<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(AMENDMENT NO. 8)
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>
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<PAGE>
This Amendment No. 8 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 ("Magma" or the
"Company"), relating to the tender offer disclosed in a Tender Offer Statement
on Schedule 14D-1, dated October 6, 1994, as amended and supplemented through
the date hereof, of CE Acquisition Company, Inc., a Delaware corporation (the
"Purchaser") and a wholly owned subsidiary of California Energy Company, Inc.,
a Delaware corporation ("California Energy"), 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 supplemented on October 26, 1994, and as amended through the date
hereof, and the related Letter of Transmittal as amended and supplemented
through the date hereof (the "Revised Offer"). Capitalized terms used and not
defined herein shall have the meanings sets 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:
On November 3, 1994, California Energy and CE Acquisition Company filed their
Answer to Amended Complaint and Third Amended Counterclaims against Magma and
its board of directors in the United States District Court of Nevada. A copy of
the Answer to Amended Complaint and Third Amended Counterclaims is filed as
Exhibit 28 hereto and is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby amended and supplemented by adding thereto the following:
Exhibit 28 -- Answer to Amended Complaint and Third Amended
Counterclaims.
Exhibit 29 -- Press Release of the Company, dated November 10, 1994.
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
By: /s/ Jon R. Peele
___________________________________
Name: Jon R. Peele
Title: Executive Vice President,
Secretary and General
Counsel
Dated: November 10, 1994
3
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBITS DESCRIPTION NUMBER
-------- ----------- ----------
<C> <S> <C>
Exhibit 28 --Answer to Amended Complaint and Third Amended
Counterclaims
Exhibit 29 --Letter to Stockholders, dated November 10, 1994
</TABLE>
<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-Plaintiffs
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 SECOND
Delaware corporation, ) AMENDED COUNTERCLAIMS
) ---------------------
Defendants. )
- ------------------------------------------------/
)
CALIFORNIA ENERGY COMPANY, INC., and CE )
ACQUISITION COMPANY, INC. )
)
Counterclaim-Plaintiffs, )
)
)
-against- )
)
MAGMA POWER COMPANY, )
)
Counterclaim-Defendant, )
)
-and- )
[LETTERHEAD OF LIONEL SAWYER & COLLINS APPEARS HERE]
<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
------
Defendants and Counterclaim-Plaintiffs California Energy Company, Inc.
("CECI") and 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 related 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 that 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 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
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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
deny 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 respectively refer the Court to
the purported Stockholder Rights Plan, the ByLaws amendment and the 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 the 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
--------------------
FIRST DEFENSE
-------------
50. The Complaint fails to state a cause of action upon which relief can
be granted.
SECOND DEFENSE
--------------
51. The plaintiff lacks standing to make some or all of the claims set
forth in the Complaint.
THIRD DEFENSE
-------------
52. The claims made in the Complaint are barred in whole or in part by the
doctrine of laches.
FOURTH DEFENSE
--------------
53. The claims made in the Complaint are barred in whole or in part by the
doctrine of waiver.
FIFTH DEFENSE
-------------
54. The claims made in the Complaint are barred in whole or in part by the
doctrine of estoppel.
12
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SIXTH DEFENSE
-------------
55. The claims made in the Complaint are barred in whole or in part by
applicable statutes of limitations.
SEVENTH DEFENSE
---------------
56. The claims made in the Complaint are barred in whole or in part by the
doctrine of unclean hands or in pari delicto.
-- ---- -------
EIGHTH DEFENSE
--------------
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.
NINTH DEFENSE
-------------
58. The claims made in the Complaint should be dismissed in whole or in
part because they are not ripe for review.
TENTH DEFENSE
-------------
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.
ELEVENTH DEFENSE
----------------
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.
13
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TWELFTH DEFENSE
---------------
61. The claims for injunctive relief in the Complaint should be dismissed
for lack of irreparable injury.
THIRTEENTH DEFENSE
------------------
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 disbursements, including attorneys fees,
together with such other and further relief as this Court may deem to be just
and proper.
COUNTERCLAIMS
-------------
Counterclaim-Plaintiffs California Energy Company, Inc. ("CECI") and CE
Acquisition Company, Inc. ("CEAC") (hereinafter "plaintiffs") by their attorneys
Lionel Sawyer & Gollins and Willkie Farr & Gallagher, for their Third 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
14
<PAGE>
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) and
which was increased on October 21, 1994 to $38.50 per share net in cash (an
$11.00 per share premium over such closing trading price on September 19, 1994)
(the "Tender Offer"), as the first step toward implementing the acquisition
proposal to acquire all of Magma's outstanding shares of common stock.
Defendants' unlawful actions in adopting a purported "Poison Pill," attempting
to strip shareholders of their rights to act by written consent, entering into
excessive "golden parachute" severance agreements with 15 of Magma's top
executives, 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, concealing from
public disclosure and refusing to take action to confirm that Nevada's control
share statute is inapplicable to the Tender Offer and CECI's acquisition
proposal, 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, nondisclosures 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-
15
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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) a declaratory judgment that (S)(S)
78.378 through 78.3793 of the Nevada General Corporation Law (the "Control Share
Statute") is inapplicable to the Tender Offer and CECI's acquisition proposal
and injunctive relief against any effort to apply it to such Tender Offer and
acquisition proposal, and (b) 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 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.
16
<PAGE>
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 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.
17
<PAGE>
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 was formerly
employed as an officer of Magma and is currently a trustee of the B.C. McCabe
Foundation which is the beneficial owner of 11.9% of Magma's common stock.
Defendant Shepard is also currently a shareholder relations consultant to Magma.
Defendant Shepard is a resident of the State of California.
75. Defendant William R. Knee is a Director of Magma. Defendant Knee has
been employed by Dow since 1968 and is currently its Director of Technology
Centers. Defendant Knee is a resident of the State of Michigan.
76. Defendant Bent Petersen is a Director of Magma. Defendant Petersen is a
resident of the State of California.
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.
18
<PAGE>
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 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
19
<PAGE>
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 84-85, while the balance of 4,175,287 shares (the "Escrow Shares") are
held in escrow as more fully described herein in paragraph 86.
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 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 Dow 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 statements pertaining to the offering (which had been
20
<PAGE>
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 to it of 857,143
shares of Magma common stock. Pursuant to the surrender agreement, Dow agreed to
certain "lock-up" obligations which, among other things, precluded it from
selling the shares it received until September 30, 1994. However, on September
12, 1994, in a transaction not publicly disclosed until September 23, 1994, Dow
sold 857,143 shares of 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 received from 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
21
<PAGE>
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 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
22
<PAGE>
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.
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 and Exchange Act of
23
<PAGE>
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 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 and 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 the District.
24
<PAGE>
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, 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.
25
<PAGE>
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 . . .
* * *
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 discussion, 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
26
<PAGE>
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" agreement and obstructionist maneuvers aimed at protecting
entrenched management and Dow and preventing Magma shareholders from having any
opportunity to freely consider the merits of CECI's proposal.
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
27
<PAGE>
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 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
28
<PAGE>
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 Magma's 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.
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
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
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<PAGE>
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 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 discriminatorily permits
the already existing holders of over 10% of Magma common stock (namely, Dow and
the B.C. McCabe Foundation), to continue to
30
<PAGE>
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 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
31
<PAGE>
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 Statute"). Noting that Magma had not opted out from
the coverage of that statute, the Schedule 14D-9 commented that "[u]nless, the
Board of Directors approves [CECI's Tender Offer] prior to its consummation,
California Energy will be unable to effect a merger with the Company for a
period of three years from the consummation of the Offer . . . . " In addition,
although the Schedule 14D-9 did not describe in any way the Control Share
Statute or in any way suggest Magma believed it is applicable to the Tender
Offer and CECI's acquisition proposal, Magma now appears, contrary to the
disclosure in its Schedule 14D-9, to be taking the position that the Control
Share Statute applies.
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 the 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
32
<PAGE>
acquisition of the entire equity interest in the company. CECI and CEAC's Offer
to Purchase, then 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 Statue does not apply to the Tender Offer or the
proposed second step merger, and (b) the Rights issued pursuant to the Poison
Pill do not apply to the Tender Offer or the proposed second step merger.
Although the Offer to Purchase reflects that CECI may determine, in its sole
discretion, to waive the merger agreement condition, the Offer to Purchase
states that CECI does not currently intend to waive such condition unless it
determines, in its sole judgment, inter alia, that (a) the Nevada Merger
----- ----
moratorium Statute is invalid or otherwise inapplicable to the Tender Offer and
proposed merger.
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.
33
<PAGE>
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 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 discourage tender offers, but
to establish neutral an even-handed regulation by requiring disclosure of
34
<PAGE>
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 antitakeover laws, the Nevada
Merger Moratorium Statute and the Control Share Statute. Although it appeared
from Magma's Schedule 14D-9 that Magma's omission of any reference to the
Control Share Statute confirmed its view that the Control Share Statute did not
apply to the Tender Offer and CECI's acquisition proposal 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 was not met, it now appears that Magma's Schedule 14D-9 was materially
misleading on this issue. After Judge Mark Handelsman of the Second Judicial
District Court for the State of Nevada ordered Magma to turn over its
stockholder list, CECI ascertained the lack of 100 Nevada resident record
holders and asked Magma to take the steps required to confirm that the Statute
did not apply. Magma refused, stating that it is taking the position that it may
assert in the future that the Control Share Statute does apply to the Tender
Offer and CECI's acquisition proposal, despite the fact that Magma's
stockholders list clearly shows that Magma has nowhere near the 100 Nevada
resident stockholders of record which are required to make the Statute
applicable to the Tender Offer and CECI's acquisition proposal.
THE CONTROL SHARE STATUTE
-------------------------
114. The Control Share Statute provides that it applies to certain
acquisitions of shares of a corporation incorporated in Nevada that has 200 or
more stockholders, at least 100 of whom are stockholders of record and residents
of the State of Nevada and that does business in Nevada directly or through an
affiliated corporation. When it is applicable, the Control Share Statute
provides that it denies voting rights to shares of stock (referred to as
"Control Shares") that are acquired by a person (and that person's associates)
the total number of which is sufficient to enable the acquiring person and his
associates to exercise voting power at or above any of three thresholds (20%,
33 1/3% or a majority of the outstanding voting power of the issuing
corporation), and any shares acquired by such persons within 90 days before such
acquisition, unless, among other exceptions, (a) the articles of incorporation
or bylaws of the corporation in effect on the tenth day following such
acquisition provide that the Statute does not apply, or (b) voting rights for
such Control Shares shall have been approved at a meeting of stockholders by an
affirmative vote of the holders of a majority of the issuing corporation's
outstanding shares, excluding those held by an acquiring person or any officer
of the corporation or any person deemed both an employee and a director of the
corporation.
115. In light of the provisions of the Control Share Statute, if it is
applicable to the Tender Offer and CECI's acquisition proposal (and assuming
Magma continues to reject CECI's Tender Offer and acquisition proposal), CECI
will be required to take a number of cumbersome and expensive steps in order to
attempt to confirm its voting rights for the shares which CEAC seeks to purchase
in the Tender Offer or otherwise, including the delivery of a detailed so-called
"offeror's statement" to Magma that contains a request that a so-called "control
share special meeting" of stockholders be called for the purpose of determining
whether voting rights should be authorized for the shares to be acquired by the
CEAC and its associates pursuant to the Tender Offer or otherwise. In connection
with such a control share special meeting, CECI and CEAC would be required to
conduct a proxy solicitation with respect to proposals to be considered at that
meeting, including the proposal to grant voting rights to the shares acquired
and to be acquired by CEAC or CECI in the Tender Offer or otherwise.
116. Given the provisions of the Control Share Statute denying voting
rights to so-called Control Shares as well as the many other onerous
requirements of the Statute, it is vital for CECI to be able to determine in
advance whether or not the Statute applies to the Tender Offer and its
acquisition proposal. As noted herein, Magma's Schedule 14D-9 did not discuss
the Control Share Statute in its description of laws pertinent to the Tender
Offer, and Magma's stockholder list reflects that there are nowhere near 100
stockholders of record who are also residents of the State of Nevada. Magma,
nevertheless, has refused to take action to confirm that the Control Share
Statute does not apply, despite CECI's request that it do so.
THE NEVADA MERGER MORATORIUM STATUTE
------------------------------------
117. The Nevada Merger Moratorium Statute purports to accord Nevada
corporations such as Magma an additional layer of insulation from the
inconvenience of shareholder democracy. The Nevada Merger Moratorium Statute
purports to regulate mergers, consolidations and other transactions involving
any "resident domestic corporation" defined in the statute to be a Nevada
corporation that has 200 or more stockholders ((S)78.427).
118. 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
35
<PAGE>
resident domestic corporation's board of directors before the date on which the
interested stockholder acquired its shares or the acquisition of shares by the
interested stockholder which first resulted in the stockholder becoming an
interested stockholder was itself approved by the board of directors ((S)
78.438).
119. The Nevada Merger Moratorium Statute provides that it does not apply
if an amendment to the resident corporation's articles of incorporation is
approved by a majority of the stockholders excluding the acquiror. However, the
amendment is not effective until 18 months after being passed ((S) 78.434), and,
as a practical matter, any such effort to amend the articles of incorporation
must be initiated by action of Magma's Board of Directors. Thus, in the context
of a tender offer, this provision is not a viable option, and only pre-approval
of a tender offer before the take-down date by Magma's Board of Directors would
render the statute inapplicable.
120. 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
36
<PAGE>
earlier than three years after the acquiror became an interested stockholder or
(c) a "fair price" formula is satisfied.
121. 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 of (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). Under this rigid statutory formula, the price which must be paid
by an interested stockholder for shares not previously tendered will almost
always be greater than the price paid to tendering shareholders, and in many
cases will be substantially higher.
122. 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
37
<PAGE>
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.
123. The Nevada Merger Moratorium Statute unreasonably burdens the
national market for securities. By obstructing tender offers for Nevada
corporations, the statute interferes with the efficient allocation of corporate
resources and reduces the incentive for incumbent management to perform well.
The statute encourages inefficient management practices to the detriment of
stockholder and general economic welfare. Its three-year moratorium freezes the
movement of assets and prevents many potentially value-enhancing changes in
corporate policies. The statute thus impedes the free flow of corporate assets
in interstate commerce.
124. The Nevada Merger Moratorium Statute does not protect stockholders of
Nevada corporations from coercive takeover proposals. Rather, it insulates
incumbent management of Nevada corporation 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.
38
<PAGE>
MAGMA'S REJECTION
OF THE TENDER OFFER
-------------------
125. 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's
stockholders. The next day, Magma filed its Schedule 14D-9 detailing its
purported reasons for failing to recommend CECI and CEAC's Tender Offer to its
stockholders. In the Schedule 14D-9, Magma knowingly made numerous false and
misleading statements of material facts and omitted to state material facts
necessary to make other statements in the Schedule 14D-9 not misleading. For
example, the Magma Schedule 14D-9:
(a) falsely states that "California Energy is trying to buy Magma at a
bargain price that does not remotely reflect Magma's intrinsic value and the
long-term strategic promise of which California Energy is well aware," when in
fact CECI's Tender Offer price reflects a substantial premium over the price at
which Magma's stock was trading prior to the announcement of CECI's September
19th proposal, 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;
39
<PAGE>
(c) fails to adequately disclose the special relationships between Dow and
Magma and its directors and the impact of those relationships on the Magma Board
of Directors' determination to reject CECI's Tender Offer;
(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.
(f) fails to disclose that Magma may assert that the Control Share Statute
applies to the Tender Offer and CECI's acquisition proposal, despite the fact
that its stockholders list indicates it has far less than the 100 Nevada
resident stockholders of record required to meet the Statute's jurisdictional
requirement.
126. On October 13, 1994 Magma filed Amendment No. 1 to its Schedule 14D-9
("Amendment No. 1") containing a slide show 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.
40
<PAGE>
127. 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 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 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
41
<PAGE>
as to existing and expected prospectus 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.
128. 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 projects 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
42
<PAGE>
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.
129. 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.
CECI INCREASES ITS
OFFER FOR MAGMA
---------------
130. On October 21, 1994, CECI announced that it had increased its
acquisition proposal for Magma to $38.50 per share, consisting of $28.50 per
share in cash and $10.00 per share of CECI stock. CECI also announced that in
connection with this enhanced proposal, it had increased the cash price it was
offering for 51% (or 12,500,000 shares) of the common stock of Magma in the
Tender Offer to $38.50 net per share and was extending the expiration date of
the Tender Offer to November 4, 1994.
131. On October 21, 1994, CECI announced that it had received
Hart-Scott-Rodino clearance from the Federal Trade Commission and the United
States Department of Justice with respect to its proposed acquisition of Magma.
MAGMA'S FURTHER STEPS TO ILLEGALLY
DENY ITS SHAREHOLDERS THE OPPORTUNITY
TO CONSIDER CECI'S OFFER
------------------------
132. Even as CECI was announcing its enhanced $38.50 per share proposal to
Magma shareholders, Magma's entrenched
43
<PAGE>
management was apparently taking new and more desperate measures to deny
Magma's shareholders the opportunity to consider the merits of CECI's offer.
133. On October 21, 1994, shortly after CECI announced the enhanced price of
its offer to acquire Magma, Magma issued a false and misleading press release
claiming that its local joint venture partner on one of its two proposed
development stage projects in Indonesia, the Karaha project, had terminated its
joint venture with Magma, purportedly because of concerns about CECI and its
acquisition proposal. Contrary to the information set forth in the press
release, Magma's determination to scuttle the Karaha project was based on its
own concerns, not on CECI's acquisition proposal. In fact, Magma unilaterally
offered this termination right which caused Magma to lose its substantial
investment in developing such project without obtaining any commensurate benefit
for Magma's shareholders. This "scorched-earth" action clearly was detrimental
to the corporation and its shareholders and a waste of corporate assets.
Further, Magma failed to disclose the termination of such agreement promptly,
and failed to disclose its acts in inserting such a clause, which caused the
joint venture to be so illusory that Magma should have disclosed any such terms
to the public as part of the description of the Karaha project made in its
filings pursuant to the federal securities laws.
134. In addition to its false and misleading disclosures with respect to the
Karaha project, and the actions which it took with respect to that project to
its shareholders detriment, Magma is also taking additional steps designed to
44
<PAGE>
allow its other international joint venture partners to withdraw from their
commitments if CECI succeeds in acquiring control of Magma. Specifically, Magma
has unilaterally offered its joint venture partners the opportunity to add
"change of control" provisions to their existing arrangements with Magma without
any consideration and without any motive other than to harm Magma so as to make
Magma less attractive to CECI.
135. Magma management's further steps in response to CECI's acquisition
proposal represent scorched-earth tactics designed to defeat CECI's proposal
without regard to the harm to Magma and its stockholders which such actions will
cause, and constitute breaches of the fiduciary duties owed by Magma management
and its Board of Directors to Magma stockholders. Unless Magma is enjoined from
taking these further steps or from orchestrating other similar scorched-earth
tactics, Magma's shareholders and CECI will be irreparably harmed.
MAGMA REJECTS THE INCREASED TENDER OFFER
----------------------------------------
136. On October 31, 1994, Magma announced that its Board of Directors had
rejected CEAC and CECI's increased $38.50 Tender Offer. The same day, Magma
filed Amendment No. 5 to its Schedule 14D-9 listing its purported reasons for
failing to recommend the increased Tender Offer to its stockholders. In the
Amendment No. 5 to its Schedule 14D-9, Magma knowingly made numerous additional
false and misleading statements of material facts and omitted to state material
facts necessary to make other statements therein not misleading. For example,
the Amendment No. 5:
(a) falsely states that the consideration offered in the increased Tender
Offer is inadequate and does not reflect the intrinsic value of Magma, and that
this determination is based on a variety of specified considerations;
(b) falsely suggests that a variety of third parties have an interest in a
business combination with Magma on terms which will provide more value to Magma
stockholders;
(c) falsely states that the Tender Offer has had an adverse effect on
Magma and its employees, creditors, partners and customers and the communities
in which Magma operates; and
(d) falsely suggests that Magma's Board resolved not to disclose
negotiations concerning potential extraordinary transactions or the like until a
definitive agreement or agreement in principle is reached to protect such
potential transactions when, in fact, such a secrecy resolution is designed to
avoid a level playing field upon which CECI's acquisition proposal and the
Tender Offer can fairly compete with any other potential extraordinary
transactions concerning Magma.
137. 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, cease to attempt to undercut CECI's proposal by attempting to
damage its international joint ventures in Indonesia and elsewhere, or take such
actions as necessary to opt-out of the Nevada Merger Moratorium Statute prior to
the time when the Tender Offer is scheduled to close. Accordingly, Magma's
stockholders will never have the opportunity
45
<PAGE>
to make their own decisions 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.
138. 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)
139. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs 1 through 138 hereof as if fully set forth at length.
140. The sole purpose and effect of the Magma Board's elimination of the
Magma stockholders' right to take certain actions by written consent was to
cause a gross interference with stockholder democracy. Indeed, it could have no
other purpose. The Magma Board acted to eliminate the right to vote by consent
at a time when CECI, a stockholder of Magma owning 200,000 shares of stock, had
already announced publicly its intention to solicit consents. The sole purpose
of the amendment was to prevent CECI, a stockholder of Magma owning 200,000
shares of stock, from
46
<PAGE>
soliciting written consents to take various actions to facilitate its September
19th proposal.
141. 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 on entrenching management, in breach of their fiduciary duties to the
Magma stockholders.
142. 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 action 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.
143. Accordingly, the Bylaws amendment is invalid, and was enacted in
breach of the Magma directors' fiduciary duties.
144. Plaintiffs have no adequate remedy at law.
47
<PAGE>
COUNT II
--------
(Breach Of Fiduciary Duty - Adoption Of
Unlawful Poison Pill)
145. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 144 hereof as if fully set forth at length.
146. 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 corporated assets,
and is an unlawful device the purpose and effect of which is to entrench and
enrich incumbent management.
147. 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.
148. Accordingly, the Poison Pill is invalid, and was enacted in breach of
the fiduciary duties of the Magma directors.
149. Plaintiffs have no adequate remedy at law.
48
<PAGE>
COUNT III
---------
(Breach Of Fiduciary Duty - Failure To Redeem Rights
150. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 149 herein as if fully set forth herein at length.
151. 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.
152. 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.
153. 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.
154. Plaintiffs have no adequate remedy at law.
49
<PAGE>
COUNT IV
--------
(Breach Of Fiduciary Duty--Unlawful
"Golden Parachute" And Indemnity Agreements)
155. Plaintiffs repeat and reallege each of the allegations contained in
paragraphs 1 through 154 hereof as if fully set forth at length.
156. 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.
157. 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.
158. Plaintiffs intend to request that the Magma Board revoke these
agreements, but it is anticipated that it will not do so.
159. 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.
160. Plaintiffs have no adequate remedy at law.
50
<PAGE>
COUNT V
-------
(Breach of Fiduciary Duty -- Attempt to
Harm International Joint Ventures)
161. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 160 hereof as if fully set forth herein.
162. The sole purpose and effect of the actions taken by Magma management
and its Board of Directors to harm its international joint ventures, including,
but not limited to, by encouraging or permitting the collapse of the Karaha
project in Indonesia, and by unilaterally offering "change of control"
provisions to its other joint venture partners, is to deter CECI's takeover at
the expense of Magma stockholders. Such actions constitute a waste of corporate
assets and are a further device designed to entrench incumbent management.
163. Unless such activities are enjoined, Magma stockholders may be denied
the opportunity to accept or reject CECI's offer on its merits and Magma's
corporate assets will be severely wasted.
164. Plaintiffs have no adequate remedy at law.
COUNT VI
--------
(Inapplicability of Control Share Statute)
165. Plaintiffs repeat and reallege each and every allegation contained in
paragraph 1 through 164 hereof as if fully set forth herein.
166. The Nevada Control Share Statute provides for the imposition of a
wide array of onerous requirements on any acquiring person, such as CEAC, which
offers to acquire 20% or more of the outstanding common stock of a Nevada
corporation, including the denial of voting rights to Control Shares. The
Statute, however, only applies to Nevada corporations that have 200 or more
stockholders, at least 100 of whom are stockholders of record and residents of
the State of Nevada and that does business in Nevada directly or through an
affiliated corporation.
167. Magma's stockholders list indicates that fewer than 100 of its
stockholders of record are residents of the State of Nevada. Accordingly, the
Statute does not apply to the Tender Offer and CECI's proposal to acquire Magma.
168. Notwithstanding that Magma's Schedule 14D-9 omits all reference to
the Statute, and thus does not inform Magma stockholders that Magma believes the
Statute applies despite the fact that Magma's stockholders list does not include
100 recordholders who are Nevada residents, Magma has refused to acknowledge
that the Nevada Control Share Statute does not apply. The Tender Offer however,
is conditioned, among other things, upon the Control Share Statute being
determined to be inapplicable to the Tender Offer or otherwise having been
complied with such that all shares purchased pursuant to the Tender Offer will
have full voting rights.
169. Because the inapplicability of the Nevada Control Share Statute is a
condition of the Tender Offer, plaintiffs and all Magma stockholders are
entitled to know whether the Statute applies to the Tender Offer. Since Magma
has refused to formally acknowledge that the Statute does not apply, plaintiffs
are entitled to a declaration from the Court determining for themselves and for
the benefit of all stockholders whether or not the Nevada Control Share Statute
applies to the Tender Offer and to CECI's acquisition proposal to acquire Magma,
and an injunction barring the application of the Statute to the Tender Offer and
CECI's proposal to acquire Magma.
170. Moreover, because the potential applicability of the Nevada Control
Share Statute is material to investors and potential investors in Magma, Magma
should be required to immediately disclose its position with respect to the
applicability of the Nevada Control Share Statute, and the reasons upon which
such a position are based in order to correct the misleading omission of those
facts in its Schedule 14D-9 and amendments thereto.
171. Plaintiffs have no adequate remedy at law.
COUNT VII
---------
(Unconstitutionality Of The Merger Moratorium Statute
Under Supremacy Clause)
172. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 171 hereof as if fully set forth herein.
173. 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).
51
<PAGE>
174. 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.
175. 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.
176. Accordingly, the Nevada Merger Moratorium Statute violates the
Supremacy Clause and is unconstitutional.
177. Plaintiffs have no adequate remedy at law.
COUNT VIII
----------
(Unconstitutionality Of Merger Moratorium Statute
Under Commerce Clause)
178. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 177 hereof as if fully set forth at length.
52
<PAGE>
179. This claim for relief arises under the Commerce Clause of the United
States Constitution, U.S. Const., Art. I (S)8, cl.3.
180. 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.
181. 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;
(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
53
<PAGE>
(e) the statue impedes the free flow of corporate assets in interstate
commerce.
182. 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.
183. 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, no
shareholders.
184. Accordingly, the Nevada Merger Moratorium Statute violates the
Commerce Clause and is unconstitutional.
185. Plaintiffs have no adequate remedy at law.
COUNT IX
--------
(Breach of Fiduciary Duty - Utilization Of
Merger Moratorium Statute)
186. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 185 hereof as if fully set forth at length.
187. Plaintiffs' Tender Offer is fair and at a price representing a
substantial premium over the historical price of the Magma stock, uninflated by
takeover speculation. Although the
54
<PAGE>
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.
188. 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.
189. 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 Dow board members' conflict renders all such actions
invalid under Nevada law.
190. 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.
191. Plaintiffs have no adequate remedy at law.
55
<PAGE>
COUNT X
-------
(Violations of Section 14(e) Of The Exchange Act)
192. Plaintiffs repeat and reallege each and every allegation contained in
paragraphs 1 through 191 hereof as if fully set forth herein.
193. 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.
194. Plaintiffs have no adequate remedy at law.
IRREPARABLE INJURY
------------------
195. 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.
196. 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
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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.
197. Unless preliminary and permanent injunctive relief is granted, Magma
stockholders, including any residing in the State of Nevada, will be irreparably
harmed by losing their right to sell their shares to plaintiffs at a premium.
WHEREFORE, plaintiffs respectfully request that this Court enter an order:
(a) dismissing Magma's Complaint in its entirety;
(b) declaring that (i) the amendment to the Magma Bylaws enacted by the
Magma Board of Directors, which prevents the Magma stockholders from taking
certain actions by written consent is void and ultra vires, and (ii) that the
----- -----
Magma Board of
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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) preliminarily and permanently enjoining the operation of the Poison
Pill and enjoining Magma and its directors and their agents, servants,
employees, and attorneys, and those persons in active concert or participation
with them from taking any action in furtherance of the Poison Pill or the Rights
issued thereunder;
(f) declaring the Magma directors to be in breach of their fiduciary duties
if they fail to redeem the Rights issued pursuant to the Poison Pill, and
directing the Magma Board of Directors to redeem the Rights;
(g) preliminary 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 taking any actions in
furtherance
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of its plans to (i) take actions designed to damage its international
development projects, including the Karaha project, or (ii) take any other
actions designed to waste corporate assets and to block CECI's offer to purchase
Magma and to deny Magma's shareholders an opportunity to fairly consider that
offer on its merits;
(h) enjoining Magma and its directors and their agents, servants,
employees, and attorneys, and those persons in active concert or participation
with them to rescind the illegal "golden parachute" and indemnity agreements;
(i) declaring pursuant to the federal Declaratory Judgments Act, 28
U.S.C. (S)(S) 2201-2202, that Sections (S)(S) 78.378 through 78.3793 of the
Nevada General Corporation Law, the Control Share Statute, are inapplicable to
the Tender Offer and CECI's proposal to acquire Magma;
(j) preliminarily and permanently enjoining (i) the application of the
Control Share Statutes to the Tender Offer and CECI's proposal to acquire
Magma; (ii) Magma, defendant members of the Magma Board of Directors and their
officers, agents, servants, employees, and attorneys, and those persons in
active concert or participation with them, from taking any action invoking the
terms of the Control Share Statute; and (iii) the Magma directors by requiring
them not to obstruct the Tender Offer or proposed merger;
(k) declaring pursuant to the federal Declaratory Judgments Act, 28 U.S.C.
Sections 2201-2202, that Sections 78.411 through 78.444 of the Nevada General
Corporation Law, on their face and as applied, violate the Supremacy Clause,
Art. VI, cl.2, and the Commerce Clause, Art. I, (S) 8, cl.3 of the United States
Constitution;
(l) preliminarily and permanently enjoining (i) the operation of Sections
78.411 through 78.444 of the Nevada General Corporation Law; (ii) Magma,
defendant members of the Magma Board of Directors and their officers, agents,
servants, employees, and attorneys, and those persons in active concert or
participation with them, from taking any action invoking the terms of Sections
78.411 through 78.444 of the Nevada General Corporation Law; and (iii) the Magma
directors by requiring them not to obstruct the Tender Offer or proposed merger;
(m) preliminarily and permanently enjoining Magma to correct all false
statements, non-disclosures and omissions of material facts concerning the
Tender Offer and proposed merger in
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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;
(n) awarding plaintiffs their costs and disbursements in connection with
this action, including reasonable attorneys fees; and
(o) granting plaintiffs such other and further relief as this Court may
deem to be just and proper.
Dated: November 3, 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 Defendants and
Counterclaim-Plaintiffs
Stephen W. Greiner
Jeanne M. Luboja
WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 821-8000
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[LETTERHEAD OF MAGMA POWER COMPANY]
November 10, 1994
Dear Fellow Magma Stockholder:
On behalf of your Board of Directors, we are writing to advise and caution
you about an important recent development.
As you are aware, California Energy Company, Inc. has made an unsolicited
tender offer to purchase approximately 51% of Magma Power's outstanding common
stock for a price of $38.50 per share. The tender offer would be followed by a
merger in which the remaining Magma shares would be purchased with a mix of
approximately $18.10 in cash and shares of California Energy common stock with
a nominal value of approximately $20.40. YOUR BOARD HAS UNANIMOUSLY RECOMMENDED
THAT YOU REJECT CALIFORNIA ENERGY'S OFFER BECAUSE IT IS NOT IN YOUR BEST
INTERESTS.
Magma and its financial advisor, Goldman, Sachs & Co., are currently
exploring all available alternatives to further your best interests, including
conducting discussions with interested third parties. At the same time,
California Energy is soliciting you to call a special meeting of stockholders
to approve a slate of California Energy directors dedicated to serving
California Energy's interests and to pass a series of by-law amendments
designed solely to promote California Energy's interests. California Energy's
call solicitation is simply a pressure tactic through which it hopes to force
your Board and you to make hasty and ill-advised decisions.
YOUR BOARD'S ABILITY TO EXPLORE PRUDENTLY ALL ALTERNATIVES TO FURTHER YOUR
BEST INTERESTS IS ENDANGERED BY CALIFORNIA ENERGY'S SOLICITATION TO CALL A
SPECIAL MEETING.
Your Board is dedicated to serving Magma stockholders. We do not believe it
is in your best interest to vote in favor of a proposal that serves only
California Energy's own agenda. A VOTE IN FAVOR OF CALLING A SPECIAL MEETING IS
A VOTE AGAINST YOUR BEST INTERESTS.
YOU ARE URGED NOT TO SIGN THE GREEN REQUEST CARD SENT TO YOU BY CALIFORNIA
ENERGY.
Be assured that your Board and management will continue to act to further
your best interests. We greatly appreciate your continued support and
encouragement, and will keep you advised of significant future developments.
Sincerely,
Paul M. Pankratz Ralph W. Boeker
Chairman President and Chief Executive Officer
<PAGE>
The following information is provided pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, and Rule 14a-11(b)(2) thereto. The
participants in the solicitation are Magma Power Company, the following
directors and others, who in the aggregate are deemed to beneficially own
approximately 2.1% of the outstanding common shares of Magma common stock:
James D. Shepard, Paul M. Pankratz, Thomas C. Hinrichs, Ralph W. Boeker, Louis
A. Simpson, John D. Roach, Roger L. Kesseler, Lester L. Coleman, William R.
Knee, Bent Petersen, and J. Pedro Reinhard, and Jon R. Peele, Wallace C.
Dieckmann, Kenneth J. Kerr, and Trond Aschehoug. No participant individually
owns more than 1% of the outstanding shares of Magma's common stock. Messrs.
Kesseler, Knee and Reinhard are employees of The Dow Chemical Company ("Dow").
Dow is the beneficial owner of 5,032,430 shares of Magma's common stock, of
which 4,000,005 shares are held in escrow to satisfy certain exchange rights
under an existing Dow note indenture. Dow retains the right to vote the shares
placed in escrow. In addition, the Company is a party to a technical services
agreement with Dow pursuant to which the Company has made payments for
technical services in the amounts of $575,000 for 1993 and has agreed to make
payments of $550,000 for 1994 and thereafter in annual amounts reduced by
$50,000 each year to $300,000 for 1999. The Company is also a party to an
engineering and construction management services agreement with Dow Engineering
Company. The Company believes that the technical services agreement and the
engineering and construction management services agreement are on terms at
least as favorable to the Company as would be available from an unaffiliated
third party. Mr. Shepard is a co-trustee of the B.C. McCabe Foundation (the
"Foundation"), which beneficially owns 2,752,641 shares of Magma's common
stock. Mr. Shepard disclaims beneficial ownership of such shares.
2
