A company filed a lawsuit with a Texas court on May 9, in an effort to
prevent another's attempts at a hostile takeover. The claim was filed
with Jefferson County District Court and the plaintiff, Gulfco Holding
Corp., is being represented by legal counsel from Delaware and Ohio. The
lawsuit names Prospect Capital Corp., Gulf Coast Machine & Supply
Co., Prospect Capital Funding L.L.C. and three board members appointed
by Prospect. Gulfco claims the defendants committed fraud, breach of fiduciary
duty, breach of covenant for good faith and fair dealing as well as breach
The inception of the complaint stems from a 2012 acquisition, in which
Gulfco's majority stakeholder, Altus Capital Partners II L.P., secured
the winning bid for the GCMSC subsidiary. The merger was funded through
Gulfco by utilizing $29 million in equity from shareholders and a term
loan from Prospect for $42 million. However, the plaintiff claims that
neither party was aware that Prospect placed a bid on the subsidiary as well.
The plaintiff claims that Prospect then began applying financial pressure
through allegations of various violations, default notices and increased
interest rates issued by PNC Bank, Prospect's lien holder. Gulfco
claims Prospect attempted an unexpected takeover on Nov. 8, 2012, through
rights provided in the initial loan agreement. Prospect replaced Gulfco's
board of directors and then absorbed 99 percent ownership of GCMSC from Gulfco.
Gulfco claims that faulty documents and faulty corporate governance procedures
were used to achieve these changes. The plaintiff also claims that Prospect
used confidential corporate information to improve on its own subsidiary,
a direct competitor with GCMSC. Gulfco filed Chapter 11 bankruptcy on
Nov. 11, 2012, to protect its assets from the attempted
acquisitions. Since the bankruptcy lawsuit was dismissed shortly thereafter, Gulfco
is now seeking a permanent injunction and a restraining order to safeguard
its business from Prospect.
Source: The Southeast Texas Record, "
Company asks court for permanent injunction to stop takeover", Melody Dareing, June 11, 2014