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Making efforts to prevent hostile takeover

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 of contract.

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

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