Magma Power Calls Golden Parachute Plan a Coincidence

WASHINGTON — Magma Power Co. said it beefed up its severance package for executives four days before California Energy Co. offered to buy Magma for $820 million.

The severance plan, implemented Sept. 15, calls for each of Magma’s six top executives to be paid double their salary and bonuses if Magma is taken over and they are terminated, Magma said Tuesday in a filing with the Securities and Exchange Commission.

Four days later--on Sept. 19--California Energy Co. offered $35 for each of Magma’s 24 million shares outstanding. The offer consisted of $25 cash and $10 of California Energy common stock.

Jon Peele, Magma’s general counsel, said the timing was a coincidence. “It looks like there’s a connection, but there’s not,” he said.

Peele said Magma’s board actually approved the plan in November, 1993, but took almost a year to implement it.

“We’re a small company and don’t have a large staff to do this sort of thing,” he said.

Magma’s board has recommended unanimously that its shareholders reject a hostile tender offer commenced last week by California Energy for 51% of Magma’s outstanding shares at $35 a share in cash. That offer is valued at $434 million.

California Energy has said it plans to launch a proxy fight to replace Magma’s board of directors.

California Energy will seek a meeting of Magma shareholders in 30 days, said David Sokol, California Energy’s chairman.

Magma is a geothermal energy company based in San Diego. California Energy, based in Omaha, is also a geothermal energy company and builds electric power plants.

Magma’s severance plan would cover Magma Chairman Paul Pankratz and President and CEO Ralph Boeker as well as the company’s general counsel, senior vice president of commercial operations, vice president of North American operations and chief financial officer.

In the SEC filing, Magma said its board also implemented a less generous severance for nine other Magma officers. They would receive a cash payment equal to their salary and bonuses if terminated after a takeover.