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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
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:
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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
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Pennzoil Company, a Delaware corporation
("Pennzoil" or the "Company"). The address of the principal executive offices of
the Company is Pennzoil Place, P.O. Box 2967, Houston, Texas 77252-2967. The
title of the class of equity securities to which this Statement relates is the
common stock, par value $0.83 1/3 per share, of the Company (the "Common
Stock"), including the associated preferred stock purchase rights (the "Rights")
issued pursuant to the Rights Agreement dated as of October 28, 1994 (the
"Rights Agreement") between Pennzoil and Chemical Bank, as Rights Agent.
References herein to "Shares" are to shares of the Common Stock, including,
unless the context otherwise requires, the associated Rights.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer made by Resources Newco, Inc.
("Newco"), a Delaware corporation and a wholly owned subsidiary of Union Pacific
Resources Group, Inc., a Utah corporation ("UPR"), disclosed in a Tender Offer
Statement on Schedule 14D-1 dated June 23, 1997 (the "Schedule 14D-1"), as
amended by Amendment No. 1 dated June 23, 1997, Amendment No. 2 dated June 25,
1997 and Amendment No. 3 dated June 30, 1997, to purchase up to 25,094,200
Shares, or such greater number of Shares as equals 50.1% of the Shares
outstanding on a fully diluted basis, at $84.00 per Share, net to the seller in
cash, without interest thereon, 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 to the Offer to Purchase or the Letter of Transmittal, collectively
constitute the "Offer"). The Schedule 14D-1 states that the principal executive
offices of UPR and Newco are located at 801 Cherry Street, Fort Worth, Texas
76102.
According to the Schedule 14D-1, UPR is seeking to negotiate with Pennzoil
a definitive acquisition agreement to effect a merger (the "Proposed Squeeze Out
Merger" and, together with the Offer, the "UPR Proposal"), pursuant to which all
Shares not tendered and purchased pursuant to the Offer (other than Shares held
in the treasury of Pennzoil or owned by UPR or its subsidiaries) would be
converted into a number of shares of common stock, no par value, of UPR ("UPR
Common Stock"), determined, within a pricing collar of $25.00 to $30.00, by
dividing $84.00 by the average of the closing prices per share of UPR Common
Stock for the 20 consecutive trading days ending five days prior to a meeting of
Pennzoil stockholders that would be called for the purpose of voting on the
Proposed Squeeze Out Merger. The Schedule 14D-1 states that, if the average of
the closing prices during such 20-day period were less than $25.00 or greater
than $30.00, the exchange ratio for the Proposed Squeeze Out Merger would be
fixed at 3.36 shares of UPR Common Stock or 2.80 shares of UPR Common Stock,
respectively.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
(b)(1) GENERAL. Reference is made to the information contained under the
captions "Director Remuneration," "Certain Transactions," "Security Ownership of
Directors and Officers," "Executive Compensation," "Report of Compensation
Committee on Executive Compensation," "Approval of 1997 Incentive
Plan -- Description of the 1997 Incentive Plan," "-- Federal Income Tax
Consequences," "-- Current Moratorium on Exercise of SARs," "-- Allocation of
Awards under the 1997 Plan" and "Exhibit A -- 1997 Incentive Plan of Pennzoil
Company" in the Company's proxy statement dated March 21, 1997, relating to the
Company's 1997 Annual Meeting of Stockholders. The relevant sections thereof are
filed as Exhibit 6 hereto and are incorporated herein by reference. Except as
described herein or incorporated herein by reference, there are no contracts,
agreements, arrangements or understandings or any actual or potential conflicts
of interest between the Company or its affiliates and (i) the Company, its
executive officers, directors or affiliates or (ii) UPR or Newco, or their
respective executive officers, directors or affiliates.
SEVERANCE AND RELATED MATTERS. At a meeting of the Compensation Committee
of the Board of Directors of the Company (the "Committee") held on June 25,
1997, the Committee was presented with
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information regarding a variety of employee benefit plans, programs or practices
of the Company and how these arrangements may be implicated or affected by a
change in control of the Company. The Committee noted that, considering the
present circumstances, the Company's employees were extremely concerned about
their job security and future prospects. The Committee discussed typical actions
taken by companies in potential change-in-control situations, including the
protection of retirement benefits and the provision of reasonable severance
should employment be terminated, in order to encourage employees to remain with
the Company during this period of uncertainty.
At the conclusion of these discussions, the Committee authorized certain
actions and made certain recommendations to the Board of Directors of the
Company (the "Board"). Based upon the recommendations of the Committee, the
Board has authorized the Company to take certain actions. The actions taken by
the Committee and the Board are described below. The Board considers the
prevention of the loss of employees and the avoidance of distraction of
employees as a result of a potential change in control to be essential to
protecting and enhancing the best interests of the Company and its stockholders.
The Board also believes that the Company should be able to receive and rely on
disinterested service from employees regarding the best interests of the Company
and its stockholders without concern that employees might be distracted or
concerned by personal uncertainties and risks. Accordingly, the Board has
determined that appropriate steps should be taken to assure the Company and its
affiliates of the continued employment and attention and dedication to duty of
their employees and to seek to ensure the availability of their continued
service.
Retirement Plan Benefits Modifications. The Company's Salaried Employee
Retirement Plan has been amended to provide that (i) if a participant is
terminated after a change in control of the Company and has completed ten years
of service with the Company, the participant is eligible for subsidized early
retirement regardless of whether the participant has worked until age 55, and
(ii) subject to certain tax limitations, the compensation considered under the
Retirement Plan will be the participant's pay for the 12 months preceding the
termination of such participant's employment or January 1, 1998, whichever
occurs first. The Company's executive officers are participants in the Company's
Salaried Employee Retirement Plan and a related excess benefits plan.
Vesting in Salaried Employee Retirement Plan and Savings Plan. The Company
has amended its Salaried Employee Retirement Plan and Savings Plan to provide
for full vesting for the accrued benefit of any employee whose termination of
employment follows a change in control and is within two years thereof. The
Company's executive officers are participants in these plans.
Tax Protection Agreement. Many of the Company's executive compensation
programs were established before provisions of the Internal Revenue Code of
1986, as amended (the "Code"), imposed punitive taxes upon, in some cases,
virtually all of the payments or benefits that retiring or departing executive
officers receive from the Company. If the Company's executive compensation
arrangements were settled upon a change in control of the Company, such punitive
excise taxes would be imposed in every case. The Company has designed its
programs with a view to providing these payments and benefits taking into
account prevailing tax rates, and the imposition of substantial unanticipated
taxes upon the employees is inconsistent with that planning.
To prevent benefits provided to the Company's executive officers under its
various compensation arrangements from being unfairly reduced by reason of
excise taxes imposed on such benefits under the Code, the Company has entered
into Tax Protection Agreements with all of its executive officers. Such Tax
Protection Agreements provide that, if there is a change in control of the
Company and if any payment or distribution to or for the benefit of an eligible
executive employee would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by such employee with respect
to such excise tax, such employee will be entitled to receive an additional
payment that, taking into account all taxes imposed in the payment, would place
the employee in the same position with respect to taxes on the Company's
compensation or benefits had such excise taxes not been imposed.
Director and Officer Indemnification Agreements. The Company has entered
into Indemnification Agreements with each of its directors and executive
officers providing for continuing indemnification of and advancement of expenses
(whether partial or complete) to such director or officer to the fullest extent
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permitted by law, and, to the extent insurance is maintained, for the continued
coverage of such director or officer under the Company's directors' and
officers' liability insurance policies.
Pate Arrangements. Historically, deferred compensation agreements entered
into with certain of the Company's senior executive officers have provided that
the officer would receive the benefits thereunder even if his employment is
terminated prior to attainment of age 65, but such receipt of benefits prior to
age 65 has been conditioned upon the authorization by the Board. The deferred
compensation agreement with Mr. James L. Pate, the Chairman of the Board,
President and Chief Executive Officer of the Company (the only current employee
of the Company with such an agreement) does not contain such a provision. The
Board has determined that any termination of employment by Mr. Pate at any time
in the future would entitle him to receipt of deferred compensation benefits.
The Board has therefore resolved that, and the Company and Mr. Pate have entered
into an agreement to provide that, any date on which Mr. Pate terminates his
employment for any reason with the Company from and after July 1, 1997 for any
reason is approved as retirement such that benefits under the Deferred
Compensation Agreement between Mr. Pate and the Company shall thereupon
immediately commence. Moreover, Mr. Pate's Deferred Compensation Agreement has
been clarified to reduce benefits thereunder by amounts payable as defined
benefit retirement benefits under Mr. Pate's excess benefits agreement with the
Company. Finally, Mr. Pate's participation in the Company's Executive Severance
Plan has been confirmed by the Company.
Chesebro' Arrangements. When entering into the Employment Agreement dated
February 10, 1997, the Company and Mr. Stephen D. Chesebro', Executive Vice
President of the Company, intended that, by early 1998, Mr. Chesebro' would be
in position either to join the Board and assume more executive responsibilities
or to depart the Company with certain payments and benefits under the Employment
Agreement. To prevent the frustration of the spirit of this arrangement, the
Company and Mr. Chesebro' have modified the Employment Agreement to provide that
any declaration by the Board of a change in control, or an identification of an
event likely to cause the loss of the intended benefits to participants in the
Company's benefit programs or practices (made for purposes of the Company's
benefit acceleration agreements), shall result in any subsequent termination of
Mr. Chesebro's employment by either Mr. Chesebro' or the Company being treated
as termination by the Company without cause, if such termination occurs after
the date of such action by the Board. Upon any such termination, Mr. Chesebro'
would receive one year's salary, full vesting of all conditional stock and stock
options and his $300,000 guaranteed bonus for calendar year 1997.
Retirement Bridge for Certain Executive Officers. Considering the lengthy
and dedicated service of certain executive officers of the Company and the
significant possibility that each would be terminated in connection with any
change in control, the Company has entered into separate agreements with each of
Mr. David P. Alderson, II, Mr. James W. Shaddix and Ms. Linda F. Condit. The
agreements between the Company and Messrs. Alderson and Shaddix provide that,
upon any termination of employment (other than termination for cause or
voluntary termination prior to a change in control) the covered executive
officer shall receive (i) continued executive medical coverage to age 55 at no
greater cost to such executive officer than that currently applicable and
thereafter retiree medical coverage at no greater cost to such executive officer
than that currently applicable to retirees with more than 20 years of service
and (ii) supplemental retirement benefits payable at age 55 equal to the benefit
such executive officer would have earned had his service, current salary (plus
5% annual adjustment) and most recent bonus continued until age 55, such
retirement benefits to be net of those provided by excess benefit agreements and
the Company's current and past tax qualified defined benefit plans for salaried
employees. The agreement between the Company and Ms. Condit provides that, upon
any termination of employment (other than termination for cause or voluntary
termination prior to a change in control), she shall receive supplemental
retirement benefits payable at age 55 equal to the benefit she would have earned
had her service, current salary (plus 5% annual adjustment) and most recent
bonus continued until age 55, such retirement benefits to be net of those
provided by excess benefit agreements and the Company's current and past tax
qualified defined benefit plans for salaried employees.
Long-Term Incentive Plan. The Company has clarified and confirmed its
intent concerning the treatment of benefits under its 1995, 1996 and 1997
Long-Term Incentive Plans (the "LTIPs"). Upon a change in control of the
Company, benefits under these plans shall be paid out immediately as if each
such plan had reached the end of its term and the target goals had been
achieved, and each participant shall receive
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an amount in cash equal to the product of (i) such participant's rate of salary
immediately prior to the change in control and (ii) the aggregate target
percentage of all LTIPs the three-year term of which has not yet ended with
respect to which such participant has been designated a participant. The
Company's executive officers are participants in the LTIPs.
Change in Control Retention/Severance Plan. To provide benefits for
nonexecutive employees terminated in connection with a change in control, the
Company has adopted the Change in Control Retention/Severance Plan, which
generally provides, upon termination of employment following a change in
control, a cash payment equal to three weeks salary for each year of service.
This plan does not apply to any executive officers or directors of the Company.
(b)(2) ARRANGEMENTS WITH THE BIDDER, ITS EXECUTIVE OFFICERS, DIRECTORS OR
AFFILIATES. Other than ordinary course purchases and sales and joint working
interests and processing arrangements not material to Pennzoil or its affiliates
and UPR or its affiliates or to the relationship between them, as of the date
hereof there are no contracts, agreements, arrangements or understandings or
actual or potential conflicts of interest between Pennzoil or its affiliates and
UPR, Newco or their respective executive officers, directors or affiliates that
are required to be disclosed pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission").
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
THE BOARD HAS DETERMINED, BY VOTE OF ALL DIRECTORS PRESENT AT THE
MEETING,(1) THAT THE UPR PROPOSAL, INCLUDING THE OFFER, IS INADEQUATE AND NOT IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD,
BY VOTE OF ALL DIRECTORS PRESENT AT THE MEETING,(1) recommends that the
stockholders of the Company reject the UPR Proposal and not tender their Shares
pursuant to the Offer.
The Board's determination, which was reached at a meeting held on July 1,
1997, was based on the Board's review and consideration of the interests of the
Company and its stockholders. At the same meeting, the Board determined that the
Company's and its stockholders' interests would be best served if the Company
were to remain an independent company. At a regularly scheduled meeting on June
16, 17 and 18, 1997, the Board had previously considered a proposal made in a
letter from UPR dated June 10, 1997 to negotiate a transaction involving a first
step cash tender offer to be followed by a second step merger in which Shares
remaining outstanding after the first step would be converted into UPR Common
Stock, and which UPR had stated would allow Pennzoil shareholders to receive a
purported value of $80 per share, payable in a combination of cash and UPR
Common Stock. See "Background," below.
Copies of a letter to the stockholders of the Company communicating the
Board's recommendation, and a press release announcing the Board's
determinations, are filed as Exhibits 1 and 2 hereto, respectively, and are
incorporated herein by reference.
(b) REASONS FOR RECOMMENDATION. In reaching its determination and
recommendation described in Item 4(a) above, the Board considered a number of
factors, including, without limitation, the following:
(i) The Board's familiarity with, and management's review of, the
Company's business, financial condition, results of operations, business
strategy and future prospects, including in particular the strategy and
prospects reflected in the Company's strategic plan, and with the nature of
the businesses in which the Company operates, and the Board's belief that
the UPR Proposal, including the Offer, does not reflect the long-term
values inherent in the Company. In this connection, the Board particularly
considered the
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1 All members of the Board were present and voting except Mr. Alfonso Fanjul,
who was travelling abroad at a location where a secure telephone was
unavailable.
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progress made in the last two years toward restructuring and repositioning
Pennzoil into a top-performing operating company, including the following
operational improvements:
(A) The Board's reduction in Pennzoil's annual dividend rate from
$3.00 to $1.00 per share in late 1995 is providing Pennzoil with over
$90 million per year to be reinvested in long-term growth, and
Pennzoil's successful reduction of general and administrative expense by
over 30% annually since 1995 is providing an additional $80 million per
year to be so invested.
(B) Pennzoil's successful program of restructuring its North
American oil and gas operations to focus on core areas, reduce costs and
increase return on assets has resulted in (1) per barrel operating costs
being reduced from over $6.00 in 1993 to $4.41 in 1996, with additional
reductions to about $4.00 being expected, and (2) per barrel finding and
development costs being reduced from nearly $6.00 in 1993 to $3.87 in
1996.
(C) Pennzoil's upgrading of its North American core assets and
aggressive cost-cutting initiatives have resulted in 1996 net income of
$134 million, or $2.28 per share, compared to a loss of $305 million, or
$6.60 per share, in 1995 (which included a $265.5 million accounting
charge); in addition, first quarter 1997 results are 265% higher than
first quarter 1996 results, representing the sixth consecutive quarter
of year-on-year improvements.
(D) Cash flows from operations (before working capital changes)
rose significantly in 1996, reaching $432 million, a $132 million
increase over 1995, and cash flows for the first quarter of 1997
continued to improve, reaching $147 million, compared to $103 million in
the first quarter of 1996.
(E) Pennzoil reduced debt by $313 million from the end of 1995 to
the end of the first quarter of 1997. Pennzoil's total debt is at its
lowest since 1989, and Pennzoil's adjusted debt-to-capital ratio
declined 6.8% in 1996 compared to 1995.
(F) Pennzoil has installed experienced new senior management for
its oil and gas operations that the Board believes will be capable of
successfully implementing the initiatives for those operations included
in the Company's strategic plan.
The Board also particularly considered the following pending and completed
initiatives included in the Company's strategic plan:
(A) The Company has a 4.8% carried interest (i.e., all of the
Company's future expenses are paid by other parties until project
payout) in the Azeri-Chirag-Gunashli ("ACG") unit in the Caspian Sea
offshore Azerbaijan with estimated recoverable reserves of at least 4.7
billion barrels of oil and with an "upside" potential of 6 to 7 billion
barrels of oil. Production is expected at ACG by 1998.
(B) The Company has a 30% interest in the Karabakh prospect in the
Caspian Sea offshore Azerbaijan, which is estimated to have about 900
million barrels of recoverable reserves with an "upside" potential of
1.3 billion barrels of oil. The first exploratory well is expected to be
drilled in Karabakh beginning in July 1997.
(C) The Company has five high potential exploration concessions in
Egypt, four of which are in the Gulf of Suez and one of which is onshore
in the western desert. Wells are expected to be drilled on at least
three of the blocks before the end of 1998.
(D) The Company has a 100% working interest in block 8 offshore
Qatar (which is adjacent to and surrounds a prolific oil field), where
the Company plans to drill two exploration wells in 1997 and an
additional well in 1998. The Company is currently pursuing another
attractive prospect offshore Qatar.
(E) The Company and its partners were awarded two contracts in June
1997 to operate fields offshore Lake Maracaibo in Venezuela. The Company
has a 60% interest in one field and a
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50% interest in the other field, and recoverable reserves in the two
fields have the potential to be in the range of 100-200 million barrels
of oil equivalent ("BOE").
(F) In the Gulf of Mexico, the Company in late 1996 entered into an
exploration alliance with Enterprise Oil plc, under the terms of which
Enterprise will contribute a minimum of $100 million through 1998 in
exchange for half of the Company's working interest in any discoveries
(with the option to extend the alliance for another year for an
additional $50 million commitment), which is expected to enable the
Company greatly to expand and accelerate its Gulf of Mexico exploration
activity at little cost to the Company. Enterprise and the Company have
already announced a successful discovery at one of the Company's
properties, Garden Banks 161, Number 1, and the Company and Enterprise
are pursuing similar opportunities on over 100 of the Company's leases
in the Gulf of Mexico.
(G) The Company at the end of 1996 had proved oil and gas reserves
of about 400 million BOE. The current domestic and international oil and
gas initiatives being pursued by the Company, including in Azerbaijan,
Egypt, Qatar, Venezuela and the Gulf of Mexico, have a reasonable
probability of at least doubling the Company's proved reserves within
three to five years.
(H) The Company has invested over $500 million in two major
downstream projects over the last two years. One of these projects,
Excel Paralubes, a lube-base oil plant joint venture with Conoco, Inc.
brought on line in the first quarter of 1997, is expected to make the
Company one of the lowest cost producers of base oils in the world and
the second largest producer of base oils in the United States. The
Company has in the first quarter of 1997 completed an upgrade of its
Shreveport refinery, adding a catalytic cracker and an alkylation unit
to increase fuels production. These two new downstream operations (Excel
Paralubes and the Shreveport refinery upgrade) are expected to add about
$.50 per share of earnings and approximately $1.00 per share of after
tax cash flow in 1997. When fully operational and after expected market
adjustments, these two projects are expected to add $70 million of
annual after-tax cash flow to the Company.
(I) Pennzoil(R) brand motor oil is, and has been for 11 consecutive
years, the number one selling motor oil in the United States and
commands a market share of 21%. Pennzoil(R) was ranked as the top
automotive "Power Brand" for the fifth consecutive year in 1996. As part
of its strategic plan, the Company is engaged in an aggressive marketing
campaign to increase its market share and to expand internationally as
well as to develop new products that can be leveraged off the powerful
Pennzoil(R) brand name and engaged in rationalization and cost reduction
initiatives.
(J) Jiffy Lube International, Inc., the Company's franchise
operation segment, is the largest fast oil change service provider in
the United States and continues to expand rapidly with 182 new stores in
1996. Jiffy Lube plans to build approximately 200 stores in Sears
autocenters by the end of 1997. Revenues and earnings from these stores
should increase substantially as the new stores reach maturity 12 to 18
months after opening.
(ii) Presentations by the Company's management as to the Company's
prospects for future growth, profitability and share price appreciation, as
reflected in the Company's strategic plan.
(iii) The Board's belief that the Company is just beginning to realize
for its stockholders the values that will be unlocked as a result of the
various strategic initiatives implemented over the past several years and
others in the process of implementation, and that pursuit of the Company's
strategic plan, including the refinements that may result from management's
ongoing review, will produce greater long-term value for the stockholders
than the UPR Proposal, including the Offer.
(iv) The Board's belief that the marketplace and many of Pennzoil's
stockholders do not yet fully appreciate and recognize the benefits already
achieved, and still to be achieved, under the Company's strategic plan.
(v) A presentation by Lehman Brothers Inc. ("Lehman Brothers"),
Evercore Group Inc. ("Evercore Group") and J.P. Morgan Securities Inc.
("J.P. Morgan"), financial advisors to the
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Company, concerning the Company, UPR and the financial aspects of the UPR
Proposal, including the Offer, and the opinions of Lehman Brothers, J.P.
Morgan and Evercore Group to the effect that, as of July 1, 1997, the
consideration offered to stockholders of the Company pursuant to the UPR
Proposal, including the Offer, is inadequate from a financial point of view
(such opinions having been expressed after review of many of the factors
referred to herein and various financial criteria used in assessing the UPR
Proposal, including the Offer, and having been based on various assumptions
and subject to various limitations, which were reviewed for the Board as
part of the presentation of Lehman Brothers, J.P. Morgan and Evercore
Group). The full text of the opinions of Lehman Brothers, J.P. Morgan and
Evercore Group are included as Exhibits 3, 4 and 5 hereto and may be read
in their entirety.
(vi) The numerous conditions to which the Offer is subject, including
many conditions that are in the sole discretion of Newco.
(vii) The uncertainty as to the actual value of the Proposed Squeeze
Out Merger to the stockholders of the Company, resulting from, among other
things, the pricing collar on the merger exchange ratio under which the
stockholders of the Company would have no downside protection and no
walkaway rights to the extent the average price of UPR Common Stock used in
determining the exchange ratio is less than $25 per share, and the absence
of any assurance that the UPR Common Stock, when ultimately received by
holders of Shares, would have a market value of or could be sold for the
price of UPR Common Stock used in determining the merger exchange ratio.
(viii) The structure of the UPR Proposal as a two-tiered, front-end
loaded transaction that the Board believes is coercive in that the
treatment of stockholders remaining after Shares are purchased pursuant to
the Offer -- being required to accept in the Proposed Squeeze Out Merger
shares of UPR Common Stock that may or may not have a value of $84 per
Share -- would distort the decisions of the Company's stockholders as to
whether to tender.
(ix) The Board's belief that the UPR Proposal poses a threat to the
Company's stockholders in that UPR is seeking to usurp for itself the
future growth in revenues, net income and cash flow and stock price
appreciation that are only beginning to result from the Company's completed
cost-cutting efforts and operational improvements and the Company's pending
and completed strategic initiatives included in the Company's strategic
plan.
(x) The uncertainty as to whether the UPR Proposal would in fact
qualify as a reorganization under the Code.
(xi) The fact that holders of Shares remaining after consummation of
the Offer would not have sufficient voting power to prevent the Proposed
Squeeze Out Merger, but UPR would have no obligation to effect such merger
if UPR's stockholders did not approve the issuance of stock in the merger
as required by rules of the New York Stock Exchange.
(xii) The uncertainty as to the completion and timing of the Proposed
Squeeze Out Merger.
(xiii) The uncertain long-term value of the UPR Common Stock to be
issued in the Proposed Squeeze Out Merger, including uncertainties
resulting from:
(a) A significant material adverse effect on future earnings of UPR
as a result of any acquisition of the Company because of future
depreciation, amortization, tax expense and interest expense effects on
UPR. The amount of such material adverse effect on UPR's earnings could
easily exceed $400 million annually on an after-tax basis, and the
material adverse effect on UPR's earnings could materially and adversely
affect the value of UPR Common Stock proposed to be received by the
Company's stockholders in the Proposed Squeeze Out Merger.
(b) UPR Common Stock has, in the past, traded at premiums to
relevant multiples of "comparable" companies, and there is no assurance
that this trading range can be maintained for shares of UPR Common Stock
that would be received by the Company's stockholders in the Proposed
Squeeze Out Merger.
(c) The UPR Proposal would result in an entity that is
significantly more leveraged than is UPR currently, with the potential
for material downgrading of ratings of debt of UPR and for
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additional downward pressure on UPR's stock price. These matters could
materially and adversely affect the value of UPR Common Stock proposed
to be received by the Company's stockholders in the Proposed Squeeze Out
Merger.
(d) There exists uncertainty as to whether disclosures made to the
Internal Revenue Service in connection with a ruling as to the tax-free
status of UPR's 1996 spin-off from Union Pacific Corporation ("UPC")
were complete and accurate as they relate to pre-spin-off contacts and
discussions between Pennzoil and UPR, raising the possibility that the
ruling could be revoked or challenged on audit. UPR has agreed to
indemnify UPC for any tax liabilities attributable to the spin-off
distribution to the extent the liabilities result from (1) the
inaccuracy of any factual information provided by UPR in connection with
the ruling request or (2) any act or failure to act without the consent,
direction or advice of UPC by UPR or its directors, officers, other
employees or agents or other representatives, whether such act or
failure to act occurs before or after the spin-off distribution.
(xiv) The failure of UPR to present in the Offer to Purchase any pro
forma information giving effect to, or to make other disclosure with
respect to the negative and potentially negative effects on UPR and on UPR
Common Stock discussed above that would result from, the UPR Proposal,
including the Offer.
(xv) The potential material adverse effects of the UPR Proposal on the
Company's rights under certain domestic and international joint venture
agreements and other contracts and on other existing and prospective
business relationships.
(xvi) The lack of experience of UPR in exploration and production
activities in the Gulf of Mexico and internationally, including in areas
such as Azerbaijan, Qatar, Egypt, Venezuela and Australia, and the lack of
experience of UPR in operation of significant "downstream" businesses such
as base oil plants, refineries, marketing of motor oil, consumer products
and industrial specialties and the operation of fast oil change centers,
and the adverse effect of such inexperience on the value of UPR Common
Stock to be received by the Company's stockholders in the Proposed Squeeze
Out Merger.
(xvii) Certain comments made by UPR management since the commencement
of the Offer that call into question whether key elements of the Pennzoil
strategic plan would be pursued in a combined enterprise controlled by UPR,
particularly with regard to further development and realization of value
from Pennzoil's international oil and gas assets, and the resulting
possibility that Pennzoil stockholders would be denied the opportunity to
participate in the upside of such projects.
(xviii) The preclusive effect of the UPR Proposal on a potential
negotiated acquisition being explored by Pennzoil involving a large
exploration and production company with both U.S. and international
exposure.
(xix) The preclusive effect of the UPR Proposal, for a period of at
least five years, on the ability of Pennzoil to effect certain transactions
that would restructure the businesses of Pennzoil on a tax-free basis, such
as a spin-off of one or more businesses.
(xx) The Board's and management's commitment to protecting the best
interests of the stockholders of the Company and enhancing the value of the
Company.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in its evaluation, the Board did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determinations and recommendation.
In addition, individual members of the Board may have given different weights to
different factors.
The Offer is conditioned upon, among other things, the Rights having been
redeemed by the Board or Newco being satisfied in its sole discretion that the
Rights have been invalidated or are otherwise inapplicable to the Offer and the
Proposed Squeeze Out Merger. In light of its decision discussed above, the Board
has
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determined not to take any action to redeem the Rights in response to the Offer.
As more fully described under Item 7, the Board has adopted a resolution to
delay the "Distribution Date" under the Rights Agreement.
The Offer is also conditioned upon the acquisition of Shares pursuant to
the Offer and the Proposed Squeeze Out Merger having been approved pursuant to
Section 203 of the Delaware General Corporation Law ("Section 203") or the
provisions of Section 203 being otherwise inapplicable to the acquisition of
Shares pursuant to the Offer and the Proposed Squeeze Out Merger. In light of
its decision discussed above, the Board has determined not to take any action
that would render Section 203 so inapplicable.
The Offer is further conditioned upon the acquisition of Shares pursuant to
the Offer and the Proposed Squeeze Out Merger having been approved pursuant to
Article Sixth of the Restated Certificate of Incorporation of the Company
("Article Sixth"). In light of its decision discussed above, the Board has
determined not to take any action that would render Article Sixth so
inapplicable.
The Offer is also conditioned upon either (1) Newco's designees having been
elected to the Board so that after such election, such designees constitute a
majority of the Board or (2) the Company having entered into a mutually
satisfactory definitive merger agreement with UPR and Newco to provide for the
acquisition of the Company pursuant to the Offer and the Proposed Squeeze Out
Merger. In light of its decision referred to above, the Board has determined not
to take any action with respect to the election of designees of Newco to the
Board or to attempt to negotiate any merger agreement with UPR or Newco.
BACKGROUND OF THE UPR PROPOSAL. On January 12, 1995, Mr. Jack L. Messman,
the President and Chief Executive Officer of Union Pacific Resources Company, a
predecessor of UPR (and now the Chairman and Chief Executive Officer of UPR),
and Mr. Pate, Chairman, President and Chief Executive Officer of Pennzoil, met.
This meeting was arranged by an executive recruiter who had been engaged by
Pennzoil in connection with identifying candidates for the position of
Pennzoil's chief operating officer. During the course of the meeting, Mr. Pate
and Mr. Messman discussed the respective business of Pennzoil and UPR. Mr. Pate
discussed with Mr. Messman Pennzoil's strategic plan.
On January 24, 1995, Mr. Pate and Mr. Howard H. Baker, Jr., a member of
Pennzoil's Board, met with Mr. Drew Lewis, then the Chairman, President and
Chief Executive Officer of UPC, to discuss a possible combination or other
business arrangement involving Pennzoil and UPR, then a wholly owned subsidiary
of UPC. Mr. Pate suggested that Pennzoil would like to discuss a possible
tax-efficient acquisition by Pennzoil of UPR or its assets. Mr. Lewis expressed
interest but said that his staff resources were preoccupied with work on another
transaction. Following that meeting, on January 25, 1995 Mr. Pate sent a letter
to Mr. Lewis that stated in part:
Dear Drew:
Thank you for taking time to visit with Howard Baker and me yesterday.
We enjoyed our meeting and were encouraged that there might be an
opportunity to have further discussions in the future.
* * *
I think there is a unique opportunity to structure a transaction with
Pennzoil Company that would maximize the value of Union Pacific Resources
to shareholders in a tax-efficient manner. Union Pacific's core oil and gas
properties and ours are very similar. We have a lot of common ownership and
generally provide the best possible fit. The size of our respective oil and
gas interests is similar and combining them would significantly improve
reserve and production profiles. The combined entity would become the
premier exploration and production company in the world, ranking number one
in terms of production and number two in reserves.
* * *
The particular means of effecting a combination of our companies
would, of course, depend upon the parties' objectives involving speed, form
of consideration and tax planning. I expect Union Pacific has a
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low tax basis in Union Pacific Resources (UPRC) stock and UPRC may have a
low basis in its assets. Regardless, we are prepared to work with you in
structuring a tax-efficient transaction that would meet your objectives.
There are numerous alternatives and variations. Two basic forms of
transactions could be as follows:
1. Stock-swap merger following a tax-free spin-off of UPRC by Union
Pacific
Pennzoil's entering into a proposed merger agreement with UPRC in
advance of a tax-free spin-off of UPRC by Union Pacific would provide
greater stability and enhanced value to Union Pacific's shareholders
than could otherwise be achieved solely in a spin-off. This form of
transaction has an advantage of not being a sale for a defined value at
a time of relatively depressed industry conditions, but rather a merger
of equals with Union Pacific's shareholders participating in the future
of the combined business.
This alternative provides the most tax-efficient means of
transferring value to Union Pacific's shareholders. However, you would
probably want an IRS ruling relating to the tax-free spin-off under
Section 355, and obtaining a ruling would probably take many months and
would probably require the merger to be approved by a "real and
meaningful" vote of the UPRC stockholders after the spin-off.
2. Cash purchase of UPRC producing properties subject to a large
production payment reserved by UPRC
Under this scenario, Pennzoil would agree to purchase UPRC
properties for cash and the reservation by UPRC of a large production
payment in an agreed principal amount, plus interest. Pennzoil would
derive the cash portion of the purchase price from the sale of its debt
and/or equity securities following public announcement of the deal. It
is possible to structure the transaction so that Union Pacific would
realize income attributable to the production payment only as cash is
received, would not be forced to pay interest to the IRS on the deferred
tax, and could still pledge the production payment as security for a
loan (thereby receiving a large amount of cash up front), without
accelerating the recognition of income. This proposal would permit Union
Pacific to receive full value in cash in a taxefficient manner without
any requirements for an IRS ruling or shareholder votes.
Other possible combinations and variations of the foregoing could be
adapted to meet our respective objectives. They might include joint
ventures as to some or all of the properties, or using the production
payment for the producing properties and a merger or spin-off/merger for
the unexplored acreage and other residual oil and gas assets.
In any alternative involving a spin-off, it seems clear that having a
definitive merger plan with Pennzoil would significantly enhance the post
spin-off value of UPRC to the Union Pacific shareholders for a number of
reasons.
1. It is common for stocks of entities spun-off to trade poorly,
even in good public markets, as the investor base adjusts. Pennzoil, on
the other hand, has a well established shareholder base and the post
merger shares would be widely held. The public float and energy investor
base would be increased immediately.
2. It would avoid the 15%-20% market discount typically associated
with initial public offerings.
3. And, a spin-off of UPRC prior to a merger enables Union Pacific
shareholders to realize value immediately and directly.
Finally, I want to point out that Pennzoil has the means and ability
to move quickly, once you are prepared to consider a transaction.
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* * *
On February 7, 1995, Mr. Messman and Mr. Pate had dinner in Houston. Mr.
Pate mentioned that he had talked to Mr. Lewis on January 24 and Mr. Messman
said that he had seen Mr. Pate's January 25, 1995 letter. Mr. Pate and Mr.
Messman also discussed the possible job opportunity as chief operating officer
of Pennzoil.
On July 18, 1995, certain additional analyses and other material concerning
a transaction such as that suggested by Pennzoil with respect to a combination
of Pennzoil and UPR, and other information, were forwarded to UPC by
representatives of Lazard Freres & Co., LLC. Representatives of Lazard Freres &
Co. had been in contact with both Pennzoil and UPC regarding a possible
transaction involving Pennzoil and UPR. Lazard Freres & Co. was not engaged by
Pennzoil to act as its financial adviser. At a meeting held at UPC's offices on
July 18, 1995, UPC informed Pennzoil that it was pursuing an alternative
transaction with respect to UPR (referring to the October 1995 offering of UPR
Common Stock and the October 1996 distribution of UPR Common Stock to UPC's
stockholders). From time to time during 1995 and 1996, Mr. Pate received calls
from a representative of Lazard Freres & Co. suggesting continued interest on
the part of Mr. Lewis in a possible combination of Pennzoil and UPR.
At no time during the 1995 discussions did Pennzoil consider, or its
representatives discuss, any transaction in which publicly held Pennzoil would
be the acquired company or which otherwise would result in a change in control
of Pennzoil.
On February 5, 1997, Mr. Messman telephoned Mr. Pate and arranged a meeting
in Houston for March 4, 1997. On March 4, 1997, Mr. Messman and Mr. Pate met at
Pennzoil's offices in Houston. During the meeting, Mr. Messman generally
described UPR's interest in exploring with Mr. Pate a possible strategic
combination of UPR and Pennzoil. In response, Mr. Pate expressed his view that
it was absolutely the wrong time for Pennzoil to consider any form of business
combination with UPR and that Pennzoil was not interested in any change in
control transaction with UPR. Mr. Pate also noted that a merger of equals as
envisioned by Mr. Pate in 1995 was no longer possible because of the significant
disparity in relative size and market capitalization between Pennzoil and UPR in
1997. Mr. Pate also observed that "pooling" accounting treatment would not be
available and that UPR would be required to account for any transaction using
the "purchase" method, causing UPR to amortize a large amount of "excess cost"
over a period of several years. In addition, Mr. Pate emphasized to Mr. Messman
that Pennzoil had embarked on a five-year strategic plan approved by its Board
of Directors that was designed to increase significantly Pennzoil's earnings,
cash flow and stock price. He also referred to the talented new management team
in Pennzoil's oil and gas segment. Finally, Mr. Pate emphasized that Pennzoil's
stock multiples and stock price did not yet reflect the fundamental changes and
improvements at Pennzoil or the "quality" of Pennzoil's oil and gas assets, much
less the potential value for the initiatives that were underway. Mr. Pate said
he believed that more long-term value for Pennzoil's stockholders would come
from following Pennzoil's strategic plan than from a combination with UPR. Mr.
Pate did not make the statement attributed to him by UPR that Pennzoil's Common
Stock could be trading in a range between $80 and $100 per share in the next
four to five years if Pennzoil's strategic plan was successfully implemented.
On April 10, 1997, Mr. Messman telephoned Mr. Pate. Mr. Messman told Mr.
Pate that UPR remained interested in pursuing a negotiated business combination
with Pennzoil and invited Mr. Pate to UPR's offices in Fort Worth to describe
UPR's business, financial condition and strategies and to discuss further a
potential transaction. Mr. Pate declined the meeting, stating that he was
already familiar with UPR's business and was very busy working on Pennzoil's
long-range planning. Mr. Pate agreed to call Mr. Messman on May 5, 1997.
On May 5, 1997, Mr. Pate telephoned Mr. Messman. Mr. Messman again
requested a meeting and Mr. Pate responded that there was no purpose for a
meeting and he was not prepared to schedule one. Mr. Pate repeatedly declined to
schedule a date for a subsequent call until Mr. Messman finally said he would
call on May 28, 1997, when Mr. Pate had said that he would be in his office.
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On May 6, 1997, Mr. Messman sent a letter to Mr. Pate which stated in part:
Dear Jim:
It was nice to talk with you yesterday upon my return from my
honeymoon in Paris.
Because I was still suffering from jet lag, I wanted to follow up on
our conversation with this letter to make sure I recall accurately what we
discussed.
As I mentioned yesterday, we are prepared to pursue a combination with
your company and are ready to discuss the full range of issues, including
value and structure. The combination of our strong financial position and
the companies' complementary assets would create a transaction beneficial
to both companies. We have the greatest respect for your management team
and believe social issues can be satisfactorily resolved.
I appreciate your reluctance to receive and respond to a price
proposal at this time, and understand that the planning process in which
you are now involved will be completed later this month, at which time a
discussion of these issues would be appropriate.
As we continue our dialogue that began in February, I want you to know
that our desire is to move ahead quickly after we talk again on May 28. I
hope we can meet as soon as possible thereafter. This timetable is
fortuitous since we have a board meeting on June 4 and our board expects a
report from me on this subject.
Again, we stand ready to be specific, particularly with regard to
economic terms and we believe we can address any and all concerns you might
have.
On May 8, 1997, Mr. Pate sent the following letter to Mr. Messman:
Mr. Jack L. Messman
Chairman & CEO
Union Pacific Resources
801 Cherry Street
Fort Worth, TX 76102-6803
Dear Jack:
I was surprised by your letter of May 6, 1997. You apparently have
misconstrued my politeness to you as a temporary reluctance to receive and
respond to a price proposal.
To reiterate as clearly as I can express, Pennzoil is not prepared to
pursue any change of control transaction with your company or anyone else
and we are prepared to take all necessary action to respond to any
unsolicited offer. Our Board of Directors has charted an independent
strategic direction for Pennzoil which is in the best interests of our
company and its shareholders. 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.
As I explained in our meeting on March 4, 1997, circumstances have
changed drastically since our first contact in 1995 when the railroad
company 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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It is strange to me that you would characterize your telephone calls
seeking meetings as a dialogue that began in February. When you visited me
in my office on March 4, I thought I had made it plain that Pennzoil fully
intends to remain independent and is not interested in engaging in any
process that could put Pennzoil into play. That was the situation then, it
remains the situation now and will remain the same later this month. There
is no purpose to meet or talk further regarding these matters.
Sincerely,
/s/ Jim
James L. Pate
Chairman of the Board
Chief Executive Officer
On June 10, 1997, Mr. Messman telephoned Mr. Pate to advise Mr. Pate that
he would be sending a letter regarding a possible business combination between
Pennzoil and UPR. Later that day, Mr. Messman telecopied the following letter to
Mr. Pate:
Mr. James L. Pate
Chairman, President and Chief Executive Officer
Pennzoil Company
700 Milam
P.O. Box 2967
Houston, TX 77252-2967
Dear Jim:
I am sorry that our discussion on May 5, and my letter on May 6 led to
a misunderstanding as reflected in your May 8 letter. I thought that I had
expressed the goals of Union Pacific Resources clearly in our
conversations. From an earlier conversation with you, I also had the
impression that, after completion of your long range planning, you would be
willing to consider a transaction designed to maximize value for Pennzoil
shareholders.
As you know from our previous communications, we have been interested
for some time in pursuing a possible transaction with Pennzoil. I am
writing to seek to establish a constructive dialogue with Pennzoil in the
hope that we can explore a possible strategic business combination on a
friendly, negotiated and confidential basis. As you also know from our
previous discussions, we believe that our two companies would be an ideal
business combination providing an outstanding strategic fit.
In evaluating why such a combination is so attractive for both
companies and their respective shareholders, we have focused on several key
factors, including the following:
- We believe that the combined company will be the premier independent
E&P company in the United States, ranking first in nearly all measures
of size and activity. For all of the reasons stated below, we believe
that the market would react very favorably to this combination.
- Our proven ability in applied drilling technology will
increase -- quickly and efficiently -- the yield of Pennzoil's
extensive portfolio of properties. UPR is a world leader in horizontal
drilling and the most active driller in the U.S., as well as a leader
in 3-D seismic technology. UPR's ability to apply technology to
exploit assets will enhance the value of Pennzoil's properties.
- Our companies share a complementary core E&P business, which combined
will have a well-balanced, concentrated and sizeable portfolio of
opportunities in the Gulf of Mexico, onshore Gulf Coast, Austin Chalk,
East Texas, South Texas, Permian Basin, Rocky Mountains, and several
high potential international plays. The combined production and
reserve profiles will be geographically diverse with attractive growth
potential.
- The financial strength of the combined company will ensure the ability
to fund all of its promising current and future opportunities on a
global scale. Royalties from our fee ownership position in
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our 7.5 million acre Land Grant provide significant cash flow for our
E&P opportunities. In fact, UPR expects to increase immediately and
significantly capital spending on Pennzoil's E&P properties to
increase production and reserves.
- Together, we can achieve greater operating and administrative
efficiencies. Our properties in East Texas and South Texas complement
each other. The combined management and technical team will include
some of the industry's best and most seasoned professionals. As a
result, new operating efficiencies will be achieved by increasing
production and reducing per-unit costs. At the same time, let me
stress that growth opportunities are the reasons for this merger.
- Non-E&P operations of both companies will benefit from the merger, due
to the increased financial strength to fund strategic growth of
Pennzoil's Motor Oil, Products and Franchise operations and the value
which Pennzoil's brand name recognition could bring to UPR's marketing
and processing businesses.
You recognized this compelling business logic when, in 1995, you
suggested that our two companies merge. Your January 25, 1995 letter was
correct in pointing out that Pennzoil "provided the best possible fit" with
UPR. We agree with your assertion that "the combined entity would become
the premier exploration and production company in the world." Yet in
contrast to your very strong positive feelings two years ago, you indicated
in your recent letter that Pennzoil faced more difficulties in 1995 than it
does now and that therefore a merger somehow no longer makes 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 now, as you are embarking on a road that you hope leads to
improved performance, the benefits from a combination would come even more
quickly. If we combine our two companies, with all of their complementary
strengths, consider what we can accomplish together -- the tremendous value
we will build for our shareholders. You had a great idea in 1995, and it is
still a great idea today. These two companies belong together.
A combination of our two companies would provide a base for
extraordinary value creation for our respective shareholders. I believe
that by working together we have the opportunity to accomplish the best
strategic merger in the energy business in recent history. Looking at that
exciting prospect, as well as our readiness to talk about specific terms of
a transaction, we were disappointed by your assertion that all
communications between us should cease. Given what we together can
accomplish for our shareholders, employees and other constituencies, we
believe that you should seriously consider our proposal.
Because the transaction we foresee is so valuable to both companies, I
thought it appropriate as a next step, and before making any formal
proposal, to summarize the terms of a possible transaction that we would be
prepared to discuss. I assume that you will share this letter with the
members of your Board, as I have done with my Board, which unanimously
supports our pursuing these discussions with you.
Price and Structure
- We would like to discuss a combination which would allow Pennzoil
shareholders to receive a value of $80 per share, payable in a
combination of cash and UPR common stock. This price represents a
substantial premium, 41% over yesterday's closing price of your stock,
51% over the price 30 days ago and 50% over the average price for the
past 12 months. We believe that your Board and shareholders would find
this compelling and that the realization of this value would be a
remarkable achievement for your shareholders.
- We have flexibility in the design of the transaction and are willing
to discuss alternative structures. We believe that the transaction
should be designed so that the cash portion ranges from 40% to 50%,
with the balance consisting of UPR common stock. Our suggestion is to
structure a two-step transaction, with a first-step cash tender in
order to give your shareholders the earliest opportunity to receive
the cash portion of the consideration. The second-step would be a
conversion of the
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remaining Pennzoil common stock into UPR common stock. A two-step
structure would enable the two companies to complete the transaction
as quickly as possible.
- In addition to the substantial immediate premium that your
shareholders would receive, the stock portion of the transaction would
enable your shareholders to have a significant ongoing stake in an
outstanding company with excellent opportunities for growth and value
creation. We anticipate that the stock portion of the transaction
would be tax-free to Pennzoil shareholders.
- We have expended substantial time and effort in developing our
proposal on the basis of publicly available information and believe
that the price is a full and fair one. However, we are prepared to
consider any non-public information which you believe demonstrates
higher value. We are also willing to allow representatives of Pennzoil
to review non-public information about UPR.
I realize that you believe successful implementation of your strategic
plan will result in an increase in Pennzoil's stock price over the next
four to five years. As you see, the proposed transaction would provide your
shareholders a certain value today substantially above the present value of
even an aggressively projected range of future prices.
Continuity of Management and Operations
- We also recognize that your Board will want to understand how you and
your management team would fit into the leadership structure of the
new company. We hope and expect that you and your team would continue
to play an important leadership role moving forward. In particular, we
would be looking to you to play a major role in the combined
operations, helping to realize the value we both know would reside in
the new company. I would hope that you would agree to serve the
combined company as Vice Chairman of the Board and as President and
Chief Executive Officer of its Motor Oil, Products and Franchise
businesses. We also would expect that three Pennzoil Board members,
you and two others, would become directors of the combined company. In
addition, we fully recognize the importance of reaching employment
agreements with senior executives, as appropriate. Of course, we would
fully honor Pennzoil's existing employment agreements, benefit plans
and other commitments to its employees.
- We are certain that you and Pennzoil's workforce would find a
professionally exciting, challenging and rewarding environment in the
combined organization -- as well as a strong sense of shared purpose
and camaraderie.
Corporate Name
- We are willing to consider having the name of the new company include,
or be, Pennzoil.
Location
- We would maintain corporate offices in both Fort Worth and Houston,
with executive, administrative and operating personnel in both
locations.
Our number one strategic priority is to make the combination of UPR
and Pennzoil a reality. Therefore, we stand ready to meet at any time to
discuss any -- or all -- aspects of the terms and structure of our proposed
transaction. I suggest that, after you have reviewed this matter with your
Board, you and I meet privately to discuss how best to proceed. We hope you
will share our enthusiasm for this combination and our confidence that it
serves the best interests of both companies' shareholders, employees and
customers, as well as our respective business partners, suppliers and the
communities where we operate.
I understand the concern you expressed about putting Pennzoil "in
play." We believe that our proposed course would avoid this. We have made
no public announcement of our proposal, have worked with our advisors to
structure this communication carefully so that it does not require a public
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announcement and hope to be able to discuss our ideas with you on a
confidential, non-public basis. I suggest that we meet privately as soon as
possible, hopefully later this week, and I will call you to try to arrange
this.
Pennzoil and UPR can achieve much together, and I look forward to
discussing this extraordinary opportunity for our respective shareholders.
Sincerely,
/s/ Jack
Jack L. Messman
On June 11, 1997, Mr. Pate telecopied the following letter to Mr. Messman:
Mr. Jack L. Messman
Chairman and Chief Executive Officer
Union Pacific Resources Corporation
801 Cherry Street
Fort Worth, TX 76102-6803
Dear Jack:
Without addressing any of the issues and misunderstandings referred to
in your June 10 letter, this is to advise you that I will review the
matters covered in your letter with our Board of Directors and advisors and
expect to respond to you on or before June 20.
Sincerely,
/s/ Jim
On June 12, 1997, representatives of UPR and its financial advisor, Smith
Barney, contacted several directors of Pennzoil, at least one former director,
and a representative of one of Pennzoil's financial advisors regarding UPR's
proposal. Pennzoil's directors uniformly responded that the appropriate time for
the Board members to discuss any proposal was at the forthcoming Board Meeting.
On June 13, 1997, Mr. Messman telecopied the following letter to Mr. Pate:
Mr. James L. Pate
Chairman, President & CEO
Pennzoil Company
P. O. Box 2967
Houston, TX 77252-2967
Dear Jim:
We are disappointed by your unwillingness to meet with us to discuss
the transaction proposal set forth in our letter of June 10th. Without such
a meeting, you and your Board will not be in a position to make an informed
decision regarding our proposal.
In one of our conversations, you indicated that you thought your stock
could reach $80 - $100 in four to five years. That is certainly a worthy
and ambitious objective. However, our proposal gives your shareholders not
only that possible future value today, but also the opportunity to benefit
from the growth of the combined company. We do not see how any realistic
long range plan for Pennzoil can compare favorably with our proposal.
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If you have analyzed our proposal, you will see that it is accretive
in discretionary cash flow per share. Since cash flow per share is the
primary determinant of value for E&P companies, we expect the stock price
of the combined company to rise appreciably. Given the attributes of the
combined company, the beneficial effect could be enhanced by a higher price
to cash flow multiple for the stock.
The market price of Pennzoil stock has been running up in the last two
weeks, compared to industry indexes. We are concerned that confidentiality
has been breached. Let me assure you that we have made every effort to
prevent this from occurring on our side.
As stated in my June 10th letter, our proposal reflects a review of
only publicly available information. If your revised 5-year plan contains
information which supports greater values, we are fully prepared to
increase our proposal.
Jim, our proposed transaction makes terrific sense for all of the
constituencies of both companies. It seems particularly obvious that it is
the best course of action for the shareholders of both companies.
Certainly, the values created by our proposal would represent a tremendous
achievement on your part for your shareholders. Therefore, I assume that
you will share both our June 10th letter and this letter with your Board.
We repeat our request to meet with you promptly.
Sincerely,
/s/ Jack
Jack L. Messman
At its regularly scheduled meeting held on June 16, 17 and 18, 1997,
Pennzoil's Board gave careful and deliberate consideration to UPR's proposal. At
the meeting held on those days, the Board received a report on, and discussed
extensively, the 1997 update to Pennzoil's strategic plan. Representatives of
Lehman Brothers and Evercore Group, financial advisers to the Company, gave an
extensive presentation on UPR's proposal and expressed their oral opinions,
based on their preliminary analyses of the UPR proposal, that the value of the
consideration to be offered to Pennzoil stockholders suggested by such proposal
was inadequate from a financial point of view. The Board unanimously resolved to
disapprove the request by UPR to negotiate a merger and authorized management of
the Company to reject the proposal. On June 20, 1997, Mr. Pate telecopied the
following letter to Mr. Messman:
Mr. Jack L. Messman
Chairman and Chief Executive Officer
Union Pacific Resources Group Inc.
801 Cherry Street
Fort Worth, Texas 76102-6803
Dear Jack:
The Pennzoil Board of Directors has met and carefully considered your
letters of June 10 and 13, 1997 together with its advisors and has
instructed me to make this reply.
The Board strongly believes that this is not the time to be
considering a transaction such as that suggested in your letters. As you
well know, Pennzoil has undergone a major restructuring in the last few
years and is only just beginning to realize for its shareholders the
tremendous values that it will unlock. The Board believes that the best
interests of Pennzoil's shareholders will be served by independently
pursuing its Strategic Plan rather than a sale of the Company.
In addition, the Board views the proposed structure of your
transaction as a classic front-end loaded, two-tier proposal, which would
be coercive to Pennzoil's shareholders. Even assuming that this structure
might be eliminated, the Board believes that your suggestion of value is
inadequate, especially when
17
<PAGE> 19
compared to the values that can be achieved through execution of our
Strategic Plan and related opportunities. The Board is not impressed with
your calculations of the premium over market price associated with your
proposal because we believe that the marketplace, like our shareholders,
does not fully appreciate the benefits already achieved, and still to be
achieved, under our Plan.
In light of these conclusions, the Board sees little point in debating
or refuting the many assertions of opinion in your letters, or in
correcting the erroneous factual matters they contain. Likewise, this brief
summary of the basis for the Board's decision does not address all of its
concerns or objections to your proposal. Simply stated, the Board is not
interested in pursuing a transaction with Union Pacific Resources Group
Inc.
Sincerely,
/s/ Jim
James L. Pate
On June 23, 1997, Mr. Messman telecopied the following letter to Mr. Pate:
Mr. James L. Pate
Chairman and Chief Executive Officer
Pennzoil Company
P.O. Box 2967
Houston, TX 77252-2967
Dear Jim:
As you know from our prior communications, the Board of Directors and
management of Union Pacific Resources Group Inc. (UPR) believe that UPR and
Pennzoil Company would be an ideal combination -- providing an outstanding
strategic fit. Together, they would create the premier independent
exploration and production company in the United States and significantly
enhance value for shareholders of both companies.
We have repeatedly attempted, over the past four 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 their 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 10th 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.
Your continued refusal to discuss the rationale or valuation of a
transaction has left us with no choice but to present our offer directly to
Pennzoil shareholders. While we are still prepared to discuss a friendly
transaction, the UPR Board of Directors strongly supports pursuing a
business combination now.
Accordingly, UPR is publicly announcing today a cash tender offer to
acquire 50.1% of the outstanding common shares of Pennzoil at a price
valued at $84 per share. This represents a 41% premium over Pennzoil's
closing price of $59.625 per share on June 20, 1997, a 56% premium over the
closing price 30 days ago and a 56% premium over the average closing price
for the past 12 months.
We also propose that, upon consummation of the tender offer, UPR and
Pennzoil enter into a merger transaction in which each remaining Pennzoil
share will be exchanged for a number of UPR shares, determined, within a
pricing collar of $25 to $30, by dividing $84 by the average of the closing
prices of UPR common stock for the twenty consecutive trading days ending
five days prior to the meeting of Pennzoil shareholders called for the
purpose of voting on the proposed merger. In the event that the UPR
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. The
exchange of shares is expected to be tax-free for Pennzoil shareholders.
18
<PAGE> 20
The realization of our proposed value would be a remarkable
achievement for your shareholders. In addition to the substantial,
immediate cash premium that your shareholders would receive, the stock
portion of the transaction would offer them an ongoing ownership position
in an outstanding company.
UPR will bring to the proposed combination its expertise in increasing
production and reserves from oil and gas properties quickly and
efficiently, its world class technical skills and the financial resources
to capitalize on development opportunities in the large inventory of core
properties of both companies.
Pennzoil will bring to the transaction a substantial domestic
production base, extensive opportunities for development and exploratory
drilling and its own employees' talents. Importantly, UPR can readily apply
its proven business model to Pennzoil's properties to increase their
production and value. Further, Pennzoil's globally recognized brand name
and downstream energy operations will complement UPR's large gas processing
and marketing business. These two companies belong together.
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 course of
the next four to 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.
In your letter of June 20th, you made the unusual statement that, ". .
.the marketplace, like [Pennzoil] shareholders, does not fully appreciate
the benefits already achieved, and still to be achieved, under [Pennzoil's]
plan." We are surprised that you would justify your refusal to consider our
offer by questioning the judgment of Pennzoil shareholders and the
marketplace.
Frankly, we do not see how any existing or newly created long-range
plan from you can compare favorably, or compete economically, with our
proposal for Pennzoil. In my view, your repeated rejections of our efforts
to initiate discussions regarding a merger have been a delaying tactic,
providing time to allow you to try to develop yet another strategic plan.
Over the past several years, such plans by Pennzoil have failed to deliver
value. Based on past performance, Pennzoil shareholders could justifiably
conclude that any new plan, and its projections will be similarly
unsuccessful and designed primarily to entrench the status quo at Pennzoil.
Our proposal, on the other hand, will deliver substantial value today and
in the future.
The combined company will generate growth and value that surpass what
Pennzoil by itself can achieve, for several reasons:
- UPR's proven ability to apply drilling technology will
increase -- quickly and efficiently -- the reserves and production
from Pennzoil's properties.
- The combined company will have a strong and balanced portfolio of oil
and gas properties, including potentially high-impact international
prospects, to which UPR's development expertise will be applied.
- The combined company will have the financial strength to nearly double
capital spending to drill and develop Pennzoil's properties, without
reducing capital spending on UPR's properties. In addition, it will
have the resources to pursue significant new E&P opportunities both
domestically and internationally, as well as to fund the strategic
growth of the downstream businesses.
- Greater operating and administrative efficiencies will be achieved by
increasing production and reducing per-unit costs.
You recognized the compelling business logic of a merger when in 1995
you first suggested that our two companies merge. Your January 25, 1995
letter was correct in pointing out that Pennzoil "provided the best
possible fit" with UPR. We agree with your assertion that, "The combined
entity would become the premier exploration and production company in the
world." Yet, in contrast to your very strong
19
<PAGE> 21
positive feelings two years ago, you indicated in a letter to me on May 8,
1997 that Pennzoil faced more difficulties in 1995 than it does now and
that therefore a merger somehow no longer makes 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 will build for our shareholders. You
had a great idea in 1995, and it is still a great idea today.
I believe that by working together, we have the opportunity to
accomplish the best strategic merger in the energy business in recent
history. Growth is the driving force behind this transaction, and clearly
our proposal to build the combined company serves the interests of
shareholders of both UPR and Pennzoil.
The merger also will create expanded opportunities for the employees
of UPR and Pennzoil, who will work in a stimulating and rewarding
environment. For the states and communities where UPR and Pennzoil
operate -- including Texas, where we will continue to maintain corporate
offices in both Fort Worth and Houston -- the combined company and its
strong growth prospects will be a major asset. As I have previously stated,
we are willing to consider having the name of the new company include, or
be, Pennzoil.
The number one strategic priority of our Company is to make the
combination of UPR and Pennzoil a reality. Given what we together can
accomplish for our shareholders, employees and other constituencies, we
were very surprised that you were opposed to even receiving a proposal from
us. We hope you will come to recognize the value this transaction offers.
We stand ready to meet at any time to discuss any -- or all -- aspects of
our proposed transaction, including structure.
Together, UPR and Pennzoil will quickly forge a uniquely strong,
dynamic company. We urge you and Pennzoil's Board of Directors to recognize
the immediate and long-term value of this transaction for Pennzoil
shareholders.
Sincerely,
/s/ Jack L. Messman
Jack L. Messman
Chairman & CEO
cc: Pennzoil Company Board of Directors
On June 23, 1997, UPR and Newco commenced the Offer.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Board has retained Lehman Brothers, Evercore Group and J.P. Morgan
(collectively, the "Financial Advisors") to act as financial advisors to the
Company in connection with the UPR Proposal, including the Offer. In that
connection, the Company has paid (i) to Lehman Brothers a fee of $2.3 million,
(ii) to Evercore Group a fee of $1.2 million and (iii) to J.P. Morgan a fee of
$1.5 million. These fees are in addition to the retainer fees paid to Lehman
Brothers and Evercore Partners Inc. pursuant to the retainer agreements
described below.
Pursuant to engagement letters between the Company and each of the
Financial Advisors (the "Engagement Letters"), if no acquisition of the Company
(by UPR or any other person) occurs on or prior to June 30, 1998, the Company
will pay to each Financial Advisor at the end of such period a fee in an amount
to be negotiated based on the efforts of such Financial Advisor during the term
of its engagement under its respective Engagement Letter. Each of the Engagement
Letters also provides that if an acquisition of the Company occurs within the
term of the engagement, the Company will enter into an engagement letter with
the Financial Advisor providing for financial advisory services in connection
with such acquisition, with the fees for such services and the other terms of
such engagement to be mutually agreed upon by the Company
20
<PAGE> 22
and such Financial Advisor. The fees paid pursuant to the Engagement Letters and
the retainer agreements described in the next paragraph will be creditable
against any subsequent fees as described in this paragraph.
On June 17, 1997, the Company entered into a retainer agreement with each
of Lehman Brothers and Evercore Partners Inc., an affiliate of Evercore Group
("Evercore Partners"), whereby Lehman Brothers and Evercore Partners rendered
financial advisory services to the Company in connection with UPR's June 10,
1997 proposal to Pennzoil. Pursuant to such retainer agreements, the Company
paid (i) to Lehman Brothers a fee of $1.0 million and (ii) to Evercore Partners
a fee of $500,000.
The Company also has agreed to reimburse the Financial Advisors for their
reasonable expenses, including professional and legal fees and disbursements,
and to indemnify the Financial Advisors against certain liabilities in
connection with their engagement, including liabilities arising under the
federal securities laws. In the ordinary course of their businesses, the
Financial Advisors may actively trade in the securities of the Company and UPR
for their own account and for the accounts of their customers and, accordingly,
may at any time hold a long or short position in such securities.
The term of each Financial Advisor's engagement extends through June 30,
1998 or until terminated by the Company or such Financial Advisor by giving the
other party at least ten days' prior written notice.
Lehman Brothers and J.P. Morgan have each provided financial advisory and
investment banking services to the Company from time to time for which they have
received customary compensation.
The Company also has retained Burson Marsteller as a public relations
advisor in connection with the UPR Proposal, including the Offer, and has
retained D.F. King & Co., Inc. to assist the Company in connection with
communications with stockholders and to provide other services to the Company in
connection with the UPR Proposal, including the Offer. The Company will pay
Burson Marsteller and D.F. King & Co., Inc. reasonable and customary
compensation for their services, reimburse them for their reasonable
out-of-pocket expenses and provide customary indemnities.
Except as described above, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf concerning
the UPR Proposal, including the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the extent currently known to the Company, no transactions in the
Shares have been effected during the past 60 days by the Company or by any
executive officer, director, affiliate or subsidiary of the Company. The Company
is currently verifying its response to this Item 6(a), and will update its
response as other information comes to its attention.
(b) To the extent currently known to the Company, none of the Company's
executive officers, directors, affiliates or subsidiaries currently intends to
tender, pursuant to the Offer, or sell any shares of Common Stock which are held
of record or beneficially owned by such persons, but rather such persons
currently intend to continue to hold such securities.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a)-(b) For the reasons discussed in Item 4 above, the Board has concluded
that the UPR Proposal, including the Offer, is inadequate and not in the best
interests of the Company and its stockholders and that the Company's and its
stockholders' interests would best be served if the Company were to remain an
independent company. The Company is not engaged in any negotiations in response
to the Offer that relate to or could result in one or more of the following or a
combination thereof: (i) an extraordinary transaction, such as a merger or
reorganization, involving the Company or any of its subsidiaries; (ii) a
purchase, sale or transfer of a material amount of assets by the Company or any
of its subsidiaries; (iii) a tender offer for or other acquisition of securities
by or of the Company or (iv) any material change in the present capitalization
or dividend policy of the Company.
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<PAGE> 23
Notwithstanding the foregoing, the Board could in the future engage in
negotiations in response to the Offer that could have one of the effects
specified in the preceding paragraph, and the Board has determined that
disclosure with respect to the parties to, and the possible terms of, any
transactions or proposals of the type referred to in the preceding paragraph
might jeopardize any discussions or negotiations that the Company might conduct.
Accordingly, the Board has adopted a resolution instructing management not to
disclose the possible terms of any such transactions or proposals, or the
parties thereto, unless and until an agreement in principle relating thereto has
been reached or, upon the advice of counsel, as may otherwise be required by
law.
At its July 1, 1997 meeting, the Board resolved to delay any "Distribution
Date" under the Rights Agreement (the date after which, among other things,
separate certificates for the Rights are to be distributed) that arises solely
by virtue of the lapse of time following the commencement of the Offer until
such time as the Board, or any duly authorized committee thereof, by subsequent
resolution duly adopted, prior to the Distribution Date (after taking into
account the resolution), by the Board or such committee thereof, shall
designate.
Pennzoil's By-laws require timely advance written notice to the Company's
Corporate Secretary of stockholder nominations of director candidates and of
other proposals to be presented at an annual meeting of stockholders of
Pennzoil. On July 1, 1997, the Board took action to amend Pennzoil's By-laws to
require that such written notices of director nominations and other proposals by
stockholders must be delivered to, or mailed and received at, the principal
executive offices of the Company not less than 90 days nor more than 120 days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders. Pennzoil's last annual meeting of stockholders was held on April
24, 1997. The amendments to Pennzoil's By-laws also included certain additional
procedural and informational requirements with respect to shareholders making
nominations of director candidates or proposals to be presented at an annual
meeting and with respect to any person nominated for election as a director.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
On June 23, 1997, UPR and Newco commenced litigation against Pennzoil and
the Board in the Chancery Court of Delaware seeking, among other things, an
order compelling the Board to redeem the Rights or render the Rights Agreement
inapplicable to the Offer and the Proposed Squeeze Out Merger, and to compel the
Board to approve the Offer and the Proposed Squeeze Out Merger for purposes of
Section 203 and for purposes of Article Sixth, all on the grounds that the
failure to do so would constitute a breach of the fiduciary obligations of the
Board to Pennzoil's stockholders under Delaware law. Pennzoil and its directors
have filed an answer in the proceeding in the Chancery Court denying that
Pennzoil's Board has breached any fiduciary obligations. UPR and Newco have also
commenced litigation against Pennzoil in the United States District Court for
the Northern District of Texas seeking a declaratory judgment that the
disclosure documents that have been filed with the Commission by UPR and Newco
in connection with the Offer comply fully with all applicable provisions of law.
Newco and UPR have also commenced an action in United States District Court for
the Middle District of Louisiana seeking a declaratory judgment that a Louisiana
state takeover statute as applied to any Shares purchased pursuant to the Offer
is unconstitutional and an injunction against enforcement of such statute in
connection with the Offer.
On June 25, 1997, Pennzoil commenced litigation against UPR and Newco in
the United States District Court for the District of Delaware alleging, among
other things, that the Schedule 14D-1 of UPR and Newco contains certain
misstatements and omissions. The complaint seeks a judgment (1) to enjoin UPR
and Newco from making false and misleading statements and omissions in
connection with the Offer, (2) to compel UPR and Newco to make corrective
disclosures that cure all of the alleged false and misleading statements and
omissions in the Schedule 14D-1 and (3) to enjoin UPR and Newco from acquiring
shares of Common Stock until at least 30 days after dissemination of additional
securities filings.
On June 25, 1997, UPR and Newco amended the original complaint filed by UPR
and Newco against Pennzoil in the United States District Court for the Northern
District of Texas. In addition to the allegations contained in the original
complaint in that action, the amended complaint alleges, among other things,
that
22
<PAGE> 24
Pennzoil violated Section 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), Rule 14d-9 promulgated thereunder and Section
14(e) of the Exchange Act through certain alleged statements of a Pennzoil
spokesperson contained in an Associated Press release on June 23, 1997. The
Pennzoil spokesperson is alleged to have stated that "[t]he [Pennzoil] board had
discussed an offer that was essentially the same offer last week and turned it
down." The amended complaint alleges that this statement was calculated and
designed to convey to Pennzoil's stockholders and the investing public that
Pennzoil would oppose the Offer and was calculated and designed to influence
Pennzoil's stockholders to reject it, and was false and misleading. UPR and
Newco 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) enjoins Pennzoil and its agents and
representatives from making false or misleading statements in respect of the
Offer.
STOCKHOLDER ACTIONS. Pennzoil and its directors have been named as
defendants in five purported class actions filed between June 23, 1997 and June
30, 1997 on behalf of the stockholders of the Company in the Chancery Court of
Delaware. These actions are entitled: Steiner v. Pennzoil Co. (C.A. No. 15764),
Haberman v. Pennzoil Co. (C.A. No. 15773), Caplan v. Pate (C.A. No. 15781), Katz
v. Pate (C.A. No. 15775) and Axler v. Pennzoil Co. (C.A. No. 15777)
(collectively, the "Stockholder Actions"). The complaints in the Stockholder
Actions contain similar allegations, and allege breach of fiduciary duty claims
on the part of the Board arising out of the UPR Proposal. The complaints in the
Stockholder Actions also seek similar relief, including declaratory and
injunctive relief barring defendants from breaching their fiduciary duties to
plaintiffs and the putative class members and taking steps to impede any offer
to acquire the Company, as well as damages in an unspecified amount. Copies of
each of the Stockholder Actions are filed as Exhibits 25 through 29 and
incorporated herein by reference, and the foregoing description of the
Stockholder Actions is qualified in its entirety by reference to such Exhibits.
23
<PAGE> 25
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
*1. -- Letter to stockholders of the Company dated July 1, 1997.
2. -- Text of press release dated July 1, 1997 issued by the
Company.
*3. -- Opinion of Lehman Brothers dated July 1, 1997 delivered to
the Company.
*4. -- Opinion of Evercore Group dated July 1, 1997 delivered to
the Company.
*5. -- Opinion of J.P. Morgan dated July 1, 1997 delivered to the
Company.
6. -- Excerpts from the Company's Proxy Statement dated March 21,
1997.
7. -- Pennzoil Company Salaried Employees Retirement Plan, as
amended.
8. -- Pennzoil Company Executive Severance Plan (incorporated by
reference to Pennzoil Company 10-K (1987), SEC File No.
1-5591, Exhibit 10(t)).
9. -- Form of letter confirming vesting and cashing out of
benefits under the Pennzoil Company 1995, 1996 and 1997
Long-Term Incentive Plans upon a change in control of the
Company.
10. -- Pennzoil Company Savings and Investment Plan, as amended.
11. -- Form of Tax Protection Agreement.
12. -- Form of Indemnification Agreement.
13. -- Amendment to Deferred Compensation Agreement dated as of
July 1, 1997 between the Company and James L. Pate.
14. -- Amendment to Employment Agreement dated June 30, 1997
between the Company and Stephen D. Chesebro'.
15. -- Agreement dated as of June 30, 1997 between the Company and
James W. Shaddix regarding medical coverage and supplemental
retirement benefits in the event of termination in
connection with a change in control of the Company.
16. -- Agreement dated as of June 30, 1997 between the Company and
David P. Alderson regarding medical coverage and
supplemental retirement benefits in the event of termination
in connection with a change in control of the Company.
17. -- Agreement dated as of June 30, 1997 between the Company and
Linda F. Condit regarding supplemental retirement benefits
in the event of termination in connection with a change in
control of the Company.
18. -- Bylaws of the Company, as amended through July 1, 1997.
19. -- Complaint filed by UPR and Newco against the Company et al.
(dated June 23, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
20. -- Answer filed by the Company to the Complaint filed by UPR
and Newco (dated June 27, 1997, Court of Chancery of the
State of Delaware in and for New Castle County).
21. -- Original Complaint filed by UPR and Newco against the
Company (dated June 23, 1997, United States District Court
for the Northern District of Texas, Fort Worth Division).
22. -- Verified Complaint for Declaratory and Injunctive Relief,
filed by UPR and Newco against the Company et al. (dated
June 23, 1997, United States District Court for the Middle
District of Louisiana).
23. -- First Amended Complaint filed by UPR and Newco against the
Company (dated June 25, 1997, United States District Court
for the Northern District of Texas, Fort Worth Division).
24. -- Complaint filed by the Company against UPR and Newco (dated
June 25, 1997, United States District Court for the District
of Delaware).
25. -- Complaint filed by Kenneth Steiner against the Company et
al. (dated June 23, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
26. -- Complaint filed by Jacob Haberman against the Company et al.
(dated June 24, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
27. -- Complaint filed by Moise Katz against James L. Pate et al.
(dated June 24, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
28. -- Complaint filed by Alan Caplan against James L. Pate et al.
(filed June 25, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
29. -- Complaint filed by Marilyn Axler against James L. Pate et
al. (dated June 25, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
</TABLE>
- ---------------
* Included in material sent to stockholders.
* * *
This document contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Exchange Act, which are intended to be covered by the safe harbors
created thereby. To the extent that such statements are not recitations of
historical fact, such statements constitute forward-looking statements that, by
definition, involve risks and uncertainties. In particular, statements
concerning oil and gas reserve growth, increases in cash flow from manufacturing
operations, increases in quarterly earnings for the remaining quarters of 1997
over the prior year's results and wells expected to be drilled and production
increases from international projects contain forward-looking statements. Where,
in any forward-looking statement, Pennzoil expresses an expectation or belief as
to future results or events, such expectation or belief is expressed in good
faith and believed to have a reasonable basis, but there can be no assurance
that the statement of expectation or belief will result or be achieved or
accomplished.
The following are factors that could cause actual results or events to
differ materially from those anticipated, and include but are not limited to:
general economic, financial and business conditions; commodity prices for
natural gas and crude oil; the effect of weather on natural gas demand and
consumption; competition for foreign drilling rights; the costs of exploration
and development of petroleum reserves; exploration risks; political risks
affecting exploration and development; competition in the motor oil marketing
business; base oil margins and supply and demand in the base oil business; the
success and costs of advertising and promotional efforts; mechanical failure in
refining operations; unanticipated environmental liabilities; changes in and
compliance with governmental regulations; changes in tax laws; and the costs and
effects of legal proceedings.
25
<PAGE> 27
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: July 1, 1997 By: /s/ James L. Pate
--------------------------------
James L. Pate
Chairman of the Board, President
and Chief Executive Officer
26
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
*1. -- Letter to stockholders of the Company dated July 1, 1997.
2. -- Text of press release dated July 1, 1997 issued by the
Company.
*3. -- Opinion of Lehman Brothers dated July 1, 1997 delivered to
the Company.
*4. -- Opinion of Evercore Group dated July 1, 1997 delivered to
the Company.
*5. -- Opinion of J.P. Morgan dated July 1, 1997 delivered to the
Company.
6. -- Excerpts from the Company's Proxy Statement dated March 21,
1997.
7. -- Pennzoil Company Salaried Employees Retirement Plan, as
amended.
8. -- Pennzoil Company Executive Severance Plan (incorporated by
reference to Pennzoil Company 10-K (1987), SEC File No.
1-5591, Exhibit 10(t)).
9. -- Form of letter confirming vesting and cashing out of
benefits under the Pennzoil Company 1995, 1996 and 1997
Long-Term Incentive Plans upon a change in control of the
Company.
10. -- Pennzoil Company Savings and Investment Plan, as amended.
11. -- Form of Tax Protection Agreement.
12. -- Form of Indemnification Agreement.
13. -- Amendment to Deferred Compensation Agreement dated as of
July 1, 1997 between the Company and James L. Pate.
14. -- Amendment to Employment Agreement dated June 30, 1997
between the Company and Stephen D. Chesebro'.
15. -- Agreement dated as of June 30, 1997 between the Company and
James W. Shaddix regarding medical coverage and supplemental
retirement benefits in the event of termination in
connection with a change in control of the Company.
16. -- Agreement dated as of June 30, 1997 between the Company and
David P. Alderson regarding medical coverage and
supplemental retirement benefits in the event of termination
in connection with a change in control of the Company.
17. -- Agreement dated as of June 30, 1997 between the Company and
Linda F. Condit regarding supplemental retirement benefits
in the event of termination in connection with a change in
control of the Company.
18. -- Bylaws of the Company, as amended through July 1, 1997.
19. -- Complaint filed by UPR and Newco against the Company et al.
(dated June 23, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
20. -- Answer filed by the Company to the Complaint filed by UPR
and Newco (dated June 27, 1997, Court of Chancery of the
State of Delaware in and for New Castle County).
21. -- Original Complaint filed by UPR and Newco against the
Company (dated June 23, 1997, United States District Court
for the Northern District of Texas, Fort Worth Division).
22. -- Verified Complaint for Declaratory and Injunctive Relief,
filed by UPR and Newco against the Company et al. (dated
June 23, 1997, United States District Court for the Middle
District of Louisiana).
23. -- First Amended Complaint filed by UPR and Newco against the
Company (dated June 25, 1997, United States District Court
for the Northern District of Texas, Fort Worth Division).
24. -- Complaint filed by the Company against UPR and Newco (dated
June 25, 1997, United States District Court for the District
of Delaware).
25. -- Complaint filed by Kenneth Steiner against the Company et
al. (dated June 23, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
26. -- Complaint filed by Jacob Haberman against the Company et al.
(dated June 24, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
27. -- Complaint filed by Moise Katz against James L. Pate et al.
(dated June 24, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
28. -- Complaint filed by Alan Caplan against James L. Pate et al.
(filed June 25, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
29. -- Complaint filed by Marilyn Axler against James L. Pate et
al. (dated June 25, 1997, Court of Chancery of the State of
Delaware in and for New Castle County).
</TABLE>
- ---------------
* Included in material sent to stockholders.
28
<PAGE> 1
EXHIBIT 1
Dear Shareholder:
On June 23, 1997, Union Pacific Resources Group Inc. (UPR) announced a
two-tiered, partial tender offer (the "Offer") for just over half of Pennzoil's
shares at a price of $84 per share in cash on the front-end. UPR has also
announced that it seeks to negotiate a merger in which remaining Pennzoil
shares would be converted into UPR common stock (the merger, together with the
Offer, the "UPR Proposal").
The purported value for UPR common stock to be issued on the back-end in
the second-step "squeeze out" merger for almost half of Pennzoil's shares is
subject to significant uncertainties, including those resulting from a price
collar under which the purported $84 per share value would be reduced if the
market value of UPR stock is less than $25 per share. Please consult your
broker for a current quotation on the price of UPR stock.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE UPR PROPOSAL, INCLUDING
THE OFFER, IS INADEQUATE AND NOT IN THE BEST INTERESTS OF PENNZOIL AND ITS
SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU REJECT
THE UPR PROPOSAL AND NOT TENDER YOUR SHARES TO UPR PURSUANT TO THE OFFER.
In its recommendation to Pennzoil shareholders, the Board cited, among
other things:
o The Board's belief that the UPR Proposal does not reflect the
inherent value of Pennzoil.
o The Board's belief that continued pursuit of Pennzoil's
strategic plan will produce greater value for Pennzoil shareholders than the
UPR Proposal.
o The coercive nature of UPR's two-tiered, front-end loaded offer,
which is designed to compel Pennzoil shareholders to tender into the Offer to
avoid receiving UPR stock in the proposed second-step "squeeze out" merger.
o The "value" of the UPR Proposal is substantially less than $84
per share because of uncertainty of the value of UPR stock to be forced onto
the Pennzoil shareholders in the second-step "squeeze out" merger.
Your Board also gave careful consideration to the multitude of other
factors described in the Schedule 14D-9. Your Board also reviewed the opinions
of Lehman Brothers Inc., J.P. Morgan Securities Inc. and Evercore Group Inc.,
Pennzoil's financial advisors, that the consideration to be received by
Pennzoil's shareholders pursuant to the UPR Proposal, including the Offer, is
inadequate from a financial point of view. We urge you to read carefully the
Schedule 14D-9 in its entirety so that you will be fully informed of the
Board's recommendation.
Your Board strongly believes that this is not the time to be
considering a transaction such as that proposed by UPR. Pennzoil has undergone
a major restructuring in the last few years and is only now beginning to
realize for its shareholders the tremendous values that it will unlock. The
Board believes that the best interests of Pennzoil and its shareholders will be
served by independently pursuing Pennzoil's strategic business plan rather than
a sale of the Company.
In short, Pennzoil's Board is strongly committed to staying on the
course Pennzoil has set for itself. We believe the UPR Proposal is an attempt
to intercept the tremendous inherent and upside value of Pennzoil stock for an
inadequate price. We urge you not to tender your shares to UPR.
July 1, 1997 On behalf of the Board of Directors,
James L. Pate
Chairman, President and
Chief Executive Officer
<PAGE> 1
EXHIBIT 2
[On Pennzoil letterhead]
FOR IMMEDIATE RELEASE Contact: Bob Harper
713-546-8536
Houston (July 1, 1997) -- Pennzoil Company (NYSE:PZL) announced today
that its Board of Directors recommends that Pennzoil shareholders reject UPR's
proposed tender offer and merger as inadequate and not in the best interest of
Pennzoil shareholders. Accordingly, the Board of Directors recommends that
shareholders of Pennzoil reject the UPR proposal and not tender shares to UPR
pursuant to the tender offer.
In its recommendation to Pennzoil shareholders, the Board cited, among
other things:
o The Board's belief that UPR's proposal does not reflect
the inherent value of Pennzoil.
o The Board's belief that continued pursuit of Pennzoil's
strategic plan will produce greater value for Pennzoil
shareholders than UPR's proposal.
o The opinions of its financial advisors, Lehman Brothers
Inc., J.P. Morgan Securities Inc. and Evercore Group
Inc. that the UPR proposal is inadequate.
o The coercive nature of UPR's two-tiered, front-end
loaded offer, which is designed to compel Pennzoil
shareholders to tender into the partial cash offer to
avoid receiving UPR stock in the proposed second-step
"squeeze out" merger on the back-end.
o The "value" of UPR's proposal is substantially less
than $84 per share because of uncertainty of the value
of UPR stock to be forced onto the Pennzoil
shareholders in the second-step "squeeze out" merger.
Mr. James L. Pate, chairman of the board and chief executive officer of
Pennzoil made the following statement on behalf of Pennzoil:
"Your Board strongly believes that this is not the time to be
considering a transaction such as that proposed by UPR. Pennzoil has undergone
a major restructuring in the last few years and is only now beginning to
realize for its shareholders the tremendous values that it will unlock. The
Board believes that the best interests of Pennzoil and its shareholders will be
served by independently pursuing Pennzoil's strategic business plan rather than
a sale of the Company.
"In short, Pennzoil's Board is strongly committed to staying on the
course Pennzoil has set for itself. We believe the UPR proposal is an attempt
to intercept the tremendous inherent and upside value of Pennzoil stock for an
inadequate price. We urge you not to tender your shares to UPR."
<PAGE> 1
Exhibit 3
[Lehman Brothers Inc. Letterhead]
July 1, 1997
Board of Directors
Pennzoil Company
Pennzoil Place
P. O. Box 2967
Houston, Texas 77252
Members of the Board:
We understand that Resources Newco, Inc., a wholly owned subsidiary of
Union Pacific Resources Group Inc. (together, the "Bidder"), has made a tender
offer to the shareholders of Pennzoil Company (the "Company") to purchase up to
25,094,200 shares of common stock (the "Shares") of 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 the Company 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").
The Offer to Purchase states that the purpose of the Offer is to acquire a
majority of the Shares as a first step in a negotiated acquisition of the
entire equity interest in the Company and that the Bidder is seeking to
negotiate with the Company a definitive acquisition agreement pursuant to which
the Company would, as soon as practicable following consummation of the Offer,
consummate a merger (the "Proposed Merger", and together with the Offer, the
"Transaction") with the Bidder. 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 the Company or owned by the
Bidder) would be converted into a number of shares of common stock of Union
Pacific Resources Group Inc. ("UPR Common Stock") determined by dividing $84.00
by the average of the closing price of a share of UPR Common Stock during a
measurement period preceding the date of the Company shareholder 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 nor less than 2.80 shares of UPR Common Stock (the "Stock
Consideration", and together with the Offer Consideration, the
"Consideration"). The terms and conditions of the Offer are set forth in more
detail in the Schedule 14D-1 (the "Schedule 14D-1") filed by the Bidder with
the Securities and Exchange Commission on June 23, 1997.
<PAGE> 2
We have been requested by the Board of Directors of the Company to
render our opinion with respect to the adequacy, from a financial point of
view, to the holders of the Shares of the Consideration offered by the Bidder
to the holders of the Shares pursuant to the Transaction, including the Offer.
In arriving at our opinion, we reviewed and analyzed: (1) the Offer to
Purchase, the Schedule 14D-1 and the specific terms and conditions of the Offer
and the Proposed Merger, (2) such publicly available information concerning the
Company and the Bidder which we believe to be relevant to our inquiry, (3)
financial and operating information with respect to the business, operations
and prospects of the Company furnished to us by the Company, including, without
limitation, certain projections of future financial performance of the Company
prepared by the management of Company, (4) a trading history of the Company's
common stock and a comparison of that trading history with those of other
companies that we deemed relevant, (5) a comparison of the historical financial
results and present financial condition of the Company with those of other
companies that we deemed relevant, (6) a trading history of the Bidder's common
stock and a comparison of that trading history with those of other companies
that we deemed relevant, (7) a comparison of the historical financial results
and present financial condition of the Bidder with those of other companies
that we deemed relevant, (8) the potential pro forma financial and business
impact on the Company and the Bidder of the Transaction and (9) a comparison of
the financial terms of the Offer with the financial terms of certain other
transactions that we deemed relevant. In addition, we have had discussions
with the management of the Company concerning its business, operations, assets,
financial condition and prospects and have undertaken such other studies,
analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of management of the
Company that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of the Company, upon advice of the Company we have assumed that
such projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company, and we have relied upon
such projections in arriving at our opinion. In arriving at our opinion, we
have not conducted a physical inspection of the properties and facilities of
the Company and have not made or obtained any evaluations or appraisals of the
assets or liabilities of the Company. Our opinion necessarily is based upon
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that, from a financial point of view, the Consideration offered
by the Bidder to the holders of the Shares pursuant to the Transaction,
including the Offer, is inadequate to such holders of the Shares.
<PAGE> 3
We have, in the past, provided certain financial advisory and financing
services to the Company and are acting as financial advisor to the Company in
connection with the Offer. In addition, the Company has agreed to indemnify us
for certain liabilities that may arise out of the rendering of this opinion.
In the ordinary course of our business, we actively trade in the securities of
the Company and the Bidder for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of
the Company. 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 the shareholders in the Offer.
Very truly yours,
LEHMAN BROTHERS
<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 (the "Schedule 14D-1") filed by Purchaser and UPR
with the Securities and Exchange Commission on June 23, 1997.
<PAGE> 2
July 1, 1997
Page 2
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.
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
<PAGE> 3
July 1, 1997
Page 3
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.
It is understood that this letter is for the information of the Board of
Directors of Pennzoil only and may not be quoted or referred to or relied upon
or used for any other purpose without our prior written consent, other than in
connection with the Solicitation/Recommendation Statement on Schedule 14 D-9 to
be filed by the Company with the Securities and Exchange Commission in
connection with the Offer. 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,
EVERCORE GROUP INC.
<PAGE> 1
EXHIBIT 5
[J.P. Morgan Securities Inc. Letterhead]
July 1, 1997
The Board of Directors
Pennzoil Company
P. O. Box 2967
Houston, Texas 77252-2967
Attention: Mr. James L. Pate
Chairman and Chief Executive Officer
Ladies and Gentlemen:
On June 23, 1997, Union Pacific Resources Group Inc. ("UPR") and Resources
Newco, Inc., a wholly owned subsidiary of UPR ("Acquisition"), commenced a
tender offer for up to 50.1% of the outstanding shares, on a fully diluted
basis, of the Common Stock, par value $0.83 1/3 per share (the "Shares"),
together with the associated preferred share purchase rights (the "Rights"), of
Pennzoil Company (the "Company"), at a price of $84.00 per Share (and
associated Right), net to the seller in cash, 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
the Offer to Purchase, constitute the "Offer"). According to the Offer to
Purchase, UPR and Acquisition seek to negotiate with the Company a definitive
acquisition agreement pursuant to which, upon consummation of the Offer,
Acquisition or another direct or indirect subsidiary of UPR would effect a
merger or similar business combination with the Company upon the terms set
forth in the Offer (the "Proposed Merger" and, together with the Offer, the
"UPR Acquisition Proposal"), and the Company would become a wholly owned
subsidiary of UPR. In addition, according to the Offer to Purchase, at the
effective time of the Proposed Merger, each Share that is issued and
outstanding immediately prior to such effective time would be converted into
shares of common stock of UPR in the manner set forth in the Offer to Purchase.
You have requested our opinion as to the adequacy, from a financial point of
view, to the holders of the Shares of the consideration proposed to be paid for
Shares pursuant to the UPR Acquisition Proposal.
In arriving at our opinion, we have reviewed (i) the Offer to Purchase and the
related Tender Offer Statement on Schedule 14D-1 filed with the Securities and
Exchange Commission (the "Commission") on June 23, 1997; (ii) certain publicly
available information concerning the business of the Company and UPR and of
certain other companies engaged in businesses comparable to those of the
Company and UPR, and the reported market prices for certain other companies'
securities
<PAGE> 2
deemed comparable; (iii) publicly available terms of certain
transactions involving companies comparable to the Company and UPR and the
consideration received for such companies; (iv) current and historical market
prices of the common stock of the Company and UPR; (v) the audited financial
statements of the Company and UPR for the fiscal year ended December 31, 1996,
and the unaudited financial statements of the Company and UPR for the period
ended March 31, 1997; (vi) certain internal financial analyses and forecasts
prepared by the Company and its management, including the Company's most recent
strategic plan, supporting financial projections relating to the business,
operations, and financial condition and future prospects and operations of the
Company; and (vii) the terms of other business combinations that we deemed
relevant.
In addition, we have held discussions with certain members of the management of
the Company with respect to certain financial aspects of the UPR Acquisition
Proposal, and the past and current business operations of the Company, the
financial condition and future prospects and operations of the Company, the
effects of the UPR Acquisition Proposal on the financial condition and future
prospects of the Company, and certain other matters we believed necessary or
appropriate to our inquiry. We have reviewed such other financial studies and
analyses and considered such other information as we deemed appropriate for the
purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was
publicly available or was furnished to us by the Company or otherwise reviewed
by us, and we have not assumed any responsibility or liability therefor. We
have not conducted any valuation or appraisal of any assets or liabilities, nor
have any such valuations or appraisals been provided to us. In relying on
financial analyses and forecasts provided to us, including the views of the
Company concerning the business, operational and strategic consequences of the
UPR Acquisition Proposal, we have assumed that they have been reasonably
prepared based on assumptions reflecting the best currently available estimates
and judgments by management as to the expected future results of operations and
financial condition of the Company to which such analyses or forecasts relate.
We have relied as to all legal matters relevant to rendering our opinion upon
the advice of counsel.
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. It
should be understood that subsequent developments may effect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which the Shares or the
common stock of UPR will trade at any future time. In addition, we were not
authorized to and did not solicit any expressions of interest from any other
parties with respect to the sale of all or any part of the Company or any other
alternative transaction.
We are acting as financial advisor to the Company with respect to the UPR
Acquisition Proposal and will receive a fee from the Company for our services,
including the delivery of this opinion. In the ordinary course of their
businesses, our affiliates may actively trade the debt and equity securities of
the Company or UPR for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
<PAGE> 3
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration proposed to be paid to the holders of Shares
pursuant to the UPR Acquisition Proposal is inadequate, from a financial point
of view, to such holders.
This letter is provided solely for the benefit of the Board of Directors of the
Company in connection with and for the purposes of its evaluation of the UPR
Acquisition Proposal, and is not on behalf of, and shall not confer rights or
remedies upon, any person other than the Board of Directors of the Company or
be used or relied upon for any other purpose. This opinion does not constitute
a recommendation to any shareholder of the Company as to whether such
shareholder should tender Shares in the Offer or how any shareholder should
vote with respect to the Proposed Merger. This opinion may not be disclosed,
referred to, or communicated (in whole or in part) to any third party for any
purpose whatsoever except with our prior written consent in each instance.
This opinion may be reproduced in full in the Solicitation/Recommendation
Statement on Schedule 14D-9 to be filed by the Company with the Commission.
Very truly yours,
J.P. MORGAN SECURITIES INC.
<PAGE> 1
EXHIBIT 6
DIRECTOR REMUNERATION -- Each director, other than a regularly
employed officer of the Company, receives a director's fee of $30,000 per annum
for service on the Board of Directors and a committee fee of $2,000 per
committee per annum for service on the Audit, Executive, Finance and
Compensation Committees. Each such director also receives an additional fee of
$1,000 for each Board, Executive Committee or other committee meeting attended.
All directors are reimbursed for their travel and other expenses involved in
attendance at Board and committee meetings. In addition, Mr. Scowcroft received
$100,000 in 1996 in remuneration for services as a director consulting on
special international projects.
CERTAIN TRANSACTIONS -- Mr. Baker is a partner in the law firm of
Baker, Donelson, Bearman & Caldwell, which represents the Company from time to
time in connection with certain matters pursuant to a retainer arrangement.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS -- The following
tabulation sets forth the shares of Common Stock of the Company beneficially
owned directly or indirectly as of March 10, 1997 (i) by the Company's nominees
for director, continuing directors, chief executive officer and five other most
highly compensated executive officers and (ii) by all the foregoing and other
current executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------
PERCENTAGE
NAME DIRECT OTHER OF CLASS
---- ------ ----- --------
<S> <C> <C> <C>
David P. Alderson, II........................ 61,170 -- *
Howard H. Baker, Jr.......................... 3,000 -- *
Clyde W. Beahm............................... 37,752 -- *
W. J. Bovaird................................ 6,535 -- *
W. L. Lyons Brown, Jr........................ 6,500 3,321 *
Ernest H. Cockrell........................... 151,515 10,000 *
Harry H. Cullen.............................. 16,115 -- *
Alfonso Fanjul............................... 200 30,300 *
Thomas M. Hamilton........................... 61,739 -- *
Berdon Lawrence.............................. 15,000 -- *
James L. Pate................................ 269,163 -- *
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------
PERCENTAGE
NAME DIRECT OTHER OF CLASS
---- ------ ----- --------
<S> <C> <C> <C>
William M. Robb.............................. 56,349 -- *
Brent Scowcroft.............................. 2,500 -- *
James W. Shaddix............................. 70,449 -- *
Gerald B. Smith.............................. 500 -- *
Cyril Wagner, Jr............................. 19,900 -- *
All the above and all other current executive
officers as a group (22 persons)............. 840,566 43,621 1.9%
</TABLE>
- ---------------
(1) Pursuant to regulations of the Securities and Exchange Commission (the
"SEC"), securities must be listed as beneficially owned by a person who
directly or indirectly holds or shares the power to vote or dispose of the
securities, whether or not the person has any economic interest in the
securities. In addition, a person is deemed a beneficial owner if he has the
right to acquire beneficial ownership within 60 days, including upon exercise
of a stock option or conversion of a convertible security. Shares of Common
Stock listed under the "Direct" column include those owned by the individuals
and members of their immediate families (or held by any of them in family
trusts). Securities owned by certain family members are included in the
foregoing table even in certain instances where the possession or sharing of
voting or dispositive power is not acknowledged. The "Direct" column also
includes shares subject to stock options exercisable within 60 days (55,516 for
Mr. Alderson, 36,265 for Mr. Beahm, 60,836 for Dr. Hamilton, 243,549 for Mr.
Pate, 51,120 for Mr. Robb, 58,539 for Mr. Shaddix, and 562,811 for all the
above and all other current executive officers as a group). Shares shown under
the "Other" column include ownership through corporations or subsidiaries of
corporations in which the named individuals are officers or directors or
charitable foundations in which the named individuals are officers, directors
or trustees.
* Less than 1%.
EXECUTIVE COMPENSATION -- Set forth below is information regarding the
compensation of the Company's Chief Executive Officer (the "CEO") and the other
five most highly compensated executive officers of the Company (together with
the CEO, the "named officers").
Summary Compensation Table. The summary compensation table set forth
below contains information regarding the compensation of each of the named
officers for services rendered in all capacities during 1994, 1995 and 1996.
<PAGE> 3
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- ----------------------
SECURITIES
OTHER UNDERLYING ALL
ANNUAL RESTRICTED OPTIONS/ OTHER
COMPEN- STOCK SARS COMPEN-
NAME AND SATION AWARDS SHARES) SATION
PRINCIPAL POSITION YEAR SALARY BONUS (1) (2) (3) (4)
------------------ ---- ------ ----- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Pate 1996 $708,500 $739,500 $190,900 $401,400 100,000 $52,900
Chairman of the Board, 1995 656,500 -- 218,200 264,800 85,000 68,000
President and Chief 1994 626,500 204,000 -- 133,400 -- 65,000
Executive Officer
David P. Alderson, II (5) 1996 $265,000 $200,000 $ 61,600 $ 80,300 18,500 $19,000
Group Vice President-- 1995 241,300 -- 61,100 53,000 16,500 22,000
Finance & Accounting 1994 229,700 61,000 -- 53,900 -- 21,700
Clyde W. Beahm 1996 $234,600 $125,000 $ 62,200 $ 73,900 18,300 $16,300
Group Vice President-- 1995 193,800 -- 62,400 44,100 13,500 16,700
Products Marketing 1994 174,600 49,600 -- 42,700 -- 13,200
Thomas M. Hamilton (6) 1996 $407,600 $ -- $ 61,600 $392,900 40,000 $29,600
Executive Vice 1995 360,500 -- 59,700 79,400 75,000 30,400
President 1994 345,400 49,700 -- 81,700 -- 27,400
William M. Robb 1996 $264,200 $115,000 $ 61,600 $ 71,800 15,000 $18,800
Group Vice President-- 1995 248,200 -- 58,900 57,400 18,000 20,700
Products Manufacturing 1994 237,500 38,900 -- 55,000 -- 18,000
James W. Shaddix 1996 $266,400 $200,000 $ 61,600 $ 80,300 18,500 $19,100
General Counsel 1995 245,500 -- 59,300 53,000 17,000 22,400
1994 233,900 61,000 -- 55,000 -- 22,700
</TABLE>
- ---------------
(1) Amounts shown for 1996 include aircraft usage charges of $108,800 for Mr.
Pate; a perquisite allowance of $59,400 for Mr. Pate and $42,400 for Messrs.
Alderson, Beahm, Hamilton, Robb and Shaddix; and excess medical coverage of
$19,200 for Messrs. Pate, Alderson, Hamilton, Robb and Shaddix and $19,800 for
Mr. Beahm. Amounts shown for 1995 include club membership fees and related
costs of $101,800 for Mr. Pate; a perquisite allowance of $59,400 for Mr. Pate
and $42,400 for Messrs. Alderson, Beahm, Hamilton, Robb and Shaddix; and excess
medical coverage of $16,400 for Messrs. Pate, Alderson, Hamilton, Robb and
Shaddix and $17,800 for Mr. Beahm. Excludes perquisites and other benefits for
1994 because the aggregate amounts thereof do not exceed the lesser of $50,000
or 10% of the total of annual salary and bonus reported for any named officer.
(2) Amounts shown under Restricted Stock Awards are the aggregate market value
on January 1 of the year indicated of shares of Common Stock underlying common
stock units awarded on such
<PAGE> 4
date under the Company's Conditional Stock Award Programs. Each common stock
unit awarded is to be distributed in the form of a share of Common Stock at the
end of a five-year period, provided certain conditions as to continued
employment are met. In the interim, participants receive dividend equivalents
on their common stock units as though they were shares of Common Stock. The
aggregate common stock units held at the end of 1996 and their values were
22,000 units, $1,243,000 for Mr. Pate; 5,210 units, $294,400 for Mr. Alderson;
4,430 units, $250,300 for Mr. Beahm; 14,130 units, $798,300 for Dr. Hamilton;
5,130 units, $289,800 for Mr. Robb; and 5,230 units, $295,500 for Mr. Shaddix.
Such values are calculated by multiplying the closing market price of the
Common Stock on December 31, 1996 ($56.50) by the number of common stock units
held at such date.
(3) All options were granted in tandem with stock appreciation rights, but
there is currently in effect a moratorium on the exercise of any such stock
appreciation rights.
(4) Amounts shown under All Other Compensation include (i) amounts contributed
or accrued for 1996 under the Company's Savings and Investment Plan and related
supplemental agreements ($49,200 for Mr. Pate, $17,000 for Mr. Alderson,
$14,600 for Mr. Beahm, $26,500 for Dr. Hamilton, $16,800 for Mr. Robb and
$17,200 for Mr. Shaddix and (ii) amounts paid by the Company in 1996 for
certain premiums on term life insurance ($3,700 for Mr. Pate, $2,000 for Mr.
Alderson, $1,700 for Mr. Beahm, $3,100 for Dr. Hamilton, $2,000 for Mr. Robb
and $2,000 for Mr. Shaddix).
(5) Prior to June 13, 1996, Mr. Alderson was also Treasurer of the Company.
(6) Dr. Hamilton resigned as Executive Vice President of the Company effective
December 17, 1996.
Option/SAR Grants. Shown below is further information on grants of stock
options during 1996 to the named officers reflected in the Summary Compensation
Table on page 9.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE GRANT
GRANTED IN 1996 EMPLOYEES PRICE (PER EXPIRATION DATE
(SHARES) (1) IN 1996 SHARE)(2) DATE VALUE(3)
--------------- --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
James L. Pate................................ 100,000 11.5% $39.625 3/26/2006 $665,700
David P. Alderson, II........................ 18,500 2.1% $39.625 3/26/2006 $123,200
Clyde W. Beahm............................... 18,300 2.1% $39.625 3/26/2006 $121,800
Thomas M. Hamilton........................... 40,000 4.6% $39.625 3/26/2006 $266,300
William M. Robb.............................. 15,000 1.7% $39.625 3/26/2006 $ 99,900
James W. Shaddix............................. 18,500 2.1% $39.625 3/26/2006 $123,200
</TABLE>
<PAGE> 5
- ---------------
(1) All the above options were granted on March 26, 1996, and all the above
options become exercisable in 33 1/3% increments on each of the first, second
and third anniversaries of the date of grant. Such options were granted in
tandem with stock appreciation rights, but there is currently in effect a
moratorium on the exercise of any such stock appreciation rights. All the above
options were granted pursuant to the Company's 1992 Stock Option Plan.
(2) The option exercise price is 100% of the average of the high and low
trading prices of the Common Stock on the New York Stock Exchange on the date
of grant (March 26, 1996) and may be paid in cash or previously owned shares of
Common Stock.
(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, that may be realized will
depend on the excess of the underlying stock price over the exercise price on
the date the option is exercised, so that there is no assurance the value
realized will be at or near the value estimated by the Black-Scholes model. The
estimated values under the model are based on the following assumptions:
expected volatility based on a three-year historical volatility of month-end
Common Stock prices (20.8%), a risk-free rate of return based on a 10-year
zero-coupon U.S. Treasury rate at the time of grant (6.2%), an average of
dividend yields on Common Stock for prior three years (5.4%), an option
exercise period of 10 years (with the exercise occurring at the end of such
period) and no adjustment for the risk of forfeiture over the three-year
vesting period.
Option Exercises and 1996 Year-End Option/SAR Holdings. Shown below is
information with respect to unexercised options to purchase Common Stock
granted in 1996 and prior years to the named officers and held by them at
December 31, 1996. None of the named officers exercised options or tandem stock
appreciation rights in 1996.
YEAR-END 1996 OPTION/SAR HOLDINGS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
------------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE(2)
----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
James L. Pate..................................... 181,883 156,667 $594,400 $2,303,800
David P. Alderson, II............................. 43,850 29,500 $132,500 $ 431,800
Clyde W. Beahm.................................... 25,665 27,300 $105,700 $ 406,700
Thomas M. Hamilton................................ 64,169 90,001 $477,400 $1,412,500
William M. Robb................................... 40,120 27,000 $136,900 $ 383,600
James W. Shaddix.................................. 46,706 29,834 $138,400 $ 435,400
</TABLE>
<PAGE> 6
- ---------------
(1) The excess, if any, of the market value of Common Stock at December 31,
1996 ($56.50) over the option exercise price.
(2) All of these options become immediately exercisable upon a change in
control of the Company.
Retirement Plan and Supplemental Agreements. The Company has a
tax-qualified retirement plan applicable to salaried employees generally. The
retirement plan generally provides for annual retirement benefits approximating
between 1.1% and 1.6% of a calculated career average compensation multiplied by
the number of years of service. For purposes of the retirement plan, career
average compensation approximates the lesser of an employee's final five-year
average compensation and his 1993 annual compensation. The annual benefits
under the retirement plan are net of certain offsets based on social security
benefits and reflect limitations mandated by the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), on the maximum amounts payable. The
Company has agreements with Messrs. Pate, Alderson, Beahm, Robb and Shaddix to
supplement their benefits under the tax-qualified retirement plan in the event
and to the extent the aforesaid limitations on annual benefits mandated by
ERISA reduce the retirement benefits that otherwise would be payable under such
plan. The Company also has a deferred compensation agreement with Mr. Pate
designed to bring his total annual retirement benefits from all sources
(including social security and benefits from prior employers) to 57% of his
annual salary rate at retirement. This percentage is comparable to the
proportion that retirement benefits provided by the Company's regular
retirement plan (and social security) for the majority of the Company's
employees bear to remuneration at the time of retirement. In addition, the
deferred compensation agreement provides for continuation of medical expense
reimbursement plan coverage for the participant, his spouse and dependents.
Based on salaries as of December 31, 1996, estimated annual benefits payable
upon retirement at normal retirement age (65) from all sources would be
$416,100 for Mr. Pate, $149,300 for Mr. Alderson, $48,400 for Mr. Beahm,
$100,800 for Mr. Robb and $140,100 for Mr. Shaddix.
Termination of Employment and Change-in-Control Arrangements. The Company
maintains an Executive Severance Plan for selected employees providing for
severance benefits upon a termination of employment for reasons other than
cause within two years after a change in control of the Company. Benefits are
payable only in the event there occurs each of (i) a change in control of the
Company, (ii) a designation by the Board of Directors and the Compensation
Committee that the employee is likely to be adversely affected by the change in
control and (iii) a subsequent
<PAGE> 7
termination of employment within two years for reasons other than cause.
Benefits are prorated if the employee is within three years of normal
retirement age (65) at termination of employment. Participants in the plan
include Messrs. Alderson, Beahm, Robb and Shaddix. Such severance benefits
generally include a payment of up to three times a participant's annual salary
and incentive bonus and continuation of life insurance and medical coverage for
one year following termination of employment.
The Company also has agreements with Messrs. Pate, Alderson, Beahm, Robb
and Shaddix that provide for the acceleration of benefits in the event of the
occurrence, as determined by the Board of Directors, of a change in control of
the Company that has a reasonable likelihood of causing the forfeiture of
benefits that such persons otherwise would have earned by depriving them of the
opportunity to fulfill applicable service and age prerequisites. The agreements
provide that the covered persons will receive, in the event of such a change in
control but without regard to any termination of employment, cash payments
equal to the appreciated value of all unvested, nonqualified stock options. The
agreements also provide, in the event of termination of employment of a covered
employee within six months following such a change in control, (a) for cash
payments generally equal to the unvested amounts under the Company's Savings
and Investment Plan (as well as the agreements providing for reimbursement of
benefits that would be payable under such Plan but for limitations imposed by
ERISA) forfeitable on the date of termination of employment, (b) for
continuation of life insurance and, in certain instances, medical expense
coverage for one year, (c) for cash payments equal to the discounted value of
benefits otherwise payable under the deferred compensation agreements referred
to above under "-- Retirement Plan and Supplemental Agreements," based on an
assumed continuation of employment until age 65 and actuarially determined life
expectancies, (d) in certain instances, for cash payments in settlement of
long-term medical benefits otherwise payable and (e) for cash payments equal to
the discounted value of benefits otherwise payable under a supplemental
disability plan and a salary continuation plan. Deferred compensation
agreements and certain supplemental benefit agreements under which payments are
currently being made have been supplemented by the Company to provide, upon a
change in control of the Company, for the cash-out of retirement, spouse and
medical benefits. In addition, the Company's conditional stock award programs
provide for acceleration of benefits upon a change in control. The dollar
amounts that would be payable under the agreements and plan described in this
and the preceding paragraph and the other plans providing payments triggered by
a change in control, exclusive of amounts attributable to benefits already
vested, would be (as of December 31, 1996) $5,217,400 for Mr. Pate, $2,018,700
for Mr. Alderson, $1,676,300 for Mr. Beahm, $1,682,600 for Mr. Robb and
$2,017,600 for Mr. Shaddix. In addition, a change in control would result in
the accelerated payment of benefits already earned and vested over a period of
years in the amounts of $3,330,400 for Mr. Pate, $370,100 for Mr. Alderson,
$271,100 for Mr. Beahm, $355,500 for Mr. Robb and $407,600 for Mr. Shaddix.
Other Matters. In 1977, the Board of Directors formally adopted and
confirmed a policy relating to the use of Company facilities. In certain
circumstances, the policy requires use by officers of Company facilities in
order to increase the time available for performance of Company business and
for reasons of security and other corporate purposes. Under applicable federal
income tax
<PAGE> 8
regulations, the Company imputes income to employees of the Company for federal
income tax purposes with respect to their use of Company facilities when and to
the extent required by the regulations. When the policies and procedures
adopted by the Board have been duly observed, it is contemplated that the
Company will hold employees harmless from any tax (including penalty and
interest) sought to be imposed on a basis in excess of the amount of income
imputed by the Company as described above. To date, no amounts have been paid
or requested to reimburse employees for such a tax.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION --
Compensation Philosophy. The Company's executive compensation program has
been designed to help the Company attract, motivate and retain the executive
talent that the Company needs in order to maximize its return to shareholders.
To this end, the Company's executive compensation program provides appropriate
compensation levels and incentive pay that varies based on corporate, business
unit and individual performance.
Base salary, annual incentives, long-term incentives and executive
benefits are the elements of compensation provided to the Company's executives.
The Compensation Committee's philosophy is to place more emphasis on variable
incentive pay and less emphasis on base salary because the primary compensation
program objective is to reward executives for maximizing long-term returns to
shareholders. The Compensation Committee determines appropriate levels of
compensation for executive positions based on information drawn from
compensation surveys, proxy statements for comparative organizations and
compensation consultants. The proxy statement analyses on pay levels generally
use the same group of companies shown as industry peer companies in the
Company's total shareholder return performance graphs ("peer group"). However,
the Compensation Committee also considers proxy data for other energy companies
in the Houston market. The data drawn from compensation surveys are for energy
and general industry companies with revenues comparable to the Company's
revenues.
Base Salary Program. The Company's base salary program is based on a
philosophy of providing salaries that are equivalent with the market median for
companies of comparable size (as measured by revenues). In aggregate, the
Company's executive salaries are consistent with this philosophy. Base salary
levels are also based on each individual employee's performance over time and
each individual's role in the Company. Consequently, employees with higher
levels of sustained performance over time and/or employees assuming greater
responsibilities are paid correspondingly higher salaries. Executive salaries
are reviewed annually based on a variety of factors, including individual
performance, company performance, general levels of market salary increases and
the Company's overall financial results. Individual performance assessment is
subjective; the Compensation Committee considers earnings levels, progress in
implementing strategic initiatives and effectiveness in business development
efforts in establishing base salary increases for executives. No specific
performance formula or weighting of these or other factors is used in
determining base salary levels. In 1996, the CEO's salary was increased from
$660,000 to $730,000
<PAGE> 9
based on median market salaries for companies of comparable size (with
consideration also given to base salaries for CEOs in the peer group) and on
the performance indicators described above.
Annual Incentive Plan. The Company's annual incentive plan is intended to
(1) reward key employees based on company, business unit and individual
performance, (2) motivate key employees and (3) provide appropriate cash
compensation opportunities to plan participants. Under the plan, target award
opportunities, which are based at the market 55th percentile, vary by
individual position and are expressed as a percent of base salary. The amount
that a particular executive may earn is directly dependent on the individual's
position, responsibility and ability to impact the Company's financial success.
For 1996, the Company set an annual incentive plan performance goal of a
minimum level of earnings without any debt increase. The payouts under the
annual incentive plan were subject to a 20% reduction if general and
administrative expenses exceeded targets. The performance goal was exceeded by
a significant amount. The plan provided for individual incentive payouts based
on a combination of corporate, business unit and individual/team strategic
performance. For senior level management (including all named officers), 50% of
the award was based on corporate performance, 30% was based on business unit
performance and 20% was based on key individual/team strategic performance.
Corporate performance objectives, which were equally weighted, were return on
average equity (ROAE) compared to the peer group and a ratio of earnings before
interest, taxes, depreciation and amortization (EBITDA) to revenue relative to
targets. The business unit performance objectives varied by unit but included
such items as cash flow, cost management, reserve replacement, economic value
added, market share and environmental and safety effectiveness. For corporate
positions, weighted average business unit results (with the weighting
determined by unit assets) were considered in determining the 30% of the
incentive based on business unit performance. The individual/team strategic
element of the plan was administered on a subjective basis with no specific
weightings assigned to individual performance factors.
In 1996, the Company experienced a significant improvement in its
financial and operating performance. As a result, the Company exceeded targeted
levels of performance on the EBITDA to revenue ratio. The Company also
performed above targeted levels on the ROAE measure, after adjustments for
unrealized gains on the Company's Chevron Corporation common stock holdings,
for certain joint venture start-up expenses and for a severance charge.
Business unit performance varied, falling both above and below targets.
Consequently, total incentive awards varied from slightly below to slightly
above targeted levels for business units and corporate staff.
The CEO's annual incentive payout for 1996 performance was $739,500. The
award was based on the same corporate and business unit performance measures
described above for other executives as well as an assessment by the
Compensation Committee of the CEO's individual performance in contributing to
the improvement in financial results and growth in shareholder return. The
total award was between targeted and maximum levels.
<PAGE> 10
Long-Term Incentive Plans. The Company has several types of long-term
incentive awards intended to achieve various objectives. Stock options are the
primary long-term incentive award used by the Company and are granted at 100%
of fair market value at the date of grant. Conditional stock grants are also
used and are made to increase executive share ownership levels and reward
executives for maintaining and enhancing the Company's total shareholder
return. In addition, the Company has a long-term performance plan, which
rewards participants for improving the Company's total shareholder return
relative to the peer group. Awards under this plan are paid (if earned) after
the completion of three-year performance cycles, the first of which will
conclude at the end of 1997. The total award level under the aggregate of
incentive awards is targeted at the market 55th percentile.
In 1996, the CEO received stock options for 100,000 shares of Common
Stock and 9,500 shares of conditional stock. The actual stock option and
conditional stock awards provided to the CEO in 1996 (when considered together
with the targeted value of the long-term performance plan) placed the CEO's
total long-term incentive at approximately the market 75th percentile. This
award was above normal targeted levels because of the efforts taken by the CEO
to improve the company's operating and financial results.
Other Plans and Benefits. The Company's executive officers participate in
several other compensation plans and benefit programs. These programs provide
benefits generally related to salary levels and length of service (as in the
case of retirement plan benefits, savings plan benefits, disability benefits
and death benefit coverages), or are independent of salary levels (such as the
perquisite allowances and medical coverages). There is no specific
performance-based relationship between benefits under these plans and corporate
performance (except that savings plan contributions are invested in Common
Stock).
Section 162(m). The proposed 1997 Incentive Plan of the Company contained
within this proxy statement provides for stock option grants, annual incentive
plan awards and long-term performance plan awards to be qualified as
performance-based compensation under Section 162(m) of the Internal Revenue
Code (the "Code"). The Company has not taken steps to qualify its conditional
stock as performance-based pay at this time. Conditional stock is provided to
executives as both a performance incentive and a retention incentive. It is
also a competitive form of compensation which is common among energy companies.
The Company intends to qualify the 1997 Incentive Plan of the Company under
Section 162(m).
This report is furnished by the Compensation Committee of the Board of
Directors.
Ernest H. Cockrell, Chairman
Harry H. Cullen
Alfonso Fanjul
February 20, 1997
<PAGE> 11
DESCRIPTION OF THE 1997 INCENTIVE PLAN -- The Company in the past has
used stock options and conditional stock to attract and retain key employees in
the belief that employee stock ownership and stock-related compensation devices
encourage a community of interest between employees and shareholders. Because
fewer than 160,000 shares remained available for grant under existing plans as
of December 31, 1996, the Board of Directors began considering the creation of
new incentive plans for the Company. Accordingly, the Board of Directors in
February 1997 adopted, subject to shareholder approval, a 1997 Incentive Plan
(the "1997 Plan"), covering an aggregate of 1,000,000 shares of Common Stock.
The objectives of the Incentive Plan are to (i) attract and retain the services
of key employees and (ii) encourage a sense of proprietorship in and stimulate
the active interest of those persons in the development and financial success
of the Company by making awards ("Awards") designed to provide participants in
the 1997 Plan with a proprietary interest in the growth and performance of the
Company.
Persons eligible for Awards are (i) key employees holding positions of
responsibility with the Company or any of its subsidiaries and whose
performance can have a significant effect on the success of the Company, and
(ii) individuals who are expected to become such key employees within six
months of the date of an Award. As of March 6, 1997, there were at least 154
employees of the Company and its subsidiaries, consisting of executive officers
and certain other key employees of the Company and its subsidiaries, who would
be eligible to participate in the 1997 Plan. It is expected that the 1997 Plan
will provide incentives for a period of approximately two years, after which
time it may be appropriate for the Company to implement another similar plan.
The Compensation Committee of the Company's Board of Directors (the
"Committee") will administer the 1997 Plan. The Committee will have the
exclusive power to administer the 1997 Plan, to take all actions specifically
contemplated thereby or necessary or appropriate in connection with the
administration thereof, to interpret the 1997 Plan, to adopt such rules,
regulations and guidelines for carrying out its purposes as the Committee may
deem necessary or proper in keeping with the objectives of the 1997 Plan and to
correct any defect or reconcile any inconsistency in the 1997 Plan. The
Committee may, in its discretion, among other things, extend or accelerate the
exercisability of an Award, accelerate the vesting of or eliminate or make less
restrictive any restrictions contained in any Award, waive any restriction or
other provision of the 1997 Plan or in any Award or otherwise amend or modify
any Award in any manner that is either (i) not adverse to that participant
holding the Award or (ii) consented to by that participant. The Committee may
also make an Award to an individual who it expects to become an employee of the
Company or any of its subsidiaries within six months of the Award, subject to
such individual being so employed by the Company or a subsidiary thereof within
such period. The Committee may delegate to the chief executive officer and
other senior officers of the Company its duties under the 1997 Plan.
The Board of Directors may amend, modify, suspend or terminate the 1997
Plan for the purpose of addressing any changes in legal requirements or for any
other lawful purpose, except that (i) no amendment or alteration that would
adversely affect the rights of any participant under any Award previously
granted to such participant shall be made without the consent of such
participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the
<PAGE> 12
Company to the extent such approval is required by applicable legal
requirements. The Board of Directors may make certain adjustments in the event
of any subdivision, split or consolidation of outstanding shares of Common
Stock, any declaration of a stock dividend payable in shares of Common Stock,
any recapitalization or capital reorganization of the Company, any
consolidation or merger of the Company with another corporation or entity, any
adoption by the Company of any plan of exchange affecting the Common Stock or
any distribution to holders of Common Stock of securities or property (other
than normal cash dividends).
Awards may be in the form of, among other things (i) rights to purchase a
specified number of shares of Common Stock at a specified price ("Options"),
(ii) rights to receive a payment, in cash or Common Stock, equal to the fair
market value or other specified value of a number of shares of Common Stock on
the rights exercise date over a specified strike price ("SARs"), (iii) grants
of restricted or unrestricted Common Stock or units denominated in Common
Stock, (iv) grants denominated in cash and (v) grants denominated in cash,
Common Stock, units denominated in Common Stock or any other property which are
made subject to the attainment of one or more performance goals ("Performance
Awards").
The Committee will determine the employees to receive Awards and the
terms, conditions and limitations applicable to each such Award, which
conditions may, but need not, include continuous service with the Company,
achievement of specific business objectives, attainment of specified growth
rates, increases in specified indices or other comparable measures of
performance. Performance Awards may include more than one performance goal, and
a performance goal may be based on one or more business criteria applicable to
the grantee, the Company as a whole or one or more of the Company's business
units and may include any of the following: increased revenue; net income;
earnings before interest, taxes, depreciation and amortization (EBITDA); other
earnings measures; economic value added (EVA); cash flow measures; stock price;
market share; return on equity or capital; return on revenue measures; costs;
oil and gas volumes; petroleum reserve measures and safety and environmental
performance measures.
FEDERAL INCOME TAX CONSEQUENCES -- The following is a summary of the
general rules of present federal income tax law relating to the tax treatment
of stock awards, incentive stock options ("ISOs"), non-qualified stock options
("NSOs") and SARs issued under the 1997 Plan. The discussion is general in
nature and does not take into account a number of considerations which may
apply in light of the particular circumstances of a participant under the 1997
Plan.
Stock Awards and Related Tax Payments. Under the Code, federal income tax
consequences with respect to a stock award depend on the facts and
circumstances of each stock award and, in particular, the nature of the
restrictions imposed with respect to the shares which are the subject of the
stock award. In general, if shares which are the subject of the stock award are
actually issued to a participant, but are subject to a "substantial risk of
forfeiture" (for example, if rights to ownership of the shares are conditioned
upon the future performance of substantial services by the participant), a
taxable event generally occurs only when the risk of forfeiture lapses. At such
time as the substantial risk of forfeiture lapses, the participant will realize
ordinary income to the extent of the
<PAGE> 13
excess of the fair market value of the shares on the date the risk of
forfeiture lapses over the participant's cost for such shares (if any), and the
same amount is then deductible by the Company as compensation expense. If the
restrictions with respect to the shares that are the subject of such stock
award, by their nature, do not subject the key employee to a "substantial risk
of forfeiture" of the shares, then the participant will realize ordinary income
with respect to the shares to the extent of the excess at the time of the grant
of the fair market value of the shares over the participant's cost; and the
same amount is then deductible by the Company. If no shares are actually issued
to the participant at the time the stock award is granted, the participant will
generally realize ordinary income at the time the participant receives shares
free of any substantial risk of forfeiture, and the amount of such income will
be equal to the fair market value of the shares at such time over the
participant's cost, if any; and the same amount is then deductible by the
Company. The Company's deductions for compensation paid under the Plan are in
all cases subject to certain applicable tax law limitations.
Options. Some of the options issuable under the 1997 Plan may constitute
ISOs within the meaning of Section 422 of the Code, while other options granted
under the 1997 Plan may be NSOs. The Code provides for tax treatment of stock
options qualifying as ISOs that may be more favorable to participants than the
tax treatment accorded NSOs. Generally, upon the exercise of an ISO, the
optionee will recognize no income for federal income tax purposes. The
difference between the exercise price of the ISO and the fair market value of
the stock at the time of exercise is an item of tax preference that may require
payment of an alternative minimum tax. On the sale of shares acquired by
exercise of an ISO (assuming that the sale does not occur within two years of
the date of grant of the option or within one year from the date of exercise),
any gain will be taxed to the optionee as long-term capital gain. In contrast,
upon the exercise of an NSO, the optionee recognizes taxable income (subject to
withholding) in an amount equal to the difference between the then-fair market
value of the shares on the date of exercise and the exercise price. Upon any
sale of such shares by the optionee, any difference between the sale price and
the fair market value of the shares on the date of exercise of the NSO will be
treated generally as capital gain or loss. No deduction is available to the
Company upon the grant or exercise of an ISO (although a deduction may be
available if the participant sells the shares so purchased before the
applicable holding periods expire), whereas, upon exercise of an NSO, the
Company is entitled to a deduction in an amount equal to the income recognized
by the participant. Except with respect to death or disability, an optionee has
three months after termination of employment in which to exercise an ISO and
retain favorable tax treatment at exercise.
Stock Appreciation Rights. The amount of any cash or the fair market
value of any stock received by a participant upon the exercise of SARs under
the 1997 Plan will be subject to ordinary income tax in the year of receipt,
and the Company will be entitled to a deduction for such amount.
Other. In general, a federal income tax deduction is allowed to the
Company in an amount equal to the ordinary income recognized by a participant
with respect to awards under the 1997 Plan, provided that such amount
constitutes an ordinary and necessary business expense of the Company, that
such amount is reasonable and that the Company satisfies any withholding
obligation with respect to such income.
<PAGE> 14
CURRENT MORATORIUM ON EXERCISE OF SARS -- The current moratorium on the
exercise of SARs under the Company's existing stock option plans (referred to
above under "Executive Compensation") shall also apply to SARs granted (either
alone or in tandem with Options) under the 1997 Plan. Should the Compensation
Committee determine to lift this moratorium in the future, current accounting
practices would require the Company to recognize compensation expense with
respect to SARs equal in the aggregate to the excess from time to time of the
market value of Common Stock subject to SARs over the specified strike price of
the SARs, less the federal income tax benefit to the Company.
ALLOCATION OF AWARDS UNDER THE 1997 PLAN -- The following table
illustrates the allocation of Awards to be made over the life of the 1997 Plan:
<TABLE>
<CAPTION>
NAME OR POSITION AWARDS(1)
- ---------------- ---------
<S> <C>
James L. Pate not determinable
David P. Alderson, II not determinable
Clyde W. Beahm not determinable
Thomas M. Hamilton -0-(2)
William M. Robb not determinable
James W. Shaddix not determinable
All executive officers not determinable
All non-executive directors -0-
All employees other than executive officers not determinable
</TABLE>
(1) The allocation of Awards under the 1997 Plan is not currently determinable
as such allocation is dependent upon future decisions to be made by the
Compensation Committee in its sole discretion, subject to applicable provisions
of the 1997 Plan. As of March 1, 1997, grants of Options had been made under
the 1997 Plan covering the following number of shares of Common Stock at an
exercise price of $60.8125 per share: all executive officers as a group other
than the named officers, 70,000 shares.
(2) Dr. Hamilton resigned as Executive Vice President of the Company effective
December 17, 1996.
<PAGE> 15
SECTION 162(m) OF THE INTERNAL REVENUE CODE -- Section 162(m) of the Code
disallows deductions for compensation in excess of $1 million for certain
executives of publicly held corporations, unless such compensation meets the
requirements of Section 162(m) as "performance-based" compensation. If the 1997
Plan is approved by shareholders, the Company will be entitled to deduct for
federal income tax purposes certain performance-based compensation paid under
the 1997 Plan to the CEO and other participating officers notwithstanding the
$1 million limitation under Section 162(m) of the Code. The Company expects
that all Options, SARs and Performance Awards under the 1997 Plan will qualify
as performance-based compensation under Section 162(m).
The foregoing description summarizes the principal terms and conditions
of the 1997 Plan, does not purport to be complete and is qualified in its
entirety by reference to the 1997 Plan, a copy of which is included as Exhibit
A hereto.
EXHIBIT A
1997 INCENTIVE PLAN
OF
PENNZOIL COMPANY
1. Plan. This 1997 Incentive Plan of Pennzoil Company was adopted by the
Company to reward certain corporate officers and key employees of the Company.
2. Objectives. This Plan is designed to attract and retain key employees
of the Company and its Subsidiaries, to encourage a sense of proprietorship and
to stimulate the active interest of such persons in the development and
financial success of the Company and its Subsidiaries. These objectives are to
be accomplished by making Awards under this Plan and thereby providing
Participants with a proprietary interest in the growth and performance of the
Company and its Subsidiaries.
3. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Authorized Officer" means the Chairman of the Board or the Chief
Executive Officer of the Company (or any other senior officer of the Company to
whom either the Chairman or the Chief Executive Officer shall delegate the
authority to execute any Award Agreement).
"Award" means the grant of any Option, SAR, Stock Award, Cash Award or
Performance Award, whether granted singly, in combination or in tandem, to a
Participant pursuant to such applicable terms, conditions and limitations as
the Committee may establish in order to fulfill the objectives of the Plan.
<PAGE> 16
"Award Agreement" means a written agreement between the Company and a
Participant setting forth the terms, conditions and limitations applicable to
an Award.
"Board" means the Board of Directors of the Company.
"Cash Award" means an award denominated in cash.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board as is designated by the Board to administer the Plan.
"Common Stock" means the Common Stock, par value $0.83 1/3 per share, of
the Company.
"Company" means Pennzoil Company, a Delaware corporation.
"Director" means an individual serving as a member of the Board.
"Dividend Equivalents" means, with respect to shares of Restricted Stock
that are to be issued at the end of the Restriction Period (including
conditional stock), an amount equal to all dividends and other distributions
(or the economic equivalent thereof) that are payable to stockholders of record
during the Restriction Period on a like number of shares of Common Stock.
"Employee" means an employee of the Company or any of its Subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" of a share of Common Stock means, as of a particular
date, (i) if shares of Common Stock are listed on a national securities
exchange, the mean between the highest and lowest sales price per share of
Common Stock reported on the consolidated transaction reporting system for the
principal national securities exchange on which shares of Common Stock are
listed on that date, or, if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so reported,
(ii) if shares of Common Stock are not so listed but are quoted on the Nasdaq
National Market, the mean between the highest and lowest sales price per share
of Common Stock reported by the Nasdaq National Market on that date, or, if
there shall have been no such sale so reported on that date, on the last
preceding date on which such a sale was so reported, (iii) if the Common Stock
is not so listed or quoted, the mean between the closing bid and asked price on
that date, or, if there are no quotations available for such date, on the last
preceding date on which such quotations are available, as reported by the
Nasdaq Stock Market, or, if not reported by the Nasdaq Stock Market, by the
National Quotation Bureau Incorporated or (iv) if shares of Common Stock are
not publicly traded, the most recent value determined by an independent
appraiser appointed by the Company for such purpose.
<PAGE> 17
"Incentive Option" means an Option that is intended to comply with the
requirements set forth in Section 422 of the Code.
"Nonqualified Stock Option" means an Option that is not an Incentive
Option.
"Option" means a right to purchase a specified number of shares of Common
Stock at a specified price.
"Participant" means an individual to whom an Award has been made under
this Plan.
"Performance Award" means an Award made to a Participant pursuant to this
Plan that is subject to the attainment of one or more Performance Goals.
"Performance Goal" means a standard established by the Committee to
determine in whole or in part whether a Performance Award shall be earned.
"Plan" means this 1997 Incentive Plan of Pennzoil Company, as amended
from time to time.
"Restricted Stock" means any Common Stock that is restricted or subject
to forfeiture provisions.
"Restriction Period" means a period of time beginning as of the date upon
which an Award of Restricted Stock is made pursuant to this Plan and ending as
of the date upon which the Common Stock subject to such Award is no longer
restricted or subject to forfeiture provisions.
"SAR" means a right to receive a payment, in cash or Common Stock, equal
to the excess of the Fair Market Value (or other specified valuation) of a
specified number of shares of Common Stock on the date the right is exercised
over a specified strike price, in each case, as determined by the Committee.
"Stock Award" means an award in the form of shares of Common Stock or
units denominated in shares of Common Stock.
"Stock Based Awards Limitations" shall have the meaning set forth in
Section 8(b)(ii).
"Subsidiary" means (i) in the case of a corporation, any corporation of
which the Company directly or indirectly owns shares representing more than 50%
of the combined voting power of the shares of all classes or series of capital
stock of such corporation which have the right to vote generally on matters
submitted to a vote of the stockholders of such corporation and (ii) in the
case of a partnership or other business entity not organized as a corporation,
any such business entity of which the Company directly or indirectly owns more
than 50% of the voting, capital or profits interests (whether in the form of
partnership interests, membership interests or otherwise).
<PAGE> 18
4. Eligibility. Individuals eligible for Awards under this Plan are (i)
those key Employees who hold positions of responsibility and whose performance,
in the judgment of the Committee, can have a significant effect on the success
of the Company and its Subsidiaries, and (ii) individuals who are expected to
become such Employees within six months of the date of the Award.
5. Common Stock Available for Awards. Subject to the provisions of
paragraph 14 hereof, there shall be available for Awards under this Plan
granted wholly or partly in Common Stock (including rights or options that may
be exercised for or settled in Common Stock) an aggregate of 1,000,000 shares
of Common Stock. All 1,000,000 shares of Common Stock shall be available for
Incentive Options. The number of shares of Common Stock that are the subject of
Awards under this Plan, if forfeited or terminated, unexercised upon expiration
or settled in cash in lieu of Common Stock or in a manner such that all or some
of the shares covered by an Award are not issued to a Participant, or if
exchanged for Awards that do not involve Common Stock, shall again immediately
become available for Awards hereunder. The Committee may from time to time
adopt and observe such procedures concerning the counting of shares against the
Plan maximum as it may deem appropriate. The Board and the appropriate officers
of the Company shall from time to time take whatever actions are necessary to
file any required documents with governmental authorities, stock exchanges and
transaction reporting systems to ensure that shares of Common Stock are
available for issuance pursuant to Awards.
6. Administration.
(a) This plan shall be administered by the Committee. The Committee shall
consist of at least two members of the Board.
(b) Subject to the provisions hereof, the Committee shall have full and
exclusive power and authority to administer this Plan and to take all actions
that are specifically contemplated hereby or are necessary or appropriate in
connection with the administration hereof. The Committee shall also have full
and exclusive power to interpret this Plan and to adopt such rules, regulations
and guidelines for carrying out this Plan as it may deem necessary or proper,
all of which powers shall be exercised in the best interests of the Company and
in keeping with the objectives of this Plan. The Committee may, in its
discretion, provide for the extension of the exercisability of an Award,
accelerate the vesting or exercisability of an Award, eliminate or make less
restrictive any restrictions contained in an Award, waive any restriction or
other provision of this Plan or an Award or otherwise amend or modify an Award
in any manner that is either (i) not adverse to the Participant to whom such
Award was granted or (ii) consented to by such Participant. The Committee may
make an award to an individual who it expects to become an Employee within the
next six months, provided that such award shall be subject to the individual
actually becoming an Employee within such time period. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in
this Plan or in any Award in the manner and to the extent the Committee deems
necessary or desirable to further the Plan purposes. Any decision of the
Committee in the interpretation and administration of this Plan shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned.
<PAGE> 19
(c) No member of the Committee or officer of the Company to whom the
Committee has delegated authority in accordance with the provisions of
paragraph 7 of this Plan shall be liable for anything done or omitted to be
done by him or her, by any member of the Committee or by any officer of the
Company in connection with the performance of any duties under this Plan,
except for his or her own willful misconduct or as expressly provided by
statute.
7. Delegation of Authority. The Committee may delegate to the Chief
Executive Officer and to other senior officers of the Company its duties under
this Plan pursuant to such conditions or limitations as the Committee may
establish.
8. Awards.
(a) The Committee shall determine the type or types of Awards to be made
under this Plan and shall designate from time to time the individuals who are
to be the recipients of Awards. Each Award may be embodied in an Award
Agreement, which shall contain such terms, conditions and limitations as shall
be determined by the Committee in its sole discretion and shall be signed by
the Participant to whom the Award is made and by an Authorized Officer for and
on behalf of the Company. Awards may consist of those listed in this paragraph
8(a) and may be granted singly, in combination or in tandem. Awards may also be
made in combination or in tandem with, in replacement of, or as alternatives
to, grants or rights under this Plan or any other employee plan of the Company
or any of its Subsidiaries, including the plan of any acquired entity. An Award
may provide for the grant or issuance of additional, replacement or alternative
Awards upon the occurrence of specified events, including the exercise of the
original Award granted to a Participant. All or part of an Award may be subject
to conditions established by the Committee, which may include, but are not
limited to, continuous service with the Company and its Subsidiaries,
achievement of specific business objectives, increases in specified indices,
attainment of specified growth rates and other comparable measurements of
performance. Upon the termination of employment by a Participant who is an
Employee, any unexercised, deferred, unvested or unpaid Awards shall be treated
as set forth in the applicable Award Agreement.
(i) Stock Option. An Award may be in the form of an Option.
An Option awarded pursuant to this Plan may consist of an Incentive
Option or a Nonqualified Option. The price at which shares of Common
Stock may be purchased upon the exercise of an Option shall be not less
than the Fair Market Value of the Common Stock on the date of grant.
Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Option awarded pursuant to this Plan,
including the term of any Option and the date or dates upon which it
becomes exercisable, shall be determined by the Committee.
(ii) Stock Appreciation Right. An Award may be in the form of
an SAR. The terms, conditions and limitations applicable to any SAR
awarded pursuant to this Plan, including the term of any SAR and the date
or dates upon which it becomes exercisable, shall be determined by the
Committee.
<PAGE> 20
(iii) Stock Award. An Award may be in the form of a Stock
Award, including the award of Restricted Stock or conditional stock
units. The terms, conditions and limitations applicable to any Stock
Award granted pursuant to this Plan shall be determined by the Committee.
(iv) Cash Award. An Award may be in the form of a Cash Award.
The terms, conditions and limitations applicable to any Cash Award granted
pursuant to this Plan shall be determined by the Committee.
(v) Performance Award. Without limiting the type or number of
Awards that may be made under the other provisions of this Plan, an Award
may be in the form of a Performance Award. A Performance Award shall be
paid, vested or otherwise deliverable solely on account of the attainment
of one or more pre-established, objective Performance Goals established
by the Committee prior to the earlier to occur of (x) 90 days after the
commencement of such period of service to which the Performance Goal
relates and (y) the lapse of 25% of such period of service (as scheduled
in good faith at the time the goal is established), and in any event
while the outcome is substantially uncertain. A Performance Goal is
objective if a third party having knowledge of the relevant facts could
determine whether the goal is met. Such a Performance Goal may be based
on one or more business criteria that apply to the individual, one or
more business units of the Company, or the Company as a whole, and may
include one or more of the following: increased revenue; net income;
earnings before interest, taxes, depreciation and amortization (EBITDA);
other earnings measures; economic value added (EVA); cash flow measures;
stock price; market share; return on equity or capital; return on revenue
measures; costs; oil and gas volumes; petroleum reserve measures and
safety and environmental performance measures. Unless otherwise stated,
such a Performance Goal need not be based upon an increase or positive
result under a particular business criterion and could include, for
example, maintaining the status quo or limiting economic losses
(measured, in each case, by reference to specific business criteria). In
interpreting Plan provisions applicable to Performance Goals and
Performance Awards, it is the intent of the Plan to conform with the
standards of Section 162(m) of the Code and Treasury Regulation (S)
1.162-27(e)(2)(i), and the Committee in establishing such goals and
interpreting the Plan shall be guided by such provisions. Prior to the
payment of any compensation based on the achievement of Performance
Goals, the Committee must certify in writing that applicable Performance
Goals and any of the material terms thereof were, in fact, satisfied.
Subject to the foregoing provisions, the terms, conditions and
limitations applicable to any Performance Awards made pursuant to this
Plan shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan, the
following limitations shall apply to any Award made hereunder:
(i) no Participant may be granted, during any one calendar
year period, Awards consisting of Options or SARs that are exercisable
for more than 250,000 shares of Common Stock;
<PAGE> 21
(ii) no Participant may be granted, during any one calendar
year period, Stock Awards covering or relating to more than 10,000 shares
of Common Stock (the limitation set forth in this clause (ii), together
with the limitation set forth in clause (i) above, being hereinafter
collectively referred to as the "Stock Based Awards Limitations"); and
(iii) no Participant may be granted Awards consisting of cash
or in any other form permitted under this Plan (other than Awards
consisting of Options or SARs or otherwise consisting of shares of Common
Stock or units denominated in such shares) in respect of any one calendar
year period having a value determined on the date of grant in excess of
$2,000,000.
9. Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash or Common
Stock, or a combination thereof, and may include such restrictions as the
Committee shall determine, including, in the case of Common Stock, restrictions
on transfer and forfeiture provisions. If payment of an Award is made in the
form of Restricted Stock, the applicable Award Agreement relating to such
shares shall specify whether they are to be issued at the beginning or end of
the Restriction Period. In the event that shares of Restricted Stock are to be
issued at the beginning of the Restriction Period, the certificates evidencing
such shares (to the extent that such shares are so evidenced) shall contain
appropriate legends and restrictions that describe the terms and conditions of
the restrictions applicable thereto. In the event that shares of Restricted
Stock are to be issued at the end of the Restricted Period, the right to
receive such shares shall be evidenced by book entry registration or in such
other manner as the Committee may determine.
(b) Deferral. With the approval of the Committee, amounts payable in
respect of Awards may be deferred and paid either in the form of installments
or as a lump-sum payment. The Committee may permit selected Participants to
elect to defer payments of some or all types of Awards in accordance with
procedures established by the Committee. Any deferred payment of an Award,
whether elected by the Participant or specified by the Award Agreement or by
the Committee, may be forfeited if and to the extent that the Award Agreement
so provides.
(c) Dividends and Interest. Rights to dividends or Dividend Equivalents
may be extended to and made part of any Award consisting of shares of Common
Stock or units denominated in shares of Common Stock, subject to such terms,
conditions and restrictions as the Committee may establish. The Committee may
also establish rules and procedures for the crediting of interest on deferred
cash payments and on Dividend Equivalents for Awards consisting of shares of
Common Stock or units denominated in shares of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another Award
or Awards of the same or different type.
10. Stock Option Exercise. The price at which shares of Common Stock may
be purchased under an Option shall be paid in full at the time of exercise in
cash or, if elected by the optionee, the
<PAGE> 22
optionee may purchase such shares by means of tendering Common Stock or
surrendering another Award, including Restricted Stock, valued at Fair Market
Value on the date of exercise, or any combination thereof. The Committee shall
determine acceptable methods for Participants to tender Common Stock or other
Awards. The Committee may provide for procedures to permit the exercise or
purchase of such Awards by use of the proceeds to be received from the sale of
Common Stock issuable pursuant to an Award. Unless otherwise provided in the
applicable Award Agreement, in the event shares of Restricted Stock are
tendered as consideration for the exercise of an Option, a number of the shares
issued upon the exercise of the Option, equal to the number of shares of
Restricted Stock used as consideration therefor, shall be subject to the same
restrictions as the Restricted Stock so submitted as well as any additional
restrictions that may be imposed by the Committee.
11. Taxes. The Company shall have the right to deduct applicable taxes
from any Award payment and withhold, at the time of delivery or vesting of cash
or shares of Common Stock under this Plan, an appropriate amount of cash or
number of shares of Common Stock or a combination thereof for payment of taxes
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes. The
Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the Award
with respect to which withholding is required. If shares of Common Stock are
used to satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made. The Committee may
provide for loans, on either a short term or demand basis, from the Company to
a Participant to permit the payment of taxes required by law.
12. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law, except that (i) no amendment or alteration that would adversely affect
the rights of any Participant under any Award previously granted to such
Participant shall be made without the consent of such Participant and (ii) no
amendment or alteration shall be effective prior to its approval by the
stockholders of the Company to the extent such approval is required by
applicable legal requirements.
13. Assignability. Unless otherwise determined by the Committee and
provided in the Award Agreement, no Award or any other benefit under this Plan
constituting a derivative security within the meaning of Rule 16a-1(c) under
the Exchange Act shall be assignable or otherwise transferable, except by will
or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. The Committee may prescribe and
include in applicable Award Agreements other restrictions on transfer. Any
attempted assignment of an Award or any other benefit under this Plan in
violation of this paragraph 13 shall be null and void.
<PAGE> 23
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
capital stock of the Company or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to the
Common Stock) or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding of any kind, whether or not of a character similar to that of
the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock, declaration of a dividend payable in shares of Common
Stock or other stock split, then (i) the number of shares of Common Stock
reserved under this Plan, (ii) the number of shares of Common Stock covered by
outstanding Awards in the form of Common Stock or units denominated in Common
Stock, (iii) the exercise or other price in respect of such Awards, (iv) the
appropriate Fair Market Value and other price determinations for such Awards
and (v) the Stock Based Awards Limitations, shall each be proportionately
adjusted by the Board to reflect such transaction. In the event of any other
recapitalization or capital reorganization of the Company, any consolidation or
merger of the Company with another corporation or entity, the adoption by the
Company of any plan of exchange affecting the Common Stock or any distribution
to holders of Common Stock of securities or property (other than normal cash
dividends or dividends payable in Common Stocks), then (i) the number of shares
of Common Stock covered by outstanding Awards in the form of Common Stock or
units denominated in Common Stock, (ii) the exercise or other price in respect
of such Awards, (iii) the appropriate Fair Market Value and other price
determinations for such Awards and (iv) the Stock Based Awards Limitations,
shall each be proportionately adjusted by the Board to reflect such
transaction; provided that such adjustments shall only be such as are necessary
to maintain the proportionate interest of the holders of the Awards and
preserve, without exceeding, the value of such Awards. In the event of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board shall be authorized to issue
substitute Awards, as appropriate, for previously issued Awards or to assume
previously issued Awards as part of such adjustment.
15. Restrictions. No Common Stock or other form of payment shall be
issued with respect to any Award unless the Company shall be satisfied based on
the advice of its counsel that such issuance will be in compliance with
applicable federal and state securities laws. Certificates evidencing shares of
Common Stock delivered under this Plan (to the extent that such shares are so
evidenced) may be subject to such stop transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities exchange
or transaction reporting system upon which the Common Stock is then listed or
to which it is admitted for quotation and any applicable federal or state
securities law. The Committee may cause a legend or legends to be placed upon
such certificates (if any) to make appropriate reference to such restrictions.
<PAGE> 24
16. Unfunded Plan. Insofar as it provides for Awards of cash, Common
Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping
accounts may be established with respect to Participants who are entitled to
cash, Common Stock or rights thereto under this Plan, any such accounts shall
be used merely as a bookkeeping convenience. The Company shall not be required
to segregate any assets that may at any time be represented by cash, Common
Stock or rights thereto, nor shall this Plan be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be deemed to be
a trustee of any cash, Common Stock or rights thereto to be granted under this
Plan. Any liability or obligation of the Company to any Participant with
respect to an Award of cash, Common Stock or rights thereto under this Plan
shall be based solely upon any contractual obligations that may be created by
this Plan and any Award Agreement, and no such liability or obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on any
property of the Company. Neither the Company nor the Board nor the Committee
shall be required to give any security or bond for the performance of any
obligation that may be created by this Plan.
17. Governing Law. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of Delaware.
18. Effectiveness. This Plan shall be effective on February 10, 1997, but
this Plan and all Awards made hereunder prior to the 1997 annual meeting of the
Company's stockholders are conditioned upon the approval of this Plan by the
stockholders of the Company at such meeting. If the stockholders of the Company
should fail to so approve this Plan, this Plan shall terminate and cease to be
of any further force or effect, and all grants of Awards hereunder shall be
null and void.
<PAGE> 1
EXHIBIT 7
PENNZOIL COMPANY
SALARIED EMPLOYEES RETIREMENT PLAN
(As Amended and Restated Effective January 1, 1989)
Fifteenth Amendment
Pennzoil Company, a Delaware corporation (the "Company"),
having established the Pennzoil Company Salaried Employees Retirement Plan,
effective September 1, 1986, having thereafter amended and restated said Plan
effective January 1, 1989 (the "Plan"), and having reserved the right under
Section 17.1 thereof to amend the Plan, does hereby amend the Plan, effective
as July 1, 1997, as follows:
1. Article I of the Plan is hereby amended by adding a new
Section 1.37 thereto, to read as follows:
"1.37 Change of Control: For purposes of this Plan, a
Change of Control of the Company shall conclusively be deemed to have
occurred (i) if the Board of Directors of the Company determines by
resolution that a change in control which has the reasonable
likelihood of depriving key employees of benefits they otherwise would
have earned, by depriving key employees of the opportunity to fulfill
applicable service, and age or other prerequisites to benefits has
occurred, or (ii) upon the occurrence of an event specified for such
purposes as a change in control, by resolution of the Board of
Directors adopted not more than 60 days prior to the occurrence of
such event which has the reasonable likelihood of depriving key
employees of benefits they otherwise would have earned, by depriving
key employees of the opportunity to fulfill applicable service, age or
other prerequisites to benefits. The Effective Date of a Change of
Control shall be (x) in the case of such a Change in Control described
as specified in clause (i) of the preceding sentence, the date (not
more than 30 days prior to the date on which the Board of Directors
makes the determination) the Board of Directors determines as the date
on which the Change in Control has occurred, or (y) in the case of
such a Change of Control determined as specified in clause (ii) of the
preceding sentence, the date of
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<PAGE> 2
occurrence of the event specified by the Board of Directors as
constituting such Change in Control."
2. Section 8.2 of the Plan is hereby amended by adding
the following sentence to the end thereof:
"Notwithstanding the above provisions of this Section to the contrary,
a Member who terminates Service on or after a Change of Control and
who as of such termination has completed at least 10 years of Vesting
Service shall have an Early Retirement Date commencing on the first
day of the month following the later of his termination of employment
or attainment of age 55."
3. Section 9.1 of the Plan is hereby amended by amending
the first paragraph of Section 9.1 and Part I therein in its entirety
to read as follows:
"9.1. Normal Retirement Pension: A Member whose Service
terminates on or after July 1, 1997, and after qualifying for a Normal
Retirement Pension under Section 8.1 shall be entitled to receive from
the Trust Fund, as a Normal Retirement Pension, a monthly annuity for
the life of the Member, which, if the Member is not a highly
compensated employee (as described in Section 414(q) of the Code),
shall be an amount equal to the greatest of I, II or III, and, which
if the Member is a highly compensated employee (as described in
Section 414(q) of the Code), shall be an amount equal to the greater
of I or II, where:
I. is the greatest of (a) or (b) or (c), less (d), where:
(a) is the sum of:
1. one and six-tenths percent (1.6%) of
the Member's monthly 1997 Considered Compensation (as
hereinafter defined) multiplied by his years of
Benefit Service accrued before 1974;
2. plus, the sum of:
(A) one and one-tenth percent
(1.1%) of the Member's monthly 1997
Considered Compensation multiplied by his
years of Benefit Service accrued after 1973
and before July 1, 1997; and
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<PAGE> 3
(B) five-tenths percent (.5%) of
the Member's monthly 1997 Considered
Compensation in excess of his monthly Covered
Compensation in effect for the Plan Year
1997, multiplied by his years of Benefit
Service accrued after 1973 and before July 1,
1997;
3. plus, the sum of:
(A) one-twelfth (1/12) of one and
one-tenth percent (1.1%) of the Member's
monthly Considered Compensation during each
month of his Benefit Service accrued after
June 30, 1997; and
(B) one-twelfth (1/12) of
five-tenths percent (.5%) of the Member's
monthly Considered Compensation in excess of
his monthly Covered Compensation during each
month of his Benefit Service accrued after
June 30, 1997;
4. plus, $5 multiplied by the Member's
years of Non-Benefit Service, as defined in the
Superseded Plan, that were credited under the
Superseded Plan at the time of its termination.
(b) is $40 multiplied by the Member's years of
Benefit Service.
(c) is the Accrued Pension under the Plan as of
June 30, 1997 plus the amounts under (a)(3) (A) and (B) above
for service after June 30, 1997.
(d) is the benefit, if any, provided the Member
under the Superseded Plan upon its termination by distribution
of a paid-up annuity contract or an equivalent lump sum cash
amount, expressed as a monthly annuity for the life of a
Member commencing at age sixty-five (65), the amount of which
was determined by adding (i) a Benefit Service factor to (ii)
a Non-Benefit Service factor and subtracting from the sum
thereof, (iii) a Social Security offset factor.
As used in this Section 9.1(I), the term
'monthly 1997 considered compensation' shall mean the lesser
of (i) the greater of 1997 Considered Compensation or the
actual Considered Compensation for the 12 months prior to
December 31, 1997 or date of termination, if later or (ii) if
the Member terminates service prior to January 1, 2003, the
Member's
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<PAGE> 4
average monthly Considered Compensation received during the sixty (60)
calendar months immediately preceding his retirement or other
termination of Service. In determining 'monthly 1997 considered
compensation' for any Member who has elected to defer the receipt of
salary, any deferred salary shall be deemed to have been 'actually
paid' and 'received' at such time or times as such salary would have
been actually paid and received but for such election. In determining
monthly 1997 considered compensation for any Member who was, is, or
becomes a Transferred Member during the period of time with respect to
which such determination is being made, the term Considered
Compensation (as defined in Section 1.9) shall be deemed to include
similar payments made or accrued by the Employer or an Affiliate while
such Member was in a Transferred Member status. For purposes of
determining average monthly Considered Compensation, any month in
which the Member did not receive a full month's Considered
Compensation shall be disregarded. Pension amounts determined under
this Section 9.1 may not be decreased due to subsequent increases in
Social Security Benefits and shall not exceed the limitations imposed
by Article XXII. A Member's right to his Normal Retirement Pension
shall be non-forfeitable upon his attainment of age sixty-five (65)."
4. Article X is hereby amended by adding a new Section
10.3 which shall read as follows:
"10.3 Terminated After Change of Control: Notwithstanding the
above provisions of this Article X to the contrary, in the event that any
Member's Service terminates for any reason within two years after a Change
of Control has occurred, such Member shall be fully vested and shall be
entitled to receive a Deferred Vested Pension equal to the Member's Accrued
Pension at date of his termination of Service."
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused these
presents to be executed by its duly authorized officers in a number of
copies, all of which shall constitute one and the same instrument
which may be sufficiently evidenced by any executed copy hereof, this
1st day of July, 1997, but effective as herein provided.
PENNZOIL COMPANY
By /s/ WILLIAM B. St. CLAIR
----------------------------------
William B. St. Clair
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- -----------------------------------
Secretary
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<PAGE> 1
EXHIBIT 9
June 30, 1997
[Name of Executive Officer]
c/o Pennzoil Place
P. O. Box 2967
34th Floor
Houston, Texas 77252
Dear [Name of Executive Officer]:
Pennzoil Company ("Company") has previously established each
of the 1995, 1996 and 1997 Pennzoil Company Long Term Incentive Plans ("LTIPs")
to provide additional compensation to certain of its employees based upon
comparative performance of the Company's stock as against a group of peer
companies.
You have previously been designated by the Compensation
Committee of the Company's Board of Directors as a participant in one or more
of the LTIPs and in connection therewith advised that certain levels of
corporate performance have been established to measure your benefits under the
LTIPs.
It was and is the intent of the Company in establishing such
LTIPs that if a Change in Control of the Company occurred, benefits under the
LTIPS would, as is the case with unvested stock options and Conditional Stock
Awards, be vested and cashed out upon such a Change in Control. The purpose of
this letter is to confirm the treatment of your participation in the LTIPs if a
Change in Control occurs.
If a Change in Control, as defined below, recurs you will
receive on the Effective Date of a Change in Control, as defined below, from
the Company in lieu of any other amounts under the LTIPs an amount of cash
equal to the product of (i) your rate of salary immediately prior to the event
specified as a Change in Control and (ii) the aggregate target percentages of
all LTIPs the three year term of which has not yet ended with respect to which
you have been designated a participant. Payments in respect of any LTIPs in
which you are participating but with respect to which the three year term has
been completed shall be computed and immediately paid under the terms of the
LTIP award.
<PAGE> 2
2 June 30, 1997
For purposes of this letter, a Change in Control of the
Company shall conclusively be deemed to have occurred (i) if the Board of
Directors of the Company determines by resolution that a Change in Control
which has the reasonable likelihood of depriving key employees of benefits they
otherwise would have earned, by depriving key employees of the opportunity to
fulfill applicable service and age prerequisites to benefits or otherwise has
occurred, or (ii) upon the occurrence of an event specified for such purposes
as a Change in Control which has the reasonable likelihood of depriving key
employees of benefits they otherwise would have earned, by depriving key
employees of the opportunity to fulfill applicable service and age
prerequisites to benefits or otherwise, by resolution of the Board of Directors
adopted not more than 60 days prior to the occurrence of such event. The
Effective Date of a Change in Control shall be (x) in the case of such a Change
in Control described as specified in clause (i) of the preceding sentence, the
date (not more than 30 days prior to the date on which the Board of Directors
makes the determination) the Board of Directors determines as the date on which
the Change in Control has occurred, or (y) in the case of such a Change in
Control determined as specified in clause (ii) of the preceding sentence, the
date of occurrence of the event specified by the Board of Directors as
constituting such Change in Control.
PENNZOIL COMPANY
By:
--------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10
PENNZOIL COMPANY
SAVINGS AND INVESTMENT PLAN
(As Amended and Restated Effective January 1, 1989
and as Further Amended Effective January 1, 1994)
Sixth Amendment
Pennzoil Company, a Delaware corporation (the "Company"),
having established the Pennzoil Company Savings and Investment Plan, effective
December 20, 1986, having thereafter amended and restated said Plan effective
January 1, 1989 as further amended effective January 1, 1994 and as thereafter
amended (the "Plan"), and having reserved the right under Section 10.4 thereof
to amend the Plan, does hereby amend the Plan, effective as of July 1, 1997, as
follows:
1. Article I of the Plan is hereby amended by adding a
new definition thereto, to read as follows:
"Change of Control: For purposes of this Plan, a Change of
Control of the Company shall conclusively be deemed to have occurred
(i) if the Board of Directors of the Company determines by resolution
that a change in control which has the reasonable likelihood of
depriving key employees of benefits they otherwise would have earned,
by depriving key employees of the opportunity to fulfill applicable
service, age or other prerequisites to benefits has occurred, or (ii)
upon the occurrence of an event specified for such purposes as a
change in control by resolution of the Board of Directors adopted not
more than 60 days prior to the occurrence of such event which has the
reasonable likelihood of depriving key employees of benefits they
otherwise would have earned, by depriving key employees of the
opportunity to fulfill applicable service, age or other prerequisites
to benefits. The Effective Date of a Change of Control shall be (x)
in the case of such a Change in Control described as specified in
clause (i) of the preceding sentence, the date (not more than 30 days
prior to the date on which the Board of Directors makes the
determination) the Board of Directors determines as the date on
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<PAGE> 2
which the Change of Control has occurred, or (y) in the case of such a
Change in Control determined as specified in clause (ii) of the
preceding sentence, the date of occurrence of the event specified by
the Board of Directors as constituting such Change in Control."
2. Article VII is hereby amended by adding a new Section
7.6 which shall read as follows:
"7.6 Terminated After Change of Control: Notwithstanding
the above provisions of this Article VII to the contrary, in the event
that any Member's Service terminates for any reason within two years
after a Change of Control has occurred, such Member shall be fully
vested and shall be entitled to receive 100% of his Employer
Contribution Account upon the date of his termination of Service."
IN WITNESS WHEREOF, Pennzoil Company has caused these presents
to be executed by its duly authorized officers in a number of copies, all of
which shall constitute one and the same instrument, which may be sufficiently
evidenced by any executed copy thereof, this 1st day of July, 1997, but
effective as herein provided.
PENNZOIL COMPANY
By /s/ WILLIAM B. St. CLAIR
-------------------------------
William B. St. Clair
Agent and Attorney-in-Fact
ATTEST:
/s/ LINDA F. CONDIT
- ------------------------------
Secretary
-2-
<PAGE> 1
EXHIBIT 11
TAX PROTECTION AGREEMENT
This AGREEMENT (the "Agreement") by and between Pennzoil
Company, a Delaware corporation (the "Company"), and [name of executive
officer] (the "Executive"), dated as of the 30th day of June, 1997 and to be
effective as of the date hereof (as defined herein).
In entering into this Agreement, the Company intends that the
compensation and benefits payable or provided to or in respect of Executive not
be adversely impacted by certain excise taxes imposed under the Internal
Revenue Code in connection with any change in control of the Company, the
Company has determined to enter into the following Agreement providing for tax
protection payments to be made to or in respect of Executive.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Additional Payments by the Company.
(a) In the event it shall be determined that any payment
or distribution to or for the benefit of the Executive (whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 1 (a "Payment")) is subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") from the Company in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment), the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 1(c), all
determinations required to be made under this Section 1, including whether and
when Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Arthur Andersen LLP (the "Accounting Firm"); provided, however, that the
Accounting Firm shall not determine that no Excise Tax is payable by the
Executive unless it delivers to the Executive a written opinion (the
"Accounting Opinion") that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the imposition of a
negligence or any other penalty. In the event that Arthur Andersen LLP (or any
affiliate thereof) has served, at any time during the two years immediately
preceding a change in control of the Company, as accountant or auditor or
consultant for the individual, entity or group that is involved in effecting or
has any material interest in the change in control of the Company, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations and perform the other functions specified in this Section 1
(which accounting firm shall then be referred to as the
1
<PAGE> 2
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier time
as is requested by the Company, the Accounting Firm shall make all
determinations required under this Section 1, shall provide to the Company and
the Executive a written report setting forth such determinations, together with
detailed supporting calculations, and, if the Accounting Firm determines that
no Excise Tax is payable, shall deliver the Accounting Opinion to the
Executive. Any Gross-Up Payment, as determined pursuant to this Section 1,
shall be paid by the Company to the Executive within five days of the receipt
of the Accounting Firm's determination. Subject to the remainder of this
Section 1, any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that it is ultimately determined in accordance with the procedures set forth in
Section 1(c) that the Executive is required to make a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claims by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 30 days after the Executive
actually receives notice in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid; provided, however, that the failure of the Executive to notify the
Company of such claim (or to provide any required information with respect
thereto) shall not affect any rights granted to the Executive under this
Section 1 except to the extent that the Company is materially prejudiced in the
defense of such claim as a direct result of such failure. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and
reasonably acceptable to the Executive;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
2
<PAGE> 3
(iv) if the Company elects not to assume and control the
defense of such claim, permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 1(c), the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with such
contest, in which case it may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim, and may either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further
provided, that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 1(c) the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 1(c)) promptly pay
to the Company the amount of such refund (together with an amount, including
any interest paid or credited thereon, after taxes applicable thereto in order
to place Executive in the appropriate after tax position). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 1(c) a determination is made that the Executive shall not be entitled
to any refund with respect to such claim, and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
3
<PAGE> 4
2. Successors.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
heirs, executors and other legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and may only be assigned to a successor described in
Section 2(c).
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
3. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws that would require the application of the laws of any other
state or jurisdiction.
(b) The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and heirs, executors and other legal representatives.
(d) All notices and other communications hereunder shall
be in writing and shall be given, if by the Executive to the Company, by
telecopy or facsimile transmission at the telecommunications number set forth
below and, if by either the Company or the Executive, either by hand delivery
to the other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
4
<PAGE> 5
If to the Executive:
Paul L. Keyes
415 Sue Street
Houston, Texas 77009
If to the Company:
Pennzoil Company
P. O. Box 2967
Houston, Texas 77252-2967
Telecommunications Number: (713) 546-4000
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(f) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
PENNZOIL COMPANY
By:
-------------------------------------
Name:
Title:
----------------------------------------
Name:
5
<PAGE> 1
EXHIBIT 12
INDEMNIFICATION AGREEMENT
This AGREEMENT is made and entered into this 1st day of July,
1997, by and between Pennzoil Company, a Delaware corporation (the "Company"),
and [Name of Director] [Name of Executive Officer] (the "Indemnitee").
WHEREAS, Indemnitee is [a director] [an executive officer] of the
Company;
WHEREAS, the Bylaws of the Company provide certain
indemnification rights to the [directors] [executive officers] of the Company,
and its [directors] [executive officers] have been otherwise assured
indemnification, as provided by Delaware law;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's
continued service to the Company in an effective manner and Indemnitee's
reliance on past assurances of indemnification, the Company wishes to provide
in this Agreement for the indemnification of and the advancing of expenses
(whether partial or complete) to Indemnitee to the fullest extent permitted by
law and as set forth in this Agreement, and, to the extent insurance is
maintained, for the continued coverage of Indemnitee under the Company's
directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements contained herein and Indemnitee's continuing to serve
as [a director] [an executive officer] of the Company, the parties hereto agree
as follows:
1. Requirement of Indemnity and Advancement of Expenses. The
Company shall indemnify, and advance Expenses (as this and all other
capitalized words are defined in Section 12) to, Indemnitee to the fullest
extent permitted by applicable law in effect on the date hereof, and to such
greater extent as applicable law may thereafter permit. The rights of
Indemnitee provided under the preceding sentence shall include, but not be
limited to, the right to be indemnified to the fullest extent permitted by
Section 145(b) of the D.G.C.L. in Proceedings by or in the right of the
Company and to the fullest extent permitted by Section 145(a) of the D.G.C.L.
in all other Proceedings.
2. Expenses as a Witness or Party. If Indemnitee is, by reason of
his Corporate Status, a witness in or a party to and is successful, on the
merits or otherwise, in any Proceeding, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to any Matter in such Proceeding,
the Company shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by him or on his behalf relating to each Matter. The
termination of any Matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such Matter.
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<PAGE> 2
3. Advancement of Expenses. Indemnitee shall be advanced Expenses
within 10 days after requesting them to the fullest extent permitted by Section
145(e) of the D.G.C.L.
4. Written Request. To obtain indemnification, Indemnitee shall
submit to the Company a written request with such information as is reasonably
available to Indemnitee. The Secretary of the Company shall promptly advise
the Board of Directors of such request.
5. Determination of Entitlement Prior to a Change in Control. If
there has been no Change of Control at the time the request for indemnification
is sent, Indemnitee's entitlement to indemnification shall be determined in
accordance with Section 145(d) of the D.G.C.L. If entitlement to
indemnification is to be determined by Independent Counsel, the Company shall
furnish notice to Indemnitee within 10 days after receipt of the request for
indemnification, specifying the identity and address of Independent Counsel.
The Indemnitee may, within 14 days after receipt of such written notice of
selection, deliver to the Company a written objection to such selection. Such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of Independent Counsel and the
objection shall set forth with particularity the factual basis of such
assertion. If there is an objection to the selection of Independent Counsel,
either the Company or Indemnitee may petition the Court of Chancery of the
State of Delaware or any other court of competent jurisdiction for a
determination that the objection is without a reasonable basis and/or for the
appointment of Independent Counsel selected by the Court.
6. Determination of Entitlement After a Change in Control. If there
has been a Change of Control at the time the request for indemnification is
sent, Indemnitee's entitlement to indemnification shall be determined in a
written opinion by Independent Counsel selected by Indemnitee. Indemnitee
shall give the Company written notice advising of the identity and address of
the Independent Counsel so selected. The Company may, within 7 days after
receipt of such written notice of selection, deliver to the Indemnitee a
written objection to such selection. Indemnitee may, within 5 days after the
receipt of such objection from the Company, submit the name of another
Independent Counsel and the Company may, within 7 days after receipt of such
written notice of selection, deliver to the Indemnitee a written objection to
such selection. Any objection is subject to the limitations in Section 5.
Indemnitee may petition the Court of Chancery of the State of Delaware or any
other Court of competent jurisdiction for a determination that the Company's
objection to the first and/or second selection of Independent Counsel is
without a reasonable basis and/or for the appointment as Independent Counsel of
a person selected by the Court.
7. Presumption and Deemed Determination. If a Change of Control
shall have occurred before the request for indemnification is sent by
Indemnitee, Indemnitee shall be presumed (except as otherwise expressly
provided in this Agreement) to be entitled to indemnification upon submission
of a request for indemnification in accordance with Section 4 of this
Agreement, and thereafter the Company shall have the burden of proof to
overcome the presumption in reaching a determination contrary to the
presumption. The presumption shall be used by Independent Counsel as a basis
for a determination of entitlement to indemnification unless the Company
provides
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<PAGE> 3
information sufficient to overcome such presumption by clear and convincing
evidence or the investigation, review and analysis of Independent Counsel
convinces him by clear and convincing evidence that the presumption should not
apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or persons
empowered under Section 5 or 6 of this Agreement to determine entitlement to
indemnification shall not have made and furnished to Indemnitee in writing a
determination within 60 days after receipt by the Company of the request
therefor, the requisite determination of entitlement to indemnification shall
be deemed to have been made and Indemnitee shall be entitled to such
indemnification unless Indemnitee knowingly misrepresented a material fact in
connection with the request for indemnification or such indemnification is
prohibited by law. The termination of any Proceeding or of any Matter therein,
by judgment, order, settlement or conviction, or upon a plea of nolo contendere
or its equivalent, shall not (except as otherwise expressly provided in this
Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company, or with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
8. Fees and Expenses of Counsel. The Company shall pay any and all
reasonable fees and expenses of Independent Counsel incurred acting pursuant to
this Agreement and in any proceeding to which it is a party or witness in
respect of its investigation and written report and shall pay all reasonable
fees and expenses incident to the procedures in which such Independent Counsel
was selected or appointed. No Independent Counsel may serve if a timely
objection has been made to his selection until a Court has determined that such
objection is without a reasonable basis.
9. Judicial Determination. In the event that (i) a determination is
made pursuant to Section 5 or 6 that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not
timely made pursuant to Section 3 of this Agreement, (iii) Independent Counsel
has not made and delivered a written opinion determining the request for
indemnification (a) within 90 days after being appointed by the Court, or (b)
within 90 days after objections to his selection have been overruled by the
Court, or (c) within 90 days after the time for the Company or Indemnitee to
object to his selection, or (iv) payment of indemnification is not made within
5 days after a determination of entitlement to indemnification has been made or
deemed to have been made pursuant to Section 5, 6 or 7 of this Agreement,
Indemnitee shall be entitled to an adjudication in an appropriate court of the
State of Delaware, or in any other court of competent jurisdiction, of his
entitlement to such indemnification or advancement of Expenses. In the event
that a determination shall have been made that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section shall be conducted in all respects as a de novo trial on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding commenced pursuant to this Section, the Company shall have the
burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be. If a
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<PAGE> 4
determination shall have been made or deemed to have been made that Indemnitee
is entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding commenced pursuant to this Section 9,
or otherwise, unless Indemnitee knowingly misrepresented a material fact in
connection with the request for indemnification, or such indemnification is
prohibited by law.
The Company shall be precluded from asserting in any judicial proceeding
commenced pursuant to this Section 9 that the procedures and presumptions of
this Agreement are not valid, binding and enforceable and shall stipulate in
any such court that the Company is bound by all provisions of this Agreement.
In the event that Indemnitee, pursuant to this Section 9, seeks a judicial
adjudication to enforce his rights under, or to recover damages for breach of,
this Agreement, Indemnitee shall be entitled to recover from the Company, and
shall be indemnified by the Company against, any and all Expenses actually and
reasonably incurred by him in such judicial adjudication, but only if he
prevails therein. If it shall be determined in such judicial adjudication that
Indemnitee is entitled to receive part but not all of the indemnification or
advancement of Expenses sought, the Expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be
appropriately prorated.
10. Non-Exclusivity. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation, the By-laws, any
agreement, a vote of stockholders or a resolution of directors, or otherwise.
No amendment, alteration or repeal of this Agreement or any provision hereof
shall be effective as to any Indemnitee for acts, events and circumstances that
occurred, in whole or in part, before such amendment, alteration or repeal.
The provisions of this Agreement shall continue as to an Indemnitee whose
Corporate Status has ceased.
11. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby; and, to the
fullest extent possible, the provisions of this Agreement shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
12. Definitions. For purposes of this Agreement:
"Change of Control" means a change in control of the Company
after the date hereof in any one of the following circumstances (1) there shall
have occurred an event required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Company is then subject to such reporting
requirement; (2) any "person" (as such term is used in Section 13(d) and 14(d)
of the Act) shall have become the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the Company's then
outstanding voting
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<PAGE> 5
securities without prior approval of at least two-thirds of the members of the
Board of Directors in office immediately prior to such person attaining such
percentage interest; (3) the Company is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy contest, as a consequence of
which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; (4) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (including for
this purpose any new director whose election or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
"Corporate Status" describes the status of a person who (a) is or
was a director, officer or employee of the Company, or is or was serving at the
request of the Company as a director, officer or employee of another Company,
partnership, joint venture, trust or other enterprise, in each case which is
controlled by the Company, or (b) is or was serving, at the written request of
the Company or pursuant to an agreement in writing with the Company which
request or agreement provides for indemnification under these By-laws, as a
director, officer or employee of another Company, partnership, joint venture,
trust or other enterprise not controlled by the Company, provided that if such
written request or agreement referred to in this clause (b) provides for a
lesser degree of indemnification by the Company than that provided pursuant to
this Agreement, the provisions contained in or made pursuant to such written
request or agreement shall govern. References above to "other enterprises"
shall include employee benefit plans and references to "serving at the request
of the Company" shall include any service as a director, officer or employee
which imposes duties on, or involves services by, such director, officer or
employee with respect to an employee benefit plan or its participants or
beneficiaries.
"D.G.C.L." means the Delaware General Company Law.
"Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification
is sought by indemnitee.
"Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
"Indemnitee" includes any person who is, or is threatened to be
made, a witness in or a party to any Proceeding as described in Section 1 or 2
of this Agreement by reason of his Corporate Status.
"Independent Counsel" means a law firm, or member of a law firm,
that is experienced in matters of Company law and neither presently is, nor in
the five years previous to his
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<PAGE> 6
selection or appointment has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
"Matter" is a claim, a material issue, or a substantial request
for relief.
"Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any
other proceeding whether civil, criminal, administrative or investigative,
except one initiated by an Indemnitee pursuant to Section 9 of this Agreement
to enforce his rights under this Agreement.
13. Notices. Any communication required or permitted to the Company
under this Agreement shall be addressed to the Secretary of the Company and any
such communication to Indemnitee shall be addressed to his home address unless
he specifies otherwise and shall be personally delivered or delivered by
overnight mail delivery.
14. Liability Insurance. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
15. Waiver. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights; provided however, that the Company shall not enforce any
of such rights in any manner or at any time as would prevent or delay payment
to Indemnitee of all amounts owing to him.
17. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business or
assets of the Company), assigns, spouses, heirs, executors, administrators and
personal and legal representatives.
18. Effective Date. This Agreement shall be effective as of the date
hereof and shall apply to any claim for indemnification by the Indemnitee on or
after such date.
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<PAGE> 7
19. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws thereof.
20. Captions; Headings. The captions and headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
PENNZOIL COMPANY
By:
----------------------------------
Name:
Title:
-------------------------------------
Name:
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<PAGE> 1
EXHIBIT 13
AMENDMENT TO DEFERRED COMPENSATION AGREEMENT
THIS AMENDMENT to the Deferred Compensation Agreement made
this 1st day of July, 1997 by and between Pennzoil Company, a Delaware
corporation ("Company"), and James L. Pate ("Employee").
R E C I T A L S:
Company and Employee have previously entered into that certain
Deferred Compensation Agreement made the 12th day of October, 1990. The Board
of Directors of the Company has authorized the amendment of the Deferred
Compensation Agreement and Employee is agreeable to the Amendment.
NOW, THEREFORE, in consideration of the premises, the Company
and Employee agree as follows:
1. Paragraph 3 of the Deferred Compensation Agreement is hereby
amended to read hereafter as follows:
"Upon the Employee's termination of employment with the
Company for any reason other than death at any time, the Employee
shall be entitled to monthly payments of deferred compensation for the
remainder of his life equal to the excess of (a) 57% of the Employee's
monthly salary as in effect on the date of this termination of
employment, over (b) the total amount of monthly amounts payable to
Employee during each applicable month from the Retirement Plan, the
U.S. Social Security Act, the Company's Short-Term Disability Plan,
the Company's Long-Term Disability Plan, the Company's Supplemental
Disability Plan, as defined benefits under the Excess Benefit
Agreement between the Company and Employee, and from any retirement
plan with a former employer (whether or not received in the form of
monthly payments).
IN WITNESS WHEREOF, the Company and Employee have executed
this Amendment to Deferred Compensation Agreement as of the date first above
written.
PENNZOIL COMPANY
By /s/ JAMES W. SHADDIX
-------------------------------------
Accepted and agreed to by: James W. Shaddix
General Counsel
/s/ JAMES L. PATE
- -------------------------------
James L. Pate
<PAGE> 1
EXHIBIT 14
[Pennzoil Letterhead]
June 30, 1997
Mr. Stephen D. Chesebro'
Pennzoil Company
700 Milam
33rd Floor, North Tower
Houston, Texas 77002
Dear Mr. Chesebro':
You and Pennzoil Company have previously entered into an
Employment Agreement dated as of February 10, 1997. The purpose of this letter
agreement is to amend the Employment Agreement to clarify both parties' intent
if your employment is terminated following a Change in Control of the Company,
as defined below. Capitalized terms used herein shall have the same meaning as
ascribed in the Employment Agreement, unless otherwise specified herein.
For purposes of this letter agreement, a Change in Control of the
Company shall conclusively be deemed to have occurred (i) if the Board of
Directors of the Company determines by resolution that a change in control
which has the reasonable likelihood of depriving key employees of benefits they
otherwise would have earned, by depriving key employees of the opportunity to
fulfill applicable service and age prerequisites to benefits or otherwise has
occurred, or (ii) upon the occurrence of an event specified for such purposes
as a change in control which has the reasonable likelihood of depriving key
employees of benefits they otherwise would have earned, by depriving key
employees of the opportunity to fulfill applicable service and age
prerequisites to benefits or otherwise, by resolution of the Board of Directors
adopted not more than 60 days prior to the occurrence of such event. The
Effective Date of a Change in Control shall be (x) in the case of such a Change
in Control described as specified in clause (i) of the preceding sentence, the
date (not more than 30 days prior to the date on which the Board of Directors
makes the determination) the Board of Directors determines as the date on which
the Change in Control has occurred, or (y) in the case of such a Change in
Control determined as specified in clause (ii) of the preceding sentence, the
date of occurrence of the event specified by the Board of Directors as
constituting such Change in Control.
<PAGE> 2
2 June 30, 1997
If your employment with the Company is terminated for any reason
following the Effective Date of a Change in Control, for purposes of the
Employment Agreement such a termination will be treated as by the Company for
other than Due Cause and you shall be entitled to the payments and other
amounts set forth in Paragraph 13(d) of the Employment Agreement.
Please sign in the space provided below and this letter agreement
shall constitute an amendment to your Employment Agreement, effective as of the
date of your execution hereof.
PENNZOIL COMPANY
By: /s/ JAMES L. PATE
--------------------------
James L. Pate
Chairman of the Board
Chief Executive Officer
Accepted and agreed to this 30th day of
June, 1997.
/s/ STEPHEN D. CHESEBRO'
- ------------------------------
Stephen D. Chesebro'
<PAGE> 1
EXHIBIT 15
AGREEMENT
THIS AGREEMENT made as of the 30th day of June, 1997, by and
between Pennzoil Company, a Delaware corporation (hereinafter called the
"Company"), and James W. Shaddix (hereinafter called "Employee");
W I T N E S S E T H:
WHEREAS, the Company desires to enter into an arrangement with
the Employee to provide certain medical and retirement benefits as additional
compensation for past and future services rendered and to be rendered by
Employee to the Company; and
WHEREAS, Employee desires to enter into an arrangement with
the Company to provide certain medical and retirement benefits as additional
compensation for past and future services rendered and to be rendered by
Employee to the Company;
NOW, THEREFORE, in consideration of the premises and the
agreements hereinafter contained, the parties hereto agree as follows:
1. Change in Control: For purposes of this Agreement, a
Change in Control of the Company shall conclusively be deemed to have occurred
(i) if the Board of Directors of the Company determines by resolution that a
change in control which has the reasonable likelihood of depriving key
employees of benefits they otherwise would have earned, by depriving key
employees of the opportunity to fulfill applicable service and age
prerequisites to benefits or otherwise has occurred, or (ii) upon the
occurrence of an event specified for such purposes as a change in control which
has the reasonable likelihood of depriving key employees of benefits they
otherwise would have earned, by depriving key employees of the opportunity to
fulfill applicable service and age
<PAGE> 2
prerequisites to benefits or otherwise, by resolution of the Board of Directors
adopted not more than 60 days prior to the occurrence of such event. The
Effective Date of a Change in Control shall be (x) in the case of such a Change
in Control described as specified in clause (i) of the preceding sentence, the
date (not more than 30 days prior to the date on which the Board of Directors
makes the determination) the Board of Directors determines as the date on which
the Change in Control has occurred, or (y) in the case of such a Change in
Control determined as specified in clause (ii) of the preceding sentence, the
date of occurrence of the event specified by the Board of Directors as
constituting such Change in Control.
2. Disability: For purposes of this Agreement,
"Disability" shall have the meaning set forth in the Company's Supplemental
Long Term Disability Plan.
3. Termination of Employment:
(a) By the Company for Due Cause. If Employee is
terminated by the Company for Due Cause, he shall be entitled to no
benefits under this Agreement. The term "Due Cause" as used herein,
shall mean (x) Employee has committed a willful serious act, such as
embezzlement, against the Company intending to enrich himself at the
expense of the Company or has been convicted of a felony involving
moral turpitude or (y) Employee, in carrying out his duties hereunder,
has been guilty of (i) willful, gross neglect or (ii) willful, gross
misconduct resulting in either case in material harm to the Company;
provided, in any event, Employee shall be given written notice by a
majority of the Board of Directors of the Company that it intends to
terminate the Employee's employment for Due Cause under this Paragraph
3(a), which notice shall specify the act, or acts, on the basis of
which the majority
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<PAGE> 3
of the Board of Directors of the Company intends so to terminate
Employee's employment, and Employee shall then be given the
opportunity, within fifteen days of his receipt of such notice, to
have a meeting with the Board of Directors of the Company to discuss
such act, or acts. If the basis of such written notice is an act, or
acts, other than an act, or acts, described in clause (i), above, the
employee shall be given seven days after such meeting within which to
cease, or correct, the performance (or nonperformance) giving rise to
such written notice, and upon failure of Employee within such seven
days to cease, or correct, such performance (or nonperformance), the
Employee's employment by the Company shall automatically be terminated
hereunder for Due Cause.
(b) By Death or Disability. In the event of the Death of
Employee or Disability while employed by the Company, Employee shall
be entitled to receive supplemental retirement benefits provided in
Paragraph 4 and the additional medical benefits provided in Paragraph
5.
(c) Voluntarily By Employee. If Employee terminates his
employment voluntarily and without Good Reason and prior to the
Effective Date of a Change in Control, he shall be entitled to no
benefits under this Agreement.
(d) By Company Other Than For Due Cause. If Employee's
employment with the Company is terminated by the Company for any
reason other than as provided in Paragraph 3(a) hereof, the Company
shall provide to Employee supplemental retirement benefits provided in
Paragraph 4 and the additional medical benefits provided in Paragraph
5.
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<PAGE> 4
(e) By Employee For Good Reason. If the Company: (i)
demotes the Employee to a lesser position than he occupies as of the
date of the Agreement; (ii) causes a material change in the nature or
scope of the authorities, powers, functions, duties, or
responsibilities attached to the Employee's position as provided in
clause (i); (iii) decreases the Employee's salary below the level
provided as of the date of this Agreement or if greater the level
provided at any subsequent date; or (iv) materially reduces the
Employee's benefits under any employee benefit plan, program, or
arrangement of the Company (other than a change that affects all
employees similarly situated) from the level in effect upon the date
of this Agreement, then, such action (or inaction) by the Company,
unless consented to in writing by Employee, shall constitute a
termination of Employee's employment by the Company pursuant to
Paragraph 3(d).
(f) Following Change In Control of the Company. If
Employee's employment is terminated following the Effective Date of a
Change in Control of the Company for reasons other than Death,
Disability or Due Cause, such termination shall be treated as a
termination of employment by Company pursuant to Paragraph 3(d).
(g) Effect on Agreement. Termination of employment shall
not constitute termination of this Agreement.
4. Retirement Benefits: The employee shall be entitled
to supplemental retirement benefits, payable at such time or times as benefits
are received under the Company's tax qualified defined benefit plan, determined
as the excess of (i) the benefit to which he would have been entitled if his
active service with the Company under the Company's tax qualified defined
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<PAGE> 5
benefit plan and excess benefit arrangement between Employee and the Company,
as in effect on the date hereof but taking into account any benefit
improvements hereafter, had continued until age 55, assuming that (x) his
salary in effect on the date immediately prior to a Change in Control, or if
higher, that in effect at any later date, plus a 5% increase for each 12 months
following termination of employment, had continued uninterrupted until age 55
and (y) that he received in each calendar year, including the calendar year of
termination, a bonus equal to the greater of (A) his highest annual incentive
bonus earned during the 12 months preceding termination of employment or (B)
the highest annual incentive bonus earned by the Employee in the three-year
period preceding a Change in Control over (ii) the benefit he actually receives
from such tax qualified defined benefit plan and the excess benefit arrangement
between Employee and the Company.
5. Medical Benefits: The Company shall provide to
Employee additional medical benefits and medical benefits coverages following
termination of employment on terms and conditions and at benefit levels
(including any required employer contributions) no less favorable than those
applicable to Employee as of the date hereof for the period prior to his
attainment of age 55 and thereafter no less favorable than those provided as of
the date hereof to retired executives of the Company with more than 20 years of
service (disregarding any benefits provided a retired Company employee under a
Deferred Compensation Agreement). This medical benefit coverage shall include
spouse and dependent coverage both during and after the life of Employee.
6. No Offsets: The benefits provided under Paragraphs 4
and 5 hereunder shall not be subject to an offset or reduction by reason of any
benefits or payments made by or under any other Company plan, program, practice
or arrangement or a plan, program, practice or arrangement
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<PAGE> 6
maintained by any other employer or otherwise, except for actual medical
benefits, denominated as such, provided by the Company.
7. Prohibition Against Assignment: The right of
Employee to benefits under this Agreement shall not be assigned, transferred,
pledged or encumbered in any way and any attempt at assignment, transfer,
pledge, encumbrance or other disposition of such benefits shall be null and
void and without effect.
8. Binding Effect: This Agreement shall be binding upon
and enure to the benefit of the Company, its successors and assigns, and
Employee, his heirs, executors, administrators and legal representatives.
9. Governing Law: This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas.
10. Severability: The invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provision.
11. Amendment or Termination: This Agreement may be
amended only by mutual consent of the parties hereto evidenced in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement
(in multiple copies).
PENNZOIL COMPANY
/s/ JAMES W. SHADDIX By /s/ JAMES L. PATE
- ------------------------------------ ----------------------------------
James W. Shaddix James L. Pate
Chairman of the Board
Chief Executive Officer
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<PAGE> 1
EXHIBIT 16
AGREEMENT
THIS AGREEMENT made as of the 30th day of June, 1997, by and
between Pennzoil Company, a Delaware corporation (hereinafter called the
"Company"), and David P. Alderson (hereinafter called "Employee");
W I T N E S S E T H:
WHEREAS, the Company desires to enter into an arrangement with
the Employee to provide certain medical and retirement benefits as additional
compensation for past and future services rendered and to be rendered by
Employee to the Company; and
WHEREAS, Employee desires to enter into an arrangement with the
Company to provide certain medical and retirement benefits as additional
compensation for past and future services rendered and to be rendered by
Employee to the Company;
NOW, THEREFORE, in consideration of the premises and the
agreements hereinafter contained, the parties hereto agree as follows:
1. Change in Control: For purposes of this Agreement, a
Change in Control of the Company shall conclusively be deemed to have occurred
(i) if the Board of Directors of the Company determines by resolution that a
change in control which has the reasonable likelihood of depriving key
employees of benefits they otherwise would have earned, by depriving key
employees of the opportunity to fulfill applicable service and age
prerequisites to benefits or otherwise has occurred, or (ii) upon the
occurrence of an event specified for such purposes as a change in control which
has the reasonable likelihood of depriving key employees of benefits they
otherwise would have earned, by depriving key employees of the opportunity to
fulfill applicable service and age
<PAGE> 2
prerequisites to benefits or otherwise, by resolution of the Board of Directors
adopted not more than 60 days prior to the occurrence of such event. The
Effective Date of a Change in Control shall be (x) in the case of such a Change
in Control described as specified in clause (i) of the preceding sentence, the
date (not more than 30 days prior to the date on which the Board of Directors
makes the determination) the Board of Directors determines as the date on which
the Change in Control has occurred, or (y) in the case of such a Change in
Control determined as specified in clause (ii) of the preceding sentence, the
date of occurrence of the event specified by the Board of Directors as
constituting such Change in Control.
2. Disability: For purposes of this Agreement, "Disability"
shall have the meaning set forth in the Company's Supplemental Long Term
Disability Plan.
3. Termination of Employment:
(a) By the Company for Due Cause. If Employee is terminated
by the Company for Due Cause, he shall be entitled to no benefits under
this Agreement. The term "Due Cause" as used herein, shall mean (x)
Employee has committed a willful serious act, such as embezzlement,
against the Company intending to enrich himself at the expense of the
Company or has been convicted of a felony involving moral turpitude or
(y) Employee, in carrying out his duties hereunder, has been guilty of
(i) willful, gross neglect or (ii) willful, gross misconduct resulting
in either case in material harm to the Company; provided, in any event,
Employee shall be given written notice by a majority of the Board of
Directors of the Company that it intends to terminate the Employee's
employment for Due Cause under this Paragraph 3(a), which notice shall
specify the act, or acts, on the basis of which the majority
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<PAGE> 3
of the Board of Directors of the Company intends so to terminate
Employee's employment, and Employee shall then be given the opportunity,
within fifteen days of his receipt of such notice, to have a meeting
with the Board of Directors of the Company to discuss such act, or acts.
If the basis of such written notice is an act, or acts, other than an
act, or acts, described in clause (i), above, the employee shall be
given seven days after such meeting within which to cease, or correct,
the performance (or nonperformance) giving rise to such written notice,
and upon failure of Employee within such seven days to cease, or
correct, such performance (or nonperformance), the Employee's employment
by the Company shall automatically be terminated hereunder for Due
Cause.
(b) By Death or Disability. In the event of the Death of
Employee or Disability while employed by the Company, Employee shall be
entitled to receive supplemental retirement benefits provided in
Paragraph 4 and the additional medical benefits provided in Paragraph 5.
(c) Voluntarily By Employee. If Employee terminates his
employment voluntarily and without Good Reason and prior to the
Effective Date of a Change in Control, he shall be entitled to no
benefits under this Agreement.
(d) By Company Other Than For Due Cause. If Employee's
employment with the Company is terminated by the Company for any reason
other than as provided in Paragraph 3(a) hereof, the Company shall
provide to Employee supplemental retirement benefits provided in
Paragraph 4 and the additional medical benefits provided in Paragraph 5.
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<PAGE> 4
(e) By Employee For Good Reason. If the Company: (i) demotes
the Employee to a lesser position than he occupies as of the date of the
Agreement; (ii) causes a material change in the nature or scope of the
authorities, powers, functions, duties, or responsibilities attached to
the Employee's position as provided in clause (i); (iii) decreases the
Employee's salary below the level provided as of the date of this
Agreement or if greater the level provided at any subsequent date; or
(iv) materially reduces the Employee's benefits under any employee
benefit plan, program, or arrangement of the Company (other than a
change that affects all employees similarly situated) from the level in
effect upon the date of this Agreement, then, such action (or inaction)
by the Company, unless consented to in writing by Employee, shall
constitute a termination of Employee's employment by the Company
pursuant to Paragraph 3(d).
(f) Following Change In Control of the Company. If Employee's
employment is terminated following the Effective date of a Change in
Control of the Company for reasons other than Death, Disability or Due
Cause, such termination shall be treated as a termination of employment
by Company pursuant to Paragraph 3(d).
(g) Effect on Agreement. Termination of employment shall not
constitute termination of this Agreement.
4. Retirement Benefits: The employee shall be entitled to
supplemental retirement benefits, payable at such time or times as benefits are
received under the Company's tax qualified defined benefit plan, determined as
the excess of (i) the benefit to which he would have been entitled if his
active service with the Company under the Company's tax qualified defined
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<PAGE> 5
benefit plan and excess benefit arrangement between Employee and the Company,
as in effect on the date hereof but taking into account any benefit
improvements hereafter, had continued until age 55, assuming that (x) his
salary in effect on the date immediately prior to a Change in Control, or if
higher, that in effect at any later date, plus a 5% increase for each 12 months
following termination of employment, had continued uninterrupted until age 55
and (y) that he received in each calendar year, including the calendar year of
termination, a bonus equal to the greater of (A) his highest annual incentive
bonus earned during the 12 months preceding termination of employment or (B)
the highest annual incentive bonus earned by the Employee in the three-year
period preceding a Change in Control over (ii) the benefit he actually receives
from such tax qualified defined benefit plan and the excess benefit arrangement
between Employee and the Company.
5. Medical Benefits: The Company shall provide to Employee
additional medical benefits and medical benefits coverages following
termination of employment on terms and conditions and at benefit levels
(including any required employer contributions) no less favorable than those
applicable to Employee as of the date hereof for the period prior to his
attainment of age 55 and thereafter no less favorable than those provided as of
the date hereof to retired executives of the Company with more than 20 years of
service (disregarding any benefits provided a retired Company employee under a
Deferred Compensation Agreement). This medical benefit coverage shall include
spouse and dependent coverage both during and after the life of Employee.
6. No Offsets: The benefits provided under Paragraphs 4 and
5 hereunder shall not be subject to an offset or reduction by reason of any
benefits or payments made by or under any other Company plan, program, practice
or arrangement or a plan, program, practice or arrangement
-5-
<PAGE> 6
maintained by any other employer or otherwise, except for actual medical
benefits, denominated as such, provided by the Company.
7. Prohibition Against Assignment: The right of Employee to
benefits under this Agreement shall not be assigned, transferred, pledged or
encumbered in any way and any attempt at assignment, transfer, pledge,
encumbrance or other disposition of such benefits shall be null and void and
without effect.
8. Binding Effect: This Agreement shall be binding upon and
enure to the benefit of the Company, its successors and assigns, and Employee,
his heirs, executors, administrators and legal representatives.
9. Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
10. Severability: The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
11. Amendment or Termination: This Agreement may be amended
only by mutual consent of the parties hereto evidenced in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement (in
multiple copies).
PENNZOIL COMPANY
/s/ DAVID P. ALDERSON By /s/ JAMES W. SHADDIX
- ------------------------------------ -----------------------------------
David P. Alderson James W. Shaddix
General Counsel
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<PAGE> 1
EXHIBIT 17
AGREEMENT
THIS AGREEMENT made as of the 30th day of June, 1997, by and
between Pennzoil Company, a Delaware corporation (hereinafter called the
"Company"), and Linda Condit (hereinafter called "Employee");
W I T N E S S E T H:
WHEREAS, the Company desires to enter into an arrangement with
the Employee to provide certain retirement benefits as additional compensation
for past and future services rendered and to be rendered by Employee to the
Company; and
WHEREAS, Employee desires to enter into an arrangement with the
Company to provide certain retirement benefits as additional compensation for
past and future services rendered and to be rendered by Employee to the
Company;
NOW, THEREFORE, in consideration of the premises and the
agreements hereinafter contained, the parties hereto agree as follows:
1. Change in Control: For purposes of this Agreement, a
Change in Control of the Company shall conclusively be deemed to have occurred
(i) if the Board of Directors of the Company determines by resolution that a
change in control which has the reasonable likelihood of depriving key
employees of benefits they otherwise would have earned, by depriving key
employees of the opportunity to fulfill applicable service and age
prerequisites to benefits or otherwise has occurred, or (ii) upon the
occurrence of an event specified for such purposes as a change in control which
has the reasonable likelihood of depriving key employees of benefits they
otherwise would have earned, by depriving key employees of the opportunity to
fulfill applicable service and age
<PAGE> 2
prerequisites to benefits or otherwise, by resolution of the Board of Directors
adopted not more than 60 days prior to the occurrence of such event. The
Effective Date of a Change in Control shall be (x) in the case of such a Change
in Control described as specified in clause (i) of the preceding sentence, the
date (not more than 30 days prior to the date on which the Board of Directors
makes the determination) the Board of Directors determines as the date on which
the Change in Control has occurred, or (y) in the case of such a Change in
Control determined as specified in clause (ii) of the preceding sentence, the
date of occurrence of the event specified by the Board of Directors as
constituting such Change in Control.
2. Disability: For purposes of this Agreement, "Disability"
shall have the meaning set forth in the Company's Supplemental Long Term
Disability Plan.
3. Termination of Employment:
(a) By the Company for Due Cause. If Employee is terminated
by the Company for Due Cause, she shall be entitled to no benefits under
this Agreement. The term "Due Cause" as used herein, shall mean (x)
Employee has committed a willful serious act, such as embezzlement,
against the Company intending to enrich herself at the expense of the
Company or has been convicted of a felony involving moral turpitude or
(y) Employee, in carrying out her duties hereunder, has been guilty of
(i) willful, gross neglect or (ii) willful, gross misconduct resulting
in either case in material harm to the Company; provided, in any event,
Employee shall be given written notice by a majority of the Board of
Directors of the Company that it intends to terminate the Employee's
employment for Due Cause under this Paragraph 3(a), which notice shall
specify the act, or acts, on the basis of which the majority
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<PAGE> 3
of the Board of Directors of the Company intends so to terminate
Employee's employment, and Employee shall then be given the opportunity,
within fifteen days of her receipt of such notice, to have a meeting
with the Board of Directors of the Company to discuss such act, or acts.
If the basis of such written notice is an act, or acts, other than an
act, or acts, described in clause (i), above, the employee shall be
given seven days after such meeting within which to cease, or correct,
the performance (or nonperformance) giving rise to such written notice,
and upon failure of Employee within such seven days to cease, or
correct, such performance (or nonperformance), the Employee's employment
by the Company shall automatically be terminated hereunder for Due
Cause.
(b) By Death or Disability. In the event of the Death of
Employee or Disability while employed by the Company, Employee shall be
entitled to receive supplemental retirement benefits provided in
Paragraph 4.
(c) Voluntarily By Employee. If Employee terminates her
employment voluntarily and without Good Reason and prior to the
Effective Date of a Change in Control, she shall be entitled to no
benefits under this Agreement.
(d) By Company Other Than For Due Cause. If Employee's
employment with the Company is terminated by the Company for any reason
other than as provided in Paragraph 3(a) hereof, the Company shall
provide to Employee supplemental retirement benefits provided in
Paragraph 4.
(e) By Employee For Good Reason. If the Company: (i) demotes
the Employee to a lesser position than she occupies as of the date of
the Agreement; (ii) causes a material
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<PAGE> 4
change in the nature or scope of the authorities, powers, functions,
duties, or responsibilities attached to the Employee's position as
provided in clause (i); (iii) decreases the Employee's salary below the
level provided as of the date of this Agreement or if greater the level
provided at any subsequent date; or (iv) materially reduces the
Employee's benefits under any employee benefit plan, program, or
arrangement of the Company (other than a change that affects all
employees similarly situated) from the level in effect upon the date of
this Agreement, then, such action (or inaction) by the Company, unless
consented to in writing by Employee, shall constitute a termination of
Employee's employment by the Company pursuant to Paragraph 3(d).
(f) Following Change In Control of the Company. If Employee's
employment is terminated following a Change in Control of the Company
for reasons other than Death, Disability or Due Cause, such termination
shall be treated as a termination of employment by Company pursuant to
Paragraph 3(d).
(g) Effect on Agreement. Termination of employment shall not
constitute termination of this Agreement.
4. Retirement Benefits: The employee shall be entitled to
supplemental retirement benefits, payable at such time or times as benefits are
received under the Company's tax qualified defined benefit plan, determined as
the excess of (i) the benefit to which she would have been entitled if her
active service with the Company under the Company's tax qualified defined
benefit plan and excess benefit arrangement between Employee and the Company,
as in effect on the date hereof but taking into account any benefit
improvements hereafter, had continued until age
-4-
<PAGE> 5
55, assuming that (x) her salary in effect on the date immediately prior to a
Change in Control, or if higher, that in effect at any later date, plus a 5%
increase for each 12 months following termination of employment, had continued
uninterrupted until age 55 and (y) that she received in each calendar year,
including the calendar year of termination, a bonus equal to the greater of (A)
her highest annual incentive bonus earned during the 12 months preceding
termination of employment or (B) the highest annual incentive bonus earned by
the Employee in the three-year period preceding a Change in Control over (ii)
the benefit she actually receives from such tax qualified defined benefit plan
and the excess benefit arrangement between Employee and the Company.
5. No Offsets: The benefits provided under Paragraph 4
hereunder shall not be subject to an offset or reduction by reason of any
benefits or payments made by or under any other Company plan, program, practice
or arrangement or a plan, program, practice or arrangement maintained by any
other employer or otherwise.
6. Prohibition Against Assignment: The right of Employee to
benefits under this Agreement shall not be assigned, transferred, pledged or
encumbered in any way and any attempt at assignment, transfer, pledge,
encumbrance or other disposition of such benefits shall be null and void and
without effect.
7. Binding Effect: This Agreement shall be binding upon and
enure to the benefit of the Company, its successors and assigns, and Employee,
her heirs, executors, administrators and legal representatives.
8. Governing Law: This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
-5-
<PAGE> 6
9. Severability: The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
10. Amendment or Termination: This Agreement may be amended
only by mutual consent of the parties hereto evidenced in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement (in
multiple copies).
PENNZOIL COMPANY
/s/ Linda F. Condit By /s/ James W. Shaddix
- ------------------------------------ ----------------------------------
Linda F. Condit James W. Shaddix
General Counsel
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<PAGE> 1
EXHIBIT 18
PENNZOIL COMPANY
BY-LAWS
(AS AMENDED)
ARTICLE I.
MEETINGS OF SHAREHOLDERS
SECTION 1. The annual meeting of the shareholders of this
Corporation shall be held on the fourth Thursday of April in each year, at ten
o'clock A.M., and on any subsequent day or days to which such meeting may be
adjourned, for the purposes of electing directors and of transacting such other
business as may properly come before the meeting. The Board of Directors shall
designate the place for the holding of such meeting, and at least ten days'
notice shall be given to the shareholders of the place so fixed. If the day
designated herein is a legal holiday, the annual meeting shall be held on the
first succeeding day which is not a legal holiday. If for any reason the
annual meeting shall not be held on the day designated herein, the Board of
Directors shall cause the annual meeting to be held as soon thereafter as may
be convenient.
SECTION 2. Special meetings of the shareholders may be called at
any time by the Board of Directors, the Chairman of the Board, the Executive
Committee, the Chairman of the Executive Committee or the President. Upon
written request of any person or persons who have duly called a special
meeting, it shall be the duty of the Secretary of the Corporation to fix the
date of the meeting to be held not less than ten nor more than sixty days after
the receipt of the request and to give due notice thereof. If the Secretary
shall neglect or refuse to fix the date of the meeting and give notice thereof,
the person or persons calling the meeting may do so.
SECTION 3. Every special meeting of the shareholders shall be held
at such place within or without the State of Delaware as the Board of Directors
may designate, or, in the absence of such designation, at the registered office
of the Corporation in the State of Delaware.
SECTION 4. Written notice of every meeting of the shareholders
shall be given by the Secretary of the Corporation to each shareholder of
record entitled to vote at the meeting, by placing such notice in the mail at
least ten days, but not more than sixty days, prior to the day named for the
meeting addressed to each shareholder at his address appearing on the books of
the Corporation or supplied by him to the Corporation for the purpose of
notice.
SECTION 5. The Board of Directors may fix a date, not less than
ten nor more than sixty days preceding the date of any meeting of shareholders,
as a record date for the determination of shareholders entitled to notice of,
or to vote at, any such meeting. The Board of Directors shall not close the
books of the Corporation against transfers of shares during the whole or any
part of such period.
SECTION 6. The notice of every meeting of the shareholders may be
accompanied by a form of proxy approved by the Board of Directors in favor of
such person or persons as the Board of Directors may select.
SECTION 7. A majority of the outstanding shares of stock of the
Corporation entitled to vote, present in person or represented by proxy, shall
constitute a quorum at any meeting of the shareholders, and the shareholders
present at any duly convened meeting may continue to do business until
adjournment notwithstanding any withdrawal from the meeting of holders of
shares counted in determining the existence of a quorum. Directors shall be
elected by a plurality of the votes cast in the election. For all matters as
to which no other voting requirement is specified by the General Corporation
Law of the State of Delaware (the "General Corporation Law"), the Restated
Certificate of Incorporation of the Corporation, as amended (the "Certificate
of Incorporation") or these By-laws, the affirmative vote required for
shareholder action shall be that of a majority of the shares present in person
or represented by proxy at the meeting (as counted for purposes of determining
the existence of a quorum at the meeting). In the case of a matter submitted
for a vote of the shareholders as to which a shareholder approval requirement
is applicable under the
<PAGE> 2
shareholder approval policy of the New York Stock Exchange, the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934 or any provision of the
Internal Revenue Code, in each case for which no higher voting requirement is
specified by the General Corporation Law, the Certificate of Incorporation or
these By-laws, the vote required for approval shall be the requisite vote
specified in such shareholder approval policy, Rule 16b-3 or Internal Revenue
Code provision, as the case may be (or the highest such requirement if more
than one is applicable). For the approval of the appointment of independent
public accountants (if submitted for a vote of the shareholders), the vote
required for approval shall be a majority of the votes cast on the matter.
SECTION 8. Any meeting of the shareholders may be adjourned from
time to time, without notice other than by announcement at the meeting at which
such adjournment is taken, and at any such adjourned meeting at which a quorum
shall be present any action may be taken that could have been taken at the
meeting originally called; provided that if the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting.
SECTION 9. Subject to such rights of the holders of Preferred
Stock or Preference Common Stock or any series thereof as shall be prescribed
in the Certificate of Incorporation or in the resolutions of the Board of
Directors providing for the issuance of any such series, only persons who are
nominated in accordance with the procedures set forth in this Section 9 shall
be eligible for election as, and to serve as, directors. Nominations of
persons for election to the Board of Directors may be made at a meeting of
shareholders at which directors are to be elected (a) by or at the direction of
the Board of Directors (or any duly authorized committee thereof) or (b) by any
shareholder of the Corporation (i) who is a shareholder of record on the date
of the giving of the notice provided for in this Section 9 and on the record
date for the determination of shareholders entitled to vote at such annual
meeting and (ii) who complies with the requirements of this Section 9. In
addition to any other applicable requirements, nominations, other than those
made by or at the direction of the Board of Directors (or any duly authorized
committee thereof) shall be preceded by timely notice thereof in proper written
form to the Secretary of the Corporation.
To be timely, a shareholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Corporation not
less than 90 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided, however, that
in the event that the annual meeting is called for a date that is not within 30
days before or after such anniversary date, notice by the shareholder, in order
to be timely, must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting was mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs. In no event shall the public disclosure of an
adjournment of an annual meeting commence a new time period for the giving of a
shareholder's notice as described above.
To be in proper written form, a shareholder's notice to the
Secretary must set forth (a) as to each person whom the shareholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment
of such person, (iii) the class or series and number of shares of capital stock
of the Corporation which are owned beneficially or of record by such person and
(iv) any other information relating to such person that would be required to
be disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder; and (b) as to the
shareholder giving the notice (i) the name and record address of such
shareholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such shareholder,
(iii) a description of all arrangements or understandings between such
shareholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be made by
such shareholder, (iv) a representation that such shareholder intends to appear
in person or by proxy at the meeting to nominate the persons named in its
notice and (v) any other information relating to such shareholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of the directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
<PAGE> 3
promulgated thereunder. Such notice must be accompanied by a written consent
of each proposed nominee to be named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 9. If the Chairman of the meeting determines that a nomination
was not made in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the nomination was defective and such defective
nomination shall be disregarded.
Notwithstanding anything in the second paragraph of this
Section 9 to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public disclosure by the Corporation naming all of the nominees for director
or specifying the size of the increased Board of Directors at least 100 days
prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this by-law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public disclosure is first made by the
Corporation.
For purposes of this Section 9 and Section 10 of these by-laws,
"public disclosure" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press, PR Newswire, Bloomberg or comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Exchange Act.
SECTION 10. No business may be transacted at an annual meeting of
shareholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board
of Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any shareholder of record on the date of
the giving of the notice provided for in this Section 10 and on the record date
for the determination of shareholders entitled to vote at such annual meeting
and (ii) who complies with the notice procedures set forth in this Section 10.
In addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, such shareholder must have
given timely notice thereof in proper written form to the Secretary of the
Corporation.
To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 90 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided, however, that
in the event that the annual meeting is called for a date that is not within 30
days before or after such anniversary date, notice by the shareholder, in order
to be timely, must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting was mailed or public disclosure (as defined in Section 9) of the date
of the annual meeting was made, whichever first occurs. In no event shall the
public disclosure of an adjournment of an annual meeting commence a new time
period for the giving of a shareholder's notice as described above.
To be in proper written form, a shareholder's notice to the
Secretary must set forth as to each matter such shareholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such shareholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such shareholder, (iv)
a description of all arrangements or understandings between such shareholder
and any other person or persons (including their names) in connection with the
proposal of such business by such shareholder and any material interest of such
shareholder in such business and (v) a representation that such shareholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
<PAGE> 4
No business shall be conducted at the annual meeting of
shareholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 10; provided, however, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 10 shall be deemed to preclude
discussion by any shareholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
At a special meeting of shareholders, only such business shall
be conducted as shall have been set forth in the notice relating to the
meeting. At any meeting, matters incident to the conduct of this meeting may
be voted upon or otherwise disposed of as the presiding officer of the meeting
shall determine to be appropriate.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 1. The business, affairs and property of the Corporation
shall be managed by a board of eleven directors divided into three classes as
provided in the Certificate of Incorporation of the Corporation. Each director
shall hold office for the full term to which he shall have been elected and
until his successor is duly elected and shall qualify, or until his earlier
death, resignation or removal. A director need not be a resident of the State
of Delaware or a shareholder of the Corporation.
SECTION 2. Except as provided in the Certificate of Incorporation
of the Corporation, newly created directorships resulting from any increase in
the number of directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
SECTION 3. No director of the Corporation shall be removed from
his office as a director by vote or other action of shareholders or otherwise
except for cause.
SECTION 4. Regular meetings of the Board of Directors shall be
held at such place or places within or without the State of Delaware, at such
hour and on such day as may be fixed by resolution of the Board of Directors,
without further notice of such meetings. The time or place of holding regular
meetings of the Board of Directors may be changed by the Chairman of the Board
or the President by giving written notice thereof as provided in Section 6 of
this Article II.
SECTION 5. Special meetings of the Board of Directors shall be
held, whenever called by the Chairman of the Board, the Chairman of the
Executive Committee, the President, by four directors or by resolution adopted
by the Board of Directors, at such place or places within or without the State
of Delaware as may be stated in the notice of the meeting.
SECTION 6. Written notice of the time and place of, and general
nature of the business to be transacted at, all special meetings of the Board
of Directors, and written notice of any change in the time or place of holding
the regular meetings of the Board of Directors, shall be given to each director
personally or by mail or by telegraph, telecopier or similar communication at
least one day before the day of the meeting; provided, however, that notice of
any meeting need not be given to any director if waived by him in writing, or
if he shall be present at such meeting.
<PAGE> 5
SECTION 7. A majority of the directors in office shall constitute
a quorum of the Board of Directors for the transaction of business; but a
lesser number may adjourn from day to day until a quorum is present. Except as
otherwise provided by law or in these By-laws, all questions shall be decided
by the vote of a majority of the directors present.
SECTION 8. Any action which may be taken at a meeting of the
directors or members of the Executive Committee may be taken without a meeting
if consent in writing setting forth the action so taken shall be signed by all
of the directors or members of the Executive Committee as the case may be and
shall be filed with the Secretary of the Corporation.
SECTION 9. The Board of Directors may designate one or more of its
number to be Vice Chairman of the Board, Chairman of the Executive Committee,
and Chairman of any other committees of the Board and to hold such other
positions on the Board as the Board of Directors may designate.
ARTICLE III.
EXECUTIVE COMMITTEE
The Board of Directors may, by resolution adopted by a majority of the
whole Board, designate two or more of its number to constitute an Executive
Committee which committee, during intervals between meetings of the Board,
shall have and exercise the authority of the Board of Directors in the
management of the business of the Corporation to the extent permitted by law.
ARTICLE IV.
OFFICERS
SECTION 1. The officers of the Corporation shall consist of a
Chairman of the Board, President, Secretary, Treasurer and such Executive,
Group, Senior or other Vice Presidents, and other officers as may be elected or
appointed by the Board of Directors. Any number of offices may be held by the
same person. All officers shall hold office until their successors are elected
or appointed, except that the Board of Directors may remove any officer at any
time at its discretion.
SECTION 2. The officers of the Corporation shall have such powers
and duties as generally pertain to their offices, except as modified herein or
by the Board of Directors, as well as such powers and duties as from time to
time may be conferred by the Board of Directors. The Chairman of the Board
shall have such duties as may be assigned to him by the Board of Directors and
shall preside at meetings of the Board and at meetings of the stockholders.
The President shall be the chief executive officer of the Corporation and shall
have general supervision over the business, affairs, and property of the
Corporation.
ARTICLE V.
SEAL
The seal of the Corporation shall be in such form as the Board of
Directors shall prescribe.
ARTICLE VI.
CERTIFICATES OF STOCK
The shares of stock of the Corporation shall be represented by
certificates of stock, signed by the President or such Vice President or other
officer designated by the Board of Directors, countersigned by the Treasurer or
the Secretary; and such signature of the President, Vice President, or other
officer, such countersignature of the Treasurer
<PAGE> 6
or Secretary, and such seal, or any of them, may be executed in facsimile,
engraved or printed. In case any officer who has signed or whose facsimile
signature has been placed upon any share certificate shall have ceased to be
such officer because of death, resignation or otherwise before the certificate
is issued, it may be issued by the Corporation with the same effect as if the
officer had not ceased to be such at the date of its issue. Said certificates
of stock shall be in such form as the Board of Directors may from time to time
prescribe.
ARTICLE VII.
INDEMNIFICATION
SECTION 1. The Corporation shall indemnify, and advance Expenses
(as this and all other capitalized words are defined in Section 12) to,
Indemnitee to the fullest extent permitted by applicable law in effect on July
24, 1986, and to such greater extent as applicable law may thereafter permit.
The rights of Indemnitee provided under the preceding sentence shall include,
but not be limited to, the right to be indemnified to the fullest extent
permitted by Section 145(b) of the D.G.C.L. in Proceedings by or in the right
of the Corporation and to the fullest extent permitted by Section 145(a) of the
D.G.C.L. in all other Proceedings.
SECTION 2. If Indemnitee is, by reason of his Corporate Status, a
witness in or a party to and is successful, on the merits or otherwise, in any
Proceeding, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on
the merits or otherwise, as to any Matter in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf relating to each Matter. The termination of
any Matter in such a Proceeding by dismissal, with or without prejudice, shall
be deemed to be a successful result as to such Matter.
SECTION 3. Indemnitee shall be advanced Expenses within 10 days
after requesting them to the fullest extent permitted by Section 145(e) of the
D.G.C.L.
SECTION 4. To obtain indemnification Indemnitee shall submit to
the Corporation a written request with such information as is reasonably
available to Indemnitee. The Secretary of the Corporation shall promptly
advise the Board of Directors of such request.
SECTION 5. If there has been no Change of Control at the time the
request for indemnification is sent, Indemnitee's entitlement to
indemnification shall be determined in accordance with Section 145(d) of the
D.G.C.L. If entitlement to indemnification is to be determined by Independent
Counsel, the Corporation shall furnish notice to Indemnitee within 10 days
after receipt of the request for indemnification, specifying the identity and
address of Independent Counsel. The Indemnitee may, within 14 days after
receipt of such written notice of selection, deliver to the Corporation a
written objection to such selection. Such objection may be asserted only on
the ground that the Independent Counsel so selected does not meet the
requirements of Independent Counsel and the objection shall set forth with
particularity the factual basis of such assertion. If there is an objection to
the selection of Independent Counsel, either the Corporation or Indemnitee may
petition the Court of Chancery of the State of Delaware or any other court of
competent jurisdiction for a determination that the objection is without a
reasonable basis and/or for the appointment of Independent Counsel selected by
the Court.
SECTION 6. If there has been a Change of Control at the time the
request for indemnification is sent, Indemnitee's entitlement to
indemnification shall be determined in a written opinion by Independent Counsel
selected by Indemnitee. Indemnitee shall give the Corporation written notice
advising of the identity and address of the Independent Counsel so selected.
The Corporation may, within 7 days after receipt of such written notice of
selection, deliver to the Indemnitee a written objection to such selection.
Indemnitee may, within 5 days after the receipt of such objection from the
Corporation, submit the name of another Independent Counsel and the Corporation
may, within 7 days after receipt of such written notice of selection, deliver
to the Indemnitee a written objection to such selection. Any objection is
subject to the limitations in Section 5. Indemnitee may petition the Court of
Chancery of the State of
<PAGE> 7
Delaware or any other Court of competent jurisdiction for a determination that
the Corporation's objection to the first and/or second selection of Independent
Counsel is without a reasonable basis and/or for the appointment as Independent
Counsel of a person selected by the Court.
SECTION 7. If a Change of Control shall have occurred before the
request for indemnification is sent by Indemnitee, Indemnitee shall be presumed
(except as otherwise expressly provided in this Article) to be entitled to
indemnification upon submission of a request for indemnification in accordance
with Section 4 of this Article, and thereafter the Corporation shall have the
burden of proof to overcome the presumption in reaching a determination
contrary to the presumption. The presumption shall be used by Independent
Counsel as a basis for a determination of entitlement to indemnification unless
the Corporation provides information sufficient to overcome such presumption by
clear and convincing evidence or the investigation, review and analysis of
Independent Counsel convinces him by clear and convincing evidence that the
presumption should not apply.
Except in the event that the determination of entitlement to
indemnification is to be made by Independent Counsel, if the person or persons
empowered under Section 5 or 6 of this Article to determine entitlement to
indemnification shall not have made and furnished to Indemnitee in writing a
determination within 60 days after receipt by the Corporation of the request
therefor, the requisite determination of entitlement to indemnification shall
be deemed to have been made and Indemnitee shall be entitled to such
indemnification unless Indemnitee knowingly misrepresented a material fact in
connection with the request for indemnification or such indemnification is
prohibited by law. The termination of any Proceeding or of any Matter therein,
by judgment, order, settlement or conviction, or upon a plea of nolo contendere
or its equivalent, shall not (except as otherwise expressly provided in this
Article) of itself adversely affect the right of Indemnitee to indemnification
or create a presumption that Indemnitee did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, or with respect to any criminal Proceeding, that
Indemnitee had reasonable cause to believe that his conduct was unlawful.
SECTION 8. The Corporation shall pay any and all reasonable fees
and expenses of Independent Counsel incurred acting pursuant to this Article
and in any proceeding to which it is a party or witness in respect of its
investigation and written report and shall pay all reasonable fees and expenses
incident to the procedures in which such Independent Counsel was selected or
appointed. No Independent Counsel may serve if a timely objection has been
made to his selection until a Court has determined that such objection is
without a reasonable basis.
SECTION 9. In the event that (i) a determination is made pursuant
to Section 5 or 6 that Indemnitee is not entitled to indemnification under this
Article, (ii) advancement of Expenses is not timely made pursuant to Section 3
of this Article, (iii) Independent Counsel has not made and delivered a written
opinion determining the request for indemnification (a) within 90 days after
being appointed by the Court, or (b) within 90 days after objections to his
selection have been overruled by the Court, or (c) within 90 days after the
time for the Corporation or Indemnitee to object to his selection, or (iv)
payment of indemnification is not made within 5 days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 5, 6 or 7 of this Article, Indemnitee shall be entitled to
an adjudication in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. In the event that a determination
shall have been made that Indemnitee is not entitled to indemnification, any
judicial proceeding or arbitration commenced pursuant to this Section shall be
conducted in all respects as a de novo trial on the merits and Indemnitee shall
not be prejudiced by reason of that adverse determination. If a Change of
Control shall have occurred, in any judicial proceeding commenced pursuant to
this Section, the Corporation shall have the burden of proving that Indemnitee
is not entitled to indemnification or advancement of Expenses, as the case may
be. If a determination shall have been made or deemed to have been made that
Indemnitee is entitled to indemnification, the Corporation shall be bound by
such determination in any judicial proceeding commenced pursuant to this
Section 9, or otherwise, unless Indemnitee knowingly misrepresented a material
fact in connection with the request for indemnification, or such
indemnification is prohibited by law.
<PAGE> 8
The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 9 that the procedures and
presumptions of this Article are not valid, binding and enforceable and shall
stipulate in any such court that the Corporation is bound by all provisions of
this Article. In the event that Indemnitee, pursuant to this Section 9, seeks
a judicial adjudication to enforce his rights under, or to recover damages for
breach of, this Article, Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
Expenses actually and reasonably incurred by him in such judicial adjudication,
but only if he prevails therein. If it shall be determined in such judicial
adjudication that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall
be appropriately prorated.
SECTION 10. The rights of indemnification and to receive
advancement of Expenses as provided by this Article shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation, the By-laws, any
agreement, a vote of stockholders or a resolution of directors, or otherwise.
No amendment, alteration or repeal of this Article or any provision thereof
shall be effective as to any Indemnitee for acts, events and circumstances that
occurred, in whole or in part, before such amendment, alteration or repeal.
The provisions of this Article shall continue as to an Indemnitee whose
Corporate Status has ceased and shall inure to the benefit of his heirs,
executors and administrators.
SECTION 11. If any provision or provisions of this Article shall be
held to be invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby; and, to the fullest extent possible,
the provisions of this Article shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
SECTION 12. For purposes of this Article:
"Change of Control" means a change in control of the
Corporation after July 24, 1986 in any one of the following circumstances (1)
there shall have occurred an event required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Corporation is then subject to such
reporting requirement; (2) any "person" (as such term is used in Section 13(d)
and 14(d) of the Act) shall have become the "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the
Corporation representing 40% or more of the combined voting power of the
Corporation's then outstanding voting securities without prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (3) the Corporation is
a party to a merger, consolidation, sale of assets or other reorganization, or
a proxy contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; (4) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board of Directors.
"Corporate Status" describes the status of a person who (a) is
or was a director, officer or employee of the Corporation, or is or was serving
at the request of the Corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, in each
case which is controlled by the Corporation, or (b) is or was serving, at the
written request of the Corporation or pursuant to an agreement in writing with
the Corporation which request or agreement provides for indemnification under
these By-laws, as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise not controlled by the
Corporation, provided that if such written request or agreement referred to in
this clause (b) provides for a lesser degree of indemnification by the
Corporation than that provided pursuant to this Article VII, the provisions
contained in or made pursuant to such written request or agreement shall
govern. References above to "other enterprises" shall include employee benefit
plans and references to "serving at the request of the Corporation" shall
include any service as a
<PAGE> 9
director, officer or employee which imposes duties on, or involves services by,
such director, officer or employee with respect to an employee benefit plan or
its participants or beneficiaries.
"D.G.C.L." means the Delaware General Corporation Law.
"Disinterested Director" means a director of the Corporation
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by indemnitee.
"Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
"Indemnitee" includes any person who is, or is threatened to be
made, a witness in or a party to any Proceeding as described in Section 1 or 2
of this Article by reason of his Corporate Status.
"Independent Counsel" means a law firm, or member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the five years previous to his selection or appointment has been,
retained to represent: (i) the Corporation or Indemnitee in any matter material
to either such party, or (ii) any other party to the Proceeding giving rise to
a claim for indemnification hereunder.
"Matter" is a claim, a material issue, or a substantial request
for relief.
"Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any
other proceeding whether civil, criminal, administrative or investigative,
except one initiated by an Indemnitee pursuant to Section 9 of this Article to
enforce his rights under this Article.
SECTION 13. Any communication required or permitted to the
Corporation shall be addressed to the Secretary of the Corporation and any such
communication to Indemnitee shall be addressed to his home address unless he
specifies otherwise and shall be personally delivered or delivered by overnight
mail delivery.
ARTICLE VIII.
AMENDMENTS
These By-laws may be altered, amended, added to or repealed by the
shareholders at any annual or special meeting, by the vote of shareholders
entitled to cast at least a majority of the votes which all shareholders are
entitled to cast (i.e., by the vote of a majority of the outstanding shares
entitled to vote), and, except as may be otherwise required by law, the power
to alter, amend, add to or repeal these By-laws is also vested in the Board of
Directors (subject always to the power of the shareholders to change such
action); provided, however, that notice of the general nature of any such
action proposed to be taken shall be included in the notice of the meeting of
shareholders or of the Board of Directors at which such action is taken.
<PAGE> 1
EXHIBIT 19
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
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UNION PACIFIC RESOURCES GROUP
INC. and RESOURCES NEWCO, INC., : C. A. No. 15755NC
Plaintiffs, :
-against- :
PENNZOIL COMPANY, HOWARD H. :
BAKER, JR., W. J. BOVAIRD,
W. L. LYONS BROWN, JR., ERNEST H. :
COCKRELL, HARRY H. CULLEN,
ALFONSO FANJUL, BERDON LAWRENCE, :
JAMES L. PATE, BRENT SCOWCROFT,
GERALD B. SMITH and CYRIL WAGNER, :
JR., :
Defendants.
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COMPLAINT
Plaintiffs Union Pacific Resources Group Inc. ("UPR") and
Resources Newco, Inc. ("Newco"), as and for their complaint herein, by and
through their undersigned attorneys, allege, upon knowledge as to themselves
and their own acts and upon information and belief as to all other matters, as
follows:
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<PAGE> 2
Summary of this Action
1. Plaintiff Newco, a wholly owned subsidiary of
plaintiff UPR, has announced today that it is commencing a cash tender offer
(the "Tender Offer") for a majority of the outstanding shares of Pennzoil
Company ("Pennzoil") common stock that it and UPR do not already own. Pennzoil
shareholders whose shares are purchased by Newco in the Tender Offer will
receive $84 per share in cash. The Tender Offer is the initial step in a
two-step transaction pursuant to which UPR proposes to acquire all of the
outstanding shares of Pennzoil stock. In connection with the Tender Offer, UPR
will seek to negotiate a definitive merger agreement with Pennzoil pursuant to
which all remaining Pennzoil shares would be converted into UPR shares designed
to have a value of $84 per share.
2. The two-step acquisition transaction has an overall
value of approximately $6.4 billion (including assumed debt), and today
represents a valuation of $84 per share of Pennzoil common stock. This
represents a premium of approximately 56% above the average closing price for
Pennzoil stock on the New York Stock Exchange over the past twelve months, and
substantially exceeds the present value of the $80-$100 per share price four to
five years from now projected by Pennzoil's Chief Executive Officer, James L.
Pate, earlier this year.
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<PAGE> 3
3. In October 1994, the Board of Directors of Pennzoil
adopted a shareholder rights plan (the "Rights Plan") for the purported purpose
of deterring unsolicited takeover attempts. If the Rights Plan remains in
effect, it will make plaintiffs' acquisition of Pennzoil economically
unfeasible. In addition, Pennzoil has two additional anti-takeover measures
available to it, the Delaware Business Combination Statute, 8 Del. C. Section
203 ("Section 203") and Article Sixth of Pennzoil's restated certificate of
incorporation ("Article Six"), which can be used effectively to block the
Tender Offer and Merger and thus deprive Pennzoil stockholders of their most
basic rights as owners of the company. As a result, Newco has conditioned the
Tender Offer on the share purchase rights (the "Rights") being validly redeemed
by Pennzoil's Board of Directors, or invalidated, and Section 203 and Article
Six being rendered inapplicable to UPR's acquisition of Pennzoil. Absent relief
from this Court, however, these conditions will not be satisfied, and the
Tender Offer and Merger therefore will not be consummated, because the
incumbent Pennzoil directors will unlawfully entrench themselves in office by
refusing voluntarily to take these actions, to the irreparable detriment of
plaintiffs and Pennzoil stockholders.
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<PAGE> 4
The Parties
4. Plaintiff UPR is a Utah corporation with its
principal executive offices in Fort Worth, Texas. UPR is engaged primarily in
the exploration for and the development and production of natural gas, natural
gas liquids and crude oil in several major producing basins in the United
States and Canada. UPR is the beneficial owner of more than 75,000 shares of
Pennzoil common stock.
5. Plaintiff Newco is a Delaware corporation with its
executive offices located in Fort Worth, Texas. Newco is a wholly-owned
subsidiary of UPR and the owner of 100 shares of Pennzoil common stock. Newco
was organized for purposes of the Tender Offer and Merger.
6. Defendant Pennzoil is a Delaware corporation with its
principal executives offices in Houston, Texas. Pennzoil is engaged primarily
in oil and gas exploration and production, in processing, refining and
marketing of oil and motor oil and refined products and in the fast automotive
oil change operations.
7. Defendant James L. Pate has been Chief Executive
Officer, President and a director of Pennzoil for more than the past five
years.
8. Defendants Howard H. Baker, Jr., W. J. Bovaird, W. L.
Lyons Brown, Jr., Ernest H. Cockrell, Harry H. Cullen, Alfonso Fanjul, Berdon
Lawrence, Brent Scowcroft,
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<PAGE> 5
Gerald B. Smith and Cyril Wagner, Jr., are directors of Pennzoil.
9. As directors of Pennzoil, defendants Howard H. Baker,
Jr., W. J. Bovaird, W. L. Lyons Brown, Jr., Ernest H. Cockrell, Harry H.
Cullen, Alfonso Fanjul, Berdon Lawrence, James L. Pate, Brent Scowcroft, Gerald
B. Smith and Cyril Wagner, Jr. (collectively, the "Director Defendants") owe
the highest fiduciary duties of loyalty and care to Pennzoil shareholders,
including the duty to maximize value for all Pennzoil shareholders.
Background
A. The Rights Plan
10. On or about October 28, 1994, the Pennzoil Board of
Directors approved the adoption of the Rights Plan. Effective October 28, 1994,
the Pennzoil Board declared a dividend distribution of one share purchase right
(a "Right") for each outstanding share of Pennzoil common stock to stockholders
of record on the close of business on November 11, 1994.
11. The Rights are not exercisable or transferable apart
from Pennzoil's common stock until after the "Distribution Date" -- that is,
the earlier of (i) 10 days following a public announcement that a person or
group has acquired (or obtained the right to acquire) beneficial ownership of
15 percent or more of Pennzoil's outstanding
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<PAGE> 6
common shares (thereby becoming an "Acquiring Person"); or (ii) 10 business
days following the commencement of a tender or exchange offer that would result
in a person or group becoming the beneficial owner of 15 percent or more of
Pennzoil's outstanding shares of common stock (thereby also becoming an
"Acquiring Person").
12. Upon the Distribution Date, the Rights become
exercisable. Each Right entitles the holder to purchase one-hundredth of a
share (a "Unit") of Series A Junior Participating Preferred Stock (the "Series
A Preferred"), par value $1.00 per share, at a purchase price of $140 per Unit,
subject to adjustment. The Rights may be exercised until October 28, 1999,
unless earlier redeemed or exchanged by Pennzoil.
13. Since the $140 exercise price of the Rights greatly
exceeds the economic value of the Units of preferred stock into which the
Rights are initially convertible, the Rights were never intended to be used to
purchase such preferred stock. Instead, the sole reason for the Rights is their
"flip-over" and "flip-in" provisions, described below, which were designed to
punish any offeror unacceptable to the Pennzoil directors by creating an
insurmountable economic barrier to any acquisition of control of Pennzoil.
14. Under the Rights Plan, if an Acquiring Person becomes
the beneficial owner of 15 percent or more of the
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<PAGE> 7
outstanding shares of Pennzoil common stock, then each Right "flips-in,"
entitling its holder to purchase an amount of shares of common stock of
Pennzoil (or, in certain circumstances, to acquire cash, property or other
Pennzoil securities) having a current value equal to two times the exercise
price of the Right. In other words, at an exercise price of $140 per Right,
each Right holder can purchase $280 worth of Pennzoil common stock for $140.
All Rights that are owned by the Acquiring Person become null and void.
15. In the event that Pennzoil is acquired in a merger or
other business combination in which it is not the surviving corporation, or 50
percent or more of Pennzoil's assets or earning power is sold or transferred,
each Right "flips-over," entitling its holder to purchase common stock of the
acquiring company having a current value equal to two times the exercise price
of the Right.
16. Under the Rights Plan, a tender or exchange offer for
all outstanding Pennzoil common stock at a price and on terms determined by a
majority of the "continuing directors" of the Pennzoil Board prior to the
purchase to be adequate and in the best interests of Pennzoil and its
stockholders is a "Permitted Offer," which does not trigger the ability to
exercise the Rights.
17. The massive dilutive effect of the Rights Plan
ensures that no entity disfavored by the Pennzoil
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<PAGE> 8
directors will dare to acquire a significant minority position in Pennzoil,
much less consummate a tender offer for, or attempt a merger or other business
combination with, Pennzoil unless the incumbent Pennzoil directors first
determine that the terms of the offer are adequate and in the best interests of
Pennzoil and its stockholders or redeem the Rights. In practical terms, this
deters unsolicited takeover attempts, regardless of the value which any such
proposal offers to the Pennzoil shareholders.
B. Delaware Business Combination Statute
18. Section 203 of the Delaware General Corporation Law,
entitled "Business Combinations with Interested Stockholders," applies to any
Delaware corporation that has not opted out of the statute's coverage. Pennzoil
has not opted out of the statute's coverage.
19. Section 203 was designed to impede coercive and
inadequate tender and exchange offers. Section 203 provides that if a person
acquires 15% or more of a corporation's voting stock (thereby becoming an
"interested stockholder"), such interested stockholder may not engage in a
"business combination" with the corporation (defined to include a merger or
consolidation) for three years after the interested stockholder becomes such,
unless: (i) prior to the 15% acquisition, the board of directors has approved
either the acquisition resulting in the stockholder becoming
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<PAGE> 9
an interested stockholder or the business combination; (ii) the interested
stockholder acquires 85% of the corporation's voting stock in the same
transaction in which it crosses the 15% threshold; or (iii) on or subsequent to
the date of the 15% acquisition, the business combination is approved by the
board of directors and authorized at an annual or special meeting of the
stockholders (and not by written consent) by the affirmative vote of at least
66-2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
20. Application of Section 203 to the Tender Offer and
Merger would delay the Merger for at least three years. Accordingly, three
years of the substantial benefits of the proposed combination will be forever
lost. Additionally, any number of events could occur within those three years
which would prevent the Merger altogether.
C. Article Six of Pennzoil's Restated Certificate of Incorporation
21. Article Six of Pennzoil's Restated Certificate of
Incorporation provides that if a person, corporation or entity (the "interested
stockholder") acquires beneficial ownership of 5% or more of the outstanding
shares of any class or series of voting stock of Pennzoil, such interested
stockholder may not enter into a merger or consolidation with Pennzoil, unless:
(i) prior to the 5% acquisition, the
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<PAGE> 10
Board of Directors of Pennzoil has approved a memorandum of understanding with
such interested stockholder for such merger or consolidation; or (ii) the
merger or consolidation is approved by an affirmative vote of at least 80% of
the outstanding Pennzoil shares entitled to vote in an election of directors
and the merger is approved by an affirmative vote of a majority of the
outstanding voting stock which is not owned by the interested stockholder.
22. Application of Article Six to the Tender Offer and
Merger would effectively preclude plaintiffs' acquisition of Pennzoil and
thereby deprive Pennzoil stockholders of the opportunity to receive a
substantial premium for their shares.
D. The Response to the Tender Offer and Merger
23. Under the terms of the Tender Offer, Pennzoil
shareholders whose shares are purchased by Newco will receive $84 per share of
Pennzoil common stock (and associated Right), net to the seller in cash. This
represents a premium of approximately 56% above the average New York Stock
Exchange closing price for Pennzoil common stock over the past twelve months.
24. UPR and Newco also have stated that they will seek to
negotiate with Pennzoil a definitive merger agreement pursuant to which
Pennzoil would consummate the Merger with UPR. Pursuant to the Merger, each
outstanding Pennzoil
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<PAGE> 11
share would be converted into UPR stock designed to have a value of $84 per
share, subject to the terms and conditions of the definitive merger agreement.
Thus, the proposed two-step acquisition transaction would deliver a substantial
premium to the Pennzoil stockholders.
25. Despite these clear-cut and significant economic
benefits for the Pennzoil stockholders, the incumbent Pennzoil directors
already have signalled, in no uncertain terms, that they will seek to defeat
the Tender Offer and Merger by a variety of measures, including by refusing to
redeem the Rights and refusing to render Section 203 and Article Six
inapplicable to the Tender Offer and Merger. Earlier this year, UPR contacted
Pennzoil on several occasions and proposed discussions concerning a negotiated
acquisition of Pennzoil by UPR. Most recently, UPR proposed a transaction at a
substantial premium to the prevailing market price of Pennzoil common stock.
UPR's proposal was (and the Tender Offer and Merger are) in keeping with a
transaction proposed by Pennzoil itself in 1995 pursuant to which UPR and
Pennzoil would combine and become, as Pennzoil's Chief Executive Officer then
put it, "the premier exploration and production company in the world." Although
the business justifications cited by Pennzoil for such a business combination
are at least as strong now as they were when Pennzoil itself proposed such a
deal, Pennzoil rebuffed
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<PAGE> 12
UPR, stating that Pennzoil's Board of Directors had determined that Pennzoil
should remain an independent, publicly-held company; was not interested in
pursuing a transaction with UPR; and would take all necessary action to respond
to any unsolicited offer.
COUNT I
(For Breach of Fiduciary Duty: The Rights Plan)
26. Plaintiffs repeat each of the foregoing allegations
as if fully set forth in this paragraph.
27. The ostensible purpose of the Rights Plan is to
protect Pennzoil shareholders against the consummation of unfair acquisition
proposals that may fail to maximize shareholder value.
28. In light of the superior value offered to Pennzoil
stockholders by the Tender Offer and Merger, there is no legitimate reason for
the Pennzoil Board of Directors to retain the Rights Plan. The Director
Defendants' refusal to redeem the Rights only has the effect of withholding
from Pennzoil shareholders the right to maximize their wealth by allowing them
the option of selling their Pennzoil shares pursuant to the Tender Offer and
later exchanging any remaining Pennzoil shares for UPR shares pursuant to the
Merger.
- 12 -
<PAGE> 13
29. The Director Defendants' refusal to redeem the Rights
or render the Rights Plan inapplicable to the Tender Offer and Merger has no
economic justification, serves no legitimate purpose, and is not a reasonable
response to the Tender Offer and Merger, which pose no threat to the interests
of Pennzoil's stockholders or to Pennzoil's corporate policy and effectiveness.
As such, it is in breach of the fiduciary duties such directors owe to the
Pennzoil shareholders under applicable Delaware law.
30. Plaintiffs have no adequate remedy at law.
COUNT II
(For Breach of Fiduciary Duty: Section 203)
31. Plaintiffs repeat each of the foregoing allegations
as if fully set forth in this paragraph.
32. The Board of Directors of Pennzoil is empowered by
Section 203 to render the statute inapplicable to the Tender Offer and Merger
by approving the Tender Offer or Merger.
33. In light of the superior value offered to Pennzoil
stockholders by the Tender Offer and Merger, there is no legitimate reason for
the Pennzoil Board of Directors' refusal to approve the Tender Offer and Merger
or to take any other steps necessary to render Section 203 inapplicable to the
Tender Offer and Merger. Such refusal only has the
- 13 -
<PAGE> 14
effect of withholding from Pennzoil shareholders the right to maximize their
wealth by allowing them the option of selling their Pennzoil shares pursuant to
the Tender Offer and later exchanging any remaining Pennzoil shares for UPR
shares pursuant to the Merger.
34. The Director Defendants' refusal to approve the
Tender Offer or Merger or render Section 203 otherwise inapplicable to the
Tender Offer and Merger has no economic justification, serves no legitimate
purpose, and is not a reasonable response to the Tender Offer and Merger, which
pose no threat to the interests of Pennzoil's shareholders or to Pennzoil's
corporate policy and effectiveness. As such, it is in breach of the fiduciary
duties such directors owe to Pennzoil's shareholders under applicable Delaware
law.
35. Plaintiffs have no adequate remedy at law.
COUNT III
(For Breach of Fiduciary Duty: Article Six)
36. Plaintiffs repeat each of the foregoing allegations
as if fully set forth in this paragraph.
37. The ostensible purpose of Article Six of Pennzoil's
Restated Certificate of Incorporation is to protect Pennzoil shareholders
against the consummation of unfair acquisition proposals that may fail to
maximize shareholder value.
- 14 -
<PAGE> 15
38. Article Six empowers the Board of Directors of
Pennzoil to render Article Six inapplicable to the Tender Offer and Merger by
approving the Merger.
39. In light of the superior value offered to Pennzoil
stockholders by the Tender Offer and Merger, there is no legitimate reason for
the Pennzoil Board of Directors' refusal to approve the Merger for purposes of
Article Six or to take any other steps to render Article Six inapplicable to
the Tender Offer and Merger. Such refusal only has the effect of withholding
from Pennzoil shareholders the right to maximize their wealth by allowing them
the option of selling their Pennzoil shares pursuant to the Tender Offer and
later exchanging any remaining Pennzoil shares for UPR shares pursuant to the
Merger.
40. The Director Defendants' refusal to approve the
Tender Offer and Merger for purposes of Article Six or render Article Six
otherwise inapplicable to the Tender Offer and Merger has no economic
justification, serves no legitimate purpose, and is not a reasonable response
to the Tender Offer and Merger, which pose no threat to the interests of
Pennzoil's stockholders or to Pennzoil's corporate policy and effectiveness. As
such, it is in breach of the fiduciary duties such directors owe to the
Pennzoil shareholders under applicable Delaware law.
- 15 -
<PAGE> 16
41. Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs respectfully request that this Court:
(a) declare that the Director Defendants have breached their
fiduciary obligations to Pennzoil shareholders under Delaware law by
refusing to redeem the Rights in response to the Tender Offer;
(b) compel Pennzoil and its Director Defendants to redeem the
Rights or render the Rights Plan inapplicable to the Tender Offer and
Merger;
(c) declare that the Director Defendants have breached their
fiduciary obligations to Pennzoil shareholders under Delaware law by
refusing to render Section 203 inapplicable to the Tender Offer and
Merger;
(d) compel the Director Defendants to approve the Tender Offer
and Merger for purposes of Section 203 and enjoin them from taking
any action to enforce or apply Section 203 that would impede, thwart,
frustrate or interfere with the Tender Offer or Merger;
(e) declare that the Director Defendants have breached their
fiduciary obligations to Pennzoil shareholders under Delaware law by
refusing to render Article Six inapplicable to the Tender Offer and
Merger;
- 16 -
<PAGE> 17
(f) compel the Director Defendants to approve the Tender
Offer and Merger for purposes of Article Six and enjoin the
Board of Directors of Pennzoil from taking any action to enforce or
apply Article Six that would impede, thwart, frustrate or interfere
with the Tender Offer or Merger;
(g) temporarily, preliminarily and permanently enjoin
Pennzoil, its employees, agents and all persons acting on
its behalf or in concert with it from taking any action with respect
to the Rights Plan, except to redeem the Rights or render the Rights
Plan inapplicable to the Tender Offer and Merger, and from adopting
any other Rights Plan or other measures, or taking any other action
designed to, or which has the effect of, impeding the Tender Offer or
the efforts of plaintiffs to acquire control of Pennzoil;
(h) temporarily, preliminarily and permanently enjoin
defendants, their affiliates, subsidiaries, officers, directors and
all others acting in concert with them or on their behalf from
bringing any action concerning the Rights Plan, Section 203 or Article
Six in any other court;
(i) award plaintiffs their costs and disbursements in this
action, including reasonable attorneys' fees; and
- 17 -
<PAGE> 18
(j) grant plaintiffs such other and further relief as this
Court may deem just and proper.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
By/s/ Edward P. Welch
----------------------------------
Edward P. Welch
Andrew J. Turezyn
One Rodney Square
P.O. Box 636
Wilmington, Delaware 19899
(302) 651-3000
Attorneys for Plaintiffs
Of Counsel:
- ----------
Jonathan J. Lerner
Samuel Kadet
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
919 Third Avenue
New York, NY 10022
(212) 735-3000
Dated June 23, 1997
- 18 -
<PAGE> 1
EXHIBIT 20
IN THE COURT OF CHANCERY THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
UNION PACIFIC RESOURCES GROUP )
INC. and RESOURCES NEWCO, INC., )
)
Plaintiffs, )
)
v. ) C.A. No. 15755-NC
)
PENNZOIL COMPANY, HOWARD H. BAKER, )
JR., W. J. BOVAIRD, W. L. LYONS BROWN, )
JR., ERNEST H. COCKRELL, HARRY H. )
CULLEN, ALFONSO FANJUL, BERDON )
LAWRENCE, JAMES L. PATE, BRENT )
SCOWCROFT, GERALD B. SMITH and )
CYRIL WAGNER, JR., )
)
Defendants. )
ANSWER
Defendants Pennzoil Company ("Pennzoil") and the members of Pennzoil's
board of directors (the "Board"; collectively with Pennzoil, "Defendants")
hereby answer the Complaint filed by Union Pacific Resources Group Inc.
("UPR") and Resources Newco, Inc. ("Newco" collectively with UPR,
"Plaintiffs"), as follows:
SUMMARY OF ANSWER
As of the time this action was commenced and as of the time of the
filing of this Answer, the Defendants have not yet responded to the Tender
Offer and Merger and, accordingly, Defendants deny generally the allegations of
the Complaint. Defendants respond to the specific allegations of the Complaint
as follows:
<PAGE> 2
SUMMARY OF THIS ACTION
1. The allegations contained in the first sentence of Paragraph 1
are admitted. Defendants are without knowledge or information sufficient to
form a belief as to the truth or falsity of the remaining allegations of
Paragraph 1, except that it is admitted Plaintiffs have filed a Schedule 14D-1
with the Securities and Exchange Commission which incorporates an offer to
purchase Pennzoil shares on certain terms and conditions (the "Offer to
Purchase"). Defendants respectfully refer the Court to the Offer to Purchase
for the terms thereof.
2. Denied.
3. The allegations contained in the first sentence of Paragraph 3
are admitted, except Defendants deny the characterization inherent in the term
"purported". Defendants are without knowledge or information sufficient to
form a belief as to the truth or falsity of the allegations contained in the
second sentence of Paragraph 3. The allegations contained in the third
sentence of Paragraph 3 are denied, except that Defendants respectfully refer
the Court to the terms of 8 Del. C. Section 203 ("Section 203 ") and Article
Six of Pennzoil's Restated Certificate of Incorporation for the terms thereof.
Defendants are without knowledge or information sufficient to form a belief as
to the truth or falsity of the allegations contained in the fourth sentence of
paragraph 3, except that Defendants respectfully refer the Court to the Offer
to Purchase for the terms thereof. The allegations contained in the fifth
sentence of Paragraph 3 are denied.
THE PARTIES
4. The allegations contained in the first sentence of Paragraph 4
are admitted. Defendants are without knowledge or information sufficient to
form a belief as to the truth or falsity of the remaining allegations contained
in Paragraph 4.
-2-
<PAGE> 3
5. The allegations contained in the first sentence of Paragraph 5
are admitted. Defendants are without knowledge or information sufficient to form
a belief as to the truth or falsity of the remaining allegations contained in
Paragraph 5.
6. Admitted.
7. Admitted.
8. Admitted.
9. The allegations contained in Paragraph 9 set forth legal
conclusions which Defendants need neither admit nor deny.
BACKGROUND
A. THE RIGHTS PLAN.
10. The allegations contained in the first sentence of Paragraph
10 are denied. The allegations contained in the second sentence of Paragraph
10 are admitted.
11. Admitted.
12. Admitted.
13. The allegations contained in Paragraph 13 are denied, except
it is admitted that at the initial exercise price of $140 per share, the Rights
(defined below) are "out of the money" and not likely to be exercised.
14. The allegations contained in the first sentence of Paragraph
14 are admitted. The remaining allegations contained in Paragraph 14 are
denied, except that it is admitted that Rights owned by an "Acquiring Person"
cannot be exercised in the event of "flip-in" event.
15. Admitted.
16. The allegations contained in Paragraph 16 are denied, and the
Court is respectfully referred to the Rights Agreement (defined below) for the
definition of "Permitted Offer".
-3-
<PAGE> 4
17. Denied.
B. DELAWARE BUSINESS COMBINATION STATUTE.
18. The allegations contained in the first sentence of Paragraph
18 set forth legal conclusions which Defendants need neither admit nor deny.
Defendants respectfully refer the Court to Section 203 for the terms thereof.
The allegations contained in the second sentence of Paragraph 18 are admitted.
19. The allegations contained in Paragraph 19 set forth legal
conclusions which Defendants need neither admit nor deny. Defendants
respectfully refer the Court to Section 203 for the terms thereof.
20. The allegations contained in the first sentence of Paragraph
20 set forth legal conclusions which Defendants need neither admit nor deny.
Defendants are without knowledge or information sufficient to form a belief as
to truth or falsity of the remaining allegations of Paragraph 20.
C. ARTICLE SIX OF PENNZOIL'S RESTATED CERTIFICATE OF INCORPORATION.
21. Denied as incomplete. Defendants respectfully refer the Court
to Article Sixth for the terms thereof
22. Denied.
D. THE RESPONSE TO THE TENDER OFFER AND MERGER.
23. The allegations contained in the first sentence of Paragraph
23 are denied. Defendants are without knowledge or information sufficient to
form a belief as to the truth or falsity of the remaining allegations in
Paragraph 23.
24. The allegations contained in Paragraph 24 are denied, except
that Defendants respectfully refer the Court to the Offer to Purchase for the
terms thereof.
-4-
<PAGE> 5
25. Denied.
COUNT I
(FOR BREACH OF FIDUCIARY DUTY: THE RIGHTS PLAN)
26. Defendants repeat and reallege each of the foregoing responses
as if fully set forth herein.
27. Admitted, except Defendants deny the characterization inherent
in the term "ostensible".
28. Denied.
29. Denied.
30. Denied.
COUNT II
(FOR BREACH OF FIDUCIARY DUTY: SECTION 203)
31. Defendants repeat and reallege each of the foregoing responses
as if fully set forth herein.
32. The allegations contained in Paragraph 32 set forth legal
conclusions which Defendants need neither admit nor deny.
33. Denied.
34. Denied.
35. Denied.
COUNT III
(FOR BREACH OF FIDUCIARY DUTY: ARTICLE SIX)
36. Defendants repeat and reallege each of the foregoing responses
as if fully set forth herein.
-5-
<PAGE> 6
37. Denied.
38. Denied, except admitted that Article Sixth would not apply to
the Tender Offer and Merger if the Board approved the Merger prior to the time
UPR or Newco because the beneficial owner of 5% or more of Pennzoil's
outstanding common stock.
39. Denied.
40. Denied.
41. Denied.
OF COUNSEL: /s/ Charles F. Richards, Jr.
------------------------------------------------
Charles F. Richards, Jr.
Robin C. Gibbs Thomas A. Beck
Paul Dobrowski Daniel A. Dreisbach
Jeffrey Alexander Robert J. Stearn, Jr.
Gibbs & Bruns, L.L.P. Todd C. Schiltz
1100 Louisiana Richards, Layton & Finger
Suite 5300 One Rodney Square
Houston, TX 77002 P.O. Box 551
(713) 650-8805 Wilmington, Delaware 19899
(302) 658-6541
Dated: June 27, 1997 Attorneys for Defendant and Counterclaim-
Plaintiff Pennzoil Company
-6-
<PAGE> 1
EXHIBIT 21
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION
UNION PACIFIC RESOURCES GROUP )
INC. and RESOURCES NEWCO, INC., )
)
Plaintiffs, ) CIVIL ACTION NO. _________
)
vs. )
)
PENNZOIL COMPANY, )
)
Defendant. )
PLAINTIFFS' ORIGINAL COMPLAINT
Plaintiffs Union Pacific Resources Group Inc. and Resources Newco,
Inc. (Newco) file this action seeking declaratory 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
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 1
<PAGE> 2
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. section 781(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. sections
78n(d), 78n(e) and 78bb, and the rules and regulations promulgated thereunder
by the Securities and Exchange Commission (SEC), 17 C.F.R. sections 240.14d-1
et seq. It also arises under the Declaratory Judgment Act, 28 U.S.C. section
2201.
6. This Court has subject matter jurisdiction pursuant to:
a) Section 27 of the Exchange Act, 15 U.S.C. section
78aa, because this action is brought to declare and
to enforce rights and duties
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 2
<PAGE> 3
created by the Exchange Act and regulations
thereunder;
b) 28 U.S.C. section 1331(a), because the matter in
controversy arises under the Constitution and the
laws of the United States; and
b) 28 U.S.C. section 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. section 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 could be
alleged to constitute a violation of the Exchange Act occurred in this
district.
The Tender Offer
8. 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 current
market price of Pennzoil common stock. 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, subject to
the terms of a definitive merger agreement to be entered into.
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 3
<PAGE> 4
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. sections 78n(d), (e), and in the rules and
regulations promulgated thereunder by the SEC. In connection with the Tender
Offer, a Schedule 14D-1 has been filed with the SEC 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 attached hereto as Union Pacific
Resources Group Exhibit One.
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.
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 4
<PAGE> 5
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. section 17n(d), and the rules and regulations promulgated
thereunder by the SEC 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. In addition, Section 14(e) of the Exchange Act, 15 U.S.C.
section 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.
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 5
<PAGE> 6
15. In connection with the Tender Offer, Newco has filed a
Schedule 14D-1 with the SEC and is in the process of disseminating to
Pennzoil's shareholders 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.
16. 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 SEC regulations.
17. 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.
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 6
<PAGE> 7
Declaratory Relief
18. 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, Union Pacific Resources Group Inc. proposed such a
transaction at a substantial premium to the market price of Pennzoil common
stock. 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, 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.
19. The Declaratory Judgment Act, 28 U.S.C. section 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
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 7
<PAGE> 8
Pacific Resources Group Inc. and Newco are entitled 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.
20. Although the Tender Offer and Merger are fairly and
attractively priced, Pennzoil's Board of Directors and senior management have
rejected Union Pacific Resources Group Inc.'s acquisition proposal. 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.
21. 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
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 8
<PAGE> 9
parties, resolving any complaints concerning the propriety of the Tender Offer,
and permitting an otherwise lawful transaction to proceed.
22. Plaintiffs therefore request pursuant to the Federal
Declaratory Judgment Act, 28 U.S.C. sections 2201-2202, that this Court enter a
declaratory judgment that the disclosure documents which have been filed with
the SEC by plaintiffs and which are being disseminated to Pennzoil stockholders
in connection with the Tender Offer comply fully with all applicable provisions
of law.
WHEREFORE, plaintiffs Union Pacific Resources Group Inc. and Newco
respectfully request that this Court enter a declaratory 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 regulations deemed or
claimed to be applicable to the Schedule 14D-1 and Tender
Offer; and
ii) awarding the plaintiffs their reasonable and necessary
attorneys' fees together with all costs of court.
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 9
<PAGE> 10
/s/ Ralph H. Duggins
RALPH H. DUGGINS
State Bar No. 06183700
ESTIL VANCE, JR.
State Bar No. 20479000
S. G. JOHNDROE, III
State Bar No. 10674000
Cantey & Hanger, L.L.P.
2100 Burnett Plaza
801 Cherry Street
Fort Worth, Texas 76102
(817) 877-2800
(817) 877-2807 - Fax
/s/ Dee J. Kelly
DEE J. KELLY
State Bar No. 11217000
E. GLEN JOHNSON
State Bar No. 10709500
DONALD E. HERRMANN
State Bar No. 09541300
TIMOTHY J. VAN MEIR
State Bar No. 00794781
Kelly, Hart & Hallman, P.C.
201 Main Street,
Suite 2500
Fort Worth, Texas 76102
(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 23, 1997
- --------------------------------------------------------------------------------
PLAINTIFF'S ORIGINAL COMPLAINT Page 10
<PAGE> 1
EXHIBIT 22
VERIFIED COMPLAINT FOR DECLARATORY AND
INJUNCTIVE RELIEF (LOUISIANA)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF LOUISIANA
UNION PACIFIC RESOURCES * CIVIL ACTION
GROUP INC. and RESOURCES * NO.
NEWCO, INC. *
*
VERSUS * JUDGE:
*
PENNZOIL COMPANY, RICHARD *
IEYOUB, Attorney General of the State * MAGISTRATE
of Louisiana, and LARRY L. MURRAY, * JUDGE:
Commissioner of Financial Institutions *
***************************************
VERIFIED COMPLAINT FOR
DECLARATORY AND INJUNCTIVE RELIEF
Plaintiffs, Union Pacific Resources Group Inc. ("UPR") and
Resources Newco, Inc. ("Resources"), of their own knowledge as to their actions
and on information and belief as to other matters, complain of Pennzoil Company
("Pennzoil"), a Delaware corporation, Richard Ieyoub, Attorney General of the
State of Louisiana and Larry L. Murray, Commissioner of Financial Institutions,
as follows:
NATURE OF THE ACTION
1. Plaintiff Resources, a wholly owned subsidiary of
plaintiff UPR, has announced today that it is commencing a cash tender offer
(the "Tender Offer") for a majority of the outstanding shares of common stock
of Pennzoil, a Delaware corporation with its principal executive offices in
Houston, Texas. Pennzoil shareholders whose shares are purchased in the Tender
Offer will receive $84.00 per share in cash. The Tender Offer is the initial
step in a two-step transaction pursuant to which UPR proposes to acquire all of
the outstanding shares of Pennzoil stock. In connection with the Tender Offer,
UPR will seek to negotiate a definitive
<PAGE> 2
merger agreement with Pennzoil (the "Merger") pursuant to which all remaining
Pennzoil shares will be converted into UPR shares designed to have a value of
$84.00 per share.
2. The two-step acquisition transaction has an overall
value of approximately $6.4 billion (including assumed debt). It represents a
premium of approximately 56% above the average closing price for Pennzoil stock
on the New York Stock Exchange over the past 12 months, and substantially
exceeds the present value of the $80-$100 per share price four to five years
from now projected by Pennzoil's Chief Executive Officer, James L. Pate,
earlier this year.
3. Although the Tender Offer is fair and in the best
interests of Pennzoil's shareholders, there is a strong likelihood that
incumbent Pennzoil management will seek to defeat the Tender Offer through
every available means in order to preserve their position and corporate
perquisites. Their efforts in this respect will, in all likelihood, include
invoking an unconstitutional Louisiana "anti-takeover" Control Share Statute.
4. Accordingly, in this action, brought pursuant to the
Federal Declaratory Judgments Act, 28 U.S.C. sections 2201-2202, plaintiffs ask
the Court to declare the Louisiana Foreign Corporation Control Share Statute
(the "Control Share Statute"), La. R.S. sections 12:140.11-12:140.17 null and
void on its face and as applied to the Tender Offer and Merger on the grounds
that the Control Share Statute violates the Commerce Clause of the United
States Constitution and deprives plaintiffs, under color of state law, of
rights, privileges, and immunities secured to them by the Constitution and laws
of the United States.
5. In light of the pendency of the Tender Offer,
plaintiffs also ask the Court to grant preliminary and permanent injunctive
relief enjoining defendants, their officers, agents, servants, employees and
attorneys, and all persons in active concert or participation with them, and
all other persons having actual notice thereof, from taking any action
whatsoever to invoke, enforce
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or apply the Control Share Statute, or any orders, rules or regulations issued
pursuant thereto, against plaintiffs or anyone acting on their behalf in
connection with the Tender Offer.
JURISDICTION
6. 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. sections
78n(d), 78n(e) and 78bb, and the rules and regulations promulgated thereunder,
17 C.F.R. sections 240.14d-1 et seq; the Civil Rights Act of 1871, 42 U.S.C.
section 1983; and Article I, Section 8 of the United States Constitution.
7. Subject matter jurisdiction over this action is
conferred on this Court by:
(a) 28 U.S.C. section 1331(a), because the matter in
controversy arises under the Constitution and laws of the United States;
(b) 28 U.S.C. section 1343(a)(3), because this action is
brought in part under 42 U.S.C. section 1983 to redress and prevent the
violation of rights, privileges, and immunities secured to the plaintiffs by
the Constitution and laws of the United States; and
(c) 28 U.S.C. section 1337(a), because the action arises under
the Exchange Act, an Act of Congress regulating commerce.
THE PARTIES
8. Plaintiff UPR is a Utah corporation with its
principal executive offices in Fort Worth, Texas. UPR is engaged primarily in
the exploration of and the development and production of natural gas, natural
gas liquids and crude oil in several major producing basins in the United
States and Canada. UPR is the beneficial owner of more than 75,000 shares of
Pennzoil common stock.
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9. Plaintiff Resources is a Delaware corporation with
its executive offices located in Fort Worth, Texas. Resources is a wholly-owned
subsidiary of UPR and the owner of 100 shares of Pennzoil common stock.
Resources was organized for purposes of the Tender Offer and Merger.
10. Defendant Pennzoil is a Delaware corporation with its
principal executive offices in Houston, Texas. Pennzoil is engaged primarily in
oil and gas exploration and production; in processing, refining and marketing
of oil, motor oil and refined products; and in the fast automotive oil change
operations.
11. Defendant Richard Ieyoub (being sued in his official
capacity) is a citizen and resident of the State of Louisiana, is the Attorney
General of the State of Louisiana, and is charged with enforcing the laws of
the State of Louisiana.
12. Defendant Larry L. Murray (being sued in his official
capacity) is a citizen and resident of the State of Louisiana, is the
Commissioner of Financial Institutions (the "Commissioner"), the administrative
body charged with enforcement of the Control Share Statute.
THE TENDER OFFER
13. On June 23, 1997, plaintiff Resources announced that
it was commencing a cash tender offer for a majority of the outstanding shares
of Pennzoil stock that it and UPR do not already own. The Tender Offer will be
made to all Pennzoil stockholders throughout the United States and elsewhere.
The Tender Offer will constitute a major transaction in interstate commerce,
representing a commitment in excess of $2 billion.
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14. The Tender Offer will be advertised nationally by the
use of the financial press and by interstate mail and phone services. The
Tender Offer will be distributed to Pennzoil shareholders throughout the
country and elsewhere by the use of the mails and other instrumentalities and
facilities of interstate commerce.
15. The Tender Offer will be made in full compliance with
federal laws and regulations governing tender offers -- the provisions of the
Williams Act (embodied in Section 14(d) and 14(e) of the Exchange Act, 15
U.S.C. sections 78n(d), (e)), and the rules and regulations promulgated
thereunder by the Securities and Exchange Commissions ("SEC"). In connection
with the Tender Offer, a Schedule 14D-1 will be filed with the SEC pursuant to
Section 14(d)(1) of the Exchange Act and Rule 14d-3 promulgated thereunder.
THE WILLIAMS ACT
16. The Williams Act was enacted by Congress to provide a
comprehensive uniform national system regulating all aspects of interstate cash
tender offers. In enacting the Williams Act, Congress recognized that tender
offers serve beneficial economic functions by, among other things, providing
investors with an opportunity to sell their shares at advantageous premiums
over prevailing market prices.
17. The Williams Act reflects the intent of Congress that
the success or failure of interstate tender offers for the shares of public
corporations should be left to the free and informed investment judgment of the
marketplace. Accordingly, the purpose of the Williams Act is not to defeat or
discourage tender offers, but to establish even-handed regulation that favors
neither the offeror nor the incumbent management of the target corporation.
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<PAGE> 6
18. It is also a purpose of the Williams Act to promote
informed decisions by shareholders concerning the desirability of a tender
offer. Accordingly, the Williams Act requires that stockholders promptly be
given all material information with respect to a tender offer so that they may
make their investment decision in possession of full and complete information.
19. Pursuant to the authority vested in it by Section
23(a)(1), 15 U.S.C. section 78w(a)(1), and other provisions of the Exchange
Act, the SEC has, from time to time, promulgated rules and regulations in
furtherance of the comprehensive Congressional scheme embodied in the Williams
Act and elsewhere in the Exchange Act.
THE LOUISIANA FOREIGN CORPORATION
CONTROL SHARE STATUTE
20. The Control Share Statute, by its terms, applies to
any "issuing public corporation." As defined by the Control Share Statute, a
corporation is an "issuing public corporation" if it (1) is a foreign
corporation required to have a certificate of authority to transact business in
Louisiana, and (2) has 100 or more shareholders; its principal place of
business, principal office, or directly or through a subsidiary, substantial
assets or real property within Louisiana; and (3) has one or more of the
following: (a) more than 10% of its shareholders resident in Louisiana, (b)
more than 10% of its shares owned by Louisiana residents, (c) 10,000
shareholders resident in Louisiana, or (d) 2,000 employees resident in
Louisiana. La. R.S. section 12:140.11(4)(a).
21. Pursuant to La. R.S. section 12:140.12, if Pennzoil
qualifies as an "issuing public corporation," its board of directors can adopt
a bylaw making Pennzoil subject to the operative sections of the Control Share
Statute (i.e., La. R.S.. sections 12:140.13 - 12:40.16).
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<PAGE> 7
22. The Control Share Statute purports to protect
shareholders against the supposedly negative effects of control changes by
providing that a shareholder may be denied voting rights on any "control
shares" it purchases unless the "disinterested" shareholders vote at a
shareholder meeting to grant such voting rights. A shareholder acquires
"control shares" whenever it acquires shares that, but for the operation of the
Control Share Statute, would bring its voting power in the corporation to or
above any of three thresholds: 20%, 33-1/3%, or 50%. La. R.S. section
12:140.11(1).
23. The special voting requirements of the Control Share
Statute serve to deter takeover bids such as the Tender Offer and Merger
because an offeror's ability to obtain control of the operations of the target
corporation is divorced from its investment and depends exclusively upon its
ability to win the support of a majority of the corporation's "disinterested"
shareholders, who may own a minimal percentage of the company's total number of
outstanding shares.
24. It is highly likely that defendants will attempt to
invoke, apply or enforce the Control Share Statute with respect to shares
purchased pursuant to the Tender Offer.
FIRST CLAIM
(Control Share Statute Violates
the Commerce Clause)
25. Plaintiffs repeat and re-allege the preceding
paragraphs of this Complaint as though fully set forth herein.
26. Pennzoil selected the State of Delaware, not
Louisiana, as its state of incorporation. Even Delaware, Pennzoil's state of
incorporation, may not regulate Pennzoil's
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<PAGE> 8
internal affairs in such manner as to violate the Commerce Clause. It follows a
fortiori that Louisiana may not regulate the internal affairs of a foreign
corporation.
27. Through the Control Share Statute, Louisiana:
(a) attempts to regulate the internal affairs of a foreign
corporation;
(b) imposes barriers to the Tender Offer and Merger that
extend beyond those imposed by Delaware law; and
(c) limits the voting rights of the shares of Pennzoil common
stock which plaintiffs seek to acquire in a fashion inconsistent with the law
of the State that created those voting rights.
28. In so doing, the Control Share Statute deprives
Pennzoil shareholders throughout the country of the opportunity to sell their
shares at a premium.
29. The Control Share Statute also serves to inhibit
plaintiffs -- and, indeed, other potential bidders as well -- from making a
nationwide tender offer to Pennzoil shareholders in Louisiana and in every
other state of the country.
30. Louisiana has no legitimate state interest in
regulating the internal affairs of foreign corporations in a manner which
imposes the significant burdens on interstate commerce described above. As a
result of these burdens, and in the absence of any legitimate state interest,
the Control Share Statute violates the Commerce Clause of the United States
Constitution.
31. Actual or threatened invocation or enforcement of the
Control Share Statute will cause immediate, serious and irreparable injury to
plaintiffs and to the shareholders of Pennzoil, none of whom has an adequate
remedy at law.
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<PAGE> 9
32. Unless the relief requested with respect to the
enforcement of the Control Share Statute in their prayer for relief is granted,
plaintiffs will be deprived of their federal right to engage in interstate
commerce by making a tender offer in compliance with federal law governing such
offers without being hindered or delayed by additional substantial burdens,
such as those imposed by the Control Share Statute. In particular, plaintiffs
will be forced to forego their right (guaranteed by federal law) to consummate
an interstate tender offer for Pennzoil shares.
33. Delay also harms an offeror, whose offer may be
frustrated, not through adverse action of the target's stockholders, as
Congress contemplates, but through barriers erected by the target's management.
34. Absent the relief sought herein, plaintiffs also face
substantial, immediate and irreparable injury in the following respects, among
other:
(a) plaintiffs may be subjected to unnecessary and
unreasonable delay which could prevent them from consummating the Tender Offer
and Merger;
(b) the confusion, delay, and/or litigation resulting from any
attempt to enforce the Control Share Statute will adversely affect their
ability to finance or purchase shares;
(c) Pennzoil shareholders may be discouraged form accepting
the Tender Offer because of uncertainty surrounding the Control Share Statute
and any further proceedings arising in connection therewith;
(d) stockholders of Pennzoil residing throughout the United
States will be deprived of the opportunity to sell their shares pursuant to the
Tender Offer;
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<PAGE> 10
(e) plaintiffs will be deterred and prevented from exercising
their legal right to acquire Pennzoil stock, which will deprive plaintiffs of a
significant business opportunity; and Pennzoil stockholders will be deprived of
the external checks on management provided by the possibility of unsolicited
acquisitions;
(f) Pennzoil stockholders will be deprived of the opportunity
to receive a premium price for their Pennzoil stock;
(g) plaintiffs will be deprived of the full, unfettered rights
attendant to beneficial ownership of a majority of the common shares of
Pennzoil, including, among others, the rights to propose and to vote such
shares in favor of a merger or consolidations or the disposition or other use
of a substantial portion of the assets of Pennzoil; and
(h) the ability of plaintiffs to acquire, hold and exercise
full rights of ownership of shares acquired in a nationwide tender offer and to
vote these shares in all matters properly presented to stockholders of the
company will be abridged.
SECOND CLAIM
(Control Share Statute Violates Section 1983)
35. Plaintiffs repeat and re-allege each of the preceding
paragraphs of this Complaint as though fully set forth herein.
36. The right of plaintiffs to proceed with the Tender
Offer is a right and privilege secured to them by the Williams Act, the
Commerce Clause, and other applicable federal law. Any attempt by defendants,
or any of them, to interfere with this right, by invocation of the Control
Share Statute or any regulations promulgated thereunder, would constitute a
deprivation
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<PAGE> 11
of such right under color of state law, thereby violating the Civil Rights Act
of 1971, 42 U.S.C. section 1983.
37. Plaintiffs have no adequate remedy at law. In
addition, unless preliminary and permanent injunctive relief is granted,
Pennzoil shareholders who reside throughout the United States, including those
residing in the State of Louisiana, may lose their right to sell their shares
at a premium over market price pursuant to the Tender Offer.
WHEREFORE, Plaintiffs request that this Honorable Court enter
judgment:
(i) declaring that the Control Share Statute is
unconstitutional and of no force and effect on its face and as applied to the
Tender Offer;
(ii) preliminarily and permanently enjoining defendants, their
officers, directors, successors in office, agents, employees and all other
persons acting in concert with them, or on their behalf, from attempting,
directly or indirectly, to enforce the Control Share Statute against
plaintiffs, their representatives or those acting on their behalf in connection
with the Tender Offer and Merger, and from attempting to litigate issues
relating to the Control Share Statute in any other forum;
(iii) enjoining defendants and their agents, servants,
attorneys, assigns, successors, and all persons in active concert or
participation with them, from commencing any judicial proceeding, against
plaintiffs and/or any officer, director or employee of plaintiffs, in any forum
other than in this Court that would require litigation by way of claim, defense
or counterclaim of any other claims or issues that have been asserted in this
action;
(iv) awarding plaintiffs their costs and disbursements,
including their reasonable attorney's fees, incurred in this action; and
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<PAGE> 12
(v) granting plaintiffs such other, further or different
relief as the Court may deem just and proper.
Respectfully submitted:
201 St. Charles Avenue, Suite 3800
OF COUNSEL: /s/ Henry A. King
HENRY A. KING, T.A., #7393
NESSER, KING & LEBLANC, L.L.P. TIMOTHY S. MADDEN, #21733
New Orleans, Louisiana 70170
Telephone: (504) 582-3800
Attorneys for Plaintiffs,
Union Pacific Resources
Group Inc. and Resources
Newco, Inc.
OF COUNSEL:
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
919 Third Avenue
New York, NY 10022
Telephone: (212) 735-3000
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<PAGE> 1
EXHIBIT 23
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. Section 78l(b), and is listed and traded
on the New York Stock Exchange. According to
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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. Sections
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. Sections
240.14d-1 et seq. It also arises under the Declaratory Judgment Act, 28 U.S.C.
Section 2201.
6. This Court has subject matter jurisdiction pursuant to:
a) Section 27 of the Exchange Act, 15 U.S.C. Section
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. Section 1331, because the matter in
controversy arises under the Constitution and the
laws of the United States; and
c) 28 U.S.C. Section 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. Section 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.
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<PAGE> 3
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. Sections 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. Section 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.
Section 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
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<PAGE> 4
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.
Section 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.
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<PAGE> 5
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 number of
Union Pacific Resources Group Inc. shares determined, within a pricing collar
of $25 to $30, by dividing $8 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. Section 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 entitled to a
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<PAGE> 6
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. Sections 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. Section 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.
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<PAGE> 7
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.
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<PAGE> 8
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.
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<PAGE> 9
- ----------------------
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
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<PAGE> 1
EXHIBIT 24
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> 2
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).
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<PAGE> 3
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
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 executive 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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<PAGE> 4
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> 5
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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<PAGE> 6
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 acquisition 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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<PAGE> 7
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> 8
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> 9
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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<PAGE> 10
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> 11
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 would 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> 12
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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<PAGE> 13
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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<PAGE> 14
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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<PAGE> 15
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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<PAGE> 16
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> 17
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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<PAGE> 18
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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<PAGE> 19
d. granting plaintiff such other and further relief as the Court
may deem just and proper.
OF COUNSEL: /s/Charles F. Richards, Jr.
-----------------------------------------
Charles F. Richards, Jr. (I.D. No. 701)
Gibbs & Bruns, L.L.P. Thomas A Beck (I.D. No. 2086)
1100 Louisiana Daniel A. Dreisbach (I.D. No. 2583)
Suite 5300 Robert J. Stearn, Jr. (I.D. No. 2915)
Houston, Texas 77002 J. Travis Laster (I.D. No. 3514)Richards,
Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
(302) 658-6541
Attorneys for Plaintiff Pennzoil Company
Dated: June 25, 1997
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<PAGE> 1
EXHIBIT 25
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
KENNETH STEINER, )
)
Plaintiff, ) C.A. NO. 15764-NC
)
v. )
)
PENNZOIL COMPANY, HOWARD H. )
BAKER, JR., HARRY M. CULLEN, )
JAMES L. PATE, GERALD B. )
SMITH, W.J. BOVAIRD, )
W.L. LYONS BROWN, JR., )
ERNEST H. COCKRELL, )
ALFONSO FANJUL, BERDON )
LAWRENCE, BRENT SCOWCROFT, and )
CYRIL WAGNER, JR., )
)
Defendants. )
COMPLAINT
Plaintiff, by his attorneys, alleges upon information and
belief, except with respect to his ownership of Pennzoil Co. ("Pennzoil" or the
"Company") common stock as follows:
PARTIES
1. Plaintiff is the owner of common stock of Pennzoil.
2. Defendant Pennzoil is a Delaware corporation with
executive offices at Pennzoil Place, Houston, Texas. Pennzoil, inter alia,
explores for and produces oil and gas.
3. Defendant James L. Pate is Chairman of the Board,
President and Chief Executive Officer of Pennzoil.
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<PAGE> 2
4. Defendants Howard H. Baker, Jr., Harry M. Cullen,
Gerald B. Smith, W. J. Bovaird, W. L. Lyons Brown, Jr., Ernest H. Cockrell,
Alfonso Fanjul, Berdon Lawrence, Brent Scowcroft, and Cyril Wagner, Jr. are
directors of Pennzoil.
5. The foregoing individual directors of Pennzoil
(collectively the "Director Defendants"), owe fiduciary duties to Pennzoil and
its shareholders.
CLASS ACTION ALLEGATIONS
6. Plaintiff brings this action on his own behalf and as
a class action on behalf of all shareholders of defendant Pennzoil (except
defendants herein and any person, firm, trust, corporation or other entity
related to or affiliated with any of the defendants) or their successors in
interest, who have been or will be adversely affected by the conduct of
defendants alleged herein.
7. This action is properly maintainable as a class
action for the following reasons:
(a) The class of shareholders for whose benefit
this action is brought is so numerous that joinder of all class members is
impracticable. As of January 31, 1997, there were over 46 million shares of
defendant Pennzoil's common stock outstanding owned by over 18,000 shareholders
of record scattered throughout the United States.
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<PAGE> 3
(b) There are questions of law and fact which are
common to members of the class and which predominate over any questions
affecting any individual members. The common questions include, inter alia,
the following:
(i) Whether the Director Defendants
have breached their fiduciary duties owed by them to plaintiff and members of
the Class, and/or have aided and abetted in such breach;
(ii) Whether the Director Defendants
have wrongfully failed to act in the best interests of Pennzoil and its
shareholders; and
(iii) Whether plaintiff and the other
members of the Class will be irreparably damaged by the transactions complained
of herein.
8. Plaintiff is committed to prosecuting this action and
has retained competent counsel experienced in litigation of this nature. The
claims of plaintiff are typical of the claims of the other members of the Class
and plaintiff has the same interest as the other members of the Class.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
9. Defendants are acting or refusing to act on
grounds generally applicable to the Class, thereby making
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<PAGE> 4
appropriate injunctive relief with respect to the Class as a whole.
10. The prosecution of separate actions by individual
members of the Class could create a risk of inconsistent or varying
adjudications with respect to individual members of the class which would
establish incompatible standards of conduct of defendants or adjudications with
respect to individual members of the Class which would as a practicable matter
be dispositive of the interests of the other members not parties to the
adjudications.
11. Plaintiff anticipates that there will not be any
difficulty in the management of this litigation.
12. For the reason stated herein, a class action is
superior to other available methods for the fair and efficient adjudication of
this action.
SUBSTANTIVE ALLEGATIONS
13. On June 23, 1997, Union Pacific Resources Group Inc.
("Union Pacific") announced an unsolicited offer to acquire Pennzoil for cash
and stock valued at approximately $4 billion. Specifically, Union Pacific is
offering $84 a share in cash for 25.1 million shares of Pennzoil. If those
shares are acquired, Union Pacific would then acquire the remaining 49% of
Pennzoil stock in exchange for Union Pacific stock having a value of $84 a
share with a stock for stock ratio of between 2.8 shares and 3.36
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<PAGE> 5
shares. Thus, the proposed transaction provides a substantial premium over the
$59.625 closing price of Pennzoil stock on June 20, 1997. The offer was
contained in a letter from Union Pacific's Chairman and Chief Executive
Officer, Jack Messman, directed to Pennzoil's Chairman James Pate. Union
Pacific reportedly determined to make its unsolicited bid after overtures to
Pennzoil were rebuffed. As such, the Director Defendants are not acting in the
best interests of Pennzoil shareholders.
14. Pennzoil reportedly has a number of defensive or
anti-takeover measures in place, including a shareholder rights plan or poison
pill which practically precludes any unwarranted offer for Pennzoil.
15. The Director Defendants are violating fiduciary
duties owed to the public shareholders of Pennzoil. The Director Defendants
are obligated to act in the best interests of Pennzoil and its shareholders,
including the consideration of whether all bona fide offers or proposals to
acquire the Company or its assets are in the best interests of the
shareholders.
16. The conduct of the Director Defendants in connection
with the Union Pacific proposal is, and unless corrected, will continue to be,
wrongful, unfair and harmful to Pennzoil's public shareholders.
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<PAGE> 6
17. Because the Director Defendants (and those acting in
concert with them) dominate and control the business and corporate affairs of
Pennzoil and because they are in possession of private corporate information
concerning Pennzoil's businesses and future prospects, there exists an
imbalance and disparity of knowledge and economic power between the Director
Defendants and the members of the Class.
18. Unless enjoined by this Court, the Director
Defendants will continue to breach their fiduciary duties owed to plaintiff and
the Class, all to the irreparable harm of the Class.
19. Plaintiff has no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
(a) Declaring that this action may be maintained
as a class action;
(b) Enjoining preliminary and permanently the
Director Defendants to consider and negotiate with respect to all bona fide
offers or proposals for the Company or its assets, in the best interests of
Pennzoil shareholders;
(c) Requiring Defendants to employ any defensive
measures, including a poison pill, in a manner which is consistent with
maximizing shareholder value;
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<PAGE> 7
(d) Requiring defendants to compensate plaintiff
and the members of the Class for all losses and damages suffered and to be
suffered by them as a result of the wrongful conduct complained of herein,
together with prejudgment and post-judgment interest;
(e) Awarding plaintiff the costs and
disbursements of this action, including reasonable attorneys', accountants',
and experts' fees; and
(f) Granting such other and further relief as may
be just and proper.
Date: June 23, 1997 CHIMICLES, JACOBSEN & TIKELLIS
/s/ James C. Strum
-------------------------------
Pamela S. Tikellis
James C. Strum
Robert J. Kriner, Jr.
Daniel P. O'Brien
One Rodney Square
P.O. Box 1035
Wilmington, DE 19899
(302) 656-2500
Attorneys for Plaintiff
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<PAGE> 8
OF COUNSEL:
WOLF, HALDENSTEIN, ADLER
FREEMAN & HJERZ, LLP
270 Madison Avenue
New York, New York 10016
(212) 545-4600
-8-
<PAGE> 1
EXHIBIT 26
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
JACOB HABERMAN, )
)
Plaintiff, ) C.A. NO. 15773NC
)
v. -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. )
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
threat posed by UPR. The actions of the Individual Defendants constitute a
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<PAGE> 2
breach of their fiduciary duties to Pennzoil and its shareholders.
THE PARTIES
2. Plaintiff Jacob Haberman 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
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<PAGE> 3
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 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
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<PAGE> 4
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.
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.
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<PAGE> 5
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 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.
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<PAGE> 6
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 supramajority 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.
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
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<PAGE> 7
refusal continued even after we sent a specific proposal to you on
June 10th 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 that 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.
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
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<PAGE> 8
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
acquiror not approved by management to acquire Pennzoil. As a result, the
Poison Pill has the effect 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
third-party's bona
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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 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.
Defendants' 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
-9-
<PAGE> 10
with UPR and/or other potential acquirors, which they have failed to do.
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.
-10-
<PAGE> 11
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 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
-11-
<PAGE> 12
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 directional 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 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
-12-
<PAGE> 13
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
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:
-13-
<PAGE> 14
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 maximum 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;
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;
-14-
<PAGE> 15
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. Dated: June 24, 1997
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: /s/ Norman Monhait
----------------------------------
Joseph A. Rosenthal
Norman Monhait
1401 Mellon Bank Center
Suite 1401
Post Office Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
Of Counsel:
Steven G. Schulman
U. Seth Ottensoser
MILBERG WEISS BERSHAD HYNES & LERACH LLP
One Pennsylvania Plaza
New York, New York 10119
(212) 594-5300
-15-
<PAGE> 16
Mel E. Lifshitz
BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
7th Floor
New York, New York 10016
(212) 779-1414
-16-
<PAGE> 1
EXHIBIT 27
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
<TABLE>
<S> <C> <C> <C>
MOISE KATZ, individually and on )
behalf of all others similarly ) Civil Action No. 15775NC
situated, )
)
Plaintiff, ) CLASS
) ACTION COMPLAINT
----------------
- against - )
)
JAMES L. PATE, HARRY H. CULLEN, )
HOWARD H. BAKER, W.J. BOVAIRD, )
W.L. LYONS BROWN, JR., ERNEST H. )
COCKRELL, ALFONSO FANJUL, )
BERDON LAWRENCE, BRENT )
SCOWCROFT, CYRIL WAGNER, JR., )
and PENNZOIL CO., )
)
Defendants. )
</TABLE>
Plaintiff alleges upon information and belief except as to
paragraph 1, which is alleged on knowledge, as follows:
THE PARTIES
1. Plaintiff is and has at all times relevant hereto,
owned shares of the common stock of Pennzoil Co. ("Pennzoil" or the "Company").
2. Pennzoil is a corporation formed under the laws of
the State of Delaware with its principal executive offices located in Houston,
Texas. Pennzoil's shares are traded on the New York Stock Exchange under the
symbol ("PZL"). As of February 28, 1997, there were 46,897,455 shares of
Pennzoil stock outstanding, held by more than 18,500 shareholders of record.
<PAGE> 2
3. Defendant James L. Pate ("Pate") is and has been at
all relevant times President and Chief Executive Officer of Pennzoil.
4. Defendant Harry H. Cullen is and has been at all
relevant times a director of Pennzoil and is a member of its Compensation and
Executive Committees.
5. Defendants Howard H. Baker, W.J. Bovaird and Brent
Scowcroft are and have been at all relevant times directors of Pennzoil and are
members of its Finance Committee.
6. Defendant W.L. Lyons Brown, Jr. is and has been at
all relevant times a director of the Company and is a member of its Audit
Committee.
7. Defendant Ernest H. Cockrell is and has been at all
relevant times a director of the Company and is a member of its Audit,
Compensation and Executive Committees.
8. Defendant Alfonso Fanjul is and has been at all
relevant times a director of the Company and is a member of its Compensation
Committee.
9. Defendant Berdon Lawrence is and has been at all
relevant times a director of the Company and is a member of its Executive
Committee.
10. Defendant Cyril Wagner, Jr. is and has been at all
relevant times a director of the Company and is Chairman of its Audit
Committee.
- 2 -
<PAGE> 3
11. The Individual Defendants set forth in paragraphs 3-10
above are officers and/or directors of Pennzoil and as such, are in a fiduciary
relationship with plaintiff and the other public stockholders of Pennzoil and
owe to plaintiff and other members of the class the highest obligations of good
faith, fair dealing and full disclosure.
CLASS ACTION ALLEGATIONS
12. Plaintiff brings this case 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 public stockholders of Pennzoil, and their successors in
interest, who are or will be threatened with injury arising from defendants'
actions as more fully described herein (the "Class"). Excluded from the Class
are defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any of the defendants.
13. This action is properly maintainable as a class
action.
(a) The class is so numerous that joinder of all
members is impracticable. As of February 28, 1997, there were 46,897,455 shares
of Pennzoil stock outstanding, held by more than 18,500 shareholders of record
located throughout the United States;
(b) There are questions of law and fact which are
common to the Class and which predominate over questions affecting any
individual Class member, including
- 3 -
<PAGE> 4
whether the Individual Defendants have breached their fiduciary duties owed to
plaintiff and other members of the class;
(c) Defendants have acted and will continue to
act on grounds generally applicable to the Class, thereby making appropriate
final injunctive or corresponding declaratory relief with respect to the Class
as a whole;
(d) A class action is superior to other methods
for the fair and efficient adjudication of the claims herein asserted and no
unusual difficulties are likely to be encountered in the management of this
class action. The likelihood of individual class members prosecuting separate
claims is remote;
(e) Plaintiff is committed to the prosecution of
this action and has retained competent counsel experienced in litigation of
this nature. Plaintiff's claims are typical of the claims of other members of
the Class and plaintiff has the same interests as the other members of the
Class. Accordingly, plaintiff is an adequate representative of the Class and
will fairly and adequately protect the interests of the Class.
14. Plaintiff does not anticipate any difficulty in the
management of this litigation as a class action.
- 4 -
<PAGE> 5
BACKGROUND AND CLAIM FOR RELIEF
15. Pennzoil is a natural resource company engaged in
exploring for, producing, refining and marketing oil, gas and refined petroleum
products. Its subsidiary, Richland Development Corporation, manages Pennzoil's
real estate holdings and provides staff support, while its Jiffy Lube business
provides retail oil change and lubrication services.
16. On June 23, 1997, Union Pacific Resources Group, Inc.
("Union Pacific") announced that it had offered $6.4 billion in cash, stock and
assumed debt for Pennzoil (the "Union Pacific Proposal"). Pursuant to the
terms of the Union Pacific Proposal, Union Pacific offered to acquire 50.1
percent of Pennzoil's approximately 46.7 million outstanding shares (the
"tender offer") for $84 per share, in cash and, if the tender offer is
successful, to acquire the remaining 49.9 percent of Pennzoil's shares in a
stock swap also valued at $84 per share.
17. The $84 per share price contemplated in the Union
Pacific Proposal represents a 41 percent premium to the closing price of $59
4/8 on Friday, June 20, the last trading day prior to the announcement of the
Union Pacific Proposal.
18. The reaction of the investment community to the Union
Pacific Proposal has been extremely positive.
- 5 -
<PAGE> 6
Pennzoil's shares rose more than $23 to as much as $83 shortly after the
announcement of the Union Pacific Proposal.
19. Petri Parkman & Co. analyst Paul Leibman stated
commented on the attractiveness of the Union Pacific Proposal to Pennzoil
shareholders:
Union Pacific's production has been growing by 10
percent a year, and Pennzoil's has not grown. Part
of what's being offered to Pennzoil's shareholders is
a company with a demonstrably better track record.
20. In contrast to the positive reaction of the
investment community, Pennzoil merely announced that it would review the Union
Pacific Proposal and would issue a response thereto on or before July 7.
21. The Company however, is clearly resistant to the
Union Pacific Proposal and, indeed, any business combination, as reflected by
its reported rejection of an $80 offer by Union Pacific on June 10.
22. Moreover, Pennzoil has an array of antitakeover
devices in place designed to thwart hostile bids for the Company, including a
shareholder rights plan (the "poison pill") which provides for the distribution
of one Preferred Stock Purchase Right ("PSPR") for each common share. The
PSPRs become exercisable after a person or group acquires 15% of Pennzoil's
common shares, or announces an offer to acquire 15% of such shares. Upon
becoming exercisable, the PSPRs can begin to trade separately from
- 6 -
<PAGE> 7
the Company's common shares. Upon exercising the PSPRs, the holder of such
rights is entitled to purchase from Pennzoil one one-hundredth (1/100th) of a
share of newly issued junior participating preferred stock $140.
23. In the event Pennzoil is involved in a merger or
other business combination after the PSPRs become exercisable, the PSPR would
be modified to entitle the holder to buy a number of the acquiring company's
common shares having a market value of twice the exercise price of each PSPR.
If a 15% holder acquires Pennzoil by means of a reverse merger in which the
Company and its shares survive, each right not owned by such acquiror would
become exercisable for the number of Pennzoil common shares leaving a market
value of twice the exercise price of the right.
24. Union Pacific has commenced actions in this Court and
in the United States District Court for the Northern District of Texas and the
Middle District of Louisiana seeking declaratory judgment directing Pennzoil's
board to lift the Company's anti-takeover defenses, including the
above-described poison pill, alleging that the defenses unlawfully prevent
Pennzoil's shareholders from participating in the tender offer and will
"entrench Pennzoil's management."
25. In a letter written to defendant Pate, Union
Pacific's Chairman Jack Messman, noting that Pennzoil has failed to meet its
growth objectives, has reportedly accused
- 7 -
<PAGE> 8
Pate of wrongfully refusing to discuss an acquisition, stating that:
[y]our repeated rejections of our efforts to initiate
discussions regarding a merger have been a delaying
tactic, providing time to allow you to try to develop
yet another strategic plan . . . Pennzoil's
shareholders could justifiably conclude that any new
plan, and its projections, will be similarly
unsuccessful and designed primarily to entrench the
status quo at Pennzoil.
FIRST CLAIM FOR RELIEF
26. At all times herein, defendants were and are
obligated to adequately consider, in a timely fashion and on an informed basis,
any reasonable proposal from any party, not to place their own self-interests
and personal considerations ahead of the interests of the stockholders, and to
make corporate decisions in good faith.
27. Defendants' fiduciary obligations require them to:
(a) arrange for the sale of Pennzoil to the
highest bidder, including obligating them to undertake an appropriate
evaluation of any bona fide offers, provide non-public information to such
offerors to enable them to make the highest possible bid for the Company and
take such other appropriate steps to solicit the highest possible bid for the
Company; and
(b) act independently, including appointing a
disinterested committee so that the interests of Pennzoil's public stockholders
would be protected.
- 8 -
<PAGE> 9
28. By virtue of the acts and conduct alleged herein, the
Individual Defendants, who direct the actions of the Company, have breached
their fiduciary duties owed to plaintiff and other class members are carrying
out a preconceived plan and scheme to entrench themselves in office and to
protect and advance their own parochial interests at the expense of Pennzoil.
Defendants' conduct has been a breach of their fiduciary obligation and has
violated the mandate of the Company's shareholders to maximize value. The
Individual Defendants have not exercised and are not exercising independent
business judgment and have acted and are acting to the detriment of the Class.
The defendants' negative response to the Union Pacific Proposal is an
uninformed knee-jerk reaction made without adequate information as to what
Union Pacific would be prepared to offer in a fully negotiated transaction, so
that defendants can maintain their positions in control of the company.
29. Moreover, Defendants have refused to take those steps
necessary to ensure that the Company's public shareholders will receive maximum
value for their shares of Pennzoil common stock. Defendants' failure to pursue
negotiations regarding an acquisition with Union Pacific or any other company
is clearly the result of a desire by the Individual Defendants to protect their
own substantial salaries, perquisites and positions with the Company.
- 9 -
<PAGE> 10
30. As a result of the foregoing, the Individual
Defendants have breached and/or aided and abetted breaches of fiduciary duties
owed to Pennzoil and its stockholders. Unless corrected, this conduct will
continue to be wrongful, unfair, and harmful to Pennzoil's shareholders.
31. Unless enjoined by this Court, defendants will breach
their fiduciary duties owed to plaintiff and the other members of the Class and
may benefit themselves in their corporate offices, all to the irreparable harm
of the Class, as aforesaid.
32. Plaintiff and the other members of the Class have no
adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows;
1. declaring this to be a proper class action;
2. ordering the Individual Defendants to carry
out their fiduciary duties to plaintiff and the other members of the Class by
taking all steps necessary to arrange for the sale of Pennzoil to the highest
bidder, including the following:
(a) cooperate fully with any person or entity,
having a bona fide interest in proposing any transaction which would maximize
shareholder value, including, but not limited to, a buyout or takeover of the
Company by Union Pacific;
- 10 -
<PAGE> 11
(b) undertake an appropriate evaluation of
Pennzoil's worth as a merger/acquisition candidate;
(c) take all appropriate steps to enhance
Pennzoil's value and attractiveness as a merger/acquisition candidate;
(d) take all appropriate steps to effectively
expose Pennzoil to the marketplace in an effort to create an active auction for
Pennzoil;
(e) act independently so that the interests of
Pennzoil's public stockholders will be protected; and
(f) adequately ensure that no conflicts of
interest exist between the Individual Defendant's interests and their fiduciary
obligation to maximize stockholder value or, if such conflicts exist, to ensure
that all conflicts are resolved in the best interests of Pennzoil's public
stockholders;
3. ordering defendants, jointly and severally, to
account to plaintiff and the other members of the Class for all damages
suffered and to be suffered by them as a result of the acts and transactions
alleged herein;
4. requiring defendants to utilize the poison pill in a
manner consistent with maximizing shareholder value;
5. awarding plaintiff the costs and disbursements of the
action, including a reasonable
- 11 -
<PAGE> 12
allowance for plaintiffs attorney's fees and experts' fees; and
6. granting such other and further relief as this Court
may deem to be just and proper.
Dated: June 24, 1997
ROSENTHAL MONHAIT GROSS
& GODDESS, P.A.
By: /s/ Norman Monhait
--------------------------------
Joseph A. Rosenthal
Suite 1401
919 Market Street
Wilmington, DE 19899
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
GOODKIND LABATON RUDOFF &
SUCHAROW LLP
100 Park Avenue
New York, New York 10017
(212) 907-0700
GARWIN BRONZAFT GERSTEIN & FISHER
1501 Broadway
New York, NY 10036
(212) 398-0055
- 12 -
<PAGE> 1
EXHIBIT 28
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
ALAN CAPLAN,
Plaintiff, Case No. 15781NC
-against-
JAMES L. PATE, HOWARD H. BAKER,
HARRY M. CULLEN, GERALD B. SMITH,
W.J. BOVAIRD, W.L. LYONS BROWN, JR.,
ERNEST H. COCKRELL, ALFONSO FANJUL,
BERDON LAWRENCE, BRENT SCOWCROFT,
CYRIL WAGNER, JR. and PENNZOIL COMPANY, COMPLAINT
Defendants.
Plaintiff, by his attorneys, alleges upon information and
belief, except as to paragraph 1 which plaintiff alleges upon knowledge, as
follows:
1. Plaintiff Alan Caplan is and was, at all times
relevant to this action, a stockholder of defendant Pennzoil Company
("Pennzoil" or the "Company").
2. Defendant Pennzoil is a corporation duly organized
and existing under the laws of the state of Delaware, with principal offices
located at 700 Milan Street, Houston, Texas. As of January 31, 1997, there
were over 46.8 million shares of Pennzoil common stock outstanding. Pennzoil
explores for and produces oil and gas, motor oil and automotive products, mines
and markets sulphur, and owns and operates automotive lubrication and
maintenance centers under the name "Jiffy Lube".
<PAGE> 2
3. Defendant James L. Pate ("Pate") is and was, at all
times relevant hereto, Chairman of the Board of Directors, Chief Executive
Officer and President of Pennzoil.
4. Defendants Howard H. Baker, Harry M. Cullen, Gerald
B. Smith, W.J. Bovaird, W.L. Lyons Brown, Jr., Ernest H. Cockrell, Alfonso
Fanjul, Berdon Lawrence, Brent Scowcroft and Cyril Wagner, Jr. are and were,
at all times relevant hereto, members of Pennzoil's Board of Directors
(collectively, with Pate, referred to herein as the "Individual Defendants").
5. By reason of their positions as officers and
directors of Pennzoil, each Individual Defendant has a fiduciary relationship
and responsibility to plaintiff and the other common public stockholders of
Pennzoil and owes to plaintiff and the other class members the highest
obligations of good faith and fair dealing.
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 Pennzoil, or their successors in interest,
who are being and will be harmed by defendants' actions described below (the
"Class"). Excluded from the Class are defendants herein and any person, firm,
trust, corporation, or other entity related to or affiliated with any of
defendants.
7. This action is property maintainable as a class
action because:
-2-
<PAGE> 3
(a) The Class is so numerous that joinder of all
members is impracticable. There are over 18,500 Pennzoil stockholders of record
who are located throughout the United States;
(b) There are questions of law and fact which are
common to the Class and which predominate over questions affecting any
individual Class members, including: whether the Individual Defendants have
engaged or are continuing to act in a manner calculated to benefit themselves
at the expense of the Pennzoil public stockholders; and whether plaintiff and
the other Class members would be irreparably damaged if the defendants are not
enjoined in the manner described below; and
(c) Plaintiff is committed to prosecuting this
action and has retained competent counsel experienced in litigation of this
nature. The claims of plaintiff are typical of the claim of the other members
of the Class and plaintiff has the same interests as the other members of the
Class. Accordingly, plaintiff is an adequate representative of the Class and
will fairly and adequately protect the interests of the Class.
CLAIM FOR RELIEF
8. On June 23, 1997, it was announced that Union Pacific
Resources Group Inc. ("Union Pacific"), the largest independent U.S. energy
exploration and production concern, made an unsolicited offer to acquire rival
Pennzoil for cash and stock valued at approximately $4 billion. Union Pacific
is offering $84 per share in cash for 25.1 million shares of Pennzoil, or
slightly more than half of its 46.8 million shares
- 3 -
<PAGE> 4
outstanding. If successful, Union Pacific would then use its stock to purchase
the 49% of Pennzoil in a tax-free transaction also valued at $84 per share.
The exact ratio will be set prior to completion but if the Union Pacific
exchange-ratio price is less than $25 per share or more than $30 per share, the
ratio will be fixed at 2.8 shares or 3.36 shares.
9. Union Pacific's offer was communicated via letter
from Jack Messman ("Messman"), chairman and Chief Executive Officer of Union
Pacific, to defendant Pate. In the letter, Mr. Messman stated his belief "that
by working together, we have the opportunity to accomplish the best strategic
merger in the energy business in recent history." Union Pacific reportedly
decided to make a hostile bid after its overtures to Pennzoil were rebuffed.
10. The Messman letter described above states that Union
Pacific has been trying to discuss a merger for four months. Messman quoted
from a letter he received from defendant Pate in 1995 (when Pennzoil is rumored
to have approached the former parent of Union Pacific about an acquisition of
Union Pacific) in which Pate said that Pennzoil "provide the best possible fit"
with Union Pacific and that the "combined entity would become the "premier
exploration and production company in the world."
11. Messman said that he wrote to Pate earlier this month
offering $80 per share for a friendly deal, but that offer was rejected. There
has been no indication that Union Pacific has been invited to negotiate with
Pennzoil. Messman has expressed his view that because Pennzoil has an array of
anti-takeover devices, including a poison
- 4 -
<PAGE> 5
pill shareholder rights plan and a staggered board, Union Pacific's sole
recourse was to go to the Pennzoil stockholders. Messman said, however, "we
would still like to do a friendly deal." According to analyst Jay Wilson of
J.P. Morgan, Union Pacific has hinted it would raise its offer if that would
result in a friendly deal.
12. The $84 per share price being offered by Union
Pacific for Pennzoil represents a 40% premium over its $59 5/8 closing price on
Friday, June 20, 1997, the last trading date before the offer. As observed by
Bear Stearns & Co. analyst Dirk Van Doren, Union Pacific is offering 8.9 times
Pennzoil's estimated 1997 cash flow, while Pennzoil usually trades at 5 to 7
times cash flow. As phrased by Van Doren, "it's a pretty expensive price."
Union Pacific's offer sent Pennzoil's shares soaring $17.75 or 30% to close at
$77.375 on June 23, 1997.
13. The benefits of the combined company have been
identified by Messman and others as including: a 9% increase in cash flow in
the first year; Pennzoil stockholders would have stock in a company whose
management has delivered production growth of 10% per year while Pennzoil's
drilling has been hampered by its high debt load; that the combined company
would better balance the mix of oil and natural gas produced and rank first
among the independent oil and as companies in production, drilling activity and
cash flow; and would be a good geographic fit, with both companies operating in
east and south Texas, the Rocky Mountain region and Gulf of Mexico.
14. Pennzoil has a shareholders rights plan in place
which is intended to make an unwanted takeover prohibitively expensive. That
plan (the "Preferred Stock
- 5 -
<PAGE> 6
Purchase Rights Plan") (referred to hereinafter as the "Poison Pill") was
adopted in October 1994. Pursuant to the Poison Pill, Pennzoil declared a
dividend of one "Preferred Stock Purchase Right" (hereafter, the "Rights") for
each share of common stock owned. The Rights are exercisable under specific
circumstances, including a hostile tender offer like the Union Pacific offer,
and allow the Rights holders to purchase Pennzoil common stock at a price far
below market value. The intent and effect of the exercise of the Rights is to
make a hostile offer to acquire Pennzoil prohibitively expensive for a
potential acquiror not approved by the Pennzoil board. Under these
circumstances, the Board essentially has ultimate veto power over any hostile
offer.
15. Because the Pennzoil board has been presented with an
extremely attractive takeover bid by Union Pacific, not the type of inadequate
bid a stockholder rights plan is intended to thwart, it has a fiduciary
obligation to seriously consider the Union Pacific offer and should vote to
remove this impediment so that the Pennzoil stockholders can themselves decide
how to vote.
16. An additional impediment to the Union Pacific offer
is posed by the fact that Pennzoil has "opted in" to the protection of the
Delaware Anti-takeover Statute, 8 Del. C. Section 203. Pursuant to Section
203, only an unsolicited offer which results in the purchase of 85% or more of
Pennzoil's shares outstanding may be consummated promptly without the approval
of Pennzoil's directors. By adopting Section 203, the Pennzoil board has
enacted yet another anti-takeover mechanism which presents an impediment to the
Union Pacific offer.
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17. In light of the foregoing, the Individual Defendants
must, as their fiduciary obligations require:
o undertake an appropriate evaluation of
Pennzoil's worth as a merger/acquisition
candidate;
o take all appropriate steps to enhance
Pennzoil's value and activeness as a
merger/acquisition candidate;
o take all appropriate steps to effectively
expose Pennzoil to the marketplace in an
effort to create an active auction for
Pennzoil, including but not limited to
engaging in serious negotiations with Union
Pacific or its representatives;
o act independently so that the interests of
Pennzoil's public stockholders will be
protected; and
o adequately ensure that no conflicts of
interest exist between defendants' own
interests and their fiduciary obligation to
maximize stockholder value or, if such
conflicts exist, ensure that all conflicts be
resolved in the best interests of Pennzoil's
public stockholders; and
o lift Pennzoil's and-takeover devices,
including its poison pill shareholder rights
plan, which unlawfully prevent Pennzoil
stockholder from participating in the Union
Pacific offer and which serve to entrench
Pennzoil's management.
18. As a result of defendants' failure to take such steps
to date, plaintiff and the other members of the Class have been and will be
damaged in that they have not and will not receive their proportionate share of
the value of the Company's assets and business, and have been and will be
prevented from obtaining a fair price for their common stock.
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19. Unless enjoined by this Court, defendants will
continue to breach their fiduciary duties owed to plaintiff and the other
members of the Class, by entrenching themselves in office (as Pennzoil's top
management and directors, who may be unable to retain those positions in the
event of a merger) and/or failing to take the steps set forth in paragraph 17
hereof, and by denying the Class its fair proportionate share of Pennzoil's
valuable assets and businesses, all to the irreparable harm of the Class.
20. Plaintiff and the other members of the Class have no
adequate remedy at law.
WHEREFORE, plaintiff prays for judgment and relief as follows:
A. Ordering that this action may be maintained as a class action
and certifying plaintiff as Class representative;
B. Entering an order requiring defendants to take the steps set
forth hereinabove;
C. Awarding compensatory damages against defendants individually
and severally in an amount to be determined upon the proof submitted to this
Court;
D. Awarding plaintiff his costs and disbursements, including
reasonable counsels' fees and experts' fees; and
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E. Granting such other and further relief as to the Court may
seem just and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
/s/
------------------------------
919 Market Street
Suite 1401, Mellon Bank Center
Wilmington, Delaware 19801
(302) 656-4433
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<PAGE> 10
OF COUNSEL:
ABBEY, GARDY & SQUITIERI, LLP
212 East 39th Street
New York, New York 10016
Telephone. (212) 889-3700
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<PAGE> 1
EXHIBIT 29
IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -------------------------------------------- )
MARILYN AXLER, as custodian for )
Benjamin Axler, )
)
Plaintiff, ) C. A. No. 15777
)
- against - )
)
PENNZOIL COMPANY, JAMES L. PATE, )
HOWARD E. 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. )
- -------------------------------------------- )
Plaintiff, as and for her complaint, alleges upon information
and belief, except as to herself, which she 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
threat posed by UPR. The actions of the Individual Defendants constitute a
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breach of their Fiduciary duties to Pennzoil and its shareholders.
THE PARTIES
2. Plaintiff Marilyn Axler as custodian for Benjamin
Axler 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
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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 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 her 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 and 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
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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.
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.
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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 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.
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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 supramajority 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.
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
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refusal continued even after we sent a specific proposal to you on
June 10th 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.
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
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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
acquiror 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
third-party's
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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 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.
Defendants' 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
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with UPR and/or other potential acquirors, which they have failed to do.
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.
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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 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
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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 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
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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
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:
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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;
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;
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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. Dated: June 25, 1997
ROSENTHAL, MONHAIT, GROSS &
GODDESS, P.A.
By: /s/ Norman Monhait
------------------------------------
1401 Mellon Bank Center
Suite 1401
Post Office Box 1070
Wilmington, Delaware 19899
(302) 656-4433
Attorneys for Plaintiff
Of Counsel:
LAW OFFICES OF LAWRENCE G. SOICHER
100 Park Avenue
20th floor
New York, NY 10022
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<PAGE> 16
MILBERG WEISS BERSHAD HYNES &
LERACH LLP
One Pennsylvania Plaza
New York, NY 10119-0165
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