Opinion ID: 478360
Heading Depth: 2
Heading Rank: 2

Heading: The Exchange Offer

Text: 5 In March 1981, Integrated, an independent company formed in 1979 to acquire oil and gas properties, distributed a prospectus (the Prospectus) in which it offered to exchange shares of its common stock for interests in oil and gas properties (the Exchange Offer). Bache Halsey Stuart Shields (Bache) was to serve as dealer manager for the Exchange Offer. The first page of the Prospectus stated the procedure by which Integrated proposed to determine the number of shares to be exchanged for each interest tendered: 6 The number of shares of Common Stock issuable for tendered Interests will be determined by dividing the exchange values (the Exchange Values) of such interests by $10, an arbitrary figure which has been established for the purpose of making the Exchange Offer. The Exchange Values of Interests tendered will be based upon available engineering estimates and other information. 7 The Prospectus detailed the risk factors present in the Exchange Offer, including the following: 8 Although no market currently exists for the shares of [Integrated's] Common Stock, management of [Integrated] believes that a market will develop. However, no assurance can be given that a market will develop or as to the prices at which the Common Stock will trade. The market value of the Common Stock may be significantly less than the Exchange Values of the Interests tendered to and accepted by [Integrated].... 9 ... Because of the diversity of Interests which may be tendered and the subjective nature of oil and gas reserve estimates, and because the determination of Exchange Values depends upon subjective judgments of [Integrated], there can be no assurance that the Exchange Values of all interests tendered to and accepted by [Integrated] will be consistent or that actual values of Interests acquired by [Integrated] will equal their Exchange Values. To the degree that such Exchange Values are not consistent, certain accepting Holders may benefit more from the Exchange Offer than others. See Limitations on Determination of Exchange Values, below. 10 This section of the Prospectus also stated that the ultimate value of any Interest tendered may be substantially more or less than the Exchange Value assigned to such Interest. 11