered into a confidentiality agreement, dated December 4, 1994, pursuant to
<PAGE>
which the Company has agreed to maintain the confidentiality of proprietary
information that may be disclosed to the Company and its representatives in
connection with the transactions contemplated by the Merger Agreement. In
addition, the Company and Magma have entered into a standstill agreement, dated
December 5, 1994 (the "Standstill Agreement"), pursuant to which the Company
has agreed that neither the Company nor any of its subsidiaries will, for a
period of three years from December 5, 1994, among other things, acquire any
securities of Magma or participate in any proxy solicitation with respect to
voting securities of Magma, except in connection with the Offer and the Merger
or a tender offer for all Magma Shares at a price no less than $38.75 per Magma
Share net to the seller in cash.
Required Vote at Magma stockholders' meeting. An affirmative vote
approving and adopting the Merger Agreement at a Magma stockholders' meeting by
the holders of a majority of the outstanding Magma Shares is required to
consummate the Merger. As a result of the completion of the Offer pursuant to
which the Purchaser acquired 12,400,000 Magma Shares for $39.00 per Magma Share
in cash (representing approximately 51% of the issued and outstanding Magma
Shares), the Purchaser owns a sufficient number of Magma Shares to approve the
Merger without the affirmative vote of any other Magma stockholder.
Dissenters' and Related Rights. Holders of Magma Shares do not have
appraisal rights as a result of the Offer and the Merger.
Antitrust
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), certain acquisition transactions may not be
consummated unless certain information has been furnished to the Federal Trade
Commission ("FTC") and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and certain waiting period requirements have been
satisfied. As a result of termination of the HSR Act waiting period in
connection with a previous tender offer for Magma Shares by the Company (the
"Previous Offer"), no waiting period is required in connection with the Offer.
The Antitrust Division, the FTC and state authorities frequently
scrutinize the legality under the antitrust laws of transactions such as the
acquisition of Magma Shares pursuant to the Offer. At any time before or after
the consummation of any of such transactions, the Antitrust Division, the FTC
or state authorities could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to
enjoin the purchase of Magma Shares pursuant to the Offer or otherwise or the
consummation of the Merger, or seeking the divestiture of Magma Shares acquired
by the Purchaser or the divestiture of substantial assets of the Company.
Private parties may also seek to take action under the antitrust laws. The
Purchaser believes that the acquisition of Magma Shares pursuant to the Offer
will not violate the antitrust laws. However, and notwithstanding termination
of the HSR Act waiting period in connection with the Previous Offer, there can
not be any assurance that a challenge to the Offer on antitrust grounds will
not be made, or if such a challenge is made, what the result will be.
Accounting Treatment
The Merger will be accounted for under the purchase method of
accounting.
Federal Income Tax Consequences
The purchase for cash and/or Common Stock of Magma Shares pursuant to
the Offer and the Merger will be taxable for federal income tax purposes (and
may also be taxable under applicable state, local, foreign and other tax laws).
Accordingly, a holder of Magma Shares will recognize gain or loss for federal
income tax purposes equal to the difference between (i) the sum of the cash and
the fair market value of Common Stock received in the Offer and the Merger and
(ii) the holder's adjusted tax basis for the Magma Shares. Such gain or loss
will be capital gain or loss if the Magma Shares were held as a capital asset.
Stock Exchange Listing
The Common Stock is listed on the NYSE. Application will be made to
list the Common Stock to be issued pursuant to the Offer on such exchange. See
"PROPOSAL 2 - APPROVAL OF THE ISSUANCE OF COMMON STOCK TO HOLDERS OF MAGMA
SHARES AS PART OF THE MERGER CONSIDERATION IN THE PENDING ACQUISITION."
Effects of the Pending Acquisition
In the event that the Company elects to include Common Stock as
consideration in the Merger, former stockholders of Magma will own
approximately 32.2% of the outstanding shares of Common Stock after giving
effect to the Pending Acquisition at a price of $16.50 per share of Common
Stock of the Company.
Source and Amount of Funds
If the Company elects to pay the Merger Consideration with a
combination of cash and Common Stock, the Company estimates that approximately
$710.9 million will be required to effectuate the Merger, to refinance bank
borrowings incurred in connection with the Offer and to pay related fees and
expenses. If the Company elects to pay the Merger Consideration solely in
cash, approximately $957.4 million will be required. Approximately one-half of
whichever amount is required will be provided under secured bank credit
facilities (the "Merger Facilities") with Credit Suisse pursuant to which
Credit Suisse will provide, on specified terms and subject to customary
conditions, up to $500,000,000 in secured bank financing. Such funds, together
with a capital contribution by the Company from the Company's general corporate
funds and, if the Company elects to pay the Merger Consideration solely in
<PAGE>
cash, the net proceeds of the Public Offering, will be sufficient to pay the
Merger Consideration, to refinance bank borrowings incurred in connection with
the Offer and to pay related fees and expenses.
The Company has received a fully underwritten financing commitment
letter from Credit Suisse (the "Commitment Letter") which states that Credit
Suisse will provide to the Purchaser, on specified terms and subject to
customary conditions, (i) a facility of up to $250,000,000 to capitalize the
Purchaser for the purpose of financing the Offer (the "Tender Facility"), which
facility has been [fully utilized] in connection with consummation of the
Offer, and (ii) the Merger Facilities for, among other things, refinancing the
Tender Facility and effectuating the Merger.
On January 10, 1995, in connection with the purchase of Magma Shares
pursuant to the Offer, the Company borrowed $[250] million under the Tender
Facility on a limited-recourse basis (recourse as to interest only and certain
fees) and loaned the proceeds of such borrowing to the Purchaser in exchange
for a secured term note of the Purchaser (the "Purchaser Note"). The economic
terms of the Purchaser Note mirror those of the Tender Facility.
The Tender Facility is a 12-month term loan extendible for up to three
years by the mutual consent of the Company and Credit Suisse. Borrowings under
the Tender Facility are secured by an assignment and pledge of the Purchaser
Note, which in turn is secured by an assignment and pledge of the 12,400,000
Magma Shares purchased by the Purchaser pursuant to the Offer and an additional
200,000 Magma Shares contributed by the Company to the capital of the
Purchaser. Interest on borrowings under the Tender Facility is payable at
spreads of 2.50% above LIBOR (adjusted for reserves) or 1.25% above Base Rate.
The Tender Facility contains affirmative and negative covenants
customary for similar credit facilities. Such covenants include: a negative
pledge of all stock and unencumbered assets of the Purchaser and its
subsidiaries; a limitation on guaranties by the Company and the Purchaser; a
limitation on mergers and sales of assets by the Company and its subsidiaries;
a limitation on investments in other persons by the Company and its
subsidiaries; a prohibition on dividends and other payments by the Company and
its subsidiaries to the Company unless the proceeds are used to pay down the
Tender Facility in amounts to be agreed upon; a prohibition on the sale of
ownership interests in the Purchaser and its subsidiaries; a prohibition on the
incurrence of additional debt by the Purchaser and its subsidiaries; a
requirement that the Company deliver each month a certificate as to the absence
of material adverse changes in (i) the Company and its subsidiaries, taken as a
whole, and (ii) the Purchaser and its subsidiaries, taken as a whole, which in
either case could reasonably be expected to materially affect the ability of
the Company to service the Tender Facility or the ability of the lenders to
realize on the collateral for the Tender Facility; and a restriction on a
change in the nature of the business of the Company and its subsidiaries,
except as contemplated by the Merger Agreement.
The Tender Facility also contains financial covenants and customary
events of default, including events of default based on: a permanent injunction
prohibiting the Merger; breaches of covenants; cross defaults with respect to
debt of the Company, Magma and their subsidiaries; bankruptcy and similar
events; the failure to pay one or more final judgments aggregating more than a
specified threshold; the failure to make a payment with respect to the Tender
Facility when due; and the failure of the pledge agreement with respect to the
Magma Shares and the Purchaser Note to be in full force and effect.
The Merger Facilities will be comprised of (i) a six year term loan
("Term Loan A") in a principal amount of up to the difference between $500
million and the principal amount of Term Loan B (as defined below), expected to
be amortized in semi-annual payments, and (ii) an eight year term loan ("Term
Loan B") in a principal amount expected to be not less than $150 million,
expected to be amortized in semi-annual payments in the seventh and eigth years
of such Term Loan. Loans under the Merger Facilities will be made to the
Company on a non-recourse basis, and the Company will lend the proceeds of such
loans to Magma in exchange for secured term note of Magma (the "Magma Note").
The loans under the Merger Facilities are to be amortized from internally
generated funds of Magma and will be secured by an assignment and pledge by the
Company of the Magma Notes and 100% of the capital stock of Magma. The Magma
Notes will be secured by a collateral assignment of certain unencumbered assets
of Magma.
Interest on loans borrowed under the Merger Facilities will be payable
at spreads of 2.50% above LIBOR (adjusted for reserves) or 1.50% above Credit
Suisse's Base Rate for Term Loan A, and 3.00% above LIBOR (adjusted for
reserves) or 2.00% above Credit Suisse's Base Rate for Term Loan B. The
Company may elect to have the loans bear interest based on either LIBOR or
Credit Suisse's Base Rate.
The Merger Facilities will contain affirmative and negative covenants
customary for similar credit facilities. Such covenants will include: a
negative pledge of all stock and unencumbered assets of Magma and its
subsidiaries; a limitation on guaranties by Magma and its subsidiaries; a
limitation on mergers and sales of assets by Magma and its subsidiaries; a
limitation on investments in other persons by Magma and its subsidiaries; a
limitation on dividends and other payments by Magma and its subsidiaries to the
Company unless the proceeds are used to pay down the Merger Facilities in
amounts to be agreed upon; a prohibition on the sale of ownership interests in
Magma and its subsidiaries; a prohibition on the incurrence of additional debt
by Magma and its subsidiaries; a requirement that the Company deliver each
fiscal quarter a certificate as to the absence of material adverse changes in
the Company or Magma which could reasonably be expected to materially affect
the ability of the Company to service the Merger Facilities or the ability of
the lenders to realize on the collateral for the Merger Facilities; and a
restriction on a change in the nature of the business of Magma and its
<PAGE>
subsidiaries.
The Merger Facilities will also contain financial covenants and
customary events of default, including events of default based on: breaches of
covenants; cross defaults with respect to debt of the Company, Magma and their
subsidiaries; bankruptcy and similar events; the failure to pay one or more
final judgments aggregating more than a specified threshold to be agreed upon;
the failure to make a payment with respect to the Merger Facilities when due;
and the failure of the pledge agreement with respect to the capital stock of
Magma and the Magma Notes to be in full force and effect.
Credit Suisse's commitment to provide the Merger Facilities is subject
to certain customary conditions, including without limitation (a) a capital
investment in the Purchaser in an amount and form satisfactory to Credit
Suisse, and (b) the absence of certain material adverse changes.
The Company has agreed to pay certain fees to Credit Suisse with
respect to the Merger Facilities and Tender Facilities which, in the aggregate,
are not material to the transactions described herein.
<PAGE>
CAPITALIZATION OF THE COMPANY
Merger Consideration Consisting of a Combination of Cash and Common Stock
The following table sets forth the consolidated capitalizations of the
Company and Magma at September 30, 1994 and as adjusted to reflect borrowings
of up to $500 million under the Merger Facilities, the purchase by the
Purchaser of all the Magma Shares and the issuance as a part of the Merger
Consideration of shares of Common Stock. The following table should be read in
conjunction with the other pro forma financial information contained in this
Proxy Statement and the consolidated financial statements and notes thereto of
the Company and Magma incorporated by reference herein.
<TABLE>
<CAPTION>
At September 30, 1994
Pro Forma Pro Forma
Company Magma Adjustments Combined
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Debt:
Construction loans. . . . . $ 21,079 $ - $ - $ 21,079
Project loans . 233,080 188,969 - 422,049
Senior discount notes 421,375 - - 421,375
Convertible subordinated debenture 100,000 - - 100,000
Other long term liabilities - 12,354 500,000 512,354
775,534 201,323 500,000 1,476,857
Redeemable preferred stock 62,350 - - 62,350
Stockholders' Equity:
Company preferred stock - Series A of no
par value; authorized 2,000 shares - - - -
Company Common Stock of $0.0675 par
value; authorized 60,000 shares; Issued
32,230 shares-actual; 47,529
shares-as adjusted(1). . . 2,407 - 802 3,209
Magma common stock of $0.10 par value;
authorized 30,000 shares; 24,043 issued - 2,401 (2,401) -
Additional paid in capital 100,000 142,765 49,350 292,115
Unrealized gain from marketable securities - (677) 677 -
Retained earnings 136,769 250,797 (250,797) 136,769
Less treasury stock - 3,420 shares at cost (59,516) - 59,516 -
Total stockholders' equity 179,660 395,286 (142,853) 432,093
$1,017,544 $596,609 $357,147 $1,971,300
========== ======== ======== ==========
<FN>
(1) Proposal I relates to an increase in the number of authorized shares of
Common Stock to 80,000,000. Issued shares (actual and as adjusted) do not
include (i) 9,435,229 shares of Common Stock reserved for issuance upon the
exercise of presently outstanding stock options; (ii) 4,444,444 shares of
Common Stock issuable upon the conversion of the Company's 5% Convertible
Subordinated Debentures due July 31, 2000; and (iii) 3,393,197 shares of Common
Stock issuable upon conversion of the 1,247 issued and outstanding shares of
the Company's Series C Exchangeable Redeemable Preferred Stock.
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined
financial data are an integral part of these statements.
<PAGE>
Merger Consideration Consisting of All Cash
The following table sets forth the consolidated capitalizations of the
Company and Magma at September 30, 1994 and as adjusted to reflect borrowings
of up to $500 million under the Merger Facilities, the purchase by the
Purchaser of all the Magma Shares for cash and the sale to the public of shares
of Common Stock offered pursuant to a prospectus filed with the Commission.
The following table should be read in conjunction with the other pro forma
financial information contained in this Proxy Statement and the consolidated
financial statements and notes thereto of the Company and Magma incorporated by
reference herein.
<TABLE>
<CAPTION>
At September 30, 1994
Pro Forma Pro Forma
Company Magma Adjustments Combined
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Debt:
Construction loans. . . . . $ 21,079 $ - $ - $ 21,079
Project loans . 233,080 188,969 - 422,049
Senior discount notes 421,375 - - 421,375
Convertible subordinated debenture 100,000 - - 100,000
Other long term liabilities - 12,354 500,000 512,354
775,534 201,323 500,000 1,476,857
Redeemable preferred stock 62,350 - - 62,350
Stockholders' Equity:
Company preferred stock - Series A of no
par value; authorized 2,000 shares - - - -
Company Common Stock of $0.0675 par
value; authorized 60,000 shares; Issued
32,230 shares-actual; 48,897
shares-as adjusted(1). . . 2,407 - 894 3,301
Magma common stock of $0.10 par value;
authorized 30,000 shares; 24,043 issued - 2,401 (2,401) -
Additional paid in capital 100,000 142,765 63,492 306,257
Unrealized gain from marketable securities - (677) 677 -
Retained earnings 136,769 250,797 (250,797) 136,769
Less treasury stock - 3,420 shares at cost (59,516) - 59,516 -
Total stockholders' equity 179,660 395,286 (128,619) 446,327
$1,017,544 $596,609 $371,381 $1,985,534
================== ======== ==========
<FN>
(1) Proposal I relates to an increase in the number of authorized shares of
Common Stock to 80,000,000. Issued shares (actual and as adjusted) do not
include (i) 9,435,229 shares of Common Stock reserved for issuance upon the
exercise of presently outstanding stock options; (ii) 4,444,444 shares of
Common Stock issuable upon the conversion of the Company's 5% Convertible
Subordinated Debentures due July 31, 2000; and (iii) 3,393,197 shares of Common
Stock issuable upon conversion of the 1,247 issued and outstanding shares of
the Company's Series C Exchangeable Redeemable Preferred Stock.
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined
financial data are an integral part of these statements.
<PAGE>
COMPARISON OF CERTAIN UNAUDITED DATA
Merger Consideration of a Combination of Cash and Common Stock
The following table contains certain unaudited comparative data related
to common stockholders' equity, cash dividends declared, and revenues and
earnings (i) on a historical basis for the Company and Magma, (ii) on a pro
forma combined basis of the Company to reflect the Merger and (iii) on an
equivalent pro forma basis per Magma Share assuming that each Magma Share is
converted into cash and 1.337 shares of Common Stock. Such information is
based upon the acquisition of Magma being accounted for under the purchase
method of accounting. The information shown below should be read in
conjunction with the consolidated historical financial statements and notes
thereto of the Company and Magma, which are incorporated by reference herein,
and the selected historical and pro forma financial data, including the notes
thereto, appearing elsewhere in this Proxy Statement. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "PRO FORMA UNAUDITED CONDENSED COMBINED
FINANCIAL DATA."
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company Magma Adjustments Combined
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating Data:
(Year Ended December 31, 1993)
Total revenue $ 149,253 $167,138 $ (10,547) $ 305,844
Net income from continuing
operations available to common
stockholders $ 38,444 $ 52,135 $ (47,745) $ 42,834
Net income from continuing
operations available to common
stockholders per common share
Assuming no dilution $ 1.00 $ 2.17 $ - $ 0.80
Assuming full dilution $ 1.00 $ 2.17 $ - $ 0.79
Weighted average number of
common shares 38,485 24,063 - 53,784
Dividends per share - - - -
Operating Data:
(Nine Months Ended September 30,
1994)
Total revenue $ 139,188 $146,104 $ (7,910) $ 277,382
Net income from continuing
operations available to common
stockholders $ 27,688 $ 46,843 $ (35,808) $ 38,723
Net income from continuing
operations available to
common stockholders per
common share
Assuming no dilution $ 0.77 $ 1.95 $ - $ 0.75
Assuming full dilution $ 0.76 $ 1.95 $ - $ 0.73
Weighted average number of
common shares 36,174 24,017 - 51,473
Dividends per share - - - -
Balance Sheet Data:
(September 30, 1994)
Total assets $1,087,064 $630,422 $515,147 $2,232,633
Total indebtedness 775,534 201,323 500,000 1,476,857
Redeemable preferred stock 62,350 - - 62,350
Common stockholders' equity 179,660 395,286 (142,853) 432,093
Book value per common share 5.57 16.44 - 9.09
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1993 September 30, 1994
<S> <C> <C>
Pro Forma Combined Equivalent Per
Share Data:(1)
Earnings per equivalent share
from continuing operations
Assuming no dilution $ 1.07 $ 1.00
Assuming full dilution $ 1.06 $ 0.98
Dividends per equivalent share - -
Book value per equivalent share
at September 30, 1994 $12.15
<FN>
(1)Magma stockholders receiving common stock equivalents of the Company as
displayed above will also receive a portion of their consideration in cash,
which can be reinvested.
</TABLE>
Merger Consideration Consisting of All Cash
The following table contains certain unaudited comparative data related to
common stockholders' equity, cash dividends declared, and revenues and earnings
(i) on a historical basis for the Company and Magma, and (ii) on a pro forma
combined basis of the Company to reflect the Merger. Such information is based
upon the acquisition of Magma being accounted for under the purchase method of
accounting. The information shown below should be read in conjunction with the
consolidated historical financial statements and notes thereto of the Company
and Magma, and the selected historical and pro forma financial data, including
the notes thereto, appearing elsewhere in this Proxy Statement. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "PRO FORMA UNAUDITED
CONDENSED COMBINED FINANCIAL DATA."
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company Magma Adjustment Combined
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating Data:
(Year Ended December 31, 1993)
Total revenue $ 149,253 $167,138 $ (9,535) $ 306,856
Net income from continuing
operations available to common
stockholders $ 38,444 $ 52,135 $ (46,982) $ 43,597
Net income from continuing
operations available to common
stockholders per common share
Assuming no dilution $1.00 $2.17 $ - $0.79
Assuming full dilution $1.00 $2.17 $ - $0.78
Weighted average number of
common shares 38,485 24,063 - 55,152
Dividends per share - - - -
Operating Data:
(Nine Months Ended September 30, 1994)
Total revenue $ 139,188 $146,104 $ (7,151) $ 278,141
Net income from continuing
operations available to common
stockholders $ 27,688 $ 46,843 $ (35,236) $ 39,295
Net income from continuing
operations available to
common stockholders per common share
Assuming no dilution $0.77 $1.95 $- $0.74
Assuming full dilution $0.76 $1.95 $- $0.73
Weighted average number of
common shares 36,174 24,017 - 52,841
Dividends per share - - - -
Balance Sheet Data:
(September 30, 1994)
Total assets $1,087,064 $630,422 $529,381 $2,246,867
Total indebtedness 775,534 201,323 500,000 1,476,857
Redeemable preferred stock 62,350 - - 62,350
Common stockholders' equity 179,660 395,286 (128,619) 446,327
Book value per common share 5.57 16.44 - 9.13
</TABLE>
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND
OPERATING DATA OF THE COMPANY
The following table sets forth selected historical consolidated
financial and operating data, which should be read in conjunction with the
Company's consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
the Company incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1993 and to the Company's Quarterly Report
on Form 10-Q for the quarters ended September 30, 1993 and 1994. The unaudited
consolidated financial statements of the Company as of and for the nine months
ended September 30, 1994 reflect all adjustments necessary, in the opinion of
the Company's management, (consisting only of normal recurring adjustments) for
a fair presentation of such financial data. The selected consolidated data as
of and for each of the five years in the period ended December 31, 1993 have
been derived from the audited historical consolidated financial statements of
the Company, which are incorporated by reference herein.
<TABLE>
<CAPTION>
Nine Months
Ended September
Year Ended December 31, 30,
1989 1990 1991 1992 1993 1993 1994
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Sales of electricity $43,010 $89,026 $104,155 $115,087 $129,861 $99,398 $115,357
Sales of steam - - 2,029 2,255 2,198 1,648 1,851
Interest and other income 5,386 7,787 9,379 10,187 17,194 12,294 21,980
Total revenue 48,396 96,813 115,563 127,529 149,253 113,340 139,188
Plant operations, general and
administrative and royalties 13,615 37,412 41,506 45,183 46,794 34,019 41,321
Income before depreciation,
amortization, interest, income
taxes, extraordinary item and
cumulative effect of change in
accounting principle (1) 34,781 59,401 74,057 82,346 102,459 79,321 97,867
Depreciation and amortization 6,605 13,372 14,752 16,754 17,812 13,044 15,439
Interest expense, net of capitalized
interest 15,125 30,464 24,439 14,860 23,389 17,171 36,962
Provision for income taxes 2,715 3,522 8,284 11,922 18,184 14,295 14,067
Income before extraordinary item
and cumulative effect of change
in accounting principle (1) 10,336 12,043 26,582 38,810 43,074 34,811 31,399
Extraordinary item-refinancing (2) - - - (4,991) - - (2,007)
Cumulative effect of change in
accounting principle (3) - - - - 4,100 4,100 -
Net income (1) 10,336 12,043 26,582 33,819 47,174 38,911 29,392
Preferred dividends (paid in kind) - - - 4,275 4,630 3,429 3,711
Net income available to common
stockholders $10,336 $12,043 $26,582 $29,544 $42,544 $35,482 $25,681
======= ======= ======= ======= ======= ======= =======
Income per share before
extraordinary item and cumulative
effect of change in accounting
principle (1)
Assuming no dilution $0.38 $0.44 $0.75 $0.92 $1.00 $0.81 $0.77
Assuming full dilution (4) 0.38 0.44 0.75 0.92 1.00 0.81 0.76
Extraordinary item per share (2) - - - ( 0.13) - - (0.06)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended September
Year Ended December 31, 30,
1989 1990 1991 1992 1993 1993 1994
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data (Continued):
Cumulative effect of change in
accounting principle per share (3) $ - $ - $ - $ - $0.11 $0.11 $ -
Net income per share
Assuming no dilution $0.38 $0.44 $0.75 $0.79 $1.11 $0.92 $0.71
===== ===== ===== ===== ===== ===== =====
Assuming full dilution (4) $0.38 $0.44 $0.75 $0.79 $1.11 $0.92 $0.70
===== ===== ===== ===== ===== ===== =====
Weighted average shares
outstanding (5) 27,019 27,254 35,471 37,495 38,485 38,436 36,174
Capital expenditures 124,749 32,514 68,377 32,446 87,191 64,250 78,892
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
1989 1990 1991 1992 1993 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property-power plant, net $302,514 $321,303 $373,948 $389,646 $458,974 $440,527 $ 522,268
Total assets 349,282 393,853 517,994 580,550 715,984 710,659 1,087,064
Total debt 260,120 270,738 257,038 299,334 382,610 390,972 775,534
Preferred stock - 4,705 54,705 54,350 58,800 57,650 62,350
Stockholders' equity 42,163 55,088 143,128 168,764 211,503 206,675 179,660
</TABLE>
(1) The Navy I Plant commenced operation prior to 1989 and the BLM and Navy II
Plants commenced commercial operation in February 1989 and January 1990,
respectively. The Desert Peak, Nevada facility and the Roosevelt Hot Springs,
Utah steam field were acquired in March and January 1991, respectively.
(2) The refinancing of the Company's three largest domestic projects located at
the Naval Air Weapons Station at China Lake, California (collectively, the
"Coso Project") resulted in an extraordinary item in 1992 in the amount of $5.0
million, after the tax effect of $1.5 million. The defeasance of the Senior
Notes resulted in an extraordinary item in 1994 in the amount of $2.0 million,
after the tax effect of $1.0 million.
(3) On January 1, 1993, the Company adopted Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"), which resulted in
a cumulative adjustment to net income of $4.1 million in 1993.
(4) Fully diluted earnings per share reflects the dilutive effect of
convertible subordinated debentures as if they were converted at the beginning
of the reporting period.
(5) The number of shares outstanding is calculated by using the treasury stock
method.
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OPERATING DATA OF MAGMA
The selected financial data set forth below with respect to Magma's
statements of operations for each of the five years in the period ended
December 31, 1993 and the balance sheets of Magma as of December 31, 1989
through 1993 are derived from the consolidated financial statements of Magma
that have been audited by Coopers & Lybrand, independent certified public
accountants. The selected financial data set forth below with respect to
Magma's statements of operations for the nine-month period ended September 30,
1994 and 1993 and, with respect to the balance sheet of Magma as of September
30, 1994, have been derived from the unaudited consolidated financial
statements of Magma, which, in the opinion of management, reflect all
adjustments necessary (consisting only of normal recurring adjustments) for a
fair presentation of such financial data.
The selected financial data set forth below should be read in
conjunction with the consolidated financial statements and related notes and
other financial information included in Magma's Annual Report on Form 10-K for
the year ended December 31, 1993 and Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, which are incorporated by reference herein.
<TABLE>
<CAPTION>
Nine Months
Ended September
Year Ended December 31, 30,
1989 1990 1991 1992 1993 1993 1994
(In thousands, except per share data and percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues $63,103 $ 85,599 $94,891 $108,966 $167,138 $124,781 $146,104
Operating revenues(1) 56,743 76,893 84,135 100,313 162,943 121,146 142,238
Income from operations 26,892 36,694 41,204 49,667 74,913 57,957 67,915
Income before cumulative
effect of accounting change 22,295 30,166 33,941 36,358 52,135 39,469 46,843
Cumulative effect of change
in accounting for income taxes - - - 17,833(2) - - -
Net income 22,295 30,166 33,941 54,191 52,135 39,469 46,843
Return on revenues 35.3% 35.2% 35.8% 33.4%(3) 31.2% 31.6% 32.1%
Capital expenditures $43,762 $ 7,054 $15,711 $ 12,043 $ 8,434 $ 5,718 $ 8,854
Return on average
stockholders' equity 16.1% 17.6% 16.2% 14.3%(3) 16.4% 13.0% 12.5%
Weighted average shares
outstanding 21,999 22,898 23,611 22,936 24,063 24,037 24,017
Income before cumulative effect
of accounting change per common share
Assuming no dilution $1.01 $1.32 $1.44 $1.59 $2.17 $1.64 $ 1.95
Assuming full dilution(4) 0.96 1.32 1.44 1.52 2.17 1.64 1.95
Income per common share
Assuming no dilution 1.01 1.32 1.44 2.36(2) 2.17 1.64 1.95
Assuming full dilution(4) 0.96 1.32 1.44 2.27(2) 2.17 1.64 1.95
</TABLE>
<TABLE>
<CAPTION>
September
December 31, 30,
1989 1990 1991 1992 1993 1994
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property, plant and
equipment, net $124,062(5) $120,125 $118,541 $113,922 $265,215 $256,561
Exploration and development
costs, net 46,681 44,782 48,644 52,001 107,069 104,271
Total assets 282,624 325,131 353,788 396,650 611,311 630,422
Long-term obligations(6) 98,212 99,297 89,808 87,339 200,509 164,313
Total debt(7) 100,517 102,842 97,541 96,126 226,008 188,969
Stockholders' equity 150,142 192,626 226,872 282,260 351,918 395,286
</TABLE>
(1) Excludes interest and other income.
(2) The cumulative effect of Magma's adoption of SFAS 109 increased net income
by $17,833, or $.77 per share. See Note 11, Provision for Income Taxes,
accompanying the consolidated financial statements for the year ended December
31, 1992 for Magma incorporated by reference in its Annual Report on Form 10-K
for the year ended December 31, 1993.
(3) Excludes the impact of cumulative effect of change in accounting for income
taxes.
(4) Fully diluted earnings per share reflects the dilative effect of stock
options and warrants at the end of the reporting period.
(5) Projects in progress reclassified to appropriate asset classification.
(6) Consists of the noncurrent portion of long-term loans payable and other
long-term liabilities.
(7) Represents loans payable, including the current portion of long-term loans
payable.
<PAGE>
DESCRIPTION OF THE BUSINESS OF THE COMPANY, PKS AND THE PURCHASER
The Company, 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. The Company
was an early participant in the domestic independent power market and is now
one of the largest geothermal power producers in the United States. The
Company is also actively pursuing opportunities in the international
independent power market. For the year ended December 31, 1993 and the nine
months ended September 30, 1994, the Company had revenues of $149.3 million and
$139.2 million, respectively, and net income of $47.2 million and $29.4
million, respectively. As of September 30, 1994, the Company had cash and
short-term investments of $316.3 million.
Kiewit Energy Company ("Kiewit Energy"), a wholly owned subsidiary of
Peter Kiewit Sons', Inc. ("PKS"), is an approximate 44% stockholder (on a
fully-diluted basis) in the Company. 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 the Company's international private power projects.
The principal executive offices of the Purchaser and the Company are
located at 10831 Old Mill Road, Omaha, Nebraska 68154 and their telephone
number is (402) 330-8900. The Purchaser is a wholly owned subsidiary of the
Company and has not conducted any business except in connection with the Offer.
The Company and the Purchaser were incorporated in 1971 and 1994, respectively,
under the laws of the State of Delaware.
DESCRIPTION OF THE BUSINESS OF MAGMA
The following information concerning Magma is excerpted from Magma's
effective Registration Statement on Form S-3 (File No. 33-63404) filed with the
Commission on June 30, 1993 (the "1993 Registration Statement") pursuant to
Rule 424(b) of the Securities Act. Magma is principally engaged in the
acquisition of, exploration for and development of geothermal resources and the
leasing, sale and use of such resources for the generation of electricity,
including the development and operation of geothermal power plants. Magma was
incorporated in Nevada in 1981. Magma's principal executive offices are
located at 4365 Executive Drive, Suite 900, San Diego, California 92121, and
its telephone number is (619) 622-7800.
PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA
The following Pro Forma Unaudited Condensed Combined Balance Sheet as
of September 30, 1994 and the Pro Forma Unaudited Condensed Combined Statements
of Earnings for the year ended December 31, 1993 and the nine months ended
September 30, 1994 combine the historical consolidated balance sheets of the
Company and Magma as if the acquisition had been effective on September 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 in accordance with generally accepted accounting
principles, assets and liabilities of Magma are adjusted to their estimated
fair value, and combined with the recorded values of the assets and liabilities
of the Company. This pro forma combined financial data should be read in
conjunction with the financial data appearing under "SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OPERATING DATA OF THE COMPANY," "SELECTED HISTORICAL
CONSOLIDATED FINANCIAL AND OPERATING DATA OF MAGMA" and the consolidated
financial statements, including the notes thereto, of the Company and Magma
incorporated herein by reference to their respective Annual Reports on Form 10-
K for the year ended December 31, 1993 and Quarterly Reports on Form 10-Q for
the quarter ended September 30, 1994, the Company's Current Reports on Form 8-K
dated March 7, 1994, March 28, 1994, April 18, 1994, May 6, 1994, June 9, 1994,
August 16, 1994, September 22, 1994, September 30, 1994, October 6, 1994,
October 26, 1994, November 22, 1994 and December 9, 1994 and Magma's Current
Reports on Form 8-K dated October 7, 1994 and December 9, 1994.
The Company has not completed reviewing Magma's records in order to
make its determination of the fair value of Magma'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 the
Company 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 Magma at the time the
Magma Shares are purchased.
The pro forma data do not reflect operating efficiencies and cost
reductions which the Company anticipates are achievable. The savings would be
largely attributable to the economies of scale obtained through the combination
of the Company's operations with Magma'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>
Pro Forma Unaudited Condensed Combined Balance Sheet
(Merger Consideration Consisting of a Combination of Cash and Common Stock)
Company and Magma
As of September 30, 1994
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company Magma Adjustments Combined
<S> <C> <C> <C> <C>
Assets
Cash and short term investments $316,349 $ 5,111 $(210,944)(4C) $110,516
Marketable securities - 43,609 - 43,609
Joint venture cash and short term investments 27,088 25,478 - 52,566
Restricted cash and short term investments 127,380 - - 127,380
Accounts receivable--trade and other 33,901 54,204 - 88,105
Prepaid expenses and other assets - 10,423 - 10,423
Due from joint ventures 1,639 - - 1,639
Property and plant, net 522,268 395,560 340,000(4B) 1,257,828
Equipment, net 4,699 - - 4,699
Notes receivable--joint venture 12,255 - - 12,255
Other investments 11,517 41,245 - 52,762
Power purchase contracts - 21,313 60,000(4B) 81,313
Deferred charges and other assets 29,968 24,480 6,948(4B,4C) 61,396
Goodwill - 8,999 319,143(4B) 328,142
Total Assets $1,087,064 $630,422 $515,147 $2,232,633
========== ======== ============ ==========
Liabilities and Stockholders' Equity
Liabilities
Accounts payable $ 1,021 $ 7,832 $ - $ 8,853
Other accrued liabilities 23,357 3,605 - 26,962
Income taxes payable 587 - - 587
Construction loans 21,079 - - 21,079
Project loans 233,080 188,969 - 422,049
Senior discount notes 421,375 - - 421,375
Convertible subordinated debenture 100,000 - - 100,000
Deferred income taxes 24,774 22,376 158,000(4B) 205,150
Other long term liabilities - 12,354 500,000(4C) 512,354
Total liabilities 825,273 235,136 658,000 1,718,409
Deferred income 19,781 - - 19,781
Redeemable preferred stock 62,350 - - 62,350
Stockholders' Equity
Preferred stock
Common Stock 2,407 2,401 (1,599)(4A) 3,209
Additional paid in capital 100,000 142,765 49,350(4A) 292,115
Unrealized gain from marketable securities - (677) 677(4A) -
Retained earnings 136,769 250,797 (250,797)(4A) 136,769
Treasury stock (59,516) - 59,516(4A) -
Total stockholders' equity 179,660 395,286 (142,853) 432,093
Total liabilities and stockholders' equity $1,087,064 $630,422 $515,147 $2,232,633
========== ======== ============ ==========
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined financial
statements are an integral part of these statements.
<PAGE>
Pro Forma Unaudited Condensed Combined Statements of Earnings
(Merger Consideration Consisting of a Combination of Cash and Common Stock)
Company and Magma
For the Year Ended December 31, 1993 and the Nine Months Ended
September 30, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Nine Months Ended September 30, 1994
Pro Forma Pro Pro Forma
Adjustment Forma Adjustment Pro Forma
Company Magma (4D) Combined Company Magma (4D) Combined
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Sales of electricity
and steam $132,059 $137,882 $ - $269,941 $117,208 $124,086 $ - $241,294
Royalties - 19,629 - 19,629 - 15,062 - 15,062
Interest and other
income 17,194 4,195 (10,547) 10,842 21,980 3,866 (7,910) 17,936
Management
services - 5,432 - 5,432 - 3,090 - 3,090
Total Revenue 149,253 167,138 (10,547) 305,844 139,188 146,104 (7,910) 277,382
Costs and Expenses
Plant operations 25,362 49,493 - 74,855 23,887 41,208 - 65,095
General and
administrative 13,158 10,943 - 24,101 9,536 9,602 - 19,138
Royalties 8,274 - - 8,274 7,898 - - 7,898
Depreciation and
amortization 17,812 21,692 18,254 57,758 15,439 17,737 13,690 46,866
Other non-plant
costs - 471 - 471 - 380 - 380
Interest expense 30,205 9,626 45,000 84,831 44,480 9,262 33,750 87,492
Less interest
capitalized (6,816) - - (6,816) (7,518) - - (7,518)
Total costs and
expenses 87,995 92,225 63,254 243,474 93,722 78,189 47,440 219,351
Income before
income taxes 61,258 74,913 (73,801) 62,370 45,466 67,915 (55,350) 58,031
Provision for
income taxes 18,184 22,778 (26,056) 14,906 14,067 21,072 (19,542) 15,597
Income from
continuing operations 43,074 52,135 (47,745) 47,464 31,399 46,843 (35,808) 42,434
Preferred dividends 4,630 - - 4,630 3,711 - - 3,711
Income available to
common stockholders $38,444 $52,135 $(47,745) $42,834 $27,688 $46,843 $(35,808) $38,723
======= ======= ========= ======= ======= ======= ========= =======
Income per common
and common equivalent share
Assuming no dilution $1.00 $2.17 $0.80 $0.77 $1.95 $0.75
==== ==== ==== ==== ==== ====
Assuming full dilution $1.00 $2.17 $0.79 $0.76 $1.95 $0.73
==== ==== ==== ==== ==== ====
Weighted average
common shares
outstanding 38,485 24,063 53,784 36,174 24,017 51,473
====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined financial
statements are an integral part of these statements.
<PAGE>
Notes To Pro Forma Unaudited Condensed Combined Financial Data
(Merger Consideration Consisting of a Combination of Cash and Common Stock)
Company and Magma
(Tables in thousands)
The Merger will be accounted for as a purchase. The resulting
adjustments are based on the historical consolidated financial statements of
the Company and Magma. The final adjustments will be based on the fair value of
Common Stock and the fair value of the assets and liabilities of Magma at or
near the closing. For purposes of the pro forma combined financial statements,
it is assumed that one hundred percent of the Magma Shares will be acquired and
that the fair value of the Common Stock will be $16.50 (the mid-point of the
"Average Closing Price" range limits stipulated in the Agreement and Plan of
Merger).
The pro forma unaudited condensed combined financial statements are
based on the following assumptions:
1. The Merger occurred as of September 30, 1994 for balance sheet purposes
and at the beginning of the periods presented for statement of earnings
purposes.
2. 23,843,000 Shares outstanding as of September 30, 1994 will be
purchased for $39.00 per Magma Share consisting of a package of, on a blended
basis, approximately $28.50 per share in cash and approximately $10.50 in
market value per share of Common Stock (see "Description of the Merger
Agreement -- The Merger Consideration").
3. The Magma options outstanding will be retired for approximately
$8,500,000 in cash.
4. The pro forma adjustments to reflect the effect of the transaction are
as follows:
A. The adjustments reflect the elimination of Magma's equity
accounts and the issuance of Common Stock.
B. The adjustments which have been made to the net assets of Magma
and the Company to give effect to the Merger follow:
<TABLE>
<S> <C> <C>
Assumed value of the
Common Stock and cash consideration
plus estimated direct costs to be
incurred in consummating the Merger . . $942,377
Cost of retiring outstanding
Magma options . . . . . . . . . . . . . 8,500
Cost of 200,000 Magma shares presently
owned by the Company. . . . . . . . . . 5,552
Net assets of Magma. . . . . . . . . . . . $395,286
Adjustment to eliminate goodwill
of Magma. . . . . . . . . . . . . . . . (8,999) (386,287)
Excess of purchase price over carrying
value of net assets acquired. . . . . . 570,142
Allocated to:
Property and plant. . . . . . . . . . . (340,000)
Power purchase contracts. . . . . . . . (60,000)
Deferred income taxes on allocated costs 158,000
Goodwill . . . . . . . . . . . . . . . . . $328,142
========
</TABLE>
C. The additional cash which the Company will be required to pay
in order to effect the Merger has been provided for in the pro forma
adjustments as follows:
<TABLE>
<S> <C>
Reduce cash on hand . . . . . . . . . . . . $210,944
Increase long-term debt . . . . . . . . . . 500,000
$710,944
========
Represents:
Payments to Magma common stockholders. . . . $677,444
Payments to Magma stock option holders . . . 8,500
Other direct acquisition costs . . . . . . . 12,500
Finance costs. . . . . . . . . . . . . . . . 12,500
$710,944
========
</TABLE>
D. The pro forma adjustments to the pro forma combined statements
of earnings include the following:
i. Record amortization of the excess of purchase price
over net assets acquired over a 40-year period, eliminate the amortization of
goodwill from the historical operating results of Magma and provide
depreciation expense on costs allocated to property and plant. the Company'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 and plant for which energy production is not
<PAGE>
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 cash used 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 Common Stock to be exchanged for
the outstanding Shares.
5. The pro forma combined income from continuing operations available to
common stockholders per share for the year ended December 31, 1993, and nine
months ended September 30, 1994, would be $0.82 and $0.78, respectively, based
upon the assumption that (1) 100% of the Magma Shares are acquired by the
Company and (2) the market value of Common Stock issued to the present
stockholders of Magma is $18.73 per share. The pro forma combined book value
per share at September 30, 1994, would be $9.45 under the same assumptions.
6. The pro forma combined income from continuing operations available to
common stockholders per share for the year ended December 31, 1993, and nine
months ended September 30, 1994, would be $0.76 and $0.72, respectively, based
upon the assumption that (1) 100% of the Magma Shares are acquired by the
Company and (2) the market value of Common Stock issued to the present
stockholders of Magma is $14.27 per share. The pro forma combined book value
per share at September 30, 1994, would be $8.66 under the same assumptions.
Pro Forma Unaudited Condensed Combined Balance Sheet
(Merger Consideration Consisting of All Cash)
Company and Magma
As of September 30, 1994
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company Magma Adjustments Combined
<S> <C> <C> <C> <C>
Assets
Cash and short term investments $316,349 $ 5,111 $(190,699)(5C) $130,761
Marketable securities - 43,609 - 43,609
Joint venture cash and short term investments 27,088 25,478 - 52,566
Restricted cash and short term investments 127,380 - - 127,380
Accounts receivable--trade and other 33,901 54,204 - 88,105
Prepaid expenses and other assets -10,423 - 10,423
Due from joint ventures 1,639 - - 1,639
Property and plant, net 522,268 395,560 340,000(5B) 1,257,828
Equipment, net 4,699 - - 4,699
Notes receivable--joint venture 12,255 - - 12,255
Other investments 11,517 41,245 - 52,762
Power purchase contracts - 21,313 60,000(5B) 81,313
Deferred charges and other assets 29,968 24,480 6,948(5B,5C) 61,396
Goodwill - 8,999 313,132(5B) 322,131
Total Assets $1,087,064 $630,422 $529,381 $2,246,867
========== ======== ============ ==========
Liabilities and Stockholders' Equity
Liabilities
Accounts payable $ 1,021 $ 7,832 $ - $ 8,853
Other accrued liabilities 23,357 3,605 - 26,962
Income taxes payable 587 - - 587
Construction loans 21,079 - - 21,079
Project loans 233,080 188,969 - 422,049
Senior discount notes 421,375 - - 421,375
Convertible subordinated debenture 100,000 - - 100,000
Deferred income taxes 24,774 22,376 158,000(5B) 205,150
Other long term liabilities - 12,354 500,000(5C) 512,354
Total liabilities 825,273 235,136 658,000 1,718,409
Deferred income 19,781 - - 19,781
Redeemable preferred stock 62,350 - - 62,350
Stockholders' Equity
Preferred stock
Common Stock 2,407 2,401 (1,507)(5A) 3,301
Additional paid in capital 100,000 142,765 63,492(5A) 306,257
Unrealized gain from marketable securities - (677) 677(5A) -
Retained earnings 136,769 250,797 (250,797)(5A) 136,769
Treasury stock (59,516) - 59,516(5A) -
Total stockholders' equity 179,660 395,286 (128,619) 446,327
Total liabilities and stockholders' equity $1,087,064 $630,422 $529,381 $2,246,867
========== ======== ============ ==========
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined financial
statements are an integral part of these statements.
<PAGE>
Pro Forma Unaudited Condensed Combined Statements of Earnings
(Merger Consideration Consisting of All Cash)
Company and Magma
For the Year Ended December 31, 1993 and the Nine Months Ended
September 30, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Nine Months Ended September 30, 1994
Pro Forma Pro Pro Forma
Adjustment Forma Adjustment Pro Forma
Company Magma (5D) Combined Company Magma (5D) Combined
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Sales of electricity
and steam $132,059 $137,882 $ - $269,941 $117,208 $124,086 $ - $241,294
Royalties - 19,629 - 19,629 - 15,062 - 15,062
Interest and other
income 17,194 4,195 (9,535) 11,854 21,980 3,866 (7,151) 18,695
Management
services - 5,432 - 5,432 - 3,090 - 3,090
Total Revenue 149,253 167,138 (9,535) 306,856 139,188 146,104 (7,151) 278,141
Costs and Expenses
Plant operations 25,362 49,493 - 74,855 23,887 41,208 - 65,095
General and
administrative 13,158 10,943 - 24,101 9,536 9,602 - 19,138
Royalties 8,274 - - 8,274 7,898 - - 7,898
Depreciation and
amortization 17,812 21,692 18,103 57,607 15,439 17,737 13,577 46,753
Other non-plant
costs - 471 - 471 - 380 - 380
Interest expense 30,205 9,626 45,000 84,831 44,480 9,262 33,750 87,492
Less interest
capitalized (6,816) - - (6,816) (7,518) - - (7,518)
Total costs and
expenses 87,995 92,225 63,103 243,323 93,722 78,189 47,327 219,238
Income before
income taxes 61,258 74,913 (72,638) 63,533 45,466 67,915 (54,478) 58,903
Provision for
income taxes 18,184 22,778 (25,656) 15,306 14,067 21,072 (19,242) 15,897
Income from
continuing operations 43,074 52,135 (46,982) 48,227 31,399 46,843 (35,236) 43,006
Preferred dividends 4,630 - - 4,630 3,711 - - 3,711
Income available to
common stockholders $38,444 $52,135 $(46,982) $43,597 $27,688 $46,843 $(35,236) $39,295
======= ======= ========= ======= ======= ======= ========= =======
Income per common
and common equivalent share:
Assuming no dilution $1.00 $2.17 $0.79 $0.77 $1.95 $0.74
==== ==== ==== ==== ==== ====
Assuming full dilution $1.00 $2.17 $0.78 $0.76 $1.95 $0.73
==== ==== ==== ==== ==== ====
Weighted average
common shares
outstanding 38,485 24,063 55,152 36,174 24,017 52,841
====== ====== ====== ====== ====== ======
</TABLE>
The accompanying notes to the pro forma unaudited condensed combined financial
statements are an integral part of these statements.
<PAGE>
Notes To Pro Forma Unaudited Condensed Combined Financial Data
(Merger Consideration Consisting of All Cash)
Company and Magma
(Tables in thousands)
The Merger will be accounted for as a purchase. The resulting
adjustments are based on the historical consolidated financial statements of
the Company and Magma. The final adjustments will be based upon the net
proceeds to the Company from the Public Offering and the fair market value of
the assets of Magma at or near the Effective Time.
The pro forma unaudited condensed combined financial statements are
based on the following assumptions:
1. The Merger occurred as of September 30, 1994 for balance sheet purposes
and at the beginning of the periods presented for statement of earnings
purposes.
2. 16,666,667 shares of Common Stock will be sold at a price sufficient to
provide net proceeds of $16.00 per share to the Company, all of which will be
used to fund a portion of the cost of the Merger. The Company treasury stock
will be canceled.
3. 23,843,000 Magma Shares outstanding as of September 30, 1994 will be
purchased for cash in an amount of $483,600,000 as to 12,400,000 Magma Shares
and cash in an amount of $440,266,000 as to 11,443,000 Magma Shares.
4. The Magma options outstanding will be retired for approximately
$8,500,000 in cash.
5. The pro forma adjustments to reflect the effect of the transaction are
as follows:
A. The adjustments reflect the elimination of Magma's equity
accounts, the sale of Common Stock, and the cancellation of Company treasury
stock.
B. The adjustments which have been made to the net assets of Magma
and the Company to give effect to the Merger follow:
<TABLE>
<S> <C> <C>
Cash consideration
plus estimated direct costs to be
incurred in consummating the Proposed
Merger. . . . . . . . . . . . . . . . . $936,366
Cost of retiring outstanding
Magma options . . . . . . . . . . . . . 8,500
Cost of 200,000 Magma shares presently
owned by the Company. . . . . . . . . . 5,552
Net assets of Magma. . . . . . . . . . . . $395,286
Adjustment to eliminate goodwill
of Magma. . . . . . . . . . . . . . . . (8,999) (386,287)
Excess of purchase price over carrying
value of net assets acquired. . . . . . 564,131
Allocated to:
Property and plant. . . . . . . . . . . (340,000)
Power purchase contracts. . . . . . . . (60,000)
Deferred income taxes on allocated costs 158,000
Goodwill . . . . . . . . . . . . . . . . . $322,131
========
</TABLE>
C. The cash which the Company will be required to pay in order to
effect the Merger has been provided for in the pro forma adjustments as
follows:
<TABLE>
<S> <C>
Reduce cash on hand . . . . . . . . . . . . $190,699
Proceeds from sale of Common Stock. . . . . 266,667
Increase long-term debt . . . . . . . . . . 500,000
$957,366
========
Represents:
Payments to Magma common stockholders. . . . $923,866
Payments to Magma stock option holders . . . 8,500
Other direct acquisition costs . . . . . . . 12,500
Finance costs. . . . . . . . . . . . . . . . 12,500
$957,366
========
</TABLE>
D. The pro forma adjustments to the pro forma combined statements
of earnings include the following:
i. Record amortization of the excess of purchase price
over net assets acquired over a 40-year period, eliminate the amortization of
goodwill from the historical operating results of Magma and provide
depreciation expense on costs allocated to property and plant. The Company'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 and plant for which energy production is not
<PAGE>
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 cash used 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 Common Stock to be sold.
<PAGE>
MARKET PRICES AND DIVIDENDS
The Company. The Common Stock is listed on the NYSE under the symbol
"CE". The Common Stock is also listed on the Pacific Stock Exchange (the
"PSE") and the London Stock Exchange (the "LSE"). The following table sets
forth the quarterly high and low last reported sales price per share for the
Common Stock, as reported on the NYSE Composite Tape, based on published
financial sources, for the fiscal quarters indicated.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1995:
First (through January 17) $ $
1994:
Fourth 17.13 15.25
Third 17.75 16.00
Second 18.13 16.00
First 19.25 17.13
1993:
Fourth 20.13 18.13
Third 18.38 16.00
Second 20.13 17.25
First 21.50 16.50
</TABLE>
On January 17, 1995, the last full trading day prior to the date of
this Proxy Statement, the last reported sale price per share of Common Stock on
the NYSE was $______. On December 2, 1994, the last full trading day prior to
the announcement that the Merger Agreement had been executed, the last reported
sale price per share of Common Stock on the NYSE was $16.50. On September 19,
1994, the day of the Company's issuance of its press release announcing the
transmission of a letter to Magma containing a proposal to acquire Magma in a
transaction in which stockholders would receive cash and shares of Common Stock
having a combined cash and market value of $35 per Magma Share, the last
reported sale price per share of Common Stock on the NYSE was $16.875.
As of March 21, 1994, there were approximately 1,408 holders of record
of Common Stock. The Company's present policy is to retain earnings to provide
sufficient funds for the operation and expansion of its business. Accordingly,
the Company has not paid, and does not have any present plan to pay, cash
dividends on the Common Stock.
The agreements relating to senior notes issued by the Company prohibit
the payment of dividends unless the Company has a net worth of at least $50
million, after giving effect to the payment of such dividends, and dividends do
not exceed 50% of the Company's net income accumulated after December 31, 1987.
The Certificate of Designation with respect to the Series C Preferred Stock
prohibits cash dividend payments with respect to the Common Stock unless all
accumulated dividends on the Series C Preferred Stock have been paid.
The Company's ability to pay dividends is dependent upon receipt of
dividends or other distributions from the Company's subsidiaries and the
partnerships and joint ventures in which the Company has interests. The
availability of distributions from one of the Company's joint ventures is
subject to the satisfaction of various covenants and conditions contained in
the venture's financing documents and the Company anticipates that future
project level financings will contain certain conditions and similar
restrictions on the distribution of cash flow to the Company.
Magma. The Magma Shares are quoted on the NNM under the symbol "MGMA".
The following table sets forth the quarterly high and low last reported sales
prices of Magma Shares, as reported by the NNM, based on published financial
sources, for the fiscal quarters indicated.
<TABLE>
<CAPTION>
Price Range
Quarter High Low
<S> <C> <C>
1995:
First (through January 17) $ $
1994:
Fourth 37.50 34.25
Third 35.00 26.50
Second 33.25 28.00
First 35.25 30.75
1993:
Fourth 40.50 30.00
Third 39.00 29.75
Second 41.50 30.75
First 40.00 30.75
</TABLE>
On December 2, 1994, the last full trading day prior to the
announcement that the Merger Agreement had been executed, the last reported
sale price per Magma Share on the NNM was $35.50. On September 19, 1994, the
day of the Company's issuance of its press release announcing the transmission
of a letter to Magma containing a proposal to acquire Magma in a transaction in
<PAGE>
which stockholders of Magma would receive cash and shares of Common Stock
having a combined cash and market value of $35.00 per Magma Share, the reported
closing sale price per Magma Share on the NNM was $27.50.
As of October 10, 1994, there were approximately 2,238 holders of
record of the Magma Shares.
Holders of Common Stock are entitled to receive dividends from funds
legally available therefor when, as and if declared by the Board of Directors
of the Purchaser. The Board of Directors of the Purchaser presently intends to
continue the policy of not paying quarterly cash dividends. Future dividends
of the Purchaser will depend upon the earnings of the Purchaser and its
subsidiaries, their financial condition and other factors including applicable
government regulations and policies.
<PAGE>
SECURITY OWNERSHIP OF SIGNIFICANT STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to all
stockholders known by the Company to beneficially own more than 5% of either
the Common Stock or the Series C Preferred Stock and certain information with
respect to the beneficial ownership of each director and the five most highly
compensated executive officers of the Company (and all directors and executive
officers of the Company, as a group) of Common Stock. All information is as of
September 30, 1994, unless otherwise indicated.
<TABLE>
<CAPTION>
Number of
Shares
Name (and address if required) Beneficially Percentage
of Beneficial Owner Owned (1) Class (1)
<S> <C> <C>
Series C Preferred Stock:
Kiewit Energy Company
1000 Kiewit Plaza
Omaha, Nebraska 68131 1,247 100%
Common Stock:
Kiewit Energy Company(2) 18,154,272 43.84%
Merrill Lynch & Co. Inc.(3) 2,249,210 6.98%
The Equitable Companies, Inc.(4) 2,027,182 6.29%
Forstmann-Leff Associates, Inc.(5) 1,829,235 5.68%
Neuberger & Berman 1,668,475 5.18%
Edgar D. Aronson 47,000 .15%
Judith E. Ayres 60,000 .19%
Harvey F. Brush -0- -0-
James Q. Crowe 10,000 .03%
Richard K. Davidson 40,000 .12%
Ben Holt 124,365 .39%
Richard R. Jaros 309,179 .95%
Everett B. Laybourne 27,790 .09%
Daniel J. Murphy 30,000 .09%
Herbert L. Oakes, Jr.(6) 66,355 .21%
Walter Scott, Jr. 10,000 .03%
Barton W. Shackelford 12,860 .04%
David E. Wit(7) 47,875 .15%
David L. Sokol 459,509 1.41%
Thomas R. Mason 92,440 .29%
Steven A. McArthur 111,703 .35%
Donald M. O'Shei, Sr. 68,137 .21%
John G. Sylvia 101,055 .31%
All directors and executive
officers as a group (18 persons) 1,618,268 4.81%
</TABLE>
(1) Includes shares of Common Stock which the listed beneficial owner is
deemed to have the right to acquire beneficial ownership under Rule 13d-3(d)
under the Exchange Act, including, among other things, shares of Common Stock
which the listed beneficial owner has the right to acquire within 60 days.
(2) Includes the 7,436,112 shares of Common Stock Kiewit Energy held on
October 29, 1992, the date of Amendment No. 6 to their Schedule 13D, options to
purchase an additional 5,789,163 shares of Common Stock and 3,393,197 shares of
Common Stock in to which the 1,247 shares of Series C Preferred Stock held by
Kiewit Energy are convertible, and 1,535,800 shares purchased in the open
market.
(3) According to a Schedule 13G filed by such parties in February 1994,
includes shares of Common Stock registered in the names of Merrill Lynch & Co.,
Inc., Merrill Lynch Group, Inc., Princeton Services, Inc. and Merrill Asset
Management, L.P.
(4) According to a Schedule 13G filed by such parties in February 1994,
includes shares of Common Stock registered in the names of The Equitable
Companies Incorporated, Axa Assurances L.A.R.D. Mutuelle, Axa Assurances Vie
Mutuelle, Alpha Assurances L.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle,
Uni Europe Assurance Mutuelle and Axa.
(5) According to a Schedule 13G filed by such parties in February 1994,
includes shares of Common Stock registered in the name of Forstmann-Leff
Associates Inc., FLA Asset Management, Inc. and Stamford Advisors Corp.
(6) Includes 9,093 shares registered in the name of H.L. Oakes & Co., Inc.,
a company of which Mr. Oakes is a director and of which his wife is a principal
stockholder, 4,746 shares owned by Mr. Oakes' wife and 4,996 shares registered
to H.L. Oakes, trustee for Harrison Oakes, Mr. Oakes' minor son. Mr. Oakes
disclaims beneficial ownership of all of those shares.
(7) Includes 3,748 shares of Common Stock held jointly with his spouse.
OTHER MATTERS
The Company's Board knows of no other matters which are likely to be
brought before the Special Meeting. However, if any other matters are brought
before the Special Meeting, the proxy-holders will vote proxies granted by
Stockholders in accordance with their best judgment.
STOCKHOLDER PROPOSALS
<PAGE>
Any proposal which a stockholder intended to present at the 1995 Annual
Meeting of Stockholders must have been received by the Company no later than
November 25, 1994 in order to be considered for inclusion in the proxy
statement relating to such meeting. Any such proposals should have been
directed to the Secretary, California Energy Company, Inc., 10831 Old Mill
Road, Omaha, Nebraska 68154.
ACCOUNTANT'S REPRESENTATIVES
It is expected that representatives of Deloitte & Touche LLP, the
Company's independent auditors, will be present at the Special Meeting to
respond to appropriate questions of stockholders and to make a statement if
they desire.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock is listed and
traded on the NYSE, the PSE and the LSE. Reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
NYSE at 20 Broad Street, New York, New York 10005, at the offices of the PSE at
301 Pine Street, San Francisco, California 94104 and 233 South Beaudry Avenue,
Los Angeles, California 90012 and at the offices of the LSE at International
Stock Exchange, Throgmorton Street, EC2N 1HP, London, England, on which the
shares of Common Stock are listed. Material filed by Magma can be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D. C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company and Magma with the
Commission pursuant to the Exchange Act are hereby incorporated by reference:
1. The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
2. The Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1994, June 30, 1994 and September 30, 1994.
3. The Company's Current Reports on Form 8-K dated March 7,
1994, March 28, 1994, April 18, 1994, May 6, 1994, June 9, 1994, August 16,
1994, September 22, 1994, September 30, 1994, October 6, 1994, October 26,
1994, November 22, 1994, and December 9, 1994.
4. The Company's Registration Statement on Form S-4 dated
December 23, 1994, as amended.
5. The Company's Offer to Purchase on Schedule 14D-1 dated
December 9, 1994, as amended or supplemented.
6. Magma's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
7. Magma's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1994, June 30, 1994 and September 30, 1994.
8. Magma's Current Reports on Form 8-K dated October 7, 1994
and December 9, 1994.
All documents filed by the Company and Magma pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated herein shall be deemed to be modified
or superseded for purposes of this Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated or deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement.
The Company will provide without charge to each person to whom this
Proxy Statement is delivered, upon the written or oral request of such person,
a copy of any and all of the documents incorporated by reference in this Proxy
Statement including information contained in documents filed subsequent to the
date on which definitive copies of the Proxy Statement are sent or given to
stockholders of the Company, up to the date of responding to the request (other
than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the documents that this Proxy Statement
incorporates). Written or oral requests for such copies should be directed to
the Chief Financial Officer, California Energy Company, Inc., 10831 Old Mill
Road, Omaha, Nebraska 68154, telephone number (402) 330-8900.
<PAGE>
By order of the Board of Directors
DAVID L. SOKOL
Chairman of the Board, President and Chief Executive Officer
January 18, 1995
Omaha, Nebraska
ADDITIONAL INFORMATION
If you have any questions, or require any additional information
concerning this proxy material or the Offer, please contact MacKenzie Partners
as set forth below. If your shares are held in the name of a brokerage firm or
bank nominee or other institution, only they can vote your shares.
Accordingly, please contact the person responsible for your account and give
instructions for your shares to be voted.
[INSERT CAMERA READY PROOF
FOR MACKENZIE PARTNERS, INC.]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect)
or
1-800-322-2885
<PAGE>
Form of Proxy [Front]
PROXY SOLICITATION
CALIFORNIA ENERGY 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 California Energy Company,
Inc. (the "Company") which the undersigned is entitled to vote at the Special
Meeting of Stockholders of the Company to be held on February 10, 1995, and any
adjournments or postponements thereof, hereby revoking all prior proxies on the
matters set forth below as follows:
I. PROPOSAL TO AMEND THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK OF THE COMPANY AUTHORIZED TO
BE ISSUED BY THE COMPANY FROM 60,000,000 TO 80,000,000:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
CALIFORNIA ENERGY COMPANY, INC. recommends a vote FOR the above
proposal
- -------------------------------------------------------------------------------
II. PROPOSAL TO APPROVE THE ISSUANCE OF UP TO 17,700,000 SHARES OF COMMON
STOCK AS PART OF THE MERGER CONSIDERATION IN THE PENDING ACQUISITION OF MAGMA
POWER COMPANY, A NEVADA CORPORATION, BY THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
CALIFORNIA ENERGY COMPANY, INC. recommends a vote FOR the above
proposal
- -------------------------------------------------------------------------------
III. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.
Form of Proxy [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: _______________________, 199__
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.
