SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1/A
(AMENDMENT NO. 1)
Tender Offer Statement
(Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934)
and
SCHEDULE 13D/A (AMENDMENT NO. 13)
Under the Securities Exchange Act of 1934
HALLWOOD ENERGY CORPORATION
(Name of Subject Company)
THE HALLWOOD GROUP INCORPORATED
(Bidder)
$0.50 PAR VALUE COMMON STOCK
(Title of Class of Securities)
40636M208
(CUSIP Number of Class of Securities)
MELVIN J. MELLE
THE HALLWOOD GROUP INCORPORATED
3710 RAWLINS, SUITE 1500
DALLAS, TEXAS 75219
(214) 528-5588
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Bidder)
COPY TO:
W. ALAN KAILER, ESQ.
JENKENS & GILCHRIST
A PROFESSIONAL CORPORATION
1445 ROSS AVENUE, SUITE 3200
DALLAS, TEXAS 75202-2799
(214) 855-4500
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CORPDAL:58339.1 99999-00001
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Calculation of Filing Fee:
Transaction Valuation* Amount of Filing Fee**
$2,792,576 $559
* For purposes of calculating the fee only. The filing fee was calculated
pursuant to Section 13(e)(3) of the Securities Exchange Act of 1934, as
amended, and Rule 0-11 thereunder, on the basis of 143,209 shares of
Common Stock (the number of shares of Common Stock outstanding on the
date hereof, excluding 633,917 shares of Common Stock held by the
Bidder) multiplied by the proposed acquisition price of $19.50 per
share.
** 1/50th of one percent of the value of the securities to be acquired.
|X| Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $ 559
Form or Registration No.: Schedule 14D-1 and Schedule 13D/A
Filing Party: The Hallwood Group Incorporated
Date Filed: October 15, 1996
(1) Names of Reporting Person: The Hallwood Group Incorporated
S.S. or I.R.S. Identification No. of Above Person: 51-0261339
(2) Check the Appropriate Box if a Member of a Group (See Instructions)
(a) |_| (b) |_|
(3) SEC Use Only
(4) Source of Funds (See Instructions) WC
(5) Check Box If Disclosure of Legal Proceedings Is Required
Pursuant to Items 2(e) or 2(f) |X|
(6) Citizenship or Place of Organization Delaware
(7) Aggregate Amount Beneficially Owned
by Each Reporting Person 633,917 shares
CORPDAL:58339.1 99999-00001
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(8) Check Box if the Aggregate Amount in Row (7)
Excludes Certain Shares (See Instructions) |_|
(9) Percent of Class Represented by Amount in Row (7) 81.6%
--------------------------------
(10) Type of Reporting Person (See Instructions) CO
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CORPDAL:58339.1 99999-00001
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The Hallwood Group Incorporated, a Delaware corporation (the
"Purchaser"), hereby amends and supplements its Tender Offer Statement on
Schedule 14D-1 and Schedule 13D/A (Amendment No. 12) (the "Schedule 14D-1 and
13D") originally filed on October 15, 1996, with respect to its offer to
purchase all the outstanding shares of Common Stock, par value $0.50 per share
(the "Shares"), of Hallwood Energy Corporation, a Texas corporation (the
"Company"), not currently directly or indirectly owned by the Purchaser, for
$19.50 per Share, net to the seller in cash, without interest thereon, as set
forth in this Amendment No. 1. This Amendment No. 1 to the Schedule 14D-1 and
13D is being filed on behalf of the Purchaser. The item numbers and responses
thereto below are in accordance with the requirements of Schedule 14D-1 and
Schedule 13D, respectively, of the Securities Exchange Act of 1934, as amended.
Capitalized terms not defined herein have the meanings assigned thereto in the
Schedule 14D-1 and 13D.
ITEM 10. ADDITIONAL INFORMATION.
Item 10(e) of the Schedule 14D-1 and 13D is hereby amended to read as
follows:
(e) A putative class action complaint entitled The Ravenswood
Investment Company, L.P. v. Hallwood Energy Corporation, Hallwood Group, Inc.,
Anthony J. Gumbiner, William L. Guzzetti, Brian M. Troup, Hans-Peter Holinger,
Rex A. Sebastian and Nathan Collins, C.A. No. 96-WM-2665 (United States District
Court - District of Colorado, filed November 15, 1996) has been filed against
the Company, its directors and the Purchaser by a purported stockholder of the
Company. This complaint alleges violations of Section 14(e) of the Exchange Act
and breaches of fiduciary duty by the defendants and seeks declaratory relief,
injunctive relief and damages. The Purchaser, the Company and the defendants
intend to defend vigorously against these allegations. The above description of
the complaint is qualified in its entirety by reference to the Complaint, a copy
of which is attached hereto as Exhibit (g) and is incorporated herein by
reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
Item 11 of the Statement is hereby amended to add the following
exhibits:
(a)(9) Press Release issued by the Company dated November 18, 1996.
(g) Complaint in The Ravenswood Investment Company, L.P. v.
Hallwood Energy Corporation, Hallwood Group, Inc., Anthony J.
Gumbiner, William L. Guzzetti, Brian M. Troup, Hans-Peter
Holinger, Rex A. Sebastian and Nathan Collins, C.A.
No. 96-WM-2665 (United States District Court - District of
Colorado, filed November 15, 1996).
CORPDAL:58339.1 99999-00001
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SIGNATURE
After due 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.
Dated: November 22, 1996 THE HALLWOOD GROUP INCORPORATED
By: /s/ Melvin J. Melle
-----------------------
Name: Melvin J. Melle
Title: Vice President
CORPDAL:58339.1 99999-00001
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EXHIBIT INDEX
Exhibit
Number Description Page Number
(a)(9) Press Release issued by the Company dated November 18, 1996.
(g) Complaint in The Ravenswood Investment Company, L.P. v.
Hallwood Energy Corporation, Hallwood Group, Inc., Anthony J.
Gumbiner, William L. Guzzetti, Brian M. Troup, Hans-Peter
Holinger, Rex A. Sebastian and Nathan Collins, C.A.
No. 96-WM-2665 (United States District Court - District of
Colorado, filed November 15, 1996).
CORPDAL:58339.1 99999-00001
6
Exhibit (a)(9)
Hallwood Energy Corporation FOR IMMEDIATE RELEASE
4582 South Ulster St. Parkway Contact: Mary Brook
Post Office Box 378111 (303) 850-7373
Denver, CO 80237
November 18, 1996
HALLWOOD ENERGY CORPORATION ANNOUNCES THIRD
QUARTER RESULTS FOR 1996 AND TENDER OFFER CLAIM
Denver, Colorado -- Hallwood Energy Corporation (OTC Bulletin Board:HWEC)
today reported revenues for the third quarter of 1996 totaling $1,945,000, as
compared with $1,467,000 for the third quarter of 1995. Certain
reclassifications have been made to the 1995 balances to conform to the
classifications used in the current period. Oil production totaled 29,000
barrels for the third quarter of 1996, compared to 35,000 barrels in the third
quarter of 1995. The oil price received for third quarter 1996 production was
$21.97 per barrel, as compared with $17.80 per barrel during the third quarter
of 1995. Gas production was .44 bcf during the third quarter of 1996, compared
to .45 bcf during the same period in 1995. The price received for gas production
in the third quarter of 1996 was $2.34 per mcf, up from the price received for
the same period in 1995 of $1.88 per mcf. The decrease in oil and gas production
during 1996 is due to property sales and normal production declines. Net income
to common shareholders was $688,000 during the third quarter of 1996, or $.89
per share, compared with a net loss to common shareholders for the quarter ended
September 30, 1995 of $333,000, or $.74 per share.
Total revenue for the first nine months of 1996 was $5,538,000, as compared
to $3,999,000 for the same period in 1995. Oil and gas prices averaged $19.62
per barrel and $2.39 per mcf in 1996, as compared to $17.11 per barrel and $1.75
per mcf in 1995. Oil and gas production during the first nine months of 1996 was
101,000 barrels and 1.4 bcf, compared to 97,000 barrels and 1.3 bcf during the
first nine months of 1995. Net income to common shareholders for the first nine
months of 1996 was $1,888,000, or $2.40 per share, as compared with a net loss
to common shareholders of $895,000, or $2.04 per share, during 1995. The net
loss during 1995 included a non-cash charge of $464,000 which represented the
Company's pro rata share of an affiliate's abandonment of its investment in an
Indonesian project.
<PAGE>
<TABLE>
HALLWOOD ENERGY CORPORATION
SUMMARIZED FINANCIAL INFORMATION
THIRD QUARTER OF 1996
(In thousands except per share and prices)
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Oil and Gas Revenue $1,658 $1,465 $5,242 $3,992
Other Revenue 287 2 296 7
------- -------- ----- -------
Total Revenue 1,945 1,467 5,538 3,999
Depreciation & Depletion 336 456 1,152 1,297
Property Impairment 464
Other Expenses 862 810 2,227 2,151
------- ------- ------ -------
Total Expense 1,198 1,266 3,379 3,912
------- ------ ------ -------
Income before income taxes 747 201 2,159 87
Provision for income taxes 59 271 92
------- ------- ------ -------
Net income (loss) 688 201 1,888 (5)
Preferred stock dividends 534 890
------- ----- --------- --------
Net income (loss) for common stockholders $ 688 $(333) $ 1,888 $ (895)
====== ====== ======= =========
Per common share $ .89 $ (.74) $ 2.40 $ (2.04)
======= ======= ======= =========
Production:
Oil - barrels 29 35 101 97
Gas - mcf 436 449 1,364 1,329
Price:
Oil - per barrel $21.97 $17.80 $19.62 $17.11
Gas - per mcf $ 2.34 $ 1.88 $ 2.39 $ 1.75
</TABLE>
In connection with the tender offer by The Hallwood Group Incorporated for
the common stock of HEC, a complaint was filed on November 15, 1996 in the
United States District Court for the District of Colorado styled The Ravenswood
Investment Company, L.P. v. Hallwood Energy Corporation, Hallwood Group, Inc.,
Anthony J. Gumbiner, William L. Guzzetti, Brian M. Troup, Hans-Peter Holinger,
Rex A. Sebastian and Nathan C. Collins. In general, the suit alleges that the
tender offer and the merger are not fair to the minority shareholders of HEC,
that the defendants failed to disclose certain material facts in the tender
offer documents and that as a result of the making of the tender offer and the
proposed merger between HEC and Hallwood, Hallwood and the individual board
members of HEC have breached their fiduciary duty to the minority shareholders
of HEC. The plaintiff, which purports to represent a class consisting of all
minority shareholders in HEC, seeks a preliminary and permanent injunction to
prevent proceeding with the tender offer and consummating a merger of HEC into
Hallwood, and to recover damages in unspecified amounts.
The defendants believe that all material information in connection with the
tender offer and the proposed merger has been fully considered and disclosed. In
addition, the Special Committee of the Board of Directors of HEC that reviewed
the offer has determined that the tender offer and the proposed merger are fair
to and in the best interests of the minority shareholders of HEC. HEC and the
other defendants believe that the suit is without merit and intend to defend
vigorously against it.
-END-
Exhibit (g)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No.
THE RAVENSWOOD INVESTMENT
COMPANY, L.P.,
Plaintiff,
v.
HALLWOOD ENERGY CORPORATION,
HALLWOOD GROUP, INC., ANTHONY J.
GUMBINER, WILLIAM L. GUZZETTI,
BRIAN M. TROUP, HANS-PETER HOLINGER,
REX A. SEBASTIAN and NATHAN C. COLLINS,
Defendants.
COMPLAINT
Plaintiff, The Ravenswood Investment Company, L.P. ("Ravenswood" or
"Plaintiff"), individually, and on behalf of others similarly situated, by its
attorneys, Wolf & Slatkin, P.C., for its complaint against Defendants, alleges
as follows: PRELIMINARY STATEMENT AND NATURE OF CLAIM This class action is
brought by Ravenswood on behalf of itself and the other minority public
stockholders of Defendant Hallwood Energy Corporation ("HEC" or "the Company"),
for injunctive and other equitable relief enjoining the completion of a two-step
tender offer/merger transaction that will buy out the minority stockholders for
grossly inadequate consideration, and allow HEC's 81.6 percent stockholder,
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Hallwood Group, Inc. ("Hallwood") to further its own financial interests at the
expense of the minority stockholders, in breach of its fiduciary duties of good
faith, fidelity, candor and loyalty to each of the minority stockholders.
Hallwood and its Board of Directors, by virtue of their domination and control
of HEC, have wrongfully misappropriated proprietary information for their own
use and benefit, and have timed the two-step tender offer/merger to take
advantage of not only the Company's significant turnaround in financial
performance, but also the substantial tax benefits available using the Company's
net operating loss carryforwards without paying just compensation to the
minority shareholders. Hallwood has additionally structured the two-step tender
offer/merger to deprive the minority stockholders of a meaningful opportunity to
investigate the fairness of the tender offer.
I. JURISDICTION AND VENUE
1. This section arises under section 14(e) of the Securities Exchange Act
of 1934 (the "1934 Act"), as amended, 15 U.S.C. Section 78n(e), and the rules
and regulations promulgated thereunder by the Securities and Exchange
Commission, and the statutory and common law of the state of Texas. Section
14(e) of the 1934 Act (15 U.S.C. Section 78n(e)) is referred to and incorporated
by this reference as if set forth at length.
2. Jurisdiction is conferred on this Court under 28 U.S.C. Section 1331
(federal question), 28 U.S.C. Section 1332 (diversity of citizenship), and
principles of pendent jurisdiction.
3. Venue is proper in the District of Colorado pursuant to Section 27 of
the 1934 Act, 15 U.S.C. Section 78aa and 28 U.S.C. Section 1391, since HEC's
principal operating office is located at 4582 South Ulster Street, Denver,
Colorado 80237, and a substantial portion of the events or acts giving rise to
the claims asserted herein occurred in the District of Colorado.
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4. The events and acts giving rise to the claim occurred in connection with
a tender offer made by Hallwood by the use of the instrumentalities and means of
interstate commerce, and of the mails.
II. THE PARTIES
5. Plaintiff Ravenswood is a New York limited partnership, with its
principal offices located at 104 Gloucester Road, Massapequa, New York.
6. Ravenswood is the beneficial owner of 6,343 shares of HEC.
7. Defendant HEC is a Texas corporation with principal offices located at
4582 South Ulster Street, Denver, Colorado 80237. There are 777,126 common
shares of HEC stock outstanding. HEC is engaged in the development, production
and sale of oil and gas through its ownership of oil and gas properties and its
investments in entities with oil and gas activities. HEC is the general partner
of Hallwood Energy Partners, L.P., a publicly traded oil and gas limited
partnership, which conducts business through two operating partnerships. HEC is
also the general partner of HEP Operating Partners, L.P., and an HEC
wholly-owned subsidiary is the general partner of EDP Operating, Inc. HEC does
not engage in any other line of business and has no employees.
8. Defendant Hallwood is a Delaware corporation with its principal office
located at 3710 Rawlins Street, Suite 1500, Dallas, Texas 75219. Hallwood is the
majority and controlling shareholder of HEC, owning 81.6% of the shares.
Hallwood, its operating subsidiaries and associated companies are currently
engaged in commercial and industrial real estate, energy, textile products, and
the hotel and restaurant businesses.
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9. Defendant Anthony J. Gumbiner ("Gumbiner") is chairman of the board of
directors of HEC and HEC's chief executive officer. Gumbiner is also chairman of
the board of directors and chief executive officer of Hallwood. Gumbiner is sued
herein in his capacity as a director of HEC and Hallwood.
10. Defendant William L. Guzzetti ("Guzzetti") is a director of HEC and
HEC's president and chief operating officer. Guzzetti is also an executive
vice-president of Hallwood. Guzzetti is sued herein in his capacity as a
director of HEC and Hallwood.
11. Defendant Brian M. Troup ("Troup") is a director of HEC. Troup is also
a director and chief operating officer of Hallwood. Troup is sued herein in his
capacity as a director of HEC and Hallwood.
12. Defendant Hans-Peter Holinger ("Holinger") is a director of HEC.
Holinger is sued herein in his capacity as a director of HEC.
13. Defendant Rex A. Sebastian ("Sebastian") is a director of HEC, and is
sued herein in his capacity as a director of HEC.
14. Defendant Nathan C. Collins ("Collins") is a director of HEC, and is
sued herein in his capacity as a director of HEC.
15. By virtue of their executive positions and/or majority ownership of
HEC, the individual director defendants (the "Individual Defendants") and
Hallwood owe the minority public stockholders the highest fiduciary duties of
fidelity, candor and trust.
16. By reason of their positions with HEC, all of the Individual Defendants
conduct and transact business within the District of Colorado.
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III. CLASS ACTION ALLEGATIONS
17. Plaintiff brings this action as a class action pursuant to Rule 23 of
the Federal Rules of Civil Procedure on behalf of itself and all other persons
who owned shares of HEC as of October 15, 1996. Excluded from the class are
Hallwood and its directors and officers, the Individual Defendants and members
of their immediate families and the officers of HEC.
18. The class of shareholders for whose benefit this action is brought is
so numerous that joinder of all class members is impracticable. As of October
15, 1996 there were approximately 667 holders of record of 143,209 minority
shares of HEC. The members of the class are located throughout the United
States.
19. There are questions of law and fact which are common to members of the
class and which predominate over any questions affecting only individual
members. These common questions include: (1) Whether the Defendants have
violated the Exchange Act. (2) Whether documents prepared and disseminated by
Defendants in connection with the tender offer are false and misleading. (3)
Whether the Defendants have engaged in plan and scheme which constitutes a
breach of fiduciary duty owed to Plaintiff and members of the class. (4) Whether
the Defendants engaged in conduct constituting self-dealing and unfair dealing
to enrich themselves at the expense of the minority shareholders. (5) Whether
the tender offer price is grossly inadequate and unfair to the minority
shareholders.
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20. The claims of the Plaintiff are typical of the claims of other members
of the class and the Plaintiff has no interests that are antagonistic or adverse
to the interests of the other members of the class. Plaintiff will fairly and
adequately protect the interests of the class.
21. If the minority shareholders refuse to accede to a tender at the unfair
price, their only alternative is to hold their shares and seek appraisal, which
may be so costly as to be prohibitive for any one individual shareholder.
22. The Plaintiff has sustained and will continue to sustain damages as a
result of the Defendants' wrongful actions and is committed to prosecuting this
action and has retained competent counsel experienced in litigation of this
nature.
23. Plaintiff envisions no difficulty in either the management of this
litigation as a class action or in providing notice to members of the class.
24. The likelihood of individual class members prosecuting individual
claims is remote due to the small individual losses to be suffered by each
member relative to the loss to be suffered by the class as a whole, and further
compared to the burden and expense of prosecuting an action of this nature and
magnitude on an individual basis.
25. The prosecution of separate actions by the individual members of the
class would create a risk of inconsistent or varying adjudications with respect
to individual class members, which would establish incompatible standards of
conduct for Defendants.
26. The prosecution of separate actions by individual class members would
create a risk of adjudications with respect to them which would, as a practical
matter, be dispositive of the interests of other class members not party to the
adjudications, and/or would substantially impair or impede such class members'
ability to protect their interests.
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27. Defendants have acted, or have refused to act, on grounds generally
applicable to the class, thereby making appropriate final declaratory and
injunctive relief with respect to the class as a whole.
28. For the above reasons, maintenance of a class action is a method
superior to other available methods for the fair and efficient adjudication of
this action.
29. Plaintiff demands a trial by jury.
IV. FACTUAL ALLEGATIONS
A. Hallwood's October 15, 1996 Offer to Purchase.
30. On October 15, 1996, Hallwood disseminated a false and misleading Offer
to Purchase which relates the following events: a. On June 7, 1996, HEC's board
of directors appointed a special committee (the "Special Committee") composed of
Defendants Sebastian, Holinger and Collins to assess strategic alternatives for
enhancing the value of shares not already held by Hallwood. b. Also on June 7,
1996, HEC issued a news release by which is announced that its board of
directors authorized its audit committee to evaluate strategic options for the
enhancement of shareholder value. The news release stated:
"Denver, Colorado - Hallwood Energy Corporation (OTC:HWEC) announced
today that its board of Directors has authorized its audit committee to
evaluate strategic options for the enhancement of shareholder value. The
Hallwood Group (NYSE:HWG), which owns approximately 82% of the outstanding
shares of the Company, has indicated that it is not prepared to support a
sale of its shares of the Company to a third party, or a sale of the
Company's assets.
To assist in its evaluation, the audit committee has been authorized
to engage a financial advisor. No specific transaction and no price at
which any transaction may occur has been proposed at this time and there is
no assurance that any transaction will take place.
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Hallwood Energy Corporation is the general partner of Hallwood Energy
Partners, L.P. (AMEX:HEP), a master limited partnership engaged in oil and
gas exploration and exploitation."
c. At a meeting of the Special Committee held on June 21, 1996, the Special
Committee retained legal counsel and Principal Financial Services ("PFS") as its
financial advisor. d. At a meeting of the Special Committee held on August 8,
1996, PFS presented its preliminary analyses. PFS preliminarily valued HEC at
$15.38 to $17.14 per share. Based upon PFS's presentation, the Special Committee
determined that the most viable strategic alternatives were to sell the entire
company to a third party or to seek an offer from Hallwood. e. Holinger
contacted representatives of Hallwood on August 10, 1996. In discussions with
Holinger, Hallwood indicated it had no desire to participate in the sale of HEC
to a third party. f. On August 13, 1996, Hallwood proposed to the Special
Committee a merger whereby the shares of HEC not owned by Hallwood would be
purchased at $17.50 per share. g. On August 28, 1996, the Special Committee
instructed PFS to evaluate the proposal. h. At a meeting of the Special
Committee held on August 30, 1996, PFS presented its evaluation. The Special
Committee noted that PFS increased its previous valuation, and the Special
Committee determined to seek a price of $19.50 per share. i. That same day,
Sebastian communicated the Special Committee's counter-offer of $19.50 per share
to Guzzetti, who accepted the counter-offer on behalf of Hallwood.
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j. On September 4, 1996, the HEC's board of directors held a regularly scheduled
meeting at which the Special Committee recommended the merger at $19.50 per
share. Based upon this recommendation, HEC's board approved the transaction. k.
On September 9, 1996, HEC and Hallwood issued a joint news release by which they
announced a proposed merger between HEC and Hallwood in which the minority
shareholders of HEC would be paid $19.50 each per share. The joint news release
stated: "Dallas, Texas, September 9, 1996. The Hallwood Group Incorporated
(NYSE:HWG) and Hallwood Energy Corporation (NMS:HWEC) announced today that the
Board of Directors of Hallwood Energy, upon the recommendation of the previously
appointed special committee of independent directors, has accepted in principle
the offer of Hallwood Group to affect a combination of Hallwood Energy and
Hallwood Group in which the minority shareholders of Hallwood Energy would
receive cash in the amount of $19.50 per share for each share of Hallwood Energy
they hold as of the record date. The agreement is subject to, among other
things, the determination of the structure of the combination and the execution
by both companies of a definitive agreement.
Hallwood Group owns approximately 82% of the issued and outstanding
stock of Hallwood Energy. It is anticipated that the completion of the
transaction will be conditioned on the approval of the holders of a
majority of the shares of Hallwood Energy not currently held by Hallwood
Group. It is the intention of the companies to complete the transaction
before the end of the year." (emphasis added).
31. On October 4, 1996, Plaintiff Ravenswood, by letter from its New York
counsel, advised Defendant Gumbiner that, in its opinion, the $19.50 per share
to be paid in the proposed merger was not a fair price. Plaintiff requested an
opportunity to review, among other documents, the reports of the Special
Committee and of PFS, as well as a copy of HEC's shareholder list. Gumbiner
failed to comply with Plaintiff's request to review these documents.
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32. On October 10, 1996, HEC and Hallwood issued a second joint news
release by which it was announced that they had reached a definitive merger
agreement, but that the merger would be preceded by Hallwood's tender offer to
purchase shares of HEC at $19.50 cash per share. The second joint news release
stated:
"Dallas, Texas, October 10, 1996 - The Hallwood Group Incorporated
(NYSE:HWG) and Hallwood Energy Corporation (OTC:HWEC) announced today that
they have entered into a definitive Merger Agreement providing for the
merger of Hallwood Energy Corporation ("Hallwood Energy") into the Hallwood
Group Incorporated ("Hallwood Group"). Prior to the merger, Hallwood Group
has agreed to commence a tender offer for all the outstanding shares of
common stock of Hallwood Energy at a price of $19.50 per share, net to the
seller in cash, subject to the terms and conditions of the tender offer
documents.
The Board of Directors, and Special Committee of the Board of
Directors, of Hallwood Energy have unanimously approved the tender offer
and the merger and determined the terms of the tender offer and the merger
are fair to, and in the best interest of, stockholders of Hallwood Energy.
The Board of Directors of Hallwood Energy recommends that all stockholders
of Hallwood Energy accept the tender offer and tender their shares.
Principal Financial Securities, Inc. acted as financial advisor to the
Special Committee of the Board of Directors of Hallwood Energy and advised
the Special Committee that the consideration to be received by the
stockholders of Hallwood Energy is fair to the stockholders (other than
Hallwood Group) from a financial pint of view as of the date of the Merger
Agreement.
Hallwood Group currently owns approximately 81.6% of the issued and
outstanding shares of the common stock of Hallwood Energy. The completion
of the transaction will be conditioned upon, among other things, the valid
tender of a majority of the shares of Hallwood Energy not currently held by
Hallwood Group which, together with the shares currently held by Hallwood
Group, will constitute at least 90% of the issued and outstanding shares of
the common stock of Hallwood Energy."
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33. On October 15, 1996, Hallwood commenced the tender offer to purchase
all shares of HEC that it did not already own at a price of $19.50 cash per
share. The tender offer is due to expire at 12:00 midnight on Friday, November
22, 1996, unless extended.
34. The Offer to Purchase states that the tender offer is conditioned upon
the tender of a majority of the minority shares. The Offer to Purchase states:
"THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED
AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A MAJORITY OF THE SHARES
NOT HELD BY THE PURCHASER WHICH, TOGETHER WITH ANY SHARES CURRENTLY BENEFICIALLY
OWNED DIRECTLY OR INDIRECTLY BY THE PURCHASER, WILL ALSO CONSTITUTE AT LEAST 90%
OF THE TOTAL SHARES OUTSTANDING AS OF THE DATE THE SHARES ARE ACCEPTED FOR
PAYMENT PURSUANT TO THE OFFER ("MINIMUM TENDER CONDITION")."
35. The board of directors of HEC and the Special Committee unanimously
recommended that the offer and the merger were fair to and in the best interests
of HEC and the shareholders. In this regard, the Offer to Purchase states: "THE
BOARD OF DIRECTORS OF THE COMPANY AND THE COMMITTEE OF THE BOARD OF DIRECTORS OF
THE COMPANY COMPRISED OF ALL DIRECTORS OF THE COMPANY WHO ARE NEITHER OFFICERS
OR DIRECTORS OF THE PURCHASER NOR OFFICERS OF THE COMPANY ("SPECIAL COMMITTEE")
HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAVE APPROVED THE OFFER AND
THE MERGER (AS DEFINED HEREIN) AND RECOMMEND THAT THE COMPANY'S STOCKHOLDERS
ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER."
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FIRST CLAIM FOR RELIEF
(Violations of Section 14(e) of the Exchange Act)
36. Plaintiff repeats, realleges and incorporates herein by this reference
the allegations set forth in paragraphs 1 through 35 above.
37. The tender offer and the Merger are not fair, and the Offer to Purchase
is false and misleading by failing to disclose material facts which will affect
a minority shareholder's decision to tender. These false and misleading facts
include, but are not limited to, the following: a. The price of $19.50 cash per
share is grossly inadequate and does not represent the fair value of the shares.
(1) HEC previously repurchased its shares at prices above $19.50 per share,
thereby acknowledging a higher value. For example, in the third quarter of the
fiscal year ending December 31, 1995, HEC repurchased a block of 58,000 shares
at a price of $21.50 per share. (2) HEC's financial condition has significantly
improved since the repurchase made in 1995. Indeed, net earnings per share have
increased since the purchase at $21.50 per share in 1995. For example, net
earnings per share were $1.52 for the period ending June 10, 1996 compared with
a loss of $1.00 per share at year end 1995. (3) The cash out price fails to
account for the dividend projected for 1996, which has been eliminated under the
proposed transaction. The Offer to Purchase discloses that no dividend will be
paid for 1996, or that if one is paid, it will be deducted from the offering
price. Thus, the actual price proposed in the tender offer is approximately
$2.33 per share less than the offering price. (4) The proposed tender offer per
share price was determined without any reference to comparable transactions
involving sales of oil and gas companies. (5) The fair market per-share value of
HEC is approximately $55.00 per share.
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b. The Offer to Purchase refers to the market price of HEC's stock as an
indication of the fairness of the offering price, however, the market price is a
misleading measure of the fair value of HEC's shares, for the following reasons:
(1) The trading market for HEC's shares is so thin that the volume does not meet
the standards of the National Association of Securities Dealers' Rules of
Conduct, as approved by the Securities and Exchange Commission, for a "Bona Fide
Independent Market." (2) In April, 1995, Hallwood evaluated HEC's shares at
$17.96, even though the "market" priced HEC at only $10.50 per share. 38. The
Offer to Purchase discloses that the Special Committee placed special reliance
on the report and conclusion of PFS that the Offer to Purchase was fair, when,
in fact, the PFS report was deficient.
39. The Offer to Purchase discloses that the offering price is based upon
the high end of PFS's valuation of comparable companies, when, in fact, the
companies used in the valuation were not at all comparable. HEC is different
from the companies used in the study because HEC derives substantial revenue as
a general partner of the operating oil and gas partnerships. Thus, HEC does not
have the same degree of risk of capital investment nor the same requirement to
invest capital, and its limited partnership affiliate pays the bulk of its
operating expenses.
40. Even if the alleged comparable companies were in fact comparable, PFS
did not accurately gauge their per share values. Certain of the companies
reviewed by PFS traded at price/earnings ratios greater than 30 during 1995,
thereby implying that HEC's per share value is much higher than the offering
price.
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41. The Offer to Purchase fails to disclose any current material financial
information. Defendants have not disclosed any financials for the fiscal quarter
ending September 30, 1996, and have timed the tender offer so as not to have to
disclose any year-end financials. Thus, there is no disclosure of a fair,
complete and accurate picture which would allow the minority shareholders to
make an informed decision whether to tender their shares.
42. The Offer to Purchase contains untrue statements of material fact and
contains omissions of material facts.
43. Defendants knew or have recklessly disregarded the fact that the
Proposed Offer contains untrue statements of material fact and omissions of
material facts.
44. As a result of the aforementioned misconduct of Defendants, Hallwood
may obtain sufficient tenders to acquire 90% of HEC shares which will, in turn,
enable it to effectuate a short-form merger at a grossly unfair and inadequate
cash out price.
45. As a result of the foregoing, Defendants have violated Section 14(e) of
the Exchange Act and the rules and regulations promulgated thereunder.
46. The Plaintiff and members of the class have no adequate remedy at law.
SECOND CLAIM FOR RELIEF (Breach of Fiduciary Duty)
47. Plaintiff repeats, realleges and incorporates by this reference the
allegations set forth in paragraphs 1 through 46 above.
48. Hallwood, as the controlling shareholder of the Company, and the
Individual Defendants, stand in a fiduciary relationship to Plaintiff and other
minority shareholders, and owe to the Plaintiff and other minority shareholders
the highest obligations of good faith and fair dealing.
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49. Defendants' wrongful actions constitute a breach of fiduciary duty owed
to Plaintiff, as a minority shareholder. As a result of the actions taken and to
be taken by Defendants, Plaintiff and other members of the class have been and
will continue to be damaged in that they have been deceived, coerced and are and
will continue to be victims of Defendants' self-dealing and unfair dealing.
50. The description in the Offer to Purchase concerning the appointment and
actions of the Special Committee make it appear as though Defendants are dealing
fairly with the minority shareholdes when the true purpose of the Offer to
Purchase is to facilitate the acquisition by Hallwood of the entire equity
interest of HEC at a grossly unfair and inadequate price.
51. In fact, the Special Committee and its advisors did not engage in
active, arms-length negotiations with Hallwood to obtain the highest price
available for the minority shareholders. Rather, the Special Committee simply
acceded to Hallwood's offer, and because Hallwood prohibited the Special
Committee from shopping the Company, Hallwood did not obtain any competing bids
which it should have done in order to satisfy its fiduciary duty to the Company
and its shareholders.
52. Defendants have thus dealt unfairly with the minority stockholders, in
bad faith, and have failed to provide and follow adequate procedural safeguards
designed to assure arm's-length bargaining to achieve a fair value for the
outstanding shares. In addition, Defendants have failed to assure that the
interests of the public stockholders were protected. Defendants have therefore
breached their fiduciary duties as follows:
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a. Defendants prohibited the Special Committee from actively negotiating
with potential third parties in order to obtain the highest per-share price
available to the minority stockholders. b. The Special Committee relied on a
Fairness Opinion from PFS which was materially defective and incomplete, as set
forth in Paragraphs to, above. Furthermore, although the Special Committee
determined that the best way to enhance the value of HEC's shares was through a
sale to a third party, PFS never analyzed any comparable sales transactions in
determining whether the $19.50 per share offering price was fair. Thus, the
Special Committee and HEC's board failed to take reasonable steps necessary to
enable them to reach an informed judgment as to the ultimate fairness of the
tender offer. c. The Defendant Directors and HEC opined that the Offer to
Purchase was fair to the minority stockholders and in their best interest when,
in fact, the sale is a "Squeeze-Out" designed to provide Hallwood with a
windfall to the detriment of the Company's stockholders, and particularly to
Plaintiff, a minority stockholder. d. Defendants, in developing the proposed
tender offer, used internal proprietary information that was not disclosed to
public stockholders. The Offer to Purchase discloses no fiscal third quarter
results, fails to disclose the reasons for the increase in PFS's valuation and
is timed to occur before minority shareholders receive full fiscal year results.
Thus, the Plaintiff and other minority shareholders are forced to make a
decision without the benefit of current material financial information. e. The
Squeeze-Out is timed to enable Defendants to capitalize on what they knew were
favorable macroeconomic and other conditions for the long-term growth and profit
of HEC.
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f. Defendants have failed to provide for approval by the majority of the
minority stockholders. Hallwood, by reason of its controlling position, intends
to accomplish the merger whether or not a majority of the minority shares are
tendered in the tender offer. Although the Offer to Purchase discloses that
there exists a "minimum tender condition," this "condition" is a sham: Hallwood
stated that it intends to conduct the merger without satisfaction of the
"minimum tender condition" and that Hallwood will seek to pay a lower price in
any appraisal proceeding.
53. The tender offer is coercive because Hallwood states that it intends to
argue in any appraisal proceeding that the fair value of HEC's shares is less
than the amount payable in the tender offer and merger. Because the market is
not an effective measure of the fair value of HEC's shares, the only way for the
minority shareholder to receive any value for their shares is to tender into
Hallwood's grossly inadequate offer. If the minority shareholders do not tender,
they may be forced out at even lower values than are being offered in the tender
offer.
54. Hallwood and the Individual Defendants have an inherent conflict of
interest between their duty to obtain the highest possible price for the
shareholders, and their interest to acquire HEC at the lowest cost, which has
been resolved in favor of Hallwood. HEC possesses a tax loss carry forward of
approximately $107 million, which Hallwood requires to shelter the sale of other
assets, but which Hallwood cannot use unless it is merged with HEC. The Special
Committee failed to place any special value on this tax loss carryforward and
failed to negotiate any premium on the price of the minority shares which would
compensate the shareholders for this coveted asset.
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55. There is no valid business purpose of HEC served by this tender offer.
The only purpose of the tender offer is to eliminate the minority shareholders
at the cheapest price possible.
56. The consideration to be paid to the minority shareholders is grossly
unfair, inadequate and substantially below the fair value of HEC's business and
assets. The intrinsic value of HEC is materially greater than the consideration
to be paid to minority shareholders, taking into account HEC's expected growth
and income, the strength of its business, its assets and earning power.
57. The Squeeze Out is wrongful, unfair and harmful to the minority
shareholders and represents an effort by Hallwood to aggrandize its financial
positions and interests and to enrich itself, at the expense and detriment of
the minority shareholders. The transaction will deny Plaintiff and other
minority shareholders the right to share proportionately in the true value of
the Company's assets and future growth in profits and earnings, while usurping
same for the benefit of Defendants at a grossly unfair and inadequate price.
58. Defendants also may have purposely failed to disclose material
information that would affect a shareholder's decision whether to tender and
accept the cash payment or to seek appraisal or other remedies in order to
obtain sufficient tenders to attain the 90% ownership of the Company which would
thereby enable Hallwood to affect a short-form merger.
59. All of the Individual Defendants have participated in, and have aided
and abetted the plan and scheme, to freeze-out the Plaintiff and members of the
Class and to acquire the complete ownership of HEC at the least possible cost.
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THIRD CLAIM FOR RELIEF (Injunctive Relief)
60. Plaintiff repeats, realleges and incorporates herein by this reference
the allegations set forth in paragraphs 1 through 59 above.
61. Unless enjoined, the Defendants will take whatever action is necessary
to achieve their objective of acquiring HEC at the lowest possible price, and
will enrich themselves at the expense of the minority shareholders.
62. As a result of the actions of Defendants, Plaintiff and other members
of the class have been and will be irreparably harmed in that they have not and
will not receive their fair proportion of the value of HEC's assets and
business, nor a fair price for their investment in the Company.
63. Unless enjoined by this Court, Defendants will continue to breach their
fiduciary duties owed to Plaintiff and the other members of the class. The
tender offer should therefore be set aside as fraudulent and unlawful.
64. Plaintiff and the class have no adequate remedy at law. WHEREFORE,
Plaintiff, on its own behalf of the class under Rule 23 of the Federal Rules of
Civil Procedure, demands judgment against the Defendants, jointly and severally,
as follows: 1. declaring this action proper as a class action and certifying the
Plaintiff as representative of the class; 2. preliminarily and permanently
enjoining the Defendants, their agents, employees and any and all persons acting
in concert with them from proceeding with and consummating the tender offer to
purchase the minority public shares under the terms currently proposed; 3.
rescinding and setting aside any and all tenders made by members of the class;
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4. preliminarily and permanently enjoining the Defendants, their agents,
employees and any and all persons acting in concert with them from proceeding
with and consummating a Merger of HEC into Hallwood; 5. requiring Defendants to
provide Plaintiff with shareholder lists currently in possession of Defendants';
6. awarding compensatory damages in an amount of be determined at trial; 7.
awarding Plaintiff the costs and disbursements of this action, including a
reasonable allowance for attorney fees, accountants, and experts, and
reimbursement of Plaintiff's expenses; and 8. granting Plaintiff and the class
such other and further relief as the Court deems just, proper and equitable.
Respectfully submitted this 15th day of November, 1996. WOLF & SLATKIN
Professional Corporation
By:
Raymond P. Micklewright
David J. Naginsky
745 Ptarnigan Place
3773 Cherry Creek North Drive
Denver, Colorado 80209-3827
Telephone: (303) 355-2999
OF COUNSEL:
J. JAMES CARRIERO, ESQ.
29-53 Butler Street
East Elmhurst, New York 11369
Lowey Dannenberg, Benporad & Selinger
The Gateway
One North Lexington Avenue
White Plains, New York 10601
Attorneys for Plaintiff
Address of Plaintiff:
104 Gloucester Road
Massapequa, New York
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