EXHIBIT 99.11
Case No. CV 94-06187
Dept. No. 5
IN THE SECOND JUDICIAL DISTRICT OF THE STATE OF NEVADA
IN AND FOR THE COUNTY OF WASHOE
CHARLES MILLER, On Behalf
of Himself and All Others
Similarly Situated,
Plaintiff,
vs. CLASS ACTION COMPLAINT
MAGMA POWER COMPANY,
THE DOW CHEMICAL COMPANY,
LESTER L. COLEMAN, WILLIAM
R. KNEE, JOHN D. ROACH,
RALPH W. BOEKER, THOMAS C.
HINRICHS, PAUL M. PANKRATZ,
JAMES D. SHEPARD, ROGER L.
KESSELER, BENT PETERSEN,
J. PEDRO REINHARD, and
LOUIS A. SIMPSON,
Defendants.
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Plaintiff alleges upon information and belief as follows:
THE PARTIES
1. Plaintiff is and has been at all times relevant hereto the owner of
shares of the common stock of Magma Power Company ("Magma" or the "Company").
2. Magma is a corporation organized and existing under the laws of the State
of Nevada, with its principal place of business at 4365 Executive Drive, Suite
900, San
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Diego, California 92121. Magma is principally engaged in the generation of
electricity from geothermal resources, and in the acquisition of, exploration
for and development of geothermal resources. Magma had, as of February 17, 1994,
over 24 million shares of common stock outstanding.
3. Defendant Dow maintains its principal place of business in Midland,
Michigan. Five out of the eleven members of the Magma Board of Directors were or
are presently officers and/or directors of Dow. By virtue of its stock
ownership, and the fact that many of the key officers and/or directors of Magma
are or were employed by Dow, Dow is a controlling shareholder of Magma; as such,
Dow is in a fiduciary relationship with plaintiff and other public shareholders
of Magma and owes plaintiff and other members of the Class (defined below) the
highest obligations of good faith, fair dealing, loyalty and the utmost candor.
4. (a) Defendant Ralph W. Boeker ("Boeker") is and was since March 1, 1993,
President and a director, and, as of January, 1994, Chief Executive Officer of
the Company. Boeker was employed by Dow from 1959 through March 1993, where he
served in various executive capacities, including Group Vice President and was a
member of the Operating Board of Dow Chemical U.S.A. and the Dow Management
Committee.
(b) Defendant Thomas C. Hinrichs ("Hinrichs") is and has been at all
relevant times Vice President of Magma and a director.
(c) Defendant Roger L. Kesseler ("Kesseler") is and has been at all
relevant times a director of Magma. Additionally, Kesseler serves as Controller
and a Vice President of Dow.
(d) Defendant William R. Knee ("Knee") is and was at all relevant times a
director of Magma and Director of Technology Centers for Dow.
(e) Defendant Paul M. Pankratz ("Pankratz") was, until March, 1993,
Chairman, President and Chief Executive Officer of Magma, and currently serves
as Chairman of the Board of the Company. Pankratz also served in various
capacities at Dow from 1957 util 1992.
(f) Defendant J. Pedro Reinhard ("Reinhard") is a director of Magma and
serves as Treasurer and a Vice President of Dow.
(g) Defendant James D. Shepard ("Shepard") is and has been a director of
Magma, a former Vice President and Treasurer of Magma, and is co-trustee of
the B.C. McCabe Living Trust and B.C. McCabe Foundation. Shepard also serves as
a shareholder relations consultant to the Company.
(h) Defendant Louis A. Simpson ("Simpson") is and was at all relevent
times a director of the Company and also serves on the board of Salomon, Inc.,
an entity which has provided financial advisory and underwriting services to
Magma in the past.
(i) Defendants Lester L. Coleman ("Coleman"), Bent Petersen ("Petersen")
and John D. Roach ("Roach") are and have been at all relevant times directors of
Magma.
5. The defendants named in paragraph 4 above ("Individual Defendants") owe
their allegiance to Dow who, as Magma's controlling shareholder, is responsible
for their relationship and positions on Magma's Board, and for the accompanying
benefits and remuneration they receive as a result of their Magma board
positions. Thus, the Individual Defendants are incapable of placing the
interests of Magma's minority stockholders over that of Dow.
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6. The Individual Defendants are in a fiduciary relationship with plaintiff
and the other public stockholders of Magma and owe to plaintiff and other
members of the Class the highest obligations of good faith, fair dealing and
full disclosure.
CLASS ACTION ALLEGATIONS
7. Plaintiff brings this action on his own behalf and as a class action, on
behalf of all public stockholders of Magma, and their successors in interest,
who are or will be threatened with injury arising from defendants' actions as
more fully described herein (the "Class"). Excluded from the Class are
defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any of the defendants.
8. This action is properly maintainable as a class action.
9. The Class is so numerous that joinder of all members is impracticable.
There are approximately 24 million shares of Magma outstanding and traded.
Members of the Class are located throughout the United States. Magma's stock
trades on the New York Stock Exchange.
10. There are questions of law and fact which are common to the Class and
which predominate over questions affecting any individual Class member.
11. A class action is superior to other methods for the fair and efficient
adjudication of the claims herein asserted and no unusual difficulties are
likely to be encountered in the management of this class action,. The likelihood
of individual class members prosecuting separate claims is remote.
12. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of
plaintiff are typical of the claims of other members of the Class and plaintiff
has the same interests as the other
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members of the Class. Accordingly, plaintiff is an adequate representative of
the Class and will fairly and adequately protect the interests of the Class.
13. Plaintiff anticipates that there will not be any difficulty in the
management of this litigation.
FACTUAL BACKGROUND
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14. On or about September 19, 1994, California Energy Co. ("CEC") reported
through the financial news wire services that it had transmitted a letter to
Magma proposing the acquisition of Magma by CEC for approximately $840 million.
Pursuant to the offer, Magma shareholders would receive $25 cash per share and
CEC stock valued at $10 per share market value.
15. According to the letter transmitted by CEC to Magma, as reported by The
Wall Street Journal and Dow Jones news wire, the two companies had discussed a
possible business combination over the preceding 12 months, and had spoken just
days prior to the transmission of the CEC letter.
16. The terms of the CEC letter indicated that CEC desired to effectuate a
"friendly" transaction and, to that end, offered to meet with the Individual
Defendants to negotiate in good faith all aspects of the CEC proposal.
17. A combination of Magma and CEC would be beneficial; both companies
have, in recent years, focused on developing interests in the Philippines and
other parts of Southeast Asia.
18. In response, on September 20, 1994, Magma transmitted a brief letter to
CEC Chairman David Sokol which stated that the Company would consider CEC's
offer in "due course". Thereafter, on September 22, 1994, Magma announced that
it retained
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Goldman, Sachs & Co. and Shearman & Sterling as financial and legal advisors to
review CEC's offer.
19. However, less than two weeks later, on October 3, 1994 Magma announced
that the Individual Defendants adopted a stockholder rights plan (commonly
referred to as a "poison pill") which entitles each stockholder to buy one
one-thousandth of a newly issued share of Series A Preferred Stock at an
exercise price of $125.00. The rights will be triggered if a person or group
acquires beneficial ownership of 10% or more of the Company's outstanding common
stock or commences a lender or exchange offer, upon consummation of which the
person or group would beneficially own 20% or more of the Company's outstanding
common stock. The effect of the poison pill is to make a disfavored takeover
prohibitively expensive.
20. Magma stated that the poison pill is designed to guard against partial
tender offers, such as that contemplated by CEC, and other "abusive tactics"
that might be used to gain control of Magma without paying its public
stockholders a fair price.
21. On October 3, 1994, Magma also announced that its Board (i.e. the
Individual Defendants) amended the Company's by-laws "to remove the ability of
stockholders to act by written consent." Pursuant to a consent solicitation,
board members can be replaced by the written consent of holders representing a
majority of Magma's total outstanding shares.
22. Additionally, on October 3, 1994, Magma filed suit against CEC in a
Nevada state court seeking a declaration that a Nevada law barring business
combination transactions between a target company and any interested shareholder
for three years, unless the interested shareholder obtains advance approval of
the Board, be declared
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valid and binding upon CEC. The suit also seeks a declaration that Magma acted
properly in adopting the poison pill and amending the by-laws.
23. On October 4, 1994, CEC announced it was offering $35 per share for 51%
of Magma; if that offer was accepted it would trigger the poison pill.
24. It is clear that the true motives of the actions taken by defendants is
to maintain defendants' absolute power to dictate the Company's destiny. In this
regard, Dow, Magma's controlling shareholder, currently has numerous contracts
and agreements with Magma, including (a) a 1993 Technical Services Agreement,
pursuant to which Dow has agreed to provide technical services for the Company's
geothermal power plants until January 1, 2000, and for which it will be paid
$550,000 in 1994; and (b) a 1994 Engineering and Construction Management
Services Agreement, pursuant to which Dow Engineering Company provides
engineering, procurement and construction management services to Magma. These
and other present and future arrangements between Dow and Magma are threatened
by the possibility of CEC acquiring control of Magma.
25. The actions of the defendants constitute a gross misuse of corporate
assets to subsidize the entrenchment of corporate officers and directors.
26. The defendants' unwillingness to seriously consider CEC's offer, and the
defensive mechanisms they have thrown up against it, stem from their attempt to
entrench themselves in their positions of control of the Company, and to
continue to reap the very generous economic benefits resulting from their
continued control of the Company.
CLAIM FOR RELIEF
BREACH OF FIDUCIARY DUTY
------------------------
27. It is apparent from the reflexive negative reactions of the defendants
to CEC's offer for the Company, their failure to seriously negotiate with CEC
for an even higher price for the shareholders' stock than the substantial amount
being offered, and their implementation of defensive measures designed to make
impossible any unfriendly bid, no matter how generous, that defendants have
forsaken the interests of Magma's stockholders in maximizing stockholder values
to further their own interests in entrenching present management or avoiding tax
consequences adverse to them personally.
28. As members of the Board of Directors of Magma, the Individual Defendants
owe its stockholders certain fiduciary duties. These duties include the highest
obligations of due care, good faith, loyalty and candor. The Individual
Defendants have breached, are breaching, and will continue to breach their
fiduciary duties by at least the following:
(a) By embarking on a scheme of entrenchment pursuant to which they have
made decisions on matters of corporate control based on the benefits those
decisions will confer on themselves, incumbent management and their
affiliates. Actions, including the adoption of the poison pill and the
amendment to the by-laws, have been taken and are being considered in this
regard without adequate consideration of the interests of other stockholders
to the detriment of Class members;
(b) By failing to respond in a reasonable and informed manner to CEC's
announcement regarding its proposed acquisition of the Company and CEC's
willingness to negotiate; and
(c) By failing to inform themselves as to other potential acquirors for
the Company so as to maximize stockholder value.
29. Defendants' adoption of the poison pill, the amendment to the by-laws
and institution of litigation against CEC, while refusing to negotiate with CEC
or to pursue other beneficial alternatives for stockholders, are not reasonable
responses to any perceived threat to the Company posed by CEC and constitute a
breach of the Individual Defendants' fiduciary duties owed to plaintiff and the
other members of the Class.
30. At all times herein mentioned, the Individual Defendants were
fiduciaries and owed fiduciary duties to plaintiff and all of the stockholders
of Magma, including, but not limited to, the obligation to adequately consider
in a timely and on an informed basis, any proposal made by CEC, as well as all
other reasonable tender and/or other offers from third parties, not to put their
own self-interests and personal considerations ahead of the interests of the
stockholders, and to make corporate decisions in good faith. By virtue of their
actions described above, the defendants have displayed their predisposition and
determination to reject and thwart tender and/or other offers and proposals by
third paries for enhanced stockholder value, as well as to squander corporate
assets in order to solidify their control of the Corporation (through the
institution of defensive litigation), so as to preserve and protect their own
emoluments and positions with the Company, all in violation of their fiduciary
duties, and to the detriment of the stockholders of the Company.
31. By virtue of the acts and conduct alleged herein, the defendants,
including Dow, are carrying out a preconceived plan to entrench themselves in
office and to thwart a potential acquisition of the Company, as well as a fair
and open auction of the Company that could maximize stockholder value, and
instead have acted to protect their
own personal financial interests at the expense of plaintiff and other members
of the Class. As a result of the steps taken by the defendants to thwart a
takeover, including adoption of the poison pill, the by-law amendment and
litigation against CEC, plaintiff and the Class have been and will continue to
be damaged.
32. Dow, as a controlling shareholder, owes the same or similar fiduciary
duties to plaintiff and the Individual Defendants, and has breached those duties
by virtue of the actions taken above, or aided and abetted such breaches.
33. By reason of the foregoing acts, practices and courses of conduct,
defendants have failed to use ordinary care and diligence in the exercise of
their fiduciary obligations toward plaintiff and the other Magma stockholders.
34. Unless enjoined by this Court, defendants will continue to breach their
fiduciary duties owed to plaintiff and the other members of the Class and may
benefit themselves in their corporate offices, all to the irreparable harm of
the Class, as aforesaid.
35. Plaintiff and the other members of the Class have no adequate remedy at
law.
PRAYER FOR RELIEF
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WHEREFORE, plaintiff demands judgment as follows:
1. Declaring that this action is properly maintainable as a class action,
and certifying plaintiff as a class representative;
2. Declaring that defendants and each of them have committed a gross abuse
of trust and have breached their fiduciary duties to plaintiff and the other
members of the Class;
3. Directing the defendants to carry out their fiduciary duties to plaintiff
and the other members of the Class by announcing their intention to:
(a) Undertake an appropriate evaluation of alternatives designed to
maximize value for Magma's public stockholders;
(b) Adequately ensure that no conflicts of interests exist between
defendants' own interest and their fiduciary obligation to the public
stockholders or, if such conflicts exist, to ensure that all the conflicts
would be resolved in the best interests of Magma's public stockholders; and
(c) Act independently, by, among other things, appointing a
disinterested committee so that the interests of Magma's public stockholders
would be protected, or alternatively, appointing a shareholder committee to
review all bona fide offers;
4. Granting injunctive relief with respect to the implementation of the
poison pill until Magma adequately considers all proposals;
5. Requiring the defendants to redeem, if appropriate, the poison pill in a
manner designed to maximize stockholder value;
6. Enjoining defendants from erecting any unlawful barriers to the
acquisition of the Company by any third party which would make Magma less
attractive as an acquisition candidate;
7. Awarding plaintiff and the Class compensatory and/or rescissory damages;
8. Awarding plaintiff and the Class the costs and disbursements of this
action, including reasonable attorneys' and experts' fees; and
9. Granting such other and further relief as this Court may deem just and
proper.
DATED: October 4, 1994
ANDERSON, PEARL, HARDESTY,
LYLE, MURPHY & BENNETT
/s/ James W. Hardesty
---------------------------------
JAMES W. HARDESTY
245 East Liberty St, 3rd Floor
P.O. Box 21150
Reno, NV 89515-1150
Telephone: 702/348-5000
MILBERG WEISS BERSHAD
HYNES & LERACH
WILLIAM S. LERACH
PATRICK J. COUGHLIN
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
GOODKIND LABATON RUDOFF
& SUCHAROW
JONATHAN M. PLASSE
EMILY C. KOMLOSSY
100 Park Avenue, 12th Floor
New York, NY 10017
Telephone: 212/907-0700
Attorneys for Plaintiff