<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(Amendment No. 3)
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
MAGMA POWER COMPANY
(Name of Subject Company)
MAGMA POWER COMPANY
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
0005591941
(CUSIP number of Class of Securities)
JON R. PEELE, ESQ.
Executive Vice President, Secretary and General Counsel
MAGMA POWER COMPANY
4365 EXECUTIVE DRIVE, SUITE 900
SAN DIEGO, CALIFORNIA 92121
(619) 622-7800
(Name, address and telephone number of person authorized to receive notice and
communications on behalf of the person(s) filing statement)
Copies to:
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<S> <C>
Michael J. Kennedy, Esq. David W. Heleniak, Esq.
SHEARMAN & STERLING SHEARMAN & STERLING
555 California Street 599 Lexington Avenue
San Francisco, California 94104 New York, New York 10022
(415) 616-1100 (212) 848-4000
</TABLE>
<PAGE>
This Amendment No. 3 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9, dated October 11, 1994, as amended (the "Schedule
14D-9"), filed by Magma Power Company, a Nevada corporation, relating to the
tender offer disclosed in a Tender Offer Statement on Schedule 14D-1 dated
October 6, 1994, as amended through the date hereof, of CE Acquisition Company,
Inc., a Delaware corporation and a wholly owned subsidiary of California Energy
Company, Inc., a Delaware corporation, to purchase 12,400,000 Shares at a price
of $35 per Share net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated October 6, 1994, as amended
through the date hereof, and the related Letter of Transmittal and any
supplement thereto. Capitalized terms used and not defined herein shall have the
meanings set forth in the Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Item 8 is hereby amended and supplemented by adding thereto the following:
HOLT ACTION
- -----------
On October 14, 1994, Ben Holt ("Mr. Holt"), a director of California
Energy, filed a Complaint and Motion for Preliminary Injunctive Relief against
Magma in the Second Judicial District Court for the State of Nevada, County of
Washoe, seeking to compel Magma to provide Mr. Holt with its shareholder list
pursuant to Nevada Revised Statute (S) 78.105(3) ("the Holt Action").
A copy of the Holt Action is filed as Exhibit 16 hereto and is incorporated
herein by reference. The foregoing description of the Holt Action is qualified
in its entirety by reference to the Holt Action.
On October 18, 1994, Magma filed its Opposition to the Holt Action
("Magma's Opposition"), contending that: (1) Mr. Holt cannot demonstrate
entitlement to injunctive relief because Magma is complying with both the
federal tender offer and proxy rules by mailing to its shareholders all tender
offer and proxy materials furnished by California Energy; (2) Mr. Holt, as a
director of California Energy, is not entitled to inspect Magma's shareholder
list under Nevada law; (3) that California Energy is the real party in
interest, thus requiring the Holt Action to be brought as a compulsory
counterclaim in the action pending in the United States District Court for the
District of Nevada entitled Magma Power Co. v. California Energy Company, Inc.,
et. al., No. CV-94-00719-DWH.
ANSWER AND COUNTERCLAIMS
- ------------------------
On October 17, 1994, California Energy filed an Answer and Counterclaims to
the Magma Complaint in the United States District Court for the District of
Nevada. In its Answer, California Energy denied the material allegations of the
Magma Complaint, and denied that Magma is entitled to declaratory relief. In
the Counterclaims, California Energy and CE Acquisition Company filed claims for
declaratory and injunctive relief against Magma and its board of directors,
alleging (1) breach of fiduciary duties by the directors in adopting the Rights
Plan, Bylaw Amendment, severance and indemnification agreements for certain
executives, and use of the Nevada Business Combination Statute; (2) the
unconstitutionality of the Nevada Business Combination Statute; and (3)
violations of the federal securities laws allegedly resulting from statements
made by Magma on its Schedule 14D-9 regarding the tender offer and proxy
solicitation.
A copy of the Answer and Counterclaims is filed as Exhibit 17 hereto and is
incorporated herein by reference. The foregoing description of the Answer and
Counterclaims is qualified in its entirety by reference to the Answer and
Counterclaims.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby amended and supplemented by adding thereto the following:
Exhibit 16 -- Holt Action
Exhibit 17 -- Answer and Counterclaims
Exhibit 18 -- Revised Description of Certain Graphical Elements
Exhibit 19 -- Press Release, dated October 21, 1994
Exhibit 20 -- Press Release, dated October 21, 1994
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
MAGMA POWER COMPANY
/s/ Jon R. Peele
By:__________________________________
Name: Jon R. Peele
Title: Executive Vice President,
Secretary and General
Counsel
Dated: October 21, 1994
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INDEX TO EXHIBITS
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EXHIBITS
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<C> <S> <C>
Exhibit 16 --Holt Action
Exhibit 17 --Answer and Counterclaims
Exhibit 18 --Revised Description of Certain Graphical Elements
Exhibit 19 --Press Release, dated October 21, 1994
Exhibit 20 --Press Release, dated October 21, 1994
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<PAGE>
Richard W. Horton
STATE BAR #1542
Jeffrey D. Menicucci
STATE BAR #545
LIONEL SAWYER & COLLINS
50 W. Liberty Street, #1100
Reno, Nevada 89501
(702) 788-8666
Attorneys for Defendant
and Counterclaim-Plaintiff and
Additional Plaintiff on Counterclaim
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
*****
MAGMA POWER COMPANY, )
a Nevada corporation, )
)
Plaintiff, )
)
v. )
) CV-N-94-00719-DWH
CALIFORNIA ENERGY COMPANY, INC., )
a Delaware corporation, )
) ANSWER AND COUNTERCLAIMS
Defendant. / ------------------------
- ------------------------------------------------------)
)
CALIFORNIA ENERGY COMPANY, INC., )
)
Counterclaim-Plaintiff, )
)
-and- )
)
CE ACQUISITION COMPANY, INC., )
)
Additional Plaintiff )
on Counterclaim, )
)
-against- )
)
MAGMA POWER COMPANY, )
)
Counterclaim-Defendant, )
)
-and- )
<PAGE>
RALPH W. BOEKER, PAUL M. PANKRATZ, )
THOMAS C. HINRICHS, ROGER L. KESSELER, )
JAMES D. SHEPARD, WILLIAM R. KNEE, )
BENT PETERSEN, J. PEDRO REINHARD, )
LESTER L. COLEMAN, LOUIS A. SIMPSON, )
and JOHN D. ROACH, )
)
Additional Defendants )
on Counterclaims. )
- ---------------------------------------/
ANSWER
------
Defendant and Counterclaim-Plaintiff California Energy Company, Inc.
("CECI"), by its attorneys Lionel Sawyer & Collins and Willkie Farr & Gallagher,
for its Answer to the Complaint for Declaratory Relief (the "Complaint") alleges
as follows:
1. Denies knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 1 of the Complaint, except
admits that on September 19, 1994 CECI delivered a written proposal to Magma
Power Company ("Magma") offering to acquire all of the outstanding shares of
Magma at a price of $35 per share in cash and stock and on October 6, 1994, CECI
and California Energy Acquisition Company, Inc. ("CEAC") commenced a tender
offer (the "Tender Offer"), and also admits the existence of the statutes
referenced in paragraph 1, and respectfully refers the Court to those statutes
for the true and correct provisions therein, and except to the extent paragraph
1 states conclusions of law to which no response is required.
2. Denies knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 2 of the Complaint, except
admits the existence of the statutes referenced in paragraph 2, and respectfully
refers the Court to those statutes for the true and correct provisions therein
and
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except to the extent paragraph 2 states conclusions of law to which no response
is required.
3. Denies knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 3 of the Complaint, except to
the extent paragraph 3 states conclusions of law to which no response is
required.
4. Denies knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 4 of the Complaint, except
admits upon information and belief that Magma is a corporation incorporated in
the State of Nevada, which, in California, is engaged in the business of the
generation of electricity from geothermal resources, that Magma's common stock
is traded on the NASDAQ and that Magma's principal executive offices are located
in San Diego, California, and except to the extent paragraph 4 states
conclusions of law to which no response is required.
5. Admits the allegations contained in paragraph 5, of the Complaint,
except to the extent paragraph 5 states conclusions of law to which no response
is required.
6. Denies the allegations contained in paragraph 6 of the Complaint,
except admits that on September 19, 1994, CECI delivered a letter to Magma which
inter alia offered to purchase all outstanding common stock of Magma, and
- ----- ----
respectfully refers the Court to the letter for the contents thereof.
7. Denies the allegations contained in paragraph 7 of the Complaint to the
extent they purport to relate to CECI, and denies knowledge or information
sufficient to form a belief as to the truth of the allegations contained in
paragraph 7 to the extent
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they purport to relate to others, except to the extent paragraph 7 states
conclusions of law to which no response is required.
8. Denies the allegations contained in paragraph 8 of the Complaint to the
extent they purport to relate to CECI, and denies knowledge or information
sufficient to form a belief as to the truth of the allegations contained in
paragraph 8 to the extent they purport to relate to others, except admits upon
information and belief that on October 3, 1994, the Magma Board of Directors
adopted a purported Stockholder Rights Plan or "Poison Pill" and authorized a
purported amendment to Magma's Bylaws, which purports to limit the right of a
majority of Magma's stockholders to take certain actions, and respectfully
refers the Court to the Poison Pill and the purported Bylaws amendment for the
contents thereof, and except to the extent paragraph 8 states conclusions of law
to which no response is required.
9. Denies the allegations contained in paragraph 9 of the Complaint,
except admits that Magma has adopted a purported Stockholder Rights Plan or
Poison Pill, and respectfully refers the Court to the Poison Pill for the terms
thereof, and except to the extent paragraph 9 states conclusions of law to which
no response is required.
10. Denies the allegations contained in paragraph 10 of the Complaint,
except admits that Magma purportedly has amended its Bylaws as they relate to
stockholder consent solicitations, in an attempt to prevent a majority of the
stockholders of Magma from exercising their views by written consent, and
respectfully refers the Court to the purported Bylaws amendment for the contents
thereof.
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11. Denies knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 11 of the Complaint, except
admits the existence of sections 78.411 through 78.444 of the Nevada General
Corporations Law (the "Nevada Merger Moratorium Statute") referenced in
paragraph 11, and further admits that the CEAC Tender Offer is conditioned upon
certain requirements relating to the Nevada Merger Moratorium Statute being
determined to be inapplicable and respectfully refers the Court to CECI's
Schedule 14D-1 Tender Offer Statement pursuant to Section 14(d)(1) of the
Securities Exchange Act of 1934 and the Offer to Purchase contained therein for
the complete terms of CEAC's Tender Offer, and except to the extent paragraph 11
states conclusions of law, to which no response is required.
12. Repeats and realleges each and every response to the allegations
contained in paragraphs 1 through 11 of the Complaint as if fully set forth at
length.
13. Denies knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 13 of the Complaint, except
admits the existence of the Nevada Merger Moratorium Statute referenced in
paragraph 13, and further admits that certain allegations contained in the CECI
and CEAC's counterclaims relate to the Nevada Merger Moratorium Statute, and
respectfully refers the Court to the counterclaims herein for the contents
thereof, and except to the extent paragraph 13 states conclusions of law to
which no response is required.
14. Paragraph 14 makes no allegations against CECI and states conclusions
of law to which no response is required.
5
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15. Repeats and realleges each and every response to the allegations
contained in paragraphs 1 through 14 of the Complaint as if fully set forth at
length.
16. Denies knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 16 of the Complaint, except
admits the existence of the Nevada Merger Moratorium Statute referenced in
paragraph 16 and further admits that certain allegations contained in CECI and
CEAC's counterclaims relate to the Nevada Merger Moratorium Statute, and
respectfully refers the Court to the counterclaims herein for the contents
thereof, and except to the extent paragraph 16 states conclusions of law to
which no response is required.
17. Paragraph 17 makes no allegations against CECI and states conclusions
of law to which no response is required.
18. Repeats and realleges each and every response to the allegations
contained in paragraphs 1 through 17 of the Complaint as if fully set forth at
length.
19. Denies knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 19 of the Complaint, except
admits that certain allegations contained in CECI and CEAC's counterclaims
relate to the Nevada Merger Moratorium Statute referenced in paragraph 19, and
respectfully refers the Court to the counterclaims herein for the contents
thereof, and except to the extent paragraph 19 states conclusions of law to
which no response is required.
20. Paragraph 20 makes no allegations against CECI and states conclusions
of law to which no response is required.
6
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21. Denies that the plaintiff is entitled to the relief requested.
COUNTERCLAIMS
-------------
Counterclaim-Plaintiff California Energy Company, Inc. ("CECI") and
Additional Plaintiff on Counterclaims CE Acquisition Company, Inc. ("CEAC")
(hereinafter "plaintiffs") by their attorneys Lionel Sawyer & Collins and
Willkie Farr & Gallagher, for their Counterclaims against the
Counterclaim-Defendant and Additional Defendants on Counterclaims (hereinafter
collectively "defendants") allege, as follows:
NATURE OF THE ACTION
--------------------
22. This action seeks declaratory and injunctive relief against Magma
Power Company ("Magma") and its directors to prevent them from continuing to
breach their fiduciary duties to Magma's stockholders by wrongfully erecting or
refusing to withdraw the illegal impediments they have raised to CECI's proposal
to purchase Magma and the tender offer which CECI and CEAC commenced on October
6, 1994 for a majority of the outstanding shares of Magma's common stock at $35
per share net in cash (a $7.50 per share premium over the closing trading price
for the shares on September 19, 1994j, the date on which CECI delivered a
written proposal to Magma seeking to acquire Magma, as more fully described
herein) (the "Tender Offer"), as the first step toward implementing the
acquisition proposal to acquire all of Magma's outstanding shares of common
stock. Defendants' unlawful actions in adopting a purported "Poison Pill,"
attempting to strip shareholders of their rights to act by written consent,
entering into excessive "golden parachute" severance agreements with 15 of
Magma's top executives,
7
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entering into broad new indemnification agreements with its directors and
executives, agreeing to excessive fee arrangements with the investment bankers
hired to orchestrate its defensive actions, and refusing to opt-out of Nevada's
merger moratorium statute are scorched earth tactics designed to entrench
incumbent management in their lucrative positions and protect the interests of
The Dow Chemical Company ("Dow"), Magma's largest shareholder, at the expense of
the interests of Magma's other shareholders.
23. In furtherance of these breaches of fiduciary duty, defendants have
made numerous false statements, non-disclosures and omissions of material fact
concerning CECI's Tender Offer in the Solicitation/Recommendation Statement (and
amendments thereto) which Magma filed pursuant to Section 14(e)(2) of the
Securities Exchange Act of 1934 on Schedule 14D-9 (Magma's "Schedule 14D-9"),
and this action also seeks injunctive relief requiring defendants to correct
those false disclosures and to refrain from such violations in the future.
24. Finally, this action seeks a declaratory judgment that Sections
78.411 through 78.444 of the Nevada General Corporation Law (the "Nevada Merger
Moratorium Statute") are unconstitutional and injunctive relief against the
Statute's application to CECI's proposal to acquire Magma.
25. In sum, Magma's shareholders should be allowed to consider CECI's
proposal to purchase their company on its merits, free of the illegal
impediments which the defendants have wrongfully constructed to try to defeat
that proposal. The relief
8
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sought herein seeks to accord Magma's shareholders that opportunity.
THE PARTIES
-----------
26. Plaintiff CECI is a corporation incorporated in the State of Delaware
which, together with its subsidiaries, is engaged primarily in the business of
the exploration for and development of geothermal resources and the development,
ownership and operation of environmentally responsible independent power
production facilities worldwide utilizing geothermal resources or other energy
sources, such as hydroelectric, natural gas, oil and coal. CECI does business in
California, Nevada (where it is the owner and operator of a 10 megawatts
geothermal plant at Desert Peak, Nevada), Arizona and other states. The
principal executive offices of CECI are located in Omaha, Nebraska. The stock of
CECI is traded publicly on the New York Stock Exchange.
27. Plaintiff CEAC is a Delaware Corporation and a wholly owned subsidiary
of CECI. CEAC was formed for the purpose of acquiring Magma stock.
28. Defendant Magma is a corporation incorporated in the State of Nevada,
which in California is principally engaged in the generation of electricity from
geothermal resources, and in the acquisition of, exploration for and development
of geothermal resources. The principal executive offices of Magma are located in
San Diego, California. The stock of Magma is traded publicly on the New York
Stock Exchange and the NASDAQ.
29. Defendant Ralph W. Boeker is a Director and the President and Chief
Executive Officer of Magma. Defendant Boeker retired from Dow as of March 1,
1993 where he had been employed
9
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since 1959, most recently as Group Vice President for Chemicals, Performance
Products and Hydrocarbons and as a member of the operating Board of Dow Chemical
U.S.A. and the Dow Management Committee. Defendant Boeker is a resident of the
State of California.
30. Defendant Paul M. Pankratz is a Director and the Chairman of the Board
of Magma. Defendant Pankratz joined Magma upon his retirement from Dow where he
had been employed since 1957, most recently as Vice President, Corporate
Products Department. He has served as a Magma director since 1984. Defendant
Pankratz is a resident of the State of California.
31. Defendant Thomas C. Hinrichs is a Director and a Vice President of
Magma. Defendant Hinrichs is a resident of the State of California.
32. Defendant Roger L. Kesseler is a Director of Magma. Defendant Kesseler
has been an employee of Dow since 1959, and is currently employed by Dow as a
Vice President and its Controller. Defendant Kesseler is a resident of the State
of Michigan.
33. Defendant James D. Shepard is a Director of Magma. He was formerly
employed as an officer of Magma and is currently a trustee of the B.C. McCabe
Foundation which is the beneficial owner of 11.9% of Magma's common stock.
Defendant Shepard is also currently a shareholder relations consultant to Magma.
Defendant Shepard is a resident of the State of California.
34. Defendant William R. Knee is a Director of Magma. Defendant Knee has
been employed by Dow since 1968 and is currently its Director of Technology
Centers. Defendant Knee is a resident of the State of Michigan.
10
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35. Defendant Bent Petersen is a Director of Magma. Defendant Petersen is
a resident of the State of Oregon.
36. Defendant J. Pedro Reinhard is a Director of Magma. Defendant Reinhard
has been employed by Dow since 1970 and is currently a Vice President and
Treasurer of Dow. Defendant Reinhard is a resident of the State of Michigan.
37. Defendant Lester L. Coleman is a Director of Magma. Defendant Coleman
is a resident of the State of Texas.
38. Defendant Louis A. Simpson is a Director of Magma. He also serves on
the board of directors of Salomon Inc, whose subsidiary Salomon Brothers Inc
provides financial advisory and underwriting services to Magma. Defendant
Simpson is a resident of the State of California.
39. Defendant John D. Roach is a Director of Magma. Defendant Roach is a
resident of the State of California.
DOW'S SPECIAL RELATIONSHIPS
WITH MAGMA AND ITS DIRECTORS
----------------------------
40. As the description of the defendant directors and their current or
past employment relationships with Dow listed herein suggests, Dow has a wide
range of special relationships with Magma and its directors, all of which
underscore the seriously conflicted position of the Magma board of directors in
considering any proposal to acquire Magma in which the interests of Dow and
those of Magma's other stockholders are not aligned. In its 1994 proxy
statement, Magma reports that it designates each of defendants Kesseler, Knee
and Reinhard, all current Dow employees (as well as defendants Boeker, Pankratz
(both ex-Dow employees), and Hinrichs and Shepard)), as "inside" directors for
purposes of
11
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determining compensation of directors. A number of Magma's executive officers
also either came to Magma after a career at Dow or are or have been Dow
employees "loaned" to Magma pursuant to various agreements by which Magma
reimburses Dow for certain of their compensation (John R. Peele, Vice President,
Secretary and General Counsel of Magma; Trond Aschehoug, Vice President of North
American Operations of Magma; and Kenneth Kerr, Senior Vice President,
Commercial Development of Magma).
41. In its Schedule 13D filings under the Securities Exchange Act of 1934,
Dow has described itself as a controlling shareholder of Magma and an amendment
to its Schedule 13D filed on October 7, 1994 reflects that it is the beneficial
owner of 5,032,430 shares of Magma common stock, 20.9% of all the outstanding
shares of common stock of Magma. Of these shares, 857,143 apparently were
recently acquired by Dow pursuant to an option agreement with Garantia Banking
Limited (the "Option Shares") as more fully described herein in paragraph 44,
while the balance of 4,175,287 shares (the "Escrow Shares") are held in escrow
as more fully described herein in paragraph 45.
42. Dow has been a significant Magma shareholder since 1981 when the
current Magma Power Company came into existence and over the years it has
obtained additional shares of Magma common stock through a series of long-range
stock purchase agreements and a broad variety of other services agreements,
which, among other things, permitted Dow to elect to receive payment for a broad
variety of services to Magma in shares of Magma common stock, rather than in
cash. For example, Dow and Magma entered into an Engineering Services For Stock
Agreement, dated as of March 27,
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1987, pursuant to which Dow took some 1,177,433 shares of Magma common stock as
"advance payment" for engineering and construction management services to be
provided to Magma. Dow also acquired additional Magma shares in conjunction with
various loan guaranty, overrun financing, financial modeling services and other
management and technical services agreements. Dow's many services agreements
with Magma have not only been economically lucrative to Dow but they have
created an unusual level of interdependence between Dow and Magma.
43. On May 27, 1993 Dow announced its intention to sell 5 million shares
of Magma common stock in a proposed underwritten secondary offering and on June
29, 1993 Magma's registration statement pertaining to the offering (which had
been reduced to 4 million shares of Magma stock) became effective and Dow sold
3,635,000 shares of such amount at a net price of $30.88. Prior to the sale of
shares in the secondary offering, Dow, as of June 29, 1993, had sole voting and
dispositive power over 9,810,287 shares of Magma common stock (including
unexercised options), or 39.1%.
44. On October 12, 1993 Dow surrendered a "special stock option" to
purchase 2 million shares of Magma common stock, which it had received pursuant
to a 1987 stock agreement, in consideration of the issuance to it of 857,143
shares of Magma common stock. Pursuant to the surrender agreement, Dow agreed to
certain "lock-up" obligations which, among other things, precluded it from
selling the shares it received until September 30, 1994. However, on September
12, 1994, in a transaction not publicly disclosed until September 23, 1994, Dow
sold 857,143 shares of
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Magma stock to Garantia Banking Limited ("Garantia"), a Bahamian corporation for
a per share price of $28.25, or approximately $24 million dollars. At the same
time Dow entered into a highly unusual stock option agreement with Garantia
pursuant to which, for consideration of only $150,000, Dow received an
apparently perpetual option to purchase 857,143 shares of Magma common stock
from Garantia at any time after September 29, 1994 for the same per share price
of $28.25, or $24 million, which it had paid to Garantia (the "Garantia
Option"). Magma facilitated the Dow/Garantia transaction by entering into an
amendment to the option surrender agreement pursuant to which Dow had obtained
the shares. That amendment, dated July 26, 1994, but, like the rest of the
Dow/Garantia transaction, not disclosed until September 23, 1994, released Dow
from the "lock-up" obligations it had previously agreed to, including the
requirement that it not sell the 857,143 shares of Magma stock until September
30, 1994. In connection with Dow's disclosure of the Dow/Garantia transaction on
September 23, 1994, Dow stated that it was not aware of CECI's proposal to
purchase Magma when it entered into its transaction with Garantia, which it
described as being motivated by tax characterization purposes. On October 7,
1994, Dow belatedly made public the fact that on September 30, 1994, it had
exercised its option with Garantia and apparently acquired the 857,143 shares of
Magma common stock.
45. Of the 5,032,430 shares of Magma common stock owned by Dow as of
September 30, 1994, approximately 4 million shares are held in escrow for
delivery upon the exchange of certain 5-3/4% Subordinated Exchangeable Notes due
April 1, 2001 issued by Dow.
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The notes are exchangeable into Magma common stock at any time at an exchange
rate of 26.6667 shares per $1,000 principle amount of the notes. The escrow
agreement between Dow and Morgan Guaranty Trust Company of New York, as Escrow
Agent, provides, among other things, that Dow has retained the right to vote the
escrowed shares and also to direct their disposition under certain limited
circumstances. Magma has stated in its Schedule 14D-9 that to the extent
noteholders exercise their exchange rights, Dow's ownership interest in Magma
would decrease, but it has failed to disclose that Dow has certain rights to
obtain the shares by providing converting noteholders with cash in lieu of the
Magma shares and the impact upon Dow's ability to benefit from CECI's offer in
the same manner as other Magma shareholders that results from the exchangeable
note and escrow arrangements.
46. It appears that since the acquisition of the Garantia Option and any
cash-out of the Noteholders by Dow would constitute "purchases" under Section 16
of the Securities Exchange Act of 1934 which have to be matched with any
subsequent sale in the following 6 months, Dow is unable to take advantage of
the Tender Offer because it would incur short-swing profit liability under
Section 16(b) if the Option Shares or the Escrow Shares were tendered.
Accordingly, in considering the Tender Offer, Dow's economic interests and the
economic interests of Magma's other stockholders clearly conflict.
47. The intricate web of special interrelationships and agreements between
Dow and Magma and its directors and officers and the very different economic
interests facing Dow and Magma's other shareholders create not only a unique
level of interdependence, but
15
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also a situation in which timing and nature of a proposal to acquire Magma, such
as CECI's instant proposal, pose legal and economic issues for Dow which are not
shared by Magma's other public stockholders which unavoidably place Magma's
directors in a highly conflicted position in addressing any such proposal, and
which, due to the conflict, may render any such actions by Magma's board invalid
under Nevada law.
JURISDICTION AND VENUE
----------------------
48. This action arises under the Supremacy and Commerce Clauses of the
United States Constitution, Art. VI, cl.2 and Art. I (S) 8, cl.3 and under the
Securities Exchange Act of 1934, 15 U.S.C. (S)(S)78, 78bb and 78n(d) and (e),
and the rules and regulations promulgated thereunder. This Court has
jurisdiction over this controversy pursuant to Section 27 of the Securities
Exchange Act, 15 U.S.C. (S)78aa, and pursuant to 28 U.S.C. (S)(S)1331 (federal
question) and 1337 (commerce) in that the action arises under the Constitution
and laws of the United States and arises under Acts of Congress regulating
commerce or protecting trade and commerce against restraints and monopolies, and
under principles of supplemental jurisdiction.
49. This Court also has jurisdiction over this controversy pursuant to 28
U.S.C. (S)(S)1332(a)(1) in that the plaintiff and defendant and counterclaim
plaintiffs and counterclaim defendants are citizens of different states, and the
matter in controversy exceeds the sum of $50,000 exclusive of interest and
costs. The facts alleged show that there exists an actual controversy between
the parties and thus declaratory relief may be afforded pursuant to 28 U.S.C
(S)2201.
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50. Venue is proper in this district pursuant to Section 27 of the
Securities Exchange Act, 15 U.S.C. (S)78aa and pursuant to 28 U.S.C. (S)1391
because the Counterclaim-Defendant and the Additional Defendants on the
Counterclaim reside or transact business in this District and the claims
asserted herein arose in this District.
BACKGROUND
----------
CECI's Efforts To Acquire
Magma In A Negotiated Transaction
- ---------------------------------
51. Although Magma has characterized, and undoubtedly will try to continue
to characterize, CECI's acquisition proposal as hostile and unsolicited, CECI
has made numerous attempts to negotiate an entirely friendly transaction with
Magma since as early as May, 1991, and has stated that it remains fully prepared
to do so. Magma, for the improper management entrenchment purposes described
herein, has rebuffed these attempts. During the summer of 1994, CECI's chairman,
David Sokol, proposed a meeting between management of the two companies to
discuss a possible combination of CECI and Magma. A meeting date was set in
August, but, shortly before the meeting was to occur, Magma cancelled the
meeting, suggesting it would be scheduled for late September 1994. On September
15, 1994, however, in response to an inquiry from CECI's chairman to one of
Magma's directors, defendants Pankratz and Boeker informed Mr. Sokol that they
were unwilling to hold the meeting with CECI until after the closing of the
financing for Magma's Malitbog project in the Philippines in mid-November. In
response, Mr. Sokol informed Pakratz and Boeker that CECI was considering a
number of strategic alternatives, including a
17
<PAGE>
possible combination with Magma, and that there was no need to delay the meeting
since CECI was prepared to negotiate in good faith on a basis that would value
Magma as if the Malitbog financing had closed. Boeker and Pankratz, however,
reiterated their unwillingness to meet until after the Malitbog closing
occurred.
52. Denied an opportunity to meet with Magma, on September 19, 1994 David
Sokol sent a letter to Boeker and Pankratz setting forth the terms of a proposed
acquisition by CECI of the outstanding shares of Magma's common stock of $35 per
share in cash and CECI stock (the "September 19th proposal"). The letter stated
inter alia:
- ----- ----
As you know, California Energy believes strongly that the strategic
benefits which result from merging our companies would enhance value
for the shareholders of both companies, while improving our shared
competitive position in an increasingly challenging business
environment.
* * *
Consequently, pursuant to the authority of its Board of Directors,
California Energy hereby proposes to acquire all outstanding shares
of Magma's common stock for $35 per share, comprised of $25.00 in
cash and $10.00 in market value of California Energy's common stock
. . . .
* * *
We hope that our proposed transaction can be consummated amicably
and expect to hear from you promptly. I am available to meet with
you and Magma's Board to discuss this proposal, and to answer any
questions you may have. As you know, California Energy has
substantial cash on hand and our financial advisor has confirmed to
us that we can conclude any additional financing required to effect
the combination of our two companies on a timely basis.
18
<PAGE>
As I have stressed in our past discussions, we would prefer that the
combination of Magma and California Energy be effected on a
friendly, consensual basis in which the interest of our respective
shareholders, employees, customers and business partners are fairly
served. We are, of course, prepared to negotiate in good faith all
aspects of our proposal and to work out the terms of a mutually
satisfactory merger agreement, containing terms and conditions
typical for a transaction of this type.
. . . [W]e believe that Magma's Board of Directors has a fiduciary
responsibility to provide its shareholders with the opportunity to
take advantage of this proposal. While we hope that it will not
become necessary for us to approach your shareholders directly, in
the event that you do not respond to this proposal promptly, we
reserve the right to approach your shareholders directly with an
exchange offer and/or consent solicitation to call a special meeting
of shareholders for purposes of acting on this proposal and electing
directors.
53. Although Magma's responsive letter dated September 20th, stated that
the Magma Board of Directors would "consider your proposal in due course and
inform you of its decision after completion of its evaluation," in fact, in
breach of its fiduciary duties, the Board was instead preparing a flurry of
"golden parachute" agreements and obstructionist maneuvers aimed at protecting
entrenched management and Dow and preventing Magma shareholders from having
any opportunity to freely consider the merits of CECI's proposal.
54. On September 28, 1994, Magma responded to CECI's request to have a
face-to-face meeting with Magma to discuss the September 19th proposal, by
offering a meeting with Magma's financial advisors, Goldman Sachs & Co. But, as
a condition to permitting even this meeting, Magma required that CECI refrain
from
19
<PAGE>
commencing a tender offer or issuing any press releases until after Magma's
board met on October 2 and 3, 1994, purportedly for the purpose of permitting
the Board to consider the September 19th proposal. CECI accepted this condition
on the understanding that Magma's Board would fully and fairly consider its
proposal and CECI provided a draft merger agreement for review by the Board
during its deliberations. On October 3rd, it became clear that, rather than
giving fair consideration to CECI's September 19th proposal, in violation of
their fiduciary duties, Magma directors had utilized the standstill period to
begin to adopt "golden parachute" agreements serving their own economic
interests and to erect a series of illegal impediments to the proposal.
The Magma Directors' Illegal Defensive Measures
- -----------------------------------------------
55. After Magma's Board of Directors met on October 2 and October 3, 1994,
Goldman, Sachs informed CECI's financial advisors that the Board had authorized
Magma to enter into a purported "stockholder rights agreement," known as a
"poison pill" (the "Poison Pill"). This report of the Magma directors' wrongful
defensive maneuvers was, however, misleadingly incomplete since CECI
subsequently learned through press reports that Magma's Board of Directors had
also acted unilaterally to amend its Bylaws to strip shareholders of certain of
their rights to take actions by written consent. Magma also immediately
commenced this lawsuit against CECI.
56. Although Magma's Bylaws had previously allowed a majority of Magma's
stockholders to take any corporate action which they favored by written consent,
during its October 2 and 3, 1994 board meeting, the Magma directors suddenly,
and without any
20
<PAGE>
discussion with Magma shareholders, withdrew this basic vehicle for shareholder
democracy in the face of CECI's previously stated intention to commence a
consent solicitation in support of its proposal to acquire Magma if Magma
proved unwilling to negotiate a friendly transaction. The Bylaws amendment was
clearly not only an illegal defensive response to CECI's proposal, it also
directly denied all Magma shareholders the opportunity to take action by written
consent to promptly resolve matters of concern to them. Instead, Magma's
directors changed its Bylaws to merely allow a majority of its stockholders to
call special meetings of the shareholders at which proposals presented there
could be considered and voted upon, a much more cumbersome and less effective
means for the majority of Magma stockholders to act in their own best interests.
Finally, by adopting the Bylaws change at the very time that the Magma directors
were purportedly giving fair consideration to CECI's proposal, the Board sent a
clear message that it intended to play whatever hardball was needed to protect
entrenched management and the interests of Dow.
57. Magma's Poison Pill sent the same message even more forcefully.
Magma's Poison Pill allows its Board of Directors unilaterally to block
acquisition offers or substantial stock accumulations, even if they provide
substantial benefits to the Magma stockholders, because the financial penalty
which an acquiror will incur in the event the Poison Pill is "triggered" is so
severe. The Poison Pill places any potential acquiror at the mercy of the Magma
Board which alone has the power to redeem the Rights distributed pursuant to the
Poison Pill. It is intended to prevent
21
<PAGE>
a majority of the owners of Magma from making their own economic decision.
58. Under the terms of the Poison Pill, a "Right" is distributed for each
outstanding share of Magma stock held by shareholders on a record date set
according to the terms of the Poison Pill. A Right entitles a shareholder to
purchase one-one thousandth of a newly issued share of Series A Preferred Stock
of Magma at an exercise price of $125 per share. The Rights are "triggered" if a
person or group acquires beneficial ownership of 10% or more of the Company's
outstanding common stock, unless within ten days thereafter, the Board of
Directors redeems the Rights.
59. In the event the rights are "triggered," the holders of Rights, other
-----
than the person who has acquired the holding which triggered the rights,
- -----------------------------------------------------------------------
are entitled to purchase at the Right's then current exercise price, an amount
of newly issued Series A Preferred Stock (or, in certain circumstances, Magma
common stock, cash, property or other Magma securities) equal to twice
-----
the then-current exercise price. In addition, if Magma is involved in a merger
or other business combination transaction with another person after which its
common stock does not remain outstanding, or sells 50% or more of its assets or
earning power to another person, each Right will entitle its holder to purchase,
at the Right's then current exercise price, shares of common stock of such other
person having a market value equal to twice the then current exercise price.
-----
60. Not only does Magma's Poison Pill discriminate against CECI or any
other potential acquiror not favored by Magma's
22
<PAGE>
board by precluding them from acquiring 10% or more of Magma's common stock, it
also provides that it discriminatorily permits the already existing holders of
over 10% of Magma common stock (namely, Dow and the B.C. McCabe Foundation), to
continue to increase their holdings in Magma shares unrestrained by the onerous
--------
provisions of the Poison Pill. As with defendants' other actions, the Poison
Pill not only entrenches incumbent management, it also benefits the interests of
Dow while it denies Magma's other shareholders the opportunity to freely
consider CECI's acquisition proposal.
61. The Poison Pill has the effect of precluding successful completion of
any tender offer, such as CECI's, or any other significant share acquisition by
an entity other than Dow or the B.C. McCabe Foundation, absent the approval of
the Magma Board, which, as detailed herein, is heavily populated with Dow
members. As a result, Magma's stockholders are prevented from taking advantage
of any offer the Board chooses to rebuff, irrespective of the value it may
afford the stockholders. The Magma Board's adoption of the Poison Pill was
unreasonable in the face of CECI's proposal to negotiate a fair and equitable
transaction and constitutes a breach of the Magma directors' fiduciary duties.
62. In addition to illegally adopting the Poison Pill and amending its
Bylaws, Magma's directors have taken other steps to entrench themselves in
response to CECI's proposal to acquire the company. Magma's schedule 14D-9,
filed on October 11, 1994, announced that on September 15, 1994, Magma entered
into lucrative "golden parachute" severance agreements with 15 of its most
highly compensated members of management (including defendants Pankratz, Boeker
and Hinrichs). Despite the fact that Magma entered into the
23
<PAGE>
"golden parachute" agreements on the same day that Boeker and Pankratz stated
their refusal to meet with CECI to discuss a possible combination of the
companies, Magma has claimed in press reports that it was merely a
"coincidence" that these agreements were suddenly entered into immediately
before CECI delivered its September 19th proposal to Magma, asserting that it
had been considering them since November, 1993.
63. Magma's October 11, 1994 filing on Schedule 14D-9 also reported that
at its September 20, 1994 Board meeting, the day after CECI's September 19th
proposal was received by Magma, the Magma Board authorized the company to enter
into broad indemnity agreements with each of the defendant members of the Magma
Board. The Board members then immediately executed such agreements.
64. Further, the October 11, 1994 filing on Schedule 14D-9 described
Sections 78.411 through 78.444 of the General Corporation Law of Nevada (the
"Nevada Merger Moratorium Statute"). Noting that Magma had not opted out from
the coverage of that statute, the Schedule 14D-9 commented that "[u]nless, the
Board of Directors approves [CECI's Tender Offer] prior to its consummation,
California Energy will be unable to effect a merger with the Company for a
period of three years from the consummation of the Offer . . . ."
24
<PAGE>
CECI'S TENDER OFFER FOR MAGMA'S COMMON STOCK
--------------------------------------------
65. As noted herein, faced with Magma's refusal to negotiate a
transaction, on October 6, 1994, CECI and CEAC commenced a Tender Offer to
purchase 12,400,000 shares of Magma common stock (and associated Poison Pill
Rights) at a price of $35 net per share in cash. The purpose of the Tender Offer
is to acquire majority control of Magma as the first step in an acquisition of
the entire equity interest in the company. CECI and CEAC's Offer to Purchase,
which is currently scheduled to expire at 12:00 midnight, New York City Time, on
November 3, 1994, reiterated its desire to negotiate a definitive acquisition
agreement with Magma.
66. The Tender Offer is conditioned, among other things, on Magma entering
into a definitive merger agreement with CECI providing inter alia that (a) the
----- ----
Nevada Merger Moratorium Statue does not apply to the Tender Offer or the
proposed second step merger, and (b) the Rights issued pursuant to the Poison
Pill do not apply to the Tender Offer or the proposed second step merger.
Although the Offer to Purchase reflects that CECI may determine, in its sole
discretion, to waive the merger agreement condition, the Offer to Purchase
states that CECI does not currently intend to waive such condition unless it
determines, in its sole judgment, inter alia, that (a) the Nevada Merger
----- ----
Moratorium Statute is invalid or otherwise inapplicable to the Tender Offer and
proposed merger, and (b) that the Poison Pill Rights have been redeemed,
invalidated or are otherwise inapplicable to the Tender Offer and proposed
merger.
25
<PAGE>
67. The Tender Offer constitutes a major transaction in interstate
commerce. The Tender Offer is being advertised nationally by the use of the
national financial press and by interstate mail and telephone services. The
Tender Offer is being distributed to Magma shareholders throughout the country
by use of the mails and other instrumentalities and facilities of interstate
commerce.
68. The Tender Offer is governed by and has been commenced pursuant to the
detailed and substantive disclosure requirements of federal law, including the
Exchange Act and the Williams Act, amendments thereto, and the detailed rules
promulgated by the Securities and Exchange Commission thereunder.
THE FEDERAL STATUTE
-------------------
69. In 1968, Congress amended the Exchange Act by adding new
subsections 15 U.S.C. (S)(S)78m(d), (e) and 78n(d)-(f). These amendments,
referred to as the Williams Act, were designed to regulate interstate tender
offers for securities of corporations regulated by the SEC. CECI and CEAC's
Tender Offer is within the purview of the Williams Act and the rules promulgated
by the SEC thereunder.
70. In adopting the Williams Act, Congress recognized that tender offers
perform beneficial economic functions by, among other things, providing
investors with an opportunity to sell their shares at a premium over prevailing
market prices, and by providing a check on inefficient management. The language
and legislative history of the Williams Act demonstrate the intent of Congress
that the success or failure of a tender offer should be left to the informed
investment judgment of the individual shareholders of the
26
<PAGE>
offeree corporation, free of undue influence from either the offeror or
offeree's management.
71. Accordingly, the Williams Act affords neither the offeror, nor
incumbent management of the corporation whose securities are being sought, an
unfair advantage. It is designed not to defeat or discourage tender offers, but
to establish neutral and even-handed regulation by requiring disclosure of
material information to investors who are then free to make their own informed
investment decisions.
THE NEVADA ANTI-TAKEOVER STATUTORY SCHEME
--- ------ ------------- --------- ------
72. The State of Nevada has adopted two main anti-takeover laws, the Nevada
Merger Moratorium Statute and Sections 78.378 through 78.3793 of the Nevada
General Corporation Law governing the acquisition of controlling interests (the
"Control Share Statute"). Magma has taken the position that the Control Share
Statute does not apply to the Tender Offer and proposed merger, apparently
because that statute's jurisdictional requirement that there be 100 stockholders
of record who are residents of the state of Nevada and that the corporation does
business in Nevada, is not met.
73. The Nevada Merger Moratorium Statute purports to accord Nevada
corporations such as Magma an additional layer of insulation from the
inconvenience of shareholder democracy. The Nevada Merger Moratorium Statute
purports to regulate mergers, consolidations and other transactions involving
any "resident domestic corporation" defined in the statute to be a Nevada
corporation that has 200 or more stockholders ((S) 78.427).
27
<PAGE>
74. The Nevada Merger Moratorium Statute provides that any resident
domestic corporation may not engage in any merger, consolidation or other
transaction with any "interested stockholder" (defined as an owner either
directly or indirectly of 10% or more of the voting power of the stock of the
resident domestic corporation ((S) 78.423)) for a period of at least three years
from the date the interested stockholder acquired its shares, unless the
combination or merger is approved by the resident domestic corporation's board
of directors before the date on which the interested stockholder acquired its
shares or the acquisition of shares by the interested stockholder which first
resulted in the stockholder becoming an interested stockholder was itself
approved by the board of directors. ((S) 78.438).
75. The Nevada Merger Moratorium Statute provides that it does not apply
if an amendment to the resident corporation's articles of incorporation is
approved by a majority of the stockholders excluding the acquiror. However, the
amendment is not effective until 18 months after being passed ((S) 78.434), and,
as a practical matter, any such effort to amend the articles of incorporation
must be initiated by action of Magma's Board of Directors. Thus, in the context
of a tender offer, this provision is not a viable option, and only pre-approval
of a tender offer before the take-down date by Magma's Board of Directors would
render the statute inapplicable.
76. Section 78.439 further provides that even after three years,
an interested stockholder still may engage in a merger or other combination with
a resident corporation only if (a) the combination is approved by the Board of
Directors before the
28
<PAGE>
acquiror became an interested stockholder or the acquisition of shares by the
interested stockholder which first resulted in the stockholder becoming an
interested stockholder was itself approved by the board of directors, (b) the
combination is approved by the vote of the holders of the majority of the stock
excluding the interested stockholder at a meeting called no earlier than three
years after the acquiror became an interested stockholder or (c) a "fair price"
formula is satisfied.
77. Under the "fair price" formula, non-tendering stockholders are to be
paid the higher of (a) the highest of (1) the price per-share paid by the
interested stockholder for any stock acquired within three-years immediately
before the date of announcement of the combination, (2) the price per-share paid
for any stock acquired within three-years prior to that period or (3) the price
per-share paid for any stock acquired in the transaction in which the person or
entity became an interested stockholder, or (b) the market value of the stock on
the date of announcement of the combination or on the interested stockholder's
date of acquiring shares. In addition, the stockholders must be paid interest
compounded annually from the date on which the price calculation is made. ((S)
78.441-2). Under this rigid statutory formula, the price which must be paid by
an interested stockholder for shares not previously tendered will almost always
be greater than the price paid to tendering shareholders, and in many cases will
be substantially higher.
78. The Nevada Merger Moratorium Statute is intended to, and does, in
fact, erect a virtually insurmountable barrier to takeovers of Nevada
corporations by depriving the tender offeror
29
<PAGE>
of the benefits of gaining control of such corporations, namely, the ability to
effect a merger or other significant transaction involving the assets of the
corporation after the close of the tender offer. The statute thus endows the
management of Nevada corporations with de facto veto power over any takeover,
-- -----
prohibiting the consummation of a tender offer on a hostile basis in virtually
all circumstances, irrespective of the interests of the corporation's
shareholders. As such, the statute effectively insulates incumbent management
from the scrutiny of the free and efficient market. The statute therefore
frustrates the purposes of Congress embodied in the Williams Act, and invades
and conflicts with the regulations promulgated pursuant thereto, all in
violation of the Supremacy Clause. In addition, the statute imposes a burden on
interstate commerce in violation of the Commerce Clause.
79. The Nevada Merger Moratorium Statute unreasonably burdens the
national market for securities. By obstructing tender offers for Nevada
corporations, the statute interferes with the efficient allocation of corporate
resources and reduces the incentive for incumbent management to perform well.
The statute encourages inefficient management practices to the detriment of
stockholder and general economic welfare. Its three-year moratorium freezes the
movement of assets and prevents many potentially value-enhancing changes in
corporate policies. The statute thus impedes the free flow of corporate assets
in interstate commerce.
80. The Nevada Merger Moratorium Statute does not protect stockholders of
Nevada corporations from coercive takeover proposals. Rather, it insulates
incumbent management of Nevada
30
<PAGE>
corporations from changes in control. The substantial burdens that the Merger
Moratorium Statute imposes on interstate commerce are thus excessive in relation
to any legitimate local interest that statute serves.
MAGMA'S REJECTION
OF THE TENDER OFFER
-------------------
81. On October 10, 1994, Magma announced that its Board of Directors had
determined that CECI's Tender Offer was not in the best interests of Magma
Stockholders. The next day, Magma filed its Schedule 14D-9 detailing its
purported reasons for failing to recommend CECI and CEAC's Tender Offer to its
stockholders. In the Schedule 14D-9, Magma knowingly made numerous false and
misleading statements of material facts and omitted to state material facts
necessary to make other statements in the Schedule 14D-9 not misleading. For
example, the Magma Schedule 14D-9:
(a) falsely states that "California Energy is trying to buy Magma at a
bargain price that does not remotely reflect Magma's intrinsic value and the
long-term strategic promise of which California Energy is well aware," when in
fact CECI's Tender Offer price reflects a substantial premium over the price at
which Magma's stock was trading prior to the announcement of CECI's September
19th proposal;
(b) falsely states that the Magma Board of Director's recommendation to
reject the Tender Offer is based on the factors listed in Item 4(b) of the
Schedule 14D-9, when in fact, in breach of their fiduciary duties, Magma's
directors oppose CECI's offer in order to preserve their entrenched positions
and to serve the interests of Dow at the expense of Magma's other shareholders;
31
<PAGE>
(c) fails to adequately disclose the special relationships between Dow and
Magma and its directors and the impact of those relationships on the Magma Board
of Directors' determination to reject CECI's Tender Offer; and
(d) fails to adequately disclose the conflict between Dow's economic
interest and those of other Magma stockholders considering the Tender Offer and
proposed merger, resulting from its situation under Section 16(b) of the
Securities Exchange Act of 1934.
In addition, the Magma Schedule 14D-9 contained numerous false and misleading
characterizations of CECI and various aspects of its proposal to acquire Magma.
82. In view of the summary rejection of CECI's tender offer by the Magma
Board of Directors, it is highly unlikely that the Magma Board, absent action by
this Court, will revoke the Poison Pill, redeem the rights issued pursuant
thereto, revoke its Bylaws amendment eliminating action by written consent,
invalidate the "golden parachute" and indemnification agreements, correct its
false disclosures, or take such actions as are necessary to opt out of the
Nevada Merger Moratorium Statute prior to the time when the Tender Offer is
scheduled to close. Accordingly, Magma's stockholders will never have the
opportunity to make their own decision concerning Magma's offer. Similarly, if
Magma is not required to correct its false disclosures, Magma shareholders will
not learn the true facts concerning CECI's Tender Offer and CECI will be damaged
in its ability to pursue the offer.
83. Absent judicial intervention, defendants will continue to entrench
themselves in office, continue to protect the
32
<PAGE>
interests of Dow at the expense of Magma's other shareholders, continue to
inequitably and illegally deprive the Magma stockholders of their right to
realize a full and fair value for their shares at a substantial premium over the
historical market price, and will continue inequitably and illegally to deprive
CECI of its opportunity to acquire the stock of Magma.
COUNT I
-------
(Breach of Fiduciary Duty - Unlawful Amendment of Bylaws)
84. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs 1 through 83 hereof as if fully set forth at length.
85. The sole purpose and effect of the Magma Board's elimination of the
Magma stockholders' right to take certain actions by written consent was to
cause a gross interference with stockholder democracy. Indeed, it could have no
other purpose. The Magma Board acted to eliminate the right to vote by consent
at a time when CECI, a stockholder of Magma owning 200,000 shares of stock, had
already announced publicly its intention to solicit consents. The sole purpose
of the amendment was to prevent CECI, a stockholder of Magma owning 200,000
shares of stock, from soliciting written consents to take various actions to
facilitate its September 19th proposal.
86. The Magma Board's elimination of the stockholders' right to take
action by written consent served no legitimate corporate purpose and was for the
purpose of entrenching management, in breach of their fiduciary duties to the
Magma stockholders
33
<PAGE>
87. Plaintiffs intend to request that the Magma Board of Directors take
actions necessary to restore the right of the Magma stockholders to take action
by written consent. It is anticipated, however, that the Magma Board (dominated
by Dow members) will not take such actions which would allow plaintiffs to
solicit written consents to take actions to allow the Tender Offer and the
proposed merger to proceed. The Board's refusal to do so is clear evidence of
their use of the corporate machinery for entrenchment purposes, at the expense
of the stockholders' voting rights. Moreover, the Dow board members' conflict
renders all such action invalid under Nevada law.
88. Accordingly, the Bylaws amendment is invalid, and was enacted in
breach of the Magma directors' fiduciary duties.
89. Plaintiffs have no adequate remedy at law.
COUNT II
--------
(Breach of Fiduciary Duty - Adoption of
Unlawful Poison Pill)
90. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 89 hereof as if fully set forth at length.
91. The Magma Board adopted a Poison Pill for the sole purpose of
deterring CECI's takeover by requiring CECI or any other potential acquiror not
welcomed by the Board, unless approved by the Board (dominated by Dow members),
to incur staggering monetary penalties. The Poison Pill serves no valid
corporate purpose, is so extreme as to constitute a waste of corporate assets,
and is an unlawful device the purpose and effect of which is to entrench and
enrich incumbent management.
34
<PAGE>
92. In light of the severity of the penalties imposed by the Poison Pill,
it is clear that the Poison Pill was not adopted, and cannot be defended, as a
reasonable response to a purported threat posed to Magma by plaintiffs' offer.
The Poison Pill has no economic justification, serves no legitimate purpose, and
is invalid. Moreover, the Dow board members' conflict renders all such action
invalid under Nevada law.
93. Accordingly, the Poison Pill is invalid, and was enacted in breach of
the fiduciary duties of the Magma directors.
94. Plaintiffs have no adequate remedy at law.
COUNT III
----- ---
(Breach Of Fiduciary Duty - Failure To Redeem Rights)
95. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 94 herein as if fully set forth herein at length.
96. Plaintiffs intend to request that the Magma Board of Directors redeem
the Rights so as to enable plaintiffs to complete the Tender Offer. Based upon
their prior entrenchment activities, it can be expected that the Magma Board of
Directors will refuse to redeem the Rights in response to the Tender Offer. The
refusal of the Magma Board to redeem the Rights in response to the Tender offer
can have no purpose other than to entrench the incumbent directors and
management in violation of their fiduciary duties.
97. If the Rights are not redeemed, plaintiffs will be effectively
thwarted from purchasing the shares of tendering shareholders because of the
dilutions caused by the discriminatory effects of the "flip in" and "flip over"
features of the Poison
35
<PAGE>
Pill. Accordingly, unless the rights are redeemed, Magma's stockholders will not
be able to receive the benefit of the tender offer.
98. Accordingly, Plaintiff's request that the Magma Board be enjoined
from enforcing the operation of the Poison Pill or, alternatively, that an
injunction issue to require the Magma Board of Directors to redeem the Rights so
as to enable the Tender offer and proposed merger to be consummated, free of the
punitive consequences of the Poison Pill.
99. Plaintiffs have no adequate remedy at law.
COUNT IV
--------
(Breach of Fiduciary Duty -- Unlawful
"Golden Parachute" And Indemnity Agreements)
100. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs 1 through 99 hereof as if fully set forth at length.
101. The purpose and effect of the Magma Board's authorization of
lucrative "golden parachute" agreements was to continue to entrench themselves
or, if they could not ultimately do so, to unfairly enrich themselves at unfair
expense to Magma's shareholders.
102. The "golden parachute" and broad indemnity agreements serve no
legitimate corporate purpose, and merely entrench management, in breach of their
fiduciary duties to Magma's stockholders.
103. Plaintiffs intend to request that the Magma Board revoke these
agreements, but it is anticipated that it will not do so.
36
<PAGE>
104. Accordingly, plaintiffs request a judgment declaring that the "golden
parachute" agreements and indemnity agreements are invalid, and were enacted in
breach of the Magma directors' fiduciary duties. Moreover, the Dow board
members' conflict renders all such actions invalid under Nevada law.
105. Plaintiffs have no adequate remedy at law.
COUNT V
-------
(Unconstitutionality Of The Merger Moratorium Statute
Under Supremacy Clause)
106. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 105 hereof as if fully set forth herein.
107. This claim for relief arises under the Supremacy Clause of the United
States Constitution, U.S. Const. Art VI, cl.2 and Section 14(d) of the Exchange
Act, 15 U.S.C. (S) 78 n(d).
108. The Nevada Merger Moratorium statute empowers the incumbent board of
directors -- not the stockholders -- of a Nevada corporation effectively to veto
a tender offer by withholding approval of the tender offer and subsequent
business combination, with the effect that the stockholders are deprived of the
fundamental right to decide for themselves whether to accept any particular
tender offer. In so providing, the Nevada Merger Moratorium Statute frustrates
the purposes of the Williams Act by thwarting stockholder autonomy and by
impermissibly and decisively tipping the balance between bidders and targets in
favor of target management.
109. The Nevada Merger Moratorium Statute is unconstitutional because it
substantially frustrates the basic
37
<PAGE>
Congressional purposes and objectives and impinges on the exclusive province of
the regulatory scheme embodied in the Williams Act. The Nevada Merger
Moratorium statute therefore is preempted by the Williams Act and violates the
Supremacy Clause of the United States Constitution.
110. Accordingly, the Nevada Merger Moratorium Statute violates the
Supremacy Clause and is unconstitutional.
111. Plaintiffs have no adequate remedy at law.
COUNT VI
(Unconstitutionality of Merger Moratorium Statute
under Commerce Clause)
112. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 111 hereof as if fully set forth at length.
113. This claim for relief arises under the Commerce Clause of the United
States Constitution, U.S. Const., Art. I (S) 8, cl.3.
114. Plaintiffs' Tender Offer to Magma stockholders, including any living
in Nevada, necessarily employs interstate facilities in its communication. The
Tender Offer, if accepted, will result in transactions occurring across state
lines.
115. The Nevada Merger Moratorium Statute purportedly imposes substantial,
direct and adverse burdens upon interstate commerce including, but not limited
to, the following:
(a) the statute purportedly hinders and effectively precludes unsolicited
tender offers for Nevada corporations, which invariably involve transactions
occurring in interstate commerce. As such, the statute interferes with the free
interstate securities
38
<PAGE>
market that Congress sought to preserve by enacting the Williams Act;
(b) the statute purportedly inhibits the making of a tender offer to
stockholders of Magma having no connection with Nevada and residing in other
states;
(c) the statute deprives stockholders of Magma residing in Nevada and
elsewhere of the opportunity to sell their stock at a premium;
(d) the statute impedes the infusion into interstate commerce of large
amounts of capital that would occur through purchases and sales of securities of
Nevada corporations and interferes with the efficient allocating of economic
resources; and
(e) the statute impedes the free flow of corporate assets in interstate
commerce.
116. The substantial burdens imposed on interstate commerce by the Nevada
Merger Moratorium Statute are excessive in relation to any putative local
interests the statute advances. To the extent the statute is designed to protect
stockholders from abusive or coercive takeover tactics, it goes much further
than is necessary, since it deters all hostile tender offers, whether or not
they are coercive or abusive.
117. At the same time, the Nevada Merger Moratorium Statute provides no
protection at all from abusive or coercive tender offers, leveraged buyouts or
other transactions made by or approved by the target company itself or with
management approval. These exemptions from the statute's coverage reveal that
the
39
<PAGE>
statute's true purpose is the protection of incumbent management, not
shareholders.
118. Accordingly, the Nevada Merger Moratorium Statute violates the
Commerce clause and is unconstitutional.
119. Plaintiffs have no adequate remedy at law.
COUNT VII
---------
(Breach of Fiduciary Duty - Utilization of
Merger Moratorium Statute)
120. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 119 hereof as if fully set forth at length.
121. Plaintiffs' Tender Offer is fair and at a price representing a
substantial premium over the historical price of Magma stock, uninflated by
takeover speculation. Although the Tender Offer seeks less than all of the stock
of Magma, non-tendering stockholders will have the right, in connection with the
proposed merger, to receive the consideration in cash and stock of the same
value as is received by tendering stockholders, and to participate in
substantial up-side potential.
122. The Board of Directors of Magma and each of them owe a fiduciary
duty of loyalty, due care and good faith to all stockholders of Magma.
123. Plaintiffs intend to request that the Magma Board take certain
steps necessary to render the statute inapplicable. Based upon their prior
entrenchment activities, it is anticipated, however, that the Magma Board will
refuse to take those steps. Their refusal to take steps necessary to render
inapplicable the Nevada Merger Moratorium Statute, permitting the Tender Offer
to
40
<PAGE>
go forward, can have no purpose other than to entrench the incumbent directors
and management in violation of their fiduciary duties to the Magma stockholders.
Moreover, the Dow board members' conflict renders all such actions invalid under
Nevada law.
124. The Magma Board should be enjoined to take such steps as are necessary
to cause the Nevada Merger Moratorium Statute to be inapplicable to the Tender
Offer, so as to allow plaintiffs to consummate the Tender Offer and contemplated
merger.
125. Plaintiffs have no adequate remedy at law.
COUNT VIII
----- ----
(Violations of Section 14(e) Of The Exchange Act)
126. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 125 hereof as if fully set forth herein.
127. As detailed herein, Magma has violated and is continuing to violate
section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. (S) 78(c), and
the rules and regulations promulgated thereunder.
128. Plaintiffs have no adequate remedy at law.
IRREPARABLE INJURY
----------- ------
129. Unless preliminary and permanent injunctive relief is granted,
plaintiffs will be irreparably harmed because they will be denied the
opportunity to have their Tender Offer and the proposes second step merger
considered by Magma's stockholders, and Magma's stockholders will be irreparably
harmed because they
41
<PAGE>
will be denied the opportunity to consider and, if they so choose, to accept
Plaintiffs' Tender Offer and the proposed merger.
130. Plaintiffs will be irreparably harmed in at least the following
additional respects:
(a) Plaintiffs will be denied the opportunity to consummate the Tender
Offer and the proposed merger;
(b) Magma's management will hold a decided and unlawful advantage in
opposing the Tender Offer and the proposed merger;
(c) Plaintiffs will be compelled to terminate their efforts to acquire
control of Magma due to the economic and financial uncertainties posed by the
Nevada Merger Moratorium Statute and the Poison Pill;
(d) Magma stockholders will be discouraged from tendering their shares to
plaintiffs because of the economic and financial uncertainty created by the
Nevada Merger Moratorium Statute and the Poison Pill;
(e) Plaintiffs will be deprived of the opportunity to acquire control of
Magma, a unique business;
(f) Plaintiffs will suffer a massive dilution of their equity and voting
interest in Magma, pursuant to a discriminatory and unlawful Poison Pill;
(g) Plaintiffs will be subjected to unnecessary and unreasonable delay in
obtaining the approval of the incumbent directors and management of any business
combination, which could prevent them from consummating an acquisition of Magma;
and
(h) Plaintiffs will be deprived of the ability to carry out their intention
to acquire Magma stock;
42
<PAGE>
131. Unless preliminary and permanent injunctive relief is granted, Magma
stockholders, including any residing in the State of Nevada, will be irreparably
harmed by losing their right to sell their shares to plaintiffs at a premium.
WHEREFORE, plaintiffs respectfully request that this Court enter an order:
(a) dismissing Magma's Complaint in its entirety;
(b) declaring that (i) the amendment to the Magma Bylaws enacted by the
Magma Board of Directors, which prevents the Magma stockholders from taking
certain actions by written consent is void and ultra vires, and (ii) that the
----- -----
Magma Board of Directors breached their fiduciary duties to Magma and its
stockholders by adopting the amendment;
(c) preliminarily and permanently enjoining the Magma Board of Directors
to rescind the Bylaws amendment, and preliminarily and permanently enjoining
Magma and its directors, and their officers, agents, servants, employees, and
attorneys, and those persons in active concert or participation with them,
from amending Magma's Bylaws in any further respects that are violative of
stockholders' rights;
(d) declaring that the discriminatory Poison Pill stockholder rights
agreement enacted by the Magma Board is void and ultra vires, and (ii) that the
----- -----
Magma Board of Directors breached its fiduciary duties to Magma and its
stockholders by enacting the Poison Pill;
(e) preliminarily and permanently enjoining the operation of the Poison
Pill and enjoining Magma and its directors and their agents, servants,
employees, and attorneys, and those
43
<PAGE>
persons in active concert or participation with them from taking any action in
furtherance of the Poison Pill or the Rights issued thereunder;
(f) declaring the Magma directors to be in breach of their fiduciary
duties if they fail to redeem the Rights issued pursuant to the Poison Pill, and
directing the Magma Board of Directors to redeem the Rights;
(g) enjoining Magma and its directors and their agents, servants,
employees, and attorneys, and those persons in active concert or participation
with them to rescind the illegal "golden parachute" and indemnity agreements.
(h) declaring pursuant to the federal Declaratory Judgments Act, 28 U.S.C.
(S)(S) 2201-2202, that Sections 78.411 through 78.444 of the Nevada General
Corporation Law, on their face and as applied, violate the Supremacy Clause,
Art. VI, cl.2, and the Commerce Clause, Art. I, (S) 8, cl.3 of the United States
Constitution;
(i) preliminarily and permanently enjoining (i) the operation of Sections
78.411 through 78.444 of the Nevada General Corporation Law; (ii) Magma,
defendant members of the Magma Board of Directors and their officers, agents,
servants, employees, and attorneys, and those persons in active concert or
participation with them, from taking any action invoking the terms of Sections
78.411 through 78.444 of the Nevada General Corporation Law; and (iii) the Magma
directors by requiring them not to obstruct the Tender Offer or proposed merger;
(j) preliminarily and permanently enjoining Magma to correct all false
statements, non-disclosures and omissions of
44
<PAGE>
material facts concerning the Tender Offer and proposed merger in Magma's
Schedule 14D-9, and the exhibits thereto, and preliminarily and permanently
enjoining Magma and its directors, and their officers, agents, servants,
employees, and attorneys, and those persons in active concert or participation
with them, from directly or indirectly further violating Section 14(e) of the
Exchange Act of 1934, or any of the rules or regulations promulgated thereunder;
(k) awarding plaintiffs their costs and disbursements in connection
with this action, including reasonable attorneys fees; and
(l) granting plaintiffs such other and further relief as this Court
may deem to be just and proper.
Dated: October 17, 1994
--
LIONEL SAWYER & COLLINS
By: /s/ Jeffrey D. Menicucci
________________________________
Richard W. Horton
Jeffrey D. Menicucci
50 W. Liberty Street, #1100
Reno, Nevada 89501
(702) 788-8666
Attorneys for Defendant and
Counterclaim Plaintiff
and Additional Plaintiff
on Counterclaims
Stephen W. Greiner
Jeanne M. Luboja
WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 821-8000
45
<PAGE>
Case No. OW94-06432
----------
Dept. No. 5
----
IN THE SECOND JUDICIAL DISTRICT COURT FOR THE STATE OF NEVADA
IN AND FOR THE COUNTY OF WASHOE
BEN HOLT, an individual
and shareholder of
Magma Power Company,
Plaintiff,
vs. COMPLAINT TO COMPEL
ACCESS TO SHAREHOLDER
LIST PURSUANT
TO NRS 78.105(3)
MAGMA POWER COMPANY, a
Nevada corporation,
Defendant.
- --------------------------------/
BEN HOLT, by and through his attorneys, Lionel Sawyer & Collins, complains
of defendant and alleges as follows:
1. BEN HOLT ("Holt") is an individual residing in Pasadena, California.
2. Holt is, and has been for a period of more than six months prior to
September 27, 1994, the holder of record of 3,000 outstanding shares of common
stock of defendant Magma Power Company. The stock is registered in the name of
"Ben Holt" and is represented by certificate numbers NLS22478, NLS17635,
NLS16143 and NLS22188.
<PAGE>
3. Magma Power Company ("Magma") is and was at all relevant times, a
corporation organized and existing under the laws of the State of Nevada.
4. On October 5, 1994, Holt, through his attorneys, Willkie Farr &
Gallagher, sent by facsimile a letter to Magma and its attorneys, demanding
access to certain information concerning shareholders of Magma, pursuant to NRS
78.105(3). On October 6, 1994, the original of the same letter was delivered
during usual business hours, to Magma at Magma's executive headquarters in San
Diego, California. The demand letter, which seeks not only a list of the
company's shareholders, but certain additional information necessary to
communicate with the Magma shareholders, is annexed hereto as Exhibit A.
5. Receipt of the letter by Magma was acknowledged by Jon R. Peele,
Magma's General Counsel who, retaining the letter, stated in words or in
substance that Magma did not intend to comply with the demand.
6. On October 7, 1994, Holt received a letter from Magma's attorneys
requesting that Holt submit an affidavit to Magma pursuant to NRS 78.105(4). On
October 7, 1994, Holt, through his attorneys, sent by facsimile an affidavit
complying with the requirements of NRS 78.105(4) to Magma's attorney Michael
Kennedy, of Shearman & Sterling. A copy of Holt's Affidavit is annexed hereto as
Exhibit B. The original of the affidavit was delivered to Mr. Kennedy by Federal
Express the next day.
2
<PAGE>
7. On October 12, 1994, counsel for Holt received a letter from Dean
Krystowski, also of Shearman & Sterling, a copy of which is annexed as Exhibit
C, stating that Magma would not provide the information requested in plaintiff's
demand.
8. Pursuant to NRS 78.105(3) plaintiff is entitled to inspect and copy, in
person or by agent or attorney, during usual business hours, the stock ledger or
duplicate stock ledger of Magma and to make copies thereof and extracts
therefrom. Plaintiff also is entitled to inspect and/or receive the additional
shareholder information contained in his demand, which is regularly used by
large corporations such as Magma to communicate with their shareholders, and is
believed to be easily accessible by Magma.
9. On October 6, 1994, California Energy Company, Inc. ("California
Energy") commenced a tender offer for a majority of the common stock of Magma.
Magma's Board of Directors has refused to properly consider the offer.
Notwithstanding the substantial value that the offer represents to Magma
shareholders, the Board has taken steps aimed at thwarting the offer and further
entrenching itself. These steps include the enactment of a purported Shareholder
Rights Plan, commonly called a "Poison Pill", certain amendments to the
company's Bylaws purportedly preventing the shareholders from taking certain
actions by written consent and the approval of "golden parachute" severance
arrangements with fifteen of the most highly compensated members of management.
3
<PAGE>
10. On October 11, 1994, the Magma Board issued a
Solicitation/Recommendation Statement on Schedule 14D-9 wherein it recommended
that the shareholders reject the California Energy tender offer. In view of the
hostile climate for the offer created by the Magma Board of Directors, it is
believed that the Magma Board has not seriously considered the offer, and has
taken and intends to take other steps to prevent consideration of the offer by
the Magma shareholders. It is thus imperative that the merits of the offer be
communicated to the Magma shareholders, and that the Magma shareholders be
permitted to express their support for the offer.
11. The purpose of plaintiff's request for shareholder information is for
the valid corporate purpose of permitting a request solicitation to go forward
which relates to, among other things, the election of directors who will be
committed to permitting the Magma shareholders to freely consider California
Energy's offer. The request solicitation will seek written requests from the
requisite number of shareholders to schedule a special meeting of the Magma
shareholders at which certain proposed actions will be taken in support of the
offer. It is intended that proxies will be solicited with respect to the meeting
seeking the shareholders' support for certain actions to be taken at the meeting
aimed at sending a clear signal that the shareholders support the offer.
12. By reason of Magma's unjustified refusal to allow plaintiff access to
Magma's shareholder information, plaintiff has been prevented from communicating
directly with other
4
<PAGE>
shareholders of Magma, and it has been necessary for plaintiff to retain
attorneys to prosecute this action.
13. The request solicitation is scheduled to begin as soon as
possible, and thus, it is essential that immediate relief be granted in the form
of an order compelling Magma to comply with its statutory obligation to provide
the shareholder information requested in plaintiff's demand letter.
14. Unless injunctive relief is granted on an expedited basis, plaintiff
and other Magma shareholders will be irreparably harmed in that they will lose
the opportunity to communicate with other shareholders concerning the offer and
to voice their support for the offer to Magma's management and the Magma
shareholders.
15. Plaintiff has no adequate remedy at law and thus requires an order of
this Court compelling Magma to provide plaintiff with access to the information
sought in the demand letter.
WHEREFORE, plaintiff prays for the following relief:
1. For an order enjoining and commanding Magma Power Company to provide
plaintiff or his agents or attorneys with the information contained in the
demand letter, a copy of which is annexed hereto as Exhibit A, concerning the
shareholders of Magma Power Company;
2. For costs of suit;
3. For a reasonable attorney's fees; and
5
<PAGE>
4. For such other and further relief as the Court deems just and proper in
the premises.
DATED this 14 day of October, 1994.
--
LIONEL SAWYER & COLLINS
By /s/ RICHARD W. HORTON
-----------------------
Richard W. Horton
50 W. Liberty Street, #1100
Reno, Nevada 89501
(702) 788-8666
Attorneys for Plaintiff
Of Counsel:
Stephen W. Greiner
Jeanne M. Luboja
Michael Bailey
WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
6
<PAGE>
[LOGO OF MAGMA POWER COMPANY APPEARS HERE]
Revised Description of Certain Graphical Elements
PAGE 9
Graphical depiction of targeted earnings growth from existing
operations only from the year 1994 through the year 2005.
Graphical element consists of a shaded area beneath a wavering
horizontal line (the "Base Line"). The shaded area is bounded at
the bottom by a flat horizontal line on which points are marked
at regular intervals for each year from 1994 through 2005. The
shaded area is bounded at its two sides by straight, unmarked
vertical lines. The Base Line has (i) a flat slope between the
years 1994 and 1998, (ii) a negative slope between the years
1998 and 2000 (such line almost reaching the horizontal axis in
the year 2000), and (iii) a slightly positive slope between the
years 2000 and 2005.
PAGE 10
Graphical depiction of the build-up of targeted earnings growth
from 1) existing operations only and 2) existing operations with
pH Mod plus new domestic projects. Graphical element consists of
the shaded area described under the heading "PAGE 9" above on
top of which is an additional area shaded in another color. The
additional shaded area is bounded on top by a wavering line (the
"Intermediate Line"), and on the bottom by the Base Line. The
additional shaded area is bounded on its two sides by straight,
unmarked vertical lines. The Intermediate Line has (i) a
slightly positive slope between the years 1994 and 1997, (ii) a
somewhat more positive slope between the years 1997 and 1998,
(iii) a negative slope between the years 1998 and 2000 (such
line reaching approximately the 1994 starting point in the year
2000), and (iv) a slightly positive (but discernibly greater
than that of the Base Line) slope between the years 2000 and
2005.
PAGE 11
Graphical depiction of the build-up of targeted earnings growth
from 1) existing operations only, 2) existing operations with pH
Mod plus new domestic projects and 3) international projects.
Graphical element consists of the two shaded areas described
under the headings "PAGE 9" and "PAGE 10" above, on top of which
is an additional area shaded in a third color. The additional
shaded area is bounded on top by a wavering line (the "Total
Line") and on the bottom by the Intermediate Line. The
additional shaded area is bounded on its two sides by straight,
unmarked vertical lines. The Total Line has (i) a slightly
positive (but discernibly greater than that of the Intermediate
Line) slope between the years 1994 and 1997, (ii) a
significantly positive slope between the years 1997 and 1999,
(iii) a slightly negative to flat slope between the years 1999
and 2001, and (iv) a significantly positive slope between the
years 2001 and 2005.
1
<PAGE>
[LETTERHEAD OF MAGMA POWER]
NEWS RELEASE
FOR IMMEDIATE RELEASE
CONTACT: Thomas Davies
Andrea Bergofin
Kekst & Company
(212) 593-2655
MAGMA POWER RESPONDS TO
NEW OFFER
San Diego, California, October 21, 1994...Magma Power Company (Nasdaq NNM:
MGMA) today announced that its board of directors will consider the revised
proposal by California Energy to purchase Magma. Magma Power urged all its
stockholders to take no action on the revised California Energy offer until its
board of directors has reviewed the offer and issued a recommendation to
stockholders.
###
<PAGE>
[LETTERHEAD OF MAGMA POWER]
NEWS RELEASE
FOR IMMEDIATE RELEASE
CONTACT: Thomas Davies
Andrea Bergofin
Kekst & Company
(212) 593-2655
MAGMA PARTNER TERMINATES JOINT VENTURE RELATIONSHIP
San Diego, California, October 21, 1994...Magma Power Company (Nasdaq NNM:
MGMA) announced today that its local Indonesian partner on the smaller of its
two proposed development stage projects in Indonesia, the Karaha project, has
terminated its joint venture with Magma. The partner stated that it terminated
the joint venture because of concerns about California Energy and its current
hostile takeover attempt of Magma. Magma, which had substantially negotiated
definitive documentation with respect to Karaha, had hoped to execute such
documentation in the near future.
The Karaha project was a proposed 150 MW development stage project not intended
to come on line until 1999.
###
