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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
SCHEDULE 14D-1
(Amendment No. 2)
Tender Offer Statement
Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934
------------------------
Pennzoil Company
(Name of Subject Company)
------------------------
Union Pacific Resources Group Inc.
Resources Newco, Inc.
(Bidders)
------------------------
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)
------------------------
Joseph A. LaSala, Jr., Esq.
Vice President, General Counsel and Secretary
Union Pacific Resources Group Inc.
801 Cherry Street
Fort Worth, Texas 76102
Telephone: (817) 877-6000
(Name, Address and Telephone Number of Persons
Authorized to Receive Notices and Communications on Behalf of Bidders)
Copies To:
Howard L. Shecter, Esq. Paul T. Schnell, Esq.
Morgan, Lewis & Bockius LLP Skadden, Arps, Slate, Meagher & Flom LLP
101 Park Avenue 919 Third Avenue
New York, NY 10178-0060 New York, NY 10022-3897
Telephone: (212) 309-6384 Telephone: (212) 735-3000
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<PAGE>
This Amendment No. 2 amends the Tender Offer Statement on Schedule
14D-1 filed on June 23, 1997 (the 'Schedule 14D-1') by Union Pacific Resources
Group Inc., a Utah corporation ('UPR'), and Resources Newco, Inc., a Delaware
corporation and a wholly owned subsidiary of UPR (the 'Purchaser', and together
with UPR, the 'Bidders'), with respect to Purchaser's offer to purchase up to
25,094,200 shares of Common Stock, par value $0.83 1/3 per share (the 'Shares'),
of Pennzoil Company, a Delaware corporation ('Pennzoil'), or such greater number
of Shares as equals 50.1% of the Shares outstanding on a fully-diluted basis, in
each case together with the associated Preferred Stock Purchase Rights, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
June 23, 1997 (the 'Offer to Purchase'), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the 'Offer'), which were filed as Exhibits (a)(1) and (a)(2) to the
Schedule 14D-1, respectively. Unless otherwise defined herein, all capitalized
terms used herein shall have the respective meanings given such terms in the
Offer to Purchase.
Item 10. Additional Information.
Item 10 is hereby amended to add the following:
(e)(1) On June 25, 1997, UPR and Purchaser amended the Original
Complaint, filed by UPR and Purchaser against Pennzoil (dated
June 23, 1997, United States District Court for the Northern
District of Texas, Fort Worth Division). In addition to the
allegations contained in the Original Complaint, the amended
complaint alleges, among other things, that Pennzoil violated
Section 14(d) of the Exchange Act, Rule 14d-9 promulgated
thereunder and Section 14(e) of the Exchange Act through
certain statements of a Pennzoil spokesperson contained in an
Associated Press release on June 23, 1997. UPR and the
Purchaser seek a judgment from the court which, among other
things, (i) compels Pennzoil to comply with the requirements
of the Exchange Act with respect to the Associated Press
release, and (ii) to enjoin Pennzoil and its agents and
representatives from making false or misleading statements in
respect of the Offer.
(e)(2) On June 25, 1997, Pennzoil commenced litigation against UPR
and Purchaser in the United States District Court for the
District of Delaware which alleges, among other things, that
the Schedule 14D-1 of UPR and Purchaser contains certain
misstatements and omissions. The complaint seeks a judgment
(1) to enjoin UPR and Purchaser (a) from making false and
misleading statements and omissions in connection with the
Offer and (b) to make corrective disclosures that cure all of
the alleged false and misleading statements and omissions in
the Schedule 14D-1 and (2) to enjoin UPR and Purchaser from
acquiring shares of stock of Pennzoil until at least 30 days
after dissemination of additional securities filings.
Item 11. Material to be Filed as Exhibits.
Item 11 is hereby amended to add the following:
(a) (9) Press release dated June 25, 1997 relating to Pennzoil
complaint
(g) (4) First Amended Complaint, filed by UPR and Purchaser
against Pennzoil (dated June 25, 1997, United States District
Court for the Northern District of Texas, Fort Worth
Division).
<PAGE>
(5) Complaint, filed by Pennzoil against UPR and Purchaser (dated
June 25, 1997, United States District Court for the District
of Delaware).
SIGNATURES
After due inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
UNION PACIFIC RESOURCES GROUP INC.
By: /s/ JACK L. MESSMAN
------------------------------------------
Name: Jack L. Messman
Title: Chairman and Chief Executive Officer
RESOURCES NEWCO, INC.
By: /s/ JACK L. MESSMAN
------------------------------------------
Name: Jack L. Messman
Title: President
Dated: June 25, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ---------- ----------- --------
<S> <C> <C>
(a) (9) Press release dated June 25, 1997 relating to Pennzoil complaint
(g) (4) First Amended Complaint, filed by UPR and Purchaser against Pennzoil
(dated June 25, 1997, United States District Court for the Northern
District of Texas, Fort Worth Division)
(5) Complaint, filed by Pennzoil against UPR and Purchaser (dated
June 25, 1997, United States District Court for the District of
Delaware)
</TABLE>
Union Pacific Resources Group Inc.
News Release UPR
- --------------------------------------------------------------------------------
UNION PACIFIC RESOURES RESPONDS TO LAWSUIT
------------------------------------------
FILED BY PENNZOIL
-----------------
"Predictable and Desperate Measure" by Pennzoil Management
Fort Worth, TX -- June 25, 1997 -- Union Pacific Resources Group Inc. (NYSE:UPR)
today issued the following statement in response to a lawsuit filed by Pennzoil
Company in connection with UPR's proposal to acquire Pennzoil in a transaction
valued at $84 per Pennzoil share:
"This lawsuit is no surprise. It raises absolutely no issues that are an
impediment to our offer. The lawsuit is a predictable and desperate measure by a
management that refuses to address straightforwardly a very powerful and
attractive offer we have made to Pennzoil shareholders."
# # # #
Contact: Walter Montgomery
(212) 484-6721
Pat Doyle
(817) 877-6527
801 Cherry Street
Fort Worth, Texas 76102-6803
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION
UNION PACIFIC RESOURCES GROUP INC. )
and RESOURCES NEWCO, INC., )
) No. 4-97-CV: 509-Y
Plaintiffs, )
)
vs. )
)
PENNZOIL COMPANY, )
)
Defendant. )
)
PLAINTIFFS' FIRST AMENDED COMPLAINT
Pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, Plaintiffs
Union Pacific Resources Group Inc. and Resources Newco, Inc. ("Newco") file
their First Amended Complaint seeking declaratory and injunctive relief arising
out of an offer to purchase shares of Defendant Pennzoil Company's stock.
The Parties
1. Plaintiff Union Pacific Resources Group Inc. is a corporation organized
and existing under the laws of the State of Utah with its principal place of
business in Fort Worth, Texas. Union Pacific Resources Group Inc. and its
affiliates engage primarily in the exploration, development and production of
natural gas, natural gas liquids and crude oil in the United States and Canada.
2. Plaintiff Newco is a corporation organized and existing under the laws
of the State of Delaware with its principal place of business in Fort Worth,
Texas. As a wholly-owned subsidiary of Union Pacific Resources Group Inc.,
Newco was recently organized for purposes of making the Tender Offer and
consummating the Merger described and alleged below.
3. Defendant Pennzoil Company ("Pennzoil") is a corporation organized and
existing under the laws of the State of Delaware with its principal place of
business in Houston, Texas. It may be served with summons by serving its
registered agent, CT Corporation Systems at 811 Dallas, Houston, Texas 77002.
Pennzoil is an energy company engaged primarily in oil and gas exploration and
production, in processing, refining and marketing of oil and motor oil and
refined products and in fast automotive oil change operations.
4. Pennzoil's common stock is registered pursuant to Section 12(b) of the
Exchange Act, 15 U.S.C. ss. 78l(b), and is listed and traded on the New York
Stock Exchange. According to Pennzoil's Annual Report for the fiscal year ended
December 31, 1996, there were 46,839,557 shares of Pennzoil common stock
outstanding with a par value of 83 1/3 cents per share.
Jurisdiction and Venue
5. This action arises under Sections 14(d), 14(e) and 28 of the Securities
Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. ss.ss. 78n(d), 78n(e) and
78bb, and the rules and regulations promulgated thereunder by the Securities and
Exchange Commission ("S.E.C."), 17 C.F.R. ss.ss. 240.14d-1 et seq. It also
arises under the Declaratory Judgment Act, 28 U.S.C. ss. 2201.
6. This Court has subject matter jurisdiction pursuant to:
a) Section 27 of the Exchange Act, 15 U.S.C. ss. 78aa,
because this action is brought to declare and to
enforce rights and duties created by the Exchange
Act and regulations thereunder;
b) 28 U.S.C. ss. 1331, because the matter in controversy
arises under the Constitution and the laws of the
United States; and
c) 28 U.S.C. ss. 1337(a), because the action arises
under the Exchange Act, and Act of Congress
regulating commerce.
7. Venue is proper in the Northern District of Texas pursuant to 15 U.S.C.
ss. 78aa because Pennzoil is and can be found in the district, because Pennzoil
is an inhabitant of and/or transacts business in this district, and because
some or all of the acts or transactions which are, or could be alleged to
constitute, a violation of the Exchange Act occurred in this district.
The Tender Offer
8. On June 23, 1997, immediately prior to the filing of this action,
Plaintiff Newco announced a tender offer (the "Tender Offer") for 50.1% of the
issued and outstanding shares of Pennzoil common stock that it and Union Pacific
Resources Group Inc. do not already own. The Tender Offer is being made to all
Pennzoil stockholders throughout the United States and elsewhere. The Tender
Offer is being made at a price of $84.00 per share, a substantial premium to the
market price of Pennzoil common stock prior to commencement of the Tender Offer.
The Tender Offer and related merger will constitute a major transaction in
interstate commerce, representing a commitment of approximately six billion,
four hundred million dollars. The Tender Offer, if successful, will be followed
by a second-step merger (the "Merger") pursuant to which each remaining share of
Pennzoil stock will be converted into shares of Union Pacific Resources Group
Inc. stock, designed to have a value of $84 per share subject to the terms of a
definitive merger agreement to be entered into.
9. The Tender Offer is, and will continue to be, in full compliance with
all applicable federal laws and regulations governing tender offers -- the
provisions of the Williams Act, embodied in Sections 14(d) and 14(e) of the
Exchange Act, 15 U.S.C. ss.ss. 78n(d), (e), and in the rules and regulations
promulgated thereunder by the S.E.C. In connection with the Tender Offer, a
Schedule 14D-1 has been filed with the S.E.C. pursuant to Section 14(d)(1)d of
the Exchange Act and Rule 14d-3 promulgated thereunder. (A true and correct copy
of the Schedule 14D-1 is annexed hereto as Union Pacific Resources Group Exhibit
1.)
Nature of Relief
10. The Williams Act referred to in paragraph 9 herein was enacted by
Congress to provide a comprehensive uniform national system regulating all
aspects of interstate cash tender offers. Congress thereby recognized that
tender offers served beneficial economic functions by, among other things,
providing investors with an opportunity to sell their shares at advantageous
premiums over prevailing market prices.
11. The Williams Act reflects the intent of Congress that the success or
failure of tender offers for the shares of publicly traded corporations should
be left to the free and informed investment judgment of the marketplace and not
be held hostage to self-serving efforts of entrenched senior management seeking
to preserve their positions and substantial corporate perquisites. The Williams
Act therefore establishes even-handed regulation that favors neither the offeror
nor the incumbent management of the company to whom a tender offer has been
made.
12. It is also a purpose of the Williams Act to promote informed decisions
by shareholders concerning the desirability and adequacy of a tender offer. The
Williams Act therefore requires that stockholders promptly be given all material
information with respect to a tender offer so that they may make their
investment decisions in possession of full and complete information.
13. To implement those objectives, Section 14(d) of the Exchange Act, 15
U.S.C. ss. 78n(d), and the rules and regulations promulgated thereunder by the
S.E.C. require that any person or entity making a tender offer for beneficial
ownership of more than five percent of a class of registered equity securities
file and disclose certain specified information with respect to the tender
offer. Any such bidder must disclose, among other things, its identity and
background, any past contacts, transactions or negotiations between the bidder
and the company in whom the bidder seeks to acquire stock, the source and amount
of funds needed for the tender offer, and any plans the bidder may have to
change the capitalization, corporate structure or business of the company whose
stock it seeks to acquire.
14. Section 14(d) and Rule 14d-9 promulgated thereunder, 17 C.F.R. ss.
240.14d-9, regulate solicitations or recommendations made by "subject" or
"target" companies in response to a tender offer. Under Rule 14d-9, no such
solicitation or recommendation is permitted unless prior thereto, the target
company has filed with the S.E.C. and delivered to the offeror a Schedule 14D-9
containing certain specified information, including, among other things, the
nature of the solicitation or recommendation, particularized reasons for the
solicitation or recommendation, and recent transactions in respect of the target
company's securities by the target company or its officers and directors.
15. In addition, Section 14(e) of the Exchange Act, 15 U.S.C. ss. 78n(e),
makes it "unlawful for any person to make any untrue statement of a material
fact or omit to state any material fact necessary in order to make the statement
made, in light of the circumstances under which they are made, not misleading,
or to engage in any fraudulent, deceptive, or manipulative acts or practice in
connection with any tender offer...". Plaintiffs have not violated this
provision.
16. In connection with the Tender Offer, Newco has filed a Schedule 14D-1
with the S.E.C. and is in the process of disseminating to Pennzoil's
stockholders an offer to purchase containing all material information required
by applicable law to be disclosed. That offer is more than fair and is plainly
in the best interests of Pennzoil's stockholders.
17. Notwithstanding, senior management of corporations to which such offers
are made, such as the management of Pennzoil, frequently, if not invariably,
resist unsolicited tender offers, even tender offers which are fairly and
attractively priced and in the best interests of shareholders. In order to
entrench themselves in office, it is typical for such management to cause the
target corporation to commence litigation against the bidder and others
challenging, among other things, the legal sufficiency of the disclosures made
by the bidder in its tender offer documents under Sections 14(d) and 14(e) of
the Exchange Act and applicable S.E.C. regulations.
18. Pennzoil's officers and directors have already signaled, in
unmistakable terms, that they will seek to delay and resist the Tender Offer and
Merger by any and every conceivable means, all in order to preserve their
positions and substantial corporate perquisites. Their efforts in this respect
will, in all likelihood, include causing Pennzoil to commence baseless
litigation against Plaintiffs under the provisions of the federal securities
laws regulating tender offers and acquisition efforts.
19. In hopes of working with Pennzoil management, Union Pacific Resources
Group Inc. management contacted Pennzoil management on several occasions in an
effort to initiate discussions concerning a negotiated "friendly" business
combination of Pennzoil by Union Pacific Resources Group Inc. Most recently, in
a letter dated June 10, 1997, Union Pacific Resources Group Inc. proposed such a
transaction at a substantial premium to the market price of Pennzoil common
stock, i.e., $80 per share payable in a combination of cash and stock of Union
Pacific Resources Group Inc. (the "June 10 proposal"). Those efforts, like the
Tender Offer and Merger, are fully consistent with a representation made by
James L. Pate, the Chairman of the Board, President and Chief Executive Officer
of Pennzoil, that combining Union Pacific Resources Group Inc. and Pennzoil
would result in "the premier exploration and production company in the world."
Although the business justifications cited by Pennzoil for such a combination
are at least as strong now as they were when Pennzoil itself proposed such a
deal in 1995, Pennzoil has rebuffed and rejected Union Pacific Resources Group
Inc.'s efforts to discuss such a transaction, including the June 10 proposal,
stating that the Board of Directors of Pennzoil had determined that Pennzoil
should remain an independent, publicly-held company and that the board was not
interested in any acquisition proposal from Union Pacific Resources Group Inc.
20. Indeed, on the very same day the Tender Offer was announced, Pennzoil
began to solicit and recommend against the Tender Offer, even though it had
filed no Schedule 14D-9. Specifically, on June 23, 1997, an Associated Press
release (the "A.P. Release") reported that a Pennzoil spokesperson, referring to
the June 10 proposal and the Tender Offer, stated, among other things, that
"[t]he [Pennzoil] board had discussed an offer that was essentially this same
offer last week and turned it down." (A copy of the A.P. Release is annexed
hereto as Union Pacific Resources Group Exhibit 2.)
21. This statement was calculated and designed to convey, and did convey,
to Pennzoil stockholders and the investing public that Pennzoil would oppose the
Tender Offer and was calculated and designed to influence Pennzoil stockholders
to reject it, as well.
22. The foregoing June 23 statement by Pennzoil was also materially false
and misleading. The Tender Offer and Merger are substantially different from,
and indeed are much more attractive to Pennzoil stockholders than, the June 10
proposal. In the June 10 proposal, Union Pacific Resources Group Inc. proposed
acquiring all of the outstanding shares of Pennzoil at $80 per share, with the
$80 consideration to consist of a combination of cash and Union Pacific
Resources Group Inc. stock with no specified exchange ratio. The Tender Offer is
priced at $84 per share in cash for a majority of the outstanding shares of
Pennzoil stock, and the Merger as proposed by Union Pacific Resources Group Inc.
has a specifically structured "floating" exchange ratio designed to deliver to
Pennzoil stockholders $84 worth of Union Pacific Resources Group Inc. stock for
each remaining share of Pennzoil stock. Under this ratio, each remaining
Pennzoil share will be exchanged for a number of Union Pacific Resources Group
Inc. shares determined, within a pricing collar of $25 to $30, by dividing $84
by the average of the closing prices of Union Pacific Resources Group Inc.
common stock for the 20 trading days ending five days prior to the meeting of
Pennzoil stockholders called for the purpose of voting on the Merger. If such
exchange ratio price is less than $25 or greater than $30, the exchange ratio
will be fixed at 3.36 shares, or 2.80 shares, respectively, of Union Pacific
Resources Group Inc. stock.
23. In light of the fact that the Tender Offer and Merger would provide to
Pennzoil stockholders approximately $200 million more collectively than they
would have received under the June 10 proposal, it is not only materially false
and misleading but absurd for Pennzoil to have publicly stated that the Tender
Offer and Merger are "essentially [the] same offer" as the June 10 proposal.
COUNT ONE
(For Declaratory Relief)
24. Plaintiffs repeat and reallege the above paragraphs as if fully set
forth herein.
25. The Declaratory Judgment Act, 28 U.S.C. ss. 2201, provides that "[i]n
a case of actual controversy within its jurisdiction, ... any court of the
United states, upon the filing of an appropriate pleading, may declare the
rights and other legal relations of any interested party seeking such
declaration...." Plaintiffs Union Pacific Resources Group Inc. and Newco are
enti tled to a declaratory judgment that the Tender Offer which they are in the
process of commencing, is proper and complies with all applicable securities
laws, rules or regulations.
26. Although the Tender Offer and Merger are fairly and attractively
priced, Pennzoil will formally reject the Tender Offer and Merger as evidenced
by the A.P. Release. Plaintiffs believe Pennzoil will seek to delay and
ultimately defeat the Tender Offer through efforts including the filing of suit
attacking the Tender Offer claiming that filings made by Plaintiffs in
conjunction therewith violate applicable federal securities laws and
regulations. Plaintiffs may reasonably expect that Pennzoil will act in
accordance with its expressed intent, and will take every available measure to
thwart or delay Plaintiffs' lawful attempts to consummate the Tender Offer.
Thus, there is a substantial controversy between parties having adverse
interests, Plaintiffs on the one hand, and Pennzoil on the other hand, which are
of sufficient immediacy and reality to warrant the issuance of a declaratory
judgment.
27. In the absence of declaratory relief, Plaintiffs will suffer
irreparable harm. Through the course of action that Pennzoil has pursued to
date, Pennzoil apparently intends to defend against the Tender Offer by, among
other things, filing false claims designed to delay or ultimately defeat
consummation of the Tender Offer and Merger. A declaratory judgment that the
Schedule 14D-1 and Tender Offer comply with all applicable securities laws will
serve the purpose of adjudicating the interests of the parties, resolving any
complaints concerning the propriety of the Tender Offer, and permitting an
otherwise lawful transaction to proceed.
28. Plaintiffs therefore request pursuant to the Federal Declaratory
Judgment Act, 28 U.S.C. ss.ss. 2201-2202, that this Court enter a declaratory
judgment that the disclosure documents which have been filed with the S.E.C. by
Plaintiffs and which are being disseminated to Pennzoil stockholders in
connection with the Tender Offer comply fully with all applicable provisions of
law.
COUNT TWO
(For Violation of Section 14(d) of the Exchange Act
and Rule 14d-9 Promulgated Thereunder)
29. Plaintiffs repeat and reallege the above paragraphs as if set forth
herein.
30. Rule 14d-9, 17 C.F.R. ss. 240.14d-9, promulgated by the S.E.C. pursuant
to Section 14(d) of the Exchange Act, prohibits the target company and its
employees from making any solicitation or recommendation concerning a tender
offer to the target company stockholders unless, as soon as practicable on the
date any such solicitation or recommendation is made, a Schedule 14D-9 is filed
with the S.E.C. and a copy is delivered to the offeror. The Schedule 14D-9 must
contain the information set forth in Rule 14d-9, including, among other things,
the nature of the solicitation or recommendation, particularized reasons for the
solicitation or recommendation, and recent transactions in respect of the target
company's securities by the target company or by its officers and directors.
31. In violation of Section 14(d) and Rule 14d-9, on June 23, 1997,
Pennzoil made a solicitation and recommendation against the Tender Offer in the
A.P. Release, without having first filed with the S.E.C. or delivered to
Plaintiffs a Schedule 14D-9.
32. By reason of the foregoing, Plaintiffs, Pennzoil stockholders and the
investing public have been and are being irreparably harmed in that they are
being deprived of, and/or misled as to, important information required to be
publicly, accurately and fully disclosed by Pennzoil under applicable law, and
Pennzoil stockholders and the investing public are being misled by materially
false information disseminated by Pennzoil.
33. Plaintiffs have no adequate remedy at law.
COUNT THREE
(For Violation of Section 14(e) of the Exchange Act)
34. Plaintiffs repeat and reallege the above paragraphs as if fully set
forth herein.
35. The A.P. Release was materially false and misleading, in violation of
Section 14(e), in that it falsely characterized the Tender Offer and Merger as
"essentially [the] same offer" made in Union Pacific Resources Group Inc.'s June
10 proposal and rejected by Pennzoil the previous week. In truth and in fact,
the Tender Offer and Merger are substantially more attractive to Pennzoil
stockholders than the business combination proposed by Union Pacific Resources
Group Inc. in the June 10 proposal, and would provide Pennzoil stockholders
approximately $200 million more collectively than they would have received under
the June 10 proposal. Among other things, the Tender Offer is priced at $84 per
share in cash for a majority of outstanding Pennzoil shares, and the Merger
includes a specifically structured exchange ratio designed to deliver $84 worth
of Union Pacific Resources Group Inc. stock for each remaining share of Pennzoil
stock -- $4 per share more than the consideration proposed in the June 10
proposal.
36. By reason of the foregoing, Plaintiffs, Pennzoil stockholders and the
investing public have been and are being irreparably harmed in that they are
being deprived of, and/or misled as to, important information required to be
publicly, accurately and fully disclosed by Pennzoil under applicable law, and
Pennzoil stockholders and the investing public are being misled by materially
false information disseminated by Pennzoil.
37. Plaintiffs have no adequate remedy at law.
WHEREFORE, Plaintiffs Union Pacific Resources Group Inc. and Newco
respectfully request that this Court enter a judgment:
i) declaring that Plaintiffs have disclosed all information
required by, and are otherwise in all respects in compliance
with, Sections 14(d) and 14(e) of the Exchange Act and any
other federal securities laws, rules or relations deemed or
claimed to be applicable to the Schedule 14D-l and Tender
Offer;
ii) compelling Pennzoil to comply with the requirements of
the Exchange Act, and compelling Pennzoil to file
immediately complete and accurate statements on Schedule
14D-9 with respect to the A.P. Release;
iii) preliminarily and permanently enjoining Pennzoil, its agents,
employees and anyone acting on its behalf, from making any
false or misleading statements in respect of the Tender Offer;
and
iv) awarding the Plaintiffs their reasonable and necessary
attorneys' fees together with all costs of court.
- -------------------------
RALPH H. DUGGINS DEE J. KELLY
State Bar No. 06183700 State Bar No. 11217000
ESTIL VANCE, JR. E. GLEN JOHNSON
State Bar No. 20479000 State Bar No. 10709500
S. G. JOHNDROE, III DONALD E. HERRMANN
State Bar No. 10674000 State Bar No. 09541300
Cantey & Hanger, L.L.P. TIMOTHY J. VAN MEIR
2100 Burnett Plaza State Bar No. 00794781
801 Cherry Street Kelly, Hart & Hallman, P.C.
Fort Worth, Texas 76102 201 Main Street, Suite 2500
(817) 877-2800 Fort Worth, Texas 76102
(817) 877-2807 - Fax (817) 332-2500
(817) 878-9260 - Fax
JACK O'NEILL
State Bar No. 15288500
JESSE R. PIERCE
State Bar No. 15995400
Clements, O'Neill, Pierce
& Nickens
1000 Louisiana, Suite 1100
Houston, Texas 77002-5009
(713) 654-7600
(713) 654-7690 - Fax
ATTORNEYS FOR PLAINTIFFS
DATED: June 25, 1997
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
PENNZOIL COMPANY, )
a Delaware corporation, )
)
Plaintiff, )
)
v. ) C.A. No. 97-353
)
UNION PACIFIC RESOURCES GROUP, )
INC., a Utah corporation, )
and RESOURCES NEWCO, INC., a )
Delaware corporation, )
)
Defendants. )
COMPLAINT
---------
Plaintiff Pennzoil Company ("Pennzoil" or the "Company"), by its
undersigned attorneys, for its complaint alleges upon knowledge as to its own
conduct and upon information and belief as to all other matters, as follows:
Nature Of This Action
---------------------
1. Pursuant to Section 14(e) of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. ss. 78n(e), and the applicable rules and
regulations of the Securities and Exchange Commission (the "SEC") promulgated
thereunder, Pennzoil seeks preliminary and permanent injunctive relief requiring
defendants Union Pacific Resources Group, Inc. ("Resources") and Resources
Newco, Inc. ("Newco"; together with Resources, "UPR") to correct the false and
misleading statements made by UPR in the Schedule 14D-1 dated June 23, 1997 (the
"Schedule 14D-1", attached as Exhibit A) distributed by UPR to Pennzoil's
stockholders in connection with
<PAGE>
UPR's unsolicited tender offer for 50.1% of Pennzoil's shares outstanding on a
fully diluted basis (the "Tender Offer").
2. As more fully described below, the Schedule 14D-1 mischaracterizes and
omits material information in a manner that substantially inhibits full and fair
understanding of the Tender Offer. Among other things, the Schedule 14D-1 omits
material facts in order to create the misleading impression that Mr. James L.
Pate, Pennzoil's Chairman, President and Chief Executive Officer, suggested and
otherwise supports the transaction proposed by UPR. Further, the Schedule 14D-1
fails to disclose the fact that Resources could become potentially liable to its
former parent corporation, Union Pacific Corporation ("UPC"), for enormous tax
indemnity obligations, which would have a material adverse effect on Resources
and the value of any consideration received by any Pennzoil stockholder who
became a Resources stockholder if UPR's proposed coercive two-step transaction
was consummated. Subsequent disclosures by representatives of UPR are likewise
misleading. Finally, the Schedule 14D-1 fails to disclose the full extent of
the adverse accounting consequences that UPR's proposed transaction may have on
UPR and its future stockholders. Corrective disclosure by defendants are
necessary to cure false and misleading statements and omissions made in the
Schedule 14D-1 so that Pennzoil's stockholders will have the benefit of full and
accurate disclosure concerning the Tender Offer. In addition, Pennzoil is
seeking expedited discovery so that its board of directors will have the benefit
of accurate and timely information concerning the issues raised in the lawsuit
for its consideration in connection with its response to UPR's offer as required
by the SEC's rule adopted pursuant to Section 14(e).
-2-
<PAGE>
Jurisdiction and Venue
----------------------
3. This Court has jurisdiction over the subject matter of this action
pursuant to Section 27 of the Exchange Act, 15 U.S.C. ss. 78aa, because the
action arises under Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder by the SEC.
4. Venue is proper in this District pursuant to Section 27 of the Exchange
Act because Resources transacts business in Delaware, Newco, a wholly owned
subsidiary of Resources, is incorporated in this State, and acts and
transactions constituting violations of the Exchange Act occurred in Delaware.
5. This Court has personal jurisdiction over the defendants pursuant to
Section 27 of the Exchange Act.
The Parties
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6. Plaintiff Pennzoil is an energy company engaged primarily in oil and gas
exploration and production, in the processing, refining and marketing of oil,
motor oil and refined products, and in franchise operations in the fast oil
change business. Pennzoil's principal excecutive offices are located at Pennzoil
Place, Houston, Texas. Pennzoil has approximately 46.9 million shares of common
stock outstanding which are traded on the New York Stock Exchange. Pennzoil's
common stock is held by over 18,000 stockholders of record.
7. Pennzoil conducts its operations in three principal business segments.
Pennzoil's oil and gas segment engages in the acquisition, exploration,
exploitation and development of prospective and proved oil and gas properties,
the production and sale of crude oil, condensate and natural gas liquids and the
production, treatment and sale of natural gas. Pennzoil's motor oil and refined
products business segment is a worldwide marketer of premium automotive and
other branded products, including particularly Pennzoil brand motor oil, which
has been the number one
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selling motor oil in the United States for 11 consecutive years and currently
commands a market share of about 21%. Pennzoil's franchise operations segment
includes the well-known and valuable Jiffy Lube fast oil change system and brand
name. As discussed below, Pennzoil is in the early stages of implementing a
long-term business plan which has already produced positive results in each of
its business segments and which Pennzoil believes will produce even more
positive gains for its stockholders in the coming years.
8. Defendant Resources is a Utah corporation whose principal executive
offices are located at 801 Cherry Street, Fort Worth, Texas. Resources was
formerly a wholly-owned subsidiary of UPC, which also owned the Union Pacific
Railroad Company. In October 1995, Resources sold 42.5 million shares of its
common stock in an initial public offering (the "Offering"). In connection with
the Offering, UPC announced its intention to distribute its remaining ownership
interest in Resources to UPC's shareholders in the form of a tax-free
distribution (the "Distribution"). The Distribution was authorized by UPC's
board of directors on September 12, 1996, and effected on October 15, 1996.
9. Defendant Newco is a Delaware corporation whose executive offices are
located at 801 Cherry Street, Fort Worth, Texas. Newco, a wholly owned
subsidiary of Resources, was formed by Resources to facilitate its attempted
hostile takeover of Pennzoil.
Pennzoil's Earlier Discussions with UPC
---------------------------------------
10. In 1994 Pennzoil lost $289 million. Losses continued in 1995, with a
loss of $305 million, or $6.60 per share. In light of these results, Pennzoil
took aggressive steps designed to, inter alia, improve its income and cash flow,
reduce debt, dispose of non-core oil and natural gas reserves and acquire other
reserves to strengthen the core areas, and otherwise bolster its oil and natural
gas reserves.
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<PAGE>
11. In January 1995, when Pennzoil's restructuring initiatives were in
their earliest stages and Resources was a wholly-owned subsidiary of UPC,
representatives of Pennzoil contacted representatives of UPC to discuss a
possible tax-efficient acquisition by Pennzoil of Resources or its assets. At
that time, such an acquisition at a favorable price would have facilitated
Pennzoil's restructuring initiatives, and the discussions between the parties
were in the context of Pennzoil's specific business objectives at the time. For
example, Pennzoil needed additional cash flow to maintain its then $3.00 per
share dividend and hoped to use cash flow from Resources' assets to provide the
necessary funds. Resources also could have provided Pennzoil with additional
core reserves to replace the non-core reserves which the Company was then
selling off. A transaction involving Resources also would have assisted Pennzoil
in achieving its goal of quickly reducing costs.
12. Transactions proposed by Pennzoil for consideration in January 1995
included a stock-swap "merger of equals" following a tax-free spin-off of
Resources by UPC. Under this alternative, the merger agreement would have been
signed prior to the spin-off. Another alternative transaction would have
involved a cash purchase of producing properties of Resources subject to a large
production payment. At no time during these discussions did Pennzoil consider or
discuss entering into any transaction in which Pennzoil would be the acquired
company or which otherwise would result in a change of control of Pennzoil.
13. Even though the discussions did not result in a transaction between
Pennzoil and Resources, Pennzoil continued to pursue aggressively its
restructuring initiatives, and has made substantial progress on a number of
fronts.
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The Distribution
----------------
14. As set forth above, Resources was a wholly owned subsidiary of UPC
until October 1995, when Resources sold 42.5 million shares of its common
stock in the Offering. In connection with the Offering, UPC announced its
intention to distribute pro rata to its stockholders its remaining ownership
interest in Resources by means of the Distribution. The Distribution was
subject to certain conditions, including receipt by UPC of a ruling from the
Internal Revenue Service (the "IRS") that the Distribution would be tax free
to UPC and its shareholders (the "Revenue Ruling").
15. In October 1995, UPC applied to the IRS for the Revenue Ruling. Among
other things, UPC represented to the IRS that Resources had "not allowed any
negotiations or discussions, or even any direct or indirect contact, with any
possible acqusition target companies regarding an acquisition if [Resources']
stock might be used in the acquisition" and that, consequently, "there have been
no negotiations, agreements, or arrangements with respect to any acquisitions
that would involve [Resources] stock."
16. The representation regarding the absence of pre-spin-off negotiations
was an important predicate to the issuance of the Revenue Ruling. In Rev.
Rule 96-30, the IRS, in ruling in favor of the tax-free status of a particular
distribution, took note of the absence of any pre-spin-off negotiations or
agreements regarding a post-spin-off merger and stated that the substance of
the transaction (i.e., whether the merger transaction would be considered as
having taken place prior to or after the spin-off) would be based on "all of
the relevant facts and circumstances." Moreover, in Rev. Proc. 96-39, the IRS
announced that it would not rule on whether a distribution of stock was tax-free
under Section 355 of the Internal Revenue Code ("Section 355) "if there have
been negotiations, agreements or arrangements with respect to transactions or
events which, if treated as consummated before the distribution would result in
the distribution" not qualifying under Section
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355. Resources' current proposal to acquire Pennzoil is a transaction which,
if treated as having been consummated before the Distribution, would result
in the Distribution not qualifying for tax-free treatment under Section 355.
This is because, if treated as having been consummated prior to the
Distribution, it would have resulted in less than 80% of Resources' stock being
distributed in the spin-off, and a critical condition for tax-free treatment
not being met.
17. In connection with the Offering, an indemnification agreement was
entered into between UPC and Resources (the "Indemnification Agreement").
Among other things, the Indemnification Agreement requires that Resources
indemnify UPC for liabilities resulting from or arising out of "(1) the
inaccuracy of any factual information provided by Resources in connection with
the ruling requested from the Internal Revenue Service on the tax-free nature
of [the] Distribution or (2) any act or failure to act without the consent,
direction or advice of UPC by Resources or its directors, officers, other
employees or agents or other representatives, whether such act or failure
to act occurs before or after [the] Distribution." In addition, the indemnity
covers any liabilities the indemnified parties have to UPC's stockholders
attributable to the spin-off distribution if the distribution is not tax-free
as a result of an inaccuracy or act or failure to act as described above.
As Resources has admitted in its publicly filed documents, in the event that
Resources is required to indemnify UPC under the Indemnification Agreement,
"such an indemnity payment could be very significant in amount."
18. On October 15, 1996, the Distribution was consummated.
Background of the Tender Offer
------------------------------
19. In February 1997, Jack L. Messman, the Chairman and Chief Executive
Officer of Resources, requested a meeting with Mr. Pate. Mr. Messman had been
interviewed by Mr. Pate in 1995 for the position of Chief Operating Officer
of Pennzoil.
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<PAGE>
20. Messrs. Messman and Pate met at Pennzoil's offices on March 4, 1997.
During that meeting, Mr. Pate made clear that Pennzoil was not interested in any
change of control transaction with Resources or anyone else, which had also been
the case in 1995. In addition, Mr. Pate advised Mr. Messman that, since 1995,
Pennzoil had embarked upon a five-year strategic plan approved by its board of
directors (the "Board") which was designed to increase significantly Pennzoil's
earnings, cash flow and stock price.
21. On May 5, 1997, Messrs. Pate and Messman spoke by telephone.
Mr. Messman invited Mr. Pate to visit him in Ft. Worth but Mr. Pate declined,
believing that there was no reason for another meeting. Given this conversation,
Mr. Pate was understandably surprised when he received a letter from Mr. Messman
dated May 6, 1997, indicating -- in the guise of purporting to restate what was
discussed the day before -- that Resources was prepared to pursue a combination
with Pennzoil and that Mr. Messman was anxious to "continue our dialogue that
began in February."
22. Mr. Pate responded to Mr. Messman in a letter dated May 8, 1997, in
which he stated in no uncertain terms that Pennzoil was not prepared to pursue a
change of control transaction with Resources or anyone else. Mr. Pate also again
advised Mr. Messman that unlike in 1995, it was now an inappropriate time to
consider the combination of Pennzoil and UPR:
As I explained in our meeting on March 4, 1997, circumstances have changed
drastically since our first contact in 1995 when the railroad company [UPC]
was considering the disposition of UPR. Pennzoil has, among other things,
cut its dividend, slashed its overhead expenses by over $80 million,
dramatically improved earnings and cash flow, reduced debt significantly,
reduced operating costs, upgraded its oil and gas properties, redirected
its capital expenditures program, made great strides in developing our
investments in Azerbaijan, staked out significant new exploration and
development opportunities internationally, installed new senior oil and gas
management, and completed construction of our upgraded refining facilities
at Atlas and the new Lake Charles Base Oil Plant (Excel Paralubes). In
short, we have addressed many of the strategic issues confronting us in
1995 by aggressive moves that are now only beginning to bring returns to
our shareholders.
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<PAGE>
Mr. Pate also reiterated the changes at Pennzoil since 1995:
Toward this end, Pennzoil has restructured its financial obligations,
business and properties and has embarked upon a series of strategic
initiatives and projects which we are fully committed to bringing to
fruition during the next five years.
23. Notwithstanding Mr. Pate's clear statement that Pennzoil was not
interested in a transaction with Resources, on June 10, 1997, Mr. Messman again
wrote to Mr. Pate concerning "a possible strategic business combination." Mr.
Messman asserted that it was in Pennzoil's interests to be acquired by Resources
for the same reasons that Pennzoil sought to obtain Resources or its assets in
1995. Of course, as Mr. Pate already had told Mr. Messman several times,
Pennzoil is a much different company today than it was in 1995, and the
Company's current business plans and strategic goals are very different from its
plans and goals in 1995.
24. Mr. Messman also suggested in his letter the possible terms of
Resources' proposal: a purported "value of $80 per share, payable in a
combination of cash and [Resources] common stock," structured in two steps -- a
cash tender offer for 40-50% of Pennzoil's stock, with the remaining shares to
be converted into Resources common stock at some unspecified exchange ratio {the
"Proposal"). Thus, Mr. Messman's "Proposal" was a classic example of a coercive,
two tiered transaction.
25. Although Mr. Messman also suggested to Mr. Pate that "after you have
reviewed this matter with your Board, you and I meet privately to discuss how
best to proceed," it appears that Mr. Messman had no intention of allowing Mr.
Pate to discuss the Proposal with Pennzoil's directors before Resources did.
Although the Board and its senior officers (including Mr. Pate) were scheduled
to meet during the week of June 16 to consider Pennzoil's strategic plan, on
June 12 1997 -- just two days after Mr. Messman wrote his letter --
representatives of Resources called several
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Pennzoil directors and a least one former director to discuss Resources'
proposal. Pennzoil's directors uniformly responded that the appropriate time for
the Board to discuss Resources' proposal was at the forthcoming Board meetings.
26. The Board met on June 17 and 18 to give careful and deliberate
consideration to the Proposal. Ten of the eleven Directors are neither present
or former employees nor officers of the Company and these outside directors are
highly respected business leaders. They are Howard H. Baker (former Chief of
Staff to President of the United States and former United States Senator and
Senate Majority Leader); W.J. Bovaird (Chairman of The Bovaird Supply Company);
W.L. Lyons Brown, Jr. (former Chairman of the Board of Brown-Forman Company);
Ernest H. Cockrell (independent oil and gas producer); Harry H. Cullen
(independent oil and gas producer); Alfonso Fanjul (Chairman of the Board and
Chief Executive Officer of Flo-Sun, Inc.); Berdon Lawrence (President of
Hollywood Marine, Inc.); Brent Scowcroft (former Assistant to the President of
the United States for National Security Affairs); Gerald B. Smith (Chairman and
Chief Executive Officer of Smith, Graham & Co. Asset Managers, L.P.); and Cyril
Wagner, Jr. (a partner in Wagner & Brown, an independent oil and gas producer).
27. At the Board meeting held on June 18, representatives of Lehman
Brothers Inc. and Evercore Partners Inc., the Company's financial advisors (the
"Advisors"), gave an extensive presentation on the financial merits of the
Proposal. The Advisors thereafter delivered their joint opinion that the
Proposal was inadequate from a financial point of view.
28. The Board thereafter discussed the Proposal at length. Among other
things, the Board concluded that the Proposal was (i) structurally coercive in
that the treatment of non-tendering stockholders - being required to accept
Resources stock instead of cash - would distort Pennzoil's shareholders' tender
decisions, and (ii) substantively coercive in that shareholders might be
inclined
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<PAGE>
to accept UPR's inadequate Proposal because they would not fully appreciate the
Company's intrinsic value and long-term growth potential based on initiatives
and projects recently completed as well as initiatives planned or underway as
part of Pennzoil's strategic business plan. The Board specifically discussed
that the Proposal posed a threat to stockholders in that UPR was seeking to
usurp for itself the future growth in revenues, net income, cash flow and stock
price appreciation which were only beginning to result from the Company's
restructuring and cost-cutting efforts and strategic initiatives. The Board also
discussed the potential adverse effects of the Proposal on Pennzoil's domestic
and international oil and gas agreements and business relationships. The Board
concluded that the long-term financial interests of the Company's stockholders
were best served by remaining independent and continuing to implement the
Company's long-term business strategy.
29. Following this extensive discussion of the inadequacy and unfairness to
Pennzoil's stockholders of the Proposal, the Board unanimously determined that
it was not in the interests of Pennzoil or its shareholders to pursue
discussions with Resources concerning the Proposal. The Board's decision was
communicated to Mr. Messman by Mr. Pate on June 20, 1997.
UPR Commences the Tender Offer and
Distributes the False and Misleading Schedule 14D-1
---------------------------------------------------
30. UPR commenced the Tender Offer on June 23, 1997. The Tender Offer is
for 50.1% of the stock of Pennzoil outstanding on a fully diluted basis.
Pursuant to the proposal, shareholders are offered the cash price of $84.00 per
share for a portion of their shares while shareholders remaining after the first
step would participate in a back-end merger in which their outstanding shares
woule be converted into shares of UPR common stock in a range of 2.80 to 3.36
UPR shares for each share of Pennzoil stock, with no guarantee of any minimum
value per share. The Tender Offer is also highly conditional. In addition to a
minimum tender condition, the Tender Offer is
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<PAGE>
conditioned, inter alia, upon UPR being satisfied in its sole discretion that 8
Del. C. Section 203 is satisfied or otherwise inapplicable to the transaction,
that the Tender Offer and subsequent merger have been approved pursuant to
Article Sixth of Pennzoil's Restated Certificate of Incorporation, that the
shareholder rights under Pennzoil's rights' plan have been redeemed or otherwise
invalidated or made inapplicable, and the UPR's designees have been elected to
the Board of Pennzoil so that such nominees constitute a majority of the Board
or that a mutually satisfactory merger agreement has been executed. The Tender
Offer is currently scheduled to expire on July 21, 1997.
31. The Schedule 14D-1 disseminated by UPR in connection with the Tender
Offer contains material misrepresentations and omissions that substantially
inhibit a full and fair understanding of the adequacy (or not) of the Tender
Offer, its background and of the consequences of the second step transaction UPR
proposes. First, the Schedule 14D-1 inaccurately characterizes the 1995
discussions between representatives of Pennzoil and UPC in order to create the
misleading impression that Mr. Pate suggested - and actually supports - the
transaction proposed by UPR. To foster this misleading impression, the Schedule
14D-1 quotes - wholly out of context and without providing the additional
information necessary to make the statements made in the Schedule 14D-1 not
misleading in light of the circumstances in which they are made - certain
statements made by Mr. Pate in January 1995 indicating that a combination of
Pennzoil and Resources would "provide the best possible fit."
32. The Schedule 14D-1 fails to disclose that Mr. Pate's statements were
made in the context of Pennzoil's then-proposed tax-efficient acquisition of
Resources or its assets from UPC. Mr. Pate made it clear in 1995 that any
transaction between Pennzoil and UPC involving Resources depended largely on the
tax benefits available to UPC and Pennzoil in the context of a pre-spin-off
agreement. The circumstances that existed in 1995 - when Resources was a wholly
owned
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subsidiary of UPC -- permitted great freedom in structuring a tax-efficient
transaction. Those circumstances no longer exist. Nowhere are these facts
disclosed by UPR to Pennzoil's stockholders, who are led to believe that the
transaction proposed by Mr. Pate in 1995 is essentially the same as the
transaction proposed by UPR today, and that the circumstances in which Mr.
Pate's proposal was made have not changed.
33. The Schedule 14D-1 further fails to disclose that: (i) in 1995,
Pennzoil was interested in a transaction involving Resources or its assets
because Resources' assets would assist Pennzoil in its restructuring
initiatives; and (ii) in 1997, Pennzoil has accomplished many of its initial
restructuring objectives, and the Company's current business plans and strategic
goals are very different from its plans and goals in 1995. Thus, the Schedule
14D-1 fails to inform Pennzoil's stockholders that the economic rationale
underlying Pennzoil's desire to acquire Resources or its assets in 1995 no
longer exists.
34. The Schedule 14D-1 states affirmatively that, "in October, 1996, UPR
began a review of various possible strategic initiatives." (14D-1 at 21). The
Schedule 14D-1 fails to connect the discussion between representatives of
Pennzoil and representatives of UPC and UPR in 1995 which related to a possible
combination. Thus, the Schedule 14D-1 misleads the stockholders of Pennzoil
into the false belief that Resources' interest in Pennzoil arose only within
the last four months.
35. The Schedule 14D-1 also makes false statements and material omissions
concerning Mr. Pate and certain of his actions and statements. For example,
Schedule 14D-9 on page 22 states that, "Mr. Pate agreed to visit Ft. Worth..."
This statement is completely false. Likewise, the 14D-9 states at page 22 that
"Mr. Pate also stated that he believed that Pennzoil's Common Stock could be
trading in a range between $80 and $100 per share in the next four to five
years...." This statement is also completely false and, as such, materially
misleading.
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36. The Schedule 14D-1 fails to disclose that Resources may be liable to
UPC for an enormous indemnification payment, the payment of which would have a
material adverse effect on Resources and therefore the value of any
consideration that would be received by any Pennzoil stockholder who became a
Resources stockholder in the second step of any UPR transaction. As discussed in
more detail above, the Revenue Ruling provided for the tax-free nature of the
Distribution was predicated on UPC's representation that "[Resources] has not
allowed any negotiations or discussions, or even any direct or indirect contact,
with any possible acquisition target companies regarding an acquisition if
[Resources] stock might be used in the acquisitions" and that, as a consequence,
"there have been no negotiations, agreements or arrangements with respect to any
acquisitions that would involve [Resources] stock." In fact, there were such
discussions and contacts regarding a pre-Distribution stock-for-stock merger and
if the transaction now proposed by Resources were as a result deemed to take
place prior to the Distribution, tax-free status of the Distribution would be
lost and the indemnity obligation triggered. Moreover, Mr. Messman's recent
correspondence and the statements made by UPR in the Schedule 14D-1 suggest
that, from Resources' point of view, there was continuity between the
pre-spin-off discussions and the transaction Resources now proposes.
37. Further, Mr. Messman's June 10, 1997 letter ties UPR's current proposal
to Mr. Pate's January 1995 proposal, concluding that "you had a great idea in
1995, and it is still a great idea today. These two companies belong together."
The Schedule 14D-1 also continues these assertions noting that, "We have been
interested for some time in pursuing a possible transaction with Pennzoil,"
referencing "Our previous discussions ... [regarding] an ideal business
combination ..." and stating that there was, "compelling business logic" in a
proposed merger between the companies." Thus, through its disclosures, UPR has
created the impression that UPC and/or
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Resources intended to proceed with a transaction with Pennzoil in 1995, but
artificially called off that transaction for a period of time to allow the
Offering and the Distribution to proceed.
38. The statements made by UPR in the Schedule 14D-1 might cause the IRS to
reopen consideration of -- and ultimately withdraw -- the Revenue Ruling or
challenge its conclusions on audit. If the Revenue Ruling were withdrawn or
otherwise challenged, other issues involving in the Distribution would also lose
the protections afforded by the ruling.
39. Pursuant to the Indemnification Agreement, Resources is required to
indemnify UPC for any such liability. Even if the probability of loss of tax
free treatment for the Distribution is slight, the magnitude of Resources'
potential exposure to UPC is enormous. Indeed, as Resources itself has admitted,
"such an indemnity payment could be very significant in amount." The Schedule
14D-1, however, does not inform Pennzoil's stockholders of the possibility that
the Revenue Ruling might be withdrawn, or of any facts concerning Resources'
potential liability exposure to UPC.
40. Finally, the Schedule 14D-1 fails to disclose any information on the
extent of the adverse accounting consequences of UPR's proposed transaction. If
UPR were to acquire Pennzoil, the transaction would be subject to "purchase
accounting," under which UPR would be required to offset or reduce future
earnings with depreciation, amortization and other adjustments as a result of
the proposed transaction. This reduction of earnings and earnings per share as a
result of additional depreciation and amortization and other adjustments is
commonly referred to as "dilution."
41. In public statements outside of the Schedule 14D-1, UPR has given
incomplete, confusing and conflicting statements about the effect of the
proposed transaction on UPR's future earnings, earnings per share and dilution.
In a conference call to analysts on June 23, 1997, after the commencement of the
Tender Offer, Mr. Messman stated that:
"values are not determined on a basis of earnings per share, but
despite that, we believe we can eliminate the dilution, which is
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significant, within two years..."
In the same call, Dick Eales, Executive Vice President of UPR, stated that:
"Our estimates for 1998 ... will result in higher cash flow and higher
earnings before the purchase accountings than the street now
estimates."
Mr. Messman later stated that:
"[w]e haven't finished making the allocations yet of purchase price."
Following Mr. Messman's comment, Mr. Eales stated that:
"There are various ways to allocate purchase price ... we've looked at
that in various ways and we haven't pinned that down."
Finally, Mr. Messman stated:
"We expect that we'll be the ... dilution and earnings per share ....
We think in two years we'll be practically even with where we are
today and then by the third year we'll be off and running into
increasing where we are today."
42. Under purchase accounting, if the proposed transaction were completed,
UPR would have to record the transaction at its fair value. In recording such
fair value, UPR would have to increase the recorded value of Pennzoil's assets
by (i) the excess of (a) the purchase price for Pennzoil common stock in the
proposed transaction over (b) the book value of Pennzoil's equity (the "Excess
Cost"), and (ii) the amount of future tax liability attributable to the assets
acquired as a result of the form of the transaction (the "Deferred Taxes"). In
the transaction as proposed by UPR, the Excess Cost would be about $3.2 billion,
and the Deferred Taxes would be about $1.1 billion. Accounting rules require the
sum of $4.3 billion to be amortized or depreciated by UPR (i.e., deducted from
income) ratably over the estimated useful lives of the assets acquired. Assuming
an average useful life of seven years for the acquired assets (which
approximates the average life of Pennzoil's proved oil and gas properties), the
incremental reduction in income for UPR as a result
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<PAGE>
of the required depreciation or amortization would total approximately $615
million on a pre-tax basis.
43. Moreover, UPR has stated that it would finance the acquisition of 50.1%
of Pennzoil's stock with indebtedness. Using an assumed interest rate of 6% per
annum, the additional negative impact on income would be about $125 million
annually (the "Additional Interest"). Assuming a tax rate of 40% for UPR, the
after-tax annual negative impact resulting from the Excess Cost, the Deferred
Taxes and the Additional Interest adjustments would be about $440 million as a
result of the proposed combination. This $440 million amount represents the
amount of additional earnings UPR would have to generate annually above and
beyond earnings that would otherwise be generated from the combined assets of
UPR and Pennzoil in order to avoid dilution. For purposes of comparison, UPR
earned net income of $321 million in 1996, and Pennzoil earned net income of
$134 million in 1996. Assuming the issuance of 84,000,000 additional UPR shares
as proposed by UPR in the transaction, UPR would suffer an even more massive
dilution on a per share basis.
44. The negative earnings and earnings per share impact of the proposed
transaction has not been disclosed by UPR in its Schedule 14D-1. Pennzoil's
stockholders -- who are being asked by UPR to accept UPR stock in the second
step of UPR's proposed transaction -- are not informed that the accounting
treatment of UPR's proposed transaction may be materially unfavorable and may
adversely affect the value of UPR stock to be received in the second step.
Irreparable Harm
----------------
45. Pennzoil and its stockholders are being irreparably harmed by the false
and misleading statements and omissions made by UPR in the Schedule 14D-1 and
will continue to be irreparably harmed unless UPR is preliminarily and
permanently enjoined (1) from making false and misleading statements and
omissions in connection with the Tender Offer and (2) to make corrective
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disclosures that cure all of the materially false and misleading statements
and omissions made to date. Pennzoil's stockholders have been, and absent
injunctive relief will continue to be, denied material information to which they
are lawfully entitled and which is essential to making an informed decision on
whether to tender their shares of Pennzoil stock to UPR.
COUNT I
-------
46. Plaintiff realleges and incorporates by reference herein the
allegations set forth in paragraphs 1 through 45 above as if fully set forth
herein.
47. The Schedule 14D-1 makes untrue statements of material fact and fails
to state material facts that are necessary to make the statements made in
the Schedule 14D-1, in light of the circumstances in which they are made, not
misleading.
48. These false and misleading statements constitute violations of Section
14(e) of the Exchange Act and of the SEC's rules and regulations promulgated
thereunder.
49. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment against defendants as follows:
a. preliminary and permanently enjoining defendants (1) from making
false and misleading statements and omissions in connection with the Tender
Offer and (2) to make corrective disclosures that cure all of the materially
false and misleading statements and omissions made by defendants in the
Schedule 14D-1;
b. preliminarily and permanently enjoining defendants, and all persons
acting in concert with them, from acquiring shares of stock of Pennzoil, through
any purported tender offer or otherwise, until at least 30 days after
dissemination of complete and accurate securities filings'
c. awarding plaintiff its costs and attorneys fees in connection with
this action; and
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d. granting plaintiff such other and further relief as the Court may
deem just and proper.
OF COUNSEL:
/s/Charles F. Richards, Jr.
Gibbs & Bruns, L.L.P. -----------------------------------------
1100 Louisiana Charles F. Richards, Jr. (I.D. No. 701)
Suite 5300 Thomas A Beck (I.D. No. 2086)
Houston, TX 77002 Daniel A. Dreisbach (I.D. No. 2583)
Robert J. Stearn, Jr. (I.D. No. 2915)
J. Travis Laster (I.D. No. 3514)
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
(302) 658-6541
Attorney's for Plaintiff Pennzoil Company
Dated: June 25, 1997
