<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(Amendment No. 4)
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:
<TABLE>
<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. 4 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 $38.50 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 ORDER
- ----------
On October 25, 1994, the court entered an Order Granting Motion for Access
to Shareholder Information (the "Holt Order"). A copy of the Holt Order is filed
as Exhibit 21 hereto and is incorporated herein by reference.
ANSWER TO AMENDED COMPLAINT AND AMENDED COUNTERCLAIMS
- -----------------------------------------------------
On October 19, 1994, California Energy and CE Acquisition Company filed an
Answer to the Amended Complaint and Amended Counterclaims against Magma and its
board of its directors in the United States District Court for the District of
Nevada, in which they denied the material allegations of the Amended Complaint,
and denied that Magma is entitled to declaratory or injunctive relief. In the
Amended 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)
violation of the federal securities laws allegedly resulting from statements
made by Magma on its Schedule 14D-9 and amendments filed thereto regarding the
tender offer and proxy solicitation.
A copy of the Answer to the Amended Complaint and Amended Counterclaims is
filed as Exhibit 22 hereto and is incorporated herein by reference. The
foregoing description of the Answer to the Amended Complaint and Amended
Counterclaims is qualified in its entirety by reference to the Answer to the
Amended Complaint and Amended Counterclaims.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby amended and supplemented by adding thereto the following:
Exhibit 21 -- Holt Order
Exhibit 22 -- Answer to Amended Complaint and Amended Counterclaims
2
<PAGE>
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 26, 1994
3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
-------- ---
<C> <S> <C>
Exhibit 21 --Holt Order
Exhibit 22 --Answer to Amended Complaint and Amended Counterclaims
</TABLE>
<PAGE>
Case No. CV94-06432
Dept. No. 5
IN THE SECOND JUDICIAL DISTRICT COURT FOR THE STATE OF NEVADA
IN AND FOR THE COUNTY OF WASHOE
REW HOLT, an individual
and shareholder of
Magma Power Company,
Plaintiff,
vs. ORDER GRANTING MOTION FOR ACCESS
TO SHAREHOLDER INFORMATION
MAGMA POWER COMPANY, a
Nevada corporation
Defendant.
- -------------------------------
Plaintiff having filed its Complaint to Compel Access to Shareholder List
Pursuant to NRS 78.105(3), and Plaintiff having filed its Motion to Compel
Defendant to Provide Access to Shareholder Information, and supporting
affidavits and memoranda, and the Court having entered an Order on October 14,
1994, providing that briefing on the Motion to Compel proceed on an expedited
schedule, and Defendant having filed its Memorandum of Opposition to the Motion
to Compel, and Plaintiff having filed its Reply to the Memorandum in Opposition,
in accordance with the schedule ordered by the Court, and the Motion to Compel
having been submitted to the Court for decision pursuant to the Court's October
14, 1994 Order, and good cause appearing therefor,
<PAGE>
IT IS ORDERED:
1. That Plaintiff's Motion To Compel Defendant To Provide Access To
Shareholder Information is granted, the Court sending as reasons for such:
(a) Plaintiff is a shareholder of Defendant and has been for more than
six months prior to September 27, 1994;
(b) On October 5, 1994, Plaintiff made a written request of Defendant
pursuant to NRS 78.105(3) for access to the shareholder information
hereinafter ordered to be provided;
(c) On October 7, 1994, Defendant requested that Plaintiff provide an
affidavit authorized by NRS 78.105(4) and Plaintiff immediately provided an
affidavit complying with the requirements of NRS 78.105(4);
(d) On October 12, 1994, Defendant refused Plaintiff's entire request
for shareholder information;
(e) California Energy Company, Inc. ("California Energy") has commenced
a tender offer for a majority of the common stock of Defendant, to be
followed by a proposed merger;
(f) Plaintiff believes that acceptance of the tender offer is in the
best interests of the Defendant, and of himself, as a shareholder of the
Defendant;
(g) Plaintiff wishes to provide the shareholder information to
california Energy Company, Inc. so that California Energy Company, Inc. may
solicit Defendant's shareholders for their votes in various ways in support
of the tender offer and may otherwise communicate with Defendant's
shareholders in respect to the tender offer of California Energy Company,
Inc.;
2
<PAGE>
(h) It would be in the proper business interest of the Plaintiff to
communicate, and the shareholders of Defendant to receive, information from
California Energy Company, Inc. respecting the tender offer and
solicitations in support thereof, and to otherwise consider and act upon
the tender offer and such solicitations;
(i) The purpose for which Plaintiff seeks the shareholder information
is a proper purpose;
(j) Plaintiff is entitled to the shareholder information and their is
no reason to delay providing such information, the tender offer and the
practices of the market requiring prompt action in respect to the tender
offer;
(k) Plaintiff does not have an adequate remedy at law;
(l) The public interest will be served in requiring the furnishing of
the shareholder information to Defendant's shareholders.
2. Defendant shall forthwith and without delay:
i. Advise counsel for Plaintiff where the following described
shareholder information is available; and
ii. Permit Plaintiff and the agents and attorneys of Plaintiff to
inspect and to copy:
(a) a complete record or list of the Company's shareholders, certified
by its transfer agent, showing the names and addresses of each shareholder
and the member and class of shares of stock registered in the name of each
such shareholder, as of the most recent data available;
3
<PAGE>
(b) a complete list of the participants in any employee benefit plan
of the Company that owns the Company's shares, including the name and
address of each participant and the number and class of shares owned by the
participant, and a description of the voting and dispositive rights of the
participants and/or any administrator or trustee of each such employee
benefit plan;
(c) a magnetic computer tape list of the Company's shareholders
showing the names and addresses of each shareholder and number and class of
shares registered in the name of each such shareholder as of the most
recent data available, such computer processing data as is necessary for
the undersigned to make use of such magnetic computer tape, and a printout
of such magnetic computer tape for verification purposes;
(d) a magnetic computer tape list of the participants in any employee
benefit plan of the Company that owns the Company's shares, including the
name and address of each participant and the number and class of shares
owned by the participant as of the most recent date available, such
computer processing data as is necessary for the undersigned to make use of
such magnetic computer tape, and a printout of such magnetic computer tape
for verification purposes;
(e) all daily transfer sheets showing changes in the list of the
Company's shareholders referred to in paragraph (a) above, which are in or
come into possession of the Company or its transfer agent from the data of
such list to such date as California Energy communicate or withdraws its
proposal to purchase
4
<PAGE>
Defendant (the "Proposal Expiry Data"), which daily transfer sheets should
be provided on a weekly basis;
(f) all information in or which comes into the Company's possession or
which can reasonably be obtained from brokers, dealers, banks, clearing
agencies or voting trustees or their nominees concerning the names,
addresses and number of shares held by the participating brokers and banks
named in the individual nominee of Cede & Co., Kray & Co., Philadep, DLJ
and any other or similar nominees;
(g) all information in or which comes into the Company's possession or
which can reasonably be obtained from brokers, dealers, banks, clearing
agencies or voting trustees relating to the names of the non-objecting
beneficial owners of the Company's stock ("NOBOS") in the format of a
printout in descending order balance;
(h) a stop list or stop lists relating to any shares of stock of the
Company as of the date of the list referred to in paragraph (a) above; and
(i) all information requested in paragraphs (a), (b), (c), (d), (f)
and (g) as of the Record Data (as the same may be determined) of that
certain request solicitation of the Company's shareholders, preliminary
materials as to which California Energy has filed with the Securities and
Exchange Commission;
(j) all modifications or additions to or deletions from any and all
records referred to in paragraphs (a) through (i) above from the data of
the list referred to in paragraph (a) above to the Proposal Expiry Data (as
defined herein) as such
5
<PAGE>
modifications, additions or deletions become available to the Company or
its agents or representatives.
3. Plaintiff shall, after the foregoing shareholder information has been
fully supplied, pay Defendant the reasonable costs incurred by Defendant in
furnishing such shareholder information. Any dispute in this respect shall be
resolved by the Court upon motion of either party made after the shareholder
information has been fully supplied.
4. This is a final order and judgment, granting final relief on the basis
of plaintiff's right to the relief set forth herein, pursuant to NRS 78.105.
Dated this 25th day of October, 1994
Mark Handelman
-------------------------------
District Judge
6
<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, and CE ) ANSWER TO AMENDED
ACQUISITION COMPANY, INC., a ) COMPLAINT AND AMENDED
Delaware corporation, ) COUNTERCLAIMS
Defendants. ) ------------------------
/
- ------------------------------------------------------)
)
CALIFORNIA ENERGY COMPANY, INC., )
)
Counterclaim-Plaintiff, )
)
-and- )
)
CE ACQUISITION COMPANY, INC., )
)
Additional Plaintiff )
on Counterclaims, )
)
-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") and Defendant and Additional Plaintiff on Counterclaims CE Acquisition
Company, Inc. ("CEAC"), by their attorneys Lionel Sawyer & Collins and Willkie
Farr & Gallagher, for their Answer to the Amended Complaint for Declaratory and
Injunctive Relief (the "Complaint") allege as follows:
1. Deny the allegations contained in paragraph 1 of the Complaint to the
extent they purport to relate to CECI or CEAC, and deny knowledge or information
sufficient to form a belief as to the truth of the allegations contained in
paragraph 1 to the extent the they purport to relate to others, except admit
that on October 6, 1994, CECI and CEAC commenced a tender offer (the "Tender
Offer"), and that CECI and CEAC have announced and made certain filings with the
Securities and Exchange Commission concerning their intention to commence a
request solicitation and a proxy solicitation, and respectfully refer the Court
thereto for the contents thereof, and except to the extent paragraph 1 states
conclusions of law to which no response is required.
2. Deny the allegations contained in paragraph 2 of the Complaint, except
to the extent paragraph 2 states conclusions of law to which no response is
required.
2
<PAGE>
3. Deny 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. Deny knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 4 of the Complaint, except to
the extent paragraph 4 states conclusions of law to which no response is
required.
5. Deny the allegations contained in paragraph 5 of the Complaint to the
extent they purport to relate to CECI or CEAC, except admit that the Tender
Offer is subject to certain conditions as set forth in the Schedule 14D-1 Tender
Offer Statement pursuant to Section 14(d)(1) of the Securities Exchange Act of
1934 (the "Schedule 14D-1") relating to the Tender Offer, and otherwise deny
knowledge or information sufficient to form a belief as to the truth of the
allegations contained in paragraph 5 of the Complaint, and except to the extent
paragraph 5 of the Complaint, and except to the extent paragraph 5 states
conclusions of law to which no response is required.
6. Deny knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 6 of the Complaint, except to
the extent paragraph 6 states conclusions of law to which no response is
required.
7. Deny knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 7 of the Complaint, except to
the extent paragraph 7 states conclusions of law to which no response is
required, and except admit the removal of this action to this Court.
8. Deny knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph
3
<PAGE>
8 of the Complaint, except admit 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
denies that in the recent past Magma's common stock has traded at $41.50 per
share, and except to the extent paragraph 8 states conclusions of law to which
no response is required.
9. Admit the allegations contained in paragraph 9 of the Complaint.
10. Deny the allegations contained in paragraph 10 of the Complaint,
except admit that in connection with the Tender Offer, CECI and CEAC have filed
a Schedule 14D-1 which contains various information concerning Peter Kiewit
Sons', Inc., and respectfully refer the Court to the Schedule 14D-1 and the
Offer to Purchase for the contents thereof, and admit that David L. Sokol,
Chairman of CECI was, from November 1990 to February 1991, the President and
Chief Executive Officer of Kiewit Energy Company, and that Thomas R. Mason,
Senior Vice President, Engineering, Construction and Operations of CECI was,
from October 1989 to March 1991, Vice President and General Manager of Kiewit
Energy Company.
11. Deny the allegations contained in paragraph 11 of the Complaint,
except admit the existence of the Schedule 14D-1 referenced in paragraph 11, and
respectfully refer the Court to the Schedule 14D-1 for the contents thereof,
and except to the extent paragraph 11 states conclusions of law to which no
response is required.
4
<PAGE>
12. Deny the allegations contained in paragraph 12 of the Complaint,
except admit 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 respectfully refer
the Court to the letter setting forth the proposal for the contents thereof.
13. Deny the allegations contained in paragraph 13 of the Complaint to the
extent they purport to relate to CECI or CEAC, and deny knowledge or information
sufficient to form a belief as to the truth of the allegations contained in
paragraph 13 of the Complaint to the extent they purport to relate to others,
except admit the existence of letters and press releases concerning CECI and
CEAC's intentions, and respectfully refer the Court to the letters and press
releases for the contents thereof.
14. Deny the allegations contained in paragraph 14 of the Complaint to the
extent they purport to relate to CECI, and deny knowledge or information
sufficient to form a belief as to the truth of the allegations contained in
paragraph 14 to the extent they purport to relate to others, except to the
extent paragraph 14 states conclusions of law to which no response is required.
15. Deny the allegations contained in paragraph 15 of the Complaint to
the extent they purport to relate to CECI or CEAC, and deny knowledge or
information sufficient to form a belief as to the truth of the allegations
contained in paragraph 15 to the extent they purport to relate to others, except
admit upon information and belief that on October 3, 1994, the Magma Board of
5
<PAGE>
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 refer 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.
16. Deny the allegations contained in paragraph 16 of the Complaint,
except admit that Magma has adopted a purported Stockholder Rights Plan or
Poison Pill, and respectfully refer the Court to the Poison Pill for the
contents thereof, and except to the extent paragraph 9 states conclusions of law
to which no response is required.
17. Deny the allegations contained in paragraph 17 of the Complaint,
except admit that Magma purportedly has amended its Bylaws as they relate to
stockholder action by written consent, in an attempt to prevent a majority of
the stockholders of Magma from exercising their views by written consent and
respectfully refer the Court to the purported Bylaws amendment for the contents
thereof.
18. Deny the allegations contained in paragraph 18 of the Complaint to
the extent they purport to relate to CECI or CEAC, and deny knowledge or
information sufficient to form a belief as to the truth of the allegations
contained in paragraph 18 to the extent they purport to relate to others, except
admit that on October 6, 1994, CECI and CEAC commenced the Tender Offer and
respectfully refer the Court to the Schedule 14D-1 and the Offer to Purchase
contained therein for the terms of the Tender Offer.
6
<PAGE>
19. Deny the allegations contained in paragraph 19 of the Complaint except
admit that on October 6, 1994, CECI and CEAC commenced the Tender Offer and
respectfully refer the Court to the Schedule 14D-1 and the Offer to Purchase
contained therein for the terms of the Tender Offer.
20. Deny the allegations contained in paragraph 20 of the Complaint,
except admit that on October 6, 1994, CECI and CEAC commenced the Tender Offer,
and respectfully refer the Court to the Schedule 14D-1, and the Offer to
Purchase contained therein, for the terms of the Tender Offer.
21. Deny knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 21 of the Complaint, except deny
the allegation that "California Energy's tender offer also does not begin to
reflect Magma's intrinsic value and long-term strategic promise."
22. Deny knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 22 of the Complaint, except
admit that the Magma Board of Directors has recommended that Magma's
shareholders reject the Tender Offer, and deny the allegations contained in
paragraph 22 to the extent they purport to relate to CECI or CEAC, and further
deny that the Magma Board properly considered the Tender Offer, and respectfully
refer the Court to the allegations made by CECI and CEAC in their Counterclaims
herein which set forth in greater detail the defective and improper actions
taken by Magma and its Board of Directors, and except to the extent paragraph 22
states conclusions of law to which no response is required.
7
<PAGE>
23. Deny knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraph 23 of the Complaint, except deny
the allegations contained in paragraph 23 to the extent they purport to relate
to CECI or CEAC, and further deny that the Magma Board properly considered the
Tender Offer, and respectfully refer the Court to the allegations made by CECI
and CEAC in their Counterclaims herein which set forth in greater detail the
defective and improper actions taken by Magma and its Board of Directors, and
except to the extent paragraph 23 states conclusions of law to which no response
is required.
24. Deny the allegations contained in paragraph 24 of the Complaint,
except admit that on October 13, 1994, CECI filed a preliminary Request
Solicitation Statement to Stockholders of Magma Power Company with the
Securities and Exchange Commission (the "Request Solicitation Statement")
pursuant to Section 14(a) of the Securities Exchange Act of 1934, and
respectfully refer the Court to the Request Solicitation Statement for the
contents thereof, and except to the extent paragraph 24 states conclusions of
law to which no response is required.
25. Deny the allegations contained in paragraph 25 of the Complaint,
except to the extent paragraph 25 states conclusions of law to which no response
is required.
26. Deny the allegations contained in paragraph 26 of the Complaint,
except to the extent paragraph 26 states conclusions of law to which no response
is required.
27. Deny the allegations contained in paragraph 27 of the Complaint,
except admit the existence of the Schedule 14D-1 and the Request Solicitation
Statement referenced in paragraph 27,
8
<PAGE>
and respectfully refer the Court to those documents for the contents thereof.
28. Deny the allegations contained in paragraph 28 of the Complaint,
except to the extent paragraph 28 states conclusions of law to which no response
is required.
29. Deny the allegations contained in paragraph 29 of the Complaint,
except admit the existence of the Schedule 14D-1 and the exhibits thereto, and
respectfully refer the Court to those documents for the contents thereof, and
except to the extent paragraph 29 states conclusions of law to which no response
is required.
30. Deny the allegations contained in paragraph 30 of the Complaint,
except admit the existence of the preliminary Request Solicitation Statement
referenced therein and respectfully refer the Court to the Statement for the
contents thereof, and except to the extent paragraph 30 states conclusions of
law to which no response is required.
31. Repeat and reallege each and every response to the allegations
contained in paragraphs 1 through 30 of the Complaint as if fully set forth at
length.
32. Deny the allegations contained in paragraph 32 of the Complaint,
except admit the existence of sections 78.411 through 78.444 of the Nevada
General Corporations Law (the "Nevada Merger Moratorium Statute") referenced in
paragraph 32, and admit that the CEAC Tender Offer is subject to certain
conditions relating to the Nevada Merger Moratorium Statute, and respectfully
refer the Court to the Schedule 14D-1 and the Offer to Purchase contained
therein for the complete terms of the Tender Offer, and
9
<PAGE>
further admit that certain allegations concerning the Nevada Merger Moratorium
Statute are made in the Counterclaims herein, and respectfully refer the Court
to the Counterclaims for the contents thereof, and except to the extent
paragraph 32 states conclusions of law, to which no response is required.
33. Paragraph 33 makes no allegations against CECI or CEAC and states
conclusions of law, and thus no response thereto is required.
34. Repeat and reallege each and every response to the allegations
contained in paragraphs 1 through 33 of the Complaint as if fully set forth at
length.
35. Deny the allegations contained in paragraph 35 of the Complaint,
except admit the existence of the Nevada Merger Moratorium Statute referenced in
paragraph 35, and also admit that the Tender Offer is subject to certain
conditions relating to the Nevada Merger Moratorium Statute, and respectfully
refer the Court to the Schedule 14D-1 and the Offer to Purchase contained
therein for the complete terms of the Tender Offer, and further admit that
certain allegations concerning the Nevada Merger Moratorium Statute are made in
the Counterclaims herein, and respectfully refer the Court to the Counterclaims
for the contents thereof, and except to the extent paragraph 35 states
conclusions of law, to which no response is required.
36. Paragraph 36 makes no allegations against CECI or CEAC and states
conclusions of law, and thus no response thereto is required.
10
<PAGE>
37. Repeat and reallege each and every response to the allegations
contained in paragraphs 1 through 37 as if fully set forth at length.
38. Deny the allegations contained in paragraph 38 of the Complaint,
except admit the existence of the purported Stockholder Rights Plan, ByLaws
amendment, and the Schedule 14D-1 referenced therein, and respectfully refer the
Court to the purported Stockholder Rights Plan, the ByLaws amendment and
Schedule 14D-1 for the contents thereof, and admit that certain allegations are
made by CECI and CEAC in their Counterclaims concerning the Stockholder Rights
Plan and the ByLaws amendment and respectfully refer the Court to the
Counterclaims herein for the contents thereof.
39. Paragraph 39 makes no allegations against CECI or CEAC and states
conclusions of law and thus no response thereto is required.
40. Repeat and reallege each and every response to the allegations
contained in paragraphs 1 through 39 of the Complaint as if fully set forth at
length.
41. Deny the allegations contained in paragraph 41 of the Complaint.
42. Deny the allegations contained in paragraph 42 of the Complaint.
43. Repeat and reallege each and every response to the allegations
contained in paragraphs 1 through 42 of the Complaint as if fully set forth at
length.
44. Deny the allegations contained in paragraph 44 of the Complaint.
11
<PAGE>
45. Deny the allegations contained in paragraph 45 of the Complaint.
46. Repeat and reallege each and every allegation contained in
paragraphs 1 through 45 of the Complaint as if fully set forth at length.
47. Deny the allegations contained in paragraph 47 of the Complaint.
48. Deny the allegations contained in paragraph 48 of the Complaint.
49. Deny that plaintiff is entitled to the relief requested in the
Complaint.
AFFIRMATIVE DEFENSES
----------- --------
50. The Complaint fails to state a cause of action upon which relief
can be granted.
51. The plaintiff lacks standing to make some or all of the claims set
forth in the Complaint.
52. The claims made in the Complaint are barred in whole or in part by
the doctrine of laches.
53. The claims made in the Complaint are barred in whole or in part by
the doctrine of waiver.
54. The claims made in the Complaint are barred in whole or in part by
the doctrine of estoppel.
55. The claims made in the Complaint are barred in whole or in part by
applicable statutes of limitations.
56. The claims made in the Complaint are barred in whole or in part by
the doctrine of unclean hands or in pari delicto.
-- ---- -------
12
<PAGE>
57. The claims made in the Complaint should be dismissed in whole or in
part because plaintiff has neither sustained nor asserted in the complaint a
legally cognizable injury.
58. The claims made in the Complaint should be dismissed in whole or in
part because they are not ripe for review.
59. The claims made in the Complaint should be dismissed in whole or in
part because the plaintiff has failed to plead such claims for relief with
sufficient particularity and/or specificity.
60. The claims made in the Complaint should be dismissed in whole or in
part because the defendants have acted in conformance with the procedures,
rules, regulations and provisions of the federal securities laws governing
tender offers and proxy solicitations.
61. The claims of injunctive relief in the Complaint should be dismissed
for lack of irreparable injury.
62. The allegations made in the Complaint are not well-grounded in fact,
not warranted by existing law, and are interposed purely for harassment purposes
in order to seek to cause unnecessary delay in the consummation of CECI and
CEAC's Tender Offer, and for the purpose of entrenching current management.
WHEREFORE, defendants request that judgment be entered dismissing the
Complaint, granting judgment on all counterclaims as hereinafter described, and
awarding defendants their costs and
13
<PAGE>
disbursements, including attorneys fees, together with such other and further
relief as this Court may deem to be just and proper.
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 Amended Counterclaims against the
Counterclaim-Defendant and Additional Defendants on Counterclaims (hereinafter
collectively "defendants") allege, as follows:
NATURE OF THE ACTION
--------------------
63. 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, 1994, 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"
14
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severance agreements with 15 of Magma's top executives, 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.
64. 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.
65. 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.
66. 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
15
<PAGE>
relief sought herein seeks to accord Magma's shareholders that opportunity.
THE PARTIES
-----------
67. 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.
68. Plaintiff CEAC is a Delaware Corporation and a wholly owned subsidiary
of CECI. CEAC was formed for the purpose of acquiring Magma stock.
69. 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.
70. Defendant Ralph W. Boeker is a Director and the President and Chief
Executive Officer of Magma. Defendant Boeker
16
<PAGE>
retired from Dow as of March 1, 1993 where he had been employed since 1959, most
recently as Group Vice President for Chemicals, Performance Products and
Hydrocarbons and as a member of the operating Board of Dow Chemical U.S.A. and
the Dow Management Committee. Defendant Boeker is a resident of the State of
California.
71. 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.
72. Defendant Thomas C. Hinrichs is a Director and a Vice President of
Magma. Defendant Hinrichs is a resident of the State of California.
73. 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.
74. Defendant James D. Shepard is a Director of Magma. He war formerly
employed as an officer of Magma and is currently a trustee of the S.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.
75. Defendant William R. Knee is a Director of Magma. Defendant Knee has
been employed by Dow since 1968 and is
17
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currently its Director of Technology Centers. Defendant Knee is a resident of
the State of Michigan.
76. Defendant Bent Petersen is a Director of Magma. Defendant Petersen is
a resident of the State of Oregon.
77. 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.
78. Defendant Lester L. Coleman is a Director of Magma. Defendant Coleman
is a resident of the State of Texas.
79. 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.
80. 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
----------------------------
81. 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
18
<PAGE>
employees (as well as defendants Boeker, Pankratz (both ex-Dow employees) and
Hinrichs and Shepard), as "inside" directors for purposes of 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).
82. 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.
83. 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
19
<PAGE>
stock, rather than in cash. For example, Dow and Magma entered into an
Engineering Services For Stock Agreement, dated as of March 27, 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 Down and Magma.
84. 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%.
85. 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 of 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
20
<PAGE>
30, 1994. However, on September 12, 1994, in a transaction not publicly
disclosed until September 23, 1994, Dow sold 857,143 shares of 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.
86. Of the 5,032,430 shares of Magma common stock owned by Dow as of
September 30, 1994, approximately 4 million
21
<PAGE>
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. 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.
87. 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.
22
<PAGE>
88. 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 also a situation in which the 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
----------------------
89. 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.
90. 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
23
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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.
91. 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
- ---------------------------------
92. 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,
24
<PAGE>
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 Pankratz and Boeker that CECI was considering a number of strategic
alternatives, including a 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.
93. 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 for $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 . . . .
* * *
25
<PAGE>
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.
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 a
consent solicitation to call a special meeting of shareholders for
purposes of acting on this proposal and electing directors.
94. 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
26
<PAGE>
shareholders from having any opportunity to freely consider the merits of
CECI's proposal.
95. 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 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
- -----------------------------------------------
96. 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
27
<PAGE>
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.
97. 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 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.
28
<PAGE>
98. 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 a majority of the owners of Magma from
making their own economic decision.
99. 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.
100. 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
29
<PAGE>
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.
101. Not only does Magma's Poison Pill discriminate against CECI or any
other potential acquiror not favored by Magma's 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.
102. 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
30
<PAGE>
face of CECI's proposal to negotiate a fair and equitable transaction and
constitutes a breach of the Magma directors' fiduciary duties.
103. 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 "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.
104. 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.
105. 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
31
<PAGE>
Statute"). Noting that Magma had not opted out from the coverage of the 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 . . . . "
CECI'S TENDER OFFER FOR MAGMA'S COMMON STOCK
--------------------------------------------
106. 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.
107. 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 Statute 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
32
<PAGE>
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.
108. 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.
109. 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
-------------------
110. 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.
111. In adopting the Williams Act, Congress recognized that tender offers
perform beneficial economic functions by, among other things, providing
investors with an opportunity to
33
<PAGE>
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 offeree corporation, free of undue influence from
either the offeror or offeree's management.
112. 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 encourage 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
-----------------------------------------
113. 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.
114. 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
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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).
115. 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) 78.428).
116. 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
35
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tender offer before the take-down date by Magma's Board of Directors would
render the statute inapplicable.
117. 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 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.
118. 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
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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.
119. 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 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.
120. 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
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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.
121. The Nevada Merger Moratorium Statute does not protect stockholders of
Nevada corporations from coercive takeover proposals. Rather, it insulates
incumbent management of Nevada 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
-- --- ------ -----
122. 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
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at which Magma's stock was trading prior to the announcement of CECI's September
19th proposal, and when, in fact, such statement contradicts public statements
made by the president of Magma in August 1994 that Magma's value was fairly
reflected in its stock price;
(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 the interests of Dow at the expense of Magma's other shareholders;
(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;
(d) fails to adequately disclose the differences between Dow's economic
interest and those of other Magma stockholders considering the Tender Offer and
proposed merger. In addition, the Magma Schedule 14D-9 contained numerous false
and misleading characterizations of CECI and other aspects of its proposal to
acquire Magma;
(e) in the October 10, 1994 press release that is an exhibit to the 14D-9,
falsely promises a "bright and profitable future" for Magma and otherwise
wrongfully projects future profitability in violation of federal securities laws
disclosure requirements.
123. On October 13, 1994 Magma filed Amendment No. 1 to its Schedule 14D-9
("Amendment No. 1") containing a slide show
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presentation given as part of a series of meetings orchestrated by Magma to
oppose the Tender Offer and proposed merger. The slide show presentation is
replete with false and misleading statements of material facts and omits to
state material facts necessary to make other statements contained therein not
misleading, including Magma's purported projections and predictions as to
international expansion, targets for profitable growth, reduced operating costs
and the status and likelihood of completion of various purported international
projects and Magma's comparisons of its own business and prospects of those of
CECI.
124. On October 17, 1994, Magma filed Amendment No. 2 to its Schedule
14D-9 ("Amendment No. 2") which contains numerous further false and misleading
statements of material facts and omits to state material facts necessary to make
other statements contained therein not misleading with respect to the Tender
Offer, the Offer to Purchase and the preliminary Request Solicitation Statement.
For example, Amendment No. 2:
(a) falsely asserts that CECI is not honoring its disclosure obligations;
(b) falsely asserts that Magma has brought its instant Complaint to
protect its stockholders, rather than to attempt to deprive those stockholders
of a fair opportunity to consider the Tender Offer; and
(c) falsely asserts that CECI is seeking to call a special stockholders
meeting to ask stockholders to consider and vote upon proposals to increase the
size of Magma's Board by four seats and to elect CECI's nominees to fill those
seats and to
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amend Magma's ByLaws in certain respects in order to gain some kind of
competitive advantage over Magma, rather than to facilitate CECI and CEAC's
ability to consummate the Tender Offer and the proposed merger as CECI has
disclosed;
(d) falsely asserts, in the advertisement which is included as an exhibit
to Amendment No. 2 and which was published as a full page advertisement in the
Wall Street Journal on October 17, 1994, that (i) (as it falsely has repeatedly
- -------------------
stated) CECI's $35 per share offering price "does not remotely reflect" Magma's
value, (ii) that "Magma is a leader in the fast-growing international geothermal
industry" when, in fact, its statements as to existing and expected prospects
are grossly overstated, and (iii) it will be able to dramatically cut costs for
all its new, larger-scale plants when, in fact, it has admitted in other
statements that its cost-cutting technologies may not be effective with respect
to international projects; and
(e) makes other false and misleading statements disparaging CECI and
purportedly comparing CECI to Magma.
125. In addition, Magma has made numerous other false and misleading
public statements in opposition to the Tender Offer and proposed merger. For
example, in an interview given to the Dow Jones Investor Network on October 18,
1994, Magma's president, among other things:
(a) falsely asserted that he had been "misquoted" in August 1994 when he
said Magma's value was at that time fairly reflected in its stock price;
(b) falsely asserted that Magma's equity commitments for international
projects totalled some $1 billion when such
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project have not been contracted for and falsely implied by stating that equity
commitment level that Magma has a $4 billion backlog of current international
projects when, in fact, Magma has never closed an international project
-----
financing;
(c) made false and unsustainable projections regarding Magma's future
profitability;
(d) falsely asserted (again) that the timing of Magma's "golden parachute"
severance agreements was just a coincidence; and
(e) falsely implied that Magma has a highly successful business plan to
support its representations to its stockholders that they will remain better off
as stockholders in an independent Magma, when the substance and details of any
such plan have never been disclosed in filings under the federal securities laws
or otherwise.
126. The sole purpose of Magma's allegations is to mislead its
shareholders into thinking incorrectly that the Schedule 14D-1 and Offer to
Purchase and the preliminary Request Solicitation Statement should not be relied
upon, thus masking the entrenchment activities of management.
127. 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
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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.
128. Absent judicial intervention, defendants will continue to entrench
themselves in office, continue to protect the 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)
129. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs 1 through 128 hereof as if fully set forth at length.
130. 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
43
<PAGE>
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.
131. 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.
132. 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 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.
133. Accordingly, the Bylaws amendment is invalid, and was enacted in
breach of the Magma directors' fiduciary duties.
134. Plaintiffs have no adequate remedy at law.
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COUNT II
--------
(Breach Of Fiduciary Duty - Adoption Of
Unlawful Poison Pill)
135. Plaintiffs repeat and reallege each and every allegation contained
in paragraphs 1 through 134 hereof as if fully set forth at length.
136. 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.
137. 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.
138. Accordingly, the Poison Pill is invalid, and was enacted in breach
of the fiduciary duties of the Magma directors.
139. Plaintiffs have no adequate remedy at law.
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COUNT III
---------
(Breach Of Fiduciary Duty - Failure To Redeem Rights)
140. Plaintiffs repeat and reallege each and every allegation contained
in paragraphs 1 through 139 herein as if fully set forth herein at length.
141. 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.
142. 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 Pill. Accordingly, unless the rights are redeemed,
Magma's stockholders will not be able to receive the benefit of the Tender
Offer.
143. Accordingly, Plaintiffs 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.
144. Plaintiffs have no adequate remedy at law.
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COUNT IV
----- --
(Breach of Fiduciary Duty -- Unlawful
"Golden Parachute" And Indemnity Agreements)
145. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs 1 through 144 hereof as if fully set forth at length.
146. 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.
147. 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.
148. Plaintiffs intend to request that the Magma Board revoke these
agreements, but it is anticipated that it will not do so.
149. 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.
150. Plaintiffs have no adequate remedy at law.
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COUNT V
-------
(Unconstitutionality Of The Merger Moratorium Statute
Under Supremacy Clause)
151. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 150 hereof as if fully set forth herein.
152. 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).
153. 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.
154. The Nevada Merger Moratorium Statute is unconstitutional because it
substantially frustrates the basic 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.
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155. Accordingly, the Nevada Merger Moratorium Statute violates the
Supremacy Clause and is unconstitutional.
156. Plaintiffs have no adequate remedy at law.
COUNT VI
--------
(Unconstitutionally of Merger Moratorium Statute
under Commerce Clause)
157. Plaintiffs repeat and reallege each and every allegation contained
in paragraphs 1 through 156 hereof as if fully set forth at length.
158. This claim for relief arises under the Commerce Clause of the United
States Constitution, U.S. Const., Art. I (S) 8, cl. 3.
159. 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.
160. 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 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;
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(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 statue impedes the free flow of corporate assets in interstate
commerce.
161. 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.
162. 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 statute's true purpose is the protection of incumbent management, not
shareholders.
163. Accordingly, the Nevada Merger Moratorium Statute violates the
Commerce Clause and is unconstitutional.
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<PAGE>
164. Plaintiffs have no adequate remedy at law.
COUNT VII
---------
(Breach of Fiduciary Duty - Utilization Of
Merger Moratorium Statute)
165. Plaintiffs repeat and reallege each and every allegation contained
in paragraphs 1 through 164 hereof as if fully set forth at length.
166. 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.
167. 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.
168. 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 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
51
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Dow board members' conflict renders all such actions invalid under Nevada law.
169. 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.
170. Plaintiffs have no adequate remedy at law.
COUNT VIII
----- ----
(Violations Of Section 14(e) Of The Exchange Act)
171. Plaintiffs repeat and reallege each and every allegation continued in
paragraphs 1 through 170 hereof as if fully set forth herein.
172. 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(e), and
the rules and regulations promulgated thereunder.
173. Plaintiffs have no adequate remedy at law.
IRREPARABLE INJURY
----------- ------
174. 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 proposed second step merger
considered by Magma's stockholders, and Magma's stockholders will be irreparably
harmed because they will be denied the opportunity to consider and, if they so
choose, to accept Plaintiffs' Tender Offer and the proposed merger.
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<PAGE>
175. 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.
176. Unless preliminary and permanent injunctive relief is granted, Magma
stockholders, including any residing in the
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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 (i) 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) preliminary and permanently enjoining the operation of the Poison Pill
and enjoining Magma and its directors and their agents, servants, employees, and
attorneys, and those persons in active concert or participation with them
54
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Magma's Schedule 14D-9 (and the exhibits thereto) and any amendments 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 19, 1994
LIONEL SAWYER & COLLINS
By: /s/ JEFFREY D. MENICUCCI
-----------------------------------
Richard W. Horton
Jeffrey D. Menicucci
50 W. Liberty Street
Reno, Nevada 89501
(702) 788-8666
Attorneys for Defendant and
Counterclaim Plaintiff
and Additional Plaintiff
on Counterclaims
Stephen W. Greinor
Jeanne M. Luboja
WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 821-8000
55
