Opinion ID: 478360
Heading Depth: 2
Heading Rank: 3

Heading: OFS'S Participation in the Exchange Offer

Text: 12 By letter dated May 7, 1981 (the May 7 Letter), OFS sent to Mayer and the other limited partners a copy of Integrated's Prospectus, together with copies of articles from The New York Times, Fortune magazine, and Legal Times of Washington about the Integrated Exchange Offer. The May 7 Letter stated in part as follows: 13 We have not determined whether to accept the Integrated proposal or not, but feel we should proceed with the [independent appraiser's] evaluation of your wells. Once the reservoir report is completed, we will make a decision based on the results.... 14 .... 15 In the event we accept the exchange, it is our intention to distribute the shares to the partners. It goes almost without saying that we are moving from a reservoir and production risk to a price risk on the stock, for the period you hold the stock. 16 The market risk should be somewhat ameliorated by the fact that Bache is simultaneously underwriting Integrated's shares at $10 per share and would have strong incentive to protect the market. The conventional wisdom as set forth in the Fortune article is that the stocks initially go down while people who exchange liquidate their interest, and then zestily rebound. 17 (Emphasis in original.) The accompanying article from Fortune described a number of stocks whose prices had risen after such an exchange, and it referred prominently to the likelihood of the initial market price of the stock being low when many former limited partners take advantage of the opportunity to cash in. However, it did not state that stock prices thereafter usually rise but said only that if shares are priced too low, 'the market will recognize this and the stock will go up.'  18 In August 1981, OFS agreed, following negotiations with Integrated and the receipt of an independent appraisal of the partnership properties, to have its partnerships participate in the Exchange Offer. Integrated issued a Prospectus Supplement dated September 11, 1981, listing the exchange values of the partnership interests tendered, including those of OFS. The Prospectus Supplement stated that [t]he number of shares of Common Stock issuable for the Interests has been determined by dividing the Exchange Values of such Interests by $10.00, an arbitrary figure which has been established for the Purpose of making the Exchange Offer, and that 19 [t]he prices at which the Common Stock may trade following the consummation of the Exchange Offer may be significantly less than the $10 used to determine the number of shares issuable for Interests, and may bear no relationship to the Exchange Values or the fair market values of the tendered Interests. 20 The Prospectus Supplement also stated that Bache was acting as dealer manager for the Exchange Offer. The Prospectus required that partnerships that agreed to the exchange reconfirm their tenders prior to October 15, 1981; failure to reconfirm would constitute a withdrawal of the tender. OFS sent its reconfirmation letter on September 22. The Prospectus stated that Integrated intended to exchange its shares for the partnership interests as soon as practicable after October 15, but that partnerships could withdraw their reconfirmations at any time up to the actual exchange date. 21 OFS sent the limited partners a copy of Integrated's Prospectus Supplement on or about September 15. The covering letter stated that the partners as a group would be entitled to 99% of the Integrated shares until the program reached payout. By letter dated October 6, OFS informed the limited partners that the Exchange Offer had a projected closing date of October 15, 1981, and that the Integrated shares would thereafter be sent directly to each limited partner. The letter stated that [f]or the purpose of both determining the number of shares to be issued by Integrated as well as determining when pay-out is reached the $10.00 exchange price has been applied. The letter sent to Mayer contained a handwritten indication of the precise number of shares Mayer would receive. 22 Integrated sent no communications to Mayer regarding OFS's use of the $10 figure to calculate payout, and OFS sent no further communications to the limited partners regarding the Exchange Offer. The actual closing of the Exchange Offer took place on November 10, 1981. The Integrated shares began trading on the American Stock Exchange on November 12, 1981, and opened at $4 7/8 per share.