<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
(AMENDMENT NO. 10)
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
PENNZOIL COMPANY
(Name of Subject Company)
PENNZOIL COMPANY
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.83 1/3 PER SHARE
(including the associated Preferred Stock Purchase Rights)
(Title of Class of Securities)
709903 10 8
(CUSIP Number of Class of Securities)
LINDA F. CONDIT
CORPORATE SECRETARY
PENNZOIL COMPANY
PENNZOIL PLACE, P.O. BOX 2967
HOUSTON, TEXAS 77252-2967
(713) 546-8910
(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>
Moulton Goodrum, Jr. Charles F. Richards, Jr.
Baker & Botts, L.L.P. Richards, Layton & Finger
One Shell Plaza One Rodney Square
Houston, Texas 77002-4995 P.O. Box 551
(713) 229-1234 Wilmington, Delaware 19899-0551
(302) 658-6541
</TABLE>
<PAGE> 2
This Amendment No. 10 (this "Amendment") amends and supplements the
Solicitation/ Recommendation Statement on Schedule 14D-9, as amended, originally
filed on July 1, 1997 by Pennzoil Company, a Delaware corporation (the
"Company"), relating to a tender offer commenced by Resources Newco, Inc., a
wholly owned subsidiary of Union Pacific Resources Group Inc., on June 23, 1997.
All capitalized terms used in this Amendment without definition have the
meanings attributed to them in the Schedule 14D-9.
The items of the Schedule 14D-9 set forth below are hereby amended by
adding the following:
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Pennzoil and its directors have been named in an additional purported class
action, entitled Zwieg v. Pennzoil Co. (C.A. No. 15831), filed on behalf of the
stockholders of the Company in the Chancery Court of Delaware. The complaint
alleges breach of fiduciary duty claims on the part of the Board arising out of
the UPR Proposal, and seeks, among other relief, declaratory and injunctive
relief barring defendants from breaching their fiduciary duties to plaintiff and
the putative class members and from taking steps to impede any offer to acquire
the Company, as well as damages in an unspecified amount. A copy of the
complaint is filed as Exhibit 47 and incorporated herein by reference. The
foregoing description of the complaint is qualified in its entirety by reference
to such Exhibit.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4 Revised opinion of Evercore Group dated July 1, 1997
delivered to the Company.
45 Letter dated August 13, 1997 from Mr. Jack L. Messman to Mr.
James L. Pate.
46 Letter dated August 14, 1997 from Mr. James L. Pate to Mr.
Jack L. Messman.
47 Complaint filed by Ronald Zweig against the Company et al.
(filed July 29, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
</TABLE>
2
<PAGE> 3
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.
PENNZOIL COMPANY
Dated: August 18, 1997 By: /s/ James L. Pate
James L. Pate
Chairman of the Board, President
and Chief Executive Officer
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
4 Revised opinion of Evercore Group dated July 1, 1997
delivered to the Company.
45 Letter dated August 13, 1997 from Mr. Jack L. Messman to Mr.
James L. Pate.
46 Letter dated August 14, 1997 from Mr. James L. Pate to Mr.
Jack L. Messman.
47 Complaint filed by Ronald Zweig against the Company et al.
(filed July 29, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
</TABLE>
<PAGE> 1
EXHIBIT 4
[Evercore Group Inc. Letterhead]
July 1, 1997
Board of Directors
Pennzoil Company
Pennzoil Place
P.O. Box 2967
Houston, TX 77252
Gentlemen:
We understand that on June 23, 1997 Resources Newco, Inc. (the
"Purchaser"), a wholly owned subsidiary of Union Pacific Resources Group Inc.
("UPR"), commenced a tender offer under which it is offering to purchase up to
25,094,200 shares of common stock, par value $0.83 1/3 per share (the
"Shares"), of Pennzoil Company ("Pennzoil" or the "Company"), or such greater
number of Shares as equals 50.1% of the Shares outstanding on a fully diluted
basis on the Expiration Date (as defined in the Offer to Purchase), in each
case together with the associated preferred stock purchase rights (the
"Rights") issued pursuant to the Rights Agreement dated as of October 28, 1994,
between Pennzoil and Chemical Bank, as Rights Agent, at a price of $84.00 per
Share (and associated Right), net to the seller in cash, without interest
thereon (the "Offer Consideration"), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated June 23, 1997 (the "Offer
to Purchase") and in the related Letter of Transmittal (which, together with
any amendments or supplements thereto, collectively constitute the "Offer").
We also understand that UPR is seeking to negotiate with Pennzoil a definitive
acquisition agreement pursuant to which Pennzoil would, as soon as practicable
following consummation of the Offer, consummate a merger (the "Proposed
Merger", and together with the Offer, the "Transaction") with Purchaser or
another direct or indirect wholly owned subsidiary of UPR. At the effective
time of the Proposed Merger, each Share that is issued and outstanding
immediately prior to the effective time (other than Shares held in the treasury
of Pennzoil or owned by UPR, Purchaser or any direct or indirect wholly owned
subsidiary of UPR) would be converted into a number of shares of common stock,
no par value, of UPR ("UPR Common Stock") determined by dividing $84.00 by the
average closing price of a share of UPR Common Stock during a measurement
period preceding the date of the Pennzoil stockholder meeting at which the
Proposed Merger is approved, provided that the number of shares of UPR Common
Stock to be received for each Share will not be more than 3.36 shares of UPR
Common Stock nor less than 2.80 shares of UPR Common Stock (the "Stock
Consideration", and together with the Offer Consideration, the
"Consideration"). The Offer is subject to a number of terms and conditions
contained in the Offer to Purchase. The terms of the Offer are more fully set
forth in the Schedule 14D-1
<PAGE> 2
July 1, 1997
Page 2
(the "Schedule 14D-1") filed by Purchaser and UPR with the Securities and
Exchange Commission on June 23, 1997.
You have asked for our opinion as to whether the Consideration to be
received by the holders of the Shares pursuant to the Transaction, including
the Offer, is adequate from a financial point of view to the holders of the
Shares.
For purposes of the opinion set forth herein, we have:
(i) reviewed the Offer to Purchase, the Schedule 14D-1 and certain
related documents;
(ii) analyzed certain publicly available financial statements and
other information of the Company and UPR, respectively;
(iii) analyzed certain internal financial statements and other
financial and operating data concerning the Company prepared
by the management of the Company;
(iv) analyzed certain financial projections for the Company
prepared by the management of the Company;
(v) discussed the past and current operations and financial
condition and the prospects of the Company with senior
executives of the Company;
(vi) reviewed the reported prices and trading activity for the
Company Shares and the UPR Common Stock;
(vii) compared the financial performance of the Company and UPR and
the prices and trading activity of the Company Shares and the
UPR Common Stock to similar publicly available information for
publicly-traded companies having lines of business similar to
those of the Company and UPR, respectively;
(viii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
(ix) performed such other analyses and examinations and considered
such other factors as we have in our sole judgment deemed
appropriate.
<PAGE> 3
July 1, 1997
Page 3
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation or appraisal of the assets
or liabilities of the Company, nor have we been furnished with any such
appraisals. In addition, you have not authorized us to solicit, and we have
not solicited, any indications of interest from any third party with respect to
the purchase of all or a part of the Company's business. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of the date hereof.
Evercore Group Inc. has acted as financial advisor to the Board of
Directors of the Company in connection with this transaction and will receive a
fee upon the rendering of this opinion.
This opinion is for the use and benefit of the Board of Directors of
Pennzoil. This opinion is not intended to be and does not constitute a
recommendation to any shareholder of the Company as to whether to accept the
Consideration offered to such shareholder in the Transaction.
Based on the foregoing, we are of the opinion on the date hereof that
the Consideration to be received by the holders of the Shares pursuant to the
Transaction, including the Offer, is inadequate from a financial point of view
to the holders of the Shares.
Very truly yours,
/s/ Evercore Group Inc.
<PAGE> 1
EXHIBIT 45
[On UPR Letterhead]
August 13, 1997
Mr. James L. Pate
Pennzoil Company
700 Milam
Houston, Texas 77252
Dear Jim:
As you know, UPR is strongly committed to achieving the combination of
our two companies. We believe that UPR's proposal offers far greater value
than Pennzoil can hope to achieve on its own.
The results of our tender offer suggest that your shareholders
overwhelmingly agree with UPR. As you may know, 61.5% of all Pennzoil shares
were tendered into our offer. Moreover, our information agent estimates that
in excess of 80% of the shares held by institutions and other professionally
managed accounts were tendered.
Many Wall Street analysts have expressed strong support for our offer.
Attached are a representative sample of independent investment community
commentary and two recent analyst reports. They underscore a number of key
points, including:
o current and projected values for Pennzoil are substantially
below UPR's offer;
o Pennzoil's Board should negotiate a transaction with UPR; and
o the combination of UPR and Pennzoil will enhance the value of
UPR stock, which will benefit both companies' shareholders.
We remain convinced that our proposal will serve the best interests of
the shareholders of both Pennzoil and UPR.
Sincerely,
/s/ Jack
Jack L. Messman
JLM/ds
Attachments
<PAGE> 2
SELECTED ANALYST COMMENTARY
ON A PENNZOIL/UPR COMBINATION
"UPR can drop bid and we project that Pennzoil stock could drop by $10-$15 per
share."
Michael Young
Deutsche Morgan Grenfell
First Call, July 10, 1997
"IF UPR's offer is blocked or withdrawn, it would take a long time for Pennzoil
to get its stock back up to $84 on its own."
Benjamin Rice
Brown Brothers Harriman
Dow Jones, June 24, 1997
"It would be hard for most shareholders to turn [the $84 per share tender
offer] down. A year from now, I see this as being a done deal."
Christopher Eades
UBS Securities
Dow Jones, June 23, 1997
"Pennzoil would not be trading north of $60 if not for UPR."
Nicholas Colabella
Petroleum Research Group
Fort Worth Star-Telegram,
July 15, 1997
"'I think UPR is overpaying,' said Gary F. Hovis, an analyst with Argus
Research, saying that Pennzoil was worth about $70 a share, not $84."
Gary F. Hovis
Argus Research
The New York Times,
June 24, 1997
<PAGE> 3
"UPR's offer price is a significant premium to where Pennzoil will be trading in
the next six to eight months and significantly in excess of what the company is
worth right now."
Norman Rosenberg
S&P Equity Group
Dow Jones Federal Filings,
July 17, 1997
"It's a no brainer. Pennzoil shareholders should take the money and run . . .
[Pennzoil] invested in international exploration and production to the
detriment of domestic prospects. Those investments haven't proved up. There's
been a steady, steady decline in profitability."
Sharon James
John S. Herold Inc.
Houston Business Journal,
June 30, 1997
"A rejection of UPR's bid combined with Pennzoil's takeover defenses could be
sufficient to keep Pennzoil independent for a year or longer, in our view.
Under this scenario, the stock could fall to $60 . . . A restructuring
involving a spin-off of downstream operations and/or share repurchase could not
hold the stock at the current level, according to our estimates."
Frederick P. Leuffer,
Michelle D. Marlow
Bear Sterns & Co.
First Call, July 28, 1997
"We have found UPR's acquisition team to have made an extremely detailed and
thoughtful competitive analysis. UPR's expertise is in fast cycle time
drilling and production operations . . . UPR had adjoining fields to many of
PZL's areas, knew the geology, oftentimes operated the production
infrastructure, and used production, seismic and well log data to essentially
perform pre-development planning. So if successful, UPR could take over PZL
operations, immediately accelerate drilling, and not go through the typical
period of post-purchase operations indigestion."
". . . we believe that UPR's stock should trade at 6.3x - 6.8x our 1998 DCFPS
estimate or $28 - $30/share . . . With Pennzoil, we believe that UPR could
ultimately get a greater premium."
John Herrlin, Alvina Lee
Merrill Lynch
Analyst Report, July 21, 1997
<PAGE> 4
"You sense things are moving UPR's way. They attracted 61 percent of
Pennzoil's stock in the face of determined board opposition."
Tom Bernett
Merger Insight
Fort Worth Star-Telegram,
July 23, 1997
"These are very strong tender offer results, it is overwhelming for Pennzoil's
board."
Michael Young
Deutsche Morgan Grenfell
Reuters, July 22, 1997
"You can't hold out against [a 61.5% tender acceptance rate]."
Benjamin Rice
Brown Brothers Harriman
Reuters, July 22, 1997
"[The 61.5% tender offer response is] clearly a stronger-than-expected response
from Pennzoil shareholders. Pennzoil's board has been sent a strong message
from shareholders that they should at least sit down with Union Pacific."
Michael Young
Deutsche Morgan Grenfell
Dallas Morning News,
July 23, 1997
"In our view, UPR's bold move is well conceived and undoubtedly reflects a
thorough assessment of Pennzoil's assets and operations ... an already
compelling core investment holding within the large-capitalization E&P segment
would become even more attractive with Pennzoil in the fold. Accordingly, we
reiterate our Buy rating on UPR shares, with a 12-month stock price objective
of $35.00/share."
Paul Leibman, Paul Korus
Petrie Parkman
Research Comment,
June 27, 1997
<PAGE> 5
"If you put UPR's drilling philosophy onto Pennzoil's properties, you'd have a
real powerhouse."
David Garcia
Principal Financial Group
First Call, June 24, 1997
# # #
[Also attached to the letter were an analyst report of Merrill Lynch, dated
July 21, 1997 and an analyst report of Petrie Parkman & Co., dated June 27,
1997.]
<PAGE> 1
EXHIBIT 46
[On Pennzoil Letterhead]
August 14, 1997
Mr. Jack L. Messman
Chairman and Chief Executive Officer
Union Pacific Resources Corporation
801 Cherry Street
Fort Worth, Texas 76102-6803
Dear Jack:
Your recent correspondence that purports to summarize the views of
Wall Street analysts with regard to your proposal to acquire Pennzoil is
incomplete, misleading and, most importantly, pointless. Based upon your
letter, it appears that I need to reiterate points that I have made in previous
correspondence to you and that our Board has made in the Company's filings with
the SEC.
The Pennzoil Board of Directors has rejected your proposal, including
the first step tender offer, as inadequate and not in the best interests of
the Pennzoil stockholders. We firmly believe that our strategic plan can
deliver greater long-term value to our stockholders than the UPR proposal --
it's as simple as that.
As I said to you in my letter of August 1, we fully intend to pursue
our strategic plan and will take all necessary steps to assure that our
stockholders are the ones who receive the benefits of that strategic plan.
Sincerely,
/s/ Jim
JLP:mrm
<PAGE> 1
EXHIBIT 47
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- ------------------------------------------------------------------------x
RONALD ZWEIG, :
:
Plaintiff, : C.A. NO. 15831
:
- against - :
:
PENNZOIL COMPANY, JAMES L. PATE, HOWARD :
H. BAKER, JR., W.J. BOVAIRD, W.L. LYONS :
BROWN, JR., ERNEST H. COCKRELL, HARRY H. :
CULLEN, ALFONSO FANJUL, JR., BERDON :
LAWRENCE, BRENT SCOWCROFT, GERALD B. :
SMITH and CYRIL WAGNER, JR., :
:
Defendants. :
- -------------------------------------------------------------------------x
Plaintiff, as and for his complaint, alleges upon information
and belief, except as to himself, which he alleges upon knowledge, as follows:
NATURE OF THE ACTION
1. This is a stockholders' class action lawsuit brought on
behalf of the public stockholders of Pennzoil Company ("Pennzoil" or the
"Company") who have been, and continue to be, deprived of the opportunity to
realize fully the benefits of their investment in the Company. The individual
defendants, who constitute Pennzoil's Board of Directors, have wrongfully
refused to negotiate or consider value maximizing proposals for the Company,
including that of Union Pacific Resources Group Inc. ("UPR"), and have
impermissibly exploited existing anti-takeover defenses to entrench themselves
in their positions of control, and have acted unreasonably in relation to any
-1-
<PAGE> 2
threat posed by UPR. The actions of the Individual Defendants constitute a
breach of their fiduciary duties to Pennzoil and its shareholders.
THE PARTIES
2. Plaintiff Ronald Zweig has been, at all times relevant to
the action, and continues to be, an owner of Pennzoil common stock.
3. Defendant Pennzoil is a corporation duly organized and
existing under the laws of the State of Delaware, with its principal executive
offices located at Pennzoil Place, P.O. Box 2967, Houston, Texas 77252. The
Company is a natural resource company that explores for, produces, refines and
markets oil, gas and refined petroleum products. Pennzoil's Jiffy Lube auto
service business provides retail oil change and lubrication services.
4. Defendants James L. Pate ("Pate"), Howard H. Baker, Jr.,
W.J. Bovaird, W.L. Lyons Brown, Jr., Ernest H. Cockrell, Harry H. Cullen,
Alfonso Fanjul, Jr., Berdon Lawrence, Brent Scowcroft, Gerald B. Smith and
Cyril Wagner, Jr. (hereinafter collectively referred to as the "Individual
Defendants") are each members of Pennzoil's Board of Directors. In addition,
defendant Pate is the Chairman of the Board, President and Chief Executive
Officer of Pennzoil.
5. By virtue of their positions as directors and/or officers
of Pennzoil, the Individual Defendants have, and at all relevant times had, the
power to control and influence, and did control and influence and cause
Pennzoil to engage in the practices complained of herein. Each Individual
Defendant owed and owes Pennzoil and its stockholders fiduciary obligations and
were and are required to: use their ability to control and manage Pennzoil in
a fair, just and equitable manner; act in furtherance of the best interests of
Pennzoil and its stockholders; act to maximize stockholder value in connection
with a change of ownership and control; refrain from abusing their
-2-
<PAGE> 3
positions of control; and not to favor their own interests at the expense of
Pennzoil and its stockholders.
CLASS ACTION ALLEGATIONS
6. Plaintiff brings this action on his own behalf and as a
class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on
behalf of all common stockholders of the Company (except the defendants herein
and any person, firm, trust, corporation, or other entity related to or
affiliated with any of the defendants) and their successors in interest, who
are or will be threatened with injury arising from defendants' actions as more
fully described herein (the "Class").
7. This action is properly maintainable as a class action.
8. The Class is so numerous that joinder of all members is
impracticable. As of January 31, 1997, there were in excess of 46 million
shares of Pennzoil common stock outstanding.
9. There are questions of law and fact which are common to
the Class including, inter alia, the following: (a) whether defendants have
breached their fiduciary and other common law duties owed by them to plaintiff
and the members of the Class; (b) whether defendants are pursuing a scheme and
course of business designed to unjustly enrich themselves at the expense of and
to the detriment of the public stockholders of Pennzoil; and (c) whether the
Class is entitled to injunctive relief or damages as a result of the wrongful
conduct committed by defendants.
10. Plaintiff's claims are typical of the claims of members
of the Class. Plaintiff will fairly and adequately protect the interests of
the Class. Plaintiff has retained counsel experienced in litigations of this
type.
-3-
<PAGE> 4
11. Defendants have acted in a manner which similarly affects
plaintiff and all members of the Class, thereby making appropriate injunctive
relief and/or corresponding declaratory relief with respect to the Class as a
whole.
12. The prosecution of separate actions by individual members
of the Class would create a risk of inconsistent or varying adjudications with
respect to individual members of the Class, which would establish incompatible
standards of conduct for defendants, or adjudications with respect to
individual members of the Class which would, as a practical matter, be
dispositive of the interests of other members or substantially impair or impede
their ability to protect their interests.
SUBSTANTIVE ALLEGATIONS
13. Pennzoil is a natural resource company that explores for,
produces, refines and markets oil, gas and refined petroleum products. In
addition, Pennzoil's Jiffy Lube auto service business provides retail oil
change and lubrication services.
14. On April 22, 1997, Pennzoil announced 1997 first quarter
earnings. Profits before charges rose to $60.2 million, or $1.29 a share, from
$19 million or $0.41 a share in the first quarter of 1996. These results had
surpassed many analysts predictions that earnings would be only $1.20 per
share. However, despite Pennzoil's recent performance, Pennzoil's stock price
has languished, trading at approximately $55 per share over the last six
months. The market price of Pennzoil's stock, therefore, is less than its
long-term intrinsic value, exposing the Company to unsolicited overtures which
the defendants have systematically sought to quell.
15. UPR is a leading independent U.S. energy exploration and
production company which has a market capitalization of approximately $6.7
billion. According to published
-4-
<PAGE> 5
reports, Pennzoil approached UPR in 1995 to discuss a possible strategic
transaction between the companies. However, no transaction occurred as a
result of those discussions.
16. On June 23, 1997, UPR offered to acquire all the
outstanding shares of Pennzoil in a two-step transaction. In the first step of
the transaction, UPR is offering, through a subsidiary, to acquire 50.1 percent
of Pennzoil's common shares in a cash tender offer of $84 a share. If the
initial step succeeds, in a second step, Pennzoil and the UPR subsidiary will
merge in a transaction in which each remaining Pennzoil share will be exchanged
for UPR shares in a tax free transaction worth $84.
17. The Tender Offer, which values the Company's stock at
about $4.2 billion, is a 41 percent premium to Pennzoil's closing share
price of $59 5/8 on Friday June 20, 1997. The transaction is dependent upon,
among other things, the redemption or invalidation of Pennzoil's shareholder
rights plan and Pennzoil Board approval of the transaction for purposes of
Section 203 of the Delaware Code and Pennzoil's supermajority vote charter
provision.
18. In promoting the possible transaction, Jack L. Messman,
Chairman and Chief Executive Officer of UPR, stated:
We believe that the merger of UPR and Pennzoil will create the
premier independent exploration and production company in the
U.S. . . . Driven by UPR's proven ability to drill and
develop oil and gas properties quickly and efficiently, we are
confident that UPR will create growth and value well beyond
what Pennzoil can achieve on its own. The combined company
will lead the industry by nearly every measure of performance,
including drilling activity, production and cash flow.
19. Furthermore, in an interview, Messman stated that UPR
would boost Pennzoil's oil production by 9 percent a year for the "foreseeable
future" and would add about 9 percent a year to cash flow per share in the
first year of the would be company.
-5-
<PAGE> 6
20. In a letter to defendant Pate, dated June 23, 1997,
Messman charged that Pate had refused to entertain recent acquisition overtures
by UPR. The letter stated in part:
We have repeatedly attempted, over the past few months, to
discuss with you a possible transaction that would lead to
such a combination and at the same time provide Pennzoil
shareholders a substantial premium over the current market
price of the shares. However, in my continuing efforts to
communicate with you since February, you have rejected every
attempt to engage in constructive discussion of such a
proposal. This refusal continued even after we sent a
specific proposal to you on June 20th that would have provided
Pennzoil shareholders a substantial premium. In your letter
of June 20th, you and Pennzoil's Board of Directors rejected
our proposal, still without any discussion with us.
21. With regard to the fact that it was Pennzoil which first
proposed to merge with UPR in 1995, Messman's letter also questioned Pate's
current view -- as stated in a May 8, 1997, letter -- that a merger no longer
made sense:
We do not understand why you believed that two years ago, when
Pennzoil faced particularly severe problems, it was in a
better position than it is now to merge with UPR and form the
premier independent E&P company. In fact, we believe that
today the benefits from a combination would come even more
quickly. If we join our two companies, with all of their
complementary strengths, consider what we can accomplish
together -- the tremendous value we can build for our
shareholders. You had a great idea in 1995, and it is still a
great idea today.
22. Furthermore, in his letter to Pate, Messman also stated
that:
On March 4th of this year, you told me you felt that the value
of Pennzoil stock could possibly reach $80-$100 per share over
the next four or five years, if Pennzoil's strategic plan is
successfully implemented. As you see, the proposed transaction
would not only offer Pennzoil shareholders a certain value
today, which is substantially above the present value of your
suggested range of projected future prices, it would also offer
Pennzoil shareholders the opportunity to benefit from the
growth of the combined company.
23. The Company has reported that it is reviewing the
proposal.
-6-
<PAGE> 7
Pennzoil's Poison Pill And Other Entrenchment Devices
24. Reacting to the long-term undervaluation of Pennzoil
stock, the Individual Defendants have not hesitated to utilize available
defensive techniques to fend off UPR and any other external takeover activity.
Among other things, in October 1994, the Company adopted a Preferred Stock
Purchase Rights Plan (i.e., a "Poison Pill"), pursuant to which it declared a
dividend of one Preferred Stock Purchase Right for each share of common stock
owned. Each such right is exercisable following, among other things,
commencement of a hostile tender offer for shares of the Company and would
enable the Company's shareholders, except the acquiror to purchase Pennzoil's
common stock at a heavy discount to market value.
25. The Poison Pill has the effect of making it
extraordinarily difficult, expensive and/or impossible for any potential
acquirer not approved by management to acquire Pennzoil. As a result, the
Poison Pill has the affect of precluding successful completion of even the most
attractive offer for Pennzoil unless the board acquiesces, thus denying the
Company's shareholders an opportunity to make their own choice.
26. By adopting the Rights Plan, the Company's directors
caused a fundamental shift of power from Pennzoil's shareholders to themselves.
The "poison pill" thus permits the Individual Defendants to act as the prime
negotiators of -- and, in effect, totally to preclude -- any and all
acquisition offers through their power to redeem or to refuse to redeem the
Rights.
27. This fundamental shift of control of the Company's
destiny from its public shareholders to Pennzoil's Board of Directors results
in a heightened fiduciary duty on the part of the Board to consider, in good
faith, a third-party bid, and further requires the directors to pursue a
-7-
<PAGE> 8
third-party's bona fide interest in acquiring the Company and to negotiate in
good faith with a bidder on behalf of the Company's shareholders.
28. Further, the Individual Defendants are taking advantage
of the impediment to a third party's a ability to satisfy the 85% exception
under the Delaware Anti-Takeover Statute, 8 Del.C. Section 203, for the prompt
completion of a second-step "business combination." Under that statute, only
an unsolicited acquisition offer which results in the purchase of 85% or more
of the outstanding shares may be promptly consummated by a second step merger
without approval by the incumbent directors.
29. By virtue of Pennzoil's Certificate of Incorporation
which opts into the protection of Section 203, the Company and its directors
are able to invoke the provisions thereof. The Board's adoption of this
onerous provision is designed to and will operate as a further defensive and
anti-takeover entrenchment mechanism.
30. In addition to the foregoing defenses, Pennzoil has
adopted a staggered Board which is intended to chill any proxy contest that
might disturb or disrupt the Individual Defendants' stranglehold on the
Company's affairs.
Defendant's Wrongful Conduct
31. The Individual Defendants have taken no affirmative steps
to facilitate UPR's premium offer and thus far have been content to install and
reinforce the Company's panoply of defenses to preserve their control of
Pennzoil. To act consistent with their fiduciary duties, the Individual
Defendants should evaluate all available alternatives, including negotiating
with UPR and/or other potential acquirers, which they have failed to do.
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32. As a result of the acts and conduct described above, the
Individual Defendants are not fully informing themselves, are not acting in
good faith and have breached their fiduciary duties which they owe to plaintiff
and other members of the Class by pursuing a course of conduct designed to
prevent a change of control of the Company. To the extent that the conduct of
the Individual Defendants is based upon what they perceive to be a threat by
UPR or any other third-party to take over Pennzoil, the individual Defendants
have a heightened fiduciary duty to act in the best interest of the Company's
public stockholders and to act reasonably with regard to any perceived threat.
They have violated this duty.
33. The Individual Defendants have the responsibility to act
independently so that the interests of Pennzoil's public stockholders will be
protected, to seriously consider all bona fide offers for the Company, and to
conduct fair and active bidding procedures or other mechanisms for checking the
market to assure that the highest possible price in any change of control is
achieved. Further, the directors of the Company must adequately ensure that no
conflict of interest exists between defendants' own interests and their
fiduciary obligations to act in the shareholders' best interests or, if such
conflicts exist, to ensure that they will be resolved in the best interests of
the Company's public stockholders.
34. Pennzoil represents a highly attractive acquisition
candidate. Defendants' conduct has deprived and will continue to deprive the
Company's public shareholders of the very substantial control premium which UPR
is prepared to pay or of the enhanced premium which further exposure of the
Company to the market could provide. Defendants are precluding the
shareholders' enjoyment of the full economic value of their investment by
failing to proceed expeditiously and in good faith to evaluate and pursue a
premium acquisition proposal which would
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provide for an acquisition for all shares at a very attractive price and
installing potent anti-takeover defenses instead.
35. Pennzoil's Board and its top management have frustrated
UPR's current acquisition overtures and offers, even though these proposals
would result in Pennzoil's shareholders receiving a substantial premium over
the then market-price of Pennzoil stock. The Individual Defendants have done
this because they know that in the event Pennzoil were acquired by any
potential bidders, most or all of the directors of Pennzoil and its senior
management would, either in connection with the acquisition or shortly
thereafter, be removed from the Board of the surviving company because their
services would not be necessary and they would be mere surplusage and thus an
acquisition would bring an end to their power, prestige and profit. In so
acting, Pennzoil's directors and those in management allied with them have been
aggrandizing their own personal positions and interests over those of Pennzoil
and its broader shareholder community to whom they owe fundamental fiduciary
duties not to entrench themselves in office.
36. In adopting and utilizing the poison pill, coupled with
the staggered Board provisions and the provisions of 8 Del. C. Section 203,
the Individual Defendants have acted to manipulate the corporate machinery of
Pennzoil, thereby impairing the corporate democratic process within the Company
at the expense and to the detriment of the Company's public stockholders. The
Individual Defendants have thereby restrained and impaired the ability of
Pennzoil stockholders to affect corporate policy, and freely structure the
directorial constituency of the Company. The poison pill, inter alia, impedes
shareholder ability to accumulate shares and associate together to replace
incumbent management, oppose any management initiative, or otherwise affect
corporate policy through stockholder resolutions. By effectively preventing
any single party from owning and
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thereby voting greater than 15% of the outstanding common shares, management
clearly has a significant advantage in any proxy contest which threatens to
eliminate or diminish their control over Pennzoil. The poison pill thereby
thwarts shareholder opposition and serves to perpetuate the Individual
Defendants' control over the business and operations of the Company.
37. By virtue of the acts and conduct alleged herein, the
Individual Defendants, who control the actions of the Company, have carried out
a preconceived plan and scheme to place their own personal interests ahead of
the interests of the shareholders of Pennzoil and thereby entrench themselves
in their offices and positions within the Company. The Individual Defendants
have violated their fiduciary duties owed to plaintiff and the Class in that
they have not and are not exercising independent business judgment and have
acted and are acting to the detriment of the Company's public shareholders for
their own personal benefit.
38. Plaintiff seeks preliminary and permanent injunctive
relief and declaratory relief preventing defendants from inequitably and
unlawfully depriving plaintiff and the Class of their rights to realize a full
and fair value for their stock at a substantial premium over the market price
and to compel defendants to carry out their fiduciary duties to maximize
shareholder value in selling Pennzoil.
39. Only through the exercise of this Court's equitable
powers can plaintiff be fully protected from the immediate and irreparable
injury which the defendants' actions threaten to inflict.
40. Unless enjoined by the Court, defendants will continue to
breach their fiduciary duties owed to plaintiff and the members of the Class,
and/or aid and abet and participate in such breaches of duty, will continue to
entrench themselves in office, and will prevent the sale of
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Pennzoil at a substantial premium, all to the irreparable harm of plaintiff and
the other members of the Class.
41. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring this to be a proper class action and
certifying plaintiff as class representative;
B. Ordering the Individual Defendants to carry out their
fiduciary duties to plaintiff and the other members of the Class by announcing
their intention to:
(i) cooperate fully with any entity or person, including
UPR, having a bona fide interest in proposing any
transaction which would maximize shareholder value,
including, but not limited to, a buy-out, takeover or
recapitalization of the Company;
(ii) immediately undertake an appropriate evaluation of
Pennzoil's worth as a merger or acquisition
candidate;
(iii) take all appropriate steps to effectively expose
Pennzoil to the marketplace in an effort to create an
active auction of the Company; and
(iv) act independently so that the interests of the
Company's public shareholders will be protected.
C. Declaring that the Individual Defendants have
violated their fiduciary duties to the Class;
D. Enjoining defendants from abusing the corporate
machinery of the Company for the purpose of entrenching themselves in office;
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E. Ordering the Individual Defendants to take
steps to facilitate a premium acquisition by utilizing the Company's
anti-takeover defense exclusively in a manner designed to maximize shareholder
value;
F. Requiring defendants to forego reliance on the Poison
Pill or 8 Del. C. Section 203 except in a manner designed to secure the best
interests of Pennzoil's public stockholders and/or maximize shareholder value;
G. Ordering the Individual Defendants, jointly and
severally to account to plaintiff and the Class for all damages suffered and to
be suffered by them as a result of the acts and transactions alleged herein;
H. Awarding plaintiff the costs and disbursements of
this action, including a reasonable allowance for plaintiff's attorneys' and
experts' fees; and
I. Granting such other and further relief as may be just
and proper.
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: /s/
__________________________
1401 Mellon Bank Center
Suite 1401
Post Office Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
Of Counsel:
STULL, STULL & BRODY
6 East 45th Street
New York, NY 10017
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