<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-20849
RUTHERFORD-MORAN OIL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0499690
(State or Other Jurisdiction (I.R.S. Employer
Incorporation of Organization) Identification No.)
</TABLE>
5 GREENWAY PLAZA, SUITE 220, HOUSTON, TEXAS 77046
(Address of Principal Executive Offices and Zip Code)
(713) 622-5555
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrants listed under the Table of
Additional Registrants (1) have filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter prior that such registrants were required to file
such reports), and (2) have been subject to such filing requirements for the
past 90 days. Yes [ ] No [X]
As of August 1, 1998, there were 25,614,000 shares of common stock, $.01
par value, of the registrant outstanding.
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TABLE OF ADDITIONAL REGISTRANTS
Each of the following subsidiaries of Rutherford-Moran Oil Corporation, and
each other subsidiary that is or becomes a guarantor of the 10 3/4% Senior
Subordinated Notes Due 2004 of the Company, is hereby deemed to be a registrant.
<TABLE>
<CAPTION>
I.R.S.
STATE OR OTHER INDUSTRIAL EMPLOYER
JURISDICTION OF CLASSIFICATION IDENTIFICATION
NAME INCORPORATION NUMBER NUMBER
---- --------------- -------------- --------------
<S> <C> <C> <C>
Thai Romo Limited...................... Kingdom of Thailand 1311 76-0435668
Thai Romo Holdings, Inc................ Delaware 1311 76-0511017
Rutherford-Moran Exploration Company... Delaware 1311 76-0321674
</TABLE>
Rutherford-Moran Oil Corporation (the "Company") is a holding corporation
that owns all of its assets and conducts all of its business through its
subsidiary, Thai Romo Limited ("Thai Romo") and its affiliate, B8/32 Partners,
Ltd. ("B8/32 Partners"), each a company existing under the laws of Thailand. The
Company is the parent company of Rutherford-Moran Exploration Company ("RMEC")
and Thai Romo Holdings, Inc. ("TRH"), which collectively own the outstanding
shares of Thai Romo, except for certain nominal interests. TRH owns 46.34% of
B8/32 Partners. No separate financial information for RMEC, TRH, Thai Romo or
B8/32 Partners has been provided or incorporated by reference in this report
because: (1) the Company does not itself conduct any operations, but rather all
operations of the Company and its subsidiaries are conducted by Thai Romo and
B8/32 Partners; (ii) the Company has no material assets other than its ownership
in RMEC, TRH, Thai Romo and B8/32 Partners; and (iii) substantially all of the
assets and liabilities shown in the consolidated financial statements of the
Company are located in RMEC, TRH, Thai Romo and the Company's proportionate
interest in B8/32 Partners.
<PAGE> 3
RUTHERFORD-MORAN OIL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997*
------------- --------------
<S> <C> <C>
Revenues:
Oil and gas revenue....................................... $ 9,014 $10,868
Interest income........................................... 132 66
-------- -------
Total revenues.................................... 9,146 10,934
Expenses:
Operating expense......................................... 6,540 6,316
Exploration costs......................................... (568) 53
Dry hole costs............................................ 1,042 --
Interest expense.......................................... 4,478 1,730
Depreciation, depletion and amortization.................. 6,725 4,306
General and administrative................................ 1,909 1,320
Foreign exchange loss..................................... 1,264 --
(Gain) loss on futures contract........................... (151) 135
-------- -------
Total expenses.................................... 21,239 13,860
-------- -------
Loss before income tax benefit.............................. (12,093) (2,926)
Income tax benefit.......................................... (3,351) (928)
-------- -------
Net loss.................................................... $ (8,742) $(1,998)
======== =======
Net loss per share.......................................... $ (0.34) $ (0.08)
======== =======
Weighted average number of common shares outstanding........ 25,614 25,613
======== =======
</TABLE>
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* Restated
See accompanying notes to unaudited condensed consolidated financial statements.
2
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RUTHERFORD-MORAN OIL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1997*
------------- --------------
<S> <C> <C>
Revenues:
Oil and gas revenue....................................... $ 16,935 $15,597
Interest income........................................... 185 94
-------- -------
Total revenues.................................... 17,120 15,691
Expenses:
Operating expense......................................... 12,182 9,642
Exploration costs......................................... (482) 159
Dry hole costs............................................ 2,469 --
Interest expense.......................................... 8,948 2,648
Depreciation, depletion and amortization.................. 12,371 6,071
General and administrative................................ 3,737 2,767
Foreign exchange gain..................................... (918) --
(Gain) loss on futures contract........................... (780) 135
-------- -------
Total expenses.................................... 37,527 21,422
-------- -------
Loss before income tax benefit.............................. (20,407) (5,731)
Income tax benefit.......................................... (6,593) (1,817)
-------- -------
Net loss.................................................... $(13,814) $(3,914)
======== =======
Net loss per share.......................................... $ (0.54) $ (0.15)
======== =======
Weighted average number of common shares outstanding........ 25,614 25,611
======== =======
</TABLE>
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* Restated
See accompanying notes to unaudited condensed consolidated financial statements.
3
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RUTHERFORD-MORAN OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 465 $ 1,979
Accounts receivable....................................... 3,778 10,457
Value added tax receivable................................ 9,419 5,579
Joint interest receivable................................. 9,060 2,169
Other..................................................... 970 1,916
-------- --------
Total current assets.............................. 23,692 22,100
Property and equipment (successful efforts method).......... 273,467 238,651
Accumulated depreciation, depletion, and amortization....... (30,046) (18,002)
-------- --------
Net property and equipment........................ 243,421 220,649
Deferred charges:
Loan acquisition costs, net............................... 6,974 8,493
Escrowed funds, net....................................... 15,188 21,263
Deferred charges.......................................... 517 1,026
Deferred income tax....................................... 12,762 6,169
-------- --------
Total deferred assets............................. 35,441 36,951
-------- --------
Total assets...................................... $302,554 $279,700
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 6,481 $ 16,695
-------- --------
Total current liabilities......................... 6,481 16,695
Note payable to bank........................................ 116,300 69,000
10.75% senior subordinated notes............................ 120,000 120,000
Premium on written option................................... 69 625
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized, and 25,614,000 shares issued and
outstanding at June 30, 1998 and December 31, 1997..... 256 256
Additional paid-in capital................................ 99,571 99,571
Deferred compensation..................................... (765) (906)
Accumulated deficit....................................... (39,358) (25,541)
-------- --------
Total stockholders' equity........................ 59,704 73,380
-------- --------
Total liabilities and stockholders' equity........ $302,554 $279,700
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
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RUTHERFORD-MORAN OIL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 _JUNE 30, 1997*
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(13,814) $ (3,914)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation, depletion, and amortization.............. 12,371 6,071
Amortization of deferred financing cost................ 1,316 281
Deferred income tax benefit............................ (6,593) (1,817)
Foreign exchange gain.................................. (918) --
Dry hole cost.......................................... 2,469 --
Other.................................................. 92 135
Changes in working capital............................. (12,617) (13,194)
-------- --------
Cash used in operating activities................. (17,694) (12,438)
Cash flows from investing activities:
Capital expenditures...................................... (37,286) (36,459)
Acquisition of Maersk Oil (Thailand), Limited, net of cash
acquired............................................... -- (29,414)
-------- --------
Cash used in investing activities................. (37,286) (65,873)
Cash flows from financing activities:
Deferred financing costs.................................. (123) --
Repayments under bank notes............................... (6,050)
Borrowings under bank notes............................... 53,350 81,951
Escrowed funds............................................ 6,075 --
-------- --------
Cash provided by financing activities............. 53,252 81,951
-------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (1,728) 3,640
Effect of foreign exchange rate on cash................... 214 --
Cash and cash equivalents, beginning of period............ 1,979 444
-------- --------
Cash and cash equivalents, end of period.................. $ 465 $ 4,084
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest.................. $ 10,675 $ 338
======== ========
Cash paid during the period for income tax................ $ -- $ --
======== ========
Supplemental disclosure of noncash investing and financing
activities:
Premium deferred and premium on written option............ $ (556) $ 388
======== ========
</TABLE>
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* Restated
See accompanying notes to unaudited condensed consolidated financial statements.
5
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RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
include all adjustments necessary to present fairly the consolidated financial
position of Rutherford-Moran Oil Corporation ("RMOC" or the "Company") at June
30, 1998 and December 31, 1997, and its results of operations for the three and
six months ended June 30, 1998 and 1997 and cash flows for the six months ended
June 30, 1998 and 1997. The financial statements herein should be read in
conjunction with the consolidated financial statements and notes to the
consolidated financial statements as of and for the year ended December 31,
1997, as included in the Company's annual report on Form 10-K.
(2) CHANGE IN ACCOUNTING PRINCIPLE
During the fourth quarter of 1997, the Company changed its method of
accounting for its investment in oil and gas properties from the full cost to
the successful efforts method. All prior period financial statements presented
herein have been restated to reflect the change.
Under the successful efforts method of accounting, costs of exploration,
including lease acquisition and intangible drilling costs associated with
exploration efforts which result in the discovery of proved reserves, and costs
associated with development drilling, whether or not successful, are
capitalized. Gain or loss is recognized when a property is sold or ceases to
produce or is abandoned. Estimated future expenditures for abandonment and
dismantlement costs, if material, are charged to operations utilizing the
units-of-production method based upon estimates of proved oil and gas reserves.
The cost of unproved leasehold is capitalized pending the results of
exploration efforts. Significant unproved leasehold costs are reviewed
periodically and a loss is recognized to the extent, if any, that the cost of
the property has been impaired. Exploratory dry holes, geological and
geophysical costs and delay rentals are expensed as incurred.
Capitalized drilling costs for oil and gas properties are amortized
utilizing the units of production method based on units of proved developed
reserves for each field. Lease acquisition costs related to producing oil and
gas properties are amortized using the units of production method based on units
of proved reserves for each field.
The effect of adopting the change in accounting principle during the three
and six months ended June 30, 1997 resulted in a decrease in net loss during the
period of approximately $623,000 (or $0.02 per share) and $798,000 (or $0.03 per
share), respectively.
The Company reviews proved oil and gas properties on a depletable unit
basis whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. An impairment loss is recognized whenever the
carrying value of an asset exceeds the fair value. Fair value, on a depletable
unit basis, is estimated to be the present value of expected future net revenues
computed by application of estimated future oil and gas prices, production, and
expenses, as determined by management, over the economic life of the reserves.
No such impairment was recognized during the three and six months ended June 30,
1998 or 1997.
(3) OIL AND GAS PROPERTY ACQUISITION
On December 19, 1996, the Company, through its wholly-owned subsidiary,
Thai Romo, exercised its preferential right to purchase 46.34% of the
outstanding shares of Maersk Oil (Thailand) Limited ("MOTL"), a wholly-owned
subsidiary of Maersk Olie og Gas AS of Copenhagen, Denmark ("Maersk"). MOTL was
a former Co-Concessionaire in Block B8/32 (the "Block"), with a 31.67% interest
in the Concession. The purchase was consummated on March 3, 1997, with TRH, Thai
Romo's nominee under the
6
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RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Share Sales Agreement with Maersk, purchasing the shares for $28,617,000, which
included $1,554,000 in satisfaction of outstanding debt. After the closing, MOTL
was renamed B8/32 Partners, Limited.
In connection with the purchase, the Company recorded $7,875,000 for the
deferred tax liability related to the excess of the acquisition price over the
tax basis of the MOTL property.
The remaining 53.66% of MOTL's stock was purchased by Thaipo Limited
("Thaipo") and by Palang Sophon Limited ("Palang") of Bangkok, Thailand. Thaipo,
Palang and MOTL were co-concessionaires with Thai Romo prior to the sale of
MOTL. As a result, RMOC's interest in Block B8/32 increased to a uniform 46.34%.
(4) DEBT
Credit Facility
On September 20, 1996, the Company entered into a $150 million Revolving
Credit Facility with a group of commercial lenders. The Revolving Credit
Facility has a final maturity of September 30, 1999, and contained an initial
borrowing base limitation of $60 million. On April 29, 1997, the borrowing base
limitation was redetermined to $120 million. Subsequent to the issuance of the
Company's 10.75% Senior Subordinated Notes ("the Notes") in September 1997, the
borrowing base was reset to $60 million. The Revolving Credit Facility is
secured by the stock of certain subsidiaries and affiliates of the Company.
On September 8, 1997, the Company entered into a Credit Agreement with
Chase Manhattan Bank for an additional borrowing of $5 million. The Credit
Agreement contains covenants substantially identical to those in the Revolving
Credit Facility. The Credit Agreement was repaid on September 29, 1997 with
proceeds from the Notes.
In December 1997, the Company and two of its lenders amended the Revolving
Credit Facility. The borrowing base was reset at a fixed amount of $150 million
until September 30, 1998 (or earlier upon the completion of certain new
financings or other specified events). The amended Revolving Credit Facility
provides that the Company pays interest at rates based on a margin of 1.75% over
LIBOR if the aggregate outstanding principal amount is less than or equal to a
threshold amount, which was set at $60 million, (the "Threshold Amount") a
margin of 2.75% over LIBOR if the principal amount outstanding is greater than
the Threshold Amount on or prior to June 30, 1998, and a margin of 3.50% over
LIBOR if the principal amount outstanding is greater than the Threshold Amount
after June 30, 1998. Alternatively, the Company may pay a margin over the prime
rate of 0.25%, 1% and 1.75% respectively, for similar levels of borrowings. The
Company's current borrowing rate is 3.50% over LIBOR. The Company is also
assessed a commitment fee equal to 0.5% per annum on the average daily balance
of the unused borrowing base.
The amended Revolving Credit Facility also provides for semi-annual
borrowing base redeterminations subsequent to September 30, 1998 as well as a
limitation on additional indebtedness, and the issuance of warrants to purchase
200,000 shares of common stock under specified circumstances. The warrants were
issued on July 10, 1998 with a seven year term and an exercise price of $21 per
share.
The amended Revolving Credit Facility also requires the Company to (i) make
principal payments from the proceeds of certain asset sales (ii) restrict the
payment of dividends under certain circumstances, and (iii) maintain an Earnings
Before Interest, Taxes, Non-Cash Expenses and Exploration Expenses ("EBITDAX")
to interest coverage ratio as follows: 1.5:1 for each quarter ending on or
before September 30, 1998 and 2.5:1 thereafter, such rates to be calculated
excluding interest payable from the interest escrow for the Notes. At March 31
and June 30, 1998 the lender waived the EBITDAX ratio covenant.
At June 30, 1998, approximately $116 million was outstanding under the
Revolving Credit Facility at an interest rate of 9.1875%.
7
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RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1998, the Company obtained a commitment from its lender to amend
and increase the amended Revolving Credit Facility (the "Commitment") from $150
million to $200 million. The maturity of the facility will be extended until
December 31, 1999 and the Threshold Amount maturity will be extended from
September 30, 1998 until after October 31, 1999, while the covenants under this
facility are substantially similar to those in the December 1997 amended
Revolving Credit Facility. Additionally, the Commitment will not require
borrowing base redeterminations. The Commitment provides for interest at rates
based on a margin of 4.50% over LIBOR or 3.00% over the lender's prime rate,
with further adjustments subsequent to January 1, 1999. The Company is also
assessed a commitment fee equal to 0.5% per annum on the balance of the unused
commitment. Under the terms of the Commitment the Company will incur certain
fees up to approximately six million dollars in the form of cash and shares of
the Company's common stock. Additional warrants representing up to 9% of the
Company's outstanding common stock may vest in favor of the lender through
December 31, 1998. The actual amount of such fees and additional warrants depend
upon the future occurrence of certain specified circumstances and events. In
addition, the exercise price on the existing 200,000 warrants will be reset from
$21 per share to $10.50 per share. The commitment is subject to the execution
and delivery of definitive documentation and certain customary conditions.
Under this Commitment, the Company is required to repay by November 1, 1999
all amounts borrowed in excess of the threshold amount ($56,300,000 at June 30,
1998).
The Company must raise substantial additional funds in addition to the
Commitment to continue to fund activities subsequent to the conclusion of 1998
at current or higher levels and to repay the principal amount of the loan
facility on November 1 and December 31, 1999, through some combination of the
following: further increases in the total amount of the loan facility, arranging
additional debt, equity or other financing, and obtaining other additional
sources of funds. If production revenues do not increase or reserves decline,
or, if the Company's expected levels of capital expenditures increase
materially, the Company may have limited ability to obtain the capital necessary
to undertake or complete current and future drilling programs. There can be no
assurance that increased bank lines, debt, equity or other financing or other
sources of funds will be available or that, if available, will be on terms
acceptable to the Company or sufficient to meet these or other corporate
requirements; however, the Company has explored several alternatives which it
believes should enable it to meet its capital commitments at an acceptable cost.
Notes
On September 29, 1997, the Company issued $120 million of Senior
Subordinated Notes due 2004 (the "Notes") at an annual interest rate of 10.75%.
The net proceeds were used to repay $93 million of outstanding indebtedness
under the Revolving Credit Facility and Credit Agreement and to purchase
approximately $24 million of securities which were escrowed to pay interest on
the Notes. The Notes contain customary covenants, including limitations on the
incurrence of additional indebtedness, restricted payments and the establishment
of certain liens.
In February 1998, the Company completed the exchange of the Notes, which
had been privately placed, for publicly registered notes. The new Notes
otherwise contain identical terms and conditions to the privately placed notes.
Additional bank borrowings by the Company are permitted under the indenture
pursuant to which the Notes were issued so long as the Company's indebtedness
does not exceed certain levels and it maintains certain ratios.
The Company expects to expend monies over the next several years to support
additional exploration and development activities in Block B8/32. Should the
Company not be able to access additional sources of funds over that period, the
Company might not generate sufficient cash flow to pay the principal and
interest on its outstanding debt.
8
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RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) ESCROWED FUNDS
In conjunction with the issuance of the Notes (See Note 4) the Company was
required to purchase $24,300,000 of U.S. Government securities and placed the
proceeds in escrow with a trustee. The amount of the securities purchased will
be sufficient to provide for payment in full of the first four semi-annual
installments of scheduled interest payments commencing April 1, 1998.
(6) CRUDE OIL HEDGING ACTIVITIES
During the first quarter of 1996, the Company entered into crude oil price
swaps with an affiliate of its lender in the amount of 1,000,000 barrels at
$15.92 per barrel for the period April through December of 1997, and in the
amount of 1,750,000 barrels at $15.92 per barrel for the year 1998. As the
Company's production in 1997 did not meet its swap obligation and the Company
expected that situation to continue in 1998, a portion of the Company's
obligation was considered speculative in 1997, marked to market and recognized
in consolidated net income.
During the first quarter of 1998, the Company entered into offsetting
positions for its entire 1998 swap position, thus resulting in no material
future exposure to the original swaps. The cost of establishing this position
was insignificant.
The Company also sold to an affiliate of its lender an option to purchase
1,250,000 barrels of aggregate oil volumes from January through December 1999 at
a price of $18.30 per barrel. The Company has accounted for the swap option
separately as it does not qualify as a hedge. At June 30, 1998, the Company
estimates the fair market value of this position to be $69,000 and has recorded
the amount as a liability on the consolidated balance sheet.
The Company has recorded a net gain of $151,000 in the Consolidated
Statement of Operations for the three months ended June 30, 1998 for the
increase in market value of the swap option as compared to a loss of $135,000
during the three months ended June 30, 1997.
(7) FOREIGN TRANSLATION GAIN/LOSS
Business transactions and foreign operations recorded in a foreign currency
are restated in U.S. Dollars, which is the Company's functional currency.
Revenues, operating and general and administrative expenses denominated in
currencies other than the functional currency are translated at an average
exchange rate for the period. Transaction gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other than
the functional currency are recognized in consolidated income in the year of
occurrence. Net current assets and liabilities are translated monthly at current
rates and recognized in consolidated income in the year of occurrence. Currency
translations resulted in a loss of $1,264,000 and a gain of $918,000 for the
three and six month periods ended June 30, 1998; no such gain or loss resulted
in the three and six month periods ended June 30, 1997.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the audited
consolidated financial statements as of and for the year ended December 31,
1997, included in the Company's annual report on Form 10-K.
The following discussion is intended to assist in understanding the
Company's financial position and results of operations for the three and six
month periods ended June 30, 1998. The unaudited condensed consolidated
financial statements and the notes thereto should be referred to in conjunction
with this discussion.
From time to time, the Company may elect to make certain statements that
provide the Company's stockholders and the investing public with
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "anticipate", "believe", "estimate",
"project", and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements may be made by management orally or in
writing, including, but not limited to, in press releases, as part of the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections of this report and as part of other sections of the
Company's filings with the Securities and Exchange Commission under the
Securities Act of 1933 and the Securities Exchange Act of 1934. Such
forward-looking statements may include, but not be limited to, statements
concerning estimates of current and future results of operations, earnings,
reserves, the timing and commencement of wells and the production therefrom,
production estimates based upon drill stem tests and other test data, future
capacity under its credit arrangements, and future capital expenditures and
liquidity requirements.
Such forward-looking statements are subject to certain risks, uncertainties
and assumptions, including without limitation, those identified below. Should
one or more of these risks or uncertainties materialize, or should any of the
underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated, estimated or projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements.
Among the factors that have a direct bearing on the Company's results of
operations and the oil and gas industry in which it operates are uncertainties
inherent in estimating reserves and future production and cash flows
particularly with respect to wells with limited production histories; access to
additional capital; changes in the price of oil and natural gas; the limited
exploration histories in Block B8/32; the status of the Company's existing and
future contractual relationships with the Government of Thailand, including the
Concession and the Gas Sales Agreement ("GSA"); risks associated with having the
Government of Thailand as the sole purchaser of the Company's gas production,
including the potential for political instability and economic downturns in the
Thailand economy and a reduction in demand for oil and natural gas in Thailand;
foreign currency fluctuation risks; the Company's substantial indebtedness, the
presence of competitors with greater financial resources and capacity;
difficulties and risks associated with offshore oil and gas exploration and
development operations and risks associated with offshore marine operations such
as capsizing, sinking, grounding, collision and damage from severe weather
conditions.
OVERVIEW
The Company began producing oil and gas from the Tantawan Field, its first
development in the Block, in February 1997. Prior to that time, the Company was
classified as a development stage company. As a result, the Company's historical
results of operations and period-to-period comparisons of such results, and
certain financial data may not be meaningful or indicative of future results. In
regard to the Company's financial condition, results of operations, future
growth and the carrying value of its proved reserves will depend substantially
on its ability to acquire or find and successfully develop additional oil and
gas reserves within the Block. The revenues expected to be generated by the
Company's future operations will be highly dependent upon production levels and
the prices of and demand for oil and natural gas. Natural gas produced from the
Company's Tantawan and Benchamas Fields is subject to the Gas Sales Agreement
("GSA") with the Petroleum Authority of Thailand ("PTT"), with prices subject to
semi-annual adjustment (or more frequent
10
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adjustments under certain circumstances) based on movements in, among other
things, inflation, oil prices and the Thai Baht/U.S. Dollar exchange rate. The
price received by the Company for its oil production and the level of production
will depend on numerous factors beyond the Company's control, including the
condition of the world economy, political and regulatory conditions in Thailand
and other oil and gas producing countries, and the actions of the Organization
of Petroleum Exporting Countries. Decreases in the prices of oil or gas could
have an adverse effect on the carrying value of the Company's proved reserves
and the Company's revenues, profitability, cash flow and borrowing base
availability under the Revolving Credit Facility.
During the fourth quarter of 1997, the Company changed its method of
accounting for its investment in oil and gas properties from the full cost to
the successful efforts method. Under the successful efforts method of
accounting, costs of exploration and development, including lease acquisition
and intangible drilling costs associated with exploration efforts which result
in the discovery of proved reserves and costs associated with development
drilling, whether or not successful, are capitalized. The cost of unsuccessful
exploration wells and geological and geophysical costs are expensed as incurred.
Gain or loss is recognized when a property is sold or ceases to produce and is
abandoned. Capitalized drilling costs of producing properties are amortized
utilizing the units-of-production method based on units of proved developed
reserves for each field. Lease acquisition cost related to producing oil and gas
properties are amortized utilizing the units of production method based on units
of proved reserves for each field. The change to this method resulted in no
impairment to long-lived assets in accordance with Statement of Financial
Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-Lived Assets to be Disposed of".
All prior period financial statements presented herein have been restated
to reflect the aforementioned change in accounting principle. See Note 2 to
unaudited condensed consolidated financial statements.
Since the latter half of 1997, many countries in Southeast Asia, including
Thailand, have experienced significant reductions in economic growth. The
Company does not believe that this situation, even if prolonged, will
significantly impact its business position. Natural gas produced in Thailand by
the Company and other producers is primarily used for electrical power
generation. The Company believes that its natural gas will displace either
imported crude oil, lignite or imported natural gas as power generation
feedstock, because domestic natural gas is cheaper to purchase, environmentally
preferable and enables the government to increase its U.S. Dollar reserves
during a period of economic uncertainty.
As the Company exports its crude oil to the highest bidder for U.S.
Dollars, it does not believe that the recent events in Thailand and other
countries in Southeast Asia will impact its ability to market crude oil.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998, Compared with Three Months Ended June 30,
1997.
The Company's net loss of $8,742,000 or $0.34 per basic and diluted share
increased from a net loss of $1,998,000 or $0.08 per basic and diluted share for
the three months ended June 30, 1997. The increase in net loss is primarily due
to higher interest expense caused by increased debt levels, depletion, dry hole
costs, foreign exchange losses and decreased revenues associated with production
from the Tantawan Field, net of related operating costs.
Sales volumes for the three months ended June 30, 1998, before royalties,
were 301,217 barrels of oil and 3,924,260 MCF of gas, compared to 242,326
barrels of oil and 3,756,798 MCF of gas, respectively, during the three months
ended June 30, 1997. Oil production volumes increased as four platforms were on
production during the three months ended June 30, 1998 as compared to two
platforms on production during the three months ended June 30, 1997, while gas
volumes were flat as the increase in production platforms offset a voluntary
reduction in the Daily Contract Quantity ("DCQ") by the PTT. This reduction was
requested by the Concessionaires for the period April - September 1998 as a
prudent reservoir management measure.
Operating expenses incurred for the three months ended June 30, 1998, were
$6,540,000 as compared to $6,316,000 during the three months ended June 30,
1997. Operating expenses increased due to additional Tantawan Field platforms
being on production in 1998.
11
<PAGE> 13
Dry hole cost was $1,042,000 for the three months ended June 30, 1998 and
represents costs associated with the Tantawan 19 that was an unsuccessful
exploratory well. There were no such unsuccessful exploratory wells for the
three months ended June 30, 1997. Exploration expense credits for the three
months ended June 30, 1997 are primarily attributable to the overaccrual of
Jarmjuree seismic cost recorded in the fourth quarter of 1997 that were reversed
in the second quarter of 1998 upon final accounting of such cost.
Interest expense of $4,478,000 for the three months ended June 30, 1998
increased compared to $1,730,000 for the three months ended June 30, 1997. This
is due to an increase in borrowings, higher annual interest rates associated
with the placement in September 1997 of $120 million 10.75% Senior Subordinated
Notes and higher amortization of deferred financing costs partially offset by
increases in capitalized interest.
Depreciation, depletion and amortization expense recorded for the three
months ended June 30, 1998, was $6,725,000 as compared to $4,306,000 for the
three months ended June 30, 1997. This increase is primarily due to increases in
the depletable base as well as decreases in proved reserves at Tantawan Field.
General and administrative expenses of $1,909,000 for the three months
ended June 30, 1998 increased compared to $1,320,000 for the three months ended
June 30, 1997. These increases were primarily attributable to activities related
to the review of strategic alternatives announced by the Company in 1998.
The Company had a foreign exchange loss of $1,264,000 for the three months
ended June 30, 1998, versus no foreign exchange loss for the three months ended
June 30, 1997. As the value of the Baht was linked to the dollar until July
1997, no foreign exchange exposure resulted during the three months ended June
30, 1997, while a decrease in the value of the Baht relative to the dollar
during the three months ended June 30, 1998 resulted in foreign exchange loss.
Six Months Ended June 30, 1998, Compared with Six Months Ended June 30, 1997
The Company's net loss of $13,814,000 or $0.54 per basic and diluted share
increased from a net loss of $3,914,000 or $0.15 per basic and diluted share for
the six months ended June 30, 1997. The increase in net loss is primarily
attributable to higher interest expense associated with increased debt levels,
depletion, dry hole costs, and operating expense partially offset by increased
oil and gas revenues and gains on foreign exchange and futures contracts.
Sales volumes for the six months ended June 30, 1998, before royalties,
were 416,972 barrels of oil and 8,123,278 mcf of gas, compared to 358,879
barrels of oil and 4,950,343 mcf of gas, for the six months ended June 30, 1997.
Operating expense incurred for the six months ended June 30, 1998, was
$12,182,000 as compared to $9,642,000 for the six months ended June 30, 1997.
This increase is primarily attributable to an increase in the number of
production platforms, as well as only five months of operating expense recorded
for the six months ended June 30, 1997 due to Tantawan production beginning in
February, 1997.
Dry hole cost was $2,469,000 for the six months ended June 30, 1998 and
represents costs associated with the Tantawan 18 and 19 that were unsuccessful
exploratory wells. No dry hole costs were recorded for the six months ended June
30, 1997. Exploration expense credits for the six months ended June 30, 1998 are
primarily attributable to the overaccrual of Jarmjuree seismic costs recorded in
the fourth quarter of 1998 that were reversed in the second quarter of 1998 upon
final accounting of such cost.
Interest expense of $8,948,000 for the six months ended June 30, 1998
increased compared to $2,648,000 for the six months ended June 30, 1997. Such
increase is primarily attributable to an increase in borrowings and higher
interest rates and amortization of deferred financing cost associated with the
placement of the Notes, partially offset by increases in capitalized interest.
Depreciation, depletion and amortization expense recorded for the six
months ended June 30, 1998 was $12,371,000 as compared to $6,071,000 for the six
months ended June 30, 1997. Such increase reflects increases in the depletable
base as well as decreases in Tantawan proved reserves.
12
<PAGE> 14
General and administrative expenses of $3,737,000 for the six months ended
June 30, 1998 increased compared to $2,767,000 for the six months ended June 30,
1997. These increases were primarily attributable to activities related to the
review of strategic alternatives announced by the Company in 1998.
The foreign exchange gain of $918,000 for the six months ended June 30,
1998 is attributable to a decrease in the value of the Baht in relation to the
U.S. Dollar. No foreign exchange gain was recorded for the six months ended June
30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the period from the inception of the Company on September 21, 1990
through June 30, 1998, the Company invested approximately $285 million primarily
for development and exploration activities conducted in the Block and the
acquisition of interests in or rights to the Concession. During this period, the
Company had negative operating cash flow. Since its inception, the Company has
financed its growth with a combination of equity infusions by its principal
stockholders (primarily Messrs. Rutherford and Moran), bank and stockholders
loans, the sale of common stock and, most recently net proceeds of $117,000,000
from the issuance of 10.75% Senior Subordinated Notes ("Notes").
In June 1996, RMOC completed an initial public offering which resulted in
RMOC raising net proceeds of approximately $97 million. The proceeds were used
to repay outstanding debt to the Company's principal stockholders, repay bank
debt, and fund cash expenditures.
On September 20, 1996, the Company entered into a $150 million Revolving
Credit Facility ("Revolving Credit Facility") with a group of commercial
lenders. The Revolving Credit Facility matures on September 30, 1999 and
contains a borrowing base limitation. The Revolving Credit Facility is secured
by the stock of certain subsidiaries and affiliates of the Company.
On September 29, 1997, the Company issued $120 million of Notes. The net
proceeds from this offering were used to repay $93 million of outstanding debt
under the Revolving Credit Facility and the Credit Agreement and to purchase a
portfolio of U.S. Government obligations of approximately $24 million, which is
sufficient to provide for payment in full when due, of the first four scheduled
interest payments on the Notes. The indenture pursuant to which the Notes were
issued (the "Indenture") imposes customary financial and other restrictions on
the Company and its subsidiaries.
In December 1997, the Company and two of its lenders amended the Revolving
Credit Facility. The borrowing base was reset at a fixed amount of $150 million
until September 30, 1998 (or earlier upon the completion of certain new
financings or other specified events). The amended Revolving Credit Facility
provides that the Company pays interest at rates based on a margin of 1.75% over
LIBOR if the aggregate outstanding principal amount is less than or equal to a
threshold amount, which was set at $60 million, (the "Threshold Amount"), a
margin of 2.75% over LIBOR if the principal amount outstanding is greater than
the Threshold Amount on or prior to June 30, 1998, and a margin of 3.50% over
LIBOR if the principal amount outstanding is greater than the Threshold Amount
after June 30, 1998. Alternatively, the Company may pay a margin over the prime
rate of 0.25%, 1% and 1.75% respectively, for similar levels of borrowings. The
Company's current borrowing rate is 3.50% over LIBOR. The Company is also
assessed a commitment fee equal to 0.5% per annum on the average daily balance
of the unused borrowing base.
The amended Revolving Credit Facility also provides for semi-annual
borrowing base redeterminations subsequent to September 30, 1998 as well as a
limitation on additional indebtedness, and the issuance of warrants to purchase
200,000 shares of common stock under specified circumstances. The warrants were
issued on July 10, 1998 with a seven year term and an exercise price of $21 per
share.
The amended Revolving Credit Facility also requires the Company to (i) make
principal payments from the proceeds of certain asset sales (ii) restrict the
payment of dividends under certain circumstances, and (iii) maintain an Earnings
Before Interest, Taxes, Non-Cash Expenses and Exploration Expenses ("EBITDAX")
to interest coverage ratio as follows: 1.5:1 for each quarter ending on or
before September 30, 1998 and 2.5:1 thereafter, such rates to be calculated
excluding interest payable from the interest escrow for the Notes. At March 31
and June 30, 1998 the lender waived the EBITDAX ratio Covenant.
13
<PAGE> 15
At June 30, 1998, approximately $116 million was outstanding under the
Revolving Credit Facility at an interest rate of 9.1875%.
In August 1998, the Company obtained a commitment from its lender to amend
and increase the amended Revolving Credit Facility (the "Commitment") from $150
million to $200 million. The maturity of the facility will be extended until
December 31, 1999 and the Threshold Amount maturity will be extended from
September 30, 1998 until October 31, 1999, while the covenants under this
facility are substantially similar to those in the December 1997 amended
Revolving Credit Facility. Additionally, the Commitment will not require
borrowing base redeterminations. The Commitment provides for interest at rates
based on a margin of 4.50% over LIBOR or 3.00% over the lender's prime rate,
with further adjustments subsequent to January 1, 1999. The Company is also
assessed a commitment fee equal to 0.5% per annum on the balance of the unused
commitment. Under the terms for the Commitment the Company will incur fees up to
six million dollars in the form of cash and shares of the Company's common
stock. Additional warrants representing up to 9% of the Company's outstanding
common stock may vest in favor of the lender through December 31, 1998. The
amount of such fees and additional warrants depend upon the future occurrence of
certain specified circumstances and events. In addition, the exercise price on
the existing 200,000 warrants will be reset from $21 per share to $10.50 per
share. The Commitment is subject to the execution and delivery of definitive
documentation and certain customary condition.
Under this Commitment, the Company is required to repay by November 1,
1999, all amounts borrowed in excess of the Threshold Amount ($56,300,000 at
June 30, 1998).
At the Concessionaires' request, PTT reduced its maximum gas nomination
from 115% of DCQ to 100% of DCQ thereby effectively reducing production from
approximately 100 MMCF/D to approximately 85 MMCF/D, between May and September
1998. This reduction reflects a prudent reservoir management measure to insure
that the Concessionaires have adequate production capacity to meet gas
nominations during that period. By October 1, 1998, the Company expects to
produce at a level of 115% of DCQ, which the Company believes PTT will nominate
at that time.
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploration, development and production of oil
and natural gas reserves. Since its inception, the Company has financed these
expenditures primarily through a combination of equity infusions by its
principal stockholders, bank and stockholder loans, the issuance of the Notes
and the sale of common stock. The Company made approximately $37,286,000 in
capital expenditures during the six months ended June 30, 1998, and currently
expects capital expenditures for 1998 to be in the range of $100-110 million, of
which approximately 70% to 80% is budgeted for development of the Benchamas
Field. The Company also expects to expend monies over the next several years to
support additional exploration and development activities in the Block. Should
the Company not be able to access additional sources of funds over that period,
the Company might not generate sufficient cash flow to pay the principal and
interest on its outstanding debt. The Company expects to fund these activities
in the near-term with additional bank borrowings under the loan facility.
The Company must raise substantial additional funds in addition to the
Commitment to continue to fund activities subsequent to the conclusion of 1998
at current or higher levels and to repay the principal amount of the loan
facility on November 1 and December 31, 1999, through some combination of the
following: further increases in the total amount of the loan facility, arranging
additional debt, equity or other financing, and obtaining other additional
sources of funds. If production revenues do not increase or reserves decline,
or, if the Company's expected levels of capital expenditures increase
materially, the Company may have limited ability to obtain the capital necessary
to undertake or complete current and future drilling programs. There can be no
assurance that increased bank lines, debt, equity or other financing or other
sources of funds will be available or that, if available, will be on terms
acceptable to the Company or sufficient to meet these or other corporate
requirements; however, the Company has explored several alternatives which it
believes should enable it to meet its capital commitments at an acceptable cost.
On January 22, 1998, the Company announced that it intends to explore
various strategic alternatives regarding the ongoing development of its interest
in the Block. Such alternatives include the possible merger
14
<PAGE> 16
or sale of the Company which process is ongoing. There can be no assurance that
this process will result in any transaction.
CHANGING OIL PRICES
The Company is dependent on crude oil prices, which have historically been
volatile. The Company may use crude oil price swaps and other similar
arrangements to hedge against potential adverse effects of fluctuations in
future prices for the Company's future oil production. While the swaps are
intended to reduce the Company's exposure to declines in the market price of
crude oil, they may limit the Company's gain from increases in the market price.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS 133). The statement standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize these items as assets or
liabilities in the statement of financial positions and measure them at fair
value. The Standard is effective as of the beginning of the first quarter of the
fiscal year beginning after June 15, 1999. The Company is evaluating the effects
SFAS 133 may have on reported results.
YEAR 2000
All of the Company's computer systems located in its Houston headquarters
are Year 2000 compliant. The Operator of the Company's computer systems in
Thailand is currently in the process of reviewing its Year 2000 compliance. To
the extent that these systems are not Year 2000 compliant, the Operator believes
that it will not incur any material costs to implement any necessary changes to
these systems.
15
<PAGE> 17
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's amended Revolving Credit Facility provides for the issuance
to its commercial lenders of warrants to purchase common stock of the Company if
the Company fails to attain certain levels of principal reduction under such
facility. On July 10, 1998, warrants to purchase 200,000 shares of Common Stock
were issued to the lenders pursuant to the warrant agreement. The warrants have
a seven year term and an exercise price of $21 per share. Under the terms of the
Commitment the exercise price will be reset at $10.50 per share. The Company
received no proceeds from the issuance of the warrants.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 -- Rutherford-Moran Incentive Bonus Plan adopted by the Board of
Directors of the Company on May 7, 1998.
27 -- Financial Data Schedule
(b) Reports on Form 8-K
During the three month period ended June 30, 1998, the Company did not
file any Form 8-K reports.
II-1
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RUTHERFORD-MORAN OIL
CORPORATION
By: /s/ DAVID F. CHAVENSON
----------------------------------
David F. Chavenson
Vice President, Finance and Chief
Financial Officer and Treasurer
Dated:
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RUTHERFORD-MORAN EXPLORATION COMPANY
By: /s/ DAVID F. CHAVENSON
----------------------------------
David F. Chavenson
Treasurer and Director (Principal
Financial and Accounting
Officer)
Dated:
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THAI ROMO HOLDINGS, INC.
By: /s/ DAVID F. CHAVENSON
----------------------------------
David F. Chavenson
Treasurer and Director (Principal
Financial and Accounting
Officer)
Dated:
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THAI ROMO LIMITED
By: /s/ DAVID F. CHAVENSON
----------------------------------
David F. Chavenson
Director (Principal Financial and
Accounting Officer)
Dated:
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10 -- Rutherford-Moran Incentive Bonus Plan
27 -- Financial Data Schedule
99 -- The Commitment
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001012884
<NAME> Rutherford-Moran Oil Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 465
<SECURITIES> 0
<RECEIVABLES> 3,778
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,692
<PP&E> 273,467
<DEPRECIATION> 30,046
<TOTAL-ASSETS> 302,554
<CURRENT-LIABILITIES> 6,481
<BONDS> 120,000
0
0
<COMMON> 256
<OTHER-SE> 59,452
<TOTAL-LIABILITY-AND-EQUITY> 302,554
<SALES> 16,935
<TOTAL-REVENUES> 17,120
<CGS> 12,182
<TOTAL-COSTS> 35,527
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,948
<INCOME-PRETAX> (20,407)
<INCOME-TAX> (6,593)
<INCOME-CONTINUING> (13,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,814)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
<PAGE> 1
[CHASE MANHATTAN BANK LOGO]
THE CHASE MANHATTAN BANK CHASE SECURITIES INC.
270 Park Avenue 270 Park Avenue
New York, New York 10017 New York, New York 10017
August 13, 1998
Rutherford-Moran Oil Corporation
Commitment Letter
Rutherford-Moran Oil Corporation
5 Greenway Plaza
Suite 220
Houston, Texas 77046
Attention: David Chavenson
Vice President
and Chief Financial Officer
Ladies and Gentlemen:
You have advised Chase Manhattan Bank ("CHASE") and Chase Securities
Inc. ("CSI") that Rutherford-Moran Oil Corporation, a Delaware corporation (the
"BORROWER") desires to amend and restate its existing $150,000,000 revolving
credit facilities (as so amended, the "FACILITIES") to, among other things,
increase the aggregate principal amount thereof to up to $200,000,000. In that
connection, you have requested that CSI agree to structure, arrange and
syndicate the Facilities and that Chase commit to provide the entire principal
amount of the Facilities and to serve as Administrative Agent for the
Facilities.
CSI is pleased to advise you that it is willing to act as exclusive
advisor, arranger and book manager for the Facilities.
Furthermore, Chase is pleased to advise you of its commitment to
provide the entire amount of the Facilities upon the terms and subject to the
conditions set forth or referred to in this commitment letter (the "COMMITMENT
LETTER") and in the Summary of Terms and Conditions attached hereto as Exhibit A
(the "TERM SHEET"). We intend to syndicate the Facilities to a group of
financial institutions (together with Chase, the "LENDERS") identified by us in
consultation with you. Chase shall be relieved of its obligation to provide the
entire amount of
<PAGE> 2
2
the Facilities to the extent that the offers of Lenders other than Chase to
provide any portion of the Facilities are accepted.
CSI intends to commence syndication efforts promptly upon the
execution of this Commitment Letter (but in any event within 30 days), and you
agree actively to assist CSI in completing a syndication satisfactory to it.
Such assistance shall include (a) your using commercially reasonable efforts to
ensure that the syndication efforts benefit materially from your existing
lending relationships, (b) direct contact between senior management and
advisors of the Borrower and the proposed Lenders, (c) assistance in the
preparation of a Confidential Information Memorandum and other marketing
materials to be used in connection with the syndication and (d) the hosting,
with CSI, of one or more meetings of prospective Lenders.
It is agreed that Chase will act as the sole and exclusive
Administrative Agent and Collateral Agent, and that CSI will act as the sole
and exclusive advisor, arranger and book manager, for the Facilities, and each
will, in such capacities, perform the duties and exercise the authority
customarily performed and exercised by it in such roles. You agree that no
other agents, co-agents or arrangers will be appointed, no other titles will be
awarded and no compensation (other than that expressly contemplated by the Term
Sheet) will be paid in connection with the Facilities unless you and we shall
so agree.
CSI will manage all aspects of the syndication, including decisions
as to the selection of institutions to be approached and when they will be
approached, when their commitments will be accepted, which institutions will
participate, the allocations of the commitments among the Lenders and the
amount and distribution of fees among the Lenders. To assist CSI in its
syndication efforts, you agree promptly to prepare and provide to CSI and Chase
all information with respect to the Borrower and its subsidiaries and the other
transactions contemplated hereby, including all financial information and
projections (the "PROJECTIONS"), as we may reasonably request in connection
with the arrangement and syndication of the Facilities. You hereby represent
and covenant that (a) all information other than the Projections (the
"INFORMATION") that has been or will be made available to Chase or CSI by you
or any of your representatives is or will be, when furnished, complete and
correct in all material respects and does not or will not, when furnished,
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made
and (b) the Projections that have been or will be made available to Chase or
CSI by you or any of your representatives have been or will be prepared in good
faith based upon reasonable assumptions. You understand that in arranging and
syndicating the Facilities we may use and rely on the Information and
Projections without independent verification thereof.
As consideration for Chase's commitment hereunder and CSI's agreement
to perform the services described herein, you agree to pay to Chase the
non-refundable fees set forth in the Term Sheet.
Chase's commitment hereunder and CSI's agreement to perform the
services described herein are subject to (a) there not occurring or becoming
known to us any material adverse condition or material adverse change in or
affecting the business, operations, property, condition (financial or
otherwise) or prospects of the Borrower and its subsidiaries, taken as a
<PAGE> 3
3
whole, (b) our not becoming aware after the date hereof of any information or
other matter affecting the Borrower and its subsidiaries or the transactions
contemplated hereby which is inconsistent in a material and adverse manner with
any such information or other matter disclosed to us prior to the date hereof,
(c) there not having occurred a material disruption of or material adverse
change in financial, banking or capital market conditions that, in our
judgment, could materially impair the syndication of the Facilities, (d) our
satisfaction that prior to and during the syndication of the Facilities there
shall be no competing offering, placement or arrangement of any debt securities
or bank financing by or on behalf of the Borrower or any affiliate thereof, (e)
the negotiation, execution and delivery on or before September 29, 1998 of
definitive documentation with respect to the Facilities satisfactory to Chase
and its counsel ("Closing") and (f) the other conditions set forth or referred
to in the Term Sheet. The terms and conditions of Chase's commitment hereunder
and of the Facilities are not limited to those set forth herein and in the Term
Sheet. Those matters that are not covered by the provisions hereof and of the
Term Sheet are subject to the approval and agreement of Chase, CSI and the
Borrower.
You agree (a) to indemnify and hold harmless Chase, CSI, their
affiliates and their respective officers, directors, employees, advisors, and
agents (each, an "INDEMNIFIED PERSON") from and against any and all losses,
claims, damages and liabilities to which any such indemnified person may become
subject arising out of or in connection with this Commitment Letter, the
Facilities, the use of the proceeds thereof or any related transaction or any
claim, litigation, investigation or proceeding relating to any of the
foregoing, regardless of whether any indemnified person is a party thereto, and
to reimburse each indemnified person upon demand for any legal or other
expenses incurred in connection with investigating or defending any of the
foregoing, provided that the foregoing indemnity will not, as to any
indemnified person, apply to losses, claims, damages, liabilities or related
expenses to the extent they arise from the willful misconduct or gross
negligence of such indemnified person, and (b) to reimburse Chase, CSI and
their affiliates on demand for all out-of-pocket expenses (including,
syndication expenses, travel expenses, and reasonable fees, charges and
disbursements of counsel) incurred in connection with the Facilities and any
related documentation (including this Commitment Letter, the Term Sheet and the
definitive financing documentation) or the administration, amendment,
modification or waiver thereof. No indemnified person shall be liable for any
damages arising from the use by others of Information or other materials
obtained through electronic, telecommunications or other information
transmission systems or for any special, indirect, consequential or punitive
damages in connection with the Facilities.
You acknowledge that Chase and/or CSI may be providing debt financing,
equity capital or other services (including financial advisory services) to
other companies in respect of which you may have conflicting interests
regarding the transactions described hereby and otherwise. Neither Chase nor
CSI will use confidential information obtained from you by virtue of the
transactions contemplated hereby or other relationships with you in connection
with the performance by Chase or CSI of services for other companies, and
neither Chase nor CSI will furnish any such information to other companies.
You also acknowledge that neither Chase nor CSI has any obligation to use in
connection with the transactions contemplated hereby, or to furnish to you,
confidential information obtained from other companies.
<PAGE> 4
4
This Commitment Letter shall not be assignable by you without the prior
written consent of Chase and CSI (and any purported assignment without such
consent shall be null and void), is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This Commitment
Letter may not be amended or waived except by an instrument in writing signed by
you, Chase and CSI. This Commitment Letter may be executed in any number of
counterparts, each of which shall be an original, and all of which, when taken
together, shall constitute one agreement. Delivery of an executed signature page
of this Commitment Letter by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof. This Commitment Letter is
the only agreement that has been entered into among us with respect to the
Facilities and set forth the entire understanding of the parties with respect
thereto. This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter or the Term Sheet nor any of their terms or
substance shall be disclosed, directly or indirectly, to any other person except
(a) to your officers, agents and advisors who are directly involved in the
consideration of this matter or (b) as may be compelled in a judicial or
administrative proceeding or as otherwise required by law (in which case you
agree to inform us promptly thereof), provided, that the foregoing restrictions
shall cease to apply after this Commitment Letter his been accepted by you.
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof and of the Term Sheet by returning to as executed
counterparts hereof not later than 6:00 p.m., New York City time, on August 13,
1998. Chase's commitment and CSI's agreements herein will expire at such time in
the event Chase has not received such executed counterparts in accordance with
the immediately preceding sentence.
<PAGE> 5
CONFIDENTIAL RUTHERFORD-MORAN OIL CORPORATION
- -----------------------------------------------------------------------------
EXHIBIT A
This Summary of Terms and Conditions is for discussion purposes only. Any
commitment to lend is subject to completion of The Chase Manhattan Bank's due
diligence review and is further contingent upon formal approval by The Chase
Manhattan Bank and the execution and delivery of mutually acceptable legal
documentation. No commitment should be construed or implied herein until such
notice of formal approval is conveyed in writing to the Borrower.
RUTHERFORD MORAN OIL CORPORATION
US$200,000,000 REVOLVING CREDIT FACILITY
SUMMARY OF TERMS AND CONDITIONS
FACILITY
AMOUNT: US$200,000,000 Revolving Credit Facility (the "Facility").
BORROWER: Rutherford-Moran Oil Corporation, a Delaware corporation
(the "Borrower").
GUARANTORS: Rutherford-Moran Exploration Company, a Delaware
corporation ("RMEC"), Thai Romo Holdings, Inc., a Delaware
corporation ("TRH"), and Thai Romo Limited, a subsidiary of
the Borrower organized as a limited liability company under
the laws of the Kingdom of Thailand ("Thai Romo").
ARRANGER: Chase Securities Inc.("CSI")
AGENT: The Chase Manhattan Bank, or its successor, as sole agent.
REVOLVING CREDIT
AND FINAL MATURITY: The Facility will be fully revolving with advances limited
to the aggregate commitment amount. The final maturity of
the Facility ("Final Maturity") will be December 31, 1999.
DRAWDOWNS: Draws may be made in integral multiples of US$1,000,000.
Drawdown notices for the advance of funds will be supported
by affirmations and bring-downs of representations and
warranties.
SECURITY: Security for the Facility will consist of perfected, first
priority security Interests in the capital stock of RMEC and
TRH, the holders of all but five qualifying shares of Thai
Romo and all of the capital stock of Thai Romo and the
Borrower's indirect ownership interest in B8/32 Partners,
Limited, other than the five qualifying shares.
AMENDMENT FEE: 1.0% of the Existing Facility Amount of US$150,000,000
shall be due and payable to the Agent upon Closing of the
credit agreement.
TERMINATION
FEE: If at any time prior to September 29, 1998, the Company
elects to terminate this commitment and repays all
outstandings under the Existing Facility or does not close
the Facility on or before September 29, 1998, a $1,500,000
Termination Fee shall be immediately due and payable to the
Agent.
ARRANGEMENT FEE: 2.0% of the incremental US$50,000,000 shall be due and
payable to the Agent upon Closing of the credit agreement.
[CHASE LOGO]
1
<PAGE> 6
CONFIDENTIAL RUTHERFORD-MORAN OIL CORPORATION
________________________________________________________________________________
DRAWDOWN
FEE: 2.0% of the amount drawn above US$150,000,000 shall be
payable to the Agent upon Funding.
COMMITMENT
FEE: O.50% of the unused Commitment will be payable quarterly in
arrears.
THRESHOLD
AMOUNT: If, at any time after October 31, 1999, the aggregate
principal amount of the Loans shall exceed the Threshold
Amount at such time, the Borrower shall immediately prepay
Loans in an amount equal to such excess.
COMMITMENT
REDUCTION: The Borrower shall have the right at any time from time to
time (a) so long as no loans are outstanding, to terminate
the Commitment and (b) to reduce the aggregate unused amount
of the Commitment to an amount not less than the aggregate
principal amount of the loans outstanding.
INTEREST RATE: The Borrower may elect loans under the Facility at the Base
Rate or the Eurodollar Rate. A Base Rate loan shall bear
interest at a rate per annum equal to the higher of (a) the
Federal Funds Rate plus .50% and (b) the Agent's Prime Rate
for such day, plus a margin of 3.00%. A Eurodollar Rate loan
shall bear interest at a reserve-adjusted Eurodollar Rate,
plus a margin of 4.50%. Provided, however, that beginning
January 1, 1999, such margin shall increase by 100 basis
points and by an additional 100 basis points quarterly
thereafter.
Interest on Eurodollar loans and commitment fees shall be
computed on the basis of a year of 360 days and actual days
elapsed. Interest on Base Rate loans shall be computed on
the basis of year of 365 or 366 days, as the case may be,
and actual days elapsed.
EQUITY: Warrants representing 10% of the outstanding Common Shares
of the Company shall be placed into escrow and earned by the
Agent in accordance with the following schedule:
<TABLE>
<CAPTION>
% of Common Shares so long as anything
remains outstanding under the Facility, Date
- --------------------------------------- ----------
<S> <C>
1 at Closing
1 10/31/98
3 11/30/98
5 12/31/98
</TABLE>
However, to the extent the Company has a signed Purchase and
Sales Agreement with firm financing satisfactory to the
Agent, all non-vested equity will be deferred and held in
escrow. If the Company has not closed the Purchase and Sales
Agreement by December 31, 1998, all deferred equity held in
escrow shall vest to the Agent. If the Company closes the
Purchase and Sales Agreement by December 31, 1998, then all
deferred equity held in escrow will be returned to the
Company.
[CHASE LOGO]
2
<PAGE> 7
CONFIDENTIAL RUTHERFORD-MORAN OIL CORPORATION
- ---------------------------------------------------------------------------
EXISTING
WARRANTS: Existing warrants will be repriced to $10.50 per share.
INTEREST PERIODS
AND BORROWING
NOTICES: On Eurodollar loans interest periods of, 30, 60 and 90 days
will be available, provided, however, that no interest
period shall extend beyond Final Maturity. Borrowings of
Base Rate loans shall require one business day notice, and
borrowings of Eurodollar loans shall require three business
days' notice.
REQUIRED
PREPAYMENTS: If the aggregate amount outstanding under the Facility
exceeds the Commitment amount at any time the Borrower
will be required to reduce outstandings immediately.
OPTIONAL
PREPAYMENTS: The Borrower may elect to repay borrowings at any time
without penalty, except for Eurodollar loan breakage costs.
CUSTOMARY
LOAN
PROVISIONS: The documentation pertaining to the Facility will contain
customary provisions for the Agent's and Lenders' benefit
relating to yield protection; withholding and other tax
protection, illegality, market disruption or unavailability
of Eurodollar Rate funds (including a prime rate of
interest to be used as the default rate until such
disruption or unavailability ceases); general and special
indemnities; capital adequacy protection; break funding
protection; maintenance of margin; currency indemnities;
submission to jurisdiction of courts (federal and state)
sitting in New York City; customary waivers of immunities
and service of process; appointment of CT Corp. as process
agent In New York City; recovery of enforcement and
modification expenses; Eurodollar Rate setting provisions;
assignability/participation clauses in favor of the Agent
and the Lenders; and failure to fund provisions.
REPRESENTATIONS
AND WARRANTIES: Substantially the same as Existing Facility.
CONDITIONS
PRECEDENT: Substantially the same as Existing Facility.
AFFIRMATIVE
COVENANTS. Substantially the same as Existing Facility.
In addition, the Interest Coverage Ratio shall not be
calculated until 3/31/99 and shall be amended as follows:
The Borrower will not permit the Interest Coverage Ratio to
be less than (i) 1.25 to 1.0 as of the end of the fiscal
quarter ending 3/31/99 (ii) 1.50 to 1.0 as of the end of the
fiscal quarter ending 6/30/99 and (iii) 2.0 to 1.0 as of the
end of any fiscal quarter thereafter.
NEGATIVE
COVENANTS: Substantially the same as Existing Facility.
EVENTS OF
DEFAULT: Substantially the same as Existing Facility.
[CHASE LOGO]
3
<PAGE> 8
CONFIDENTIAL RUTHERFORD-MORAN OIL CORPORATION
- ------------------------------------------------------------------------------
APPLICABLE
LAW: The credit agreement, notes and security instruments shall
be governed by the laws of the State of New York.
OTHER: The Borrower shall be responsible for the fees of outside
independent engineers in connection with their preparation
of reports hereunder and the legal fees of Milbank, Tweed,
Hadley & McCloy (and to the extent necessary, legal counsel
in Thailand) incurred by the Agent and the Lenders in
connection with the negotiation, structuring, documentation,
administration or enforcement of the Facility, as supported
by detailed statements for said fees. The foregoing fees are
the sole obligation of the Borrower, whether or not the
transaction is closed.
[CHASE LOGO]
4
<PAGE> 9
5
Chase and CSI are pleased to have been given the opportunity to assist you
in connection with this financing.
Very truly yours,
THE CHASE MANHATTAN BANK
By: /s/ MARY JO WOODFORD
----------------------------
Name: Mary Jo Woodford
Title: Vice President
CHASE SECURITIES INC.
By:
----------------------------
Name:
Title:
Accepted and agreed to
as of the date first
written above by:
RUTHERFORD-MORAN OIL CORPORATION
By: /s/ [ILLEGIBLE]
--------------------------------
Name:
Title: VP
<PAGE> 10
5
Chase and CSI are pleased to have been given the opportunity to assist you
in connection with this financing.
Very truly yours,
THE CHASE MANHATTAN BANK
BY:
--------------------------
Name:
Title:
CHASE SECURITIES INC.
By: TOD C. BENTON
--------------------------
Name: Tod C. Benton
Title: Managing Director
Accepted and agreed to
as of the date first
written above by:
RUTHERFORD-MORAN OIL CORPORATION
By: [ Illegible]
------------------------
Name:
Title: VP
<PAGE> 11
REVISED 7/31/98
RUTHERFORD-MORAN INCENTIVE BONUS PLAN
1. PURPOSE
The purpose of this Plan is to continue the success of Rutherford-Moran Oil
corporation (the "Company") for the benefit of the Company and its shareholders
by encouraging and rewarding the continued employment of its officers and
employees in light of the possible change in ownership of the Company and to
reward such employees for prior and continued services to the Company. The
Company believes that participation under this Plan will provide these
employees an additional incentive to continue employment with the Company and
to perform effectively.
2. DEFINITIONS
"AWARD" means an award made to a Participant under Section 6.
"BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the
Company.
"CAUSE" means any of the following events:
(a) an act or acts of personal dishonesty made by a Participant and
intended to result in substantial personal enrichment of the Participant at
the expense of the Company;
(b) repeated violations by a Participant of a Participant's
obligations under this Plan or under written policies of the Company which
are demonstrably willful on a Participant's part, and for which said
Participant has received more than one written warning that specifies each
area of said Participant's violations;
(c) a Participant's conviction or plea of nolo contendere or
equivalent plea of a felony in a court of competent jurisdiction;
(d) a Participant's use of illegal drugs as evidenced by a drug test
authorized by the Company; or
(e) a Participant's conviction or the entry of a plea of nolo
contendere or equivalent plea in a court of competent jurisdiction of any
crime or offense involving moral turpitude.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(a) Any "person" (other than the Company or a subsidiary thereof or
any employee benefit plan thereof or any entity which is owned 50% or more
by John A. Moran and/or Patrick R. Rutherford), including a "syndicate" or
"group" as those terms are used in Section 13(d) of the Securities Exchange
Act of 1934
<PAGE> 12
(the "Exchange Act"), is or becomes the "beneficial owner" (as that term is
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting
power of the Company's then outstanding Stock; or
(b) The Company is merged or consolidated or combined in any other
manner with another corporation or entity and immediately after giving
effect to the merger or consolidation either (i) less than 80% of the
outstanding Stock of the surviving or resulting entity is then beneficially
owned in the aggregate by (x) the stockholders of the Company immediately
prior to such merger or consolidation, or (y) if a record date has been set
to determine the stockholders of the Company entitled to vote on such
merger or consolidation, the stockholders of the Company as of such record
date.
"COMMITTEE" means the Compensation Committee of the Board of Directors, or
any successor committee or members named by the Board of Directors.
"PARTICIPANT" means an employee of the Company named in Section 5, who is
eligible to participate in the Plan and who receives an Award under this Plan.
"PLAN" means this Rutherford--Moran Incentive Bonus Plan, as amended from
time to time.
"STOCK" means the common stock of the Company, $.01 par value or, in the
event the outstanding shares of common stock are later changed into or
exchanged for a different class of stock or securities of the Company or
another Corporation, that other stock or security.
3. TERM
This Plan and any Award issued hereunder shall be effective for one year
from March 1, 1998, unless amended by the Committee.
4. PLAN ADMINISTRATION
The Committee shall be responsible for administering this Plan. The
Committee shall have full and exclusive discretionary power to construe all
terms, provisions, conditions and limitations of this Plan, determine
eligibility for Awards, and adopt such rules, regulations and guidelines for
administering this Plan as the Committee may deem necessary or proper. Such
power shall include, but not be limited to, selecting Award recipients and
establishing terms and conditions of each Award, which need not be identical.
The Committee may employ attorneys, consultants, accountants and other
persons, and the Committee, the Company and its officers and directors shall be
entitled to rely upon the advice, opinions, calculations, or valuations of any
such persons. No member of the Committee shall be personally liable for any
action, determination, or interpretation made in good faith with respect to
this Plan or Awards, and all members of the Committee shall be fully protected
by the Company, to
-2-
<PAGE> 13
the fullest extent permitted by applicable law, in respect of any such action,
determination or interpretation.
The Committee, in exercising any power or authority granted under this
Plan, or in making any determination under this Plan, shall perform or refrain
from performing such acts using its sole discretion and judgment. Any decision
made by the Committee, or any act taken by the Committee in good faith, shall
be final and binding on all parties. The Committee's decision shall never be
subject to de novo review.
The Committee members shall serve without any additional compensation for
their services under this Plan, but shall be reimbursed by the Company for all
expenses properly and actually incurred in the performance of their duties
under this Plan.
5. ELIGIBILITY
The following employees are eligible to participate in the Plan:
Greg Nelson Rick Parson Kari Work
Daven Chavenson Greg Kirkland Tommy Williams
Don Charbula Tom Rankin
The Committee may delete an employee from this list and may add additional
employees to this list. Eligible employees who are designated by the Committee
to participate will receive an Award outlining the terms of the bonus payment
which could become payable if the specified terms are satisfied.
6. AWARDS
A. BONUS POOL. An Award granted under this Plan shall be based on a Bonus
Pool which is calculated as follows:
(SP) x (TNS) x (FP) = Bonus Pool
Where;
(SP) equals the sales or exchange price per share of Stock in a
transaction (sale, exchange, or merger) which constitutes a Change of
Control; and
(TNS) equals the total number of shares of Stock of the Company on the
Change of Control date on a fully diluted basis, which includes all
outstanding shares of Stock plus outstanding options to purchase shares
of Stock; and
(FP) equals the funding percentage used to calculate the Bonus Pool
determined as follows:
-3-
<PAGE> 14
<TABLE>
<CAPTION>
If the Sale/Exchange Price Is: The Funding Percentage Is:
----------------------------- -------------------------
<S> <C>
Below $25.00 0.434%
$25.00 - $29.99 0.463%
$30.00 - $34.99 0.499%
$35.00 - $39.99 0.524%
$40.00 - $44.99 0.543%
$45.00 and above 0.588%
</TABLE>
If a sale/exchange agreement for the Company is not executed on or before
October 1, 1998, the Bonus Pool calculated under this Section 6.A. shall be
increased by 15%.
B. TERMS OF AN AWARD. The terms of each Award shall be set forth in an
Award notice provided to each Participant. The Award notice will be
substantially in the form attached as Exhibit A; provided that the Committee
has discretion to modify each Award. Notwithstanding any other provision of
this Plan, each employee entitled to receive a bonus payment under this Plan
shall receive the greater of (1) the amount determined under Section 6.A. and
the Award granted to the employee or (2) an amount equal to twice the
employee's annualized base salary during the month preceding the month in which
a Change of Control occurs, plus twice the amount of the employee's last
annual bonus payment.
C. TIME AND METHOD OF PAYMENT. The bonus payment is due and payable in
cash as follows: (1) 50% of the bonus shall be paid at the Change of Control
date, and (2) 50% of the bonus shall be paid within 180 days after the Change
of Control date, subject to the provisions of Section 7.
7. TERMINATION OF EMPLOYMENT
PRIOR TO A BONUS BECOMING DUE
If a Participant's employment with the Company and all its Subsidiaries is
terminated for any reason other than death, disability, or without Cause at any
time before a Change of Control occurs, he shall not be entitled to a bonus
payment under this Plan. If a Participant's employment with the Company and all
Subsidiaries is terminated at any time before a Change of Control occurs by
reason of death or disability or without Cause, he shall be entitled to the
bonus payment as provided in Section 6.C., provided that the 50% of the bonus
described in Section 6.C.(2) shall be paid within 30 days of the Change of
Control date. Except as provided herein, each Participant must be employed by
the Company at the date of a Change of Control to be entitled to receive any
bonus under this Plan.
If a Participant's employment with the Company and all its Subsidiaries is
terminated for any reason other than death or disability, by the Company
without Cause, or by the Participant with Good Reason at any time between the
Change of Control date and 180 days thereafter, he shall not be entitled to
receive the remaining 50% of the bonus described in Section 6.C.(2). If a
Participant's employment with the Company and all Subsidiaries is terminated by
reason of death or disability, by the Company without Cause, or by the
Participant with Good Reason at any time between the Change of Control date and
180 days thereafter, he shall be entitled to receive the remaining 50% of the
-4-
<PAGE> 15
bonus described in Section 6.C.(2) on the date specified or within 30 days of
such termination of employment, if earlier.
As used in this Plan, "Good Reason" shall mean: (A) any material change by
the Company of the Participant's function, duties or responsibilities that
would cause the Participant's position with the Company to become of less
dignity, responsibility, importance or scope from the position held at the
Change of Control date, (B) a reduction in the Participant's compensation or
benefits, or (C) the Company requires the Participant to re-locate his/her
primary office to a location that is greater than 50 miles from the location of
the Company as of the Change of Control date.
As used in this Plan, "Cause" shall mean (A) any material failure of the
Participant, after written notice, to perform his/her normal duties when such
failure shall have continued for 10 days after receipt of such notice, (B)
commission of fraud by the Participant against the Company, its affiliates or
customers, (C) conviction of the Participant of a felony offense or a crime
involving moral turpitude.
The fact that any Participant fails to qualify or be entitled to an Award
under this Plan shall not increase the amount of any bonus amount paid to any
other Participant.
8. NONALIENATION OF AWARD
No Award, right or benefit under the Plan shall be assignable, alienable,
saleable or otherwise transferable or pledged in any way, other than by will or
the laws of descent and distribution.
9. AMENDMENT AND TERMINATION
The Committee may modify or amend the Plan in its sole discretion. However,
no amendment of this plan shall adversely affect any bonus which might be earned
during the period for which a Participant has been issued an Award.
10. TAX WITHHOLDING
The Company shall have the right to make appropriate deductions or require
cash be withheld from any bonus payment under an Award, in each case in an
amount sufficient to satisfy withholding of any federal, state or local taxes
required by law, or take such other action as may be necessary or appropriate to
comply with any withholding obligations.
11. LIMITATION OF RIGHTS
Nothing in this Plan shall be construed:
a. to give any employee of the Company any right to be designated a
Participant in the Plan or to receive an Award under this Plan;
-5-
<PAGE> 16
b. to give a Participant any right with respect to any benefit
except in accordance with the terms of this Plan;
c. to limit in any way the right of the Company to terminate a
Participant's employment with the Company at any time;
d. to evidence any agreement or understanding, expressed or implied,
that the Company will employ a Participant in any particular position or
for any particular remuneration; or
e. to give a Participant or any other person claiming through him
any interest or right under this Plan other than that of any unsecured
general creditor of the Company.
12. GOVERNING LAW
The validity, construction and effect of the Plan, and any actions taken or
relating to the Plan, shall be determined in accordance with the laws of the
State of Texas and applicable federal law.
13. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a Participant,
including, without limitation, the estate of such Participant and the executor
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
14. FORFEITURE FOR CAUSE
If the Committee finds, at any time before payment of an amount due under
an Award, after full consideration of the facts presented on behalf of both the
Company and a Participant or former Participant, that the Participant committed
fraud, embezzlement, theft, commission of a felony, or proven dishonesty in the
course of his employment by the Company, which damaged the Company, or
disclosed trade secrets of the Company, the entire amount due under any Award
which remains unpaid by the Company to the Participant and/or his Beneficiaries
shall be forfeited. The decision of the Committee as to the actions of a former
Participant and the damage done to the Company shall be final. No decision of
the Committee shall affect the finality of the discharge of a Participant by
the Company in any manner.
-6-
