<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1998
REGISTRATION NO. 333-49315
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 4 TO
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
PETROFINA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
(TRANSLATION OF REGISTRANT'S NAME IN ENGLISH)
KINGDOM OF BELGIUM
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
1311, 2911
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
NONE
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
------------------
<TABLE>
<S> <C>
52 RUE DE L'INDUSTRIE WILMER, CUTLER & PICKERING
B-1040 BRUSSELS, BELGIUM 2445 M STREET, N.W.
(32-2) 288 91 11 WASHINGTON, DC 20037
(ADDRESS, INCLUDING ZIP CODE, (202) 663-6000
AND TELEPHONE NUMBER, INCLUDING ATTENTION: RICHARD W. CASS
AREA CODE, OF REGISTRANT'S (NAME, ADDRESS, INCLUDING ZIP CODE,
PRINCIPAL EXECUTIVE OFFICES) AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE(2) FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary Voting Shares
without Nominal Value(3).. 400,680 Not applicable $13,413,750 $3,960(4)
- ----------------------------------------------------------------------------------------------------------------
Warrants................. 4,452,000 Not applicable Not applicable Not applicable(5)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Number of shares to be issued upon exercise of warrants issued in the merger
estimated solely for purposes of calculating the registration fee.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended. Based
on current market price of securities to be acquired by registrant, pursuant
to Rule 457(f).
(3) American Depositary Shares have been registered on a separate registration
statement on Form F-6 (File No. 333-34102).
(4) Pursuant to Rule 457(b), this amount has been offset against the filing fee
paid in connection with the filing of the Schedule 13E-3 on April 2, 1998.
(5) No separate registration fee is required pursuant to Rule 457(g).
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[FINA LOGO]
JULY 16, 1998
DEAR STOCKHOLDER:
A special meeting of stockholders of Fina, Inc. (the "Company") will be
held on August 5, 1998 to consider and vote upon a proposal to approve the
Agreement and Plan of Merger dated February 17, 1998 (as amended, the "Merger
Agreement") among the Company, PetroFina S.A., a Belgian corporation ("Parent"),
Petrofina Delaware, Incorporated, a Delaware corporation, and New Fina, Inc., a
Delaware corporation and an indirect, wholly-owned subsidiary of Parent
("Mergeco"). The Merger Agreement provides for the merger (the "Merger") of
Mergeco with and into the Company, with the Company being the surviving entity.
Parent now indirectly owns approximately 86% of the Company's outstanding
capital stock on a fully diluted basis.
Enclosed with this letter are a notice of special meeting, which sets forth
the time and location of the special meeting, and a Proxy Statement/Prospectus,
which describes in more detail the terms and conditions of the Merger and
discusses the background of and reasons for the Merger. Please carefully review
and consider the information in the Proxy Statement/Prospectus. Additional
information concerning the Company, including its 1997 Annual Report on Form
10-K, may be obtained from the Company as indicated in the Proxy
Statement/Prospectus under the section entitled "Incorporation of Certain
Documents by Reference."
In the Merger, each outstanding share of common stock, par value US $.50
per share, of the Company (the "Common Stock"), other than shares of Common
Stock held by Parent or any of its subsidiaries (which will be cancelled) will
be converted into the right to receive (i) US $60 plus (ii) one warrant (a
"PetroFina Warrant"), entitling the holder to purchase nine-tenths (0.9) of one
American Depositary Share (a "PetroFina ADS") representing one-tenth (0.1) of
one ordinary voting share of Parent for an exercise price of US $42.25 per
PetroFina ADS. The PetroFina Warrants will be exercisable for a period of five
years from the date of the Merger. A copy of the Merger Agreement is attached as
Annex B to the accompanying Proxy Statement/Prospectus. We urge you to read the
enclosed Proxy Statement/Prospectus for a description of the tax consequences of
the Merger.
Stockholders who do not wish to accept the merger consideration and who
fully comply with the procedures set forth in Section 262 of the Delaware
General Corporation Law ("DGCL"), the text of which is attached as Annex D to
the accompanying Proxy Statement/Prospectus, will be entitled to have their
shares of Common Stock appraised by the Delaware Court of Chancery and to
receive payment of the "fair value" of such shares together with a fair rate of
interest, if any, as determined by such court. To preserve their rights under
Section 262 of the DGCL, stockholders must either vote against the Merger or
withhold their proxies. Stockholders who vote in favor of the Merger or who
submit a blank proxy card will not be entitled to appraisal rights under Section
262 of the DGCL.
YOUR BOARD OF DIRECTORS, BASED UPON, AMONG OTHER THINGS, THE UNANIMOUS
RECOMMENDATION AND APPROVAL OF A SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
COMPRISED OF INDEPENDENT DIRECTORS (THE "SPECIAL COMMITTEE"), HAS DETERMINED
THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS
STOCKHOLDERS AND HAS APPROVED THE MERGER AGREEMENT AND THE MERGER. THE BOARD OF
DIRECTORS HAS RECOMMENDED THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR THE
ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
In arriving at its recommendation, the Special Committee gave careful
consideration to the factors described in the attached Proxy
Statement/Prospectus, including the written opinion, dated February 17, 1998, of
Goldman, Sachs & Co., financial advisor to the Special Committee, to the effect
that, as of such date and based upon and subject to the assumptions and
qualifications stated therein, the consideration to be
<PAGE> 3
received by holders of Common Stock, other than Parent and its affiliates,
pursuant to the Merger Agreement was fair from a financial point of view to such
holders.
The Merger will require the approval of a majority of the issued and
outstanding shares of Common Stock, and the satisfaction or waiver of other
conditions as described in the attached Proxy Statement/Prospectus. Parent
already has sufficient voting power to cause the approval and adoption of the
Merger Agreement without the affirmative vote of any other stockholder of the
Company. Parent will cause all shares of Common Stock controlled by it to be
voted in favor of the approval and adoption of the Merger Agreement.
In view of the importance of the action to be taken at the meeting, we urge
you to read the enclosed material carefully and to complete, sign and date the
enclosed proxy card and return it promptly in the enclosed prepaid envelope,
whether or not you plan to attend the meeting. If you attend the meeting in
person, you may, if you wish, vote your shares personally on all matters whether
or not you have previously submitted a proxy card.
Please do not send us your stock certificates at this time. If the Merger
becomes effective you will be advised of the procedure for surrendering your
certificates in exchange for the per share merger consideration of US $60 in
cash plus the PetroFina Warrant.
Sincerely yours,
/s/ RON W. HADDOCK
Ron W. Haddock
President and Chief Executive Officer
<PAGE> 4
FINA_LOGO
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF FINA, INC.
TO BE HELD AUGUST 5, 1998
TO THE STOCKHOLDERS OF FINA, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Fina,
Inc., a Delaware corporation (the "Company"), will be held on August 5, 1998 at
10:00 a.m. Central Daylight Savings Time, at the DoubleTree Hotel, 8250 North
Central Expressway, Dallas, Texas 75206 (the "Meeting") for the following
purposes:
(i) to consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of February 17, 1998 (the "Merger Agreement"),
among the Company, PetroFina S.A., a Belgian corporation ("Parent"),
Petrofina Delaware, Incorporated, a Delaware corporation, and New Fina,
Inc. a Delaware corporation and an indirect wholly-owned subsidiary of
Parent ("Mergeco"), providing for the merger (the "Merger") of Mergeco with
and into the Company, and the Company will be the surviving corporation,
and pursuant to which each outstanding share of common stock, par value US
$.50 per share, of the Company (the "Common Stock") (other than shares held
by Parent and its subsidiaries) will be converted into the right to receive
(i) US $60 plus (ii) one warrant (a "PetroFina Warrant") to purchase
nine-tenths (0.9) of one American Depositary Share (a "PetroFina ADS")
representing one-tenth (0.1) of one ordinary voting share of Parent for an
exercise price of US $42.25 per PetroFina ADS. The PetroFina Warrants will
be exercisable for a period of five years from the date of the Merger. A
copy of the Merger Agreement is attached as Annex B to the accompanying
Proxy Statement/Prospectus; and
(ii) to transact such other business as may properly come before the
Meeting, including any adjournment or postponement thereof.
Only holders of record of Common Stock at the close of business on July 13,
1998 are entitled to notice of, and to vote at, the Meeting and any adjournments
or postponements thereof.
All stockholders are cordially invited to attend the Meeting. To ensure
your representation at the Meeting, however, you are urged to mark, sign and
return the enclosed proxy card in the accompanying envelope, whether or not you
expect to attend the Meeting. No postage is required if mailed in the United
States. Any Company stockholder attending the Meeting may vote in person even if
that stockholder has returned a proxy card. Your proxy may be revoked in the
manner described in the accompanying Proxy Statement/Prospectus at any time
before it has been voted at the Meeting.
By order of the Board of Directors,
/s/ CULLEN M. GODFREY
Cullen M. Godfrey
Secretary
July 16, 1998
TO VOTE YOUR SHARES PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
PLEASE DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
<PAGE> 5
PETROFINA
PROSPECTUS REGARDING THE ISSUANCE OF UP TO 4,452,000 WARRANTS
AND UP TO 400,680 ORDINARY VOTING SHARES OF PETROFINA THAT MAY BE ISSUED UPON
EXERCISE OF THE WARRANTS
------------------------
FINA, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD AUGUST 5, 1998
------------------------
This Proxy Statement/Prospectus is being furnished to the stockholders of
Fina, Inc., a Delaware corporation (the "Company"), and relates to the Special
Meeting of Stockholders of the Company (the "Meeting") to be held on August 5,
1998. At the Meeting, stockholders of the Company will be asked to consider and
act upon the Agreement and Plan of Merger, dated as of February 17, 1998 (as
amended, the "Merger Agreement"), a copy of which is attached hereto as Annex B.
Pursuant to the Merger Agreement, (i) New Fina, Inc., a Delaware
corporation ("Mergeco") and an indirect, wholly-owned subsidiary of PetroFina
S.A., a Belgian corporation ("Parent"), will be merged (the "Merger") with and
into the Company, and the Company will be the surviving corporation and (ii)
each share of common stock, par value US $.50 per share, of the Company (the
"Common Stock" or the "Shares"), outstanding immediately prior to the effective
time of the Merger (the "Effective Time"), other than Shares owned by Parent or
its subsidiaries, will be converted into the right to receive (A) US $60 plus
(B) one warrant (a "PetroFina Warrant") to purchase nine-tenths (0.9) of one
American Depositary Share (a "PetroFina ADS"), each PetroFina ADS representing
one-tenth (0.1) of one ordinary voting share of Parent (a "PetroFina Share").
The PetroFina Warrants will be exercisable for a period of five years from the
date of the Merger and will have an exercise price of US $42.25 per PetroFina
ADS, subject to adjustment. Thus, a holder of 10 PetroFina Warrants may purchase
nine PetroFina ADSs for an aggregate purchase price of US $380.25. Parent
intends to seek listing of the PetroFina Warrants on The New York Stock
Exchange, Inc. ("NYSE").
Parent and its subsidiaries own 26,796,112 shares of the Common Stock
(which constitute approximately 86% of the issued and outstanding Common Stock
as of the record date for the Meeting). Parent has agreed to vote all of the
foregoing Shares in favor of the Merger. As a result, Parent already has
sufficient voting power to cause the approval and adoption of the Merger
Agreement.
------------------------
THE BOARD OF DIRECTORS OF THE COMPANY, BASED UPON, AMONG OTHER THINGS, THE
UNANIMOUS RECOMMENDATION AND APPROVAL OF THE SPECIAL COMMITTEE (AS DEFINED
BELOW), RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY VOTE FOR APPROVAL OF THE
MERGER AGREEMENT.
------------------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"). THE COMMISSION HAS
NOT PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 34, FOR INFORMATION THAT SHOULD BE
CONSIDERED REGARDING THE SECURITIES OFFERED HEREBY.
------------------------
This Proxy Statement/Prospectus and the accompanying proxy card are first
being mailed to the stockholders of the Company on or about July 16, 1998.
The date of this Proxy Statement/Prospectus is July 16, 1998.
<PAGE> 6
AVAILABLE INFORMATION
Parent and the Company are both subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
accordance therewith, Parent and the Company file reports and other information,
and the Company files proxy statements, with the Commission. Such reports, proxy
statements, and other information may be inspected and copied at the offices of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and the Regional Offices of the Commission at Northwestern Atrium
Center, 500 W. Madison, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade
Center, Suite 1300, New York, New York 10048. Such information filed by the
Company may also be accessed on the internet at http://www.sec.gov. Copies of
such materials may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The PetroFina ADSs are listed on the NYSE under the symbol
FIN, and copies of Parent's Exchange Act reports and other information
concerning Parent are available for inspection at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
Parent has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), on Form F-4 with respect to the securities offered hereby.
This Proxy Statement/Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain parts of which are omitted in
accordance with the rules of the Commission. Statements made in this Proxy
Statement/ Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be qualified in its entirety
by such reference. The Registration Statement and any amendments thereto,
including exhibits filed as part thereof, are available for inspection and
copying at the Commission's offices as described above. After the Merger,
registration of the Common Stock under the Exchange Act will be terminated.
This Proxy Statement/Prospectus includes information required by the
Commission to be disclosed pursuant to Rule 13E-3 under the Exchange Act, which
governs so-called "going private" transactions by certain issuers or their
affiliates. In accordance with that rule, Parent, the Company, Petrofina
Delaware, Incorporated, a Delaware corporation ("PDI"), American Petrofina
Holding Company, a Delaware corporation ("APHC") and Mergeco have filed with the
Commission, under the Exchange Act, a Schedule 13E-3 with respect to the Merger.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Schedule 13E-3, parts of which are omitted in accordance with the
regulations of the Commission. The Schedule 13E-3, and any amendments thereto,
including exhibits filed as a part thereof, will be available for inspection and
copying at the offices of the Commission as set forth above.
------------------------
Information in this Proxy Statement/Prospectus regarding the Company has
been prepared or supplied by the Company or its representatives and information
regarding Parent has been prepared or supplied by Parent or its representatives.
Each of the Company and Parent has represented and warranted to the other party
in the Merger Agreement that none of such information contains or will contain
any untrue statement of a material fact or omits or will omit any material fact
necessary in light of the circumstances under which it was made, in order to
make such information not misleading.
------------------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY PARENT OR THE COMPANY. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, NOR A SOLICITATION OF
AN OFFER TO BUY, PETROFINA WARRANTS OR PETROFINA ADSS, NOR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF PETROFINA WARRANTS OR PETROFINA ADSS MADE UNDER THIS PROXY
STATEMENT/ PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PARENT OR THE COMPANY OR IN THE
INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
<PAGE> 7
INCORPORATION BY REFERENCE
The Company incorporates herein by reference the following documents filed
by it with the Commission (File No. 1-4014) pursuant to the Exchange Act: (a)
its Annual Report on Form 10-K for the year ended December 31, 1997, as amended
and (b) its Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Meeting shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and to be part
hereof from the date of filing of such documents. All information appearing in
this Proxy Statement/Prospectus is qualified in its entirety by the information
and financial statements (including notes thereto) appearing in the documents
incorporated by reference herein.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be modified or superseded, for purposes
of this Proxy Statement/Prospectus, to the extent that a statement contained
herein or in any subsequently filed document that is deemed to be incorporated
herein modifies or supersedes any such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY HEREBY UNDERTAKES TO
PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A
COPY OF THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED, ON WRITTEN OR ORAL
REQUEST OF ANY SUCH PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS REFERRED TO
ABOVE THAT HAVE BEEN OR MAY BE INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS
BY REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM FINA, INC., POST OFFICE BOX 2159, DALLAS, TEXAS
75221, ATTENTION: LINDA MIDDLETON. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY JULY 29, 1998.
------------------------
FORWARD LOOKING STATEMENTS
Certain statements contained in this Proxy Statement/Prospectus and certain
of the documents incorporated herein by reference below are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and are thus prospective. Such statements appear in a number of places
in this Proxy Statement/Prospectus, including, without limitation, under "The
Company -- Projections" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of PetroFina." These forward-looking
statements are based largely on Parent's and the Company's expectations and are
subject to a number of risks and uncertainties, certain of which are beyond
Parent's and the Company's control. Actual results could differ materially from
these forward-looking statements as a result of many factors, including, but not
limited to, the factors described in "Risk Factors," "The Company --
Projections," "PetroFina Description of Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of PetroFina."
Other factors that could materially affect actual results include, among others,
the following: general economic and business conditions; the timing and extent
of changes in crude oil and natural gas commodity prices, refining and marketing
margins and chemical prices; success in finding, developing and producing
reserves; risks incidental to drilling and operating oil and gas wells; future
production, development and overhead costs; political developments around the
world; the effect of existing and future laws, regulations and other
governmental actions; and conditions of the capital and equity markets. Parent
and the Company undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Proxy
Statement/Prospectus will in fact transpire.
<PAGE> 8
ENFORCEABILITY OF CIVIL LIABILITIES UNDER
U.S. FEDERAL SECURITIES LAWS
Parent is a societe anonyme/naamloze vennootschap organized under the laws
of the Kingdom of Belgium. Most of its officers and directors and certain
experts named herein are not subject to the jurisdiction of the United States
because they are neither citizens nor residents of the United States.
Substantially all of the assets of these persons and a substantial portion of
the assets of Parent and its subsidiaries are located in jurisdictions outside
the United States. As a result, it may not be possible for investors to effect
service of process within the United States against such persons. Parent has
been advised by its Belgian counsel, Liedekerke, Wolters, Waelbroeck &
Kirkpatrick, that there is no automatic enforceability in Belgium against Parent
or any of its subsidiaries (other than its U.S. subsidiaries) or any of their
respective directors, controlling persons or executive officers or any of the
experts named in this Proxy Statement/Prospectus, in actions for enforcement of
judgments of U.S. courts for liabilities predicated upon, or in original actions
predicated solely upon, U.S. federal or state securities laws.
Under Belgian law there exist certain restrictions on the enforceability in
Belgium in original actions, or in actions for enforcement of judgments of U.S.
courts, predicated upon any civil liability provisions of the U.S. federal or
state laws. More specifically, under Belgian law, actions for enforcement before
a Belgian court of judgments of courts of the United States predicated on civil
liabilities under the U.S. federal and state laws may be successful only if the
Belgian court confirms the substantive correctness of the judgment of the U.S.
court and is satisfied that the judgment is not contrary to Belgian public
policy or Belgian public law, did not violate the rights of the defendant, is
not subject to further appeal as of right under U.S. law, and the Belgian court
is satisfied as to the authenticity of the text of the judgment submitted to it.
Furthermore, where a court in the United States has accepted jurisdiction solely
on the basis of the nationality of the plaintiff, that judgment will not in any
case be recognized by Belgian courts.
Based on the foregoing, no firm assurance can be given that U.S. investors
will be able to enforce in Belgium judgments in civil and commercial matters
obtained in any federal or state court in the United States.
------------------------
This Proxy Statement/Prospectus has not been approved or disapproved by the
Belgian Commission on Banking and Finance in accordance with applicable Belgian
law.
<PAGE> 9
EXCHANGE RATES
Most currency amounts in this Proxy Statement/Prospectus are expressed in
Belgian francs ("Belgian francs" or "BEF") or in United States dollars
("dollars" or "US $"). Solely for the reader's convenience, this Proxy
Statement/Prospectus contains translations of certain Belgian franc amounts into
dollars. These translations should not be considered representations that the
Belgian franc amounts actually represent such dollar amounts or could be
converted into dollars at specified rates. Unless otherwise stated, the
translations have been made at 37.08 Belgian francs per dollar (US $0.0270 per
Belgian franc), the noon buying rate in New York City for cable transfers in
Belgian francs as certified for customs purposes by The Federal Reserve Bank of
New York (the "Noon Buying Rate") on December 31, 1997.
The table below sets forth, for the periods and dates indicated, certain
information concerning the exchange rate for the Belgian franc against the
dollar based on the Noon Buying Rate. Such rates were not used by Parent in the
preparation of its Consolidated Financial Statements included herein.
BELGIAN FRANC/DOLLAR EXCHANGE RATES
(BELGIAN FRANCS PER DOLLAR)
<TABLE>
<CAPTION>
AT END AVERAGE
YEAR OF PERIOD RATE(1) HIGH LOW
---- --------- ------- ----- -----
<S> <C> <C> <C> <C>
1993........................................................ 36.24 34.77 37.18 32.25
1994........................................................ 31.85 33.17 36.53 30.73
1995........................................................ 29.43 29.29 31.94 27.94
1996........................................................ 31.71 31.02 32.27 29.50
1997........................................................ 37.08 35.90 38.82 31.74
1998 (through June 30, 1998)................................ 37.21 37.40 38.50 36.27
</TABLE>
- ---------------
(1) The average of the exchange rates on the last business day of each full
month during the relevant period.
On June 30, 1998, the Noon Buying Rate was 37.21 Belgian francs per dollar
(US $0.027 per Belgian franc).
Fluctuations in the exchange rate will affect the dollar equivalent of the
Belgian franc price of PetroFina Shares on the Brussels Stock Exchange and, as a
result, are likely to affect the market price of both the PetroFina Warrants and
PetroFina ADSs in the United States. Such fluctuations would also affect the
dollar amounts received by holders of the PetroFina ADSs on conversion by the
Depositary (as defined below) of cash dividends paid in Belgian francs on the
PetroFina Shares underlying the PetroFina ADSs. For information regarding the
effects of currency fluctuations on PetroFina's results, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
PetroFina."
<PAGE> 10
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................... 1
SPECIAL FACTORS............................................. 9
Background of the Merger............................... 9
Fairness of the Merger................................. 20
Recommendation of the Company Board.................... 29
Interests of Certain Persons in the Merger............. 29
Position of Parent Regarding Fairness of the Merger.... 29
Purpose and Structure of the Merger; Parent's Reasons
for the Merger........................................ 30
Plans for the Company after the Merger; Certain Effects
of the Merger......................................... 31
Certain Tax Consequences of the Merger................. 31
RISK FACTORS................................................ 34
Absence of Trading Market.............................. 34
Incorporation in Belgium; Differences in Shareholders'
Rights between United States and Belgian
Corporations.......................................... 34
Possible Future Sales of PetroFina Warrants............ 34
THE MEETING................................................. 35
General................................................ 35
Voting at the Meeting.................................. 35
THE MERGER.................................................. 37
Exchange of Common Stock for Merger Consideration...... 37
The Merger Agreement................................... 37
Accounting Treatment of the Transaction................ 41
Conditions to the Merger............................... 41
Regulatory Approvals................................... 42
Certain Shareholder Litigation......................... 42
Financing of the Merger................................ 43
Rights of Dissenting Stockholders...................... 43
Restrictions on Resales by Affiliates.................. 45
Fees and Expenses...................................... 46
THE COMPANY................................................. 47
Description of Business................................ 47
Selected Consolidated Financial Information............ 47
Principal Stockholders and Stock Ownership of the
Company Management.................................... 49
RELATED PARTY TRANSACTIONS.................................. 49
PETROFINA DESCRIPTION OF BUSINESS........................... 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF PETROFINA.................... 74
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING PETROFINA
SECURITY HOLDERS.......................................... 91
MARKET PRICES AND DIVIDENDS FOR PETROFINA SECURITIES........ 92
Market for PetroFina Shares............................ 92
Trading in the United States........................... 93
Dividends.............................................. 93
PETROFINA MANAGEMENT AND OWNERSHIP OF PETROFINA SHARES...... 94
Board of Directors..................................... 95
Executive Officers..................................... 98
Executive Compensation................................. 99
Principal PetroFina Shareholders and Stock Ownership of
PetroFina Management.................................. 99
</TABLE>
<PAGE> 11
<TABLE>
<S> <C>
DESCRIPTION OF PETROFINA SECURITIES......................... 101
PetroFina Warrants..................................... 101
PetroFina Shares....................................... 106
PetroFina American Depositary Shares................... 110
Options to Purchase Securities from Registrant or
Subsidiaries.......................................... 117
COMPARATIVE RIGHTS OF HOLDERS OF PETROFINA ADSs AND HOLDERS
OF THE COMPANY COMMON STOCK............................... 117
CERTAIN TAX CONSIDERATIONS RELATING TO PETROFINA WARRANTS
AND PETROFINA ADSs........................................ 122
EXPERTS..................................................... 127
LEGAL MATTERS............................................... 127
PETROFINA FINANCIAL STATEMENTS.............................. F-1
Annex A
GLOSSARY............................................... A-1
Annex B
AGREEMENT AND PLAN OF MERGER........................... B-1
Annex C
OPINION OF GOLDMAN, SACHS & CO. ....................... C-1
Annex D
DGCL SECTION 262. APPRAISAL RIGHTS.................... D-1
Annex E
MANAGEMENT OF THE COMPANY, PDI, APHC AND MERGECO....... E-1
</TABLE>
<PAGE> 12
SUMMARY
IN THIS PROXY STATEMENT/PROSPECTUS, (I) REFERENCES TO THE "COMPANY" ARE TO
FINA, INC., (II) REFERENCES TO "PARENT" ARE TO PETROFINA S.A., AND (III)
REFERENCES TO "PETROFINA" OR THE "GROUP" ARE TO PARENT AND ITS CONSOLIDATED
SUBSIDIARIES, INCLUDING THE COMPANY. FOR DEFINITIONS OF OTHER TERMS USED HEREIN,
SEE THE GLOSSARY ATTACHED HERETO AS ANNEX A.
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/ PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE
AND REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE
MORE DETAILED INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, THE
ANNEXES HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. COMPANY
STOCKHOLDERS ARE ENCOURAGED TO REVIEW CAREFULLY THIS PROXY STATEMENT/PROSPECTUS,
THE ANNEXES HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE, IN THEIR
ENTIRETY.
THE MEETING
The Special Meeting of Stockholders of the Company (the "Meeting") will be
held on August 5, 1998 at 10:00 a.m. Central Daylight Savings Time, at the
DoubleTree Hotel, 8250 North Central Expressway, Dallas, Texas 75206. The sole
purpose of the Meeting is to consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger, dated as of February 17, 1998, as
amended by the First Amendment to Agreement and Plan of Merger, dated as of
March 31, 1998 (as amended, the "Merger Agreement"), among Parent, Petrofina
Delaware, Incorporated, a Delaware Corporation ("PDI"), New Fina, Inc., a
Delaware corporation specifically organized for the purpose of effecting the
Merger (as defined below) and a direct, wholly-owned subsidiary of PDI
("Mergeco") and the Company. See "The Meeting -- General."
THE COMPANIES
Parent
Parent is the Belgian parent corporation (societe anonyme/naamloze
vennootschap) of an international integrated oil and gas company active in all
sectors of the petroleum industry: exploration and production, refining,
marketing of refined petroleum products, petrochemicals and paints.
Headquartered in Brussels (Belgium), PetroFina has a global presence and employs
over 14,500 people. Founded in 1920, Parent is the fifteenth largest publicly
traded integrated oil and gas company in the world (based on market
capitalization). Parent's principal executive offices are located at 52 rue de
l'Industrie, B-1040 Brussels, Belgium. For more information about Parent's
business, see "PetroFina Description of Business."
The Company
The Company and its subsidiaries were organized in 1956 as American
Petrofina, Incorporated and are part of an international group of companies
affiliated with Parent. The Company is engaged, through its subsidiaries, in
crude oil and natural gas exploration and production; petroleum products
refining, supply and transportation and marketing; chemical manufacturing and
marketing; and natural gas marketing. The Company's principal executive offices
are located at Fina Plaza, 8350 North Central Expressway, Dallas, Texas 75206.
For more information about the Company, see "The Company."
APHC
American Petrofina Holding Company, a Delaware corporation ("APHC"), is a
wholly-owned subsidiary of Parent. APHC, which is a holding company, is the
record holder of all of the outstanding common stock of PDI.
PDI
PDI is an indirect, wholly-owned subsidiary of Parent. PDI, which is
primarily a holding company, is the record holder of 26,796,112 shares of common
stock, par value US $.50 per share of the Company (the
1
<PAGE> 13
"Common Stock" or "Shares") and the record holder of all of the outstanding
common stock of Mergeco. The Common Stock owned by PDI constitutes approximately
86% of the issued and outstanding Common Stock as of the Record Date (as defined
below) for the Meeting.
Mergeco
Mergeco, a wholly-owned subsidiary of PDI, is a newly incorporated Delaware
corporation and has not carried on any activities other than in connection with
the Merger.
Surviving Corporation.
Unless otherwise stated, all references to the "Surviving Corporation"
shall mean the Company after consummation of the Merger.
THE MERGER
General
Upon the terms and subject to the conditions of the Merger Agreement,
including the requisite votes of the stockholders of the Company in accordance
with the relevant provisions of the Delaware General Corporation Law (the
"DGCL"), Mergeco will be merged (the "Merger") with and into the Company, and
the Company will be the Surviving Corporation. Upon the Effective Time (as
defined below), each outstanding share of Common Stock and related rights (other
than Shares held by Parent or any of its subsidiaries, which will be cancelled)
will be converted into the right to receive: (i) US $60 (the "Cash
Consideration") plus (ii) one Warrant (a "PetroFina Warrant") to purchase
nine-tenths (0.9) of one PetroFina ADS, each PetroFina ADS representing
one-tenth (0.1) of one ordinary voting share of Parent (a "PetroFina Share")
(the "Warrant Consideration" and together with the Cash Consideration, the
"Merger Consideration"). The PetroFina Warrants will be exercisable for a period
of five years from the closing date of the Merger (the "Closing Date") and will
have an exercise price of US $42.25 per PetroFina ADS, subject to adjustment.
Thus, a holder of 10 PetroFina Warrants may purchase nine PetroFina ADSs for an
aggregate purchase price of US $380.25. Upon exercise of PetroFina Warrants, the
holder thereof will become the record holder of the PetroFina ADSs issuable in
respect of such PetroFina Warrants. Parent intends to seek listing of the
PetroFina Warrants on The New York Stock Exchange, Inc. ("NYSE"). See "Special
Factors" and "The Merger."
Vote Required; Record Date
As of the Record Date (as defined below), there were 31,247,172 Shares
outstanding. The presence, in person or by proxy, of at least a majority of the
Shares entitled to vote (15,623,587 Shares) is necessary to constitute a quorum
at the Meeting, and the affirmative vote of the holders of a majority of the
outstanding Shares is necessary for approval of the Merger Agreement. Approval
of the Merger does not require the approval of a majority of stockholders who
are not affiliated with Parent and its subsidiaries. Each share of Common Stock
is entitled to one vote. Directors and officers of the Company beneficially own
42,737 shares of Common Stock. To the knowledge of the Company, all directors
and executive officers of the Company owning shares of Common Stock have
indicated their intention to vote their Shares for approval of the Merger
Agreement and Merger. On the Record Date, Parent beneficially owned 26,796,112
shares of Common Stock, representing approximately 86% of the outstanding shares
of Common Stock, which Parent has agreed to vote in favor of the approval of the
Merger Agreement.
PARENT ALREADY HAS SUFFICIENT VOTING POWER TO CAUSE THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER
STOCKHOLDER OF THE COMPANY. PARENT WILL CAUSE ALL SHARES OWNED BY IT TO BE VOTED
IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
2
<PAGE> 14
Only holders of record of shares of Common Stock at the close of business
on July 13, 1998 (the "Record Date") are entitled to notice of, and to vote at,
the Meeting. See "The Meeting -- Voting at the Meeting."
Recommendation of the Board of Directors
On February 17, 1998, the Board of Directors of the Company (the "Company
Board"), based in part on the unanimous recommendation and approval of a special
committee of the Company Board (the "Special Committee"), approved the Merger
Agreement and the transactions contemplated thereby and determined that the
Merger is fair to, and in the best interests of, the stockholders of the
Company. The Company Board also recommended that all holders of Shares approve
and adopt the Merger Agreement. ACCORDINGLY, THE COMPANY BOARD RECOMMENDS THAT
THE STOCKHOLDERS OF THE COMPANY VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. See "Special Factors -- Fairness of the Merger" and "Special
Factors -- Recommendation of the Company Board."
In considering the recommendation of the Company Board and the Special
Committee with respect to the Merger, stockholders should be aware that certain
officers and directors of Parent and the Company have interests in the Merger
that are described below and that create inherent conflicts of interest. See
"Special Factors -- Interests of Certain Persons in the Merger."
Opinion of the Special Committee's Financial Advisor
Goldman, Sachs & Co. ("Goldman Sachs"), which acted as financial advisor to
the Special Committee in connection with the Merger, delivered to the Special
Committee its opinion, dated February 17, 1998, that, as of such date and based
upon and subject to the assumptions and qualifications stated therein, the US
$60 in cash plus one PetroFina Warrant per Share to be received by the
stockholders of the Company (other than Parent and its affiliates) in the Merger
was fair from a financial point of view to such holders. See Annex C for the
full text of such opinion. For a description of such opinion, including the
assumptions made, the matters considered and the limitations on the review
undertaken by Goldman Sachs in arriving at its opinion, see "Special
Factors -- Fairness of the Merger -- Opinion of the Special Committee's
Financial Advisor."
Effective Time of the Merger; Exchange of Merger Consideration for Shares of
Common Stock
The Merger will become effective at such time (the "Effective Time") as the
certificate of merger is filed with the Secretary of State of the State of
Delaware in accordance with the DGCL. The required filing will be made as soon
as practicable after the approval of the Merger Agreement by the Company's
stockholders at the Meeting and the satisfaction or waiver of the other
conditions to consummation of the Merger. See "The Merger -- The Merger
Agreement." Detailed instructions with regard to the surrender of certificates,
together with a letter of transmittal, will be forwarded to former holders of
Shares by Citibank, N.A. (the "Exchange Agent"), promptly following the
Effective Time. Holders of Shares should not submit their certificates to the
Exchange Agent until they have received such materials. Payment for Shares will
be made to former holders of Shares as promptly as practicable following receipt
by the Exchange Agent of their certificates and other required documents. No
interest will be paid or accrued on the cash payable upon the surrender of
certificates. See "The Merger -- Exchange of Common Stock for Merger
Consideration." STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS
TIME.
Conditions to the Merger
The respective obligations of each party to effect the Merger are subject
to the satisfaction or waiver of a number of conditions, including, (i) the
absence of any statute, rule, regulation, temporary, preliminary or permanent
order or injunction that would prohibit the consummation of the Merger, (ii) the
effectiveness of this Registration Statement on Form F-4 (the "Registration
Statement") covering the PetroFina Warrants, (iii) the approval and adoption of
the Merger Agreement by the Company stockholders, (iv) the continued accuracy of
the representations and warranties and the performance of the covenants of the
other parties to the Merger Agreement and (v) solely with respect to the
Company's obligations (x) the approval for listing the PetroFina Warrants on the
NYSE or National Association of Securities Dealers, Inc. Automated Quotation
3
<PAGE> 15
System ("NASDAQ"), (y) the execution of the Warrant Agreement between Parent and
Citibank N.A., dated as of the Closing Date (the "Warrant Agreement"), and (z)
the effectiveness of a Registration Statement on Form F-6 covering the PetroFina
ADSs to be issued upon exercise of the PetroFina Warrants. See "The
Merger -- The Merger Agreement -- Conditions to the Merger."
Neither Parent nor the Company currently anticipates waiving any of the
conditions to the Merger specified in the Merger Agreement.
Regulatory Approvals
Parent and the Company know of no remaining federal or state regulatory
requirements that must be complied with or approvals that must be obtained in
order to consummate the Merger, other than the filing of the certificate of
merger with the Secretary of State of the State of Delaware.
Financing of the Merger
Approximately US $267,100,000 will be required to pay the Cash
Consideration pursuant to the Merger, and approximately US $6,500,000 will be
required to pay related fees and expenses incurred by Parent, the Company and
their affiliates in connection with the Merger (excluding debt-related costs).
See "The Merger -- Financing of the Merger."
Certain U.S. Federal and Belgian Income Tax Consequences of the Merger
The receipt of cash and PetroFina Warrants for shares of Common Stock in
the Merger or pursuant to the exercise of dissenters' rights will be taxable for
U.S. federal income tax purposes but generally will not be a taxable event for
Belgian tax purposes for Belgian tax residents. Assuming that the Common Stock
is held as a capital asset, a U.S. Holder (as defined in "Special
Factors -- Certain Tax Consequences of the Merger") will recognize capital gain
or loss as a result of the Merger, measured by the difference between the fair
market value of the Merger Consideration and the U.S. Holder's basis in the
Common Stock. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAXES. For a complete discussion of
tax considerations, see "Special Factors -- Certain Tax Consequences of the
Merger" and "Certain Tax Considerations Relating To PetroFina Warrants and
PetroFina ADSs."
Rights of Dissenting Stockholders
Record holders of shares of Common Stock who follow the procedures set
forth in Section 262 of the DGCL will be entitled to have their shares of Common
Stock appraised by the Delaware Court of Chancery and to receive payment of the
"fair value" of such Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court. To preserve this right,
stockholders must either vote against the Merger or withhold their proxies.
Stockholders who vote in favor of the Merger or who submit a blank proxy card
will not be entitled to appraisal rights. Furthermore, merely voting against the
Merger Agreement will not perfect a stockholder's dissenter's rights.
Stockholders are urged to review carefully the provisions of Section 262 of the
DGCL, a copy of which is attached hereto as Annex D and the description under
"The Merger -- Rights of Dissenting Stockholders."
4
<PAGE> 16
MARKET PRICES AND DIVIDENDS
The Common Stock is listed and principally traded on the American Stock
Exchange ("AMEX"). The principal market for the PetroFina ADSs is the NYSE.
Prior to September 3, 1997, the PetroFina ADSs traded only in the
over-the-counter ("OTC") market. The following table sets forth, for the
quarters indicated, (i) the high and low closing sale prices for the Common
Stock and the PetroFina ADSs as reported by the AMEX and NYSE and the high and
low quotations for the PetroFina ADSs during the periods in which they traded in
the OTC market and (ii) the quarterly dividends paid per share in respect
thereof. The information does not include certain transaction costs.
<TABLE>
<CAPTION>
FINA
COMMON STOCK PETROFINA ADSS
----------------------------- -----------------------------------
DIVIDENDS DIVIDENDS
HIGH LOW PAID HIGH LOW PAID
------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter................... $51.875 $47.000 $.60 $31.600 $26.984 --
Second Quarter.................. 55.250 48.375 .70 31.328 27.359 $1.12
Third Quarter................... 55.500 48.875 .70 32.297 29.547 --
Fourth Quarter.................. 54.500 46.500 .70 31.000 30.750 --
1997
First Quarter................... 66.000 48.125 .70 35.500 31.250 --
Second Quarter.................. 67.500 63.000 .80 36.625 33.250 $1.14
Third Quarter................... 67.125 63.625 .80 39.375(1) 36.500(1)
39.500(2) 36.313(2) --
Fourth Quarter.................. 67.500 63.000 .80 42.000 35.750 --
1998
First Quarter................... 64.250 59.000 .80 38.000 33.375 --
Second Quarter.................. 65.750 62.125 .80 42.375 36.000 $1.25
</TABLE>
- ---------------
(1) Reflects trading prior to the NYSE listing on September 3, 1997.
(2) Reflects trading on the NYSE from September 3, 1997 through September 30,
1997.
On February 24, 1997, the last full trading day for the Common Stock prior
to the announcement of the Merger Proposal (as defined below), the closing sale
price of the Common Stock, as reported by AMEX was US $50 1/8 per share. No
PetroFina ADSs were traded between February 12, 1997 and March 4, 1997 in the
OTC market. The closing prices for these dates were US $34 1/2 and US $35 1/2,
respectively. On February 13, 1998, the last full trading day for the Common
Stock prior to the public announcement of the execution of the Merger Agreement,
the closing sale price of the Common Stock, as reported by AMEX was US $59 11/16
per share and the closing sale price of PetroFina ADSs, as reported by NYSE was
US $34 5/8 per share. The closing prices of the Common Stock and of PetroFina
ADSs, as reported by AMEX and NYSE, on July 13, 1998, were US $65.375 and US
$40.688 per share, respectively. At the Record Date, there were approximately
2,208 holders of record of the Common Stock. Because the market price of
PetroFina ADSs is subject to fluctuation and the value of the PetroFina Warrant
will depend in part on the value of the PetroFina ADSs, the value of the Warrant
Consideration that holders of the Common Stock will receive in the Merger may
increase or decrease prior to the Merger. STOCKHOLDERS ARE URGED TO OBTAIN A
CURRENT MARKET QUOTATION FOR THE COMMON STOCK AND PETROFINA ADSS.
5
<PAGE> 17
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth certain historical per share data of Parent
and the Company and combined unaudited pro forma per share data as if the Merger
had occurred on January 1, 1997. The unaudited pro forma per share data do not
purport to represent what the Surviving Corporation's results of operations or
financial position actually would have been had such transactions and events
occurred on the dates specified, or to project the Surviving Corporation's
results of operations or financial position for any future period or date.
<TABLE>
<CAPTION>
FINA
COMMON STOCK PETROFINA SHARES
----------------- -----------------------
HISTORICAL(1) HISTORICAL PRO FORMA
----------------- ---------- ---------
IN US $ PER SHARE IN BEF PER SHARE
<S> <C> <C> <C>
FOR THE PERIOD ENDED DECEMBER 31, 1997
Book value per share.................................... 40.90 6,657 6,659
Cash dividends per share................................ 3.10 400 400
Income per share for continuing operations.............. 4.05 945 947
FOR THE QUARTER ENDED MARCH 31, 1998
Book value per share.................................... 40.42 -- --(2)
Cash dividends per share................................ 0.80 -- --
Income per share for continuing operations.............. 0.32 -- --
MARKET VALUE AS OF FEBRUARY 24, 1997.................... 50.125 12,275
As of the date preceding the Announcement Date
</TABLE>
- ---------------
(1) Company equivalent data excluded as the PetroFina Warrants are not dilutive.
(2) Parent does not issue public quarterly data.
6
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY
Set forth below is certain selected financial information relating to the
Company which has been excerpted or derived from the audited financial
statements contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (the "Form 10-K"). More comprehensive financial
information is included in the Form 10-K and other documents filed by the
Company with the Commission. The financial information that follows is qualified
in its entirety by reference to such reports and other documents may be examined
and copies may be obtained from the offices of the Commission in the manner set
forth above. See "Available Information."
FINA, INC. AND SUBSIDIARIES
SUMMARY OF FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN US $ THOUSANDS, EXCEPT PER SHARE AMOUNTS AND EMPLOYEES)
<S> <C> <C> <C> <C> <C>
FINANCIAL
Sales and other operating revenues....... $4,462,477 $4,081,244 $3,606,637 $3,421,112 $3,416,223
Depreciation, depletion, amortization,
and lease impairment................... 201,854 171,029 213,964(1) 185,961 198,341
Net earnings:
Earnings before cumulative effect of
accounting change.................... 126,401 153,206 104,425 102,041 70,353
Net earnings........................... 126,401 153,206 104,425 102,041 70,353
Earnings per common share:
Earnings before cumulative effect of
accounting change.................... 4.05 4.91 3.35 3.27 2.26
Net earnings........................... 4.05 4.91 3.35 3.27 2.26
Capital expenditures..................... 340,716 263,330 218,436 136,381 125,472
Long-term debt........................... 593,532 584,983 496,331 531,162 740,058
Total long-term obligations.............. 594,988 587,290 498,446 532,148 766,476
Total assets............................. 3,014,674 2,855,822 2,487,718 2,493,862 2,511,353
Stockholders' equity..................... 1,277,112 1,247,285 1,178,057 1,144,807 1,098,827
Cash dividends per share................. 3.10 2.70 2.30 1.80 1.60
Average shares outstanding............... 31,218 31,214 31,198 31,188 31,180
OPERATIONS
Crude oil, condensate, and natural gas
liquids produced (in thousands of net
barrels)............................... 3,806 3,808 3,749 4,556 5,905
Natural gas produced (in millions of
cubic feet)............................ 69,698 56,719 52,119 52,864 67,924
Natural gas sold (in millions of cubic
feet).................................. 293,531 193,682 190,926 259,515 204,449
Total refinery throughput (barrels per
day)................................... 232,000 211,000 220,000 215,000 198,000
Major petrochemicals and plastics sold
(millions of pounds)................... 4,104 3,700 3,000 3,200 3,000
Company-branded service stations......... 2,659 2,578 2,702 2,607 2,675
Undeveloped leasehold acreage (net)...... 242,686 212,625 209,167 189,723 203,734
Fee, mineral, and royalty acreage
(net).................................. 1,045,771 1,036,180 1,035,922 1,036,342 1,045,108
Employees (year-end)..................... 2,873 2,664 2,693 2,770 3,224
</TABLE>
- ---------------
(1) Includes a US $58,723,000 charge for adoption of Financial Accounting
Standard No. 121 (FAS 121).
7
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF PARENT
The following financial information with respect to the five years ended
December 31, 1997 has been derived from Parent's audited consolidated financial
statements. The audited consolidated financial statements for the years ended
December 31, 1997, 1996 and 1995 have been prepared in accordance with generally
accepted accounting principles in the United States ("U.S. GAAP"). The
consolidated financial statements for the periods ended December 31, 1994 and
1993, have been prepared in accordance with generally accepted accounting
principles in Belgium ("Belgian GAAP"). For purposes of the analysis in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of PetroFina" certain balances related to 1994 have been adjusted to
provide an analytical basis for comparison to the 1996 and 1995 U.S. GAAP
presentation. The adjusted 1994 amounts are unaudited.
The information for the three years ended December 31, 1997, 1996 and 1995
should be read in conjunction with the consolidated financial statements and
notes included in "PetroFina Financial Statements."
PETROFINA S.A. AND SUBSIDIARIES
SUMMARY OF FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
U.S. GAAP BELGIAN GAAP
------------------------------------ -----------------------
FOR THE YEAR ENDED AND AT DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN BEF MILLION, EXCEPT PER SHARE DATA
AND NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C>
FINANCIAL
Operating Revenue........................ 727,031 622,145 558,724 574,333 558,982
Depreciation, depletion and
amortization........................... 28,703 23,775 22,533 22,775 21,080
Exploration costs........................ 4,354 3,030 4,186 2,616 2,657
Operating Income......................... 46,833 39,388 30,788 27,744 20,411
Net earnings............................. 22,060 15,948 11,826 10,039 7,144
Net earnings per share................... 945 686 509 432 307
Cash dividends per share................. 400 352 320 280 280
Cash dividends per share (US$)(1)........ 11.44 11.07 10.83 8.22 8.33
Capital expenditures..................... 43,660 33,142 29,852 26,975 35,653
Long term obligations.................... 59,976 49,326 44,732 51,602 60,521
Total assets............................. 403,618 366,788 333,892 340,822 358,653
Stockholders' equity..................... 155,915 135,011 123,098 123,498 127,064
Average Shares outstanding............... 23,350,612 23,252,764 23,252,414 23,252,126 23,251,784
Ratio of earnings to fixed charges (%)... 6.21 5.27 4.19 3.53 2.35
OPERATIONS
Crude oil, condensate, and natural gas
liquids produced (in million barrels of
oil equivalent)........................ 52.2 49.3 50.7 42.8 34.5
Natural gas produced (in billion cubic
feet).................................. 208.9 210.7 204.0 211.7 228.5
Refinery throughput crude oil (thousand
barrels per day)....................... 669.0 645.3 597.8 593.8 551.4
Major chemicals and plastics produced (in
thousand tonnes)....................... 4,070 3,774 3,467 3,334 3,060
Employees (average for the year)......... 14,675 13,588 13,653 14,013 14,696
</TABLE>
- ---------------
(1) Based on the Noon Buying Rate on the first day dividends are available for
payment. See "Exchange Rates."
8
<PAGE> 20
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Parent, a societe anonyme/naamloze vennootschap organized under the laws of
the Kingdom of Belgium, is a publicly held company whose PetroFina Shares are
traded on the Brussels Stock Exchange ("BSE"), as well as other major European
stock exchanges, and whose PetroFina ADSs have traded on the NYSE since
September 3, 1997.
On a fully diluted basis, as of the Record Date, Parent owns approximately
86% of the Shares, which are divided into two classes. Parent beneficially owns
24,796,112 shares of Class A common stock, par value US $.50 per share (the
"Class A Shares"), which constitute 84.781% of the outstanding Class A Shares,
and 2,000,000 shares of Class B common stock, par value US $.50 per share (the
"Class B Shares"), which constitute 100% of the outstanding Class B Shares. As
of the Record Date, there are 4,451,060 Class A Shares outstanding that are not
beneficially owned by Parent (the "Public Shares"). The only difference between
the rights of holders of the Class A Shares and the Class B Shares is with
respect to the election of the Company's directors. The holders of the Class B
Shares elect a majority of the directors constituting the Company Board, while
the holders of the Class A Shares elect the remaining Company Board members.
As of the Record Date, 710,062 Class A Shares were registered in the name
of "PetroFina B.D.R. Account" against which an equal number of bearer depositary
receipts ("BDRs") were outstanding. The BDRs are listed and traded on the BSE
and entitle the holders thereof to receive all dividends and other rights
declared on the Shares underlying the BDRs (the "BDR Shares") and to instruct
Parent with respect to the voting of those BDR Shares. Parent has the power to
vote in its discretion all BDR Shares in respect of which it does not receive
instructions from holders. As a result of its potential voting control over the
BDR Shares, Parent may be deemed to beneficially own such BDR Shares.
Parent has owned a majority equity interest in the Company since the late
1950s. Over the years it has acquired Shares in rights offerings and open market
transactions from time to time, but no such acquisitions have occurred since
1989. In the fall of 1995, the Company was approached by a competitor of the
Company and Parent (the "Proposed Purchaser") about the possibility of the
Proposed Purchaser's acquiring the Company's styrene and polystyrene business.
The Company informed Parent of this proposal, and Parent did not object to the
Company's engaging in preliminary negotiations with the Proposed Purchaser. The
Company began preparing a preliminary valuation analysis of this business
division based on its then-recent restructuring and Company management's growth
projections. This analysis assumed further increases in margins beyond the 1995
levels of US $.092 per tonne for styrene and US $.114 per tonne for polystyrene,
which resulted in a higher value for this business division than the Proposed
Purchaser's initial offer. The Company concluded that the Proposed Purchaser's
initial offer was based on a less optimistic view of industry prospects and was,
therefore, inadequate. The Company informed the Proposed Purchaser that its
offer was inadequate and requested Proposed Purchaser to increase its offer.
When Proposed Purchaser was unwilling to increase sufficiently its offer, the
Company terminated discussions with the Proposed Purchaser. In late January
1996, the Board of Directors of Parent (the "Parent Board") ratified the
Company's decision to abandon negotiations with the Proposed Purchaser and did
not seek any other bids from other parties.
Beginning in late 1996, Parent began exploring its options with respect to
Parent's possible acquisition of the Public Shares. In November 1996, Parent
contacted Morgan Stanley & Co., Incorporated ("Morgan Stanley") to discuss
Morgan Stanley's acting as financial advisor to Parent in connection with such
an acquisition. On December 13, 1996, Parent retained Morgan Stanley to serve as
financial advisor to Parent in connection with its evaluation of such an
acquisition. Morgan Stanley began to analyze the Company and the value of the
Public Shares and subsequently made available to Parent a compilation of
selected statistical information and analyses. Such compilation did not set
forth any statement or opinion on the fairness of the consideration in the
Merger Proposal described below.
9
<PAGE> 21
Over the next two months, Parent management, along with its legal and
financial advisors, evaluated possible transaction structures for such an
acquisition, including a negotiated merger, a forced merger and a unilateral
tender offer. Parent also considered different forms of consideration for such
an acquisition, including all cash, a combination (at the election of the
holders of Shares) of cash and Parent securities, and all Parent securities.
Parent was concerned that an acquisition of the Public Shares in a transaction
or series of transactions not approved by independent directors of the Company
could delay Parent's plan to list PetroFina ADSs on the NYSE during 1997. Parent
also believed that a unilateral tender offer might raise unresolved issues
concerning the applicability of potentially conflicting regulatory requirements
of the Commission and the Belgian Commission on Banking and Finance (the "CBF"),
with resulting delays and costs. In any event, Parent management rejected
pursuing a unilateral tender offer or a forced merger because it believed that
such transactions could result in protracted litigation and significant
resulting additional costs. Parent management determined that a negotiated
merger would be preferable for all of the Company's constituencies, including
its employees.
On February 25, 1997 (the "Announcement Date"), at a special meeting of the
Parent Board, Parent management discussed the possible acquisition of the Public
Shares and presented Morgan Stanley's preliminary analysis and suggestion to
offer US $60 in cash per Public Share.
Morgan Stanley's preliminary analysis included a review of the daily
closing prices for the Common Stock as compared to the S&P 500 Index and the
daily closing prices of certain composites of commodity chemicals, exploration
and production, and refining and marketing companies with substantial market
capitalizations (the "Comparable Composites") from February 21, 1992 to February
21, 1997. Morgan Stanley noted that, on a relative basis, the Company
underperformed the S&P 500 and the composites of both commodity chemicals
companies and exploration and production companies during such period. Morgan
Stanley also compared certain publicly available financial information for the
Company (such as EBITDA, EBIT, cash flow and estimated net income) to
corresponding information for the Comparable Composites. Morgan Stanley noted
that the multiples of the Company's equity value to such financial information
were generally lower than the range of the corresponding multiples for the
Comparable Composites based on size and growth rates. Taken together, these
preliminary analyses indicated a trading value of approximately US $52 to US $60
per Share.
Morgan Stanley also reviewed the publicly available financial terms of
mergers and acquisitions of certain commodity chemicals companies and energy
companies (the "Selected Transactions"). A review of the multiples of adjusted
purchase price (value of consideration paid for common equity adjusted for debt,
preferred stock and cash) to EBITDA and cash flow for the potential transaction
versus the Selected Transactions indicated that the range of values was
approximately US $58 to US $70 per Share. Morgan Stanley also reviewed the
publicly available financial terms of certain precedent acquisitions by a parent
company of the remaining outstanding common stock of its subsidiary and
suggested that the range of values indicated by such preliminary analysis was
approximately US $60 to US $62 per Share.
Morgan Stanley also performed preliminary discounted cash flow analyses
using estimates of projected financial performance for the Company for the years
1997 through 2001 (i) based on Company management's most recent three-year plan
(the "December 1996 Projections") and (ii) an adjusted case, which reflected
adjustments to the December 1996 Projections based on the Company's recent
historical financial performance. The results of this adjustment reduced
expected compounded annual growth from 19% to 9%. These preliminary analyses
indicated a range of values of (i) approximately US $64 to US $71 per Share
based on the December 1996 Projections and (ii) approximately US $49 to US $56
per Share based on the adjusted case. See "-- Fairness of the
Merger -- Projections."
Morgan Stanley also reviewed the impact of a potential transaction on
Parent's earnings per share and cash flow per share and concluded that the US
$60 offer price would have no impact on Parent's earnings per share or cash flow
per share. Morgan Stanley's analysis suggested a US $60 per Share offer price,
which represented a premium of approximately 20% of the Company's per Share
closing price one day prior to the Announcement Date. This compilation did not
set forth any statement or opinion on the fairness of the consideration to be
offered by Parent in the potential transaction.
10
<PAGE> 22
Following this presentation, the Parent Board adopted Morgan Stanley's
suggestion and approved a proposal (the "Merger Proposal") to pursue a
negotiated merger in which each holder of a Public Share would receive US $60
per share. The Merger Proposal left open the possibility that the consideration
would be paid in cash, Parent securities or a combination of both. In the Merger
Proposal, Parent also advised the Company that it intended to seek listing of
the PetroFina ADSs on the NYSE concurrently with a merger transaction. Later
that same day, prior to the opening of trading on the AMEX, Francois Cornelis,
Chief Executive Officer and Managing Director of Parent, presented the terms of
the Merger Proposal in a telephone conversation with Ron Haddock, President and
Chief Executive Officer of the Company. Following the telephone call, the Merger
Proposal was publicly announced.
On February 25, 1997, the Company Board appointed two independent directors
of the Company, Dr. Ernesto Marcos and Patricia M. Wallington, to serve as
members of a special committee of the Company Board (the "Special Committee") to
review, evaluate and make a determination with respect to the Merger Proposal.
Dr. Marcos was appointed the Chairman of the Special Committee. The Company
Board also authorized the Special Committee to retain independent legal counsel
and an independent financial advisor. On February 27, 1997, Robert L. Mitchell
was elected to the Company Board and was appointed to the Special Committee, and
the Special Committee held its initial organizational meeting. On March 14,
1997, after interviewing several law firms, the Special Committee retained
Cravath, Swaine & Moore as counsel to the Special Committee.
On March 19, 1997, the Special Committee met and discussed with its legal
advisor the functions of, and the standards applicable to, special committees
under Delaware law. Mr. Mitchell noted that his son had been an employee of the
Company for over 11 years and was currently assigned to work at Parent's office
in Belgium. Dr. Marcos noted that his consulting firm had performed consulting
services for the Company in Mexico in 1995 and 1996, but that the fees received
for such services represented less than 5% of the revenues of his firm in each
such year. Dr. Marcos also noted that his firm was no longer performing
consulting services for the Company. At this meeting, the Special Committee also
elected to retain Richards, Layton & Finger as Delaware counsel to the Special
Committee. The Special Committee then interviewed several investment banking
firms, and after discussion of the advantages and disadvantages of each firm,
selected Goldman, Sachs & Co. ("Goldman Sachs") to serve as an unaffiliated
representative who would act solely on behalf of holders of the Public Shares
for purposes of negotiating the Merger. For a description of the terms of
Goldman Sachs' engagement and certain additional information concerning Goldman
Sachs, see "-- Fairness of the Merger -- Opinion of the Special Committee's
Financial Advisor." Upon its engagement, Goldman Sachs began to conduct due
diligence on the Company and the value of the Public Shares. As part of this
analysis, Goldman Sachs requested that Company management update the December
1996 Projections and include financial projections for two additional years
(such five-year projections, the "April 1997 Projections"). See "-- Fairness of
the Merger -- Projections."
On March 31, 1997, Mr. Mitchell resigned as a director of the Company and
as a member of the Special Committee in light of the perception that his son's
employment by the Company might compromise his status as an independent
director.
In April 1997, one of the Company's competitors with exploration and
production properties in the North Sea contacted the Company and suggested
exploring the possibility of exchanging certain of its North Sea assets for
substantially all of the Company's U.S. on-shore exploration and production
properties. No quantitative terms were proposed, nor were any specific
properties discussed. No valuation of either the North Sea assets or the
Company's on-shore exploration and production assets was undertaken at that
time, and discussions did not progress further than the initial contact because
neither the competitor nor the Company chose to pursue the initial idea. This
proposed transaction was never discussed by the Special Committee or disclosed
to Goldman Sachs because it never achieved the level of a formal proposal or
involved actual negotiations or resulted in any valuation.
From time to time, during the spring and through late summer of 1997, the
Special Committee's legal advisors and Parent's legal advisors discussed the
possibility of structuring the merger as an exchange of securities that would be
tax-free to those Company stockholders who are U.S. taxpayers. These legal
advisors determined that a tax-free structure under U.S. tax laws was feasible
if the consideration for the Public Shares
11
<PAGE> 23
was solely voting stock of Parent. At the same time, Parent's legal advisors
determined that such a merger would require substantial changes in Parent's U.S.
corporate structure, which would have created delays and might have resulted in
adverse tax consequences to Parent. In addition, Parent reviewed the Company's
stockholder base and determined that approximately 20% of the Public Shares were
held by Belgian residents, 35% were held by participants in the Company's
Capital Accumulation Plan (the "401(k) Plan") and of the remaining Public
Shares, a significant number were held by institutional investors, and that none
of these stockholders would benefit from a tax-free exchange under U.S. tax
laws. Parent also believed that if the sole consideration for the Public Shares
were Parent securities, the Special Committee and its financial advisors would
have to value the Parent securities, and an already complicated negotiation and
transaction would be further complicated. Parent eventually concluded that an
all-cash deal was preferable because the majority of Company stockholders would
not be affected adversely by a structure that was taxable under U.S. law and
offering solely voting stock of Parent would significantly increase Parent's
costs and burdens.
On April 10, 1997, the Special Committee met to discuss developments that
had taken place since the March 19th Special Committee meeting, including the
resignation of Mr. Mitchell and the expected appointment of Albert V. Casey as a
replacement director and Special Committee member.
On April 17, 1997, Albert V. Casey was appointed to the Company Board and
to serve as a member of the Special Committee.
On April 23, 1997, the Special Committee met with its legal counsel and
Goldman Sachs to discuss the Merger Proposal and to review the due diligence and
valuation work that Goldman Sachs had completed to date. The Special Committee
was advised by its legal counsel that, after discussions with Parent's legal
counsel, it had been determined that the transaction could be accomplished as
either a stock or a cash transaction, but that a cash election structure could
not be accomplished on a tax-free basis.
Goldman Sachs noted that it had received and reviewed the Company's
five-year financial forecast, which had originated as the Company's regularly
prepared three-year financial forecast of December 1996 and had been extended,
at Goldman Sachs' request, to five years in April 1997. See "-- Fairness of the
Merger -- Projections." Goldman Sachs informed the Special Committee that it
would rely on the five year financial projections in performing certain of its
valuation analyses, including its discounted cash flow analysis and its present
value of implied future share price analysis. See"-- Fairness of the
Merger -- Opinion of the Special Committee's Financial Advisor."
Goldman Sachs noted that its preliminary analyses of public market
comparable companies, asset valuation and the fact that the transaction is
accretive to Parent at US $60 per Share were among the major factors supporting
a higher valuation for the Company. Goldman Sachs also reviewed with the Special
Committee some of its preliminary valuation analyses, including trading
multiples for comparable oil and gas producers and commodity chemical companies,
asset valuation, discounted cash flow, present value of potential future share
prices and the prices at which a cash transaction and a stock transaction would
be dilutive to Parent. It also discussed the indexed stock price history of the
Company's Common Stock versus the S&P 400 and the composite group of integrated
oil companies, and noted that the Common Stock had historically traded at a
discount to its peers, although the companies included in the composite group
generally had a lower exposure to the chemical business (and a greater exposure
to the oil and gas business) than the Company. The Special Committee then
discussed these matters and concluded that Goldman Sachs should contact Morgan
Stanley, financial advisor to Parent, in order to get a better understanding of
Parent's views on valuation and related issues.
On May 5, 1997, representatives of Goldman Sachs met with representatives
of Morgan Stanley to discuss the Merger Proposal. Morgan Stanley explained the
general assumptions underlying the Merger Proposal, including the universe of
publicly-traded companies that it believed were comparable to the Company:
Phillips Petroleum Company, Ashland Inc., Murphy Oil Corporation, Kerr-McGee
Corporation, Dow Chemical Company and Union Carbide Corporation (collectively,
the "Comparable Companies"). In addition, Morgan Stanley expressed its
skepticism about the Company's ability to meet the December 1996 Projections,
based on management's repeated inability to achieve previous Plan projections
and Morgan Stanley's observation that the profit growth rates for 1998 and 1999
of approximately 35% and 21%, respectively, implied by the December 1996
Projections far exceeded (i) growth of 1.2% between 1996 actual
12
<PAGE> 24
earnings of US $153.2 million and 1997 expected earnings of US $155 million (see
"-- Fairness of the Merger -- Projections"), (ii) first quarter 1997 results and
(iii) projected profit growth rates of the Company's competitors.
At a May 7, 1997 meeting of the Special Committee, Goldman Sachs described
its May 5 meeting with Morgan Stanley. The Special Committee discussed the fact
that Parent and its representatives were using different projections and also
discussed Parent's reservations (which had been expressed by Morgan Stanley)
about the Company's prior record in achieving its projections. After further
discussion, the Special Committee concluded that it would be appropriate to
request that Mr. Haddock make a presentation to the Special Committee and its
advisors to update the Special Committee on management's current assessment of
the April 1997 Projections. The Special Committee further concluded that it
would be useful to invite Parent and its advisors to attend this presentation in
order to facilitate an agreement on which projections would form the basis for
further valuation discussions between the two sides.
On June 2, 1997, the Special Committee and its legal and financial advisors
met with Mr. Haddock and other executives of the Company to receive a
presentation from the management of the Company on the April 1997 Projections
(including any updating changes since the April 1997 Projections had been given
to Goldman Sachs in April). See "-- Fairness of the Merger -- Projections."
Parent's legal and financial advisors also attended the presentation, but no
director or employee of Parent elected to attend. At this meeting, Mr. Haddock
explained that because the Company's financial projections were a management
tool created with a view towards planning and employee incentivization, they
were "goal-oriented" rather than being so conservative as to ensure 100%
achievement. As a result and given the nature of forecasting in general, he
expressed more confidence in the achievability of the results projected for the
first three years than for the two later years. Following Mr. Haddock's
presentation, the head of each of the Company's business groups described the
factors underlying the projections for such business group. Morgan Stanley
agreed to communicate the substance of the information presented to Parent's
management which it did the following day.
Following the presentation, on June 4, 1997, Morgan Stanley reiterated to
Goldman Sachs its view that US $60 per Share represented a full price for
shareholders and expressed its continued skepticism about the Company's ability
to achieve the growth projected in December 1996 Projections, including any
adjustments as a result of the April 1997 Projections.
At a June 5, 1997 meeting of the Special Committee, Goldman Sachs described
the valuation analyses it had done to date, including the changes in its
analyses resulting from the management presentation of the April 1997
Projections made at the June 2 meeting. Goldman Sachs advised that it had used a
higher discount rate for the years 2000 and 2001 in its discounted cash flow
analysis to reflect the caution expressed by management at the June 2
presentation with respect to the achievability of the projection for such years.
Goldman Sachs also updated its preliminary analyses to reflect current market
and financial data, as well as additional information it had received, including
tax basis information which suggested that valuing the chemicals segment on a
going concern basis rather than a break-up basis was appropriate in view of the
tax liabilities associated with a sale of such business. It also observed that
stock market valuations in the energy sector had recently moved sharply higher.
Goldman Sachs thus advised the Special Committee that for purposes of its
negotiations with Parent it should assume that under current market conditions
the appropriate range of values for the Company was US $62 to US $72 per Share.
After considering the matters discussed, the Special Committee directed Goldman
Sachs to communicate through Morgan Stanley the Special Committee's asking price
of US $72 per Share.
At a regularly scheduled meeting on June 24, 1997, the Parent Board
reviewed a supplemental compilation of selected statistical information and
valuation analyses that Morgan Stanley had prepared. Morgan Stanley's updated
preliminary analysis included a review of the daily closing prices for the
Common Stock as compared to the S&P 500 Index and the Comparable Composites from
February 21, 1992 to June 20, 1997. Morgan Stanley noted that, for the period
from February 25, 1997 through June 20, 1997, the closing stock prices of the
Comparable Composites had increased by a range of approximately 5.1% to 10.3%,
and the closing stock prices of the Comparable Companies had increased by
approximately 4.4% during the same period. Morgan Stanley also compared certain
financial information for the Company (such as estimated
13
<PAGE> 25
EBITDA, estimated net income and estimated cash flow) to corresponding
information for the Comparable Composites and the Comparable Companies. Morgan
Stanley noted that the multiples of the Company's equity value to such financial
information remained generally lower than the range of the corresponding
multiples for the Comparable Composites and the Comparable Companies based on
size and growth rates. Taken together, these updated preliminary analyses
indicated a trading value of approximately US $57 to US $62 per Share.
Morgan Stanley also reviewed the publicly available financial terms of the
Selected Transactions. A review of the multiples of adjusted purchase price to
EBITDA and cash flow for the potential transaction versus the Selected
Transactions indicated that the updated range of values was approximately US $59
to US $72 per Share. Morgan Stanley also reviewed the publicly available
financial terms of certain precedent acquisitions by a parent company of the
remaining outstanding common stock of its subsidiary and suggested that the
range of values indicated by such updated preliminary analysis was approximately
US $63 to US $66 per Share.
Morgan Stanley also updated its preliminary discounted cash flow analyses
using estimates of projected financial performance for the Company for the years
1997 through 2001 (i) based on the April 1997 Projections, which had lower
profitability projections than the December 1996 Projections, and (ii) an
adjusted case, which reflected sensitivities to the April 1997 Projections based
on the Company's historical financial performance. See "-- Fairness of the
Merger -- Projections." The primary reason for the lower earnings projection in
the April 1997 Projections as compared to the December 1996 Projections was the
Company's lower chemicals capacity utilization, due to increases in capacity
announced in the chemicals industry, which extended the product margin recovery
to later years. Additionally, as Mr. Haddock had noted in his June 2, 1997
presentation, the Company's revenue and earnings forecasts were (i) based
primarily on factors controlled by management, such as increases in production
volumes and increases in capital expenditures, and (ii) assumed there would be
no significant change in market-related factors, such as changes in margins or
oil and gas prices. These updated preliminary analyses indicated a range of
values of (i) approximately US $67 to US $75 per Share based on the April 1997
Projections and (ii) approximately US $60 to US $73 per Share based on the
adjusted case. Morgan Stanley also reviewed the impact of a potential
transaction on Parent's earnings per share and cash flow per share. The
compilation prepared for the June 24 Parent Board meeting did not set forth any
statement or opinion on the fairness of the consideration in the Merger Proposal
or the Special Committee's counter-offer. Following consideration of these
materials, the Parent Board delegated to Albert Frere, Chairman of the Parent
Board, and Mr. Cornelis the authority to negotiate the terms of a merger with
the Company, subject to Parent Board approval of the final terms of the
transaction.
On July 21, 1997, a representative of Goldman Sachs spoke with a
representative of Morgan Stanley, who reported that Parent would not accept the
Special Committee's asking price of US $72 per Share. The Morgan Stanley
representative suggested that Parent might be prepared to offer US $62 per Share
if the Special Committee would be prepared to recommend it.
At a July 29, 1997 meeting of the Special Committee, Goldman Sachs
described its contacts with Morgan Stanley. The Special Committee determined
that, in light of (i) the valuation analyses that had been previously presented
by Goldman Sachs that had indicated that under then-current market conditions
the appropriate range of values for the Company was US $62 to US $72 per Share,
(ii) the fact that in Goldman's view, nothing had changed since its previous
analysis that would lead it to change its view and (iii) the then-current market
price of the Common Stock, it was not prepared to accept US $62 per share, if
offered, but instead would direct Goldman Sachs to communicate to Parent through
Morgan Stanley the Special Committee's willingness to recommend an offer of US
$70 per Share. The Special Committee, which was attempting to obtain the highest
possible price for the Public Shares, was prepared to recommend US $70 per Share
because, among other reasons, (i) that price was near the top of Goldman Sachs'
valuation range (Parent having previously rejected the Special Committee's
asking price of US $72 -- the top of the Goldman Sachs range, and the Special
Committee having no reason to believe that Parent would be willing to offer more
than US $70 for the Public Shares); (ii) it would have been a fair price for the
Shares, in the Special Committee's view, in light of the Special Committee's
assessment of the Company's results of operations and
14
<PAGE> 26
financial condition, the Company's prospects and industry conditions; and (iii)
it would have represented a substantial premium to the unaffected market price
of the Shares.
In early August, with negotiations at a standstill, Parent reconsidered,
but ultimately rejected, the possibility of acquiring the Public Shares through
a unilateral tender offer at US $60 per Share in cash. Parent rejected this
alternative for substantially the same reasons it had initially decided to
propose a negotiated merger. Parent also considered abandoning the Merger
Proposal. These possibilities were not discussed with the Company's management
or the Special Committee. Following rejection of these ideas, negotiations
remained stalled while Parent completed its NYSE listing of the PetroFina ADSs.
On September 3, 1997, the PetroFina ADSs were admitted to trading on the NYSE.
On September 24, 1997, the Company and BASF Corporation ("BASF") announced
that they intended to establish a joint venture to build the world's largest
liquids steam cracker (the "Steam Cracker Joint Venture") adjacent to the
Company's refinery located in Port Arthur, Texas with an investment of
approximately US $800 million, subject to, among other things, final board
approval from both the Company and BASF. In advance of the announcement, on
September 18, Mr. Haddock sent to Mr. Cornelis the Company's revised three-year
projections (the "September 1997 Projections") prepared by the Company to
reflect the Company's investment in the Steam Cracker Joint Venture. See
"-- Fairness of the Merger -- Projections." The September 1997 Projections
contained significantly lower estimates for net earnings in 1997, 1998 and 1999
than the estimates for net earnings contained in the April 1997 Projections. The
Company reduced the earnings projections in the September 1997 Projections
primarily for two reasons: (1) a continued reduction in Chemicals earnings due
to further capacity increases in the industry, primarily in polypropylene and
(2) reduced capital in the Company's Upstream business segment to offset
increased investments for the Steam Cracker Joint Venture. This reallocation of
the Company's capital reduced the forecasted Upstream earnings in the short term
but increased the forecasted earnings after the Steam Cracker Joint Venture
startup in 2001.
After completing the NYSE listing of the PetroFina ADSs, Parent suggested a
meeting between the Special Committee and Parent management to discuss the
respective positions on the value of the Public Shares. The Special Committee
agreed to receive this presentation, and requested that Company management also
be present in order to update the Special Committee on management's current view
of the Company's prospects.
On November 18, 1997, the Special Committee met and first received an
update (the "November 1997 Projections") from the Company on the April 1997
Projections reflecting changes since the June 1997 Projections had been
presented to the Special Committee on June 2. See "-- Fairness of the Merger --
Projections." Mr. Haddock noted that the Company was planning to enter into the
Steam Cracker Joint Venture. Mr. Haddock explained that the decision to proceed
with the Steam Cracker Joint Venture resulted in, among other things, higher
capital expenditures, and lower cash flow and lower net earnings, during the
projection period, while the anticipated benefits from the steam cracker would
not begin to be realized until project start-up at the end of the year 2000.
Because a covenant in the Company's debt indenture requires the Company to
maintain a Debt/Gearing Ratio of less than 45%, and the Company's policy was to
limit its Debt/Gearing Ratio to 40% in order to avoid breaching the covenant,
the decision to go ahead with the steam cracker required the Company to reduce
previously budgeted capital expenditures that had been expected to generate net
income during the projection period. Mr. Haddock noted that net income was lower
in each year of the November 1997 Projections as a result of, among other
things, lower margins in the chemicals segment and in Gulf Coast refining,
disappointing exploration results and reduced exploration expenditures.
Following the Company presentation, Michel-Marc Delcommune, the Executive
Director, Corporate Finance of Parent, Vivien F. Ellison, Senior Attorney, and
Philippe le Jeune d'Allegeershecque, Corporate Finance Assistant, together with
Parent's legal and financial advisors, presented their views to the Special
Committee that, among other things, (i) the Company's projections have
historically been too optimistic and/ or goal-oriented and are accordingly not
the appropriate basis for determining a fair price for the Shares, (ii) Parent
already controls the Company and thus should not be expected to pay a "control
premium" and (iii) since Parent has no other U.S. operations, no synergies would
be available to Parent as a result of the combination, and that accordingly the
fairness of the purchase price should not be measured by reference to
15
<PAGE> 27
other acquisition transactions where synergies were available to the buyer. The
Parent representatives indicated at the end of their presentation that Parent
would determine whether or not to revise its proposal (and whether to include a
contingent value security) for the acquisition of the Public Shares.
After the meeting, Parent management and Morgan Stanley further discussed
the issue and concluded that the use of cash plus a warrant for the purchase of
PetroFina ADSs was the most sensible means to break the negotiating impasse. A
contingent-value security was viewed as a means to bridge the difference of
opinions between Parent and the Company as to the Company's ability to achieve
the November 1997 Projections because such a security would most likely increase
in value if the Company achieved the November 1997 Projections. Parent requested
Morgan Stanley to prepare a summary of the terms of such a security, which would
be valued theoretically at approximately US $4 to US $5 per Share. Parent also
requested that the number of PetroFina Shares be limited in order to prevent
excessive dilution to current Parent shareholders. To achieve this result,
Morgan Stanley prepared a preliminary term sheet using a Black-Scholes model
which indicated that such a security would have an exercise price of
approximately US $42 per PetroFina ADS (based on a PetroFina ADS price of US
$38.75 on November 18, 1997 and an assumed volatility range between 18% to 24%)
and would result in the issuance of 363,500 new PetroFina Shares. See the
discussion of the Black-Scholes model below under "-- Fairness of the
Merger -- Opinion of the Special Committee's Financial Advisor."
At a December 2, 1997 meeting of the Special Committee, Goldman Sachs gave
its analysis of the November 1997 Projections presented by the Company on
November 18, 1997. Goldman Sachs noted that the November 1997 Projections
reflected balance sheet constraints resulting from the Company's decision to
proceed with the Steam Cracker Joint Venture, as well as the expectation of
significant margin pressure in the Company's chemicals business in 1998 and the
forecast of a longer and more severe downturn than previously anticipated.
Goldman Sachs also noted that any valuation decrease that would follow from the
expectation of lower cash flow and earnings would be partially offset by the
expansion of the stock market multiples of the comparable companies since
Parent's original bid in February 1997, as well as the increase in general stock
market multiples since June 1997. The Special Committee then directed Goldman
Sachs to go back to Morgan Stanley and try to determine the amount and type of
consideration Parent would be prepared to offer over and above the current
proposal of US $60 per share in cash.
Following the December 2, 1997 meeting, a representative of Goldman Sachs
contacted a representative of Morgan Stanley, who expressed doubt that Parent
would be willing to make a new proposal, and suggested instead that the Special
Committee indicate what it would be willing to accept. After consultation,
Goldman Sachs reported to Morgan Stanley that the Special Committee believed
that it was appropriate at this time to bring the process to a conclusion, that
if no new proposal were forthcoming, the Special Committee would have no choice
but to make a formal determination with respect to the original US $60 Merger
Proposal and that under those circumstances, the advisors would likely recommend
to the Special Committee that it find the original Merger Proposal inadequate.
At a regularly scheduled Parent Board meeting on December 9, 1997, the
Parent Board approved the concept of offering warrants to purchase up to 400,000
PetroFina Shares as part of the Merger Consideration based on Morgan Stanley's
preliminary summary of warrant terms, which had indicated that Parent would need
to issue approximately 363,500 PetroFina Shares. The Parent Board did not,
however, review specific terms of the warrants or formally modify its original
Merger Proposal of US $60 in cash per Public Share.
On December 10, 1997, Goldman Sachs received an indicative revised Merger
Proposal from Morgan Stanley under the terms of which Parent would pay US $60
per share in cash and issue an aggregate of 4,420,000 warrants exercisable to
purchase an aggregate of 3,635,000 PetroFina ADSs (a conversion ratio of 0.8224
to 1). The warrants would have an exercise price of US $42.25 and would be
exercisable at any time for three years after their initial issuance.
At a December 18, 1997 meeting of the Special Committee, Goldman Sachs
described the indicative revised Merger Proposal. In addition, Goldman Sachs
further reviewed with the Special Committee the differences between the April
1997 Projections and the November 1997 Projections and the value of the Steam
Cracker Joint Venture. Goldman Sachs noted that the most significant changes in
the projections were a decrease in exploration and production volumes and a
decrease in chemical margins. A portion of the
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variance was attributable to the Steam Cracker Joint Venture preliminarily
approved by the Company Board, which shifted capital expenditures out of the
exploration and production segment resulting in reduced earnings. Goldman Sachs
noted that the positive effects of the Steam Cracker Joint Venture are expected
to appear in the year 2001, and that thereafter the Company's projected results
of operations approximated the results projected in the April 1997 Projections
(which did not reflect the Steam Cracker Joint Venture). Goldman Sachs noted
that, since the April 1997 Projections were prepared, the Company had
experienced two or three significant "dry holes" that in these original
projections had been expected to produce future volumes. Approximately 40% of
the decline in projected exploration and production volume was also attributable
to the capital expenditure reduction required by the Steam Cracker Joint
Venture. Finally, Goldman Sachs noted that the Company had determined that some
of its existing producing wells would have a shorter productive life than had
been previously thought. The Company had reduced its estimates of the productive
life of these wells as a result of its annual audit of its oil and gas reserve
estimates. Based on the October 1997 audit, the Company had determined that some
of its existing producing wells would have a shorter productive life than
previously had been thought.
Goldman Sachs then reviewed with the Special Committee the price of the
Shares on February 24, 1997 -- the last trading day prior to the Announcement
Date (US $50.13), the then-current trading price of the Shares (US $64.38), the
Share prices that would be implied by the changes in various market indices
since February 24, 1997 (which ranged from US $50.57 to US $58.62) and the Share
prices obtained by applying a 20% premium (the premium to the Company's
unaffected market price represented by the original Merger Proposal) to those
implied stock prices (which ranged from US $60.69 to US $70.34). Goldman Sachs
noted that a discounted cash flow analysis based on the November Projections
suggested a value for the Company of US $49-54 per Share. Goldman Sachs
estimated that the Steam Cracker Joint Venture resulted in a loss of value of
more than US $3 per Share under the discounted cash flow analysis because the
Steam Cracker Joint Venture is not expected to generate significant positive
cash flow before 2001 and because of reduced cash flows associated with the
exploration and production segment as a result of shifting capital to fund the
Steam Cracker Joint Venture. However, Goldman Sachs performed a separate
discounted cash flow analysis on the Steam Cracker Joint Venture based on
projections going out to the year 2015, which resulted in a net present value of
the Steam Cracker Joint Venture of between US $4-6 per Share. Taken together
with the discounted cash flow valuation of the Company over the forecast period,
this resulted in a range of values of between US $53 and US $60 per Share (based
on discount rates (as determined by Goldman Sachs based on its judgment
concerning, among other things, interest rates, the business and prospects of
the Company and certain market and general economic conditions) ranging from 11%
(for the 1997-1999 period) and 14% (for the 2000-2001 period) to 9% (for the
1997-1999 period) and 12% (for the 2000-2001 period), in each case with a
terminal value of 5.5 times discretionary cash flow for the last twelve months
and adjusting for the net impact of the Steam Cracker Joint Venture over the
1997-2015 period, using the same assumptions). Goldman Sachs reviewed several
other valuation benchmarks, including domestic integrated public company
price/earnings and price/discretionary cash flow multiples (which valuations
yielded, for estimated 1997 earnings and estimated 1998 earnings, ranges of US
$59 to US $84 and US $55 to US $73, respectively, and for estimated 1997
discretionary cash flow and estimated 1998 discretionary cash flow, ranges of US
$51 to US $78 and US $53 to US $75, respectively) and public price/earnings and
price/discretionary cash flow multiples weighted by segment to approximate more
closely the Company (which valuations yielded, for estimated 1997 earnings and
estimated 1998 earnings, ranges of US $57 to US $82 and US $60 to US $91,
respectively, and for estimated 1997 discretionary cash flow and estimated 1998
discretionary cash flow, ranges of US $62 to US $97 and US $56 to US $86,
respectively). These valuation benchmarks suggested a higher range of values for
the Company than the discounted cash flow analysis. Goldman Sachs then reviewed
the Special Committee's valuation of the proposed warrant, noting that the
Black-Scholes valuation of the warrant did not necessarily indicate what the
actual trading value of the warrant would be. See the discussion of the
Black-Scholes model below under "-- Fairness of the Merger -- Opinion of the
Special Committee's Financial Advisor."
The Special Committee then asked Goldman Sachs for its recommendation
regarding a counterproposal to Parent given the status of the discussions
between the parties and the valuation analyses performed by Goldman Sachs.
Goldman Sachs responded that, in considering what an appropriate counterproposal
should
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be, it was worth noting that its valuation analyses were resulting in disparate
ranges of values, with its discounted cash flow analysis consistently resulting
in a lower range of values than the public market comparables. Goldman Sachs
noted that it had always put less weight on the comparable companies analysis
because the Company is heavily weighted to chemicals and accordingly does not
match up well with the integrated oil companies. Goldman Sachs recommended that
the Special Committee should try to obtain a higher price but noted that, in its
judgment based on a number of factors including the negotiations to date, Parent
was unlikely to offer significantly more value and any incremental increase in
the value of the offer was likely to be small. Goldman Sachs observed that
Parent might have a different level of sensitivity to the amount of cash it
would have to pay than to the warrant value, and that in order to understand its
sensitivity the Special Committee should ask for both more cash and more warrant
value and see how Parent would respond. Goldman Sachs then recommended, in light
of all the foregoing, that the Special Committee ask for US $62 in cash and an
extension of the warrant term to five years, noting that the additional two
years of warrant term would add approximately US $2 of value. The US $62 cash
consideration was based on the valuation and other factors referred to above and
the fact that US $62 was the highest price that representatives of Parent had
ever indicated that Parent might be willing to offer (although no formal offer
of US $62 had ever been made to the Special Committee).
Following this discussion and after considering the recommendations of its
advisors, the Special Committee directed Goldman Sachs to counterpropose to the
representatives of Parent an offer of US $62 in cash and a warrant with a
five-year (instead of a three-year) term so as to allow stockholders to
participate in the value created by the Steam Cracker Joint Venture.
On December 19, 1997, Goldman Sachs relayed to Morgan Stanley the Special
Committee's counterproposal requesting an additional US $2 of cash consideration
and a two-year extension of the warrant period.
Thereafter, Parent advised Morgan Stanley that it would be unwilling to
improve the cash component of the consideration or to extend the warrant period
for two years, but that Parent would be willing to improve the warrant
conversion ratio from 0.8224:1 to 0.90 to 1 and to extend the warrant exercise
period to April 1, 2001 (a three-month extension). Parent did not raise the cash
component of the consideration because it wanted any additional consideration to
be paid only through the contingent-value security. Parent believed that its
valuation of the Company did not justify the payment of more than US $60 per
share, but decided that a contingent-value security valued at approximately US
$5 to US $6 would provide sufficient value to satisfy the Special Committee and
permit holders of the Public Shares to realize additional value beyond the cash
consideration without requiring Parent to pay more for the Shares directly. On
December 22, 1997, Morgan Stanley reported these developments to Goldman Sachs,
including Parent's willingness to extend the warrant conversion ratio and the
warrant exercise period to April 1, 2001.
Goldman Sachs described to the Special Committee on January 7, 1998 the
discussions with Morgan Stanley and the proposed improvements to the warrant
value.
The Special Committee and its advisors concluded at this time that Parent
would not in fact be willing to improve the cash component of its offer. This
conclusion was based on the fact that Parent had rejected on December 22, 1997,
the Special Committee's request for an additional US $2 of cash consideration,
as well as the Special Committee's interpretation of remarks made by Parent
representatives at the November 18, 1997 meeting that suggested to the Special
Committee that any improvement in the Merger Proposal was likely to come in the
form of a contingent value security. As a result, the Special Committee shifted
its focus onto obtaining improvements in the terms of the warrant. The Special
Committee determined that, given the depressive effect of the proposed Steam
Cracker Joint Venture on the near-term valuation of the Company and the fact
that the benefits of the project would not begin to be realized until after the
warrant would expire in accordance with terms proposed by Parent, Goldman Sachs
should go back to Morgan Stanley and attempt to have the warrant term extended
to five years. If the warrant were extended, then the current holders of Public
Shares could participate in the value created by the Steam Cracker Joint
Venture. After discussion, the Special Committee directed Goldman Sachs to meet
with Morgan Stanley and report that Goldman Sachs believed that the Special
Committee would accept a proposal from Parent that extended the warrant term to
five years, but that Goldman Sachs could not predict what action (if any) the
Special Committee would take
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if Parent were unwilling to offer such terms. Following the Special Committee
meeting, Goldman Sachs conveyed this message to Morgan Stanley.
Thereafter, Parent advised Morgan Stanley that it remained unwilling to
extend the warrant period for two years, but that it would be willing to reduce
the warrant exercise price from US $42.25 to US $41.25. On January 17, 1998,
Morgan Stanley responded to Goldman Sachs that Parent remained unwilling to
extend the warrant period for two years. However, Morgan Stanley indicated that
Parent would be willing to reduce the warrant exercise price from US $42.25 to
US $41.25.
On January 23, 1998, the Special Committee met to consider the Parent
response. After reviewing the current value of the warrant, the history of the
negotiations, the fact that the Company's projections had been revised downward
over the course of the negotiations and the possibility that such revision could
have been influenced in part by the views expressed by Parent, the outlook for
the stock market in general and oil and gas stocks in particular, the effect of
the Company's decision to go forward with the Steam Cracker Joint Venture
(reducing earnings in the near-term to finance a project the benefits of which
would not begin to be realized until 2001) and the resulting revision to the
Company's projections, the Special Committee determined that it would not
approve the Merger Proposal unless the term of the warrant were extended to five
years as the Special Committee had previously requested. The Special Committee
further determined that as its position had not changed since its January 7,
1998 counterproposal (which had only requested that the term of the warrant be
extended to five years and had not requested a reduction in the warrant strike
price), it would not insist on retaining the reduction in the warrant strike
price that had been offered by Parent in lieu of the five-year term. The Special
Committee directed its legal and financial advisors to report its position to
their respective counterparts and to advise Parent's legal and financial
advisors that the Special Committee would publicly announce that it would not
recommend the Merger Proposal unless Parent's agreement to the requested change
to the warrant terms were to be communicated to the Special Committee following
the January 27th Parent Board meeting.
At the Parent Board's regular meeting on January 27, 1998, the Parent Board
discussed the Special Committee's request and authorized Messrs. Frere and
Cornelis to agree to such terms, provided the putative shareholder class actions
that had been filed against Parent, the Company and the Company's directors
regarding the Merger Proposal could be settled at a reasonable price. See "The
Merger -- Certain Shareholder Litigation." Morgan Stanley conveyed this
information to the Special Committee, and Parent's legal advisors and the
Special Committee's legal advisors initiated settlement talks with the
plaintiffs' lawyers.
During the second week of February, after the principal terms of the
transaction had been negotiated, it came to the attention of the negotiators
that the 401(k) Plan, which holds a significant number of the Public Shares,
could not technically hold the warrants under existing DOL interpretations of
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). To
address this issue, an agreement was reached pursuant to which an application
for an exemption would be submitted to the U.S. Department of Labor ("DOL") to
permit the 401(k) Plan to hold the warrants.
On February 13, 1998, Parent, the directors comprising the Special
Committee and the Company entered into a Memorandum of Understanding with class
counsel regarding the proposed comprehensive settlement of various class action
lawsuits that had been filed relating to the Merger Proposal. The settlement is
subject to, among other things, completion of definitive documentation relating
to the settlement, court approval and consummation of the Merger. See "The
Merger -- Certain Shareholder Litigation."
On February 17, 1998, the Parent Board approved the Merger Agreement and
the transactions contemplated thereby. Later that day, the Special Committee met
to consider the final terms and conditions of the proposed Merger Agreement and
the advisability of the transaction. Counsel to the Special Committee reviewed
with the members of the Special Committee the terms of the definitive
documentation that had been prepared as well as the principal issues that had
arisen in the course of the negotiations, including the inability of the 401(k)
Plan to hold the warrants. The Special Committee discussed the agreement that
had been reached to apply for an exemption from the DOL, the expected length and
outcome of that process and the ability of the trustee of the 401(k) Plan to
sell the warrants during the pendency of the application process or upon any
ultimate denial of the application. Goldman Sachs reported to the Special
Committee on its
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evaluation of the fairness from a financial point of view of the consideration
to be received by the public stockholders of the Company in the transaction.
Goldman Sachs reviewed the various valuation analyses it had performed with
respect to the Company (see "-- Fairness of the Merger -- Opinion of the Special
Committee's Financial Advisor ") and noted that, based on an assumed PetroFina
ADS value of US $34-US $35 (current market value of Parent ADSs as of February
17, 1998), an assumed volatility for Parent ADSs of 22% and certain other
assumptions about, among other things, the Warrant Agreement, the approximate
midpoint of the warrant's Black-Scholes theoretical valuation range would be US
$4.25-US $4.75. For a description of the assumptions made in valuing the
warrant, see "-- Fairness of the Merger -- Opinion of the Special Committee's
Financial Advisor." Goldman Sachs noted that the trading value of the warrant
would likely be less than its Black-Scholes theoretical value because of
liquidity factors, market conditions and other factors that generally influence
the value of securities. Goldman Sachs then delivered to the Special Committee
its oral opinion, subsequently confirmed in writing, as of the same date, that
as of the date of such opinion, the consideration to be received by the public
stockholders of the Company in the Merger was fair to such stockholders from a
financial point of view.
The Special Committee then unanimously determined that the Merger was fair
to and in the best interests of the stockholders of the Company who are not
affiliates of Parent and recommended that the Company Board approve the Merger
Agreement. The Company Board then met and the directors who were not employees
of Parent or its subsidiaries unanimously approved and adopted the Merger
Agreement and the Merger, and the Merger Agreement was executed. Immediately
thereafter, Parent and the Company announced the Merger.
Following execution of the Merger Agreement, the Company has conducted its
business in the ordinary course of business except that on March 10, 1998, the
Company, with Parent's consent, reached an agreement in principle to sell 50% of
its interests in 64 lease blocks in the deep water regions of the Gulf of Mexico
to Canadian Occidental Petroleum Ltd., a subsidiary of CXY Energy of Dallas,
Texas for US $37 million. On May 8, the Company and BASF jointly announced that
the Parent Board and the Board of Directors of BASF Aktiengesellschaft, the
parent company of BASF, had approved the Steam Cracker Joint Venture.
FAIRNESS OF THE MERGER
REASONS FOR THE SPECIAL COMMITTEE'S RECOMMENDATION
In reaching its recommendation, the Special Committee considered the
factors listed below. In view of the wide variety of factors considered in
connection with its evaluation of the Merger, the Special Committee did not
consider it practicable to, and did not attempt to, quantify, rank or otherwise
assign relative weights to the specific factors it considered in reaching its
determination.
(i) The Company's business, condition and prospects. In evaluating
the terms of the Merger, the Special Committee considered the business,
results of operations, financial condition, assets, liabilities, business
strategy and prospects for the Company. The members of the Special
Committee were generally familiar with and knowledgeable about the
Company's affairs and further reviewed these matters in the course of their
deliberations. The Special Committee considered, among other things, the
historical operations and the financial performance of the Company, the
current condition of the business and the industries in which the Company
operates, the budgets and projections described elsewhere in this Proxy
Statement/Prospectus and projected long-term trends for the Company. Taking
into account the matters described above and the inclusion in the Merger
Consideration of the PetroFina Warrant as described under clause (iii)
below, the Special Committee considered the Company's business, the
financial condition, results of operations and prospects and the general
condition of the industries in which the Company operates to support its
recommendation.
(ii) Opinion of Goldman Sachs. The Special Committee considered the
opinion delivered by its financial advisor, Goldman Sachs, on February 17,
1998, to the effect that, as of such date and subject to the assumptions
and qualifications contained in such opinion, the consideration to be
received by the holders of Shares (other than Parent and its affiliates)
pursuant to the Merger Agreement was fair from a financial point of view to
such holders, and the presentations made by Goldman Sachs. See "-- Opinion
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of the Special Committee's Financial Advisor." A copy of Goldman Sachs'
opinion to the Special Committee dated as of February 17, 1998, is attached
as Annex C to this Proxy Statement/Prospectus and is incorporated herein by
reference. Such opinion should be read in its entirety for a description of
the opinion expressed, assumptions made, matters considered and limitations
of review undertaken in connection with such opinion.
The Special Committee considered such opinion and such presentations
to support its recommendation. In light of its familiarity with the Company
and Goldman Sachs' responses to questions during such presentations
(including questions with respect to the valuation methods used by Goldman
Sachs and the assumptions considered and used by Goldman Sachs in its
valuation analyses), the Special Committee found reasonable and relied upon
Goldman Sachs' analyses and opinion, as well as other factors described
herein.
(iii) Inclusion of a Five-Year Warrant in the Merger
Consideration. The Special Committee considered the inclusion of the
PetroFina Warrant in the Merger Consideration as supporting its
recommendation. Following the Announcement Date but before the terms of the
Merger were negotiated, the Company Board preliminarily approved the Steam
Cracker Joint Venture. The decision to proceed with the Steam Cracker Joint
Venture created balance sheet constraints that required the reduction of
previously planned capital expenditures in the exploration and production
segment, which in turn reduced the Company's projected earnings -- and
valuation -- over the period for which the Special Committee had
projections. Because of the time it would take to construct the steam
cracker, it was not anticipated that the steam cracker would begin to
generate positive cash flow until 2001. The Special Committee believed that
the PetroFina Warrant, which would be exercisable until 2003, would enable
the public stockholders of the Company to participate in the benefits to be
generated by the Steam Cracker Joint Venture.
The Special Committee took account of the fact that the 401(k) Plan,
which holds a significant number of the Public Shares, technically could
not hold warrants under existing DOL interpretations of ERISA. However, the
Special Committee accepted as reasonable the expectation of its advisors
that the application for an exemption that would be submitted to the DOL to
permit the 401(k) Plan to hold the PetroFina Warrants would ultimately be
approved. The Special Committee considered the advice it received from its
advisors that the process for receiving an exemption from the DOL was a
lengthy one, and that it would be at least eight weeks before a decision
would be rendered. The Special Committee further considered the fact that
even if the application were ultimately denied, the warrants could be sold.
(iv) Historical and Recent Market Prices. The Special Committee
considered the historical market price and recent trading activity of the
Shares as supporting its recommendation. The Special Committee considered
as favorable that the Merger Consideration (valuing the warrant at the
approximate midpoint of Goldman Sachs' Black-Scholes theoretical valuation
range of US $4.25 to US $4.75, which valuation range was based on certain
assumptions concerning, among other things, the terms of the Warrant
Agreement, the price of the PetroFina ADSs and the volatility of PetroFina
Shares) represented a premium of approximately 29% over the closing sale
price of US $50.13 for the Shares on February 24, 1997, the last trading
date prior to the first public announcement of the proposed transaction.
(v) Alternatives. The Special Committee considered as supporting its
recommendation its belief, based in part on the views of its advisors, that
it was unlikely that another entity would seek to acquire the 15% voting
interest in the Company not controlled by Parent. The Special Committee was
aware, based in part on Parent's majority control of the Company, that it
was highly unlikely that a solicitation of other bidders at this time would
result in an offer to acquire the minority stockholders' interest at a
higher price.
Although the Special Committee did not believe that an alternative
transaction with another acquiror was likely, the Special Committee was
aware at all relevant times during its consideration of the Merger Proposal
that one alternative open to it was not to recommend any transaction with
Parent. At each stage of the process, the Special Committee compared the
value that would accrue to a holder of Public Shares if a transaction were
to take place to the value of such Shares to the holder if no transaction
were to take place. In this context, the Special Committee took note of the
fact that the Public Shares
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were trading for US $50.13 on February 24, 1997 (the last trading day prior
to the first public announcement of the Merger Proposal) as well as the
value of the Public Shares that would be implied by the changes in various
market indices since February 24, 1997 (which, for example, ranged from US
$50.57 to US $58.62 on December 18, 1997). The Special Committee was
advised by Goldman Sachs that the market price of the Public Shares (which
had been trading, after the Announcement Date and before the February 17,
1998 date of the Merger Agreement in a range from US $59.25 to US $67.38
based in part upon the expectation that a transaction would be consummated)
would likely face downward pressure if the Merger Proposal were to be
withdrawn. The Special Committee would not have recommended any transaction
unless it believed that the transaction offered more value to the holders
of the Public Shares than leaving the Public Shares outstanding (it being
understood that while the Special Committee could elect to not recommend a
transaction, the Special Committee could not prevent Parent from going
ahead with a transaction without a Special Committee recommendation). As
described above under "-- Background of the Merger," the Special Committee
in fact advised Parent that it would not recommend the Merger Proposal
unless Parent agreed (which it ultimately did) to the extension of the term
of the PetroFina Warrant to five years. As described above under
"-- Inclusion of a Five-Year Warrant in the Merger Consideration" the
Special Committee considered the five-year term of the PetroFina Warrant
ultimately obtained as supporting its recommendation because it would
enable the public stockholders of the Company to receive the cash
consideration while continuing to participate in the benefits to be
generated by the Steam Cracker Joint Venture that they would otherwise
receive if the Merger did not take place.
(vi) Independent Negotiations. The Special Committee considered as
supporting its recommendation the fact that the Merger Consideration was
determined through arm's-length discussions and negotiations between
members of the Special Committee and the Special Committee's advisors, on
the one hand, and representatives of Parent and its advisors, on the other
hand, and the fact that such negotiations resulted in an increase in the
value to be received by the Company's stockholders of US $4.25 to US $4.75
(valuing the warrant at the approximate midpoint of Goldman Sachs'
Black-Scholes theoretical valuation range of US $4.25 to US $4.75, which
valuation range was based on certain assumptions concerning, among other
things, the terms of the Warrant Agreement, the price of the PetroFina ADSs
and the volatility of PetroFina Shares), or 7.5%, as compared to the US $60
per share offered pursuant to the Merger Proposal. The Special Committee
was of the view that, based on the history and nature of such discussions
and negotiations, the Merger Consideration reflected the highest price
Parent was prepared to pay and that any further negotiations would not
result in a higher price and might jeopardize the possibility of reaching
an agreement with Parent. The Special Committee also considered the risk
that prolonging the negotiation process further could significantly disrupt
the Company's business.
(vii) Terms of the Merger Agreement. The Special Committee considered
as supporting its recommendation the terms and conditions of the Merger
Agreement, including the fact that the conditions to Parent's obligation to
consummate the Merger are reasonably limited and do not include the
obtaining of the financing or the absence of a material adverse change in
the business or financial condition of the Company.
CERTAIN FACTORS RELATING TO THE TRANSACTION
The Company Board appointed the Special Committee, consisting of
independent directors, to review, evaluate and make a determination with respect
to the Merger Proposal. The Special Committee's determination that the Merger
was fair to, and in the best interests of, the stockholders of the Company who
are not affiliates of Parent and its recommendation that the Company Board
approve the Merger Agreement constituted approval of the Merger by a majority of
the members of the Company Board who are not employees of, or affiliated with,
Parent or the Company.
As described above under "-- Background of the Merger," the Special
Committee retained Goldman Sachs to be its financial advisor. Goldman Sachs was
retained by the Special Committee -- the members of the Company Board who are
not employees of or affiliated with Parent or the Company -- to be an
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unaffiliated representative to act solely on behalf of unaffiliated
securityholders for purposes of negotiating the forms of the Merger and/or
preparing a report as to the fairness of the Merger.
As described below under "The Meeting -- General," adoption of the Merger
Agreement requires the affirmative vote of the holders of a majority of the
outstanding Shares. Parent already has sufficient voting power to cause the
adoption of the Merger Agreement without the affirmative vote of any other
stockholder of the Company. Adoption of the Merger Agreement does not require
the separate approval of holders of a majority of the Public Shares (i.e., the
stockholders unaffiliated with Parent). The Special Committee did not view the
absence of a requirement that the Merger Agreement be adopted by a majority of
the unaffiliated stockholders as affecting its determination that the Merger was
fair to and in the best interests of the stockholders of the Company who are not
affiliated with Parent. The Special Committee based its recommendation on the
factors described above under "-- Reasons for the Special Committee's
Recommendation," factors that generally relate to the substance of the
transaction itself and the manner in which it was negotiated, and not on the
procedures that would be required to obtain stockholder approval of the
transaction.
In reaching its recommendation, the Special Committee did not consider or
accord significant weight to the net book value or liquidation value of the
Company, either because such measures were not meaningful from a financial
valuation perspective or because the Special Committee, in consultation with its
financial advisor, considered it unlikely that the Company would or could be
sold in that way.
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR
On February 17, 1998, Goldman Sachs delivered to the Special Committee its
oral opinion, that, as of the date of such opinion, the Merger Consideration to
be received by the holders of the Shares, other than Parent and its affiliates,
pursuant to the Merger Agreement is fair from a financial point of view to such
holders. Goldman Sachs subsequently confirmed this opinion in writing.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AS OF FEBRUARY
17, 1998, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX C TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. ALL HOLDERS OF SHARES ARE URGED TO, AND SHOULD, READ SUCH OPINION IN
ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement and the form of the Warrant Agreement attached as
Exhibit A to the Merger Agreement; (ii) the Annual Reports to Stockholders and
Annual Reports on Form 10-K of the Company for the five years ended December 31,
1996; (iii) certain interim reports to stockholders and Quarterly Reports on
Form 10-Q of the Company; and (iv) the Annual Reports to Stockholders of Parent
for the five years ended December 31, 1996, as well as certain interim reports
to stockholders of Parent. Goldman Sachs also held discussions with members of
the senior managements of the Company and Parent regarding the past and current
business operations, financial conditions, and future prospects of their
respective companies. In addition, Goldman Sachs reviewed the reported price and
trading activity for the PetroFina Shares and the PetroFina ADSs, compared
certain financial and stock market information for the Company and Parent with
similar information for certain other companies the securities of which are
publicly traded, and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed with the consent of the Special Committee that the financial
projections for the Company that had been furnished to it had been reasonably
prepared on a basis reflecting the best currently available judgments and
estimates of the Company. In addition, Goldman Sachs has not made an independent
evaluation or appraisal of the assets and liabilities of the Company or Parent
or any of their respective subsidiaries, and Goldman Sachs has not been
furnished with any such evaluation or appraisal. Goldman Sachs was neither
requested nor authorized to solicit, and did not solicit, interest from any
party with respect to an acquisition of the Shares, the Company or its
constituent businesses. The services and opinion of Goldman Sachs referred to
herein were provided for the information and assistance of the Special
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<PAGE> 35
Committee in connection with its consideration of the Merger and do not
constitute a recommendation as to how any holder of Shares should vote with
respect to the Merger. Goldman Sachs' opinion is necessarily based on economic
and market conditions and other circumstances as they exist and can be evaluated
by Goldman Sachs on the date of such opinion. For the purposes of its opinion,
Goldman Sachs assumed that the Warrant Agreement will be executed in the form
attached as Exhibit A to the Merger Agreement. Goldman Sachs is not expressing
any opinion as to the prices at which the PetroFina Warrants may trade if and
when they are issued.
The following is a summary of all the material financial analyses used by
Goldman Sachs in connection with providing its opinion to the Special Committee
on February 17, 1998.
Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for the Shares both separately and in
comparison to the S & P 400 Index and to the Domestic Integrated Oils,
Exploration & Production, Independent Refining and Commodity Chemicals
Groups (each as defined herein) for the periods one year, three years and
five years prior to the date of the delivery of its oral opinion to the
Special Committee. Goldman Sachs also reviewed the historical trading
prices and volumes for the Shares, for the period beginning before the time
Parent first announced its proposal, and for the PetroFina ADSs for the
period beginning at the time they were first publicly traded, and, in each
case, ending soon before the date of Goldman Sachs' delivery of its oral
opinion to the Special Committee. Immediately prior to Parent's
announcement of the Merger Proposal on February 25, 1997, the closing price
of the Shares was $50.13; the high and low closing prices of the Shares
between Parent's announcement on February 25, 1997 and the Special
Committee meeting on February 17, 1998 were, respectively, $67.38 and
$59.25. In addition, Goldman Sachs calculated the implied value of the
Merger Consideration to be US $64.82, based on an assumed PetroFina ADS
price of US $35.125 and an assumed volatility of 22%. The Historical Stock
Trading Analysis helped Goldman Sachs establish the general framework for
the evaluation of the offer. The analysis was also used to determine the
historical market prices and volatility of the underlying Parent ADSs used
in the Black-Scholes valuation of the warrants. The Historical Stock
Trading Analysis showed that (i) the Company shares traded below the
implied value of the Merger offer prior to the Parent announcement on
February 25, 1997; and (ii) the Company shares traded below and above the
implied value of the Merger Proposal between Parent's announcement on
February 25, 1997 and the Special Committee meeting on February 17, 1998.
Also, the analysis demonstrated that the average volatility of the
underlying Parent ADSs was approximately 22%.
Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to the Company to corresponding
financial information, ratios and public market multiples for selected
companies (1) in the diversified energy field, including Amoco Corp.,
Ashland Inc., Atlantic Richfield, Kerr-McGee, Murphy Oil, Phillips
Petroleum, Sun Company, Unocal Corp., and USX-Marathon (the "Domestic
Integrated Oils Group"); (2) in the exploration & production field,
including Barrett Resources, Cabot Oil & Gas, Cross Timbers Oil, Devon
Energy, Forcenergy, Newfield Exploration, Pogo Producing, Houston
Exploration, United Meridian, and Vintage Petroleum (the "Exploration &
Production Group"); (3) in the refining and marketing field, including
Ashland Inc., Sun Company, Tosco Corp., Ultramar Diamond Shamrock, and
Valero Energy (the "Independent Refining Group"); and (4) in the chemicals
field, including Dow Chemical, Geon, Georgia Gulf, Lyondell Petrochemical,
Millennium Chemicals and Union Carbide (the "Commodity Chemicals Group").
The companies in these groups were chosen because they are publicly-traded
companies with operations in the exploration and production, refining and
marketing, and/or commodity chemicals fields. Goldman Sachs calculated and
compared various financial multiples and ratios for the Company with those
of the Domestic Integrated Oils, Exploration & Production, Independent
Refining and Commodity Chemicals Groups using the closing price for the
Shares of February 24, 1997, the day immediately prior to the Announcement
Date, and the respective closing prices of February 10, 1998 for Company
and for the shares of the companies in each of these groups. In calculating
earnings multiples and EBITDA, Goldman Sachs relied on Goldman Sachs
Research estimates as of February 10, 1998 for the companies in the various
groups and on certain financial projections for the Company prepared by the
Company's management.
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<PAGE> 36
For all companies in the Domestic Integrated Oils Group, the
respective lowest and highest price/discretionary cash flow ratios based on
estimated 1998 discretionary cash flow were 4.8x, and 6.6x, with a median
ratio of 5.8x. Applied to the Shares of the Company, price/discretionary
cash flow ratios in a range of 4.8x to 6.6x imply a price per Share in the
range of US $54 to US $73. Similarly, for all companies in the Domestic
Integrated Oils Group, the respective lowest and highest price/earning
multiples for estimated 1998 earnings were 14.7x and 18.7x, with a median
ratio of 16.1x. Applied to Shares of the Company, price/earnings multiples
in a range of 14.7x to 18.7x imply a price per Share in the range of US $65
to US $83.
Goldman Sachs also calculated a weighted average of the median
multiples and ratios for the various groups, and based on such analysis and
on estimated 1998 earnings and discretionary cash flow, the companies in
the group had a weighted average median price/earnings multiple of 16.7x
and a weighted average median price/discretionary cash flow ratio of 6.2x,
compared to, as of the day immediately prior to the Announcement Date,
11.3x and 4.5x, respectively, for the Company. The respective weighted
average low and weighted average high price/discretionary cash flow
multiples for the various composite companies in the group were 5.7x and
6.9x respectively. Applied to the Shares of the Company,
price/discretionary cash flow multiples in a range of 5.7x to 6.9x imply a
price per Share in the range of US $63 to US $78. The respective weighted
average low and weighted average high price/earnings multiples for the
various companies in the group were 15.0x and 18.4x respectively. Applied
to the Shares of the Company, price/earnings multiples in a range of 15.0x
to 18.4x imply a price per Share in the range of US $66 to US $81.
Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis using projections for the Company prepared by the
management of the Company. Goldman Sachs calculated a net present value for
the Company's free cash flows for the years 1997 through 2001. Goldman
Sachs calculated the Company's terminal value in the year 2001 based on
multiples of 4.5x to 7.0x times the discretionary cash flow for the final
twelve months of the period. These projected cash flows and terminal values
were then discounted to present value using various discount rates and
other assumptions. Assuming a terminal value of 5.5x last twelve months'
discretionary cash flow, Goldman Sachs applied discount rates ranging from
9% to 11%, for the Company's projected discretionary cash flows for the
1997-1999 period, and 12% to 14% for the Company's projected discretionary
cash flows for the 2000-2001 period, to compute an implied present value
per Share of US $53 to US $60, adjusted for the net impact of the Steam
Cracker Joint Venture over the 1997-2015 period using the same assumptions.
Present Value of Implied Future Share Prices Analysis. Goldman Sachs
performed an analysis to determine the present value of implied future
Company stock prices based on management's projections of earnings per
share and using price to earnings multiples ranging from 9.0x to 11.0x
(based on the Company's undisturbed 1996 and estimated undisturbed 1997
price-earning multiples, which Goldman Sachs calculated to be 10.2 and 9.8,
respectively). These implied future Share prices were then discounted to
present value using a discount rate of 12%. Under this analysis, the
present value of the implied future Share price based on projected earnings
for the year 2000 ranged approximately from US $47 to US $57, and based on
projected earnings for the year 2001 ranged approximately from US $63 to US
$77.
Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses
of the financial impact of the Merger on Parent. Using earnings estimates
for the Company and for Parent provided by the Institutional Broker
Estimate System for 1998, Goldman Sachs calculated the amounts Parent would
have to pay, either all in cash or all in its own common stock,
respectively, such that the Merger would be neither accretive nor dilutive
to Parent's earnings per share, assuming the Merger produces no synergies
and is accounted for using the purchase method and a goodwill amortization
period varying from five to 20 years. Based on these analyses, if Parent
paid entirely in its own common stock, the Merger would be neither
accretive nor dilutive to Parent's earnings per share multiple if, assuming
a period of amortization ranging from five to twenty years, Parent paid in
the range of US $47 to US $56 per Share. Also based on these analyses, if
Parent paid entirely in cash, the Merger would be neither accretive nor
dilutive to
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<PAGE> 37
Parent's earnings per share if, assuming a period of amortization ranging
from five to 20 years, Parent paid in the range of US $53 to US $73 per
Share.
Goldman Sachs also performed certain sensitivity analyses concerning the
PetroFina Warrants using the Black-Scholes model for option pricing. The
Black-Scholes model is the method of calculating the value of options and
option-linked securities generally accepted in the financial community. While
the Black-Scholes methodology is commonly used to determine the value of
securities like the warrant, it is based on assumptions that are subject to
interpretation. In addition, the Black-Scholes model does not attempt to
incorporate certain market factors, such as liquidity, that can affect the
trading prices of any security. Goldman Sachs calculated the theoretical value
of an American-style option with a five-year term and a strike price of US
$42.25, based on assumed PetroFina ADS prices ranging from US $32 to US $38 and
on volatilities ranging from 18% to 26% (which ADS prices and volatilities were
based on an historical trading analysis of the PetroFina ADSs) and based on the
following assumed yield curves: 6/15/98: 5.81%; 12/14/98: 5.77%; 6/14/99: 5.78%;
12/16/99: 5.79%; 6/19/00: 5.82%; 12/18/00: 5.85%; 6/18/01: 5.88%; 12/17/01:
5.91%; 6/17/02: 5.95%; 12/16/02: 5.98% (which yield curve was based on the yield
curve observed prior to February 17, 1998). Goldman Sachs then calculated,
assuming an exchange ratio of 0.9 PetroFina ADSs per PetroFina Warrant, the
implied values for the PetroFina Warrants based on the foregoing assumptions.
Using these assumptions, Goldman Sachs computed an implied theoretical value per
PetroFina Warrant ranging from US $2.48 to US $7.36.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company used in
the above analyses as a comparison is directly comparable to the Company or
Parent. The analyses were prepared solely for purposes of Goldman Sachs
providing its opinion to the Special Committee as to the fairness from a
financial point of view, other than to Parent and its affiliates, of the Merger
Consideration to be received by the holders of the Shares pursuant to the Merger
Agreement and do not purport to be appraisals or necessarily to reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon projections of future results are not necessarily indicative of actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of the Company, Parent, Goldman Sachs or any
other person assumes any responsibility if future results are materially
different from those projected. As described above, Goldman Sachs' opinion to
the Special Committee was one of many factors taken into consideration by the
Special Committee in making its determination to approve the Merger Agreement.
The foregoing summary does not purport to be a complete description of the
analyses performed by Goldman Sachs and is qualified by reference to the written
opinion of Goldman Sachs set forth as Annex C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. The Special Committee
selected Goldman Sachs as its financial advisor on the basis of its reputation
as a nationally recognized investment banking firm and its substantial
experience in transactions similar to the Merger. Goldman Sachs provides a full
range of financial advisory and securities services, and, in the course of its
normal trading activities, may from time to time effect transactions and hold
securities of the Company or Parent or both for its own account and for the
accounts of its clients. As of the date on which it rendered its opinion to the
Special Committee, Goldman Sachs had accumulated for its own account a long
position of 28,269 PetroFina Shares.
Pursuant to a letter agreement dated March 21, 1997 (the "Engagement
Letter"), the Company engaged Goldman Sachs to act as the financial advisor to
the Special Committee in connection with the contemplated transaction. Pursuant
to the terms of the Engagement Letter, the Company agreed to pay Goldman Sachs
upon delivery of its opinion a fee of US $1,500,000. The Company also has agreed
to reimburse Goldman
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<PAGE> 38
Sachs for its reasonable out-of-pocket expenses, including attorneys' fees, and
to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
Projections
The December 1996 Projections
The Company Board, at a regularly scheduled meeting in November 1996,
authorized a capital budget for the Company for 1997 and 1998. In accordance
with its customary practice in seeking Company Board approval of the Company's
capital budget, Company management presented to the Company Board a three-year
plan estimating results of operations for 1997, 1998 and 1999. The plan, a copy
of which was subsequently made available to the Special Committee and Goldman
Sachs, contained the following estimates of future earnings before interest and
taxes, and future net earnings:
<TABLE>
<CAPTION>
PROJECTION PROJECTION PROJECTION
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Earnings before interest & taxes............. $271 million $364 million $447 million
Net earnings................................. $155 million $210 million $255 million
</TABLE>
The April 1997 Projections
After becoming financial advisor to the Special Committee, Goldman Sachs
requested Company management to prepare projections reflecting its estimates of
Company earnings for each of the five years ending December 31, 2001. Company
management provided the April 1997 Projections to the Special Committee, Goldman
Sachs and Parent in April 1997 and reviewed these projections with the Special
Committee, Goldman Sachs and representatives of Parent at a meeting on June 2,
1997. The April 1997 Projections contained the following estimates of future
operating results for the Company:
<TABLE>
<CAPTION>
PROJECTION PROJECTION PROJECTION PROJECTION PROJECTION
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Earnings before interest &
taxes.................... $278 million $336 million $412 million $495 million $602 million
Net earnings............... $159 million $191 million $232 million $289 million $363 million
</TABLE>
The April 1997 Projections reflect lower earnings due to the announcement
of new industry production capacity in the Chemicals segment reducing the
overall percentage of capacity utilization, which is a primary index used by the
Company to determine Chemical margins.
The September 1997 Projections
On September 18, 1997, in advance of the Company's announcement of the
Steam Cracker Joint Venture, Mr. Haddock sent to Mr. Cornelis Company
management's estimate of operating results for the three years ending December
31, 1999. These projections were not provided to the Special Committee or
Goldman Sachs. The September 1997 Projections contained the following estimates
of operating results for this three-year period:
<TABLE>
<CAPTION>
PROJECTION PROJECTION PROJECTION
1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Earnings before interest & taxes........... $ 261 million $279 million $335 million
Net earnings............................... $ 150 million $151 million $171 million
</TABLE>
The September 1997 Projections reflect lower earnings due to three factors:
(1) a continued reduction of Chemical earnings due to further increases in
industry capacity, primarily in polypropylene, thus reducing the Company's
expected margins; (2) a reduction in capital expenditures in the Company's
Upstream business to offset spending in connection with the Steam Cracker Joint
Venture; and (3) a decrease in refinery margins.
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<PAGE> 39
The November 1997 Projections
In advance of a meeting with the Special Committee and Goldman Sachs on
November 18, 1997, Company management prepared a five-year plan projecting
significantly lower operating results than those contained in the five-year plan
discussed with the Special Committee on June 2, 1997. The revised five-year
plan, a copy of which was also provided to Parent, contained the following
estimates of the Company's future operating results:
<TABLE>
<CAPTION>
PROJECTION PROJECTION PROJECTION PROJECTION PROJECTION
1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Earnings before interest &
taxes.................... $253 million $252 million $337 million $397 million $591 million
Net earnings............... $145 million $138 million $188 million $227 million $344 million
</TABLE>
The November 1997 Projections reflect lower earnings primarily due to a
sharp reduction in Chemical earnings (approximately 35% lower than the December
1996 Projections) as a result of a further decline in Chemical margins.
Assumptions
The key assumptions, in management's opinion, that are the most significant
to each set of projections are (i) the price of crude oil and natural gas, (ii)
refining margins, (iii) chemical margins and (iv) expected growth based on
proposed expansions. The projected earnings are derived by comparing production
and manufacturing capacities and utilization for Upstream, Downstream and
Chemicals against expected costs and margins involved in each business segment.
Cautionary Statement Concerning Projections
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data.
However, in connection with Parent's position as a controlling stockholder of
the Company, Parent has received and examined certain analyses prepared by the
Company which include projections of future financial results described above
(the "Projections"). See "Special Factors -- Background of the Merger." Such
information has been set forth above for the limited purpose of giving the
Company's stockholders access to financial projections by the Company's
management that were available for review by Parent and Goldman Sachs in
connection with the Merger Proposal.
The Projections set forth above necessarily reflect numerous assumptions
with respect to general business and economic conditions and other matters, many
of which are inherently uncertain or beyond the Company's or Parent's control,
and do not take into account any changes in the Company's operations or capital
structure which may result from the Merger. It is not possible to predict
whether the assumptions made in preparing the projected financial information
will be valid, and actual results may prove to be materially higher or lower
than those contained in the Projections. The inclusion of this information
should not be regarded as an indication that the Company, Parent or anyone else
who received this information considered it a reliable predictor of future
events, and this information should not be relied on as such. None of Parent,
the Company or any of their respective representatives assumes any
responsibility for the validity, reasonableness, accuracy or completeness of the
projected financial information, and the Company has made no representations to
Parent or Goldman Sachs regarding such information.
The Projections were not prepared with a view to public disclosure or
compliance with the published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections and forecasts and are included in this Proxy Statement/Prospectus
only because such information was made available to Parent and Goldman Sachs by
the Company. Neither Parent's nor the Company's independent accountants have
examined, compiled or applied any agreed upon procedures to this information
and, accordingly, assume no responsibility for this information. Neither Parent
nor the Company nor any other party assumes any responsibility for the accuracy
or validity of the foregoing projections. Neither Parent (or any of its
subsidiaries) nor the Company intends to update or otherwise revise
28
<PAGE> 40
the Projections to reflect circumstances existing after the date when made or to
reflect the occurrence of future events even in the event that the Projections
are shown to be in error in any respect.
RECOMMENDATION OF THE COMPANY BOARD
On February 17, 1998, the Special Committee unanimously determined that the
Merger is fair to, and in the best interests of, the holders of Public Shares
and unanimously voted to recommend and approve the Merger and the Merger
Agreement.
On February 17, 1998, the Company Board, based in part on the unanimous
recommendation and approval of the Special Committee, approved the Merger
Agreement and the transactions contemplated thereby and determined, based on the
unanimous recommendation and approval of the Special Committee, that the Merger
is fair to, and in the best interests of, the stockholders of the Company. The
Company Board recommended that all stockholders vote their Shares in favor of
adopting the Merger Agreement. The Company Board did not separately address
whether the Merger was fair to holders of Public Shares because it had delegated
this responsibility to the Special Committee. All of the Company's directors
were present at the meeting. However, the directors of the Company Board
designated by Parent and those directors employed by the Company recused
themselves from voting at the Company Board meeting due to their inherent
conflict of interest.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company Board and the Special
Committee with respect to the Merger, stockholders should be aware that certain
officers and directors of Parent and the Company have interests in the Merger
which are described below and which create inherent conflicts of interest in
connection with the Merger. Currently, of the nine directors of the Company,
four are also directors or executive officers of Parent and are Parent's
nominees to the Company Board. Mr. Francois Cornelis, a director of the Company,
is also Chief Executive Officer and Managing Director of Parent; Mr. Michel-Marc
Delcommune, a director of the Company, is also a director and Executive
Director, Corporate Finance of Parent; Mr. Axel de Broqueville, a director of
the Company, is also a director and Executive Director, Chemicals of Parent; and
Mr. Jose Rebelo, a director of the Company, is also General Manager,
Exploration-Production of Parent. See "The Company -- Principal Stockholders and
Stock Ownership of the Company Management" for information regarding Shares
beneficially owned by certain of Parent's executive officers or directors. In
addition, Mr. Paul Meek is Parent's nominee to the Company Board, and Parent
expects both Mr. Meek and Mr. Haddock to continue as directors of the Surviving
Corporation.
Stockholders should also be aware that Parent has an inherent conflict of
interest in connection with the Merger. As a result of Parent's current
ownership of approximately 86% of the issued and outstanding Shares and its
nominees constituting a majority of the Company's directors, Parent controls the
Company.
The Special Committee and the Company Board were aware of these conflicts
of interest and considered them along with the other matters described under
"-- Fairness of the Merger."
POSITION OF PARENT REGARDING FAIRNESS OF THE MERGER
Parent believes that the Merger Consideration to be received by the
Company's stockholders, other than Parent and its subsidiaries, pursuant to the
Merger is fair from a financial point of view to the Company's stockholders
other than Parent and its subsidiaries. Parent bases its belief on the following
facts: (i) the fact that the Special Committee concluded that the Merger is fair
to, and in the best interests of, the Company; (ii) notwithstanding the fact
that Goldman Sachs' opinion was provided solely for the information and
assistance of the Special Committee and that Parent is not entitled to rely on
such opinion, the fact that the Special Committee received an opinion of Goldman
Sachs that the US $60 in cash plus one PetroFina Warrant to be received for each
share held by the holders of Shares other than Parent and its subsidiaries in
the Merger is fair to such holders from a financial point of view; (iii) the
historical and projected financial performance of the Company and its historical
financial results; (iv) the Merger Agreement was negotiated at arm's-length; (v)
the Cash Consideration to be paid in the Merger represents a premium of 18.7%
over the
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<PAGE> 41
average closing price for the one-month period prior to the Announcement Date,
and the premium is even higher when the imputed value of the PetroFina Warrant
is included; and (vi) the Cash Consideration to be paid in the Merger represents
a premium of 19.7% over the closing price on the last full trading day prior to
the Announcement Date, and the premium is even higher when the imputed value of
the PetroFina Warrant is included. Parent did not find it practicable to assign,
nor did it assign, relative weights to the individual factors it considered in
reaching its conclusion as to fairness.
Each of APHC, PDI and Mergeco have adopted the same reasons expressed by
Parent in concluding that the Merger Consideration to be received by the
Company's stockholders, other than Parent and its subsidiaries, pursuant to the
Merger is fair from a financial point of view to the Company's stockholders
other than Parent and its subsidiaries.
PURPOSE AND STRUCTURE OF THE MERGER; PARENT'S REASONS FOR THE MERGER
The purpose of the Merger is for Parent to increase its ownership of the
Common Stock from approximately 86% to 100%. Upon consummation of the Merger,
the Company will become an indirect, wholly-owned subsidiary of Parent. The
acquisition of the Shares not owned by Parent has been structured as a merger in
order to effect a prompt and orderly transfer of ownership of the Company from
the holders of Public Shares to Parent and to provide the holders of Public
Shares with cash and PetroFina Warrants for all of their Shares.
Under the DGCL, the approval of the Company Board and the affirmative vote
of a majority of the issued and outstanding Shares are required to approve and
adopt the Merger Agreement and the Merger. The Merger does not require the
approval of a majority of stockholders who are not affiliated with Parent and
its subsidiaries. The Company Board has approved the Merger Agreement, and the
only remaining required corporate action of the Company is the approval and
adoption of the Merger Agreement by the affirmative vote of the holders of a
majority of the Shares. Parent already has sufficient voting power to cause the
approval and adoption of the Merger Agreement without the affirmative vote of
any other stockholder of the Company. In the Merger Agreement, the Company
agreed to take all action necessary to convene a special meeting of its
stockholders as promptly as practicable following execution of the Merger
Agreement for the purpose of considering and voting upon the adoption of the
Merger Agreement and to take all lawful action to solicit such adoption. Parent
has agreed that all Shares owned by it and its subsidiaries will be voted in
favor of the adoption of the Merger Agreement.
Parent's principal strategic objective in acquiring the Public Shares is to
streamline its international structure and operations. Parent concluded that
such an acquisition would simplify Parent's international structure, enhance
Parent's strategic flexibility and allow it to benefit from opportunities in the
businesses in which Parent and the Company operate. Parent also believed that a
global approach to certain operating functions, such as in its Upstream and
Chemicals divisions, as well as to support functions, such as its computer
systems, could increase Parent's operating efficiencies and thereby reduce its
operating costs on a consolidated basis. For example Parent believed achieving
such a global approach would be considerably more complex and difficult if the
Company has unaffiliated public shareholders. Furthermore, in connection with
its decision to list the PetroFina ADSs on the NYSE, Parent also concluded that
the combination of Parent and the Company would result in Parent and its
affiliates having only one integrated oil and gas company with publicly-listed
common stock. Parent believed that the combination would improve Parent's market
valuation. Consequently, Parent concluded that an acquisition by Parent of the
remaining Public Shares should be considered. Parent also considered acquiring
the Public Shares through a forced merger or unilateral tender offer, but
rejected these options because it believed that a negotiated merger would be
preferable for all of the Company's constituencies, including its employees. See
also "-- Background of the Merger." Parent chose to initiate the merger
transaction in early 1997 because market conditions indicated that mid-1997
would be a good time to list the Parent ADSs on the NYSE. Parent had intended
that the listing and a merger transaction would occur simultaneously.
Each of APHC, PDI and Mergeco, which are wholly-owned subsidiaries of
Parent, have adopted the analysis of Parent and the Parent Board regarding
Parent's reasons for the Merger.
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PLANS FOR THE COMPANY AFTER THE MERGER; CERTAIN EFFECTS OF THE MERGER
Except as otherwise described in this Proxy Statement/Prospectus, Parent
has no current plans or proposals which relate to or would result in: (a) other
than the Merger, an extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving the Company or its subsidiaries; (b) a
sale or transfer of a material amount of the assets of the Company or its
subsidiaries; (c) any change in the management of the Company or any change in
any material terms of the employment contract of any executive officer; or (d)
any other material change in the Company's corporate structure or business.
However, Parent intends to initiate a review of the Company and its assets,
corporate structure, capitalization, operations, properties, policies,
management and personnel to determine what changes, if any, would be desirable
following the Merger in order to best organize and integrate the activities of
the Company and Parent. Parent expressly reserves the right to make any changes
that it deems necessary or appropriate in light of its review or in light of
future developments.
Following consummation of the Merger, Parent's direct and indirect interest
in the Company's net book value and net earnings will increase to 100% and
Parent and its subsidiaries will be entitled to all benefits resulting from that
interest, including all income generated by the Company's operations, and any
future increases in the Company's value and the right to elect all members of
the Company Board. Similarly, Parent will bear the risk of losses generated by
the Company's operations and any decrease in the value of the Company after the
Merger. Upon consummation of the Merger, the Company will become a privately
held corporation. Accordingly, stockholders, other than Parent or any direct or
indirect subsidiary of Parent, will not have the opportunity to participate
directly in the earnings and growth of the Company after the Merger and will not
have any right to vote on corporate matters. Similarly, stockholders, other than
Parent or any direct or indirect subsidiary of Parent, will not face the risk of
losses generated by the Company's operations or decline in the value of the
Company after the Merger.
Following the Merger, the Shares will no longer be quoted on the AMEX and
the BDRs will no longer be quoted on the BSE. In addition, the registration of
the Shares under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") will be terminated. Accordingly, following the Merger there will be no
publicly-traded Shares of the Company outstanding. Thus, following the Merger
the Company's reporting obligations under the Exchange Act will be suspended. It
is expected that, if the Merger is not consummated, the Company's current
management, under the general direction of the Company Board will continue to
manage the Company as an ongoing business.
CERTAIN TAX CONSEQUENCES OF THE MERGER
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary describes the material U.S. federal income tax
consequences of the Merger to a holder of Common Stock that is (i) a citizen or
resident of the United States (including certain former citizens and long-term
residents), (ii) a partnership, corporation (including an entity treated as a
corporation or partnership for U.S. federal income tax purposes) or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate the income of which is subject to
U.S. federal income taxation regardless of source or (iv) a trust with respect
to the administration of which a court within the United States is able to
exercise primary supervision and which has one or more U.S. persons who have the
authority to control all substantial decisions of the trust (a "U.S. Holder").
The tax treatment of a holder may vary depending upon the particular situation
of the holder. The discussion considers only U.S. Holders that own Common Stock
as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code").
Except to the extent discussed below, the discussion does not consider the
U.S. tax consequences to a person that is not a U.S. Holder (a "Non-U.S.
Holder"). This discussion of U.S. federal income tax consequences does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to a holder of Common Stock who receives the Merger
Consideration, nor does it address the effect of any applicable foreign, state,
local or other tax laws. Further, the discussion does not consider holders that
are subject to special tax treatment, including dealers in securities, financial
institutions, insurance companies,
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tax-exempt organizations, persons subject to the alternative minimum tax,
current or prior holders (directly or indirectly) of 10% or more of the voting
shares of Parent, holders of securities held as part of a "straddle," "hedge" or
"conversion transaction," or U.S. Holders whose "functional currency" (within
the meaning of Section 985(b) of the Code) is not the dollar. EACH HOLDER OF
COMMON STOCK SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER.
The following discussion is based on current provisions of the Code,
current and proposed Treasury Regulations promulgated thereunder, administrative
and judicial interpretations as of the date hereof, all of which are subject to
change, possibly on a retroactive basis.
U.S. Holders. A U.S. Holder will recognize capital gain or loss as a
result of the Merger measured by the difference between such stockholder's
amount realized and its adjusted basis in its Common Stock. A U.S. Holder's
amount realized will equal the amount of cash and the fair market value of
PetroFina Warrants received. A U.S. Holder will have a basis in the PetroFina
Warrants received equal to their fair market value as of the Effective Time. The
rate of taxation of capital gain will depend upon (i) the U.S. Holder's holding
period for the Common Stock surrendered in the Merger (with the lowest rate
available only for Common Stock held more than 18 months) and (ii) the U.S.
Holder's marginal tax rate for ordinary income. U.S. Holders of Common Stock
should consult their tax advisors with respect to applicable rates, holding
periods and netting rules for capital losses.
Information reporting to the Internal Revenue Service is required with
respect to the payment of the Merger Consideration. In addition, a U.S. Holder
will be subject to backup withholding at a rate of 31% on payment of the Merger
Consideration only if the U.S. Holder (i) fails to provide a taxpayer
identification number ("TIN") on a properly completed W-9, (ii) furnishes an
incorrect TIN, (iii) is notified by the Internal Revenue Service that the U.S.
Holder has failed to properly report payment of dividends or interest, or (iv)
fails, under certain circumstances, to certify, under penalties of perjury, that
it has furnished a correct TIN. Backup withholding will not apply with respect
to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
Non-U.S. Holders. A Non-U.S. Holder of Common Stock will not be subject to
United States federal income tax on the receipt of the Merger Consideration,
unless (i) such Non-U.S. Holder is an individual who is present in the United
States for 183 days or more in the taxable year of disposition, and either (a)
such individual has a "tax home" (as defined in Code Section 911(d)(3)) in the
United States (unless such gain is attributable to a fixed place of business in
a foreign country maintained by such individual and is subject to foreign tax of
at least 10%) or (b) the gain is attributable to an office or other fixed place
of business maintained by such individual in the United States or (ii) such gain
is effectively connected with the conduct by such Non-U.S. Holder of a trade or
business in the United States.
If a Non-U.S. Holder of Common Stock is engaged in a trade or business in
the United States, and if gain realized is effectively connected with the
conduct of such trade or business, the Non-U.S. Holder will generally be subject
to regular United States income tax on such effectively connected income in the
same manner as if it were a U.S. Holder. See "-- U.S. Holders" above. In
addition, if such Non-U.S. Holder is a foreign corporation, it may be subject to
a branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments. For purposes of the branch profits tax, any gain
recognized on the receipt of the Merger Consideration will be included in the
effectively connected earnings and profits of such Non-U.S. Holder if such gain
is effectively connected with the conduct by the Non-U.S. Holder of a trade or
business in the United States.
The payment of the Merger Consideration to or through the U.S. office of a
broker or through a non-U.S. branch of a U.S. broker generally will be subject
to information reporting and backup withholding at a rate of 31% unless the
holder either certifies its status as a non-U.S. Holder under penalties of
perjury or otherwise establishes an exemption. The payment of the Merger
Consideration to or through a non-U.S. office of a non-U.S. broker will not be
subject to backup withholding or information reporting unless the non-U.S.
broker has certain U.S. relationships.
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Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded (or credited against the holder's U.S. federal
income tax liability, if any) provided that the required information is
furnished to the Internal Revenue Service.
BELGIAN INCOME TAX CONSEQUENCES OF THE MERGER
Individuals who do not have a permanent establishment in Belgium as well as
other U.S. persons and other non-residents of Belgium will not be subject to
Belgian income tax on receipt of the Merger Consideration. Individual U.S.
persons and other individual non-residents of Belgium who have a "permanent
establishment" in Belgium will be subject to Belgian taxation on receipt of the
Merger Consideration and such persons should consult their Belgian tax advisors
to determine how they will be taxed on receipt of the Merger Consideration. The
receipt of the Merger Consideration by U.S. persons and other non-residents of
Belgium will not be subject to Belgian withholding tax.
Residents of Belgium will not be subject to capital gain tax on the receipt
of the Merger Consideration. Individual persons resident in Belgium who have
assigned their Common Stock to their professional activity will nevertheless be
subject to capital gains tax in Belgium.
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RISK FACTORS
In evaluating the Merger, Company stockholders should carefully consider
the following factors, as well as the other matters discussed in this Proxy
Statement/Prospectus with respect to the business of PetroFina.
ABSENCE OF TRADING MARKET.
Prior to the Merger, there has been no U.S. public market for the PetroFina
Warrants and the U.S. public market for the PetroFina ADSs has not been active.
Concurrently with the filing of this Registration Statement, Parent is filing a
listing application to list the PetroFina Warrants on the NYSE. However, there
can be no assurance that an active market for the PetroFina Warrants or
PetroFina ADSs will develop after completion of the Merger, or that if it
develops, the market will be sustained.
INCORPORATION IN BELGIUM; DIFFERENCES IN SHAREHOLDERS' RIGHTS BETWEEN UNITED
STATES AND BELGIAN CORPORATIONS.
Parent is incorporated under the laws of the Kingdom of Belgium. Its
headquarters are located in Belgium, and many of its operations are carried out
in, and from, Belgium. Judgments of U.S. courts may not be directly enforceable
in Belgium, and holders of PetroFina Warrants, PetroFina ADSs and PetroFina
Shares may not be able to enforce a judgment of a United States court against
Parent based upon violations of U.S. federal or state securities or other laws.
See "Enforceability of Civil Liabilities Under U.S. Federal Securities Laws."
The rights of holders of PetroFina Warrants and PetroFina ADSs are governed in
part by Belgian law, including the Belgian company law, and by Parent's Articles
of Association (Statuts/Statuten) (the "Articles") and certain regulations,
directives and decisions of the European Union ("EU"). These rights differ in
certain material respects from the rights of shareholders in U.S. corporations.
See "Description of PetroFina Securities" and "Comparative Rights of Holders of
PetroFina ADSs and Holders of the Company Common Stock."
POSSIBLE FUTURE SALES OF PETROFINA WARRANTS.
As of the Record Date, the 401(k) Plan held 1,240,578 Public Shares,
representing 27.872% of the number of outstanding Public Shares, and will
receive 1,240,578 PetroFina Warrants in the Merger. Under existing DOL
interpretations of ERISA, the 401(k) Plan cannot hold the PetroFina Warrants. An
application for an exemption has been submitted to the DOL to permit the 401(k)
Plan to hold the PetroFina Warrants. A final decision on the application is not
expected to be received before the Closing Date. If the application is denied,
the 401(k) Plan under applicable law would be required to divest the PetroFina
Warrants. Although the Company can make no prediction as to the effect, if any,
that sales of PetroFina Warrants owned by the 401(k) Plan would have on the
market price prevailing from time to time, sales of a substantial number of
PetroFina Warrants or the availability of such PetroFina Warrants for sale would
likely adversely affect the prevailing market prices for PetroFina Warrants. In
addition, forcing a divestiture of the Petrofina Warrants by the 401(k) Plan
could have a negative impact on the 401(k) Plan participants, because they,
unlike the unaffiliated stockholders would not be able to benefit from any
subsequent increases in value of the PetroFina Warrant during its five-year
term.
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THE MEETING
GENERAL
This Proxy Statement/Prospectus and the accompanying proxy card are first
being mailed on or about July 16, 1998 to holders of Common Stock. These
materials are being furnished in connection with the solicitation by the Company
Board of proxies to be voted at the Meeting scheduled to be held on August 5,
1998 and at any adjournment or postponement thereof.
At the Meeting, stockholders will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreement. A conformed copy of the
Merger Agreement is included with this Proxy Statement/Prospectus as Annex B.
Upon the terms and subject to the conditions of the Merger Agreement, Mergeco
will be merged with and into the Company, and the Company will be the Surviving
Corporation. As a result of the Merger, the Company will become a direct,
wholly-owned subsidiary of PDI and an indirect, wholly-owned subsidiary of
Parent.
Parent owns 26,796,112 Shares (representing approximately 86% of the issued
and outstanding Shares). As required by the Merger Agreement, Parent will cause
all shares of Common Stock owned by it to be voted in favor of the approval and
adoption of the Merger Agreement. Parent also exercises voting control over all
BDR Shares in respect of which it does not receive instructions from holders.
Parent does not intend to vote any BDR Shares at the Meeting.
Under the DGCL, the approval of the Company Board and the affirmative vote
of a majority of the votes cast by all stockholders entitled to vote thereon are
required to approve and adopt the Merger Agreement and the Merger. The Company
Board has approved the Merger Agreement, and the only remaining required
corporate action of the Company is the approval and adoption of the Merger
Agreement and the Merger by the affirmative vote of a majority of the votes cast
by all stockholders entitled to vote thereon. Approval of the Merger does not
require the approval of a majority of stockholders who are not affiliated with
Parent and its subsidiaries. PARENT ALREADY HAS SUFFICIENT VOTING POWER TO CAUSE
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WITHOUT THE AFFIRMATIVE VOTE
OF ANY OTHER STOCKHOLDER OF THE COMPANY. PARENT WILL CAUSE ALL SHARES OWNED BY
IT TO BE VOTED IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
VOTING AT THE MEETING
The Company Board has fixed the close of business on July 13, 1998 as the
Record Date for determining the holders of Shares who will be entitled to notice
of, and to vote at, the Meeting.
Only holders of record of Shares on the Record Date will be entitled to
vote at the Meeting. On the Record Date, 31,247,172 Shares were outstanding for
voting purposes. Stockholders are entitled to one vote per Share on each matter
to be voted upon. The presence, in person or by properly executed proxy, of the
holders of a majority of the Shares outstanding shall constitute a quorum at the
Meeting.
All Shares that are represented at the Meeting by properly executed proxies
received prior to or at the Meeting and not revoked will be voted at the Meeting
in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted FOR the approval and
adoption of the Merger Agreement. To the knowledge of the Company, all directors
and executive officers of the Company owning shares of Common Stock have
indicated their intention to vote their Shares for approval of the Merger
Agreement and Merger.
Abstentions and Shares held of record by a broker or its nominee which are
voted on any matter are included in determining the number of votes present, but
Shares held of record by a broker or its nominee and not voted on any matter
will not be included in determining whether a quorum is present. The Merger
Agreement will be adopted and approved by the affirmative vote of a majority of
the votes cast by all shareholders entitled to vote thereon.
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Proxy cards representing Shares held of record under the 401(k) Plan will
be provided to The Boston Safe Deposit and Trust Company, the trustee of the
401(k) Plan (the "Trustee"). Pursuant to the 401(k) Plan, the Trustee is
entitled to vote the Shares held under the 401(k) Plan. A participant in the
401(k) Plan who is also a holder of record of Shares not held under the 401(k)
Plan will receive a single proxy card representing Shares held of record other
than those in the 401(k) Plan. The number printed on the proxy card will reflect
the total number of Shares represented by that proxy card.
The Company Board does not know of any matters, other than the approval and
adoption of the Merger Agreement that are to come before the Meeting. If any
other matters are properly presented at the Meeting for consideration, the
persons named in the enclosed form of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Company, at or before the taking of the vote at the
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a subsequent proxy relating to the same Shares and
delivering it to the Secretary of the Company before the Meeting or (iii)
attending the Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or any subsequent proxy should be sent so as to be
delivered to: Fina, Inc., Post Office Box 2159, Dallas, Texas 75221, Attention:
Cullen M. Godfrey, Secretary, at or before the taking of the vote at the
Meeting.
Parent beneficially owns approximately 86% of the issued and outstanding
shares of the Common Stock as of the Record Date, and all of such shares owned
by Parent will be voted in favor of the adoption of the Merger Agreement and the
Merger. As indicated above, Parent owns sufficient Shares to cause the approval
and adoption of the Merger Agreement without the affirmative vote of any other
stockholder of the Company.
Stockholders have the right to dissent from the Merger and to be paid the
"fair value" of their shares of Common Stock by following the procedures
prescribed in the DGCL. To preserve this right, stockholders must either vote
against the Merger or withhold their proxies. Stockholders who vote in favor of
the Merger or who submit a blank proxy card will not be entitled to appraisal
rights under Section 262 of the DGCL. See Annex D and "The Merger -- Rights of
Dissenting Stockholders." INSTRUCTIONS WITH REGARD TO THE SURRENDER OF STOCK
CERTIFICATES TO THE EXCHANGE AGENT, TOGETHER WITH A LETTER OF TRANSMITTAL TO BE
USED FOR THIS PURPOSE, WILL BE FORWARDED TO THE COMPANY'S STOCKHOLDERS AS
PROMPTLY AS PRACTICABLE FOLLOWING THE EFFECTIVE TIME. STOCKHOLDERS SHOULD
SURRENDER STOCK CERTIFICATES ONLY AFTER RECEIVING A LETTER OF TRANSMITTAL.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
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THE MERGER
EXCHANGE OF COMMON STOCK FOR MERGER CONSIDERATION
As a result of the Merger, holders of certificates formerly representing
shares of Common Stock will cease to have any equity interest in the Company.
After consummation of the Merger, each Share issued and outstanding immediately
prior to the consummation of the Merger held by stockholders other than Parent
or any direct or indirect subsidiary of Parent will be required to be
surrendered to the Exchange Agent in order that such Share be converted
automatically into the right to receive the Merger Consideration of US $60 plus
one PetroFina Warrant.
DETAILED INSTRUCTIONS WITH REGARD TO THE SURRENDER OF CERTIFICATES,
TOGETHER WITH A LETTER OF TRANSMITTAL, WILL BE FORWARDED TO FORMER HOLDERS OF
SHARES BY THE EXCHANGE AGENT PROMPTLY FOLLOWING THE EFFECTIVE TIME. HOLDERS OF
SHARES SHOULD NOT SUBMIT THEIR CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY
HAVE RECEIVED SUCH MATERIALS. PAYMENT OF THE MERGER CONSIDERATION FOR SHARES OF
COMMON STOCK WILL BE MADE TO FORMER HOLDERS OF SHARES AS PROMPTLY AS PRACTICABLE
FOLLOWING RECEIPT BY THE EXCHANGE AGENT OF THEIR CERTIFICATES AND OTHER
REQUESTED DOCUMENTS.
THE MERGER AGREEMENT
THE DESCRIPTION OF THE MERGER AGREEMENT SET FORTH BELOW SUMMARIZES THE
MATERIAL TERMS OF THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX B
TO THIS PROXY STATEMENT/PROSPECTUS AND INCORPORATED BY REFERENCE HEREIN.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at the Effective
Time, Mergeco will be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Mergeco will cease, and the Company
will continue as the Surviving Corporation of the Merger and will become an
indirect, wholly-owned subsidiary of Parent.
Certificate of Incorporation and By-Laws. The Merger Agreement provides
that, at the Effective Time, the Certificate of Incorporation of the Company
will be amended (except with respect to the name) to read in its entirety as the
Certificate of Incorporation of Mergeco as in effect immediately prior to the
Effective Time. The By-Laws of Mergeco in effect at the Effective Time will
become the By-Laws of the Surviving Corporation.
Directors and Officers. The directors of Mergeco immediately prior to the
Effective Time will become the initial directors of the Surviving Corporation.
The officers of the Company immediately prior to the Effective Time will be the
initial officers of the Surviving Corporation.
Conversion of Shares in the Merger. At the Effective Time, each issued and
outstanding share of Common Stock (other than (a) any Shares held of record by
Parent or any direct or indirect wholly-owned subsidiary of Parent, which Shares
will be automatically cancelled and retired and (b) any Shares as to which
stockholders have a right to demand, and who properly demand, an appraisal of
such Shares in accordance with Section 262 of the DGCL ("Dissenting Shares"))
will be converted into the right to receive (1) US $60.00 in cash, (the "Cash
Consideration"), plus (2) one PetroFina Warrant to purchase nine-tenths (0.9) of
one PetroFina ADS at an exercise price of US $42.25 per Parent ADS, (the
"Warrant Consideration" and together with the Cash Consideration, the "Merger
Consideration"). The capital stock of Mergeco issued and outstanding immediately
prior to the Effective Time will be converted into one fully paid and
nonassessable share of common stock, par value US $0.01 per share, of the
Surviving Corporation in the Merger.
Exchange of Certificates. Promptly after the Effective Time, the Surviving
Corporation will cause to be mailed to each person who was, at the Effective
Time, a holder of record of Common Stock entitled to receive
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the Merger Consideration a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the holders of
certificates representing the Common Stock (the "Certificates") will pass, only
upon proper delivery of such Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates pursuant to
such letter of transmittal. Upon the surrender of each such Certificate,
together with such letter of transmittal duly completed and validly executed in
accordance with the instructions thereto, the Exchange Agent will pay the holder
of such Certificate the Merger Consideration multiplied by the number of Shares
formerly represented by such Certificate in exchange therefor, and such
Certificate will forthwith be cancelled. Until so surrendered and exchanged,
each such Certificate (other than Certificates representing Dissenting Shares)
will represent solely the right to receive Merger Consideration. In the event
any Certificate has been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, the posting by such person of a
bond in customary form and amount as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue,
in exchange for such lost, stolen or destroyed Certificate, the Merger
Consideration, without any interest or dividends or other payments thereon,
otherwise deliverable upon due surrender of any such Certificate pursuant to the
Merger Agreement.
Subject to the obligations of Parent under the Warrant Agreement, the
Surviving Corporation and the Exchange Agent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement such amounts that the Surviving Corporation or Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the United States Internal Revenue Code of 1986, as amended, the rules and
regulations promulgated thereunder or any provision of state, local or foreign
tax law. To the extent there is withholding imposed on the Merger Consideration,
the full amount required to be withheld shall be satisfied from the Cash
Consideration. To the extent that amounts are so withheld by the Surviving
Corporation or the Exchange Agent, such amounts will be treated for all purposes
of the Merger Agreement as having been paid to the holder of the Common Stock or
Cancelled Options in respect of which such deduction and withholding was made by
the Surviving Corporation or the Exchange Agent.
HOLDERS OF COMMON STOCK CERTIFICATES SHOULD NOT SUBMIT THEIR CERTIFICATES
FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL AND INSTRUCTIONS
REFERRED TO ABOVE.
Covenants. Pursuant to its obligations under the Merger Agreement, the
Company agreed to file with the Commission this Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
PetroFina Warrants issuable in the Merger and PetroFina Shares represented by
the PetroFina ADSs issuable upon exercise of the PetroFina Warrants, a portion
of which Registration Statement also serves as this Proxy Statement/Prospectus.
In addition, pursuant to their obligations under the Merger Agreement, Parent
and the Company have filed a Schedule 13E-3 with respect to the Merger. Both
Parent and the Company have covenanted and agreed to disseminate to Company
stockholders (other than Parent and its subsidiaries) such information as is
required under the Exchange Act. No amendment or supplement to the Registration
Statement will be made by Parent or the Company without the approval of the
other party. Parent will advise the Company, promptly after it receives notice
thereof, of the time when the Registration Statement has become effective.
Pursuant to the Merger Agreement, the Company has covenanted and agreed
that, between the date of the Merger Agreement and the Effective Time, unless
Parent otherwise consents in writing (such consent will only be withheld in good
faith), the Company will, and will cause, its subsidiaries to carry on their
respective businesses only in the ordinary course of business and consistent
with past practice; to the extent consistent therewith and pursuant to the terms
of the Merger Agreement, the Company will use all commercially reasonable
efforts to preserve intact its business organizations, keep available the
services of their current employees and preserve their relationships with
customers, suppliers and other persons with which the Company or any of its
subsidiaries has business dealings.
During the period from the date of the Merger Agreement to the Effective
Time, the Company will not declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any
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combination thereof) in respect of its capital stock, or agree to do any of the
foregoing; provided, however, that the Company will declare and pay regular
quarterly dividends of US $.80 per Share.
Pursuant to the Merger Agreement, on or before the Closing Date (as defined
in the Merger Agreement), the Company will submit an application (the
"Application") to the DOL for exemption from the application of Section
406(a)(2) and 407(a) of ERISA to the receipt, holding, exercise and disposition
of the Warrant Consideration by the 401(k) Plan. The parties have agreed not to
withdraw the Application prior to a final decision thereon by the DOL and to use
their best efforts to cause the Application to be approved by the DOL.
Pursuant to the Merger Agreement, the Company and the Parent will use all
reasonable efforts to take, or cause to be taken, all action, and do, or cause
to be done, all things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by the Merger Agreement.
Indemnification. The Parties have agreed that the Surviving Corporation
will use its reasonable efforts to maintain in effect for six years from the
Effective Time, if available, the current directors' and officers' liability
insurance policies maintained by the Company, or policies of at least the same
coverage containing terms and conditions which are not materially less
favorable, with respect to matters occurring prior to the Effective Time;
provided, however, that in no event will the Surviving Corporation be required
to expend more than an amount per year equal to 200% of current annual premiums
paid by the Company for such insurance. In the event that, but for the proviso
to the immediately preceding sentence, the Surviving Corporation would be
required to expend more than 200% of current annual premiums, the Company will
obtain the maximum amount of such insurance obtainable by payment of annual
premiums equal to 200% of current annual premiums. In the event the Company or
any successor or assign (i) consolidates with or merges into any other person
and will not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision will be made so that the successor and assign of the Company, or at
Parent's option, Parent, will assume the foregoing obligations.
The Company will, to the fullest extent permitted under applicable law and
regardless of whether the Merger becomes effective, indemnify and hold harmless,
and, after the Effective Time, the Surviving Corporation will, to the fullest
extent permitted under applicable law, indemnify and hold harmless, each present
and former director, officer, employee, fiduciary and agent of the Company and
each of its subsidiaries and each fiduciary and agent of each such director and
officer (collectively, the "Indemnified Parties") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the Effective
Time), whether civil, criminal, administrative or investigative, arising out of
or pertaining to any action or omission in their capacity as an officer,
director, employee, fiduciary or agent, whether occurring before or after the
Effective Time, until the expiration of the statute of limitations relating
thereto (and will pay any expenses in advance of the final disposition of such
action or proceeding to each Indemnified Party to the fullest extent permitted
under the DGCL, upon receipt from the Indemnified Party to whom expenses are
advanced of any undertaking to repay such advances required under the DGCL). In
the event of any such claim, action, suit, proceeding or investigation, (i) the
Company or the Surviving Corporation, as the case may be, will pay the
reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel will be reasonably satisfactory to the Company or the Surviving
Corporation, promptly after statements therefor are received and (ii) the
Company and the Surviving Corporation will cooperate in the defense of any such
matter; provided, however, that neither the Company nor the Surviving
Corporation will be liable for any settlement effected without its written
consent (which consent will not be unreasonably withheld); and provided,
further, that neither the Company nor the Surviving Corporation will be
obligated to pay the fees and expenses of more than one counsel (plus
appropriate local counsel) for all Indemnified Parties in any single action
except (x) that the persons who served as directors of the Company who were not
designees of Parent will be entitled to retain one additional counsel (plus
appropriate local counsel) to represent them at the expense of the Company or
the Surviving Corporation, and (y) to the extent that two or more of such
Indemnified Parties will have conflicting interests in the outcome of such
action, in which case such additional counsel (including local counsel) as may
be required to avoid any
39
<PAGE> 51
such conflict or likely conflict may be retained by the Indemnified Parties at
the expense of the Company or the Surviving Corporation; and provided further
that, in the event that any claim for indemnification is asserted or made within
the period prior to the expiration of the applicable statute of limitations, all
rights to indemnification in respect of such claim will continue until the
disposition of such claim.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations by the Company, Parent, Mergeco and PDI as to the enforceability
of the Merger Agreement and by the Company as to the compliance with law,
corporate status and capitalization and the accuracy of financial statements and
filings with the Commission.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
or waiver at or prior to the Effective Time of the following conditions: (a) the
Merger Agreement and the transactions contemplated thereby having been approved
and adopted by the affirmative vote of the stockholders of the Company; (b) no
statute, rule, regulation, temporary, preliminary or permanent order or
injunction having been promulgated, enacted, entered, enforced or deemed
applicable to the Merger or performance under the Merger Agreement, by any
state, federal or foreign government or governmental authority or court or
governmental agency of competent jurisdiction and remaining in effect that
prohibits the consummation of the Merger; and (c) the Registration Statement
having become effective and remaining effective at the Effective Time, and no
stop order suspending effectiveness of the Registration Statement having been
issued, and no action, suit, proceeding or investigation by the Commission to
suspend the effectiveness thereof having been initiated and be continuing.
The obligations of Parent, PDI and Mergeco to effect the Merger are subject
to, among other things, the satisfaction or waiver at or prior to the Effective
Time of each of the following conditions: (a) the representations and warranties
of the Company contained in the Merger Agreement being true and correct in all
respects (in the case of any representation or warranty containing any
materiality qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) as of the date
of the Merger Agreement and as of the Closing (as defined in the Merger
Agreement) with the same effect as though all such representations and
warranties had been made as of Closing, except (i) for any such representations
and warranties made as of a specified date, which must be true and correct in
all respects (in the case of any representation or warranty containing any
materiality qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) as of such
date, or (ii) as expressly contemplated by the Merger Agreement, and Parent must
have received from the Company's President and Chief Financial Officer an
officers' certificate to this effect; and (b) each and all of the covenants and
agreements of the Company to be performed and complied with pursuant to the
Merger Agreement prior to the Closing having been duly performed and complied
with in all material respects, and Parent having received from the Company's
President and Chief Financial Officer an officers' certificate to this effect.
The obligations of the Company to effect the Merger are subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions: (a) the representations and warranties of Parent, PDI and
Mergeco contained in the Merger Agreement being true and correct in all respects
(in the case of any representation or warranty containing any materiality
qualification) or in all material respects (in the case of any representation or
warranty without any materiality qualification) as of the date of the Merger
Agreement and as of the Closing with the same effect as though all such
representations and warranties had been made as of Closing, except (i) for any
such representations and warranties made as of a specified date, which must be
true and correct as of such date, or (ii) as expressly contemplated by the
Merger Agreement, and the Company having received from Parent, PDI and Mergeco
officers' certificates to this effect; (b) each and all of the covenants and
agreements of Parent and Mergeco to be performed and complied with pursuant to
the Merger Agreement prior to the Closing having been duly performed and
complied with in all material respects, and the Company having received from
Parent and Mergeco officers' certificates to this effect; (c) the Warrant
Agreement having been executed and delivered; (d) the PetroFina Warrants
issuable to the Company's stockholders as contemplated by the Merger Agreement,
and the PetroFina ADSs issuable upon exercise of the PetroFina Warrants, having
been approved for listing on the NYSE or the NASDAQ, subject to official notice
of issuance; and (e) a Registration Statement on Form F-6 under the Securities
Act with
40
<PAGE> 52
respect to the PetroFina ADSs covered by the PetroFina Warrants being effective,
and no stop order suspending effectiveness of such Registration Statement having
been issued.
Termination. The Merger Agreement may be terminated and the Merger and the
other transactions may be abandoned at any time prior to the Effective Time,
whether before or after any requisite approval and adoption of the Merger
Agreement and the transactions contemplated thereby by the stockholders of the
Company: (a) by mutual written consent duly authorized by the Parent Board and
the Special Committee on behalf of the Company Board, (b) by either Parent or
the Special Committee on behalf of the Company if the Effective Time has not
occurred on or before September 30, 1998 (the "Termination Date"); provided,
however, that the right to terminate the Merger Agreement will not be available
to any party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date; (c) by either Parent or the Special Committee on
behalf of the Company, if any court of competent jurisdiction in the United
States or other governmental agency of competent jurisdiction has issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger, and such order, decree, ruling or
other action has become final and nonappealable; (d) by the Special Committee,
on behalf of the Company, at any time, if any of the conditions set forth in
clauses (a) or (b) in the third paragraph under "-- Conditions to the Merger"
above are not satisfied at such time and (i) such condition is incapable of
being satisfied prior to the Termination Date or (ii) Parent, PDI and Mergeco
are not using their best efforts to cure the breach resulting in such condition
not being satisfied in as timely a manner as practicable; or (e) by Parent, at
any time, if any of the conditions set forth in clauses (a) or (b) in the second
paragraph under "-- Conditions to the Merger" above are not satisfied at such
time and (i) such condition is incapable of being satisfied prior to the
Termination Date or (ii) the Special Committee or the Company are not using
their best efforts to cure the breach resulting in such condition not being
satisfied in as timely a manner as practicable.
Expenses. Whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Merger, the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses; provided, however, that the allocable share of each of Parent and the
Company for all expenses related to printing, filing and mailing the proxy
statement contained in the Registration Statement and all Commission and other
regulatory filing fees incurred in connection with the Schedule 13E-3 and the
Registration Statement will be one-half.
Closing. As promptly as practicable after the satisfaction or waiver of
the conditions set forth in the Merger Agreement, the parties to the Merger
Agreement will file a certificate of merger with the Secretary of State of
Delaware and the Recorder of the County in which the registered office of each
of Mergeco and the Company is located. The Merger will become effective upon
such filings. Assuming all conditions are met, it is anticipated that the Merger
will occur and a closing will be held on August 5, 1998.
ACCOUNTING TREATMENT OF THE TRANSACTION
The Merger will be accounted for under the "purchase" method of accounting.
Accordingly, a determination of the fair value of the Company's assets and
liabilities will be made in order to allocate the purchase price to the assets
acquired and the liabilities assumed.
CONDITIONS TO THE MERGER
The respective obligations of each party to effect the Merger are subject
to the satisfaction or waiver of a number of conditions, including, (i) the
absence of any statute, rule, regulation, temporary, preliminary or permanent
order or injunction that would prohibit the consummation of the Merger, (ii) the
effectiveness of this Registration Statement covering the PetroFina Warrants,
(iii) the approval and adoption of the Merger Agreement by the Company
stockholders, (iv) the continued accuracy of the representations and warranties
and the performance of the covenants of the other parties to the Merger
Agreement and (v) solely with respect to the Company's obligations (x) the
approval for listing the PetroFina Warrants on the NYSE or NASDAQ, (y) the
execution of the Warrant Agreement and (z) the effectiveness of a Registration
41
<PAGE> 53
Statement on Form F-6 covering the PetroFina ADSs to be issued upon exercise of
the PetroFina Warrants. See "-- The Merger Agreement -- Conditions to the
Merger."
Neither Parent nor the Company currently anticipates waiving any of the
conditions to the Merger specified in the Merger Agreement.
REGULATORY APPROVALS
Parent and the Company know of no remaining federal or state regulatory
requirements that must be complied with or approvals that must be obtained in
order to consummate the Merger, other than the filing of the certificate of
merger with the Secretary of State of the State of Delaware.
CERTAIN SHAREHOLDER LITIGATION
Following the February 25, 1997 announcement by Parent that it had offered
to purchase the Public Shares, four putative class actions were filed against
Parent, certain affiliates including the Company, and the Company's directors in
the Court of Chancery in the State of Delaware (the "Court") by the holders of
the Public Shares.
In Stern v. Cornelis, et al. (filed February 27, 1997), plaintiff claims
that Parent, as controlling stockholder of the Company, and the Company and its
directors had breached their fiduciary duties to the remaining stockholders by
attempting to carry out the purchase of the Public Shares for inadequate or
unfair consideration and that the Merger Proposal was not the result of
arm's-length negotiations. The relief sought by the plaintiff includes an
injunction against the continuation of the proposed transaction, rescission of
any agreements actually entered into between Parent and the Company and damages
in an unspecified amount. Certain of the defendants filed an answer to the
complaint denying each of the allegations in the complaint and raising certain
affirmative defenses.
In Kahn v. Meek, et al. (filed February 27, 1997), plaintiff claims that
Parent, as controlling stockholder of the Company, and the Company and its
directors had breached their fiduciary duties to the remaining stockholders by
undervaluing the price of the Company's stock through the proposed purchase
price, artificially capping the market price of the Company's stock and engaging
in a less than arm's-length transaction. The relief sought by the plaintiff
includes a declaration that the defendants have breached their fiduciary duties,
an injunction against the continuation of the proposed transaction, rescission
of the transaction should it be consummated and damages in an unspecified
amount. Certain of the defendants filed an answer to the complaint denying each
of the allegations in the complaint and raising certain affirmative defenses.
In Kokol v. Meek, et al. (filed March 11, 1997), plaintiff claims that
Parent, as controlling stockholder of the Company, and the Company and its
directors had breached their fiduciary duties to the remaining stockholders by
failing to disclose non-public information about the true value of the Company's
stock, undervaluing the price of the Company's stock through the proposed
purchase price, artificially capping the market price of the Company's stock by
freezing out third-party bidders and engaging in a less than arm's-length
transaction. The relief sought by the plaintiff includes an injunction against
the continuation of the proposed transaction, rescission of the transaction
should it be consummated and damages in an unspecified amount.
In Beckwith v. Cornelis, et al. (filed March 27, 1997), plaintiff claims
that Parent, as controlling stockholder of the Company, and the Company and its
directors had breached their fiduciary duties to the remaining stockholders by
attempting to carry out the purchase of the minority interest for inadequate or
unfair consideration and that the proposed purchase price was not the result of
arm's-length negotiations. The relief sought by the plaintiff includes an
injunction against the continuation of the proposed transaction, rescission of
any agreements actually entered into between Parent and the Company and damages
in an unspecified amount.
The cases were consolidated into a single proceeding and stayed pending the
completion of negotiations between Parent and the Company.
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<PAGE> 54
Following negotiation and the voluntary production of documents to
plaintiffs' counsel, plaintiffs and defendants in all of these consolidated
actions entered into a Memorandum of Understanding on February 13, 1998 (the
"MOU"). Under the MOU each of the four actions will be settled, contingent upon
confirmatory discovery, the closing of the Merger and the entry of a final
judgment dismissing with prejudice all claims between the plaintiff class
members and the defendants. Plaintiff class members include all holders of
record of the Public Shares between February 25, 1997 and the Record Date. The
terms of the settlement provide (i) for consideration of US $60 in cash and one
warrant with the terms of the PetroFina Warrant, (ii) for the release of all
defendants from all claims arising from or related to the Merger, and (iii) that
the defendants will not object to a request by plaintiffs that the Court award
attorneys' fees in an amount not exceeding US $1,250,000 to be paid by the
Company.
On May 14, 1998, the parties submitted a Stipulation of Settlement to the
Court, requesting a hearing to approve the settlement. By a Scheduling Order
entered on May 15, 1998 and amended on June 4 and July 10, 1998, respectively,
the Court, (1) certified, for settlement purposes only, a class consisting of
all stockholders of the Company between February 25, 1997 and the Record Date;
(2) required the Company to mail notice of the settlement to all Class Members;
(3) scheduled a hearing on September 23, 1998 at 1:30 p.m. in the Court in the
Daniel L. Herrmann Courthouse, 1020 North King Street, Wilmington, Delaware
19801 to consider the class certification, proposed settlement and plaintiff's
application for attorneys' fees; and (4) set forth the procedures by which any
class member may appear at the hearing and object to the settlement.
The failure of the Court to approve the settlement agreement will not
affect the Merger which is expected to occur prior to the scheduled hearing
regarding approval, nor will settlement of the shareholder litigation affect
settling stockholders' rights under Section 262 of the DGCL. See "The
Merger -- Rights of Dissenting Stockholders."
FINANCING OF THE MERGER
Approximately US $267,100,000 will be required to pay the cash portion of
the Merger Consideration pursuant to the Merger, and approximately US $6,500,000
will be required to pay related fees and expenses incurred by Parent, the
Company and their affiliates in connection with the Merger (excluding
debt-related costs).
PDI will issue short-term debt under an existing credit program, which is
unconditionally guaranteed by Parent and supported by unused committed bank
lines of credit with maturity dates greater than one year. The short-term debt
matures within 270 days and will be issued with interest rates that approximate
LIBOR. The current interest rate on PDI's short-term debt varies between 5.53%
and 5.56%.
The source and allocation of various methods of repayment will be made
based on Parent's review from time to time of the advisability of particular
actions, as well as on prevailing interest rates and financial and other
economic conditions and such other factors as Parent may deem appropriate.
RIGHTS OF DISSENTING STOCKHOLDERS
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares of
Common Stock appraised by the Court and to receive payment of the "fair value"
of such Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court. To preserve this right,
stockholders must either vote against the Merger or withhold their proxies.
Stockholders who vote in favor of the Merger or who submit a blank proxy card
will not be entitled to appraisal rights. Furthermore, merely voting against the
Merger Agreement will not perfect a stockholder's dissenter's rights. The
following is a summary of certain of the provisions of Section 262 of the DGCL
and is qualified in its entirety by reference to the full text of such Section,
a copy of which is attached hereto as Annex D.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the Meeting, not
less than 20 calendar days prior to the meeting, the Company must notify each of
the holders of Common Stock at the close of business on the Record Date that
43
<PAGE> 55
such appraisal rights are available and include in each such notice a copy of
Section 262. This Prospectus/Proxy Statement constitutes such notice. Any
stockholder wishing to exercise appraisal rights should review the following
discussion and Annex D carefully because failure to timely and properly comply
with the procedures specified in Section 262 will result in the loss of
appraisal rights under the DGCL.
A holder of shares of Common Stock wishing to exercise appraisal rights
must deliver to the Company, before the vote on the approval and adoption of the
Merger Agreement at the Meeting, a written demand for appraisal of such holder's
shares of Common Stock. Such demand will be sufficient if it reasonably informs
the Company of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of his shares. A proxy or vote against the
Merger Agreement will not constitute such a demand. In addition, a holder of
shares of Common Stock wishing to exercise appraisal rights must hold such
shares of record on the date the written demand for appraisal is made and must
continue to hold such shares through the Effective Time.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the stock
certificates. Holders of Common Stock who hold their shares in brokerage
accounts or other nominee forms and wish to exercise appraisal rights are urged
to consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by such nominee. All written demands for
appraisal of Common Stock should be sent or delivered to the Company at Post
Office Box 2159, Dallas, Texas 75221, Attention: Cullen M. Godfrey, so as to be
received before the vote on the approval and adoption of the Merger Agreement at
the Meeting.
If the shares of Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the shares of Common Stock are owned of record by
more than one person, as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as a broker holding
Common Stock as nominee for several beneficial owners may exercise appraisal
rights with respect to the Common Stock held for one or more beneficial owners
while not exercising such rights with respect to the Common Stock held for other
beneficial owners; in such case, the written demand should set forth the number
of shares as to which appraisal is sought and where no number of shares is
expressly mentioned the demand will be presumed to cover all Common Stock held
in the name of the record owner.
Within 10 calendar days after the Effective Time, the Company, as the
Surviving Corporation, must send a notice as to the effectiveness of the Merger
to each person who has satisfied the appropriate provisions of Section 262 and
who has not voted in favor of the Merger Agreement. Within 120 calendar days
after the Effective Time, the Company, or any stockholder entitled to appraisal
rights under Section 262 and who has complied with the foregoing procedures, may
file a petition in the Court demanding a determination of the fair value of the
shares of all such stockholders. The Company is not under any obligation, and
has no present intention, to file a petition with respect to the appraisal of
the fair value of the shares of Common Stock. Accordingly, it is the obligation
of the stockholders to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262.
Within 120 calendar days after the Effective Time, any stockholder of
record who has complied with the requirements for exercise of appraisal rights
will be entitled, upon written request, to receive from the Company a statement
setting forth the aggregate number of shares of Common Stock with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such statement must be mailed within 10 calendar days
after a written request therefor has been received by the Company.
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<PAGE> 56
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Court will determine the stockholders entitled to appraisal rights
and will appraise the "fair value," of the shares of Common Stock, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. Holders considering seeking appraisal
should be aware that the fair value of their shares of Common Stock as
determined under Section 262 could be more than, the same as or less than the
amount per share that they would otherwise receive if they did not seek
appraisal of their shares of Common Stock. The Delaware Supreme Court has stated
that "proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court, should
be considered in the appraisal proceedings." In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual circumstances,
may or may not be a dissenter's exclusive remedy. The Court will also determine
the amount of interest, if any, to be paid upon the amounts to be received by
persons whose shares of Common Stock have been appraised. The costs of the
action may be determined by the Court and taxed upon the parties as it deems
equitable. The Court may also order that all or a portion of the expenses
incurred by any holder of shares of Common Stock in connection with an
appraisal, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all the shares of Common Stock entitled to
appraisal.
The Court may require stockholders who have demanded an appraisal and who
hold Common Stock represented by certificates to submit their certificates of
Common Stock to the Court for notation thereon of the pendency of the appraisal
proceedings. If any stockholder fails to comply with such direction, the Court
may dismiss the proceedings as to such stockholder.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
of Common Stock subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares of Common Stock as of
a date prior to the Effective Time).
If any stockholder who demands appraisal of shares under Section 262 fails
to perfect, or effectively withdraws or loses, the right to appraisal, as
provided in the DGCL, the shares of Common Stock of such holder will be
converted into the right to receive the Merger Consideration in accordance with
the Merger Agreement, without interest. A stockholder will fail to perfect, or
effectively lose, the right to appraisal if no petition for appraisal is filed
within 120 calendar days after the Effective Time. A stockholder may withdraw a
demand for appraisal by delivering to the Company a written withdrawal of the
demand for appraisal and acceptance of the Merger, except that any such attempt
to withdraw made more than 60 calendar days after the Effective Time will
require the written approval of the Company. Once a petition for appraisal has
been filed, such appraisal proceeding may not be dismissed as to any stockholder
without the approval of the Court.
RESTRICTIONS ON RESALES BY AFFILIATES
The PetroFina Warrants issuable in the Merger, the PetroFina ADSs and the
underlying PetroFina Shares issuable upon exercise of the PetroFina Warrants
have been registered under the Securities Act, but this registration does not
cover resales by stockholders of Parent who are deemed to control or be under
common control with Parent ("Affiliates"). Affiliates of Parent may not sell
their PetroFina Warrants acquired in the Merger or PetroFina Shares acquired
upon exercise except pursuant to an effective registration statement under the
Securities Act covering such shares, or in compliance with the resale provisions
of Rule 145 promulgated under the Securities Act or another applicable exemption
from the registration requirements of the Securities Act. See "Description of
PetroFina Securities -- PetroFina American Depositary Shares."
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<PAGE> 57
FEES AND EXPENSES
Morgan Stanley has provided certain financial advisory services to Parent
in connection with the Merger. Morgan Stanley will receive usual and customary
compensation for their services, and Parent has agreed to reimburse Morgan
Stanley for all reasonable out-of-pocket expenses incurred by them, including
the reasonable fees and expenses of legal counsel and to indemnify Morgan
Stanley against certain liabilities and expenses in connection with its
engagement including certain liabilities under the federal securities laws. For
a description of fees payable to Goldman Sachs see "Special Factors -- Fairness
of the Merger -- Opinion of the Special Committee's Financial Advisor."
The following is an estimate of expenses incurred and to be incurred in
connection with the Merger:
<TABLE>
<S> <C>
Expenses to be paid by Parent, the Company and their
affiliates:
Financial Advisor Fees and Expenses.................... US $4,500,000
Legal Fees and Expenses................................ 1,500,000
Printing and Mailing................................... 150,000
Advertising............................................ 5,000
Filing Fees............................................ 57,000
Depositary Fees........................................ 56,320
Miscellaneous.......................................... 231,680
-------------
Total............................................. US $6,500,000
</TABLE>
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<PAGE> 58
THE COMPANY
DESCRIPTION OF BUSINESS
The Company is a Delaware corporation with its principal offices located in
Dallas, Texas. The Company and its subsidiaries were organized in 1956 as
American Petrofina, Incorporated and are part of an international group of
companies affiliated with Parent. The Company is engaged, through its
subsidiaries, in crude oil and natural gas exploration and production; petroleum
products refining, supply and transportation and marketing; chemical
manufacturing and marketing; and natural gas marketing. For a more detailed
description of the Company's business, see the Form 10-K.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain selected financial information relating to the
Company which has been excerpted or derived from the audited financial
statements contained in the Form 10-K. More comprehensive financial information
is included in the Form 10-K and other documents filed by the Company with the
Commission. The financial information that follows is qualified in its entirety
by reference to such reports and other documents may be examined and copies may
be obtained from the offices of the Commission in the manner set forth above.
See "Available Information."
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<PAGE> 59
FINA, INC. AND SUBSIDIARIES
SUMMARY OF FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN US $ THOUSANDS, EXCEPT PER SHARE AMOUNTS AND EMPLOYEES)
<S> <C> <C> <C> <C> <C>
FINANCIAL
Sales and other operating revenues..... $4,462,477 $4,081,244 $3,606,637 $3,421,112 $3,416,223
Depreciation, depletion, amortization,
and lease impairment................. 201,854 171,029 213,964* 185,961 198,341
Net earnings:
Earnings before cumulative effect
of accounting change............ 126,401 153,206 104,425 102,041 70,353
Net earnings....................... 126,401 153,206 104,425 102,041 70,353
Earnings per common share:
Earnings before cumulative effect
of accounting change............ 4.05 4.91 3.35 3.27 2.26
Net earnings....................... 4.05 4.91 3.35 3.27 2.26
Capital expenditures................... 340,716 263,330 218,436 136,381 125,472
Long-term debt......................... 593,532 584,983 496,331 531,162 740,058
Total long-term obligations............ 594,988 587,290 498,446 532,148 766,476
Total assets........................... 3,014,674 2,855,822 2,487,718 2,493,862 2,511,353
Stockholders' equity................... 1,277,112 1,247,285 1,178,057 1,144,807 1,098,827
Cash dividends per share............... 3.10 2.70 2.30 1.80 1.60
Average shares outstanding............. 31,218 31,214 31,198 31,188 31,180
OPERATIONS
Crude oil, condensate, and natural gas
liquids produced (in thousands of net
barrels)............................. 3,806 3,808 3,749 4,556 5,905
Natural gas produced (in millions of
cubic feet).......................... 69,698 56,719 52,119 52,864 67,924
Natural gas sold (in millions of cubic
feet)................................ 293,531 193,682 190,926 259,515 204,449
Total refinery throughput (barrels per
day)................................. 232,000 211,000 220,000 215,000 198,000
Major petrochemicals and plastics sold
(millions of pounds)................. 4,104 3,700 3,000 3,200 3,000
Company-branded service stations....... 2,659 2,578 2,702 2,607 2,675
Undeveloped leasehold acreage (net).... 242,686 212,625 209,167 189,723 203,734
Fee, mineral, and royalty acreage
(net)................................ 1,045,771 1,036,180 1,035,922 1,036,342 1,045,108
Employees (year-end)................... 2,873 2,664 2,693 2,770 3,224
</TABLE>
- ---------------
(*) Includes a US $58,723,000 charge for adoption of Financial Accounting
Standard No. 121 (FAS 121).
48
<PAGE> 60
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY MANAGEMENT
The following table sets forth certain information, as of June 15, 1998,
regarding the ownership of the Common Stock by each person known by the Company
to be the beneficial owner of more than 5% of the issued and outstanding Shares,
and any director or executive officer of the Company who is the beneficial owner
of Shares or stock options issued by the Company as well as ownership by all
such directors and officers as a group:
<TABLE>
<CAPTION>
AMOUNTS AND
NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------------ --------------------------------- ------------
<S> <C> <C> <C>
Petrofina Delaware, Incorporated...... 24,796,112 Class A Shares 84.781%
Boston Safe Deposit and Trust
Company............................. 1,476,209 Class A Shares 5.047%
Francois Cornelis..................... 400 Class A Shares less than 1%
Ron W. Haddock........................ 14,893 Class A Shares(1) less than 1%
Paul D. Meek.......................... 410 Class A Shares less than 1%
H. Patrick Jack....................... 2,251 Class A Shares(1) less than 1%
Michael J. Couch...................... 2,444 Class A Shares(1) less than 1%
Cullen M. Godfrey..................... 3,599 Class A Shares(1) less than 1%
Michael Daumerie...................... 150 Class A Shares(1) less than 1%
All Directors and Officers as a
group............................... 42,737 Class A Shares(1) less than 1%
Petrofina Delaware, Incorporated...... 2,000,000 Class B Shares 100%
</TABLE>
- ---------------
(1) Included in this amount are the following Shares held on June 15, 1998, by
the Trustee of the 401(k) Plan: 4,893 as to Mr. Haddock, 2,231 as to Mr.
Jack, 2,444 as to Mr. Couch, 2,529 as to Mr. Godfrey and 150 as to Mr.
Daumerie. The Trustee holds 29,451 Shares as to all officers as a group.
Directors who are not officers do not participate in the 401(k) Plan.
On June 15, 1998, Boston Safe Deposit and Trust Company, as Trustee for the
401(k) Plan, owned for the accounts of participants in the 401(k) Plan an
aggregate of 1,412,064 shares of Class A Common Stock (representing more than 5%
of this class), and, as Trustee, has the right to vote these shares and has
investment power over these shares. This Trustee is a subsidiary of Dreyfus
Service Corporation which is affiliated with Mellon Bank. The Trustee will
continue to make purchases in the ordinary course of business on behalf of
officers who participate in the 401(k) Plan.
RELATED PARTY TRANSACTIONS
On a fully diluted basis, as of the Record Date, Parent owns approximately
86% of the Shares, which are divided into two classes. Parent beneficially owns
24,796,112 shares of the Class A Shares, which constitute 84.781% of the
outstanding Class A Shares, and 2,000,000 shares of the Class B Shares, which
constitute 100% of the outstanding Class B Shares. As of the Record Date, there
are 4,451,060 Public Shares outstanding. The only difference between the rights
of holders of the Class A Shares and the Class B Shares is with respect to the
election of the Company's directors. The holders of the Class B Shares elect a
majority of the Company's Board of Directors, while the holders of the Class A
Shares elect the remaining Board members. On the Record Date, 710,062 Public
Shares were registered in the name of "PetroFina B.D.R. Account" against which
an equal number of BDRs were outstanding. The BDRs are listed and traded on the
BSE and entitle the holders thereof to receive all dividends and other rights
declared on the Shares underlying the BDR Shares and to instruct Parent with
respect to the voting of those BDR Shares. Parent has the power to vote in its
discretion all BDR Shares in respect of which it does not receive instructions
from holders. As a result of its potential voting control over the BDR Shares,
Parent may be deemed to beneficially own such BDR Shares.
The Company has a 50% interest in joint ventures with PDI in Texas and with
Parent in Hong Kong, which market chemicals in international trade. The Company
sold chemicals aggregating US $3,030,000 in 1997, US $8,728,000 in 1996 and US
$3,652,000 in 1995 to the joint ventures.
49
<PAGE> 61
Accounts receivable include US $5,344,000 and US $6,418,000 at December 31,
1997 and 1996, respectively, from affiliates.
Accounts payable include US $6,923,000 and US $34,127,000 at December 31,
1997 and 1996, respectively, to affiliates.
Interest expense relating to borrowings from PDI was US $3,000 in 1997, US
$5,125,000 in 1996 and US $12,938,000 in 1995. Crude oil and natural gas
aggregating US $11,508,000 in 1997, US $13,245,000 in 1996 and US $8,953,000 in
1995 were purchased from PDI in the ordinary course of business.
Refined products and chemicals aggregating US $19,625,000 in 1997, US
$57,913,000 in 1996, and US $53,542,000 in 1995 were purchased from Parent and
its affiliates other than PDI in the ordinary course of business.
PETROFINA DESCRIPTION OF BUSINESS
PetroFina is an international integrated oil and gas company active in all
sectors of the petroleum industry: exploration and production, refining,
marketing of refined petroleum products, petrochemicals and paints.
Headquartered in Brussels (Belgium), the Group has a global presence and employs
over 14,500 people. Founded in 1920, Parent is the fifteenth largest publicly
traded integrated oil and gas company in the world (in each case based on market
capitalization).
PetroFina's operations are organized into four principal business segments:
(1) Upstream (exploration, development and production of crude oil and natural
gas and marketing of natural gas), (2) Downstream (refining, supply and trading
and marketing), (3) Chemicals and (4) Paints.
Upstream. PetroFina currently pursues exploration, development and
production of crude oil and natural gas in 12 countries. In 1997, the Group's
average daily production was 243,000 barrels of oil equivalent per day.
PetroFina estimates that the Group's consolidated proved reserves at December
31, 1997 were 848 million barrels of oil equivalent. Crude oil represented 70%
and natural gas represented 30% of these reserves. PetroFina's reserves are
located principally in the North Sea (Norway and United Kingdom) and the United
States. The Group also markets its U.S. natural gas production through a
division of the Upstream segment. PetroFina's Upstream strategy is to
concentrate its activities in selected geographic areas where it believes it has
technical expertise and good partnerships with governmental bodies and other
commercial producers.
Downstream. PetroFina is engaged in refining crude oil into motor fuels
(gasoline, diesel, jet fuels), kerosene, heating oil, other fuels, base
chemicals and feedstocks for chemical production through six refineries in
Europe, the United States and Angola. As of January 1, 1998, the Group's share
of the refineries' aggregate installed refining capacity was approximately
736,000 barrels per day. PetroFina's marketing operations include a network of
approximately 6,300 service stations in Europe and the United States, marketing
under the brand name "FINA." PetroFina's supply and trading division is also
engaged in trading of crude oil and distilled petroleum products.
Chemicals. PetroFina produces monomers (ethylene, propylene and styrene),
polyolefins (polypropylene and high-density polyethylene), styrene polymers and
copolymers (polystyrene and thermoplastic elastomers) for industrial use, as
well as oleochemicals. In 1997, PetroFina produced 1,900 thousand tonnes of
monomers and 2,170 thousand tonnes of polymers. As of December 31, 1997,
PetroFina was among the top four producers of polypropylene in the world, the
top four producers in the European high-density polyethylene market and the top
three producers in the United States polystyrene market (in each case, based on
combined production capacity and sales volume). The Group has chemical plants at
Antwerp, Feluy, Ghent and Oelegem in Belgium and at La Porte (Texas), Carville
(Louisiana) and Bayport (Texas) in the United States.
Paints. PetroFina owns the Sigma Coatings Group ("Sigma"), which is the
fifth largest producer of decorative paints in Europe based on sales. Sigma also
produces industrial, anti-corrosion and marine paints.
50
<PAGE> 62
UPSTREAM
OVERVIEW OF UPSTREAM ACTIVITIES
The Upstream segment includes all activities associated with the
exploration, development and production of PetroFina's oil and gas interests,
which are presently located in 12 countries, as well as the Group's natural gas
marketing operations. Since the early 1990s the Group has focused its Upstream
activities on the following core geographic areas: the North Sea, Italy, the
United States, Vietnam and Africa. As a result, PetroFina has discontinued its
exploration activities in a number of non-strategic areas. In addition to its
operations in the core areas, PetroFina has continued to evaluate several other
regions with high potential in the Middle East and the Caspian Sea area in order
to assure the future replacement of its reserves.
As of December 31, 1997, PetroFina had approximately 27,000 square
kilometers (6,671,700 acres) of net exploration acreage. Consistent with
industry practice, PetroFina often holds a percentage interest in its acreage,
with the balance held by other joint venture partners (which generally include
other oil companies, state oil companies or government entities). Contractual
arrangements between co-venturers generally are governed by an operating
agreement, which provides for costs, entitlements to production and liabilities
to be shared according to percentage interests, and for one co-venturer to be
appointed operator to conduct operations under the overall supervision and
control of an operating committee consisting of a representative of each
co-venturer. While operating agreements generally provide for liabilities to be
borne by the co-venturers according to their respective percentage interests,
licenses from the relevant government authority generally provide that the
co-venturers are jointly and severally liable for their obligations to that
government authority under the applicable license. These obligations generally
include the removal or decommissioning of installations upon the cessation of
operations. PetroFina has interests in producing acreage in seven countries and
currently acts as an operator in eight countries. See "-- Upstream Activities by
Geographic Region" below for descriptions of the Group's principal producing
fields.
The table below shows the Group's current Upstream activities by country.
<TABLE>
<CAPTION>
EXPLORATION PRODUCTION OPERATOR
----------- ---------- --------
<S> <C> <C> <C>
EUROPE:
Italy.................................................. x x x
Netherlands............................................ x
Norway................................................. x x x
United Kingdom......................................... x x x
NORTH AND SOUTH AMERICA:
United States.......................................... x x x
Falkland Islands....................................... x
Canada................................................. x x
AFRICA:
Angola................................................. x x x
Libya.................................................. x x x
Democratic Republic of Congo (formerly Zaire).......... x x
ASIA:
Vietnam................................................ x x
Azerbaijan............................................. x
</TABLE>
51
<PAGE> 63
The table below sets forth selected financial data for PetroFina's Upstream
segment for each of the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996 1995
------- ------- -------
(IN MILLIONS OF BEF)
<S> <C> <C> <C>
Total operating revenue..................................... 88,265 65,212 48,598
Inter-segment sales......................................... (36,298) (31,123) (21,687)
Operating revenues to non-affiliates........................ 51,967 34,089 26,911
Operating income............................................ 25,288 24,165 13,400
</TABLE>
EXPLORATION
PetroFina's exploration strategy is to exploit its knowledge and position
in key areas where it has an established operating base (the North Sea, Italy,
the United States and Africa), to continue its exploration activities in areas
where exploration has previously been restricted and which have significant
potential (Vietnam, deep offshore Gulf of Mexico and Libya) and to extend its
activities in areas which have the potential for large discoveries (the Caspian
Sea). PetroFina continuously seeks to consolidate and optimize its portfolio of
net exploration acreage.
PetroFina's total capital expenditures for exploration activities amounted
to BEF 4,576 million, BEF 3,455 million and BEF 2,914 million, for the years
ended 1997, 1996 and 1995, respectively. In 1997, PetroFina participated in 27
exploratory wells, for 16 of which it was operator, and added 2,511 square
kilometers (620,468 acres) to its portfolio of net exploration acreage.
Approximately 55% of the completed wells either discovered new potential
reserves of crude oil or natural gas or upgraded existing discoveries. PetroFina
also removed 734 square kilometers (181,371 acres) of acreage in 1997 from its
portfolio of net exploration acreage where appraisals indicated a low
probability of commercial reserves.
Over ten discoveries in Angola, Vietnam, Libya, Alaska and the North Sea
are awaiting appraisal and planning for potential development.
DEVELOPMENT
The development stage occurs after completion of exploration and appraisal
and prior to hydrocarbon production and involves the development of production
facilities including platforms and pipelines. For offshore reserves the
development stage can involve substantial expenditures and time, especially in
areas without existing production infrastructure. PetroFina invested BEF 18,424
million, BEF 14,392 million and BEF 9,297 million, for the years ended 1997,
1996 and 1995, respectively, for development and production facilities.
PetroFina's current activities include new development projects in the
North Sea, North America and Italy, as well as redevelopment of producing
facilities in the North Sea and Africa.
Four new development projects are underway: (1) the Otter oil field in the
U.K. sector of the North Sea (production start-up expected first half of 2000),
(2) the Genesis oil and gas field in the Gulf of Mexico (production start-up
expected end of 1998), (3) the Badami oil field offshore Alaska (production
start-up expected end of 1998), and (4) the onshore Tempa Rossa oil field in the
Apennine mountains of southern Italy (production start-up expected in 2001). In
addition, the Group is preparing a development project of the Girassol field in
the deep waters offshore Angola (production start-up expected end 2000).
PetroFina's largest and most productive Upstream asset, the Ekofisk complex
in the Norwegian sector of the North Sea, is being completely redeveloped at a
cost of over US $2.5 billion to allow for continued production in view of
increasing subsidence of the ocean floor. PetroFina's share of the cost is
estimated to be US $713 million. PetroFina expects the new installations to be
operational in October 1998. Meanwhile, production from the Ekofisk complex
continues at an approximate rate of 93,000 barrels of oil and 252 million cubic
feet of natural gas per day (PetroFina net). For additional information
regarding this redevelopment
52
<PAGE> 64
project, see "-- Upstream Activities by Geographic Region -- Europe" below. A
redevelopment program of the Group's onshore fields in the Democratic Republic
of Congo (formerly Zaire) and a rehabilitation program of its onshore fields in
the province of Congo in Angola are also in progress.
PRODUCTION
The Group's net production in 1997 was 54 million barrels of oil and 209
billion cubic feet of gas (55% of which was attributable to the Ekofisk complex,
which is under redevelopment), which corresponds to an average daily production
of 243,000 barrels of oil equivalent per day. This production was about 4%
higher than in 1996 and 1995 and 12% higher than in 1994. Europe is the most
significant production area, contributing 87% of total oil production and 63% of
total gas production, or 78% of combined production. The United States
contributes 19% of the Group's aggregate combined production, and the balance
comes from Africa.
The following table shows PetroFina's net production for each of the years
indicated by hydrocarbon type and country:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
OIL GAS OIL GAS OIL GAS
--- --- --- --- --- ---
(MBBL/D) (MCF/D) (MBBL/D) (MCF/D) (MBBL/D) (MCF/D)
<S> <C> <C> <C> <C> <C> <C>
EUROPE
Italy............................. -- 8 -- 7 -- 7
Norway............................ 93 252 89 299 90 327
United Kingdom.................... 36 102 31 106 34 72
NORTH AMERICA
Canada............................ -- 5 -- 4 -- 4
United States..................... 11 205 11 161 11 147
AFRICA
Democratic Republic of Congo
(formerly Zaire)................ 3 -- 4 -- 4 --
--- --- --- --- --- ---
Consolidated Total..................... 143 572 135 577 139 557
EQUITY COMPANIES
Angola............................ 5 -- 3 -- 1 --
--- --- --- --- --- ---
Total........................ 148 572 138 577 140 557
</TABLE>
Approximately 90% of the Group's crude oil production is sold to the
Downstream segment, which either sells or refines the production. The refined
products are either used by the Chemicals segment, sold through the Group's
wholesale and retail petroleum marketing activities or sold through the Group's
supply and trading activities. The rest of the Group's oil and gas production is
sold to third parties. See "Downstream."
RESERVES
At December 31, 1997, the Group's consolidated combined net proved crude
oil and natural gas reserves were approximately 848 million barrels of oil
equivalent, approximately two-thirds of which were oil. 80% of the proved
reserves are located in Europe, 16% in the United States and 4% in Africa.
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<PAGE> 65
The table below sets forth PetroFina's estimated worldwide net proved
reserves as of the dates indicated (including both developed and undeveloped
reserves).
<TABLE>
<CAPTION>
NET PROVED RESERVES AT DECEMBER 31,
-----------------------------------------------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
CHANGE FROM CHANGE FROM CHANGE FROM
1997 1996 1996 1995 1995 1994 1994
----- ----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Crude Oil (Mbbl).............. 583 3.7 562 2.2 550 3.2 533
Natural Gas (Bcf)............. 1,588 (8.8) 1,742 (1.3) 1,765 1.4 1,741
Combined(1) (Mboe)............ 848 (0.6) 853 1.1 844 2.6 823
</TABLE>
- ---------------
(1) See "Conversion Table" for the ratio used to convert cubic feet of natural
gas to boe.
PetroFina's internal petroleum reservoir engineers estimate proved reserves
using geological and engineering data to determine whether the crude oil or
natural gas in known reservoirs is reasonably certain to be recoverable under
existing economic and operating conditions. This process involves making
subjective judgments. Consequently, measures of reserves are not precise and are
subject to revision. PetroFina's oil and gas reserves are reviewed annually to
take into account, among other things, production levels, field reviews, the
addition of new reserves from discoveries and acquisitions, disposals of
reserves and economic factors. PetroFina's worldwide net proved reserves exclude
the net proved reserves of its non-consolidated company in Angola, in which
PetroFina's proportionate share represented 24.4 million barrels of oil as of
December 31, 1997, 25.7 million barrels of oil as of December 31, 1996, and 26.1
million barrels of oil as of December 31, 1995. For further information
concerning PetroFina's net proved reserves at December 31, 1997, 1996 and 1995,
See "PetroFina Financial Statements -- Supplemental Oil and Gas Information
(Unaudited)."
PetroFina's net proved reserves of crude oil and natural gas (calculated on
an oil equivalent basis) have remained stable over the three years ended
December 31, 1997. Over the three-year period from 1995 to 1997, reserve
additions were approximately 300 million barrels of oil equivalent, replacing
113% of production, before deducting sales of reserves in place during this
period. The Group has replaced disposed reserves with new discoveries, improved
enhanced recovery techniques and reserves revisions. The Group's ability to
continue to replace its crude oil and natural gas reserves depends on the
successful outcome of its exploration activities, primarily in Europe and the
United States.
NATURAL GAS MARKETING
The Natural Gas Marketing division markets the Group's United States
natural gas production, as well as third-party produced gas.
UPSTREAM ACTIVITIES BY GEOGRAPHIC REGION
Europe
In NORWAY, the Group holds an interest in 12 offshore licenses and acts as
operator in block 24/9.
The Group has a 30% interest in the Ekofisk, Eldfisk, West Ekofisk, Cod,
Edda and Embla fields, a 22.13% interest in the Tor field, a 15% interest in the
Albuskjell field and a 20.23% interest in the Tommeliten Gamma field.
PetroFina's proved reserves in Norway as of December 31, 1997 were 544 million
barrels of oil equivalent. Total production in 1997 from these fields net to
PetroFina was 33.8 million barrels of crude oil and 92 billion cubic feet of
natural gas.
The ongoing redevelopment of the Ekofisk complex, known as Ekofisk II,
includes two major new platforms, a drilling and production platform and a
platform for processing and transportation of oil and gas. While enhancing
long-term safety, this investment should allow extended incremental recovery and
a significant reduction in operating costs. The Ekofisk partners decided that
certain smaller, substantially depleted fields like West Ekofisk, Cod, Edda,
Albuskjell and Tommeliten should be closed by August 1998 rather than connected
to Ekofisk II. In connection with this redevelopment, the government of Norway
extended PetroFina's operating license from 2011 to 2028. No further royalties
will be due to the government of Norway after Ekofisk II becomes operational in
October 1998. However, in exchange for its contribution of
54
<PAGE> 66
5% of the redevelopment costs, the government of Norway will earn 5% of the
production starting in October 1998, and PetroFina's interest will decrease at
that point from 30% to 28.5%.
Enhanced recovery techniques, such as water injection and gas injection,
are very important for the Ekofisk and Eldfisk fields and is being evaluated for
the Tor field. In the Ekofisk field, for instance, the enhanced recovery program
is expected to result in an additional recovery over the life of the field for
the Ekofisk partners of more than 1 billion barrels of oil equivalent.
Oil produced at Ekofisk and its satellite fields is transported by pipeline
to Teesside in the United Kingdom where it is processed. The natural gas is
transported by pipeline to Emden in northern Germany where it is sold to a
consortium of European buyers. The Group holds interests in both the oil
pipeline (28.4%), the gas pipeline and the gas processing plant in Emden
(Germany) (12.9%), and the liquid processing facilities in Teesside (United
Kingdom) (23.75%).
In the UNITED KINGDOM ("U.K."), the Group has interests in 72 offshore
blocks, and is the operator in 18 of them. 27 of these blocks are located west
of Great Britain, including Atlantic Margin Tranche 30 (PetroFina operated) and
Tranche 21.
In the U.K., the Group has an active exploration program including
drilling, appraisal, and continual portfolio consolidation. On average, the
Group has participated in five exploratory wells per year since 1992.
Geographically, the Group's activities are focused in areas with existing
infrastructure for production and transport. Discoveries in the U.K. have
contributed approximately 166 million barrels of oil equivalent to PetroFina's
portfolio of proved reserves since 1992, and PetroFina's proved reserves in the
U.K. as of December 31, 1997 were 128 million barrels of oil equivalent.
The Group's total net oil production in the U.K. for 1997 was 13.2 million
barrels. As of December 31, 1997, net oil production was approximately 39,000
barrels per day, primarily from the three T-block fields (i.e., Toni, Tiffany
and Thelma) and the Alba field. PetroFina has a 30% interest in T-block, which
has had a combined field production rate of 70,000 barrels per day since Thelma
came on stream in late 1996. The Alba field, in which PetroFina holds a 12.65%
interest, produces at a field rate of almost 100,000 barrels per day.
The development of the Armada complex, which is composed of the Fleming,
Drake and Hawkins gas fields, was completed in 1997 and gas production started
in October 1997. The Group holds a 12.53% interest in this complex.
The Group's gas production in the U.K. totaled 37.4 billion cubic feet in
1997. 41% came from the Audrey and Ann fields in which the Group has a 42.78%
interest, while 20% came from the Hewett field (18.57% interest), a field that
has been producing since the late 1960s. Another 10% came from newcomer Armada
and the balance from several smaller gas fields such as Alison, Amethyst, Dawn
and Everest and from the associated gas produced in the T-block fields.
In ITALY, the Group holds interests in 33 onshore and six offshore licenses
and is operator of eight of them. PetroFina's proved reserves in Italy as of
December 31, 1997 were 4.2 million barrels of oil equivalent.
The Group's gas production from six onshore and two offshore fields reached
three billion cubic feet in 1997, and 130,000 barrels of oil net to the Group
have been produced from a long duration test well on the Tempa Rossa field in
the southern Apennines.
The Tempa Rossa field stretches over several licenses, in two of which the
Group has an average interest of about 20%. In each of the first four wells a
vertical oil column of over 1,000 meters was encountered. During the course of
the next decade, the Group plans a phased development of the field. Initial
production under the first phase, which will include five wells, is planned for
2000. The oil, which is heavy and has a significant sulphur content, will
require special treatment and, therefore, will present both a technical and a
marketing challenge.
In the NETHERLANDS, the Group holds a 17.25% interest in license M/01.
55
<PAGE> 67
North and South America
In the UNITED STATES ("U.S."), the Group's holdings include interests in 97
blocks in the Gulf of Mexico (58 of which are deep water blocks), and the Group
is the operator in 14 of them. The Group also has interests in four blocks
offshore California and 52 blocks in Alaska (seven onshore and the rest in the
Beaufort Sea). The Group holds additional onshore interests in 18 states. Over
one-third of the Group's acreage in the U.S. is located in Texas.
At the end of 1997, total exploration acreage in the United States amounted
to 5,995 square kilometers (1,481,365 acres). The Group's exploration activities
in the U.S. are conducted primarily offshore in the Gulf of Mexico and in the
Beaufort Sea, and onshore in the Gulf States region.
The Group's U.S. exploration activities increased steadily in 1995 and 1996
after an extensive portfolio consolidation program caused drilling activity to
slow in 1994. In 1997, 1996, and 1995 exploration capital expenditures in the
U.S. amounted to BEF 2,050 million, BEF 1,692 million, and BEF 1,330 million,
respectively. The Group participated in 50, 29, and 17 exploratory wells,
respectively, during these three years. Since 1992, discoveries in the United
States have contributed 110 million barrels of oil equivalent to PetroFina's
portfolio of proved reserves, and PetroFina's proved reserves in the U.S. as of
December 31, 1997 were 138 million barrels of oil equivalent.
In 1997, PetroFina's total net production in the United States was four
million barrels of oil and 77 billion cubic feet of gas.
Onshore the Group has concentrated its exploration efforts in Texas,
Louisiana, Mississippi and Arkansas where several discoveries have been made,
such as in the King Bee, Fandango and McAllen-Pharr areas. During the 1990s the
Group also implemented several tertiary recovery projects in the Permian basin,
including at West Brahaney, North Robertson and East Penwell.
Offshore Louisiana, in the Gulf of Mexico, the Group is concentrating on
deep water prospects. It holds a 30.5% interest in the Mississippi Canyon block
441 field which has produced gas and condensates since 1992. The Group owns a 5%
working interest in the Genesis field (Green Canyon blocks), which is currently
under development with initial production of oil and gas expected by the end of
1998.
Offshore Alaska, in the Beaufort Sea, the Group participated in two
discoveries, Badami and Sandpiper. In 1990, a significant discovery of oil was
made in the Badami oil field in which the Group has a working interest of 30%.
This discovery is currently being developed, and first oil production is
expected in October 1998. The oil produced at Badami will be transported 25
miles to the existing Endicott field and from there will enter into the Trans
Alaska pipeline to Valdez in southern Alaska. The potential of Sandpiper, in
which the Group's working interest is 42.4%, is still in the exploration phase.
In CANADA, PetroFina produces approximately 4.5 million cubic feet of
natural gas per day through its participation in two discoveries. The Group also
participates in exploration activities in western Canada.
In 1996, the Group obtained a 25% stake in a license called Tranche A,
north of the FALKLAND ISLANDS. Seismic studies are in progress in preparation
for the drilling of a first exploration well in 1998.
Africa
In ANGOLA, PetroFina is the operator in fields located in the onshore
Kwanza and Congo basins. Its share of oil production from these fields in 1997
totaled 1.7 million barrels. Production in Angola has been increasing steadily
as a result of the ongoing rehabilitation of the Soyo area following damage to
wells and installations in 1993 and 1994 during the civil war. The total daily
production operated by PetroFina had increased to 20,000 barrels by the end of
1997, and PetroFina anticipates that this production will further increase to
its maximum of 25,000 barrels daily by the end of 1998. The oil from the Congo
basin is exported through an offshore, third-party-operated terminal.
PetroFina's interest in Upstream activities in Angola is reflected in the
Consolidated Financial Statements according to the equity method of accounting.
See "PetroFina Financial Statements."
56
<PAGE> 68
Offshore Angola, the Group's activities are conducted through a
wholly-owned subsidiary, which is involved in exploration and appraisal of Block
17. It has a 5% interest in the joint venture that discovered the Girassol field
in 1996. In August 1997, a second oil discovery in Block 17 was made in the
Dalia field. Initial production tests indicated a cumulative flow rate of 16,000
barrels per day. A third discovery, called Rosa, was made in the beginning of
1998 and again its initial production tests indicated rates above 12,000 barrels
per day. While the joint venture is continuing its exploration efforts by
drilling other structures in the block, the development of the Girassol field
will be decided in 1998 with first production expected by the end of the year
2000. PetroFina has been appointed operator for Block 19 offshore Angola,
located in the deepwater offshore Luanda, at the northern edge of the Kwanza
basin, with a 30% interest. Negotiations with the Angolese authorities
concerning a Production Sharing Agreement are expected to commence in the near
future.
In the DEMOCRATIC REPUBLIC OF CONGO (formerly Zaire), the Group is the
operator with a 54.5% interest in three coastal onshore licenses. Its share of
the oil produced from six different fields was 1.1 million barrels in 1997.
The Group is an operator with a 60% interest in three licenses of the Sirte
oil basin in LIBYA, where it has drilled 10 wells. These wells have resulted in
two small discoveries, which will be evaluated in an extended production test
that started in December 1997 and which will run for one year. The initial gross
production was 5,000 barrels per day.
East Asia
In VIETNAM, the Group is the operator, with a 100% interest, of offshore
blocks 46, 50 and 51. Since 1996, six wells have resulted in six oil and gas
discoveries in these blocks. During 1997, a three-dimensional seismic survey was
conducted in order to determine the development potential of these discoveries.
One of the discovery wells confirmed that the Bunga Kekwa field, in which
production started in 1997, stretches into block 46. Bunga Kekwa is located in
the zone that is jointly managed by Vietnam and Thailand.
Central Asia
In the first half of 1997, PetroFina launched its first project in the
Caspian Sea by acquiring a 5% interest in the exploration of a block offshore
AZERBAIJAN covering the Lenkoran and Talysh structures.
DOWNSTREAM
OVERVIEW OF DOWNSTREAM ACTIVITIES
The Downstream segment includes PetroFina's crude oil refining, supply and
trading, and wholesale and retail petroleum products marketing activities.
With respect to refining, PetroFina's strategy is to be an efficient
operator of individual refineries with the flexibility to adapt to different
crude and feedstock supplies in order to enable it to meet changing market
requirements. PetroFina's supply and trading activity is focused on obtaining
both (1) crude oil and other raw materials needed for the Group's refinery
operations and (2) refined petroleum products to meet the needs of the Group's
marketing activities. The marketing activities focus on wholesale and retail
sales of refined petroleum products and lubricants, primarily in Europe and the
United States.
57
<PAGE> 69
The table below sets forth selected financial data for PetroFina's
Downstream segment for each of the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
------- ------- -------
(IN MILLIONS OF BEF)
<S> <C> <C> <C>
Total operating revenue..................................... 571,964 496,361 441,688
Inter-segment sales......................................... (16,961) (13,757) (16,448)
Operating revenues to non-affiliates........................ 555,003 482,604 425,240
Operating income............................................ 12,005 5,195 235
</TABLE>
REFINING
As of January 1, 1998, PetroFina had six refineries, in which the Group's
aggregate share of the total installed crude processing capacity was 36 million
tonnes per year (736,000 bpsd): (1) Fina Raffinaderij Antwerpen ("FRA") in
Antwerp (Belgium), (2) Lindsey Oil Refinery ("LOR") (PetroFina interest 50%) in
Killingholme (U.K.), (3) the Port Arthur Refinery in Texas (U.S.), (4) the Big
Spring Refinery in Texas (U.S.), (5) Raffineria di Roma ("RdR") (PetroFina
interest 57.5%) in Rome (Italy) and (6) the Luanda Refinery in Angola. In
addition, the Group has access to refining capacity in France through various
processing contracts.
In refining, the Group's objectives are (1) to enhance refining flexibility
by optimizing the production of gasolines, middle distillates and chemical
feedstocks compared to heavy fuel oil, (2) to improve energy efficiency and (3)
to increase the integration of PetroFina's refineries with its chemical plants.
Fulfillment of these objectives will help the Group meet the growing demand for
high value-added products and for products which conform to more stringent
environmental standards.
The refining industry has suffered from continuing erosion of refining
margins during the 1990s. Technological improvements in plant efficiency and
expectations for future product demand have led to an imbalance in the market
between capacity and product demand. While the eventual market effect of the
structural oversupply is expected to be the closure of less efficient plants,
the short-term effect is continued adverse pressure on the sector's
profitability. At the same time, the refining industry requires ongoing capital
investments to enable it to meet future product specifications, especially those
related to environmental regulatory developments.
To counteract the industry conditions described above and to achieve its
strategy, the Group has sought to optimize the size and efficiency of its
refining and lubricating oil blending plants and its retail stations, while
maintaining regional balance between refined product supply and retail station
demand. In addition, the Group intends to continue to maximize the upgrading
capacity of its individual refining units in Europe and the United States. Over
the three-year period ended December 31, 1997, the Group invested BEF 9,603
million in its refineries.
58
<PAGE> 70
The table below sets forth PetroFina's share of the daily crude oil
refining capacities of the Group's refineries.
<TABLE>
<CAPTION>
GROUP'S SHARE OF DAILY
CRUDE OIL
REFINERY CAPACITY AT
JANUARY 1, 1998(1)
--------------------------
<S> <C>
FRA......................................................... 305
LOR(2)...................................................... 100
Port Arthur................................................. 183
Big Spring.................................................. 60
RdR(3)...................................................... 49
---
CONSOLIDATED TOTAL.......................................... 697
EQUITY COMPANIES
Luanda(4).............................................. 39
---
TOTAL....................................................... 736
</TABLE>
- ---------------
(1) In the case of refineries that are not wholly owned by the Group, the
indicated capacity represents the Group's proportionate share of the total
refining capacity of the refinery.
(2) PetroFina interest 50%.
(3) PetroFina interest 57.5%.
(4) This refinery is owned and operated by a non-consolidated subsidiary.
The table below sets forth, for the years indicated, the amount of crude
oil processed for PetroFina's account at the Group's refineries (excluding the
Luanda refinery).
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Actual throughput (Mt/y).................................... 32.9 31.8 29.3
Utilization................................................. 97.3% 98.1% 93.0%
Total installed capacity (Mt/y)............................. 35.8 32.4 31.5
</TABLE>
Europe
PetroFina's European refining units are considered industry leaders in
terms of flexibility of access to market through pipeline facilities and captive
local consumption, as well as to the sea and convenient shipping facilities, and
conversion ratings (the ability to produce value-added products) having one of
the highest conversion to distillation ratios in Europe (40%, compared to an
industry average of 32%). The high desulphuration capacity of middle distillates
and fuel oils allows the Group to comply with the European Union's year 2000
sulphur specification for diesel and fuel oils without major additional
investments. The MTBE units (defined below) at FRA and LOR, the TAME unit
(defined below) at LOR and the catalytic reforming unit with a continuous
catalyst regeneration system at FRA give the Group the ability to supply
directly the whole of its European retail network's demand for high octane
unleaded gasoline.
Antwerp. FRA is the Group's largest refinery, accounting for over 40% of
the Group's total crude distillation capacity, and is the fourth largest
refinery in Western Europe (based on throughput capacity).
FRA has an installed atmospheric distillation capacity of 15.3 million
tonnes of crude oil per year with associated vacuum distillation capacity for
the treatment of residue feedstocks. It has two catalytic crackers with a total
capacity of 4.1 million tonnes of crude oil per year whose capacity has
increased by approximately 10% over the last 10 years and whose conversion of
heavy fractions into light products has increased by approximately 5% over the
past 10 years. It also has a visbreaker (a cracking process plant which, at
moderate temperatures, reduces the viscosity of heavy petroleum fractions) with
a capacity of 2.5 million tonnes per year; product desulphuration units and
sulphur recovery plants; an MTBE (Methyl-Tertiary-Butyl-Ether) unit with
capacity of 180,000 tonnes per year; a jet fuel treatment unit with capacity of
680,000 tonnes per year; and a propylene fractionation unit able to produce
200,000 tonnes of chemical grade propylene per year.
59
<PAGE> 71
An alkylation unit, which has a capacity of 270,000 tonnes per year, as well as
a catalytic reforming unit with a continuous catalytic regeneration section,
which has a capacity of 2.3 million tonnes per year, permits the manufacture of
several grades of unleaded gasoline in the European Union in response to
increasingly stringent environmental specifications.
Since 1994, FRA has been equipped with a deep conversion facility with a
capacity of 3.4 million tonnes per year. This facility enables FRA to produce,
after desulphuration, a high quality product slate from "poorer" quality crudes,
making it one of the most modern and efficient refineries in Europe.
The Group has begun construction of a unit to increase its production of
aromatics (including xylene) by 800,000 tonnes per year by the year 2000, with a
corresponding decrease in gasoline production. PetroFina plans to invest
approximately BEF 4 billion in this unit. PetroFina has signed a long-term
supply agreement with Amoco under which Amoco will purchase xylene produced at
FRA.
At the end of 1997, discussions were finalized and the Group signed a
contract with Electrabel, the Belgian electricity company, in January 1998, to
build a cogeneration unit at FRA.
Lindsey Oil Refinery. The Group owns a 50% interest in LOR at Killingholme
in the northeast of England, which has an installed atmospheric distillation
capacity of 9.6 million tonnes per year with associated vacuum distillation
units which can also treat imported residue feedstocks. LOR has a catalytic
cracker (which was upgraded recently to increase gasoline production and
conversion and to meet anticipated environmental regulations) with a capacity of
2.5 million tonnes per year; two semi-regenerative catalytic reforming units
with a total capacity of 1.4 million tonnes per year; a visbreaker with a
capacity of 1.6 million tonnes per year, and desulphuration units and sulphur
recovery plants. It also has a kerosene treatment unit with a capacity of
780,000 tonnes of jet fuel per year; a kerosene dearomatization unit with a
capacity of 140,000 tonnes per year; and a bitumen production unit with a
capacity of 600,000 tonnes per year. The refinery also has a catalytic
polymerization unit, with a feedstock capacity of 120,000 tonnes per year, that
transforms light olefins from the cracker into gasoline, as well as two
propylene fractionating units, with a capacity of 160,000 tonnes per year and an
alkylation unit (equipped with a hydroisomerization feedstock preparation
section) with a capacity of 250,000 tonnes per year. The refinery has an MTBE
unit with a capacity of 100,000 tonnes per year and a TAME
(Tertiary-Amyl-Methyl-Ether) unit with a capacity of 50,000 tonnes per year.
Since 1992, the Group has completed capital projects involving system
automation for managing oil products, finished product loading and catalytic
cracking capacity increases. In addition, in a joint venture with a major
electric utility company, in November 1996, the Group completed the installation
of a 40 megawatt cogeneration unit to produce electricity and steam to supply
LOR's own needs, while leaving a substantial proportion of electricity for sale.
The cogeneration unit reduces the refinery's energy costs in an environmentally
sensitive manner.
Rome. In Italy, the Group owns a 57.5% interest in RdR, a refinery near
Rome. The refinery has an installed atmospheric distillation capacity of 4.0
million tonnes per year and a vacuum distillation unit with a capacity of
630,000 tonnes per year. RdR has a visbreaker with a capacity of 1.7 million
tonnes per year, distillate desulphuration units and a sulphur plant for liquid
sulphur recovery. It is equipped with a semi-regenerative catalytic reformer
unit with a capacity of 600,000 tonnes per year, a kerosene treatment unit with
a capacity to produce 530,000 tonnes of jet fuel per year and an isomerization
unit with a capacity of 240,000 tonnes per year.
A new benzene saturation unit was commissioned in November 1997. This unit
produces low benzene gasoline to be marketed in the Rome region.
United States
Port Arthur. The Port Arthur refinery, on the Texas Gulf coast, has an
installed atmospheric distillation capacity of 8.8 million tonnes per year with
associated vacuum distillation capacity. Since 1991, it has had a catalytic
cracking unit with a capacity of 3.1 million tonnes per year. In the 1980s an
upgrading program reduced the output of lower value heavy residues to 8% and
allowed the production of unleaded gasoline
60
<PAGE> 72
following the installation of a reforming unit with a continuous regeneration
system. In addition, this program included a vacuum bottom deasphalting unit
with a capacity of 1.0 million tonnes per year and a desulphuration unit for
heavy cracker feedstock with a capacity of 1.4 million tonnes per year. The Port
Arthur refinery also has a 36-megawatt cogeneration unit which supplies most of
the refinery's electricity and steam requirements. This cogeneration unit, which
was installed in 1988, substantially reduced the plant's operating costs. The
refinery also has distillate desulphuration units with associated sulphur
recovery plants and an alkylation unit with a capacity of 210,000 tonnes per
year. The complex includes a unit for the extraction of aromatics from gasoline,
which supplies half of the benzene feedstock requirements of the Group's
petrochemical plants in the United States, and an isomerization unit with a
capacity of 373,000 tonnes per year.
Big Spring. The Big Spring refinery, in Howard County, Texas, has an
installed atmospheric distillation capacity of 2.9 million tonnes per year and
an associated vacuum distillation unit; a catalytic cracker with a capacity of
1.2 million tonnes per year; an alkylation unit with a capacity of 195,000
tonnes per year; a solvent deasphalting unit with a capacity of 560,000 tonnes
per year; and desulphuration with associated sulphur recovery units.
This refinery also has a semi-regenerative catalytic reformer unit with a
capacity of 850,000 tonnes per year and an aromatic extraction unit for benzene
recovery, with a capacity of 30,000 tonnes of benzene per year. In 1996, the
fluid catalytic cracking unit was upgraded which increased the conversion
capacity by 7%.
Fina, Inc. has negotiated access to a pipeline network that will link the
Big Spring refinery to El Paso (Texas), Albuquerque (New Mexico) and Tucson
(Arizona).
Africa
Luanda. The Group owns the only refinery in Angola, which is in Luanda. It
has an installed atmospheric distillation capacity of 1.9 million tonnes per
year, a semi-regenerative catalytic reformer with a capacity of 71,000 tonnes
per year and a vacuum unit with a capacity of 140,000 tonnes per year. The
Group's activities at the Luanda refinery are conducted by a non-consolidated
subsidiary of Parent. The prices of refined products are fixed by the government
so that the Group obtains a specified return on its capital invested in the
refinery.
SUPPLY AND TRADING
The Group's supply and trading activities are focused principally on the
supply of its refineries, as well as its marketing entities. Its supply
department is active in both physical and, to a limited extent, futures markets.
Spot and term crude oil and feedstocks supply contracts cover the quantity
and quality requirements of PetroFina's refineries. Exchange and processing
agreements allow the Group to ensure the security and the optimization of the
supply of petroleum products to its various marketing organizations. Like most
other oil companies, the Group uses hedging tools to moderate its exposure to
short-term fluctuations in crude and products prices. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
PetroFina -- Financial Instruments."
The supply and trading division's activities include the trading of
significant amounts of refined petroleum products (including the trading of
liquefied petroleum gas) on the international markets, mainly in Europe and in
the United States. It also manages the supply of the feedstocks required by Fina
Antwerp Olefins petrochemical complex.
61
<PAGE> 73
The table below sets forth selected information with respect to the Group's
sales and supply of crude oil (produced by PetroFina and by third parties) for
each of the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF TONNES)
<S> <C> <C> <C>
PETROFINA CRUDE PROCESSED IN PETROFINA REFINING SYSTEM:
Europe(1)................................................. 5,399 4,625 4,205
United States............................................. 0 1,118 1,208
------ ------ ------
Total................................................ 5,399 5,743 5,413
PETROFINA CRUDE SOLD TO THIRD PARTIES:
Europe(1)................................................. 869 1,095 1,461
United States............................................. 507 506 512
------ ------ ------
Total................................................ 1,376 1,601 1,973
THIRD-PARTY CRUDE PURCHASED AND PROCESSED IN PETROFINA
REFINING SYSTEM:
Europe(1)................................................. 16,717 17,175 14,795
United States............................................. 9,569 8,943 9,115
------ ------ ------
Total................................................ 26,286 26,118 23,910
THIRD-PARTY CRUDE PURCHASED AND RESOLD TO THIRD PARTIES:
Europe(1)................................................. 703 419 1,917
United States............................................. 5,730 1,370 1,179
------ ------ ------
Total................................................ 6,433 1,789 3,096
</TABLE>
- ---------------
(1) Europe includes Europe and the rest of the world, other than the United
States.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations of PetroFina -- Financial
Instruments -- Commodity Price Sensitivity."
MARKETING
PetroFina markets refined petroleum products (such as gasoline, diesel,
heating oil, and industrial, aviation and marine fuels, as well as bitumen) and
lubricants throughout the world under the brand name FINA. Its primary sales
activity is, however, concentrated in Europe and the United States. PetroFina
also conducts some marketing activities, with a special emphasis on lubricants,
in a number of countries in Africa and Asia. In 1997, the Group's sales volume
of refined products and lubricants amounted to 38.7 million tonnes, a 3.8%
increase over 1996.
The table below sets forth by geographic area for the years indicated the
Group's sales of refined petroleum products and lubricants for the periods
indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS OF TONNES)
<S> <C> <C> <C>
Europe.............................................. 26,161 25,278 24,367
United States....................................... 12,540 12,016 12,378
------ ------ ------
Total.......................................... 38,701 37,294 36,745
</TABLE>
PetroFina's marketing activities are divided into two sectors: retail and
commercial. The retail activities are those carried out mainly through its
network of approximately 6,300 retail service stations in Europe and the United
States. At December 31, 1997, 3,615 service stations were located in nine
European countries and 2,659 in the United States. The commercial or wholesale
activities are bulk sales to both distributors and
62
<PAGE> 74
direct consumers, which include the aviation and marine markets as well as the
sale of heating and industrial oils.
PetroFina's marketing strategy for its retail and commercial operations is
to concentrate in geographic areas where it has logistical strengths,
particularly areas near its refineries and storage terminals or near third-
party depots where the Group obtains products through exchange agreements. In
order to achieve its marketing objectives, the Group has embarked on a series of
asset exchanges, acquisitions and disposals, especially in the U.K., France and
Germany. At the same time, the Group is improving the efficiency of its retail
network by reducing its operating costs, and upgrading the quality of its
network. The upgrading program includes, among other things, a new visual
identification program and enhanced customer services, such as a new convenience
store concept and expanded car wash facilities, at the service stations.
The Group supplies jet fuel to approximately 100 airlines at various major
European and U.S. airports. The majority of the sales are supplied directly from
the Group's refineries, which enables PetroFina to provide, by its control over
the supply chain, a secure and cost effective supply source. Annual sales of jet
fuels increased by 1.5% in 1997 to 2.2 million tonnes. PetroFina also supplies
marine fuels to seagoing and other vessels from supply points in ports located
near its refineries.
The Group produces lubricant products at its three blending plants located
in Europe and East Asia. These products are sold in more than 50 countries.
Continuous product innovation is necessary in this highly competitive market
because of consumer demand for environmentally acceptable products, the
increasing efficiency of engines and the technical development of industrial
plants. The Group's strategy is to concentrate on selected market segments for
which PetroFina has developed an expertise, such as special vehicle dealers and
transport companies, which use automotive oils, and the steel industry, paper
mills and building materials industry, which use industrial lubricants.
The Group also produces high-quality greases at its Beverwijk plant in the
Netherlands, which are marketed to heavy industries, such as the iron and steel
industry, and paper mills or cement factories.
The Group's total lubricants and greases sales amounted to approximately
251,000 tonnes in 1997.
PetroFina sponsors FINA racing teams that participate at various European
and U.S. car races and use Fina fuel and high performance lubricants.
Europe
In Europe, the FINA retail network extends through Belgium, England,
France, Germany, Italy, Luxembourg, the Netherlands, Norway and Spain. The Group
also conducts wholesale or lubricant marketing activities in Denmark, Poland,
Portugal and Switzerland.
The table below sets forth the number of FINA service stations in Europe by
country for the last three years.
<TABLE>
<CAPTION>
NUMBER OF STATIONS
AT DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Belgium................................................ 521 531 564
France................................................. 437 451 482
Germany................................................ 398 432 442
Italy.................................................. 1,380 1,355 1,381
Luxembourg............................................. 18 18 19
The Netherlands........................................ 191 172 170
Norway................................................. 178 201 199
Spain.................................................. 68 64 52
United Kingdom......................................... 424 452 502
----- ----- -----
Total............................................. 3,615 3,676 3,811
</TABLE>
63
<PAGE> 75
The table below sets forth the number of stations in Europe owned by the
Group, FINA-branded distributor stations and the total number of stations over
the three years indicated.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Group-owned stations................................... 1,816 1,853 1,900
FINA-branded distributor stations...................... 1,799 1,823 1,911
----- ----- -----
Total stations.................................... 3,615 3,676 3,811
</TABLE>
PetroFina is pursuing a retail network consolidation and upgrading program
across Europe, seeking to concentrate sales volume at a smaller number of more
efficient sites in selected regions, while at the same time reinforcing and
harmonizing the "FINA" brand image.
The Group continues to increase the number of service stations under direct
management thus improving customer service and the commitment of the network's
employees.
During the three years ended December 31, 1997, the Group reduced the
number of service stations throughout its European network by 7.1%, while it
increased its average sales volume per site by 19.5%.
At the end of 1994, PetroFina launched the Eurotrafic card, an
international electronic payment system aimed at corporate customers. The card,
which is accepted in 4,500 service stations in 13 European countries, provides
fleet management services, such as VAT (value added tax) recovery, toll payments
and roadside assistance. Loyalty cards aimed at both business and private
customers are also being developed by PetroFina's marketing subsidiaries on a
country-by-country basis.
In its home country, Belgium, PetroFina has a retail market share of
approximately 13%, while its Italian network is the largest contributor (29%) to
the Group's European retail sales. The Group also has a significant retail
market share in Britanny (France) and Eastern England. Currently, the largest
capital budgets in terms of retail network are in Italy and Germany. In Italy a
program of 10 to 12 new service stations per year is planned for the Rome,
Lombardy and Tuscany regions, while at the same time existing sites with the
most favorable prospects for a long term future are being modernized and
re-imaged. In 1997, the Group received 20 service stations in western Germany in
exchange for the majority (17 sites) of the Group's network in eastern Germany.
In Germany, more than 20% of the European retail budget is being directed to new
sites and the modernization of the network in three key regions: the Rhein-Main
metropolitan area, central Germany, and southwestern Germany. Elsewhere in
Europe, the Group is actively developing a retail network in northern Spain,
while consolidating its position in Belgium, the Netherlands and Norway.
PetroFina is reinforcing its position in bulk wholesale and commercial
markets throughout its nine European core countries, especially in areas around
its refineries and its main depots. In Europe, the aggregate sales in these
markets amounted to 13 million tonnes in 1997.
A new lubricants blending and packaging plant at Ertvelde (Belgium) with a
capacity of 120,000 tonnes per year, serves as the Group's logistical center for
the northern European market. Additional Group production, blending and
packaging takes place at Valdemoro (Spain), which serves southern Europe. In
January 1998, the Group sold its blending plant at Duisburg (Germany), which
allows PetroFina to concentrate its lubricants' production at Ertvelde (Belgium)
and achieve important economies of scale.
The Group also wholesales bitumen, particularly from FRA, LOR and RdR, its
Antwerp, and Killingholme and Rome refineries, which produce 453,000 tonnes per
year. In the U.K., the Group is active in the bitumen market through its
subsidiary LanFina.
United States
In the United States, marketing activities have been divided into two
geographic business units since 1994 with the aim of reducing costs, increasing
productivity and improving customer service. The U.S. marketing focus is to
enable the maximization of PetroFina's refinery utilization through both FINA
branded and unbranded fuel sales.
64
<PAGE> 76
The table below sets forth the number of stations in the United States
owned by the Group, the number of FINA-branded distributor stations and the
total number of stations over the three years indicated.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Group-owned stations................................... 53 38 38
FINA-branded distributor stations ..................... 2,606 2,540 2,664
----- ----- -----
Total stations.................................... 2,659 2,578 2,702
</TABLE>
The Southeastern Business Unit manages supply and marketing activities in,
and east of, the Dallas/Ft. Worth area in Texas and throughout the Gulf States
region, including the Group's owned and operated convenience store outlets and
the Port Arthur refinery. The Southwestern Business Unit manages marketing
activities west of Ft. Worth, Texas (principally, west Texas and New Mexico) and
includes crude gathering operations and the Big Spring refinery. As of January
1, 1996, the Group took a 34.4% interest in Southwest Convenience Stores, which
owns and operates 163 convenience stores in west Texas and New Mexico under
exclusive licensing arrangements using the 7-Eleven brand and which is supplied
with all its fuel requirements by the Group.
CHEMICALS
PetroFina's Chemicals segment produces and markets petrochemicals (base
chemicals, monomers, polymers) and oleochemicals. The Group conducts a wide
range of chemical activities at five plants in Europe and five plants in the
United States. These plants, which are close to large markets, have access to
some of the world's largest harbors and best transportation networks (pipelines,
rivers, channels, railways and highways). These logistical advantages enable
PetroFina to deliver high-quality products at low cost. Over the last three
years, PetroFina has invested an aggregate of BEF 20,663 million in its chemical
monomer and polymer production facilities.
Through its research and development activities, PetroFina is extending the
Group's range of products and services, utilizing a customer-driven approach.
The Chemicals segment's strategy for growth is based on three principles:
(1) extensive integration from crude oil to polymers; (2) use of large plants to
maximize efficiency; and (3) developing differentiated products, while remaining
a low-cost producer. Where appropriate, this strategy has been pursued through
joint ventures.
The table below sets forth selected financial data for the Chemicals
segment for each of the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF BEF)
<S> <C> <C> <C>
Total operating revenue............................. 93,247 78,404 79,941
Inter-segment sales................................. (5,116) (3,421) (2,744)
Operating revenues to non-affiliates................ 88,131 74,983 77,197
Operating income.................................... 10,439 11,337 19,014
</TABLE>
65
<PAGE> 77
The table below shows the Group's year-end petrochemical production
capacity at the dates indicated.
<TABLE>
<CAPTION>
CAPACITY AT DECEMBER 31,
------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS OF TONNES)
<S> <C> <C> <C>
EUROPE
Ethylene.......................................... 680 676 650
Propylene......................................... 610 580 565
Aromatics......................................... 200 200 200
High density polyethylene......................... 450 450 450
Elastomers........................................ 80 80 80
Polystyrene(l).................................... -- -- 85
Polypropylene..................................... 400 385 385(2)
UNITED STATES
Propylene......................................... 270 270 145
Aromatics......................................... 580 580 580
Styrene........................................... 480 476 418
Polystyrene....................................... 465 450 351
Polypropylene..................................... 700 680 617
High density polyethylene......................... 191 191 182
</TABLE>
- ---------------
(1) The Group sold its European interest in polystyrene production in March
1996.
(2) The Group acquired the remaining interest (50%) in Fina Chemicals Feluy in
March 1995.
EUROPE
The Group's European chemical activities are carried out in five plants in
Belgium located at Antwerp (two plants), Feluy, Ertvelde and Oelegem. These
plants, which are operated by Parent subsidiaries and a joint venture, produce a
variety of monomers, polymers, base chemicals and oleochemicals.
Petrochemicals
Consistent with the segment's strategy, PetroFina's petrochemical plants
are integrated with its refineries. More than 40% of the feedstocks used in its
European plants are supplied from internal sources, and the refineries are able
to use return streams of various by-products, including hydrogen, from the
chemical plants.
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<PAGE> 78
The table below illustrates, in a simplified and schematic manner, the
major changes which the main products of PetroFina's European petrochemical
plants undergo, as well as their vertical integration.
[FLOWCHART]
(1) The Group operates a polysterene plant on behalf of the
third party to whom PetroFina sold its interest in March
1996.
The Group's European chemical products are marketed through a "FINA
Chemicals" branded organization supported by offices throughout Western Europe,
Poland, Russia and Asia. This organization works closely with the plants and the
Group's research and development center in Feluy to better respond to customer
needs.
Antwerp. The Group's petrochemical activities in Antwerp are carried out
at two plants close to FRA, its Antwerp refinery. These plants are operated by
Parent's subsidiary Fina Chemicals Antwerp and a joint venture in which the
Group has a 65% interest, Fina Antwerp Olefins ("FAO"). The Group's refining and
petrochemical center in Antwerp (Belgium), one of the world's largest, benefits
from its location in a
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<PAGE> 79
geographical area that must import significant quantities of base chemicals to
meet local demand. Feedstocks produced at FRA are converted to monomers such as
ethylene and propylene at FAO.
FAO operates three steam crackers with a capacity of more than 1 million
tonnes of ethylene per year, representing more than 5% of total installed
capacity in Western Europe. The third steam cracker, constructed at the center
of FRA, provides an ethylene capacity of about 500,000 tonnes per year which,
following a debottlenecking program, is expected to reach 550,000 tonnes per
year in the spring of 1998. FAO is connected by pipeline network to more than
40% of the Western European ethylene market. It also operates a 20,000 tonne
capacity ethylene storage terminal. The Group is studying further expansions of
ethylene production to be implemented over the coming years to meet its captive
and long-term customers' needs.
FAO also has a production capacity of 550,000 tonnes per year of chemical
grade propylene. This propylene, together with propylene from FRA, can be
transported by pipeline to various customers or to the Group for the production
of polypropylene, or stored in FAO's 10,000 tonne capacity propylene storage
terminal. Ethylene and other monomers from FAO are converted at the nearby Fina
Chemicals Antwerp facilities and at Fina Chemicals Feluy into high-density
polyethylene and thermoplastic elastomers.
FAO also produces aromatics, cyclohexane and other by-products which are
sold to the market or used by the adjacent refineries. The Group is also
planning to build a large aromatic extraction unit, fed by FRA, LOR and FAO.
Fina Chemicals Antwerp operates several high- and medium-density
polyethylene production lines in Antwerp and Feluy with a combined total
capacity as of December 31, 1997, of 450,000 tonnes per year, representing about
10% of the total installed capacity in Europe. Fina Chemicals Antwerp intends to
increase this capacity to 500,000 tonnes per year in 1998. Ethylene monomer is
received directly, via pipeline, from Fina Antwerp Olefins securing supply and
feedstock efficiencies for the Group. Antwerp's unique location, with its
excellent port facilities, access to pipelines and transportation networks and
its location in a large and dense industrial area enable it to serve customers
competitively with higher value-added products on a global basis. The Group's
polyethylene sales are focused on a few applications where it can supply
competitive products and services, such as pipes, blow molding, specialty films,
and wires and cables for the construction, packaging and automotive industries.
It has developed a metallocene catalyst technology which enables it to produce
promising medium-density grades for film applications, and it has other grades
under development.
Fina Chemicals Antwerp also operates a thermoplastic elastomer plant with a
capacity of 80,000 tonnes per year. The main applications are bitumen
modification for roofing and road applications, footwear, additives and plastic
modifications such as transparent food packaging. The Group is able to supply
these high value-added products competitively because of the plant's size and
its ability, through its technology, to use cheaper feedstocks.
Feluy. In March 1995, Fina Chemicals Feluy became a wholly owned
subsidiary of Parent as a result of the acquisition of the remaining 50%
interest from its former joint venture partner. Fina Chemicals Feluy owns a
polypropylene (homopolymer and propylene-ethylene copolymer) plant with two
production lines at Feluy which has a capacity of 400,000 tonnes per year, or
about 6% of total installed capacity in Europe. The Group has a project to build
a third polypropylene production line at this plant. In addition, in 1991 it
built a High Density Polyethylene ("HDPE") line with a capacity of 150,000
tonnes per year. The plant is supplied with ethylene and propylene by two
pipelines directly linked to the Group's chemical facilities in Antwerp.
PetroFina has fully utilized its capacity at this plant for several years.
Polypropylene is a widely used raw material for the manufacture of many commonly
used fibers, films, extrusion and injection applications and thermoformed
products, such as garden furniture and containers. The Group's sales of
polypropylene are focused on those applications in which it can supply
high-quality products and services and reach higher market share. It is also
developing partnerships with global customers that can be supplied from its U.S.
plants.
In March 1996, the Group sold its 50% interest in a polystyrene plant in
Feluy. Fina Chemicals Feluy continues to operate the plant with a capacity of
170,000 tonnes per year on behalf of the third party to whom PetroFina sold its
interest.
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<PAGE> 80
Oleochemicals
Ertvelde and Oelegem. PetroFina produces oleochemicals (fatty acids, fatty
alcohols and glycerin and their derivatives such as esters, amines and
stearates) at its plants at Ertvelde near the port of Ghent and at Oelegem near
Antwerp.
The Group's Ertvelde and Oelegem plants have a combined production capacity
of 275,000 tonnes per year of fatty acids, fatty alcohols, glycerin, esters and
other derivatives. Oleochemicals, which are produced from renewable raw
materials, such as vegetable oils and animal fats, have a wide range of
applications including personal care products, detergents, cosmetics,
lubricants, drilling muds, plastic additives and pharmaceuticals. PetroFina's
fatty acids capacity is about 16% of the total effective capacity in Western
Europe. Its fatty alcohols plant utilizes the Group's proprietary technology
from which it can gain a competitive advantage over other fatty acid producers.
The Group's most recent developments include a range of high performance and
biodegradable grades, which are well positioned to benefit from the increasing
demand for both high performance and environmentally friendly products.
UNITED STATES
All of the Group's chemicals activities in the United States take place in
five plants located along the coast of the Gulf of Mexico. Each of these plants
produces either monomers or polymers.
Carville. At Carville (Louisiana) the Group has two plants: a fully
integrated polystyrene production plant and a 50% interest in the adjacent
Cos-mar monomer plant. The Group's plants in Carville reflect the Group's
strategy of achieving economies of scale through integration and through the use
of large-scale facilities.
The Cos-mar monomer plant is the world's largest styrene plant of its type.
The plant provides the Carville polystyrene plant with styrene for polystyrene
production. In turn, benzene from the Port Arthur refinery is used as a
feedstock to produce styrene. The Cos-mar plant recently was upgraded to
increase its production capacity to 950,000 tonnes per year. In 1997, 1996 and
1995 it operated at full capacity. The Group is in the process of developing a
new technology for monomer production at the Cos-mar plant, which has the
potential to lower both its capital and operating costs.
The Carville polystyrene plant is the world's largest single-site,
high-impact and crystal polystyrene plant with a capacity of 465,000 tonnes per
year. All the Group's U.S. polystyrene production is now concentrated in
Carville with 4 production lines, which are based on proprietary technology. The
most recent line began production in August 1996 and increased the Group's
annual capacity by 115,000 tonnes.
La Porte. The La Porte plant, located near Houston, Texas, is the world's
largest single-site polypropylene production plant, on the basis of capacity.
Major raw materials are supplied through 6 pipelines connected to various
refineries, steam crackers and propylene splitters. The plant produces bulk
homopolymers and random copolymers from 8 lines utilizing the Group's
proprietary technology. The plant's total polypropylene capacity is 680,000
tonnes per year. Its capacity was increased by 40% in 1995 following the start
up of the eighth production line. Capacity grew another 7% in 1996 following
several debottlenecking projects. Construction of a ninth line with block
co-polymer capability, which is scheduled to come on-line in the fourth quarter
of 1998, will increase, with other minor debottleneckings, total capacity to
over 975,000 tonnes per year. Its current capacity represents 12% of total
installed capacity in the United States. The plant operated at maximum capacity
in 1997, 1996 and 1995.
The Group has a one-third interest in a joint venture that owns and
operates a splitter plant at Mont Belvieu, Texas. The splitter upgrades
propylene from refinery grade into polymer grade in order to supply the La Porte
plant. This plant doubled its capacity following the introduction of a second
splitter in the summer of 1996 to 225,000 tonnes per year of polymer grade
propylene. The Group is constructing a third line/splitter and then will
debottleneck the first two splitters.
Bayport. The Bayport plant, in Texas, produces HDPE-grade polyethylene.
The Group acquired the plant in 1992, and its capacity has increased from
160,000 to 195,000 tonnes per year during the past
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<PAGE> 81
four years. The Group has decided to build a second line at the Bayport plant
that will increase the plant's annual capacity by an additional 200,000 tonnes.
The second line is expected to become operational in the fall of 1998. This new
line will use the same technology as that which is currently used at the Feluy
and Antwerp plants, and will provide the Group with additional commercial
synergies with its European polyethylene production.
Port Arthur. In 1997, the Group signed a letter of intent for the Steam
Cracker Joint Venture with BASF to build a liquid steam cracker which will
produce 820,000 tonnes of ethylene and 880,000 tonnes of propylene annually. On
May 8, 1998, the Parent Board and the Board of Directors of BASF
Aktiengesellschaft approved the Steam Cracker Joint Venture.
PAINTS
The Sigma Coatings Group ("Sigma"), which is wholly owned by Parent,
consists of several companies that produce and sell paints and protective
coatings. Sigma has three principal divisions: decorative paints, marine and
anti-corrosion paints and industrial coatings.
Sigma's headquarters are in Amsterdam (the Netherlands), and it is active
principally in Belgium, Denmark, France, Germany, Italy, the Netherlands, Saudi
Arabia, the U.K. and the U.S. The main Sigma plants are located in the
Netherlands (Amsterdam, Uithoorn, Den Bosch), Belgium (Manage, Deurne), Germany
(Bochum), France (Valdoie), Saudi Arabia (Dammah), the U.K. (Buckingham,
Deeside) and the U.S. (Harvey, Louisiana).
The table below sets forth selected financial information for the Paints
segment for each of the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS OF BEF)
<S> <C> <C> <C>
Total operating revenue................................ 31,452 29,439 28,390
Inter-segment sales.................................... -- (3) --
Operating revenues to non-affiliates................... 31,452 29,436 28,390
Operating income....................................... 1,617 1,207 854
</TABLE>
Sigma's decorative paints are sold principally under the SIGMA, HISTOR,
NOVEMAIL, RAMBO and GAUTHIER brand names. Decorative paints, which account for
approximately 53% of Sigma's revenues, are sold primarily in Europe. Sigma is
one of the two largest producers of decorative paints in the Netherlands, the
second largest in Belgium and the fifth largest in western Europe (in each case
based on sales). In addition, the Group has a 20% interest in the largest
producer of decorative paints in Saudi Arabia and is responsible for the
management of that company, which markets the Sigma brand.
Sigma markets its marine paints worldwide and its anti-corrosion paints
primarily in Europe and also in the United States. Sales of marine and
anti-corrosion paints account for almost 26% of Sigma's revenues. Sigma is the
fifth largest producer of marine paints in the world based on sales.
Industrial coatings, which account for approximately 14% of Sigma's
revenues, are marketed primarily in Europe, although Sigma has licensed some of
its proprietary technology outside Europe. Sigma is the second largest European
producer of industrial coil coatings.
RESEARCH AND DEVELOPMENT
In 1997, the Group's research and development expenses amounted to BEF
3,230 million, compared to BEF 3,062 million in 1996 and BEF 2,883 million in
1995.
PetroFina conducts most of its research and development activities in its
three research centers located at Feluy (Belgium), La Porte (Texas) and
Amsterdam (the Netherlands). These research centers aim to
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<PAGE> 82
improve the production processes in the Group's refineries and chemical and
paints plants, as well as to develop new, more competitive products,
applications and processes and to provide technical assistance to customers. In
recent years, research developments have resulted in advances in the areas of
desulphuration, special fuels, lubricants, polymers, oleochemicals and paints.
PetroFina's research center at Feluy brings together on one site the
Group's main research and development activities in Europe, namely in refining,
catalysts, plastics, oleochemicals, fuels and lubricants. This centralization
enhances the coordination and integration of the research activities. The Feluy
research center is adjacent to one of PetroFina's major chemical manufacturing
plants, which enables the Group to integrate its research with operations. In
the United States, research and development activities covering the Group's
processes and products are consolidated in a research center located on-site at
the Group's La Porte chemical plant. The third research center is located in
Amsterdam where it is physically integrated with the Paints segment's main
production facility. This center specializes in paints and cooperates closely
with the Feluy research center.
OTHER MATTERS
COMPETITIVE, POLITICAL AND ECONOMIC FACTORS
There is strong competition both within the oil industry and with other
industries in supplying the energy needs of industry and consumers. The oil
industry is also particularly subject to regulation and intervention by
governments throughout the world in such matters as the award of exploration and
production interests; the imposition of specific drilling obligations;
environmental protection controls; price controls and transfer pricing
restrictions; control over the development, production rate and abandonment of a
field; restrictions, requirements or sanctions imposed on companies and their
products and services, because of, or with respect to, ownership, affiliations
or operations in certain foreign countries; and, possibly, nationalization,
expropriation or cancellation of contract rights. The oil industry is also
subject to the payment of royalties and taxation, which tend to be high compared
with those payable in respect of other commercial activities. Some of the
Group's oil reserves are located in countries outside Western Europe and North
America, certain of which individually may be considered politically and
economically unstable. Reserves recovery and the related operations are subject
to certain risks, including the establishment of export limits, the
renegotiation of contracts, the nationalization or renationalization of assets,
other risks relating to changes in local government regimes and policies and
resulting changes in business customs and practice, payment delays, currency
exchange restrictions and losses and impairment of operations due to actions of
insurgent groups. PetroFina attempts to conduct its business and financial
affairs in order to protect against such political and economic risks.
Although oil prices are primarily subject to international supply and
demand, political developments and the outcome of meetings at the Organization
of Petroleum Exporting Countries can also affect world oil supply and oil
prices. Crude oil prices are generally denominated in dollars while sales of the
Group's refined products are denominated in a variety of currencies. PetroFina
is, therefore, subject to the risks of fluctuations in exchange rates and crude
oil prices. It attempts to limit its short-term risks in these areas by engaging
in hedging and similar activities in the currency and oil commodity markets. For
additional information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations of PetroFina -- Financial Instruments."
REGULATION OF UPSTREAM ACTIVITIES
PetroFina's exploration and production activities are conducted in a number
of different countries and are therefore subject to a broad range of legislation
and regulations. These cover virtually all aspects of exploration and production
activities, including matters such as land tenure, production rates, royalties,
pricing, environmental protection, export, taxes and foreign exchange. The terms
and conditions of the leases, licenses and contracts vary from country to
country. Outside the United States, these leases, licenses and contracts are
generally granted by or entered into with a government entity or state company,
while in the United States they are generally entered into with private property
owners. These arrangements usually take the form of licenses or production
sharing agreements.
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<PAGE> 83
Licenses (or concessions) give the holder the exclusive right to explore
for and exploit a commercial discovery. Under a license, the holder bears the
risks of exploration, development, and production activities and provides the
financing for these operations. A license holder is generally required to pay
production taxes or royalties, which may be in cash or in kind. In certain
cases, the government entity or state company may acquire a participation in the
concession.
Production sharing agreements entered into with a government entity or
state company generally obligate the Group and its partners to provide all the
financing and bear the risk of exploration and production activities in exchange
for a share of the production remaining after royalties, if any. In some
instances, a fixed or variable percentage of this production is reserved for the
recovery of the Group's cost (cost oil) and the remainder (profit oil) is shared
with the government entity or state company on a fixed or volume-dependent
basis. The right of the Group to recover cost oil is limited in certain cases by
a requirement that the cost oil not exceed a maximum percentage of production.
This right is also limited in certain cases by a requirement that PetroFina's
costs be amortized over a specific period of time. In other cases, the
government entity or state company will participate in the rights and
obligations of PetroFina and will share in the costs of development and
production. Such participation can be across the venture or be on a per field
basis.
In certain countries, separate licenses are required for exploration and
production activities and, in certain cases, production licenses are limited to
a portion of the area covered by the exploration license. Both exploration and
production licenses are generally for specific periods of time (except for
production licenses in the United States which remain in effect until production
ceases). The term of the Group's licenses and the extent to which these licenses
may be renewed vary from area to area.
The Group is required in certain countries to relinquish a portion of the
acreage covered by a license as a condition to obtaining a renewal of the
license. The Group may also be required in certain countries to relinquish
acreage (or to surrender a license) under other circumstances. These
circumstances, which vary by area, may include the failure to obtain a
production license within a specified period of time or the failure to have a
field development plan approved within a specified period of time. PetroFina
believes that these requirements have not materially affected its operations.
In general, the Group is required to pay income tax on income generated
from production activities (whether under a license or production sharing
agreement). In addition, depending on the area, the Group's production
activities may be subject to a range of other taxes, levies and assessments,
including special petroleum taxes.
ENVIRONMENTAL MATTERS
The Group's operations are subject to laws and regulations of the EU,
Belgium, the United States and other countries in which it conducts activities
relating to the protection of the environment. These laws and regulations, which
change frequently, address the general impact of industrial operations on the
environment, as well as focus specifically on certain activities, including
emissions and toxic waste disposal. Environmental violations may result in
civil, criminal and tort liabilities.
Environmental factors are an important consideration in planning, designing
and operating all PetroFina facilities. A General Manager is responsible for the
coordination and implementation of environmental policies for Parent and its
subsidiaries. Each of Parent's subsidiaries conducts significant programs to
ensure that operations are carried out in an environmentally acceptable manner.
In 1997, 1996 and 1995 the Group spent over BEF 1.5 billion, BEF 1.4 billion,
and BEF 1.3 billion, respectively, on environmental programs that included
improving or constructing hydrodesulphuration units and hydrogen plants at its
refineries in order to comply with new EU fuel specifications, construction of
vapor recovery units at major depots, loading facilities and service stations to
meet EU requirements, as well as site restorations and remediation activities.
Due to the nature of its business, environmental laws increasingly impact
PetroFina's operations and make some risk of environmental costs and liabilities
inherent to its business, as it is for other companies engaged in the same field
of activities. Although PetroFina's management is not aware of any conditions
that would result in a liability material to the Group as a whole, under
existing environmental laws there can be no
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<PAGE> 84
assurance that such liabilities will not be incurred. For additional information
regarding environmental matters, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations of PetroFina -- Environmental
Costs."
UNCERTAINTY INHERENT IN INDUSTRY
Oil and gas exploration and production, as well as PetroFina's refining and
chemical operations, require high levels of investment and have particular
economic risks and opportunities. These activities are subject to natural
hazards and other uncertainties, including those relative to the physical
characteristics of oil and gas fields, refineries and chemical plants.
LICENSING AND PROPRIETARY TECHNOLOGY
Licensing of PetroFina's proprietary technology relating to polystyrene,
thermoplastic elastomers, paints, dewaxing of diesel fuel and propylene
purification has increased significantly and now extends to countries such as
China, Japan, Taiwan, Korea and Saudi Arabia.
EMPLOYEE MATTERS
During 1997, the Group had an average of 14,675 employees. In recent years,
there have been no significant strikes or work stoppages. Information regarding
the Group's pension and benefit plans is contained in Note 19 of the Notes to
the Consolidated Financial Statements included in "PetroFina Financial
Statements."
LEGAL PROCEEDINGS
PetroFina is involved in a number of legal proceedings incidental to the
normal conduct of its business. It does not believe that liabilities relating to
such proceedings are likely to be, in the aggregate, material to its
consolidated financial condition.
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<PAGE> 85
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OF PETROFINA
Overview
The information in this section should be read with the information
contained in PetroFina's consolidated financial statements and related notes
included in PetroFina Financial Statements.
The consolidated financial statements for the years ended December 31,
1997, 1996 and 1995 have been prepared in accordance with U.S. GAAP. For
purposes of this analysis, certain balances related to 1994 have been adjusted
to provide an analytical basis for comparison to the 1996 and 1995 presentation.
The adjusted 1994 amounts are unaudited. See also "Summary -- Selected
Consolidated Financial Information of Parent."
Certain information contained in this Registration Statement, including,
without limitation, information appearing under "PetroFina Description of
Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of PetroFina," are forward-looking statements. The
following important factors, together with others that appear with the
forward-looking statements, could affect the Group's actual results and could
cause the Group's actual consolidated results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the Group
in this Registration Statement. PetroFina's operating results are generally
affected by a variety of factors, including movements in crude oil prices and
refining and chemical margins and currency exchange rates. Higher crude oil
prices generally have a positive effect on operating income of the Group, as its
Upstream oil and gas business benefits from the resulting increase in prices
realized from production. Lower crude oil prices generally have a corresponding
negative effect. See "PetroFina Description of
Business -- Upstream -- Reserves." The effect of changes in crude oil prices on
PetroFina's Downstream activities depends upon the speed at which the prices of
refined petroleum products adjust to reflect such changes. Fluctuations of the
Belgian franc against other currencies, especially the dollar, can have
significant effects on PetroFina's consolidated financial statements. Prices for
crude oil are normally set in dollars. Chemical products are generally priced in
local currency but based, in Europe, on German mark ("DEM") benchmark prices.
Generally, the Group's operating income is improved by a strengthening of the
dollar and major European currencies against the Belgian franc. In addition, the
effects of translation of local currency financial statements of PetroFina's
non-Belgian subsidiaries can influence comparative results of operations. See
also "-- Financial Instruments."
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<PAGE> 86
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the Group as a
whole for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN BEF MILLION EXCEPT PER SHARE
DATA AND NUMBER OF EMPLOYEES)
<CAPTION>
<S> <C> <C> <C>
CONSOLIDATED DATA
Operating Revenue........................................... 727,031 622,145 558,724
Earnings from investments, equity interests................. 1,386 1,466 1,345
Total revenue.......................................... 728,417 623,611 560,069
======= ======= =======
Operating Income............................................ 46,833 39,388 30,788
Interest and net financial items............................ (4,596) (5,066) (5,171)
------- ------- -------
Earnings before income taxes and minority interests......... 42,237 34,322 25,617
Income taxes................................................ (19,531) (17,678) (13,092)
Minority interests.......................................... (646) (696) (699)
------- ------- -------
Net income.................................................. 22,060 15,948 11,826
Earnings per share.......................................... 945 686 509
Dividend per share.......................................... 400 352 320
Average number of employees................................. 14,675 13,588 13,653
</TABLE>
SEGMENT DATA
<TABLE>
<CAPTION>
CORPORATE
& OTHER
UPSTREAM DOWNSTREAM CHEMICALS PAINTS ACTIVITIES CONSOLIDATED
-------- ---------- --------- ------ ---------- ------------
(IN BEF MILLION)
<S> <C> <C> <C> <C> <C> <C>
1997
Operating Revenue................. 88,265 571,964 93,247 31,452 478 785,406
Inter-segment Sales............... (36,298) (16,961) (5,116) (58,375)
Operating Revenue from Non
Affiliates...................... 51,967 555,003 88,131 31,452 478 727,031
Operating Income (Loss)........... 25,288 12,005 10,439 1,617 (2,516) 46,833
Capital Expenditures.............. 23,016 10,092 8,983 1,014 555 43,660
1996
Operating Revenue................. 65,212 496,361 78,404 29,439 1,033 670,449
Inter-segment Sales............... (31,123) (13,757) (3,421) (3) -- (48,304)
Operating Revenue from Non
Affiliates...................... 34,089 482,604 74,983 29,436 1,033 622,145
Operating Income (Loss)........... 24,165 5,195 11,337 1,207 (2,516) 39,388
Capital Expenditures.............. 17,964 8,971 3,687 1,151 1,369 33,142
1995
Operating Revenue................. 48,598 441,688 79,941 28,390 1,319 599,93
Inter-segment Sales............... (21,687) (16,448) (2,744) -- (333) (41,212)
Operating Revenue from Non
Affiliates...................... 26,911 425,240 77,197 28,390 986 558,724
Operating Income (Loss)........... 13,400 235 19,014 854 (2,715) 30,788
Capital Expenditures.............. 12,288 7,818 7,993 745 1,008 29,852
</TABLE>
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GROUP RESULTS 1997 VS. 1996
In 1997, net income reached a record level of BEF 22.1 billion (945 BEF per
share) compared to BEF 15.9 billion (686 BEF per share) in 1996, representing an
increase of 39%. The Group's return on equity was 15.2% in 1997 compared to
12.4% in 1996. The return on capital employed increased in 1997 to 10.5% from
8.9% in 1996.
Consolidated Cash Flow, defined as consolidated net income adjusted for
depreciation and other current year non-cash provisions to net income, was BEF
57.1 billion compared to BEF 44 billion in 1996. The 1997 consolidated cash flow
also represents a record for the Group.
Compared to 1996, the increase in consolidated net income reflects a BEF
7.4 billion improvement in Group operating income combined with lower financial
charges resulting from higher capitalization of interest on Upstream development
projects. Of the 1997 increase in operating income, BEF 6.8 billion is related
to Downstream from higher margins and throughputs at the Group's European and
North American refineries. Upstream operating income improved by BEF 1 billion
as increases in production and the dollar appreciation overcame the effect of
lower crude oil prices. Chemicals operating income decreased by BEF 1 billion
due primarily to the unfavorable net effect of North American product price
decreases. Paints operating income showed improvement of BEF 400 million in 1997
compared to 1996.
The Group's consolidated operating revenue in 1997 was BEF 727.0 billion,
an increase of 17%, or BEF 105 billion, from the previous year. Of the increase,
BEF 32 billion is the result of appreciation of the dollar and other European
currencies versus the Belgian franc, BEF 20 billion reflects increases in sales
volumes, BEF 25 billion is related to higher sales prices, and BEF 29 billion
reflects increases in petroleum product excise duties.
During 1997, reductions in the statutory tax rates in Italy and the United
Kingdom resulted in a reduction of total income tax expense of BEF 1.3 billion
through the recording of a deferred tax credit (in accordance with US GAAP).
Excluding this effect of tax rate changes, the Group's effective tax rate was
49.3% in 1997 compared to 51.5% in 1996. The lower effective tax rate reflects
the improvement in Downstream operating income. As a result, a lower percentage
of Group earnings before tax is attributable to Norwegian production activities.
Norwegian production activities carry a higher tax burden due to specific
petroleum tax legislation in Norway.
UPSTREAM
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
NORTH NORTH NORTH
EUROPE(1) AMERICA EUROPE(1) AMERICA EUROPE(1) AMERICA
---------- -------- ---------- -------- ---------- --------
(IN BEF MILLION EXCEPT NUMBER OF EMPLOYEES, PRODUCTION AND RESERVES)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue(2)................ 49,077 39,188 41,960 23,252 34,731 13,867
Equity in Net Income of Non-
Consolidated Investees............ 690 86 892 -- 484 48
------- ------- ------- ------- ------ -------
Total Revenue.................. 49,767 39,274 42,852 23,252 35,215 13,915
Operating Expense, Excluding
Depreciation
and Exploration Expense........... (14,932) (31,706) (10,599) (17,444) (9,519) (10,946)
Depreciation........................ (8,289) (3,464) (6,605) (2,320) (6,899) (1,778)
Exploration Expense................. (2,203) (2,151) (1,775) (1,255) (2,680) (1,506)
Other Operating Expense............. (990) (18) (1,877) (64) (2,276) (126)
------- ------- ------- ------- ------ -------
Operating Income (Loss)............. 23,353 1,935 21,996 2,169 13,841 (441)
======= ======= ======= ======= ====== =======
Capital Expenditures................ 15,250 7,766 12,945 5,019 9,801 2,487
Total Assets........................ 65,346 30,342 57,702 22,703 48,174 18,007
======= ======= ======= ======= ====== =======
</TABLE>
76
<PAGE> 88
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
NORTH NORTH NORTH
EUROPE(1) AMERICA EUROPE(1) AMERICA EUROPE(1) AMERICA
---------- -------- ---------- -------- ---------- --------
(IN BEF MILLION EXCEPT NUMBER OF EMPLOYEES, PRODUCTION AND RESERVES)
<S> <C> <C> <C> <C> <C> <C>
Crude Oil Production (in million
barrels)(3)....................... 48 4 45 4 47 4
Natural Gas Production (in Bcf)..... 132 77 152 59 150 54
Proved Oil Reserves (in million
barrels)(3)....................... 510 73 485 77 515 35
Proved Gas Reserves (in Bcf)........ 1,188 400 1,349 393 1,428 337
Total Proved Reserves (in
million barrels of oil
equivalent)(4)............... 708 139 710 142 753 91
======= ======= ======= ======= ====== =======
Average Number of Employees......... 345 493 372 453 413 476
======= ======= ======= ======= ====== =======
</TABLE>
- ---------------
(1) Europe includes Europe and other parts of the world outside North America.
(2) Includes inter-segment revenue.
(3) Excluding equity affiliates.
(4) 1 barrel of oil equivalent = 1 barrel of crude oil = 6,000 cubic feet of
gas.
OPERATING REVENUE
Operating revenue in 1997 was BEF 88.3 billion compared to BEF 65.2 billion
in 1996, an increase of 35%. Increases in production volumes and gas marketing
activities contributed BEF 11.9 billion to the overall increase. The
appreciation of the dollar and other European currencies versus the Belgian
franc resulted in an additional BEF 11.7 billion increase in reported operating
revenue. Decreases in worldwide crude prices were primarily offset by higher
North American natural gas prices. The net effect of price developments during
1997 resulted in a BEF 0.5 billion reduction in operating revenue compared to
1996.
In Europe, operating revenue increased 17% to BEF 49.1 billion in 1997.
Crude oil production in 1997 was 48.2 million barrels, an increase from 1996 of
3.0 million barrels, while natural gas production in 1997 was 132.3 billion
cubic feet, a decrease from 1996 of 19.6 billion cubic feet. The operating
revenue included revenues derived from 29 billion cubic feet of gas trading.
Reported operating revenue from Europe benefitted in 1997 from the appreciation
of the dollar by 16% and the British pound by 21% against the Belgian franc.
Realized crude oil prices dropped $1.95 per bbl to $18.96 per bbl.
Of the production increase in Europe, 3,900 barrels per day was due to the
drilling of new wells in connection with the Ekofisk II redevelopment project in
Norway. An additional 5,000 barrels per day of the total production increase was
attributable to a full year's production from the Thelma field and increased
flows from the Alba field after a successful de-bottlenecking project. Natural
gas production in Europe decreased by 19.6 billion cubic feet, due mainly to
Norway. In the United Kingdom, natural gas production was stable. Increases
resulting from the production start of the Armada and Everest fields and from a
re-determination of ownership percentages for the Audrey field were offset by a
reduction in natural gas production from Hewett and the Ann/Alison fields.
In North America, operating revenue increased 68% to BEF 39.2 billion in
1997. Natural gas volumes sold, which include production and volumes sold
through the Group's natural gas marketing activity, increased from 183 billion
cubic feet in 1996 to 281 billion cubic feet in 1997. Of the volume increase,
17.8 billion cubic feet related to natural gas production increases is
attributable to successful step-out drilling programs at core properties in
South Texas and North Louisiana. Natural gas well-head prices increased from
$2.41 in 1996 to $2.57 per thousand cubic feet in 1997. Although crude
production was level between the periods, the average crude oil well-head price
decreased by $1.40 per barrel to $17.90 per barrel. Both operating revenue and
operating income include a gain on sale of assets amounting to BEF 0.3 billion
in 1997.
77
<PAGE> 89
OPERATING INCOME
Upstream operating income was BEF 25.3 billion in 1997 compared to BEF 24.2
billion in 1996, an increase of 4%. The increase was due to operating revenue
developments partially reduced by the effect of lower margins realized in North
America on natural gas marketing activity and an increase in exploration costs.
In 1997, PetroFina participated in the drilling of 27 exploration wells
compared to 29 wells in 1996. Approximately 55% of wells drilled originated from
existing discoveries of oil and gas reserves, thus allowing for the better
evaluation of existing prospects. PetroFina's weighted average working interest
in exploratory wells drilled was 40.4% in 1997 compared to 29.4% in 1996.
In Europe, operating income was BEF 23.4 billion compared to BEF 22.0
billion in 1996, an increase of 6.4%. The depletion rate of US $3.06 per barrel
(on a units-of-production basis) was largely unchanged in 1997 versus 1996. The
impact of gradually commissioning Ekofisk II facilities, and downward revisions
of Ann/Alison reserves (-17.6 billion cubic feet) were virtually absorbed by the
impact of positive revisions in the estimated Norwegian reserves. The downward
revision in Ann/Alison's recoverable reserves resulted in an impairment
writedown in Ann/Alison capitalized cost of BEF 0.5 billion. Lifting costs have
decreased to US $4.05 per barrel in 1997 from US $4.29 per barrel in 1996 due to
greater efficiencies in production facilities.
Exploration expenses for Europe amounted to BEF 2.2 billion in 1997
compared to BEF 1.8 billion in 1996.
In North America, operating income was BEF 1.9 billion in 1997 compared to
BEF 2.2 billion in 1996. The decrease in operating income mainly reflects higher
dry hole expenses and lower natural gas marketing margins, partially offset by
positive net developments in operating revenues. The increase in development
costs and the downward revision in oil and gas reserves have led to an increase
in the unit depletion rate (unit of production method) from US $5.19 per barrel
in 1996 to US $5.79 per barrel in 1997. Lifting costs have decreased from US
$4.20 per barrel in 1996 to US $3.53 per barrel in 1997. The drilling program in
1997 resulted in additions to reserves of 18 million barrels of oil equivalent,
thereby allowing 121% of production to be replaced.
78
<PAGE> 90
DOWNSTREAM
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ---------------------- -------------------
NORTH NORTH NORTH
EUROPE(1) AMERICA EUROPE(1) AMERICA EUROPE(1) AMERICA
--------- -------- --------- ------- --------- -------
(IN BEF MILLION EXCEPT NUMBER OF EMPLOYEES,
REFINING THROUGHPUT AND PRODUCTS SOLD)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue(2)............. 462,637 109,327 402,943(3) 93,418 360,654 81,034
Equity in Net Income of Non-
Consolidated Investees......... 744 (2) 814 3 600 1
-------- -------- -------- ------- -------- -------
Total Revenue............... 463,381 109,325 403,757 93,421 361,254 81,035
Operating Expense, Excluding
Depreciation................... (442,851) (103,741) (387,763) (90,946) (352,468) (78,046)
Depreciation..................... (8,633) (2,203) (7,258) (1,879) (6,518) (2,080)
Other Operating Expense.......... (2,467) (806) (3,039) (1,098) (1,920) (1,022)
======== ======== ======== ======= ======== =======
Operating Income (Loss).......... 9,430 2,575 5,697 (502) 348 (113)
======== ======== ======== ======= ======== =======
Capital Expenditures............. 8,397 1,695 6,625 2,346 6,572 1,246
Total Assets................ 145,419 49,607 141,749 43,168 136,636 36,868
======== ======== ======== ======= ======== =======
Refining Throughput (in thousand
barrels per day)............... 445 224 441 205 384 213
Refined Product Sold (in thousand
tonnes)........................ 26,161 12,540 25,278 12,016 24,367 12,378
======== ======== ======== ======= ======== =======
Average Number of Employees...... 5,452 1,233 4,475 1,161 4,705 1,196
======== ======== ======== ======= ======== =======
</TABLE>
- ---------------
(1) Europe includes Europe and other parts of the world outside North America.
(2) Includes inter-segment revenue.
(3) Includes capital gains on sales of assets of BEF 973 million.
OPERATING REVENUE
Downstream operating revenue in 1997 was BEF 572.0 billion compared to BEF
496.4 billion in 1996, an increase of 15%. Increases in European petroleum
product prices more than offset reductions in North American realized prices,
leading to a net increase in operating revenue in 1997 of BEF 18 billion. The
appreciation of the US dollar and other European currencies versus the Belgian
franc resulted in an additional BEF 19 billion of reported operating revenue.
Increases in product sales volumes, shop sales and service station revenues
contributed the remainder of the 1997 increase. In addition, excise duties,
which do not affect Group operating income, increased by BEF 29.0 billion in
1997 compared to 1996. Total petroleum products sold increased by 4% to 38.7
million tonnes in 1997 compared to 1996.
In Europe, operating revenue increased by 15% to BEF 462.6 billion in 1997
compared to BEF 402.9 billion in 1996. Excluding the effect of higher excise
duties, the increase was BEF 34 billion. Of this net increase, BEF 22 billion
related to increased product prices, BEF 7 billion related to the reporting
effect of currency exchange rate fluctuations, BEF 4 billion related to
increases in quantities sold, and BEF 2 billion related to other operating
revenues. 1996 operating revenue included BEF 1 billion of gain on the disposal
of assets.
In North America, the operating revenue was BEF 109.3 billion in 1997
compared to BEF 93.4 billion in 1996. Appreciation of the dollar against the
Belgian franc contributed BEF 12 billion to the increase in reported operating
revenue, increases in quantities sold contributed BEF 3 billion, and higher
excise duties added BEF 3 billion. A decrease in average sale prices of
petroleum products resulted in a BEF 4 billion reduction in operating revenue
compared to 1996. Shop sales and other operating revenue grew during 1997 by BEF
2 billion.
79
<PAGE> 91
OPERATING INCOME
Downstream operating income was BEF 12.0 billion in 1997 compared to BEF
5.2 billion in 1996. The growth in operating income is due to better refining
performances, increased margins on European petroleum product sales, and the
appreciation of the dollar versus the Belgian franc.
In Europe, Downstream refining throughput reached 445,310 barrels per day
in 1997 compared to 440,550 barrels per day in 1996. The 1997 refining
throughput was a new record for the Group and was accomplished despite a
temporary shutdown of the Killingholme refinery in the United Kingdom for
scheduled maintenance. Higher throughput and advantageous blending of crude oil
feedstocks had a direct effect on Downstream operating income. The Group
estimates that standard refining margins in northern European refineries
increased on average US $0.10 per barrel to US $2.42 per barrel in 1997. The
average refining margin for the Group's Europe refining activity grew by $0.56
per barrel in 1997.
Marketing operating income in Europe improved in all countries where the
Group operates with the exception of Norway, which remained adversely affected
by severe price competition. Network sales have improved by 3% while the market
growth was 1% on average during 1997. In accordance with the Group's marketing
strategy, the Group restructured the management arrangements for a number of
sales outlets which brought the stations under direct Group management. The
reduction in management fees and the increase in non-fuel shop margins more than
offset the resulting increase in personnel expenses.
In North America, 1996 was characterized by very low industry-wide Gulf
Coast refining margins. In 1997, Gulf Coast refining margins improved which,
together with record throughput volumes at the Group's North American
refineries, resulted in improved refining yields and performance. Compared to
1996, Gulf Coast refining margins increased by $0.80 per barrel for the
industry. The Group's average refining margins increased by US $1.17 per barrel
in 1997. Throughput in 1997 reached 223,700 barrels per day, a record high for
the Group. Throughput in 1996 was 204,700 barrels per day and was affected by
two temporary refinery shutdowns for scheduled maintenance.
The increased operating income from refining operations was partially
absorbed by losses incurred in the supply business resulting from lower crude
oil prices and by a decrease in Marketing margins caused by lower North American
product prices.
80
<PAGE> 92
CHEMICALS
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
NORTH NORTH NORTH
EUROPE(1) AMERICA EUROPE(1) AMERICA EUROPE(1) AMERICA
--------- ------- --------- ------- --------- -------
(IN BEF MILLION EXCEPT NUMBER OF EMPLOYEES AND VOLUMES
PRODUCED)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenue(2)............. 55,687 37,560 46,567 31,837 49,371 30,570
Equity in Net Income/Loss of
Non-Consolidated Investees..... (152) (35) 7 (22) 359 (18)
------- ------- ------- ------ ------- -------
Total Revenue............... 55,535 37,525 46,574 31,815 49,730 30,552
Operating Expense, Excluding
Depreciation................... (45,714) (31,600) (38,940) (23,204) (35,822) (20,849)
Depreciation..................... (3,207) (1,238) (2,999) (999) (2,881) (701)
Other Operating Expense.......... (528) (334) (451) (459) (589) (426)
======= ======= ======= ====== ======= =======
Operating Income................. 6,086 4,353 4,184 7,153 10,438 8,576
======= ======= ======= ====== ======= =======
Capital Expenditures............. 3,230 5,753 1,947 1,740 4,604 3,389
Total Assets................ 37,513 30,931 35,712 22,489 35,893 17,076
======= ======= ======= ====== ======= =======
Monomer Production
(in thousand tonnes)........... 1,241 659 1,123 610 1,124 550
Polymers Production
(in thousand tonnes)........... 899 1,271 880 1,161 888 905
======= ======= ======= ====== ======= =======
Average Number of Employees...... 1,920 913 1,876 932 1,811 894
======= ======= ======= ====== ======= =======
</TABLE>
- ---------------
(1) Europe includes Europe and other parts of the world outside North America.
(2) Includes inter-segment revenue.
OPERATING REVENUE
Operating revenue for the Chemicals segment increased by 19% to BEF 93.2
billion in 1997 from BEF 78.4 billion in 1996. For substantially all of the
Group's product range, record production volumes were achieved. As a result,
quantities of monomers and polymers sold increased by 6%, or BEF 6 billion, in
1997. Exchange rate fluctuations increased reported operating revenue by BEF 5
billion. Average sales price developments, particularly for European monomer
products, contributed BEF 4 billion to the increase. 1996 operating revenue
included a gain on sales of assets amounting to BEF 0.3 billion.
In Europe, operating revenue increased by BEF 9.1 billion to BEF 55.7
billion in 1997, representing a 19.5% increase from 1996. The Group experienced
price increases and volume increases within practically its entire range of
monomer and polymer products. Monomer price developments, while still below 1995
levels, were positive in 1997 with price increases experienced both for ethylene
and propylene.
In North America, operating revenue increased by 18% to BEF 37.6 billion in
1997. Excluding the effect on operating revenue from the appreciation of the US
dollar, the increase was 3%. Sales volumes increased by 9.5% to contribute BEF 3
billion to operating revenue in 1997 versus 1996. However, sales prices declined
by 7% in the same period, adversely affecting comparable 1997 operating revenue
by BEF 2 billion. North America styrene prices dropped to the lowest level since
1993 due primarily to the impact of new production coming on-line during the
year.
OPERATING INCOME
Chemicals operating income was BEF 10.4 billion in 1997 compared to BEF
11.3 billion in 1996, or a decrease of 8%. Increased plant efficiency due to
higher production volume, increased European monomers (ethylene and propylene)
margins and increased contribution from higher sales quantities were more than
offset by the impact of reduced polymers margins and lower North American
styrene margins.
81
<PAGE> 93
In Europe, operating income was BEF 6.1 billion in 1997 compared to BEF 4.2
billion in 1996. The improved performance is essentially linked to monomers,
which have benefited from price stability of raw materials while experiencing
some restoration in the sales price for ethylene and propylene. For polymer
products, sales prices also increased in 1997, but to a lesser extent and were
not sufficient to offset the increase in monomer prices. Monomers are the
principal raw material for polymer production.
In North America, operating income was BEF 4.4 billion in 1997, which is
39% below the 1996 operating income of BEF 7.2 billion. Unfavorable product
price developments in North America more than offset the economies of scale
realized at the Group's plants from higher production volumes. Sales volumes
have grown by 9% but margins decreased by 50% due to both unfavorable price
developments from increased industry capacity coming on-stream and increases in
raw materials prices. The impact of declining margins was partially negated by
the reporting effect of the appreciation in the dollar versus Belgian franc.
PAINTS
<TABLE>
<CAPTION>
1997 1995 1996
---- ---- ----
(IN BEF MILLION EXCEPT NUMBER OF
EMPLOYEES)
<S> <C> <C> <C>
Operating Revenue(1)........................................ 31,452 29,439 28,390
Equity in Net Income of Non-Consolidated Investees.......... 24 20 15
======= ======= =======
Total Revenue.......................................... 31,476 29,459 28,405
Operating Expense, Excluding Depreciation................... (28,403) (26,673) (25,982)
Depreciation................................................ (914) (830) (838)
Other Operating Expense..................................... (542) (749) (731)
======= ======= =======
Operating Income............................................ 1,617 1,207 854
======= ======= =======
Capital Expenditures........................................ 1,014 1,151 745
Total Assets................................................ 19,706 18,717 17,813
======= ======= =======
Average Number of Employees................................. 3,822 3,878 3,706
======= ======= =======
</TABLE>
- ---------------
(1) Includes inter-segment revenue.
OPERATING REVENUE
Paints operating revenue was BEF 31.5 billion in 1997 compared to BEF 29.4
billion in 1996, an increase of 7%. This increase was the result of higher sales
volumes, contributing BEF 1.4 billion, and the effect of exchange rates on
reported operating revenues, contributing BEF 0.5 billion. The increase in
operating revenue is related mainly to the Marine, Anti-corrosion and Industrial
sectors. The Decorative paints sector, while experiencing variations in
development in different countries, overall experienced slightly higher
operating revenue in 1997 compared to 1996.
OPERATING INCOME
Operating income was BEF 1.6 billion in 1997 compared to BEF 1.2 billion in
1996. In both years, the operating income of Paints includes the direct costs of
redevelopment activities for the Decorative paints sector, principally in France
and Germany. The increase in 1997 operating income is the result of improved
production capacity utilization, improved margins emanating from lower raw
material costs, and from reductions in operating costs resulting from the
redevelopment activities. The above improvements were partially offset by a
write-off of BEF 130 million for plant closure decisions in Germany and in
Denmark.
GROUP RESULTS 1996 VS. 1995
Group operating revenue for 1996 increased 11% to BEF 622,145 million, up
from BEF 558,724 million in 1995. This BEF 63.4 billion improvement is primarily
attributable to several factors including: BEF
82
<PAGE> 94
43 billion due to an increase in petroleum product selling prices; BEF 11
billion due to the appreciation of the dollar and several European currencies
against the Belgian franc; BEF 7 billion related to sales volume increases in
all operating segments; a decline of BEF 12 billion as selling prices in the
chemical sector decreased compared to 1995 levels and an increase of BEF 12
billion related to a rise in duties and excise taxes. Group operating income in
1996 rose 28% to BEF 39,388 million over 1995's level of BEF 30,788 million.
In 1996, crude oil prices reached their highest level in five years.
European refining margins improved in 1996 after being depressed since 1993. The
combined effects of higher energy prices and improved European refining margins
along with improving plant operational performances lifted Upstream and
Downstream operating results in 1996. The chemicals industry reached a high
point in its market cycle in the first half of 1995 followed by a downturn in
the second half of 1995 and 1996. In 1996, the Group's main Chemical products
showed a progressive improvement in prices, supported by strong demand. However,
the extent of this price movement was not enough to offset an increase in raw
material costs.
The stronger Upstream and Downstream prices and stronger foreign currencies
against the Belgian franc contributed to both operating revenue and operating
income increases in 1996 compared to 1995 and reduced the effects of weaker
industry margins for the United States' Chemicals segment.
Earnings before taxes and minority interests in 1996 amounted to BEF 34,322
million compared to BEF 25,617 million in 1995, an increase of 34%. The
improvement was primarily due to the increase in Group operating income.
Interest expenses decreased slightly as a result of interest capitalization on
the Ekofisk II redevelopment program. See also "PetroFina Description of
Business -- Upstream." Equity in net earnings from non-consolidated subsidiaries
also increased in 1996 as a result of the restoration of oil production in
Angola. Other items were substantially unchanged between the two years.
UPSTREAM
OPERATING REVENUE
Operating revenue in 1996 for the Upstream segment was BEF 65,212 million,
reflecting a 34% increase compared to BEF 48,598 million in 1995. Increases in
crude oil and natural gas prices in 1996 contributed BEF 5.6 billion and BEF 7.7
billion respectively to this improvement. The appreciation of the dollar against
the Belgian franc resulted in BEF 2.9 billion of additional operating revenue.
The Group's production and gas trading activities were relatively stable. While
total crude oil production declined 3%, natural gas production rose 3%.
In Europe, Upstream operating revenue improved 21% as a result of advances
in crude oil prices and the strengthening of the dollar against the Belgian
franc. During 1996, the average price per barrel was US $4.10 higher than in
1995 while the dollar appreciated 5% against the Belgian franc. Production was
relatively stable. Crude oil production decreased about 3% while natural gas
production grew slightly more than 1%. In Norway, both oil and gas production
declined slightly. Natural gas production in the United Kingdom increased
because natural declines in the output from older fields were offset by
increased production from newer gas fields.
In North America, Upstream operating revenue increased over 67% as a result
of growth in crude oil and natural gas prices and the appreciation of the dollar
against the Belgian franc. North American average wellhead crude oil prices
increased 24%, or US $3.75 per barrel, while natural gas sales prices rose 62%
in 1996 compared to 1995. Total production sales volumes went up 8%, due to
increased natural gas production. Gas marketing activities contributed an
additional US $0.52 per thousand cubic feet in 1996 compared to US $0.18 per
thousand cubic feet in 1995. Gas marketing activity allows the Group to move
large quantities of equity and third party natural gas to areas with premium
pricing.
83
<PAGE> 95
OPERATING INCOME
Upstream operating income was BEF 24,165 million in 1996 compared to BEF
13,400 million in 1995, an improvement of 80%. This increase was due to
increased prices and the strengthening of the dollar and major European
currencies against the Belgian franc.
In Europe, operating income increased 59% as a result of higher operating
revenue. Operating expense decreased slightly in 1996 compared to 1995 despite
the strengthening of foreign currencies against the Belgian franc. Exploration
expense decreased slightly as a result of the Group's emphasis during the year
on proven areas and an improvement in the rate of successful wells drilled.
Depreciation per barrel decreased from US $3.32 in 1995 to US $3.07 in 1996.
This decrease was due to upward revisions in proved reserves for certain
producing fields which decreased the units-of-production rate of depreciation.
Lifting costs were US $4.29 per barrel oil equivalent in 1996 against US $4.43
in 1995.
In North America, the improvement in operating income was primarily the
direct result of favorable price developments and a stronger dollar. North
American lifting costs per barrel of oil equivalent remained relatively stable.
Total North American operating expense excluding depreciation increased due to
the effect of stronger natural gas prices on quantities purchased from third
parties for resell by the Group's gas marketing activity.
PetroFina participated in 29 gross exploratory wells in 1996 compared to 26
in 1995. Approximately 61% of the wells completed in 1996 either discovered new
potential reserves of crude oil or natural gas or upgraded existing discoveries,
compared to 46% in 1995. PetroFina's participation interest in net exploratory
wells was 29.4% in 1996 compared to 14.9% in 1995.
DOWNSTREAM
OPERATING REVENUE
Downstream operating revenue increased 12% in 1996 to BEF 496,361 million
compared to BEF 441,688 million in 1995. Higher prices for petroleum products
contributed BEF 35.6 billion to the increase in revenue; BEF 11.3 billion
related to a rise in duties and excise taxes; and BEF 7.8 billion resulted from
the appreciation of the dollar and several principal European currencies against
the Belgian franc. Quantities sold in 1996 were consistent with levels achieved
in 1995.
In Europe, operating revenue increased by approximately 18% in 1996,
excluding the effect of larger excise taxes and duties. Of this increase, 80%
was due to increased petroleum product prices. Operating revenue also increased
in 1996 because of higher sales volumes and the appreciation of European
currencies against the Belgian franc. Changes in excise taxes and duties do not
affect Downstream's operating income.
In North America, operating revenue increased by about 17% in 1996,
excluding the effect of increasing excise taxes and duties. The growth in
operating revenue was caused by conditions similar to those experienced in
Europe. Petroleum product prices caused about 84% of the increase. Operating
revenue, as reported in Belgian francs, also improved as a result of a stronger
dollar which was partially offset by lower sales volumes. United States refinery
throughput in 1996 decreased by 4%.
OPERATING INCOME
The Downstream segment produced operating income of BEF 5,195 million in
1996 compared to BEF 235 million in 1995. This large increase in operating
income was due to petroleum product price increases and improved European
refinery margins.
In Europe, the Group's refining throughput increased by 15% in 1996
compared to 1995. In 1996, refinery throughput reached 440,550 barrels per day
to establish a record volume for the Group. European industry margins were US
$2.27 per barrel in 1996 compared to US $1.80 per barrel in 1995. The margin
improvement was the result of favorable price differentials between gas oil and
fuel oil. The average price differential for these products increased from US
$64 per tonne in 1995 to US $107 per tonne in 1996. Retail margins remained
relatively stable in 1996 compared to 1995. Negative effects of retail price
wars in the United
84
<PAGE> 96
Kingdom and Norway were offset by improved performances in other European
markets. In 1996, the Group's retail sales increased by 6% while the average
sales per site increased by 11%.
In North America, 1996 was characterized by low industry wide Gulf Coast
refinery margins combined with a 4% reduction in the Group's refinery
throughput. The throughput reductions resulted from scheduled major turnaround
activities at both United States refineries. Aromatics margins, particularly
important for the Port Arthur refinery, were at their lowest level in five years
and 40% below 1995. Despite negative pricing developments, North American
refining operations maintained competitive per barrel costs and yields in 1996.
In retail, branded marketing margins decreased less than 1% in 1996 while total
volumes grew 1%, and market share in key markets increased.
CHEMICALS
OPERATING REVENUE
Operating revenue for the Chemicals segment declined 2% to BEF 78,404
million in 1996 from BEF 79,941 million in 1995. In the first half of 1995, the
industry realized the benefits of high prices and profit margins for all
monomers and polymers. In the second half of 1995 (particularly in the fourth
quarter), the industry faced a substantial product price decrease. In 1996,
product prices stabilized, despite increasing demand.
A decline in overall sales prices resulted in a decrease of BEF 11.2
billion which was substantially offset by an increase in quantities sold of BEF
8.5 billion, and by a BEF 1.4 billion increase from the appreciation of the
dollar against the Belgian franc.
In Europe, operating revenue decreased by 6% as a result of lower product
sales prices partially offset by increased sales quantities. Weighted average
realized prices for monomers decreased 13% in 1996 compared to 1995. Prices for
main polymers decreased by 15% while polymer sales volumes increased.
Polypropylene sales volume increased by 17% and polyethylene sales volume by 5%
compared to 1995.
In North America, operating revenue increased by 4%. Price developments
during 1996 for polypropylene and polyethylene were similar to those in Europe
but the weighted average price realized for styrenics products fell
substantially lower by 20%. Total chemical sales volumes were up 25% versus the
prior year reflecting the higher production levels resulting from completion of
major expansion projects at the North American polypropylene and polystyrene
plants. See "PetroFina Description of Business -- Chemicals."
OPERATING INCOME
Chemicals operating income was BEF 11,337 million in 1996 compared to BEF
19,014 million in 1995, a decrease of 40%. The decrease reflected lower weighted
average sale prices in 1996 compared to 1995. Operating income also decreased
due to 1996 increases in raw material costs for crude oil and related products.
Negative industry price developments were partially offset by total sales volume
increases of 10% in 1996 compared to 1995. The production volume increases were
the result of the acquisition of the remaining 50% of Fina Chemicals Feluy plant
in Belgium in March 1995, major expansion projects at the North American
polypropylene and polystyrene plants and, to a lesser extent, other plant
optimization programs. In February 1996, the Group sold its European polystyrene
production facilities, resulting in a reduction in annual production capacity of
55,000 tonnes.
In Europe, operating income in 1996 amounted to BEF 4,184 million compared
to BEF 10,438 million in 1995, a 60% decrease. The 1996 decrease in operating
income was a reflection of the industry's margin developments as raw material
cost increases, especially for monomers, were not reflected in finished goods
pricing.
In North America, operating income in 1996 amounted to BEF 7,153 million
compared to BEF 8,576 million in 1995, a reduction of 17%. The reduction in
operating income was smaller than in Europe due to the relatively lower
importance of monomers as an end sales product. Operating income was also
positively
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<PAGE> 97
affected by additional cost efficiencies from greater economies of scale
resulting from larger production capacity. Production efficiencies were
partially offset by increases in gas price and raw materials costs.
PAINTS
OPERATING REVENUE
Operating revenue for the Paints segment in 1996 amounted to BEF 29,439
million compared to BEF 28,390 million in 1995, an improvement of 4%. During
1996, the paint industry continued a consolidation trend which began in late
1994 resulting in increasing globalization and competition. The industry's
growth occurred mainly in Asia. In Europe, the markets for industrial coatings
and decorative paints were weaker reflecting the weakness in the construction
market in Germany and France, offset slightly by decorative paints sales
increases in the Benelux countries. Paint's main sales growth was due to
positive market developments influencing both price and quantities sold in the
marine and anti-corrosion product sector.
OPERATING INCOME
Operating income in 1996 amounted to BEF 1,207 million compared to BEF 854
million in 1995, an increase of 41%. In all of Paint's product sectors, the
Group was able to improve profit margins through cost reductions. Paints'
operating income in 1996 included commercial development expenditures incurred
in France and Germany to enhance the Group's market position in the decorative
paint sector and other non-recurring charges of BEF 190 million.
IMPACT OF INFLATION AND CHANGING PRICES
The Group's operations are not seasonal but are sensitive to crude oil and
natural gas pricing, margins between crude oil and refined products, and
chemicals margins. These factors are beyond the Group's ability to influence and
are the result of global market developments. In the past, crude oil, natural
gas and product prices have fluctuated in response to market and political
forces. Oil and natural gas prices are also influenced by regional factors such
as regional supply, alternative fuel costs, and weather. See also "-- Financial
Instruments."
The general rate of inflation in most major countries where the Group
operates has been relatively low in recent years. Associated impacts on
operating costs have been countered by cost reductions from productivity
improvements. Inflation has not been a factor influencing production and product
pricing. Inflation does affect the cost of acquiring replacement property,
plants and equipment. The replacement cost of property, plants and equipment is
generally greater than the historical cost as a result of inflation. To a
certain degree, the effect of inflation on replacement costs is countered by
cost reductions due to improved technologies and applied knowledge.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
PetroFina defines "Cash Flow," for purposes of its Belgian financial
reporting, as consolidated net income adjusted for depreciation and other
current year provisions to net income. Because "Cash Flow" as so defined
excludes the effect of changing working capital items, it is different from Cash
Flow provided by operating activities as reported in the Consolidated Statements
of Cash Flows. See "PetroFina Financial Statements -- Consolidated Statements of
Cash Flows."
Cash Flow amounted to BEF 57,142 million, BEF 43,965 million and BEF 39,660
million in 1997, 1996 and 1995, respectively. The increase in Cash Flow of BEF
13.2 billion in particular reflected the increase in net income of BEF 6.1
billion, the appreciation of the dollar and several European currencies of BEF
2.6 billion, the increase of Depreciation, Depletion and Amortization mainly due
to the Upstream sector of BEF 3.1 billion and an increase in net deferred tax
liabilities of BEF 1.5 billion.
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<PAGE> 98
Cash provided by operating activities was BEF 53,926 million, BEF 36,819
million and BEF 37,848 in 1997, 1996 and 1995, respectively. Cash provided by
operating activities in 1996 was reduced in relation to 1995 by the effects of
increasing working capital accounts.
Capital expenditures, which include investment in affiliates and
exploration expenses, amounted to BEF 43,660 million, BEF 33,142 million and BEF
29,852 million in 1997, 1996 and 1995, respectively.
Net cash used in financing activities was BEF 10,999 million, BEF 8,015
million and BEF 9,366 million in 1997, 1996 and 1995, respectively. Dividend
payments have progressively increased with net income and amounted to BEF 9,301
million, BEF 8,185 million and BEF 7,441 million in 1997, 1996 and 1995,
respectively. Net cash provided by operating activities (BEF 53.9 billion) and
the warrant exercise proceeds (BEF 2.1 billion), allowed the financing of
capital expenditures of BEF 43.7 billion, the payment of a dividend of BEF 9.3
billion and the net reimbursement of the financial debt of 3.2 billion.
Consolidated stockholders' equity was BEF 155,915 million, BEF 135,011
million and BEF 123,098 million at the end of 1997, 1996 and 1995, respectively.
The Group's ratio of interest-bearing debt to equity was 53% at the end of 1997,
compared to 60% at the end of 1996 and 62% at the end of 1995.
CAPITAL AND EXPLORATION EXPENDITURES
Capital and exploration expenditures in 1997 were BEF 43.7 billion compared
to BEF 33.1 billion in 1996 and BEF 29.9 billion in 1995. These expenditures
included capitalized interest of BEF 1.6 billion in 1997, compared to BEF 0.9
billion and BEF 0.4 billion in 1996 and 1995, respectively. Of the 1997
capitalized interest amount, BEF 1.4 billion related to Upstream.
Upstream capital expenditures amounted to BEF 23 billion in 1997 an
increase of 28% from BEF 18 billion in 1996. Upstream expenditures in 1995
represented 12.3 billion. European capital and exploration expenditure amounted
to BEF 15.3 billion compared to BEF 12.9 billion in 1996 while North American
expenditure amounted to BEF 7.8 billion and BEF 5.0 billion in 1997 and 1996,
respectively. The largest expenditures related to the Ekofisk II redevelopment
activities, while BEF 3.6 billion and BEF 5.7 billion were spent for various
field development activities in the UK and North America, respectively. The
remainder was principally incurred in exploration activities. Of the total
exploration expenditure of BEF 4.6 billion in 1997, BEF 2.9 billion was
expensed.
Downstream capital expenditures in 1997 totaled BEF 10.1 billion compared
to BEF 9.0 billion in 1996 and BEF 7.8 billion in 1995. An amount of BEF 5.0
billion reflected an increase in expenditures devoted to the extension and
enhancement of the Group's marketing network in Europe.
Chemicals capital expenditures were BEF 9.0 billion in 1997 compared to BEF
3.7 billion in 1996 and BEF 8.0 billion in 1995. Polymer production expansion
programs, particularly in North America, totaled BEF 4.5 billion in 1997.
The 1998 capital expenditure budget is currently estimated to be BEF 46.6
billion which is allocated as follows: BEF 19 billion for Upstream, BEF 12
billion for Downstream, BEF 13.5 billion for Chemicals and BEF 2.1 billion for
Paints and other activities.
YEAR 2000
During 1996, the Group developed a plan to deal with the Year 2000 issue
and began converting its computer systems to be Year 2000 compliant. The plan
provides for the conversion efforts to be completed during 1999. The Year 2000
issue is the result of computer programs being written using two digits rather
than four to define the applicable year. The Year 2000 costs are being funded
through operating cash flow and are not expected to be material in relation to
the Group operating results. The Group is expensing all costs associated with
these systems modifications as the costs are incurred.
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<PAGE> 99
OUTLOOK
ENVIRONMENTAL COSTS
PetroFina is engaged in industrial operations that are subject to
environmental risks. In this context, the Group is subject to changing
environmental laws and regulations which may in the future require the Group to
meet more stringent emissions standards or take remediation actions for
contaminated sites.
The Group has accrued BEF 9.6 billion as of December 31, 1997 related to
the estimated costs of site restorations and remediation activities. Accruals
are established when the Group determines that events have occurred which
require remediation under existing laws and regulations related to plants or
other facilities, currently owned or previously disposed. Due to inherent
uncertainties of the estimation process and the background of changing laws and
regulations, it is reasonably possible that provisions will be subject to
revision. In addition, new conditions related to PetroFina's operations that
would require future expenditures could be discovered. The amount of such future
costs is not determinable due to the unknown existence and extent of corrective
actions that may be necessary.
The Group's recent major capital expenditure programs in its Downstream and
Chemicals segments over the past five years have been carried out with due
consideration to the requirements of existing and expected legal and regulatory
environmental developments regarding air and water emissions as well as
compliance with the EU's Stage I vapor recovery requirements at major depots,
loading facilities and service stations.
The EU's Stage II vapor recovery requirements, currently under discussion,
would place stringent obligations at all petrol service stations within the EU.
In certain countries, where the majority of the Group's European retail
operations are located, legislation has already been passed requiring compliance
of all newly built and certain categories of existing stations.
The Group's new service station building programs and station rebuilding
programs have been designed to enable the station to comply with future Stage II
requirements with minimal additional costs or to provide current compliance
where necessary.
At certain older stations, the cost of Stage II compliance is not
considered justifiable. Current and future legislation will result in closure of
a number of stations for the Group and for most of its competitors. The Group
has assessed the implication of current legislation and the potential impact of
enactment in those countries not yet affected. The Group believes that any
effect would not be material to the Group's competitive market position, nor
materially affect the Group's consolidated financial position, results of
operations or cash flows.
FINANCIAL INSTRUMENTS
INTEREST RATE SENSITIVITY
The tables below provide information about PetroFina's financial
instruments that are sensitive to interest rate changes. These include long-term
debt and interest rate swaps. For long-term debt, the table presents principal
cash flows and the average interest rates related to these cash flows per
expected maturity date, after currency swap effects. For interest rate swaps,
the table presents for the five coming years and thereafter the nominal contract
amounts by expected maturity date and the weighted average of the interest rates
related to these amounts. Nominal amounts are used to calculate the contractual
payments to be exchanged under the contracts. Weighted average variable rates
are based on implied forward rates of the yield curve on December 31, 1997. The
information is presented in BEF equivalent, which is PetroFina's reporting
currency. Cash Flows are denominated in various currencies, as indicated in
parentheses.
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<PAGE> 100
EXPECTED MATURITY DATE ON DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
NOMINAL FAIR
1998 1999 2000 2001 2002 THEREAFTER VALUE VALUE
----- ----- ------ ----- ------ ---------- ------- ------
(BEF EQUIVALENT IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Debt
-- Fixed Rate (US$)............... 2,565 2,188 2,048 5,709 1,086 3,846 17,442 18,356
Average Interest Rate............... 7.14% 6.97% 7.02% 6.97% 7.35% 7.82%
-- Fixed Rate (BEF)............... 18 17 9,699 4 9,738 10,534
Average Interest Rate............... 8.39% 8.84% 8.84%
-- Fixed Rate (Other)............. 40 143 285 30 13 235 746 759
Average Interest Rate............... 8.01% 10.09% 7.31% 10.28% 9.73% 0.73%
-- Variable Rate (US$)............ 1,846 13,131 13,499 28,476 28,476
Average Interest Rate............... 5.74% 5.8% 5.83%
-- Variable Rate (NOK)............ 368 368 368 368 2,211 3,683 3,683
Average Interest Rate............... 3.83% 3.83% 3.83% 3.83% 3.83%
-- Variable Rate (NLG)............ 86 86 86 86 3,707 4,051 4,051
Average Interest Rate............... 3.58% 3.58% 3.58% 3.58% 3.81%
-- Variable Rate (Other).......... 59 59 59 59 59 151 446 457
Average Interest Rate............... 4.69% 4.69% 4.69% 4.69% 4.69% 4.69%
----- ----- ------ ----- ------ ------ ------ ------
-- Total Long Term Debt (including
current portion of long term
debt)........................... 4,528 2,861 12,545 6,252 14,743 23,653 64,582 66,316
===== ===== ====== ===== ====== ====== ====== ======
</TABLE>
The above table presents long term debt after the effects of PetroFina's
currency swaps which convert 284 million equivalent of BEF of Spanish peseta
("ESP")-denominated debt into dollar-denominated debt and 3,683 million
equivalent BEF of US $ denominated debt into Norwegian krone ("NOK")-denominated
debt. The "Other" category includes debt denominated in various other European
currencies which currently exhibit a high degree of correlation.
EXPECTED MATURITY DATE ON DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
NOMINAL FAIR
1998 1999 2000 2001 2002 THEREAFTER VALUE VALUE
----- ----- ---- ----- ----- ---------- ------- -----
(BEF EQUIVALENT IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
-- Variable to Fixed (US$)............ 1,846 1,846 1,846 3,323 15,061 23,922 (918)
-- Average Pay Rate................... 7.09% 7.64% 6.36% 7.68% 6.94%
-- Average Receive Rate............... 5.87% 6.01% 6.05% 6.13% 6.16%
Fixed to Variable (US$)................. 137 72 114 5,324 1,484 1,361 8,492 165
-- Average Pay Rate................... 5.91% 5.95% 6.06% 6.11% 6.12% 6.12%
-- Average Receive Rate............... 5.76% 5.76% 5.76% 6.81% 6.27% 6.71%
----- ----- ---- ----- ----- ------ ------ ----
Total Interest Rate Swaps............. 1,983 1,918 114 7,170 4,807 16,422 32,414 (753)
===== ===== ==== ===== ===== ====== ====== ====
</TABLE>
PetroFina tries to use the most cost-effective means to fund the Group's
operating and capital needs. Fixed or variable debt will be borrowed in various
currencies. To manage risk arising from fluctuations in interest rates and
currency exchange rates, and therefore maintain the efficient debt mix,
PetroFina utilizes currency and interest rate swaps.
After currency and interest rate swaps, approximately 60% of PetroFina's
long-term debt is fixed rate debt. The main currencies of denomination of this
fixed long-term debt are Belgian francs and United States dollars. Approximately
70% of the fixed long-term debt is denominated in dollars, 69% of the long-term
debt is dollar debt and 66% of the variable rate debt is also denominated in
dollars.
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<PAGE> 101
Due to the current currency mix of the PetroFina debt, the Group is exposed
to changes in short term U.S. interest rates. However, it is widely believed
that this does not pose a significant risk as a substantial portion of the
Group's cash flows are generated by U.S. subsidiaries or by dollar-related
activities, which are positively correlated to the changes in short-term U.S.
interest rates.
EXCHANGE RATE SENSITIVITY
The table below provides information about PetroFina's financial
instruments by functional currency and presents such information in Belgian
franc equivalent. The table summarizes information on instruments that are
sensitive to foreign currency exchange rates, including foreign currency
denominated debt and currency swap agreements. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates. For currency swap agreements, the table presents the
nominal amounts and weighted average exchange rates by expected (contractual)
maturity dates. These nominal amounts generally are used to calculate the
contractual payments to be exchanged under the contract.
EXPECTED MATURITY DATE
<TABLE>
<CAPTION>
TOTAL
NOMINAL FAIR
1998 1999 2000 2001 2002 THEREAFTER VALUE VALUE
---- ---- ---- ---- ------ ---------- ------- -----
(BEF EQUIVALENT IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
On-balance Sheet
GBP (L) Functional Fixed Rate (ESP)..... 63.. 63 63 63 32 284 313
Average Interest Rate................. 8.2% 8.2% 8.2% 8.2% 8.2%
Fixed Rate (US$)........................ 122 122 122 122 122 2,090 2,700 3,188
Average Interest Rate................. 9.1% 9.1% 9.1% 9.1% 9.1% 9.1%
Derivative Financial Instruments:
GBP (L) Functional Currency
Currency Swap (Receive ESP/Pay US$)
Contract Amount....................... 458 458 (123)
Average Exchange Rate................. 0.0088
</TABLE>
The Group will normally enter into currency swaps to manage its exposure to
adverse movements in exchange rates on its foreign-denominated debt.
Neither the currency swaps nor the related foreign currency denominated
debt instruments have been included in the above tables when such swaps
effectively eliminate the foreign currency exposure in the cash flows of the
related foreign currency denominated debt instrument. As a result the total
nominal value and fair value of the above currency swaps will vary slightly from
the derivative instruments disclosures in the audited financial statements.
PetroFina also enters into foreign exchange forward contracts to manage its
exposure to fluctuations in foreign currency denominated receivables and
payables. Most of these contracts mature within three months. The Company is
obligated in its foreign exchange forward contracts outstanding at December 31,
1997 to purchase Belgian francs and dollars while selling other European
currencies, principally the German mark, French franc, Norwegian krone, and
British pound.
Management believes that these financial instruments do not subject
PetroFina to material risk due to foreign exchange movements because gains or
losses on these contracts will offset gains or losses on the assets, liabilities
and transactions being hedged. See Note 14 to "PetroFina Financial Statements."
COMMODITY PRICE SENSITIVITY
PetroFina also enters into crude oil and refined products futures and
forward contracts to minimize short term price risks related to the supply and
sale of these products, respectively. Natural gas futures are also used
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<PAGE> 102
to hedge Upstream's United States equity production. At December 31, 1997, the
fair value of these commodity derivative instruments was BEF 12 million.
The value of these contracts is sensitive to changes in commodity prices.
If the price of the underlying commodities changes, it would have the opposite
effect on the fair value of the Group's commodity derivative instruments. Based
on an undiscounted cash flow approach, decreasing the forward rates of these
commodities by 10% would increase the fair value of these instruments by BEF 11
million, while increasing the forward rates by 10% would decrease the fair value
of these instruments by BEF 9 million. Given that there is no economic basis for
predicting for the magnitude of the change that will occur, the Company has
assumed a 10% positive and negative change.
The level of derivative commodity instruments is immaterial to the Group's
actual level of transactions. Therefore the changes in fair values noted above
would not have a material effect on the Group's results of operations or
financial position.
EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING PETROFINA SECURITY HOLDERS
EXCHANGE CONTROLS
Belgian exchange control regulations impose no limitations on the amount of
cash payments that may be remitted by Parent to residents of the United States.
However, when there is a transfer of funds by Parent an obligation to notify the
Institut belgo/Luxembourgeois du change/Belgisch-Luxemburgs Wisselinstituut
arises. If the transfer of funds is handled by Belgian financial institutions,
that institution will give the required notification. In addition, Parent has
arranged with a number of European and U.S. financial institutions, including
the Depositary, to handle such payments or transfers of funds and make the
required notification.
OWNERSHIP OF PETROFINA SHARES BY NON-BELGIAN PERSONS
Under Belgian law, if an individual or a company intends to acquire the
joint or exclusive control of Parent through one or more transactions relating
to the PetroFina Shares, the acquiror must notify the CBF of the contemplated
transaction at least five days before its completion. If the price of the
contemplated transfer includes a control premium, the acquiror must offer to all
other shareholders of Parent to be acquired the opportunity to sell their
PetroFina Shares at the highest price offered by the acquiror for PetroFina
Shares during the 12 months preceding the acquisition of control of Parent. The
acquiror must give the other shareholders this opportunity within 30 days after
its acquisition of control either (i) in the form of a public takeover bid or
(ii) pursuant to an undertaking to support the stock price of the acquired
company on the relevant stock exchange.
Public takeover bids must be made for all the outstanding voting securities
of Parent. Prior to making a bid, a bidder must issue a prospectus which is
approved by the CBF. Any bid made by or on behalf of either a non-EU national or
non-EU company is required to be approved by the Belgian Minister of Finance. In
case of a public takeover bid, the European Commission must approve the
transaction, if (i) the combined worldwide revenues of both the bidder and
Parent to be acquired exceed ECU 2,500 million, (ii) the combined revenues of
the bidder and Parent to be acquired in at least three EU member states exceed
ECU 100 million, (iii) the revenues of each of the bidder and Parent to be
acquired from each of such three EU member states exceed ECU 25 million and (iv)
the total community-wide turnover of the bidder and Parent to be acquired
individually exceed ECU 100 million.
Public takeover bids are subject to the supervision of the CBF. If the CBF
determines that a takeover bid is contrary to the interests of the stockholders
of Parent, it may suspend the takeover bid for a maximum of 72 hours and request
the President of the Commercial Court in the district of Parent's registered
office (Brussels) to prohibit the bid and suspend the exercise of the rights
attached to any PetroFina Shares that were acquired in connection therewith.
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<PAGE> 103
Under Belgian law, a company must notify the Minister for Economic Affairs,
the Minister of Finances, as well as the relevant Secretary of State for
Regional Economy prior to any transaction which will transfer more than
one-third of the capital of a company that is located in Belgium and has equity
("fonds propres/eigen vermogen") in excess of BEF 100 million.
MARKET PRICES AND DIVIDENDS FOR PETROFINA SECURITIES
MARKET FOR PETROFINA SHARES
The principal trading market for the PetroFina Shares is the BSE in Belgium
where the PetroFina Shares are listed continuously on the Forward Market. The
PetroFina Shares are an important component of the Bel 20 Index, which is a
broad-based index of 20 of Belgium's significant, publicly traded companies.
The table below sets forth, for the periods indicated, the reported high
and low closing prices in Belgian francs for the PetroFina Shares on the BSE:
<TABLE>
<CAPTION>
PRICE PER
PETROFINA SHARE
(BEF)
---------------
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter............. 9,510 7,990
Second Quarter............ 9,440 8,200
Third Quarter............. 9,240 8,560
Fourth Quarter............ 9,140 8,650
1996
First Quarter............. 9,480 8,220
Second Quarter............ 9,990 8,560
Third Quarter............. 10,250 9,230
Fourth Quarter............ 10,750 9,320
1997
First Quarter............. 12,800 10,050
Second Quarter............ 14,000 11,575
Third Quarter............. 15,600 13,150
Fourth Quarter............ 15,100 12,500
1998
First Quarter............. 14,375 12,525
Second Quarter............ 15,575 13,650
</TABLE>
Official trading on the BSE is carried out using a fully-computerized order
matching system, the NTS (New Trading System). Securities are listed either on
the Forward Market which contains the largest and most liquid domestic and
foreign securities, or on the Spot Market, which contains small and midcap
companies. On the Forward Market, depending on the liquidity of the security in
question, listing takes place continuously from 10:00 am to 4:30 pm, Brussels
time, or semi-continuously with a double quotation at 10:15 am and 4:15 pm,
Brussels time. The PetroFina Shares are listed continuously on the Forward
Market. Settlements of securities listed on the Forward Market, based on a "Cash
on Delivery" system, take place at the end of a two-week period, the
"quinzaine," according to a fixed timetable.
The BSE is governed by a two-tier supervisory system: the Management
Committee of the BSE and the CBF. The Management Committee of the BSE, appointed
by members of the BSE, acts as an autonomous market authority, responsible for
the organization and the operation of the stock market. The CBF oversees the
activities of the BSE authorities and acts as a second-tier supervisory body
with respect to the market.
Transactions can be effected only by members of the BSE. Members include
credit or financial institutions, brokerage firms and members of other EU stock
exchanges.
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<PAGE> 104
The PetroFina Shares are also listed on the stock exchanges of Amsterdam,
Frankfurt, London and Paris and on the Swiss Stock Exchange and are quoted on
SEAQ International.
TRADING IN THE UNITED STATES
Citibank serves as depositary with respect to the PetroFina ADSs which have
traded on the NYSE since September 3, 1997 and in the OTC market in the United
States since 1990. Each PetroFina ADS represents one-tenth (0.1) of one
PetroFina Share. As of June 15, 1998 there were 1,224,710 PetroFina ADSs
outstanding (representing 0.52%% of the outstanding PetroFina Shares), held by
16 registered PetroFina ADS holders. All such PetroFina ADSs were held by U.S.
residents. In addition, 6,985 registered PetroFina Shares (representing 0.03% of
the outstanding PetroFina Shares) are held by U.S. residents.
The table below sets forth, for the period indicated, the reported high and
low quotations in dollars for the PetroFina ADSs during the periods in which
they traded in the OTC market and the high and low closing sale prices for the
PetroFina ADSs after September 3, 1997. The fourth quarter of 1997 represents
the first full quarter of trading on the NYSE.
<TABLE>
<CAPTION>
PRICE PER ADS
(US$)
------------------
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter......... 30.063 27.438
Second Quarter........ 32.563 28.438
Third Quarter ........ 30.781 28.359
Fourth Quarter........ 31.219 29.156
1996
First Quarter......... 31.609 26.984
Second Quarter........ 31.328 27.359
Third Quarter......... 32.297 29.547
Fourth Quarter........ 31.000 30.750
1997
First Quarter......... 35.500 31.250
Second Quarter........ 36.625 33.250
Third Quarter......... 39.375(1) 36.500(1)
39.500(2) 36.313(2)
Fourth Quarter........ 42.000 35.750
1998
First Quarter......... 38.000 33.375
Second Quarter........ 42.375 36.000
</TABLE>
- ---------------
(1) Reflects trading prior to the NYSE listing on September 3, 1997.
(2) Reflects trading on the NYSE from September 3, 1997 through September 30,
1997.
Concurrently with the filing of the Registration Statement, Parent is
filing a listing application to list the PetroFina Warrants on the NYSE.
Approval for listing of the PetroFina Warrants on the NYSE or NASDAQ is a
condition to closing the Merger.
DIVIDENDS
PetroFina has paid dividends on the PetroFina Shares in each year for at
least the past 50 years. Future dividends will depend on the Company's earnings,
financial condition and other factors. The payment and amount of dividends are
subject to the recommendation of the Parent Board and declaration by Parent's
shareholders at the annual ordinary general shareholders' meeting. Parent's
Articles of Association provide that the Board of Directors may pay an interim
dividend as an advance against the annual dividend.
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<PAGE> 105
Dividends paid to holders of PetroFina ADSs will be subject to a charge by
the Depositary for any expenses incurred by the Depositary in the conversion of
Belgian francs to dollars. For a summary of certain United States federal and
Belgian tax consequences to holders of Shares and PetroFina ADSs, see "Certain
Tax Considerations Relating to PetroFina Warrants and PetroFina ADSs."
The table below sets forth for the years indicated, the amount of dividends
paid per PetroFina Share. See also "Description of PetroFina Securities -- The
PetroFina Shares -- Summary of Certain Provisions of the Articles and Other
Matters -- Dividends."
<TABLE>
<CAPTION>
DIVIDEND DIVIDEND DIVIDEND
PER SHARE PER SHARE PER ADS
--------- --------- --------
(BEF) (US $)(1) (US $)(1)
<S> <C> <C> <C>
1993................. 280 8.33 0.838
1994................. 280 8.22 0.940(2)
1995................. 320 10.83 1.095
1996................. 352 11.07 1.12
1997................. 400 11.44 1.14
1998................. 460 12.52 1.25
</TABLE>
- ---------------
(1) Based on the Noon Buying Rate on the first day dividends are available for
payment. See "Exchange Rates." The amount paid to holders of PetroFina ADSs is
calculated by Citibank, N.A. as Depositary. See "Summary -- Market Prices and
Dividends."
(2) Includes $0.129 paid to holders of PetroFina ADSs in connection with a
rights offering to holders of PetroFina Shares.
PETROFINA MANAGEMENT AND OWNERSHIP OF PETROFINA SHARES
Set forth below for each director and executive officer of Parent as of
June 15, 1998, are: his name, position with Parent, the date as of which he
initially commenced serving as a director or executive officer, the date his
current term as a director expires, his citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years. Unless
otherwise indicated, the current business address of each person listed is
PetroFina S.A., 52 rue de l'Industrie B-1040 Brussels, Belgium. All directors
and officers listed below are citizens of Belgium, except for Messrs. Vieira and
Rebelo (Portugal); Messrs. Calvet, Dejouany, Mestrallet and de Naurois (France);
Messrs. Desmarais, Sr., Desmarais, Jr. and Mulroney (Canada); Mr. Webb (Great
Britain) and Mr. Brenckle (United States). Mr. de Rudder and Mr. Samyn are
citizens of both Belgium and France, and Mr. Beffa is a citizen of both France
and Switzerland.
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<PAGE> 106
BOARD OF DIRECTORS
Parent's current directors, and certain biographical information concerning
such individuals are set forth below.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME POSITION SINCE EXPIRES
- ---- -------- -------- -------
<S> <C> <C> <C>
Albert Frere............................... Chairman 1986 2001
Francois Cornelis.......................... Vice Chairman, Chief Executive 1986 2001
Officer & Managing Director
Etienne Davignon........................... Vice Chairman 1990 2002
Axel de Broqueville........................ Executive Director, Chemicals 1989 2001
Michel-Marc Delcommune..................... Executive Director, Corporate 1992 2001
Finance
Henrique Bandeira Vieira................... Executive Director, Marketing 1990 2002
Jean-Louis Beffa........................... Director 1988 2000
Yves Boel.................................. Director 1986 2001
Jacques Calvet............................. Director 1990 2001
Guy Dejouany............................... Director 1990 2002
Paul Desmarais, Sr. ....................... Director 1988 2000
Paul Desmarais, Jr. ....................... Director 1992 2001
Paul Janssen............................... Director 1987 1999
Jean-Pierre de Launoit..................... Director 1987 1999
Gerard Mestrallet.......................... Director 1994 2000
Brian Mulroney............................. Director 1994 2000
Thierry de Rudder.......................... Director 1990 2003
Gilles Samyn............................... Director 1990 2002
Luc Wauters................................ Director 1984 2002
</TABLE>
Mr. Desmarais, Sr. and Mr. Desmarais, Jr. are father and son. Mr. Vieira
and Mr. Delcommune are brothers-in-law.
Baron Albert Frere is Chairman and Managing Director of Groupe Bruxelles
Lambert S.A. He is also Chairman of the Boards of Directors of Electrafina S.A.,
Erbe S.A., Fibelpar S.A. and Frere-Bourgeois S.A.; Vice President of COBEPA S.A.
and Royale Belge S.A.; Vice-Chairman and Managing Director of Pargesa Holding
S.A.; and a member of the International Committee of Compagnie Financiere de
Paribas S.A. He is also a director of Compagnie Nationale a Portefeuille S.A.,
Parfinance, LVMH, Havas and TF1. He is a member of the Supervisory Board of Suez
Lyonnaise des Eaux S.A. and an honorary member of the Council of Regents of the
Banque Nationale de Belgique. He was elected a director of Parent in 1986 and
Chairman in 1990. His current business address is Groupe Bruxelles Lambert,
Avenue Marnix 24, 1000 Brussels, Belgium.
Mr. Francois Cornelis was elected a director in 1986, Managing Director and
Chief Executive Officer of Parent in 1990 and Vice-Chairman in 1991. He
graduated from the University of Louvain with a degree in mechanical engineering
in 1973 and joined PetroFina in the same year. He has held a number of positions
in various areas within the Group, including in the United Kingdom, the United
States and Belgium. In March 1984 he became Assistant General Manager attached
to the Chairman. In 1985, he was elected a director of Fina, Inc. He serves as
Chairman to several Parent subsidiaries, including APHC and PDI. He is a member
of the European Advisory Board of the NYSE and a member of the European Round
Table of Industrialists. He has been Chairman of Europia since 1995.
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<PAGE> 107
Viscount Etienne Davignon is the Executive Chairman of Societe Generale de
Belgique S.A. He serves as Chairman of Compagnie Maritime Belge S.A., Sibeka
S.A. and Union Miniere S.A., and as a Vice-Chairman of Fortis AG. He is a
director of various companies, including BASF A.G., Generale de Banque, Sofina
S.A., Solvay S.A., Suez Lyonnaise des Eaux and Tractebel S.A. He has been active
in public affairs, in particular in the Belgian Ministry of Foreign Affairs, as
the first president of the International Energy Agency and as vice-president of
the European Commission. He was elected a director and Vice-Chairman of Parent
in 1990. His current business address is Societe Generale de Belgique, Rue
Royale 30, 1000 Brussels, Belgium.
Mr. Axel de Broqueville graduated from the University of Louvain with a
degree in electronic engineering in 1966 and also holds an M.S. in Aeronautics
from Imperial College, London. He joined PetroFina in 1970 and held a number of
positions in Belgium and the United States before returning to PetroFina's
headquarters in Brussels. In 1986 he became Senior Vice-President, Chemicals and
was elected an Executive Director of Parent in 1989. He was elected a director
of Fina, Inc. in 1990.
Mr. Michel-Marc Delcommune graduated from the University of Liege with a
degree in chemical engineering in 1971 and holds an M.B.A. from Cornell
University. He is a member of the International Advisory Board of Cornell
University and Chairman of the Financial Executives Council of the Conference
Board of Europe. He joined PetroFina in 1972. His occupations were mainly in
Data Processing and in Exploration and Production Departments in Belgium and
abroad. In 1986, he was appointed Vice-President of Corporate Finance and
Insurance and Senior Vice-President in 1990. In 1992, he was elected Executive
Director of Parent. He has been a director of Fina, Inc. since 1995.
Mr. Henrique Bandeira Vieira graduated as a mining engineer from the
University of Lisbon in 1958, and holds an M.S. in Petroleum Engineering from
Stanford University and an M.B.A. from Boston University. He joined PetroFina in
1959 and has held several positions in the United States, Angola, Belgium and
the U.K. In 1985 he became Senior Vice President, Exploration and Production and
he was elected an Executive Director of Parent in 1990. In 1997 he was appointed
Executive Director, Marketing. He also serves as a director of PDI and the
Company.
Mr. Jean-Louis Beffa is the Chairman and Chief Executive Officer of
Compagnie de Saint-Gobain and Vice-Chairman of Vivendi S.A. He is also a member
of the Boards of Directors of Banque Nationale de Paris and of the Supervisory
Board of AXA. He was elected a director of Parent in 1988. His current business
address is Compagnie de Saint-Gobain, "Les Miroirs", 18 avenue d'Alsace, 92400
Courbevoie, France.
Mr. Yves Boel is the Chairman of the Board of Directors and Chairman of the
Executive Committee of Sofina S.A. and Solvay S.A. He is also Vice-Chairman of
Tractebel S.A. and a director of GIB. He was elected a director of Parent in
1986. He served as Chairman of SIDRO from 1968 until 1996. His current business
address is Sofina S.A., Rue de Naples 38, 1050 Brussels, Belgium.
Mr. Jacques Calvet is a director of Vivendi S.A., Societe Generale S.A.
(France), Automobiles Peugeot and Automobiles Citroen. He is a member of the
Supervisory Board of AXA and a consulting advisor to the Banque de France. He
has been active in public affairs, in particular at the French Ministry of
Economy and Finance, and has been the President of the Board of Management of
Peugeot S.A. He was elected a director of Parent in 1990. His current business
address is 7 rue de Tilsitt, 75017 Paris, France.
Mr. Guy Dejouany is Honorary President of Vivendi S.A. and of Compagnie des
Eaux et de l'Ozone. He is a member of the Board of Directors of Vivendi S.A.,
Compagnie de Saint Gobain, AlcatelAlsthom, Canal+, Havas, Electrafina S.A. and
Societe Generale S.A. He is also a member of the Supervisory Board of AXA. He
was elected a director of Parent in 1990. His current business address is
Vivendi S.A., 52 rue d'Anjou, 75008 Paris, France.
Mr. Paul Desmarais, Sr. is the Chairman of the Executive Committee and a
Director of Power Corporation of Canada. Mr. Desmarais also serves as Chairman
of the International Advisory Council to Power Corporation of Canada. He is
Chairman of the Board and Managing Director of Pargesa Holding S.A.
(Switzerland), a director and member of the Executive Committee of Groupe
Bruxelles Lambert S.A., a director of Parfinance and director of a large number
of other companies. He is also a member of the International Advisory Committee
of Chase Manhattan Bank, N.A., Barrick Gold Corporation, China
96
<PAGE> 108
International Trust and Investment Corporation (CITIC) and of the Supervisory
Board of AXA and of Compagnie Financiere de Paribas. He was elected a director
of Parent in 1988. His current business address is Power Corporation of Canada,
751 Square Victoria, Montreal (Quebec), Canada H2Y 2J3.
Mr. Paul Desmarais, Jr. is the Chairman of the Board and Co-Chief Executive
Officer of Power Corporation of Canada. He is also Chairman of the Board of
Power Financial Corporation, Chairman and Chief Executive Officer of Parfinance
(France) and a director of a large number of other companies, including Pargesa
Holding S.A., Groupe Bruxelles Lambert S.A., Tractebel S.A. and Royale Belge
S.A. He is a member of the Board of INSEAD. He was elected a director of Parent
in 1992. His current business address is Power Corporation of Canada, 751
Victoria Square, Montreal (Quebec), Canada H2Y 2J3.
Baron Paul Janssen is the Chairman of Janssen Research Foundation
Worldwide. He is the author of a number of scientific publications and the owner
of a large number of patents. He was elected a director of Parent in 1987. His
current business address is CMD, Antwerpsesteenweg 37, 2350 Vosselaar, Belgium.
Count Jean-Pierre de Launoit is Chairman of Royale Belge S.A., Audiofina,
RTL-TVi and Euro-Clinvest. He is a director of GIB Group and of Groupe Bruxelles
Lambert France. He was elected a director of Parent in 1987. His current
business address is Royale Belge, Boulevard du Souverain 25, 1170 Brussels,
Belgium.
Mr. Gerard Mestrallet is the Chairman of the Managing Board of Suez
Lyonnaise des Eaux. He is also Vice-Chairman of the Board and chairman of the
Executive Committee of Societe Generale de Belgique and Chairman of the Board of
Tractebel. He is also a director of Compagnie de Saint-Gobain, and a member of
the Supervisory Board of AXA. He was elected a director of Parent in 1994. His
current business address is Suez Lyonnaise des Eaux, 1 rue d'Astorg, 75008
Paris, France.
The Right Honorable Brian Mulroney was the Prime Minister of Canada from
1984 until 1993. In 1993, Mr. Mulroney became a Senior Partner in Ogilvy
Renault. He is Chairman of the International Advisory Board of Barrick Gold
Corporation and a director of other large companies. He was elected a director
of Parent in 1994. His current business address is Olgivy Renault Lawyers, 1981
McGill College Avenue, suite 1100, H3A 3C1 Montreal (Quebec), Canada.
Mr. Thierry de Rudder is Managing Director of Groupe Bruxelles Lambert S.A.
and Electrafina. He is also a member of the Board of Directors of Audiofina,
Bernheim-Comofi, Compagnie Nationale a Portefeuille S.A., Monument Oil and Gas
p1c., Royale Belge, Tractebel and Societe Generale de Belgique S.A. He was
elected a director of Parent in 1990. His current business address is Groupe
Bruxelles Lambert, Avenue Marnix 24, 1000 Brussels, Belgium.
Mr. Gilles Samyn is Managing Director of Frere-Bourgeois, Compagnie
Nationale a Portefeuille S.A., Erbe S.A. and Fibelpar S.A. He is a member of the
Executive Committee of Pargesa and Groupe Bruxelles Lambert, and a Director of
other companies including IMETAL and CLT-UFA. He is the Chairman of the Board of
various companies including Transcor. He was elected a director of Parent in
1990. His current business address is Compagnie Nationale a Portefeuille, Rue de
la Blanche Borne 12, 6280 Loverval, Belgium.
Baron Luc Wauters is Honorary Chairman of Kredietbank N.V. (KBC-Bank) and
of Almanij N.V. He is founding Chairman of Almanij-Kredietbank Group (Almanij
Group). He is also a director of Bayer Antwerp. He was elected a director of
Parent in 1984. His current business address is Almanij N.V., Snydershuis,
Keizerstraat 8, 1000 Antwerp, Belgium.
In accordance with Belgian law governing a societe anonyme/naamloze
vennootschap, Parent's affairs are managed by the Parent Board. Responsibility
for management of Parent's daily affairs has been conferred by the Parent Board
to its Vice-Chairman & Chief Executive Officer, its Executive Directors, General
Managers and Secretary General, acting and making decisions in pairs.
Under Parent's Articles, the Parent Board consists of not less than 7, nor
more than 20, members. The Parent Board is presently composed of 19 members.
Shareholders of Parent entitled to vote at ordinary general shareholders'
meetings elect the directors.
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<PAGE> 109
In May 1990, the Parent Board adopted a resolution regarding the
composition of the Parent Board. Pursuant to the resolution, of the then twenty
directors, six were to be officers of Parent, four were to be independent
persons, six were to be proposed by Groupe Bruxelles Lambert S.A. ("GBL"), three
were to be proposed by Societe Generale de Belgique S.A. ("SGB"), and one was to
be proposed by Compagnie Nationale Portefeuille S.A. ("CNP") (which is presently
affiliated with GBL). Of the nineteen directors currently on the Parent Board,
six are associated with GBL (Messrs. Frere, Dejouany, de Launoit, de Rudder,
Desmarais, Sr., and Desmarais, Jr.), three are associated with SGB (Messrs.
Davignon, Boel and Mestrallet), one is associated with CNP (Mr. Samyn), four are
executive officers of Parent (Messrs. Cornelis, de Broqueville, Delcommune and
Vieira), and five are regarded by GBL and SGB as not associated with GBL, SGB or
CNP (Messrs. Beffa, Calvet, Janssen, Mulroney and Wauters). See also "--
Principal PetroFina Stockholders and Stock Ownership of PetroFina Management."
Parent's Articles currently provide that each director elected by the
shareholders may serve for a term not to exceed six years. Directors need not be
Belgian nationals, and there is no limitation on the number of terms that a
director may serve. Under Belgian law, the Parent Board has full executive
authority to manage the affairs of Parent in Parent's interest. Pursuant to
Parent's Articles, the Parent Board has the power to perform all acts necessary
or useful to achieve the corporate purpose, except for those reserved by law to
the general shareholders' meeting. In addition to reviewing and monitoring
Parent's business, the powers generally held by the Parent Board include the
oversight of Parent's year-end and semi-annual accounts, the presentation of the
year-end accounts to the shareholders and the convening of general shareholders'
meetings. Under Belgian law, directors may be liable for damages to Parent in
case of improper performance of their duties. They may be liable for damages to
Parent and to third parties for infringement of the Articles or the Belgian
company law or tortious conduct. Under certain circumstances, directors may also
be criminally liable.
There are three committees of the Parent Board: (1) the Compensation
Committee, which recommends director compensation; (2) the Finance and Audit
Committee, which oversees PetroFina's accounting standards, election of auditors
and financial reporting; and (3) the Core Committee, which serves in an advisory
capacity to the Group's management on important corporate matters. No executive
officers of Parent serve on the Compensation Committee.
EXECUTIVE OFFICERS
Parent's current executive officers and certain biographical information
concerning such individuals are set forth below.
<TABLE>
<CAPTION>
EXECUTIVE
NAME POSITION OFFICER SINCE
- ---- -------- -------------
<S> <C> <C>
Francois Cornelis..................... Chief Executive Officer and Managing Director 1984
Axel de Broqueville................... Executive Director, Chemicals 1985
Michel-Marc Delcommune................ Executive Director, Corporate Finance 1990
Henrique Bandeira Vieira.............. Executive Director, Marketing 1985
William Bracke........................ General Manager, Research 1990
Wayne Brenckle........................ General Manager, Manufacturing and Logistics 1990
Jean Castelein........................ General Manager, Health, Safety, Environment 1995
& Quality
Jacques de Naurois.................... General Manager, Supply 1984
Jose G. Rebelo........................ General Manager, Exploration -- Production 1992
Francois Vincke....................... Secretary General, Legal 1988
Malcolm Webb.......................... General Manager, Human Resources 1995
</TABLE>
Mr. William J.I. Bracke, General Manager, Research. Mr. Bracke graduated
in 1963 from the University of Louvain with a degree in chemistry and holds a
Sciences Doctorate. He joined PetroFina in 1969, as Project Manager in the
Organic Chemistry Department of Labofina. In 1978, he was appointed Manager of
the Polymers Department. In 1980, he became General Manager, then Executive
Director before
98
<PAGE> 110
being elected Managing Director of Labofina in 1984. In 1990 he was appointed
Chairman of Fina Research. In 1990, he also became General Manager, Research of
PetroFina.
Mr. Wayne Brenckle, General Manager, Manufacturing and Logistics. Mr.
Brenckle graduated from the University of Pittsburgh with a degree in chemical
engineering in 1964. He has a Masters degree in chemical engineering from the
Newark Institute of Technology. After having held various positions in refining
and supply areas in the oil industry, he joined PetroFina in 1988 as a General
Manager, mainly responsible for refining, chemicals and supply activities in
Belgium. Mr. Brenckle serves as a director of a number of subsidiaries of
PetroFina.
Mr. Jean Castelein, General Manager, HSEQ. Mr. Castelein graduated from
the University of Louvain with a degree in chemical engineering and food
industry in 1968. He holds a MBA from the same university (1970). He joined
PetroFina in 1972 and held various positions mainly in petrochemicals in Belgium
and in the United States. He returned to Belgium in 1988 as Technical General
Manager of Fina Research. He was appointed Deputy General Manager Petrochemicals
in 1990 and General Manager, HSEQ in 1996.
Mr. Jacques de Naurois, General Manager, Supply. Mr. de Naurois is a civil
engineer. He was appointed General Manager, Distribution in 1984, became
Managing Director of Fina France in 1986, returned to PetroFina Brussels as
General Manager, Corporate Planning in 1993 and became General Manager, Supply
in 1996.
Mr. Jose G. Rebelo, General Manager, Exploration & Production. Mr. Rebelo
graduated from the University of Porto with a degree in mining engineering. He
began his career within the Group in 1962 in Angola as a petroleum engineer. He
had various positions in Exploration-Production in PetroFina and in Angola and
was named General Manager, Human Resources in 1989 before assuming his current
responsibilities as General Manager, Exploration-Production in 1992.
Mr. Francois Vincke, Secretary General, Legal. Mr. Vincke graduated from
the University Faculties of Namur and from the University of Leuven with a law
degree. He joined the Group in 1974 as a company lawyer. He became managing
director of Norske Fina in 1981 and returned to PetroFina headquarters in 1984.
He has served as Secretary General of PetroFina since 1988.
Mr. Malcolm Webb, General Manager, Human Resources. Mr. Webb graduated from the
University of Liverpool with a law degree and is a qualified English solicitor.
He started his career in the oil industry in the United Kingdom in 1974 and
joined the Group in 1986. He began working in the Human Resources Department in
1989 and was appointed General Manager in 1995.
EXECUTIVE COMPENSATION
For the year ended December 31, 1997, the aggregate amount paid by the
Parent for compensation of its directors and executive officers as a group (27
persons) for services in all capacities was approximately BEF 193 million.
PRINCIPAL PETROFINA SHAREHOLDERS AND STOCK OWNERSHIP OF PETROFINA MANAGEMENT
Based on the information provided in a Schedule 13G filed with the
Commission on February 13, 1998 (the "Schedule 13G"), Parent has set forth below
the number and percentages of PetroFina Shares owned by
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<PAGE> 111
each person known by Parent to own beneficially more than 10% of the outstanding
PetroFina Shares. Information in the notes to the table is also based on
information in the Schedule 13G.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF PETROFINA SHARES
SHAREHOLDER PETROFINA SHARES AND VOTING POWER
----------- ---------------- -------------------
<S> <C> <C>
Groupe Bruxelles Lambert S.A. and affiliated
companies(1)(2)(3)(4)..................................... 5,503,384 23.5%
Societe Generale de Belgique S.A. and affiliated
companies(1)(3)(5)........................................ 2,533,607 10.8%
Compagnie Nationale a Portefeuille(1)(3).................... 1,533,487 6.5%
</TABLE>
- ---------------
(1) GBL (and its affiliated companies), SGB (and its affiliated companies), S.A.
Fortis A.G. N.V. ("Fortis") (and its affiliated companies), and Sofina S.A.
("Sofina") may be deemed to be members of a group with respect to the
PetroFina Shares. Fortis and Sofina own 306,491 PetroFina Shares (1.3%) and
308,627 PetroFina Shares (1.3%), respectively. The number of PetroFina
Shares set forth next to each of GBL and SGB does not include PetroFina
Shares owned by each other, Fortis or Sofina.
(2) Includes 5,305,029 PetroFina Shares held by Electrafina, an affiliate of
GBL, and 198,355 PetroFina Shares held directly or indirectly by Royale
Belge S.A. ("Royale Belge"). On June 2, 1998, Parent was notified by Royale
Belge that Royale Belge is now controlled by Group AXA.
(3) CNP and GBL may be deemed to be members of a group with respect to the
PetroFina Shares owned by each of them. The number of PetroFina Shares set
forth next to each of GBL and CNP does not include PetroFina Shares owned by
each other. CNP, on the one hand, and SGB, Sofina and Fortis, on the other
hand, have expressly disclaimed that they are members of a group with
respect to the PetroFina Shares beneficially owned by each other. CNP has
advised Parent that its PetroFina Shares are held by FIBELPAR.
(4) Albert Frere, Chairman of Parent's Board, may be deemed to control GBL and
CNP.
(5) Includes 575,501 PetroFina Shares held by S.A. Tractebel N.V., 1,241,000
PetroFina Shares held by S.A. Electrabel N.V., 700,271 PetroFina Shares held
by S.A. Telfin N.V., 15,580 PetroFina Shares held by S.A. Contassur N.V. and
1,255 PetroFina Shares held by Beleggingsmaatschappij voor Noord-Belgie
(NOBEMA) N.V.
GBL and SGB have informed Parent of an agreement entered into in 1989 (the
"1989 Agreement") in relation to their respective PetroFina Shares. In a press
release on March 8, 1989, they indicated that their common objective was to
provide Parent with long-term, stable shareholders and to support its long-term
strategy for the benefit of shareholders and staff generally. By virtue of their
ownership of PetroFina Shares and the 1989 Agreement, GBL and SGB may be deemed
to control Parent within the meaning of Rule 12b-2 under the Securities Exchange
Act of 1934, as amended.
Parent is aware that the 1989 Agreement was entered into by GBL and SGB on
behalf of themselves and their respective affiliates and, in the case of SGB, on
behalf of Fortis and Sofina and, in the case of GBL, on behalf of Royale Belge
S.A. and Generale des Eaux S.A. Parent is also aware that the 1989 Agreement
contains provisions pursuant to which GBL and SGB have agreed to: (i) limit
their ownership of PetroFina Shares to 25% and 12.5%, respectively, subject to
certain exceptions; (ii) consult with each other on such matters as the
determination of strategic plans of Parent and its affiliates, changes to the
Articles, the issuance of PetroFina Shares, the incurrence of indebtedness,
significant acquisitions and dispositions, any takeover attempted by a third
party, dividend policy and the appointment of executive officers of Parent;
(iii) have representation on the Board of Directors proportional to their
ownership of PetroFina Shares, with GBL designating a director as Chairman of
Parent and SGB designating a director as a Vice-Chairman; and (iv) grant each
other a right of first refusal with respect to the PetroFina Shares if either
party decides to sell its PetroFina Shares. Parent understands that the 1989
Agreement will continue until 2004. See "-- Board of Directors."
Parent is aware that its officers and directors as a group own at least
16,000 PetroFina Shares. However, because the PetroFina Shares are held
partially in bearer form, Parent cannot identify precisely the number of
PetroFina Shares held by the officers and directors as a group. In addition,
certain directors of Parent,
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<PAGE> 112
including Mr. Frere and Mr. Desmarais, Sr., are affiliates of the shareholders
identified in the table above and could be deemed beneficial owners of the
PetroFina Shares identified in the table above. See "-- Board of Directors."
DESCRIPTION OF PETROFINA SECURITIES
Parent is a societe anonyme/naamloze vennootschap, a form of limited
liability company established under the laws of the Kingdom of Belgium. Set
forth below is a summary of certain information concerning Parent's capital
stock and a brief description of certain provisions contained in Parent's
Articles and applicable Belgian law. The French and Dutch versions, as well as
an unofficial translation into English, of the Articles have been filed as an
exhibit to the Registration Statement. Only the French and Dutch versions of
Parent's Articles are binding and govern the relationship between Parent, its
shareholders and its directors. The summaries and descriptions below do not
purport to be complete statements and are qualified in their entirety by
reference to the Articles and Belgian company law.
PETROFINA WARRANTS
THE DESCRIPTION OF THE WARRANT AGREEMENT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE WARRANT
AGREEMENT, AND THE FORM OF WARRANT CERTIFICATE, COPIES OF WHICH ARE ANNEXED AS
EXHIBIT A TO THE MERGER AGREEMENT INCLUDED AS ANNEX B TO THIS PROXY
STATEMENT/PROSPECTUS, AND WHICH ARE INCORPORATED HEREIN IN THEIR ENTIRETY BY
THIS REFERENCE.
General. The PetroFina Warrants will be issued under a warrant agreement
(the "Warrant Agreement") between Parent and Citibank, N.A., as warrant agent
(the "Warrant Agent").
Each PetroFina Warrant will entitle the registered holder thereof (the
"Warrant Holder"), subject to compliance with the Warrant Agreement, at such
Warrant Holder's option, prior to the close of business on the fifth anniversary
of the Closing Date (the "Expiration Date"), to purchase nine-tenths (0.9) of
one PetroFina ADS at an initial Exercise Price of US $42.25, with the number of
such PetroFina ADSs and the Exercise Price (as defined in the Warrant Agreement)
subject to adjustment as described below. Based on the initial Exercise Price of
US $42.25 per PetroFina ADS a holder of ten PetroFina Warrants may purchase nine
PetroFina ADSs for an aggregate purchase price of US $380.25.
The Warrant Holder at any time prior to the Expiration Date, may exercise
the PetroFina Warrants evidenced thereby in whole or in part upon surrender of
the certificates evidencing the PetroFina Warrants (the "Warrant Certificates"),
with the form of election to purchase on the reverse side thereof duly executed,
to the Warrant Agent at the principal office of the Warrant Agent in New York
City, together with payment of the Exercise Price in immediately available funds
for each PetroFina ADS as to which the PetroFina Warrants are exercised. In case
the registered holder of any Warrant Certificate exercises less than all
PetroFina Warrants evidenced thereby, a new Warrant Certificate evidencing
PetroFina Warrants equivalent to the PetroFina Warrants remaining unexercised
will be issued by the Warrant Agent to the registered holder of such Warrant
Certificate or to his duly authorized assigns, subject to the provisions
described below in "-- Fractional PetroFina Warrants and Fractional ADSs."
At any time after close of business on the date of the Warrant Agreement
and prior to the close of business on the Expiration Date, any Warrant
Certificate may be transferred, split up, combined or exchanged for another
Warrant Certificate, entitling the Warrant Holder to purchase a like number of
PetroFina ADSs as the Warrant Certificate surrendered then entitled such Warrant
Holder to purchase. Any Warrant Holder desiring to transfer, split up, combine
or exchange any Warrant Certificate must make such request in writing delivered
to the Warrant Agent, and must surrender to the Warrant Agent the Warrant
Certificate to be transferred, split up, combined or exchanged. Thereupon, the
Warrant Agent will countersign and deliver to the person entitled thereto a
Warrant Certificate as so requested. Parent and the Warrant Agent may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with
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any transfer, split up, combination or exchange of Warrant Certificates,
together with reimbursement to Parent and the Warrant Agent of all reasonable
expenses incidental thereto.
Warrant Holders will not be entitled to vote, receive dividends or
distributions on, or be deemed for any purpose the holder of, PetroFina Shares
or any other securities of Parent which may at any time be issuable on the
exercise or conversion of the PetroFina Warrants. Nothing contained in the
Warrant Agreement or in any Warrant Certificate will be construed to confer upon
the Warrant Holder any rights of a shareholder of Parent or any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting shareholders, or to
receive dividends or distributions or subscription rights, or otherwise, until
the PetroFina Warrant or PetroFina Warrants evidenced by such Warrant
Certificate have been exercised in accordance with the provisions of the Warrant
Agreement.
Adjustments of Exercise Price, Number of PetroFina ADSs or Number of
PetroFina Warrants. The Exercise Price, the number of PetroFina ADSs covered by
each PetroFina Warrant and the number of PetroFina Warrants outstanding are
subject to adjustment from time to time.
If, at any time after the date of the Merger Agreement, Parent (i) pays a
dividend on PetroFina Shares payable in shares of any class of capital stock of
Parent, (ii) subdivides the outstanding PetroFina Shares into a greater number
of PetroFina Shares, (iii) combines the outstanding PetroFina Shares into a
smaller number of PetroFina Shares, (iv) changes the number of PetroFina Shares
represented by each PetroFina ADS, or (v) issues any shares of capital stock in
a reclassification of PetroFina Shares (other than a reclassification in
connection with a consolidation, merger or other business combination in which
Parent is the continuing corporation), the Exercise Price in effect at the time
of the record date for such dividend or distribution or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, will be proportionately adjusted
so that the holder of a PetroFina Warrant exercised after such time will be
entitled to receive the aggregate number and kind of shares of capital stock
which, if such PetroFina Warrant had been exercised immediately prior to such
date and at a time when the PetroFina ADS transfer books were open, such Warrant
Holder would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination, change or reclassification.
Whenever the number of PetroFina ADSs purchasable upon exercise of each
PetroFina Warrant is adjusted as described above, the Exercise Price of such
PetroFina Warrant will be adjusted so that it will equal the price determined by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction the numerator of which will be the number of PetroFina ADSs purchasable
upon the exercise of each PetroFina Warrant immediately prior to such adjustment
and denominator of which will be the number of PetroFina ADSs so purchasable
immediately thereafter.
If, at any time after the date of the Merger Agreement, Parent issues
rights, options, warrants or convertible or exchangeable securities (other than
a convertible or exchangeable security subject to the provisions described in
the previous paragraph) to all holders of PetroFina Shares (such rights,
options, warrants or convertible or exchangeable securities not being available
to holders of PetroFina Warrants) entitling them to subscribe for or purchase
PetroFina Shares at a price per PetroFina Share (or having a conversion,
exercise or exchange price per PetroFina Share, in the case of a security
convertible into or exercisable or exchangeable for PetroFina Shares) less than
the Current Market Price (as defined in Section 10(e) of the Warrant Agreement)
per PetroFina Share on such issuance date, the Exercise Price to be in effect
after such record date will be determined by multiplying (i) the Exercise Price
in effect immediately prior to such record date by (ii) a fraction of which the
numerator will be the number of PetroFina Shares outstanding on such record date
plus the number of PetroFina Shares which the aggregate offering price of the
total number of PetroFina Shares so to be offered (or the aggregate initial
conversion, exercise or exchange price of the convertible, exercisable or
exchangeable securities so to be offered) would purchase at such Current Market
Price and of which the denominator will be the number of PetroFina Shares
outstanding on such record date plus the number of additional PetroFina Shares
to be offered for subscription or purchase (or into which the convertible,
exercisable or exchangeable securities so to be offered are initially
convertible, exercisable or exchangeable). In case such subscription price may
be paid in a consideration part or all of which will be in a form other than
cash, the value of such consideration will be as determined in good
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faith by the Parent Board, whose determination will be described in a statement
filed with the Warrant Agent. Upon each adjustment of the Exercise Price as a
result of the calculations made in this paragraph, each PetroFina Warrant
outstanding immediately prior to the making of such adjustment will thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
PetroFina ADSs (calculated to the nearest one-thousandth) obtained by (i)
multiplying (x) the number of PetroFina ADSs covered by a PetroFina Warrant
immediately prior to such adjustment by (y) the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price and (ii) dividing the
product so obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
If, at any time after the date of the Merger Agreement, Parent pays a
dividend or makes a distribution (other than cash dividends payable in the
ordinary course of business in accordance with Belgian Corporation Law pursuant
to a decision of the Ordinary General Meeting of Shareholders and dividends or
distributions referred to in the first paragraph of this section) of evidences
of indebtedness or assets or subscription rights or warrants (excluding those
referred to in the foregoing paragraph), the Exercise Price to be in effect
after such record date will be determined by multiplying (i) the Exercise Price
in effect immediately prior to such record date by (ii) a fraction of which the
numerator will be the Current Market Price per share of the PetroFina Shares on
such record date, less the fair market value (as determined in good faith by the
Parent Board, whose determination will be described in a statement filed with
the Warrant Agent) of such distribution applicable to one PetroFina Share, and
of which the denominator will be such Current Market Price per share of
PetroFina Share. Upon each adjustment of the Exercise Price as a result of the
calculations described in this paragraph, each PetroFina Warrant outstanding
immediately prior to the making of such adjustment will thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of PetroFina ADSs
(calculated to the nearest one-thousandth) obtained by (i) multiplying (x) the
number of PetroFina ADSs covered by a PetroFina Warrant immediately prior to
such adjustment by (y) the Exercise Price in effect immediately prior to such
adjustment of the Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect immediately after such adjustment of the Exercise
Price.
In the event Parent shall at any time after the date of the Merger
Agreement, in a transaction in which the foregoing paragraphs are not
applicable, issue or sell PetroFina Shares, or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase PetroFina Shares, at a price per PetroFina Share (determined in the
case of such rights, options, warrants or convertible or exchangeable
securities, by dividing (A) the total amount receivable by Parent in
consideration of the issuance and sale of such rights, options, warrants or
convertible or exchangeable securities, plus the total consideration, if any,
payable to Parent upon exercise conversion or exchange thereof, by (B) the total
number of PetroFina Shares covered by such rights, options, warrants or
convertible or exchangeable securities) that is lower than the Current Market
Price (as defined in Section 10(e) of the Warrant Agreement) per PetroFina Share
in effect immediately prior to such sale or issuance, then the number of
PetroFina ADSs thereafter purchasable upon the exercise of each PetroFina
Warrant will be determined by multiplying the number of PetroFina ADSs
theretofore purchasable upon exercise of such PetroFina Warrant by a fraction,
the numerator of which will be the number of PetroFina Shares outstanding
immediately after such sale or issuance and the denominator of which will be the
number of PetroFina Shares outstanding immediately prior to such sale or
issuance plus the number of PetroFina Shares which the aggregate consideration
received (determined as described below) for such sale or issuance would
purchase at such Current Market Price per PetroFina Share. Such adjustment will
be made successively whenever any such sale or issuance is made. For purposes of
this paragraph, the PetroFina Shares which the holder of any such rights,
options, warrants or convertible or exchangeable securities will be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of the
date of such sale and issuance and the consideration received by PetroFina
therefor will be deemed to be the consideration received by PetroFina for such
rights, options, warrants or convertible or exchangeable securities, plus the
consideration or premium stated in such rights, options, warrants or convertible
or exchangeable securities to be paid for the PetroFina Shares covered thereby.
Whenever the number of PetroFina ADSs purchasable upon exercise of each
PetroFina Warrant is adjusted pursuant to this paragraph, the Exercise Price of
such PetroFina Warrant shall be adjusted so that it will equal the price
determined by multiplying such Exercise Price immediately prior to such
adjustment by a fraction the numerator of which shall be the number of PetroFina
ADSs purchasable upon the exercise of each
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PetroFina Warrant immediately prior to such adjustment and the denominator of
which will be the number of PetroFina ADSs so purchasable immediately
thereafter.
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least 1% in such price; provided,
however, that any adjustments which are not required to be made will be carried
forward and taken into account in any subsequent adjustment.
Upon the expiration of any rights, options, warrants or conversion or
exchange privileges that have previously resulted in an adjustment hereunder, if
any thereof have not been exercised, the Exercise Price and the number of
PetroFina ADSs or PetroFina Shares issuable upon the exercise of each PetroFina
Warrant will, upon such expiration, be readjusted and will thereafter, upon any
future exercise, be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may be)
as if (i) the only PetroFina Shares so issued were the PetroFina Shares, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion or exchange rights and (ii) such PetroFina Shares, if any, were
issued or sold for the consideration actually received by PetroFina upon such
exercise plus the consideration, if any, actually received by PetroFina for
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange rights whether or not exercised; provided, however, that no such
readjustment will have the effect of increasing the Exercise Price by an amount,
or decreasing the number of PetroFina ADSs or PetroFina Shares issuable upon
exercise of each PetroFina Warrant by a number, in excess of the amount or
number of the adjustment initially made in respect to the issuance, sale or
grant of such rights, options, warrants or conversion or exchange rights.
In any case in which any adjustment in the Exercise Price is made effective
as of a record date for a specified event, Parent may elect to defer until the
occurrence of such event the issuance to the holder of any PetroFina Warrant
exercised after such record date the PetroFina ADSs or other capital stock of
Parent issuable upon such exercise over and above the amount of PetroFina ADSs
or other capital stock of PetroFina, if any, issuable upon such exercise on the
basis of the Exercise Price in effect prior to such adjustment; provided,
however, that Parent will deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional PetroFina
ADS, or other capital stock upon the occurrence of the event requiring such
adjustment.
Whenever the Exercise Price or the number of PetroFina ADSs issuable upon
the exercise of each PetroFina Warrant is adjusted as provided in the Warrant
Agreement, Parent will (a) promptly prepare a certificate setting forth the
Exercise Price as so adjusted and/or the number of PetroFina ADSs issuable upon
exercise of each PetroFina Warrant as so adjusted, and a brief statement of the
facts accounting for such adjustment, (b) promptly file with the Warrant Agent
and with each transfer agent for the PetroFina ADSs a copy of such certificate
and (c) mail a brief summary thereof to each holder of a Warrant Certificate.
Reclassification, Consolidation, Merger, Combination, Sale or
Conveyance. In case any of the following occurs while any PetroFina Warrants
are outstanding: (i) any consolidation, merger or combination of Parent with or
into another corporation as a result of which holders of PetroFina Shares will
be entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such PetroFina Shares, or (ii) any sale
or conveyance of all or substantially all of the property or assets of Parent to
any other entity as a result of which holders of PetroFina Shares shall be
entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for such PetroFina Shares, then Parent, or
such successor corporation or transferee, as the case may be, will make
appropriate provision by amendment of this Agreement or by the successor
corporation or transferee executing with the Warrant Agent an agreement so that
the holders of the PetroFina Warrants then outstanding will have the right at
any time thereafter, upon exercise of such PetroFina Warrants, to receive the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, combination, sale or conveyance as would be received by a
holder of the number of PetroFina Shares represented by the PetroFina ADSs
issuable upon exercise of such PetroFina Warrant immediately prior to such
consolidation, combination, merger, sale or conveyance.
If the holders of the PetroFina Shares may elect the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
combination, sale or conveyance, then the kind and amount of securities, cash
and other property receivable upon such consolidation, merger, combination, sale
or
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conveyance will be deemed to be the choice specified by the holder of the
PetroFina Warrant in accordance with the terms of the Warrant Agreement. If the
holder of the PetroFina Warrant fails to make any specification, the holder's
choice shall be deemed to be whatever choice is made by a plurality of holders
of PetroFina Shares not affiliated with Parent or any other party to the
consolidation, merger, combination, sale or conveyance. Such new PetroFina
Warrants will provide for adjustments which, for events subsequent to the
effective date of such new PetroFina Warrants, will be as nearly equivalent as
may be practicable to the adjustments described herein.
Parent will mail, or cause to be mailed, by first-class mail, postage
prepaid, to each registered holder of a PetroFina Warrant, written notice of the
execution of any such amendment or agreement. Any new agreement entered into by
the successor corporation or transferee will provide for adjustments, which will
be as nearly equivalent as may be practicable to the adjustments described
herein. The Warrant Agent will be under no responsibility to determine the
correctness of any provisions contained in such agreement relating either to the
kind or amount of securities or other property receivable upon exercise of
PetroFina Warrants or with respect to the method employed and provided therein
for any adjustments and will be entitled to rely upon the provisions contained
in any such agreement.
Fractional PetroFina Warrants and Fractional ADSs. Parent and the Warrant
Agent will not be required to issue fractions of PetroFina Warrants or to
distribute Warrant Certificates which evidence fractional PetroFina Warrants. In
lieu of such fractional PetroFina Warrants, there will be paid to the persons to
whom Warrant Certificates representing such fractional PetroFina Warrants would
otherwise be issuable an amount in cash (without interest) equal to the product
of such fraction of a PetroFina Warrant multiplied by the Current Market Price
(as defined in Section 13(a) of the Warrant Agreement) per whole PetroFina
Warrant.
Parent and the Depositary (as defined below) will not be required to issue
fractions of PetroFina ADSs upon exercise of PetroFina Warrants or to distribute
stock certificates that evidence fractional PetroFina ADSs. In lieu of
fractional shares, there will be paid to the registered holders of Warrant
Certificates at the time such Warrant Certificates are exercised as herein
provided an amount in cash (without interest) equal to the product of such
fraction of a PetroFina ADS multiplied by the Current Market Price per PetroFina
ADS.
Reservation and Availability of Shares of PetroFina ADS or Cash. Parent
has agreed to (i) reserve and keep available for issuance, such number of
authorized and unissued PetroFina Shares or other securities of the Parent
deliverable upon exercise of the PetroFina Warrants, as will be sufficient to
permit the exercise in full of all outstanding PetroFina Warrants, (ii) to cause
the Depositary to reserve and keep available the number of PetroFina ADSs that
will be sufficient to permit the exercise in full of all outstanding PetroFina
Warrants and (iii) keep sufficient cash available for payment in lieu of
fractional PetroFina ADSs.
Registration and Listing of PetroFina ADSs and PetroFina Warrants. Parent
has also agreed to use its best efforts to cause the PetroFina Shares and
PetroFina ADSs reserved for issuance as described above to be covered at all
times during the term of the Warrant Agreement by an effective registration
statement under the Securities Act. Parent will also use its best efforts to
cause the PetroFina ADSs and PetroFina Warrants to be listed and maintained on
the NYSE, or on the NASDAQ, to the extent such PetroFina ADSs or such PetroFina
Warrants cannot be listed on the NYSE.
Payment of Taxes. Parent has agreed to pay when due and payable any and
all recording, transfer and similar taxes and charges which may be payable in
respect of the original issuance or delivery of the Warrant Certificates or
certificates evidencing PetroFina ADSs upon exercise of a Warrant Certificate.
However, Parent will not be required (i) to pay any tax or governmental charge
which may be payable in respect of any transfer involved in the transfer or
delivery of Warrant Certificates or the issuance or delivery of certificates for
PetroFina ADSs in a name other than that of the registered holder of the Warrant
Certificate surrendered for exercise or (ii) to issue or deliver any certificate
for PetroFina ADSs upon the exercise of any PetroFina Warrants until any such
tax or governmental charge has been paid (any such tax or governmental charge
being payable by the holder of such Warrant Certificate at the time of
surrender) or until it has been established to Parent's satisfaction that no
such tax or governmental charge is due.
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Notice of Proposed Actions. In case Parent proposes to (a) declare a stock
dividend or make certain other distributions to holders of PetroFina Shares, (b)
offer rights, options or warrants to all holders of PetroFina Shares entitling
them to subscribe for or purchase PetroFina Shares (or securities exercisable or
exchangeable for or convertible into PetroFina Shares or other securities), (c)
offer any shares of capital stock in a reclassification of PetroFina Shares
(including any reclassification in connection with a merger, consolidation or
combination in which PetroFina is the continuing corporation), (d) effect any
consolidation or merger with, or to effect any sale or other transfer of more
than 50% of the assets or net income of Parent and its subsidiaries to, another
person, (e) effect the liquidation, dissolution or winding up of Parent or (f)
take any action which is described in" --Adjustments of Exercise Price, Number
of PetroFina ADSs or Number of PetroFina Warrants" above, then Parent shall give
notice in accordance with the Warrant Agreement of such proposed action to each
registered holder of a PetroFinaWarrant.
All rights of action in respect of the Warrant Agreement are vested in the
respective registered holders of the Warrant Certificates, and any registered
holder of any Warrant Certificate, without the consent of the Warrant Agent or
of the holder of any other Warrant Certificate, may, on such holder's own behalf
and for such holder's own benefit, enforce, and may institute and maintain any
suit, action or proceeding against Parent to enforce, or otherwise act in
respect of, such holder's right to exercise the PetroFina Warrants evidenced by
such Warrant Certificate in the manner provided in such Warrant Certificate and
in the Warrant Agreement.
Supplements and Amendments. The Warrant Agreement permits Parent and the
Warrant Agent, from time to time, to supplement or amend the Warrant Agreement
without the approval of any holders of Warrant Certificates in order to cure any
ambiguity, to correct or supplement any provision which may be defective or
inconsistent with any other provisions, or to make any other provisions with
regard to matters or questions which Parent and the Warrant Agent may deem
necessary or desirable and which will not adversely affect the interests of the
holders of Warrant Certificates. In addition to the foregoing, with the consent
of holders of not less than a majority in number of the then outstanding
PetroFina Warrants (other than those held by Parent or any affiliate thereof),
Parent and the Warrant Agent may modify the Warrant Agreement for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Warrant Agreement or modifying in any manner the rights of the
holders of the Warrant Certificates; provided, however, that no modification of
the terms upon which the PetroFina Warrants are exercisable or that reduce the
percentage required for consent to modification of the Warrant Agreement may be
made without the consent of the holder of each outstanding PetroFina Warrant
affected thereby.
PETROFINA SHARES
Parent's subscribed capital is BEF 43,605,279,966. This subscribed capital
is represented by 23,420,432 ordinary voting PetroFina Shares (BEF 1,862 per
PetroFina Share), issued and outstanding as of March 31, 1998. Parent's
shareholders have authorized the Parent Board pursuant to a resolution adopted
at a general meeting of shareholders, to increase the subscribed capital of
Parent by up to BEF 14.7 billion (7,888,285 PetroFina Shares). This authority
expires on June 22, 2001, but may be renewed. See "-- Summary of Certain
Provisions of the Articles and Other Matters -- Preferential Subscription
Rights" below. The Articles also authorize the Parent Board or the shareholders
to issue non-voting preferred stock. Currently, no non-voting preferred stock is
issued and outstanding.
PetroFina Shares may be in either bearer or registered form, at the
holder's option. Each shareholder is entitled to one vote for each Share held on
each matter submitted to a vote of shareholders. When Parent in a given fiscal
year realizes sufficient earnings, the Parent Board may propose to the general
meeting of shareholders a dividend distribution to stockholders. See "-- Summary
of Certain Provisions of the Articles and Other Matters -- Dividends" below.
Dividends must be approved by the stockholders. In the event of a liquidation,
dissolution, or winding up of Parent, holders of PetroFina Shares are entitled
to receive, on a pro rata basis, any proceeds from the sale of Parent's assets
remaining available for distribution to the holders of PetroFina Shares.
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Under Belgian law, the holders of PetroFina Shares are required to approve,
and are entitled to preferential subscription rights to subscribe to a pro rata
portion of, future capital increases of Parent, subject to certain limitations
described below. See "-- Summary of Certain Provisions of the Articles and Other
Matters -- Preferential Subscription Rights" and "-- Options to Purchase
Securities from Registrant or Subsidiaries" below.
SUMMARY OF CERTAIN PROVISIONS OF THE ARTICLES AND OTHER MATTERS
General Meetings of Stockholders. Each holder of PetroFina Shares is
entitled to attend any general meeting of shareholders and to vote on all
matters on the agenda, provided that such holder has "blocked" the PetroFina
Shares pursuant to which voting rights will be exercised for a period of at
least five Belgian business days prior to the applicable meeting (or such other
period as may be specified in Parent's notice). Each Share is entitled to one
vote. A shareholder's right to vote all PetroFina Shares held may be limited if
the shareholder fails to comply with certain ownership reporting requirements.
See "-- Ownership Reporting."
Pursuant to the Articles, the annual general meeting of Parent's
shareholders takes place on the second Friday of May at the time and place
stipulated in the notice of the meeting. Extraordinary general meetings of the
shareholders may be called by the Board or by the statutory auditors. The Board
is required to call an extraordinary general meeting upon the written request of
holders of 20% of the outstanding PetroFina Shares.
Under Belgian law, shareholders have sole authority with respect to the
following matters: (1) the approval of Parent's annual accounts; (2) the
election and termination of directors and statutory auditors; (3) granting a
discharge of liability to the directors and statutory auditors; (4) the
determination of the fee of the statutory auditors; (5) the bringing of a suit
against the directors; (6) an increase or decrease in the capital of Parent
(except to the extent the shareholders have previously authorized the Board to
increase the capital); and (7) any other amendment to the Articles. Except for
certain specific matters, Belgian law does not require a quorum for the annual
general meetings of shareholders. Decisions are taken by a simple majority of
votes cast, irrespective of the number of PetroFina Shares present or
represented. Resolutions to amend any provision of the Articles (including any
amendment which would create an additional class of capital stock) require a
quorum of 50% of the issued capital (provided that if the 50% quorum is not
reached, the Board may call a second meeting for which no quorum is required),
as well as the affirmative vote of at least 75% of the shareholders present or
represented and voting at the meeting, or 80% thereof if the amendment would
change Parent's corporate purpose.
Under Belgian law, Parent is required to publish notices for each meeting
of the shareholders in the Belgian "official" gazette and in Belgian newspapers
beginning at least 18 days prior to such meeting. In addition, a copy of the
notice must be sent to each holder of PetroFina Shares in registered form at
least eight days prior to the meeting. The notice must indicate the place, date
and time of the meeting and set forth the agenda of the meeting, as well as the
proposals to be considered and voted upon at the meeting. Business transacted at
any general meeting of the shareholders is limited to the purposes stated in the
notice of the meeting. The notice also specifies the formalities that
shareholders must satisfy in order to attend and vote at the meeting. For a
description of the procedures by which holders of PetroFina ADSs may vote the
underlying PetroFina Shares, see "Description of American Depositary
Shares -- Voting of the Underlying PetroFina Shares." Parent has agreed in the
Deposit Agreement (as defined below) to give notice of a proposed shareholders'
meeting to the Depositary on or before the first date Parent gives or publishes
notice of the meeting for distribution to the holders of PetroFina Shares.
Neither Belgian law nor the Articles limit the rights of non-resident or
foreign investors to hold or vote the PetroFina Shares or, subject to tax laws,
to receive dividends paid on the PetroFina Shares.
Election and Tenure of Directors. Directors are elected by majority vote
at a general meeting of shareholders for a term of not more than six years. In
addition, the Board of Directors may approve a director to fill a vacancy on the
Board. A director so appointed may serve until the next general meeting of
shareholders. Directors may be removed from office at any time by a majority
vote at any meeting of shareholders.
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Annual Financial Statements. Pursuant to Belgian law, the annual general
meeting of shareholders must be held within six months after the close of
Parent's fiscal year for the purpose of approving the annual accounts prepared
by the Board of Directors and reported on by the statutory auditors. Not later
than one month before the date of the annual general meeting of shareholders,
the Board is to provide the annual accounts, along with the referenced report,
to Parent's independent auditors. The auditors are required to review the
accounts and prepare a report on the accounts for the benefit of Parent's
shareholders. Fifteen days before the date of Parent's annual general meeting,
the shareholders are entitled to review, at Parent's registered office, a copy
of the annual account as prepared by the Board, and the reports drawn up by the
Board and by Parent's independent auditors. In addition, Parent is required to
provide a copy of each of these documents to each record holder of its equity
securities in registered form and to each bearer shareholder who has notified
Parent that they will attend the annual general meeting of shareholders. So long
as PetroFina ADSs are outstanding, Parent will furnish to its shareholders, and
cause the Depositary to furnish to holders of PetroFina ADSs, annual reports (in
English). The adoption of the annual financial statements by the shareholders
must be followed by a separate vote of the shareholders with respect to the
discharge of liability of the Board of Directors and statutory auditors. This
discharge of liability is valid only when the financial statements submitted by
the Board contain no omissions of necessary information or misstatements, and
when no actions contrary to, or inconsistent with, the Articles have been
mentioned in the notice of annual general meeting of shareholders.
Dividends. Under Belgian law, Parent is required to set aside at least 5%
of its profits during each fiscal year and contribute such sum to PetroFina's
statutory reserve until such reserve has reached an amount equal to one-tenth of
PetroFina's capital. Subject to this requirement, the Board may propose to the
meeting of shareholders, at which the annual accounts are reviewed, to
distribute as a dividend all or a portion of PetroFina's profits relating to the
prior year. At the annual general meeting, in connection with the approval of
PetroFina's accounts, the shareholders may decide to make a distribution of
PetroFina's profits to all shareholders out of available reserves ("reserves
disponibles/beschikbare reserves") See "Market Prices and Dividends for
PetroFina Securities -- Dividends."
Liquidation Rights. In the event of a liquidation of Parent, the proceeds
from the sale of assets remaining after payment of all debts, liquidation
expenses and taxes are to be distributed ratably to the holders of the PetroFina
Shares, subject to prior liquidation rights of any preferred stock then
outstanding.
Ownership Reporting. Pursuant to Belgian law and the Articles, any
beneficial owner or any two or more persons acting as a partnership, limited
partnership, syndicate, or group (each of which shall be deemed a "person" for
such purposes), who after acquiring directly or indirectly the beneficial
ownership of any PetroFina Shares and other securities giving the right to
acquire additional PetroFina Shares (either directly or by virtue of the
ownership of PetroFina ADSs), is directly or indirectly the beneficial owner of
3%, 5%, 10%, 15% (or any other multiple of 5%) of the total voting rights of
Parent (or such lesser percentage as may be required to be disclosed from time
to time under any law, regulation, or the Articles) and every subsequent
acquisition or disposition which causes such beneficial owner's or person's
total voting rights to increase or decrease past any such threshold percentage,
shall, within two Belgian business days after becoming so beneficially
interested, send to Parent and to the CBF (the Belgian Commission on Banking and
Finance), the information set forth in the Deposit Agreement. In order for a
beneficial owner to be eligible to exercise voting rights with respect to all
PetroFina Shares held by beneficial owner exceeding such thresholds, such
beneficial owner must have (i) complied in a timely manner with these disclosure
requirements and (ii) provided the required disclosure materials at least 45
days prior to the date of the stockholders' meeting with respect to such
PetroFina Shares. A beneficial owner may not exercise voting rights in respect
of a number of PetroFina Shares greater than the number disclosed at least 45
days prior to the date of the applicable shareholders' meeting; provided,
however, that this restriction would not apply to Shares below the initial 3%
threshold or to PetroFina Shares between two consecutive thresholds as long as
the beneficial owner has reported PetroFina Shares at least equal to the lower
of the two thresholds. Any person failing to so timely report beneficial
ownership of PetroFina Shares may forfeit all or part of the rights attributable
to such PetroFina Shares, including, but not limited to, voting rights or rights
to distributions of cash or stock dividends. For holders of
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PetroFina ADSs, beneficial ownership will be determined for this purpose in
accordance with the beneficial ownership rules of the U.S. Securities and
Exchange Commission.
Preferential Subscription Rights. Under Belgian law, shareholders of
Parent have preferential subscription rights, in proportion to the number of
PetroFina Shares held by them, in respect of issues of new PetroFina Shares for
cash by Parent. These rights, however, may be limited or removed by a resolution
passed at a general meeting of stockholders. At a general meeting of
shareholders in 1996, the Board was authorized, for a period of 5 years
(expiring on June 22, 2001) to limit or remove these rights in connection with
an increase in Parent's subscribed capital of up to BEF 15 billion (8,055,054
PetroFina Shares). Such permission may be renewed through a vote at a general
meeting of shareholders.
Repurchases by Parent of PetroFina Shares. Under the Articles, Parent may
not engage in Share repurchases unless authorized by the shareholders (except
for the purpose of distributing PetroFina Shares to its employees). Parent was
authorized by resolution of the general shareholders' meeting, for a period of
three years beginning June 22, 1996, to acquire PetroFina Shares, whether voting
or non-voting, to avoid grave and imminent danger to Parent without a further
resolution of the general shareholders' meeting, by means of purchase or
exchange, directly or through an intermediary acting in its own name but for
Parent's account. This authorization may be renewed. There are currently no
restrictions on the repurchase or redemption of PetroFina Shares by Parent while
there are any outstanding dividend payments or sinking fund installments owed
(and unpaid) by Parent.
TRANSFERS
Parent is the transfer agent and registrar for Parent's registered Shares.
Under Belgian law, a transfer of registered Shares may be effected only upon
registration of such transfer on Parent's share register maintained at Parent's
office in Brussels (Belgium). Holders of registered PetroFina Shares may elect
to present their PetroFina Shares for transfer to Parent, which will effect the
transfer.
Bearer PetroFina Shares are validly transferred by delivery.
The transfer agent and registrar for the PetroFina ADSs is Citibank, N.A.
See "-- PetroFina American Depositary Shares -- Deposit and Withdrawal of
PetroFina Shares" and "-- PetroFina American Depositary Shares -- Transfer of
American Depositary Shares."
LIABILITY OF DIRECTORS
Under Belgian law, directors may be liable for damages to Parent in case of
improper performance of their duties. They may be liable for damages to Parent
and to third parties for infringement of the Articles or the Belgian company
law, or tortious conduct. Under certain circumstances, directors may also be
criminally liable.
ANTI-TAKEOVER EFFECT OF PROVISIONS OF THE COMPANY LAWS
Under Belgian law, if an individual or a company intends to acquire the
joint or exclusive control of Parent through one or more transactions relating
to the PetroFina Shares, the acquiror must notify the CBF of the contemplated
transaction at least five days before its completion. If the price of the
contemplated transfer includes a control premium, the acquiror must offer to all
other shareholders of Parent to be acquired the opportunity to sell their
PetroFina Shares at the highest price offered by the acquiror for PetroFina
Shares during the 12 months preceding the acquisition of control of Parent. The
acquiror must give the other shareholders this opportunity within 30 days after
its acquisition of control either (i) in the form of a public takeover bid or
(ii) pursuant to an undertaking to support the stock price of the acquired
company on the relevant stock exchange.
Public takeover bids must be made for all the outstanding voting securities
of Parent. Prior to making a bid, a bidder must issue a prospectus which is
approved by the CBF. Any bid made by or on behalf of either a non-EU national or
non-EU company is required to be approved by the Belgian Minister of Finance
prior to its being made. In case of a public takeover bid, the European
Commission must approve the transaction, if
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(i) the combined worldwide revenues of both the bidder and Parent to be acquired
exceed ECU 2,500 million, (ii) the combined community-wide revenues of the
bidder and Parent to be acquired in at least three EU member states exceed ECU
100 million, and (iii) the revenues of each of the bidder and Parent to be
acquired from each of such three EU member states exceed ECU 25 million.
Public takeover bids are subject to the supervision of the CBF. If the CBF
determines that a takeover bid is contrary to the interests of the stockholders
of Parent, it may suspend the takeover bid for a maximum of 72 hours and request
the President of the Commercial Court of Belgium to prohibit the bid and suspend
the exercise of the rights attached to any PetroFina Shares that were acquired
in connection therewith.
Under Belgian law, a company must notify the Minister for Economic Affairs,
the Minister of Finances, as well as the relevant Secretary of State for
Regional Economy prior to any transaction which will transfer more than
one-third of the capital of a company that is located in Belgium and has equity
capital in excess of BEF 100 million.
Other more specific provisions are applicable in case of merger. Among
them, employee's rights legislation provides for a number of formalities to be
respected. See "Comparative Rights of Holders of PetroFina ADSs and Holders of
the Company Common Stock -- Business Combinations."
EXCHANGE CONTROLS AND OTHER PROVISIONS RELATED TO NON-BELGIAN STOCKHOLDERS
Belgian exchange control regulations impose no limitations on the amount of
cash payments that may be remitted by Parent to residents of the United States.
However, when there is a transfer of funds by Parent an obligation to notify the
"Institut belgo/luxembourgeois du change/Belgisch-Luxemburgs Wisselinstituut"
("IBCC") arises. If the transfer of funds is handled by Belgian financial
institutions, these institutions will give the required notification. However,
Parent obtained an exemption from the IBLC allowing Parent to make monthly
declarations in relation to its financial operations.
There are no special restrictions in the Articles or Belgian law that limit
the right of stockholders who are not citizens or residents of Belgium to hold
or vote the PetroFina Shares.
PETROFINA AMERICAN DEPOSITARY SHARES
The following is a summary of certain provisions of the Second Amended and
Restated Deposit Agreement, pursuant to which the PetroFina ADSs are issued (the
"Deposit Agreement") to be entered into among Parent, Citibank, N.A., as
depositary (the "Depositary"), and the holders and beneficial owners from time
to time of PetroFina ADSs evidenced by American Depositary Receipts ("ADRs").
This summary is qualified in its entirety by reference to the Deposit Agreement,
which has been filed as an exhibit to this Registration Statement. Additional
Copies of the Deposit Agreement are available for inspection at the principal
office of the Depositary in New York (the "Principal Office"), which is
presently located at 111 Wall Street, New York, New York 10043. As used herein,
the term "ADR Holder" shall mean the person in whose name an ADR is registered
on the books of the Depositary maintained for such purpose.
AMERICAN DEPOSITARY RECEIPTS
ADRs evidencing PetroFina ADSs are issuable by the Depositary pursuant to
the Deposit Agreement. An ADR may evidence any number of PetroFina ADSs. Each
PetroFina ADS represents one-tenth of one PetroFina Share.
DEPOSIT AND WITHDRAWAL OF PETROFINA SHARES
PetroFina Shares may be deposited by delivery of the PetroFina Shares to
Generale de Banque S.A., as custodian (the "Custodian"), which is presently
located at Montagne du Parc, 3, B-1000, Brussels, Belgium. Upon deposit of the
PetroFina Shares (such deposited PetroFina Shares, together with any and all
other securities, property and cash received by the Depositary or the Custodian
in respect thereof, the "Deposited Securities"), the Custodian will issue a
written order directing the Depositary to issue, execute and deliver to the
person or persons identified in such order, an ADR or ADRs for the number of
PetroFina ADSs
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representing the number of PetroFina Shares deposited. The Depositary has agreed
that, upon receipt of such notice, and subject to the terms of the Deposit
Agreement, it will execute and deliver at its Principal Office, to the person or
persons specified by the Custodian, ADRs registered in the name or names of such
person or persons for the aggregate number of PetroFina ADSs issuable in respect
of such deposit, upon payment to the Depositary of the fee for issuance,
execution and delivery of such ADRs, the fee for deposit and transfer of
PetroFina Shares and all taxes and governmental charges.
Upon surrender of ADRs at the Principal Office of the Depositary, payment
of the fees and charges provided in the Deposit Agreement and payment of all
taxes and governmental charges payable in connection therewith, and subject to
the terms and conditions of the Deposit Agreement, each ADR Holder is entitled
to delivery, to him or upon his order, of the Deposited Securities represented
thereby. The Depositary will not accept for surrender an ADR evidencing a number
of PetroFina ADSs which represent rights attributable to less than a whole
Share.
Subject to the terms and conditions of the Deposit Agreement and any
limitations established by the Depositary, the Depositary may issue ADRs against
rights to receive PetroFina Shares prior to the receipt of such PetroFina Shares
and deliver PetroFina Shares prior to receipt of ADRs ("Pre-Release"). In
satisfaction of a PreRelease, the Depositary may receive ADRs in lieu of
PetroFina Shares and PetroFina Shares in lieu of ADRs, in accordance with the
Deposit Agreement. Each Pre-Release will be (1) accompanied by or subject to a
written agreement whereby the person or entity to whom ADRs or PetroFina Shares
are to be delivered (which must be a reputable financial institution) (a)
represents that at the time of the Pre-Release transaction such person or
entity, or its customer, owns the PetroFina Shares or ADRs that are to be
delivered by such person or entity under such Pre-Release transaction, (b)
agrees to indicate the Depositary as owner of such PetroFina Shares or ADRs in
its records and to hold such PetroFina Shares or ADRs in trust for the
Depositary until such PetroFina Shares or ADRs are delivered to the Depositary
or the Custodian, (c) unconditionally guarantees to deliver to the Depositary or
Custodian the PetroFina Shares or ADRs and (d) agrees to any additional
restrictions or requirements that the Depositary deems appropriate; (2) at all
times fully collateralized with cash, U.S. Government securities or such other
collateral as the Depositary deems appropriate; (3) terminable by the Depositary
on not more than five business days' notice; and (4) subject to such further
indemnities and credit regulations as the Depositary deems appropriate. The
number of ADRs and PetroFina Shares which are involved in such PreRelease
transactions at any one time will not normally exceed 30% of the ADRs
outstanding; provided, however, that the Depositary may change or disregard such
limit from time to time as it deems appropriate. The Depositary may also set
limits with respect to the number of ADRs and PetroFina Shares included in
Pre-Release transactions with any one person on a case-by-case basis as it deems
appropriate. Collateral provided pursuant to a Pre-Release, but not the earnings
thereon, shall be held for the benefit of ADR Holders (other than the person or
entity to whom ADRs or PetroFina Shares are to be delivered.)
RESTRICTED ADSS
The Depositary, at Parent's request, will establish procedures enabling the
deposit of PetroFina Shares which are (a) subject to resale limitations under
the Securities Act, (b) held by an executive officer, director or affiliate of
Parent or (c) subject to other restrictions on sale or deposit under U.S. or
Belgian law, or under shareholders agreements or the Articles (the "Restricted
PetroFina Shares"). The purpose of these procedures is to allow a holder of
Restricted PetroFina Shares to hold its ownership interest in the form of
PetroFina ADSs. The restricted PetroFina ADSs issued upon the deposit of
Restricted PetroFina Shares will be separately identified on the books of the
Depositary and the Restricted PetroFina Shares so deposited will be held
separate and distinct from the other deposited securities held by the
Depositary. The restricted ADRs and the restricted PetroFina ADSs evidenced
thereby will be transferable only by the holder thereof upon delivery to the
Depositary of (i) all documentation otherwise contemplated by the Deposit
Agreement and (ii) an opinion of counsel satisfactory to the Depositary to the
effect that such transfer does not violate the Securities Act or any other
applicable laws or the transfer restrictions contained in the legend set forth
on the restricted receipt presented for transfer.
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PARTIAL ENTITLEMENT PETROFINA ADSS
If the Depositary issues PetroFina ADSs in respect of newly issued
PetroFina Shares, upon Parent's request, the Depositary will issue PetroFina
ADSs that do not entitle the holder thereof to receive any dividend payable in
respect of the fiscal year (a "Partial Entitlement ADS") prior to the fiscal
year of issuance. The holder of a Partial Entitlement ADS will otherwise possess
all rights of ownership of a PetroFina ADS. A Partial Entitlement ADS will
automatically convert to a PetroFina ADS, with full rights to dividends,
following the dividend payment date occurring in the year of issuance. PetroFina
ADSs issued upon exercise of the PetroFina Warrants will entitle such holder to
the full benefits of a holder of PetroFina ADSs and will not be Partial
Entitlement ADSs.
RECORD DATES
Whenever the Depositary or the Custodian receives notice from Parent of any
cash dividend or other cash distribution, or any distribution other than cash,
or any issuance of rights with respect to the Deposited Securities or whenever
the Depositary or Custodian receives notice of any meeting of holders of
PetroFina Shares or other Deposited Securities, the Depositary will fix a record
date (which, in the case of any distribution, will be as near as practicable to
the payment date for the PetroFina Shares set by PetroFina for holders of its
PetroFina Shares) for determining the holders of ADRs who are entitled to
receive such dividend, distribution or rights, or the net proceeds of the sale
thereof or to exercise voting rights at any such meeting, subject to the
provisions of the Deposit Agreement.
VOTING OF THE UNDERLYING PETROFINA SHARES
Holders of ADRs representing PetroFina Shares or other Deposited Securities
are entitled to instruct the Depositary as to the exercise of voting rights, if
any, pertaining thereto. As soon as practicable after timely receipt by the
Depositary of notice of any meeting of holders of PetroFina Shares or other
Deposited Securities, which notice shall be furnished in the English language to
the Depositary by Parent, pursuant to the terms of the Deposit Agreement and
Belgian law, the Depositary shall promptly mail to the ADR Holders of record at
the close of business on the specified record date a notice which shall contain
(a) such information as is contained in such notice of meeting received by the
Depositary from Parent, (b) a statement that the ADR Holders as of the close of
business on a specified record date (such ADR Holders, the "Voting Owners") will
be entitled, subject to applicable Belgian law and Parent's Articles, to give
instructions to the Depositary as to the exercise of the voting rights, if any,
pertaining to the number of PetroFina Shares or other Deposited Securities
represented by the PetroFina ADSs evidenced by their respective ADRs and (c) a
statement as to the manner in which such instructions may be given.
In order to exercise voting rights in respect of PetroFina Shares, a Voting
Owner must deposit such Voting Owner's PetroFina ADSs with the Depositary for
"blocking" during the period from the New York business day preceding the fifth
Belgian business day prior to the meeting date until the New York business day
after such meeting (or such other period as may be specified in the Parent's
notice), and the Depositary shall hold such PetroFina ADSs in a blocked account
during such period, together with such Voting Owner's written request that the
Custodian cause the PetroFina Shares represented by such PetroFina ADSs be
blocked for voting. If such Voting Owner wishes to exercise voting rights in
respect of PetroFina Shares by proxy through the Depositary, such Voting Owner
shall deliver such Voting Owner's voting instructions in respect of such
PetroFina Shares. The Depositary will endeavor, insofar as practicable and
permitted by applicable Belgian law, to cause to be voted the number of
PetroFina Shares represented by the PetroFina ADSs evidenced by such Voting
Owner's ADRs in accordance with the instructions set forth in such proxy. The
Depositary agrees not to cause to be voted any PetroFina Shares except in
accordance with instructions from the Voting Owner of ADRs evidencing PetroFina
ADSs representing such PetroFina Shares. If no instructions are received by the
Depositary from any Voting Owner in respect of any Deposited Securities
represented by PetroFina ADSs evidenced by ADRs on or before the date
established by the Depositary for such purpose, the Deposited Security shall not
be voted. Voting Owners who have "blocked" their PetroFina ADSs as described
above may attend the meeting and vote in person or by proxy in lieu of
delivering voting instructions to the Depositary in the manner described above.
Any person who becomes an ADR Holder
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subsequent to the close of business on the record date established by the
Depositary and who wishes to exercise the voting rights in respect of the
PetroFina Shares represented by such PetroFina ADSs, shall be able to do so only
by (i) surrendering the ADRs evidencing such PetroFina ADSs and withdrawing the
Deposited Securities represented thereby, (ii) presenting such PetroFina Shares
for blocking at least five Belgian business days prior to the date of the
applicable Stockholders' meeting (or such other period as may be specified in
Parent's notice) with the Custodian, and (iii) exercising the voting rights in
respect of such PetroFina Shares at the meeting in accordance with applicable
Belgian law.
Because 10 PetroFina ADSs represent one PetroFina Share, proxies may be
given by Voting Owners only in respect of even multiples of 10 PetroFina ADSs.
An ADR Holder's or beneficial owner's right to vote all PetroFina ADSs held
may be limited if the ADR Holder or beneficial owner fails to comply with
certain ownership reporting requirements. See "-- The PetroFina
Shares -- Summary of Certain Provisions of the Articles and Other
Matters -- Ownership Reporting."
Because of the short time periods for notice required under Belgian company
law, there can be no assurance that ADR Holders generally or any ADR Holder in
particular will receive the notice described herein sufficiently prior to the
date of the meeting to ensure that the Depositary will vote the PetroFina Shares
or Deposited Securities in accordance with the provisions set forth in the
Deposit Agreement. However, Parent will attempt to provide (or cause to be
provided) the notice for the Annual General Meeting of Shareholders as soon as
reasonably feasible.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of ADRs and any provisions of the Deposit Agreement may at any
time be amended by agreement between Parent and the Depositary without the prior
written consent of the ADR Holders or beneficial owners of ADRs. Any amendment
which imposes or increases any fees or charges (other than taxes and
governmental charges), or which otherwise prejudices any substantial existing
right of ADR Holders, will not become effective as to outstanding ADRs until the
expiration of three months after notice of the amendment has been given to the
ADR Holders. Every ADR Holder and beneficial owner of an ADR at the time such
amendment so becomes effective will be deemed, by continuing to hold the ADR and
the PetroFina ADSs represented thereby, to consent and agree to such amendment
and to be bound by the Deposit Agreement and such ADR as amended thereby. In no
event may any amendment impair the right of an ADR Holder to surrender such ADRs
and receive the corresponding number of Deposited Securities represented
thereby, except in accordance with applicable law. In the event that the
Depositary resigns or is removed or another depositary is substituted, ADR
Holders will be notified by the successor depositary.
Whenever so directed by Parent, the Depositary has agreed to terminate the
Deposit Agreement by mailing notice of such termination to the holders of all
then outstanding ADRs registered on the books of the Depositary at least 30 days
prior to the date fixed in the notice for the termination. The Depositary may
likewise terminate the Deposit Agreement, by mailing notice of such termination
to Parent and the ADR Holders, if at any time four months shall have expired
after the Depositary shall have delivered the notice of its resignation to
Parent and a successor Depositary shall not have been appointed and accepted its
appointment as provided in the Deposit Agreement. If any ADRs remain outstanding
after the date of termination, the Depositary thereafter will discontinue the
registration of transfer of ADRs, will suspend the distribution of dividends to
the holders thereof, and will not give any further notices or perform any
further acts under the Deposit Agreement, except that the Depositary: (1) will
continue to collect dividends and other distributions pertaining to the
Deposited Securities; (2) will sell rights as provided in the Deposit Agreement;
(3) and will continue to deliver Deposited Securities subject to the terms of
the Deposit Agreement, together with any dividends or other distributions
received with respect thereto, and the net proceeds of the sale of any rights or
other property, in exchange for surrendered ADRs, after deducting, in each case,
any applicable fees and expenses of the Depositary for the surrender of ADRs,
expenses for the account of the ADR Holder in accordance with the provisions of
the Deposit Agreement, and taxes and governmental charges. At any time after the
expiration of six months from the date of termination, the Depositary may sell
the Deposited
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Securities and hold the net proceeds, together with any other cash then held,
without liability for interest, for the pro rata benefit of the ADR Holders
which have not theretofore been surrendered.
CHARGES OF DEPOSITARY
Parent will pay the fees and expenses of the Depositary and those of any
Registrar, except for the charges that are expressly provided in the Deposit
Agreement to be at the expense of ADR Holders and beneficial owners of ADRs
evidencing ADSs representing Deposited Securities as set forth below.
The following charges shall be incurred by any party depositing or
withdrawing PetroFina Shares or by any party surrendering ADRs or to whom ADRs
are issued including, without limitation, issuance pursuant to a stock split
declared by Parent or an exchange of stock regarding the ADRs or Deposited
Securities or a distribution of ADRs pursuant to the Deposit Agreement,
whichever is applicable: (1) the fees of the Depositary for the execution and
delivery of ADRs and the surrender of ADRs (up to US $5 per 100 PetroFina ADSs
or fraction thereof), (2) taxes and other governmental charges, (3) such
registration fees as may from time to time be in effect for the registration of
transfers of PetroFina Shares generally and accordingly applicable to transfers
of PetroFina Shares to the name of the Depositary or its nominee or a Custodian
or its nominee on the making of deposits, (4) such cable, telex and facsimile
transmission and delivery expenses as are expressly provided in the Deposit
Agreement to be at the expense of persons depositing PetroFina Shares or ADR
Holders, and (5) such expenses as are incurred by the Depositary in the
conversion of foreign currency.
TRANSFER OF AMERICAN DEPOSITARY SHARES
The ADRs are transferable on the books of the Depositary; provided,
however, that the Depositary may close the transfer books, at any time or from
time to time, when deemed expedient and reasonable by it in connection with the
performance of its duties. ADR Holders will have the right to inspect the
transfer books, subject to certain conditions provided in the Deposit Agreement.
As a condition precedent to the execution and delivery, registration of
transfer, split-up, combination, or surrender of any ADR, or the withdrawal of
Deposited Securities, the Depositary or the Custodian may require payment from
the presenter of the ADR of a sum sufficient to reimburse it for any tax or
other governmental charge and any stock transfer or registration fee with
respect thereto, payment of any applicable fees as provided in the Deposit
Agreement, the production of proof satisfactory to the Depositary or the
Custodian as to the identity and genuineness of any signature and may also
require compliance with any laws or governmental regulations, relating to
PetroFina ADSs or to Deposited Securities. The delivery of ADRs against deposits
of PetroFina Shares generally or against deposits of particular PetroFina
Shares, may be suspended or the delivery of ADRs against the deposit of
particular PetroFina Shares may be withheld or the registration of transfer of
ADRs in particular instances may be refused, or the registration of transfer or
the surrender of outstanding ADRs generally may be suspended during any period
when the transfer books of the Depositary are closed, or if any such action is
deemed necessary or advisable by the Depositary or Parent in good faith at any
time or from time to time because of any requirement of law or governmental body
or commission or under any provision of the Deposit Agreement. The surrender of
outstanding ADRs and the withdrawal of Deposited Securities may not be
suspended, except as required in connection with (1) temporary delays caused by
closing the transfer books of the Depositary or Parent or the deposit of
PetroFina Shares in connection with voting at a Stockholders' meeting or the
payment of dividends, (2) the payment of fees, taxes, and similar charges and
(3) compliance with any U.S. or foreign laws or governmental regulations
relating to the ADRs or to the Deposited Securities. See also "-- Voting of the
Underlying PetroFina Shares" with respect to additional transfer restrictions.
Without limitation of the foregoing, the Depositary shall not knowingly accept
for deposit under the Deposit Agreement any PetroFina Shares required to be
registered under the Securities Act of 1933, as amended, unless a registration
statement is in effect as to such PetroFina Shares.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS; CONVERSION OF FOREIGN CURRENCY
Whenever the Depositary shall receive any cash dividend or other cash
distribution by Parent on any Deposited Securities, the Depositary shall,
subject to the provisions of the Deposit Agreement, distribute such
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amount to the holders of ADR Holders entitled thereto in proportion to the
number of PetroFina ADSs representing such Deposited Securities evidenced by
ADRs held by them respectively; provided, however, that in the event that
Parent, the Custodian or the Depositary shall be required to withhold and does
withhold from any cash dividend or other cash distribution in respect of any
Deposited Securities an amount on account of taxes, the amount distributed to
the holder of ADRs for PetroFina ADSs representing such Deposited Securities
shall be reduced accordingly. The Depositary shall distribute only such amount,
however, as can be distributed without attributing to any holder of an ADR a
fraction of one cent, and any balance not so distributable shall be held by the
Depositary (without liability for interest thereon) and shall be added to, and
become part of, the next sum received by the Depositary for distribution to
holders of ADRs then outstanding. Concurrent with making any cash distributions
in respect of any Deposited Securities held by the Depositary, Parent or its
agent or the Custodian, as appropriate, will remit in due time to the
appropriate governmental authority or agency in Belgium all amounts withheld and
owing to such authority or agency.
If any distribution by Parent consists of a dividend in, or free
distribution of, PetroFina Shares, the Depositary may, and will, if Parent so
requests, distribute an amount of ADRs evidencing PetroFina ADSs corresponding
to the number of PetroFina Shares received as such dividend or free
distribution. In lieu of delivering ADRs for fractional PetroFina ADSs in any
such case, the Depositary shall sell the number of PetroFina Shares represented
by the aggregate of such fractions and will distribute the net proceeds to
owners of PetroFina ADSs in accordance with the Deposit Agreement. If additional
ADRs are not so distributed, each ADR will thenceforth also represent the
additional PetroFina Shares distributed upon the Deposited Securities
represented thereby.
If Parent offers, or causes to be offered, to the holders of any Deposited
Securities, any rights to subscribe for additional Shares or any rights of any
other nature, the Depositary will have discretion as to the procedure to be
followed in making such rights available to ADR Holders or in disposing of such
rights for the benefit of ADR Holders and making the net proceeds available to
such ADR Holders. If, by the terms of such rights offering or for any other
reason it would be unlawful or infeasible for the Depositary to either make such
rights available to any ADR Holders or if such rights appear to be about to
lapse, the Depositary shall sell such rights at public or private sale, at such
place or places and upon such terms as the Depositary deems proper and shall
allocate the proceeds among the ADR Holders entitled thereto, provided that the
Depositary shall, if the Depositary determines that it is lawful and feasible to
make such rights available to ADR Holders, distribute to ADR Holders, in
proportion to the number of PetroFina ADSs evidenced by ADRs held by such ADR
Holders, warrants or other instruments therefor in such form as it deems
appropriate.
The Depositary will not offer to ADR Holders rights to subscribe for or to
purchase any securities unless a registration statement is in effect with
respect to the securities represented by such rights under the Securities Act or
the offer and sale of such rights or securities to such holders are exempt from
registration under the provisions of such act.
If the Depositary determines that any distribution of property other than
cash, PetroFina Shares or rights cannot be made proportionally among ADR Holders
entitled thereto, or if for any other reason (including any requirement that
Parent or the Depositary withhold on account of taxes) the Depositary deems such
distribution not to be feasible, the Depositary may dispose of all or a portion
of such property in such amounts and in such manner, including by public or
private sale at such place or places, as the Depositary deems equitable and
practicable, and the Depositary will distribute the net proceeds of any such
sale as in the case of a distribution received in cash.
Whenever the Depositary shall receive any currency other than dollars, by
way of dividends or other distributions or as the net proceeds from the sale of
securities, property or rights, and if at the time of the receipt thereof such
currency so received can in the judgment of the Depositary be converted into
dollars distributable to the ADR Holders entitled thereto and the resulting
dollars freely transferred to the United States, the Depositary shall convert or
cause to be converted as soon as practicable on a reasonable basis in accordance
with prevailing market practice, by sale or in any other manner that it may
determine, such foreign currency into dollars, and such dollars (less any
reasonable and customary expenses incurred by the Depositary in the conversion
of the foreign currency) shall be distributed to the holders of ADRs entitled
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thereto or, if the Depositary shall have distributed any warrants or other
instruments which entitle the holders thereof to such dollars, then to the
holders of such warrants and/or instruments upon surrender thereof for
cancellation. Such distribution to the ADR Holders may be made upon an averaged
or other practicable basis without regard to any distinctions among such holders
on account of any application of exchange restrictions or otherwise. The amount
distributed will be reduced by any amounts required to be withheld by Parent or
the Depositary on account of taxes or other governmental charges. See "Certain
Tax Considerations Relating to PetroFina Warrants and PetroFina ADSs -- United
States Federal Income Tax Considerations Relating to PetroFina Warrants and
PetroFina ADSs -- Tax Consequences of Holding PetroFina ADSs." If such
conversion or distribution with regard to one or more holders of ADSs can be
effected only with the approval or license of any government or agency thereof,
the Depositary will file such application for approval of license, if any, as it
may deem desirable. If the Depositary determines in its reasonable judgment that
any foreign currency received by it cannot be converted on a reasonable basis in
accordance with prevailing market practice into dollars distributable to the ADR
Holders entitled thereto or if any approval or license of any governmental
authority or agency which is required for such conversion is denied or in the
opinion of the Depositary is not obtainable, or if any such approval or license
is not obtained within a reasonable period as determined by the Depositary, the
Depositary may distribute the foreign currency received by it or at its
discretion, hold such foreign currency for the respective accounts of the ADR
Holders entitled to receive the same. For information on withholding of taxes on
dividends or other distribution, see "Certain Tax Considerations Relating to
PetroFina Warrants and PetroFina ADSs -- United States Federal Income Tax
Considerations Relating to PetroFina Warrants and PetroFina ADSs -- U.S.
Information Reporting and Backup Withholding."
OWNERSHIP REPORTING
Holders and Beneficial Owners of PetroFina ADSs are subject to the same
ownership reporting requirements as holders of the PetroFina Shares which
require a shareholder to notify Parent within two Belgian business days of
acquiring beneficial ownership of PetroFina Shares such that the holder owns 3%
or more of the outstanding PetroFina Shares (and upon crossing any multiple of
5% either upwards or downwards). See "-- The PetroFina Shares -- Summary of
Certain Provisions of the Articles and Other Matters -- Ownership Reporting."
INSPECTION OF TRANSFER BOOKS
The Deposit Agreement provides that the Depositary will keep books at its
Principal Office for the registration and transfer of ADRs which at all
reasonable times will be open for inspection by the ADR Holders, provided that
such inspection shall not be for the purpose of communicating with ADR Holders
in the interest of a business or object other than the business of Parent or a
matter related to the Deposit Agreement or the ADRs.
LIABILITY OF HOLDERS AND BENEFICIAL OWNERS FOR TAXES OR OTHER CHARGES
If any tax or other governmental charge shall become payable with respect
to any Deposited Securities evidenced by an ADR, such tax or other governmental
charge shall be payable by the ADR Holder or beneficial owner of such ADR to the
Depositary. The Depositary may refuse to effect any transfer of such ADR or to
issue any new ADR or permit any withdrawal of the Deposited Securities
represented thereby until such payment is made, and may withhold any dividends
or other distributions or may sell for the account of the ADR Holder and
beneficial owner thereof any or all of the Deposited Securities represented by
such ADR and may apply such dividends or other distributions or the proceeds of
any such sale in payment of any such tax or other governmental charge, the ADR
Holder and beneficial owner of such ADR shall remain liable for any deficiency.
GENERAL
Neither the Depositary nor Parent will be liable to any ADR Holder or
beneficial owner if such parties are prevented or delayed in performing their
obligations under the Deposit Agreement by reason of any
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present or future law, by any governmental authority or by any circumstances
beyond their reasonable control, by any provisions of Parent's Articles, or by
reason of, or failure to exercise, any discretion provided for in the Deposit
Agreement. The obligations of Parent and the Depositary under the Deposit
Agreement are expressly limited to performing their respective duties specified
therein without negligence or bad faith. Parent and the Depositary have each
agreed to indemnify the other in certain circumstances arising out of acts
performed or omitted by various parties in connection with the Deposit
Agreement. Parent and the Depositary have agreed to submit to the non-exclusive
jurisdiction of the federal courts in the State of New York in connection with
disputes between them relating to the Deposit Agreement. Parent also has agreed
to submit to the non-exclusive jurisdiction of any state or federal court of the
United States in which an action relating to the Deposit Agreement is brought by
an ADR Holder against the Depositary, or against the Depositary and Parent,
solely in connection with claims by the Depositary against Parent arising out of
such action.
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Under Belgian law, shareholders of Parent have preferential subscription
rights, in proportion to the number of PetroFina Shares held by them, in respect
of issues of new PetroFina Shares for cash by Parent. This preferential
subscription right, however, may be either limited or removed by a resolution
passed at a general meeting of shareholders. At the general meeting of
shareholders on May 10, 1996, the Parent Board was authorized, for a period of 5
years (expiring on June 22, 2001) to limit or remove the preferential
subscription rights in connection with an increase in Parent's subscribed
capital of up to BEF 15 billion (8,055,054 PetroFina Shares). Such permission
may be renewed, through a vote at a general meeting of shareholders. The Parent
Board has removed the preferential subscription rights with respect to the
issuance of the PetroFina Warrants and the issuance of PetroFina ADSs upon
exercise of the PetroFina Warrants.
On May 29, 1997, Parent decided to issue warrants to purchase 150,000
PetroFina Shares to its employees, including its executive officers. The
warrants will have an exercise price of BEF 12,500 per PetroFina Share and will
expire on June 30, 2000. No warrants will be issued to any director who is not
also an executive officer of Parent.
Other than the 150,000 warrants discussed above and the PetroFina Warrants
to be issued in the Merger, there are no outstanding options or warrants to
acquire PetroFina Shares.
COMPARATIVE RIGHTS OF HOLDERS OF PETROFINA ADSS AND
HOLDERS OF THE COMPANY COMMON STOCK
Upon consummation of the Merger, holders of the Public Shares will receive
PetroFina Warrants that upon exercise will entitle such holder to receive
PetroFina ADSs. Because each PetroFina ADS represents one-tenth (0.1) of one
PetroFina Share, the rights of holders of PetroFina ADSs will be governed in
part by Belgian law, as well as by the Articles and the Deposit Agreement.
The following is a summary of the material differences between the rights
and privileges of Company stockholders and those of holders of PetroFina ADSs.
References to the "DGCL" are to the General Corporation Law of Delaware. This
summary is not meant to be relied upon as an exhaustive description of such
differences and is qualified in its entirety by reference to PetroFina's
Articles, the Deposit Agreement, the Company's Articles of Incorporation and
By-laws and the DGCL.
RESTRICTIONS ON SHARE TRANSFERS
The Company. The Company's Certificate of Incorporation has no limitations
on ownership or transfer of shares of Common Stock.
Parent. Except as described below under "-- Business Combinations" under
Belgian law and the Articles there are no limitations on ownership of PetroFina
Shares or PetroFina ADSs and no restrictions on PetroFina Share or PetroFina ADS
transfers.
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ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
The Company. Consistent with the DGCL, the Company's By-laws allow
stockholders to take any action without a meeting, without prior notice and
without a vote, upon the written consent of stockholders having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Parent. Neither Belgian law nor the Articles permit shareholders to take
action upon written consent of the shareholders without a meeting, without prior
notice and without a vote.
AMENDMENT OF ORGANIZATIONAL DOCUMENTS
The Company. The DGCL provides that an amendment to a corporation's
certificate of incorporation requires the approval of the corporation's board of
directors, the approval of a majority of all shares entitled to vote thereon
voting together as a single class, and the approval of a majority of the
outstanding stock of each class entitled to vote thereon as a class. The
Company's By-laws may be amended by the Company Board (except with respect to
the amendment provisions thereof) and may also be amended by the Company's
stockholders.
Parent. Under Belgian law, shareholders have sole authority with respect
to amendments to the Articles. Resolutions to amend any provision of the
Articles (including any amendment which would create an additional class of
capital stock) require a quorum of 50% of the issued capital (provided that if
the 50% quorum is not reached, the Parent Board may call a second meeting for
which no quorum is required), as well as the affirmative vote of at least 75% of
the shareholders present or represented and voting at the meeting, or 80%
thereof if the amendment would change Parent's corporate purpose.
BUSINESS COMBINATIONS
The Company. With certain exceptions, Section 203 of the DGCL prohibits a
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" (as defined below) for three years following the date
that such person becomes an interested stockholder. In general and with certain
exceptions, an interested stockholder is a person who owns 15% or more of the
corporation's outstanding voting stock, or is an affiliate or associate of the
corporation and was the owner of 15% or more of such voting stock at any time
within the three years immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or of a
direct or indirect majority-owned subsidiary of the corporation equal to 10% or
more of the aggregate market value of the corporation's consolidated assets or
the corporation's outstanding stock; the issuance or transfer by the corporation
or such a subsidiary of stock of the corporation or such subsidiary to the
interested stockholder (except for, among other transactions, certain transfers
in a conversion or exchange, certain pro rata distributions or certain other
transactions); and receipt by the interested stockholder (except proportionately
as a stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or a
direct or indirect majority-owned subsidiary, subject to certain exceptions.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the time at which such stockholder becomes an
interested stockholder, the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (ii) upon consummation of the transaction which made him
an interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding for purposes of determining the number of shares
outstanding those shares owned by, among others, certain employee stock plans);
or (iii) at or subsequent to the time such person becomes an interested
stockholder, the business combination is approved by the board of directors and
is
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authorized at a meeting of stockholders by 66 2/3% of the outstanding voting
stock of the corporation which is not owned by the interested stockholder.
Section 203 generally applies to Delaware corporations which have a class
of voting stock that is listed on a national securities exchange, authorized for
quotation on NASDAQ or held of record by more than 2,000 stockholders. A
Delaware corporation may elect in its original certificate of incorporation that
it will not be governed by Section 203, but the Company has not so elected.
Parent. Under Belgian law, if an individual or a company intends to
acquire the joint or exclusive control of Parent through one or more
transactions relating to the PetroFina Shares (or PetroFina ADSs), the acquiror
must notify the CBF of the contemplated transaction at least five days before
its completion. If the price of the contemplated transfer includes a control
premium, the acquiror must offer to all other shareholders of Parent the
opportunity to sell their PetroFina Shares at the highest price offer by the
acquiror for PetroFina Shares during the 12 months preceding the acquisition of
control of Parent. The acquiror must give the other shareholders this
opportunity within 30 days after its acquisition of control either (i) in the
form of a public takeover bid or (ii) pursuant to an undertaking to support the
stock price of the acquired company on the relevant stock exchange.
Public takeover bids must be made for all the outstanding voting securities
of Parent. Prior to making a bid, a bidder must issue a prospectus which is
approved by the CBF. Any bid made by or on behalf of either a non-EU national or
non-EU company is required to be approved by the Belgian Minister of Finance
prior to its being made. In case of a public takeover bid, the European
Commission must approve the transaction, if (i) the combined worldwide revenues
of both the bidder and Parent to be acquired exceed ECU 2,500 million, (ii) the
combined revenues of the bidder and Parent to be acquired in at least three EU
member states exceed ECU 100 million, (iii) the revenues of each of the bidder
and Parent to be acquired from each of such three EU member states exceed ECU 25
million and (iv) the total community-wide turnover of the bidder and Parent to
be acquired individually exceed ECU 100 million.
Public takeover bids are subject to the supervision of the CBF. If the CBF
determines that a takeover bid is contrary to the interests of the shareholders
of Parent, it may suspend the takeover bid for a maximum of 72 hours and request
the President of the Commercial Court in the district of Parent's registered
office (Brussels) to prohibit the bid and suspend the exercise of the rights
attached to any PetroFina Shares that were acquired in connection therewith.
Under Belgian law, a company must notify the Minister for Economic Affairs,
the Minister of Finance, as well as the relevant Secretary of State for Regional
Economy prior to any transaction which will transfer more than one-third of the
capital of a company that is located in Belgium and has equity ("fonds
propres/eigen vermogen") in excess of BEF 100 million.
APPRAISAL RIGHTS
The Company. The DGCL provides for appraisal rights only in the case of
certain statutory mergers or consolidations of the corporation where the
petitioning stockholder has neither voted in favor of nor consented in writing
to the transaction. In addition, no appraisal rights are available for the
shares of a corporation if the corporation is to be the surviving corporation
and a vote of its stockholders is not required under DGCL Section 251(f). In
general, unless otherwise provided for in a corporation's certificate of
incorporation, there are no appraisal rights for shares of stock (i) listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the NASD, or (ii) held of record by more
than 2,000 holders, unless the holders of such shares would be required to
accept for such stock anything other than shares of stock of the surviving
corporation, shares of another corporation so listed, designated, or held by
such number of holders of record, cash in lieu of fractional shares of such
stock, or any combination thereof.
Parent. Belgian law does not provide for appraisal rights.
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PREEMPTIVE RIGHTS AND PREFERENTIAL SUBSCRIPTION RIGHTS
The Company. The Company's stockholders do not have preemptive rights or
other preferential subscription rights with respect to issuances of capital
stock.
Parent. Under Belgian law, shareholders of Parent have preferential
subscription rights, in proportion to the number of PetroFina Shares held by
them, in respect of issues of new PetroFina Shares for cash by Parent. These
rights, however, may be either limited or removed by a resolution passed at a
general meeting of shareholders which satisfies the special quorum and majority
conditions required for an amendment of the Articles. At a general meeting of
shareholders in 1996, the Parent Board was authorized, for a period of five
years (expiring on June 22, 2001) to limit or remove these rights in connection
with an increase in Parent's subscribed capital of up to BEF 14.7 billion
(7,888,285 PetroFina Shares). Such permission may be renewed through a vote at a
general meeting of shareholders.
INDEMNIFICATION
The Company. Subject to certain limitations, Section 145 of the DGCL
empowers a Delaware corporation to indemnify any person who was, is, or is
threatened to be made, a party in any way, whether civil, criminal,
administrative or investigative, to a pending or completed action, suit or
proceeding (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another entity, for expenses
(including attorney's fees), judgements, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with any such
action, suit or proceeding. With respect to actions by or in the right of a
corporation, the DGCL, subject to certain limitations, permits indemnification
of such person for expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit. To be entitled to indemnification a person must have acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful. With
respect to actions by or in the right of the corporation, court approval is
required for indemnification relating to any claim, issue, or matter as to which
a person has been adjudged liable to the corporation.
The DGCL requires indemnification for expenses actually and reasonably
incurred by any director, officer, employee or agent in defense of a proceeding
against such person for actions in such capacity to the extent that the person
has been successful on the merits or otherwise. Advancement of expenses (i.e.,
payment prior to a determination on the merits) is permitted, but not required,
by the DGCL. A director or officer must undertake to repay such advanced
expenses if it is ultimately determined that he or she is not entitled to
indemnification. Unless ordered by a court, the members of the board who are not
parties to such action, suit, or proceeding, by majority vote, (or independent
legal counsel or stockholders) must determine, in each instance where
indemnification is sought but is not required by the DGCL, whether such person
has met the applicable standard of conduct. The DGCL provides that the statutory
indemnification is not exclusive.
The Company's By-laws provide for indemnification of officers and directors
as permitted by Section 145 of the DGCL.
Parent. Under Belgian law, the directors may be jointly and severally
liable for damages to Parent in case of improper performance of their duties.
The directors may be liable to Parent and to third parties for infringement of
the Articles or the Belgian company law, or tortious conduct. Under certain
circumstances, directors may be criminally liable.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Company. Section 102(b)(7) of the DGCL allows a Delaware corporation
to limit or eliminate the personal liability of directors to a corporation or
its stockholders for monetary damages for breach of fiduciary duty as a director
subject to certain limitations. The Company's Certificate of Incorporation
provides for the limitation of liability as permitted by Section 102(b)(7).
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Parent. Under Belgian law, directors may be liable for damages to Parent
in case of improper performance of their duties. They may be liable for damages
to Parent and to third parties for infringement of the Articles or the Belgian
company law, or tortious conduct. Under certain circumstances, directors may
also be criminally liable.
CLASSIFIED BOARD OF DIRECTORS
The Company. The DGCL permits, but does not require, a classified board of
directors. The Company Board is not divided into classes. The Company's By-laws
provide that the Company Board shall consist of not more than 15 nor less than
five members, each holding office for a term that expires (i) at the annual
meeting of stockholders next following his or her election provided that his or
her successor is duly elected and qualified or (ii) at his or her earlier death,
resignation or removal.
Parent. Belgian law does not provide for the concept of a "classified"
board of directors. The Parent Board is not divided into classes. Directors are
elected by majority vote at a general meeting of shareholders for a term of not
more than six years. In addition, the Board of Directors may approve a director
to fill a vacancy on the Board. A director so appointed may serve until the next
general meeting of shareholders. Directors may be removed from office at any
time by a majority vote at any meeting of shareholders.
CUMULATIVE VOTING FOR DIRECTORS
Neither Parent nor the Company uses cumulative voting in the election of
directors.
REMOVAL OF DIRECTORS
The Company. Under the DGCL and the Company's By-laws, the affirmative
vote of a majority of the Shares entitled to vote at the election of directors
is required to remove directors, with or without cause.
Parent. Directors may be removed from office at any time by a majority
vote at any meeting of shareholders.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
The Company. If the position of any director of the Company is or becomes
vacant between annual meetings, such vacancy may be filled by a majority vote of
the remaining directors or by the stockholders.
Parent. The Parent Board may approve a director to fill any vacancy on the
Parent Board.
SPECIAL MEETINGS
The Company. A special meeting of stockholders of the Company may be
called by the Chairman of the Company Board, the Vice Chairman of the Company
Board or the President of the Company or by order of the Company Board and shall
be called by the Chairman of the Company Board, the Vice Chairman of the Company
Board or the President or Secretary at the request in writing of the holders of
record of at least a majority of the Shares.
Parent. Extraordinary general meetings of the shareholders may be called
by the Parent Board or by the statutory auditors. The Parent Board is required
to call an extraordinary general meeting upon the written request of holders of
20% of the outstanding PetroFina Shares.
INSPECTION RIGHTS
The Company. Under the DGCL, any stockholder, following a proper written
request, has the right to inspect the corporation's books and records, including
the stockholder list, during normal business hours for a proper purpose.
Parent. Under Belgian company law, inspection rights are limited. Fifteen
days prior to the Annual General Meeting shareholders may review the annual
accounts; the list of public funds, shares, bonds and
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other securities held by the company; the list of shareholders who have not paid
for their shares in full; and the annual report and auditor's report.
DIVIDENDS AND DISTRIBUTIONS
The Company. The DGCL provides that, subject to any restrictions in a
corporation's certificate of incorporation, dividends may be declared out of a
corporation's surplus or, if there is no surplus, out of its net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
However, if the corporation's capital (generally defined in the DGCL as the sum
of the aggregate par value of all shares of the corporation's capital stock,
where all such shares have a par value and the board of directors has not
established a higher level of capital) has been diminished to an amount less
than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets, dividends may not be declared and paid out of such net profits until the
deficiency in such capital has been repaired.
Parent. Under Belgian law, Parent is required to set aside at least 5% of
its profits during each fiscal year and contribute such sum to PetroFina's
statutory reserve until such reserve has reached an amount equal to one-tenth of
PetroFina's capital. Subject to this requirement, the Parent Board may propose
to the meeting of shareholders, at which the annual accounts are reviewed, to
distribute as a dividend all or a portion of PetroFina's profits relating to the
prior accounting year. At the annual general meeting, in connection with the
approval of PetroFina's accounts, the shareholders may decide to make a
distribution of PetroFina's profits to all shareholders out of available
reserves ("reserves disponibles/beschikbare reserves").
SHAREHOLDER DERIVATIVE ACTIONS
The Company. Under Delaware law, a derivative action may be brought by a
stockholder on behalf of, and for the benefit of, the corporation. The DGCL
provides that a stockholder must aver in the complaint that he or she was a
stockholder of the corporation at the time of the transaction of which he or she
complains. A stockholder may not sue derivatively unless he or she first makes a
demand on the corporation that it bring suit and such demand has been refused,
unless it is shown that such demand would have been futile.
Parent. Under Belgian law, shareholders have a limited right to bring
derivative actions. The directors are liable to the company for any negligence
in the performance of their duties. They are also jointly and severally liable
to the company and to any interested party for any loss or damage resulting from
a violation of the Belgian company laws or the company's articles of
incorporation. The liability claim may be brought on behalf of the company
against any or all of the directors by shareholders (i) holding not less than
one percent of the votes attached to the total number of shares outstanding or
(ii) holding shares with a capital value of not less than BEF 50 million. Such
action may be instituted only by minority shareholders who did not vote a
discharge of responsibility at the annual general meeting of shareholders, but
this limitation only applies if such discharge is valid, i.e. if the true
situation of the company has not been concealed by any omission or incorrect
statement in the annual accounts and if the transactions falling outside the
company's articles have been properly disclosed.
RIGHTS AGREEMENT
Neither Parent nor the Company has adopted a stockholder rights or similar
plan.
CERTAIN TAX CONSIDERATIONS RELATING TO
PETROFINA WARRANTS AND PETROFINA ADSS
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RELATING TO PETROFINA WARRANTS
AND PETROFINA ADSS
The following general discussion summarizes certain of the material U.S.
federal income tax consequences to U.S. Holders of the ownership, disposition or
exercise of PetroFina Warrants, as well as the consequences of the ownership and
disposition of PetroFina ADSs. The discussion considers only
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U.S. Holders that own PetroFina Warrants and PetroFina ADSs as capital assets
within the meaning of Code Section 1221.
The following discussion is based on current provisions of the Code,
current and proposed Treasury Regulations promulgated thereunder, administrative
and judicial interpretations as of the date hereof, and the U.S.-Belgium income
Tax Convention that entered into force October 13, 1972 as amended through the
Supplementary Protocol, signed on December 31, 1987 (the "Treaty"), all of which
are subject to change, possibly on a retroactive basis.
Except to the extent discussed below, the discussion does not consider the
U.S. tax consequences to a Non-U.S. Holder. This discussion of U.S. federal
income tax consequences does not purport to be a comprehensive description of
all of the tax considerations that may be relevant to a holder of PetroFina
Warrants or PetroFina ADSs, nor does it address the effect of any applicable
foreign, state, local or other tax laws. Further, the discussion does not
consider holders that are subject to special tax treatment, including dealers in
securities, financial institutions, insurance companies, tax-exempt
organizations, persons subject to the alternative minimum tax, current or prior
holders (directly or indirectly) of 10% or more of the voting shares of Parent,
holders of securities held as part of a "straddle," "hedge" or "conversion
transaction," or U.S. Holders whose "functional currency" (within the meaning of
Section 985(b) of the Code) is not the dollar. EACH HOLDER OF PETROFINA WARRANTS
AND PETROFINA ADSs SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF OWNING, DISPOSING AND EXERCISING OF PETROFINA WARRANTS OR OWNING
OR DISPOSING OF PETROFINA ADSs.
In addition, this summary does not address the U.S. federal income tax
consequences were Parent determined to be a passive foreign investment company
("PFIC") for U.S. federal income tax purposes Generally, a PFIC is a foreign
corporation that has passive income that equals or exceeds 75% of its total
gross income or passive assets that represent at least 50% of its total assets
by fair market value. Parent does not believe it is currently, and does not
expect to become, a PFIC. U.S. Holders should consult their own tax advisors
concerning the U.S. federal income tax consequences of holding PetroFina
Warrants, or PetroFina ADSs if Parent were considered to be a PFIC.
U.S. Holders
Ownership of PetroFina Warrants. Generally, no gain or loss will be
recognized upon exercise of a PetroFina Warrant (except that gain will be
recognized to the extent a holder receives cash in lieu of fractional PetroFina
ADSs). A holder's initial tax basis in a PetroFina Warrant will be equal to its
fair market value as of the Effective Time. The tax basis of PetroFina ADSs
acquired upon exercise of a PetroFina Warrant will be equal to the sum of (i)
the holder's tax basis in such PetroFina Warrant and (ii) the Exercise Price.
The holding period of the PetroFina ADSs acquired upon exercise of a PetroFina
Warrant will begin on the date of exercise of the PetroFina Warrant.
The receipt of cash in lieu of a fractional interest in a PetroFina ADS
will be taxable as if the fractional interest had been issued and then redeemed
for cash. Accordingly, the tax consequences of this assumed redemption occurring
in connection with the payment of cash in lieu of fractional PetroFina ADSs will
be determined in accordance with Code Section 302 and such deemed redemption
should give rise to capital gain or loss in an amount equal to the difference
between the amount of cash received for the fractional interest and the holder's
tax basis in the fractional interest. U.S. Holders of PetroFina Warrants should
consult their tax advisers with respect to the tax treatment of cash received in
lieu of fractional PetroFina ADSs upon exercise of a PetroFina Warrant.
The expiration of a PetroFina Warrant should generally result in a capital
loss to a U.S. Holder equal to the holder's tax basis in the PetroFina Warrant.
U.S. Holders of PetroFina Warrants should consult their tax advisors with
respect to applicable rates and holding periods, and netting rules for capital
losses.
Ownership of PetroFina ADSs. In general, for U.S. federal income tax
purposes U.S. Holders of PetroFina ADSs will be treated as the owners of the
underlying PetroFina Shares. Distributions on PetroFina
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ADSs will constitute dividends for U.S. federal income tax purposes to the
extent of current and accumulated earnings and profits of Parent as determined
under U.S. federal income tax principles. The dollar value of such dividends
will be includible in the gross income of a U.S. Holder as ordinary income on
the day on which the dividends are received by the Depositary, without reduction
for any Belgian taxes withheld at source, and will not be eligible for the
dividends received deduction allowed to corporations under Section 243 of the
Code. For purposes of determining the dollar value of any distributions to a
U.S. Holder, distributions paid in Belgian francs will be converted into a
dollar amount calculated by reference to the exchange rate in effect on the day
they are received by the Depositary. U.S. Holders should consult their own tax
advisors regarding the treatment of foreign currency gain or loss, if any, on
any Belgian francs received which are not converted into dollars on the day the
Belgian francs are received by the Custodian.
To the extent, if any, that a U.S. Holder receives a distribution on
PetroFina ADSs that would otherwise constitute a dividend for United States
federal income tax purposes but that exceeds current and accumulated earnings
and profits of Parent, such distribution will be treated first as a non-taxable
return of capital reducing the U.S. Holder's basis in the PetroFina ADSs. Any
such distribution in excess of the U.S. Holder's basis in the PetroFina ADSs
will be treated as a capital gain.
Generally, U.S. Holders will have the option of claiming the amount of any
Belgian income taxes withheld on a dividend distribution to them as either a
deduction from gross income or, subject to the limitations described below, as a
dollar-for-dollar credit against their United States federal income tax
liability. A deduction or foreign tax credit will not be available with respect
to Belgian income taxes that may be refunded to a U.S. Holder pursuant to the
Treaty. A U.S. Holder that elects to deduct Belgian income taxes from gross
income may do so only for a taxable year in which the U.S. Holder claims a
federal income tax deduction with respect to all foreign income taxes.
Individuals who do not claim itemized deductions, but instead utilize the
standard deduction, may not claim the amount of the Belgian income taxes in
respect of distributions on the PetroFina ADSs as a deduction from their gross
income, but such amount may be claimed as a credit against the individual's
United States federal income tax liability. The amount of Belgian income taxes
for which U.S. Holders may claim a credit in any year is subject to certain
complex limitations and restrictions, which must be determined on an individual
basis by each U.S. Holder. The limitations set out in the Code include, among
others, new holding period requirements enacted pursuant to the Taxpayer Relief
Act of 1997 and rules under which foreign tax credits allowable with respect to
specific classes of income cannot exceed the United States federal income taxes
otherwise payable with respect to each class of income. Dividends paid by Parent
generally will be foreign source "passive income" (or, in the case of certain
holders, "financial services income") for United States foreign tax credit
purposes. Foreign income taxes exceeding the credit limitation for the year of
payment or accrual of such tax can be carried back for two taxable years and
forward for five taxable years, in order to reduce United States federal income
taxes subject to a credit limitation applicable in each of such years. Other
restrictions on the foreign tax credit include a limitation which generally
prevents use of the credit in any taxable year to reduce liability for United
States individual and corporate alternative minimum tax by more than 90 %.
Holders should consult their tax advisors regarding limitations on the foreign
tax credit, including the new holding period requirements referenced above.
Disposition of PetroFina Warrants and PetroFina ADSs. Upon the sale,
exchange or other disposition of PetroFina Warrants or PetroFina ADSs, a U.S.
Holder generally will recognize capital gain or loss in an amount equal to the
difference between such U.S. Holder's basis in the PetroFina Warrants or
PetroFina ADSs and the amount realized on the disposition. For certain
noncorporate U.S. Holders of PetroFina Warrants and PetroFina ADSs (including
individuals), the rate of taxation of capital gain will depend upon (i) the U.S.
Holder's holding period for the PetroFina Warrants or PetroFina ADSs (with the
lowest rate available only for PetroFina Warrants or PetroFina ADSs held more
than 18 months) and (ii) the U.S. Holder's marginal tax rate for ordinary
income. U.S. Holders of PetroFina Warrants and PetroFina ADSs should consult
their tax advisors with respect to applicable rates and holding periods, and
netting rules for capital losses.
Gain realized by a U.S. Holder on a sale, exchange or other disposition of
PetroFina Warrants and PetroFina ADSs generally will be treated as U.S. source
income for U.S. foreign tax credit purposes. Under
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current law, the source of any loss on the sale, exchange or other disposition
of PetroFina Warrants or PetroFina ADSs is uncertain.
Non-U.S. Holders
The exercise of a PetroFina Warrant by a Non-U.S. Holder will not be
subject to U.S. federal income tax. Further, subject to the discussion of backup
withholding below, a Non-U.S. Holder of PetroFina Warrants and PetroFina ADSs
generally will not be subject to U.S. federal income tax on gain realized on the
sale of PetroFina Warrants and PetroFina ADSs (including amounts received with
respect to a fractional PetroFina ADS upon exercise of a PetroFina Warrant) or
dividends received on PetroFina ADSs unless (i) such gain is effectively
connected with the conduct by the Non-U.S. Holder of a trade or business in the
United States and such Non-U.S. Holder is not otherwise eligible for applicable
treaty benefits or (ii) in the case of gain realized by an individual Non-U.S.
Holder, the Non-U.S. Holder is present in the United States for 183 days or more
in the taxable year of the sale and certain other conditions are satisfied.
U.S. Information Reporting and Backup Withholding
Under certain circumstances, the Internal Revenue Service requires
"information reporting" and "backup withholding" at a rate of 31% with respect
to payments of dividends on Petrofina ADSs and the proceeds of disposition of
PetroFina Warrants and PetroFina ADSs. Subject to certain exceptions,
information reporting and backup withholding generally apply to U.S. Holders. A
U.S. Holder will be subject to backup withholding at a rate of 31% on payments
of dividends on Petrofina ADSs or the proceeds of disposition of PetroFina
Warrants and PetroFina ADSs only if the U.S. Holder (i) fails to provide a TIN
on a properly completed W-9, (ii) furnishes an incorrect TIN, (iii) is notified
by the Internal Revenue Service that the U.S. Holder has failed to properly
report payment of dividends or interest, or (iv) fails, under certain
circumstances, to certify, under penalties of perjury, that it has furnished a
correct TIN. Backup withholding will not apply with respect to payments made to
certain exempt recipients, such as corporations and tax exempt organizations.
The payment of the proceeds of the disposition of PetroFina Warrants and
PetroFina ADSs by a Non-U.S. Holder or the payment of dividends on PetroFina
ADSs to or through the U.S. office of a broker or through a non-U.S. branch of a
U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of PetroFina Warrants and PetroFina ADSs or the payment of dividends on
PetroFina ADSs to or through a non-U.S. office of a non-U.S. broker will not be
subject to backup withholding or information reporting unless the non-U.S.
broker has certain U.S. relationships.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded (or credited against the holder's U.S. federal
income tax liability, if any) provided that the required information is
furnished to the Internal Revenue Service.
CERTAIN BELGIAN INCOME TAX CONSIDERATIONS OF HOLDING AND DISPOSING OF PETROFINA
WARRANTS AND PETROFINA ADSS
Exercise of PetroFina Warrants
No capital gain or loss will be recognized by a holder of a PetroFina
Warrant upon exercise of a PetroFina Warrant under Belgian tax law.
Dividends -- U.S. Holder
In general, under Belgian law, the Belgian tax imposed on a dividend paid
to a non-resident that does not have a "permanent establishment" in Belgium will
be limited to the amount of the withholding tax, the current rate of which is
25%. This dividend withholding tax may be subject to reduction, however,
pursuant to income tax treaties that Belgium has entered into with other
countries. Pursuant to the Treaty, dividends paid
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by Parent to a U.S. Holder that does not have a "permanent establishment" in
Belgium generally will be subject to a Belgian withholding tax at a reduced rate
of 15%. Such withholding is reduced, however, to 5% in the case of a corporation
which owns directly at least 10% of Parent's voting stock. Whether a Non-U.S.
Holder who is not a Belgian resident qualifies for a reduced rate of Belgian
withholding tax will depend upon whether such Non-U.S. Holder is a citizen or
resident of, or organized under the laws of, a country that has an income tax
treaty with Belgium that provides for a reduced rate of withholding tax and
whether the holder otherwise satisfies any conditions in the treaty necessary to
be eligible for the reduced rate of withholding tax.
Although there are exceptions, in general, the full Belgian withholding tax
must be withheld by Parent (that is, the amount of withholding upon the payment
of the dividend is not reduced to reflect the Treaty rate), and the U.S. Holder
may make a claim for reimbursement for amounts withheld in excess of the Treaty
rate. The reimbursement form can be obtained from the Bureau Central de Taxation
Bruxelles-Etranger, Place Jean Jacobs, 10, B-1000 Brussels, upon presentment of
a form stamped by the U.S. Internal Revenue Service and the document proving
cashing of the dividend. The relevant form may be obtained from the Depositary
or Parent "Service a l'actionnaire," 52 Rue de l'Industrie, B-1040 Brussels
(Tel. +32-2-288.99.45/Fax +32-2-288.35.95). If the Forms 61,66 (U.S. IRS
Certificate of Residence) and 276 (Belgian Ministry of Finance) are properly
completed and sent to the Depositary three working days prior to the dividend
payment date, the beneficial owner of the dividend will obtain the reduced
withholding tax rate at source. Prospective holders should consult their own tax
advisors as to whether they qualify for reduced withholding upon the payment of
dividends, and as to the procedural requirements for obtaining reduced
withholding upon the payment of dividends or for making claims for
reimbursement.
Under Belgian tax law the rate of the withholding tax can be reduced to 0%
in the case of dividends paid by a Belgian corporation to certain U.S.
organizations that are not engaged in any activity of a lucrative nature and
exempt from United States federal income tax. For instance, organizations either
constituted and operated exclusively to administer or provide pension,
retirement or other employee benefits or operated exclusively for religious,
charitable, scientific, educational or public purposes may qualify for the 0%
withholding tax rate. To benefit from this reduced rate, the qualified U.S.
Holders should sign a specific form, available by request from the "Service a
l'actionnaire" or included in the annual report, and send it back either to the
Depositary three working before the dividend payment date to obtain the reduced
withholding tax rate at source or to the "Directeur regional des contributions,
Bruxelles II-societes, avenue Louise 233-245, B-1050 Bruxelles" to be refunded
the excess withholding tax.
Dividends -- Non-U.S. Holder
As discussed above, Belgian tax law generally imposes a 25% withholding tax
on a dividend paid to a nonresident that does not have a "permanent
establishment" in Belgium. Whether a Non-U.S. Holder who is not a Belgian
resident qualifies for a reduced rate of Belgian withholding tax will depend
upon whether it is a resident of, or organized under the laws of, a country that
has an income tax treaty with Belgium that provides for a reduced rate of
withholding tax and whether the holder otherwise satisfies any conditions in the
treaty necessary to be eligible for the reduced rate of withholding tax.
Non-U.S. Holders entitled to a reduced withholding tax under a treaty may make
claim for reimbursements for overwithheld amounts. Reimbursement forms can be
obtained from the address listed in the discussion of "-- Dividends -- U.S.
Holders" above.
Capital Gains
U.S. persons and other non-residents of Belgium who do not have a permanent
establishment in Belgium will not be subject to Belgian income tax on the sale
or other disposition of PetroFina ADSs or PetroFina Warrants. U.S. persons and
other non-residents of Belgium who have a permanent establishment in Belgium
will be subject to Belgian taxation on the capital gain from the sale or other
disposition of PetroFina Warrants. Individual non-residents of Belgium with a
permanent establishment in Belgium will, moreover, be subject to Belgian
taxation on the disposition of PetroFina ADSs, and such shareholders should
consult their tax advisors about the tax consequences to them of disposing of
PetroFina ADS.
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Estate and Gift Tax
A transfer of PetroFina Warrants or PetroFina ADSs by reason of death will
be subject to Belgian estate tax ("droits de succession/successierechten") only
if the deceased had his domicile or the seat of his estate in Belgium at the
time of his death. The estate tax shall be due on the whole estate of the
deceased wherever the assets are located.
A transfer of PetroFina Warrants or PetroFina ADSs by gift will be subject
to a Belgian gift registration tax ("droits
d'enregistrement/registratierechten") only if it is made through a notary deed
in Belgian. A gift in bearer form does not have to be made through a notary deed
to be valid and effective. The registration tax should not apply to gifts of
PetroFina ADSs recorded in a notary deed that is executed outside of Belgium.
EXPERTS
The financial statements of the Group, except Fina Europe N.V., Fina
Raffinaderij Antwerpen N.V., Sigma Coatings B.V., Petrofina Delaware,
Incorporated and Brittany Insurance Company Ltd., as of December 31, 1997, 1996
and 1995 and for each of the three years in the period ended December 31, 1997,
and Fina Exploration Norway, Inc. -- Norway Branch and Fina plc as of December
31, 1996 and 1995 and for each of the two years in the period ended December 31,
1996, included in the Prospectus and the related financial statements schedule
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche as stated in their report appearing herein. The financial statements of
Fina Europe N.V., Fina Raffinaderij Antwerpen N.V., Sigma Coatings B.V.,
Petrofina Delaware, Incorporated and Brittany Insurance Company Ltd. as of
December 31, 1997, 1996 and 1995 and for each of the three years in the period
ended December 31, 1997, and Fina Exploration Norway, Inc. -- Norway Branch and
Fina plc as of December 31, 1996 and 1995 and for each of the two years in the
period ended December 31, 1996 (consolidated with those of the Group) have been
audited by member firms of KPMG as stated in their reports included herein. Such
financial statements of the Group and its consolidated subsidiaries are included
herein in reliance upon the respective reports of such firms given upon their
authority as experts in accounting and auditing. All of the foregoing firms are
independent auditors.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon for
Parent by Wilmer, Cutler & Pickering, Washington, D.C., U.S. counsel to Parent.
The validity of the PetroFina Warrants and PetroFina Shares offered hereby, as
well as the Belgian tax consequences of the Merger, will be passed upon by
Francois Vincke, General Counsel to the Company. Certain matters regarding
Belgian law will be passed upon for PetroFina by Liedekerke Wolters Waelbroeck &
Kirkpatrick, Belgian counsel to Parent.
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INDEX TO PETROFINA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 1, 1997, 1996 and
1995...................................................... F-11
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-12
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-13
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-14
Notes to Consolidated Financial Statements.................. F-15
Supplemental Oil and Gas Information (Unaudited)............ F-36
Financial Statement Schedule................................ F-43
</TABLE>
F-1
<PAGE> 140
[DELOITTE & TOUCHE LOGO]
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of
PetroFina S.A.
We have audited the accompanying consolidated balance sheets of PetroFina
S.A. and subsidiaries as of December 31, 1997, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We did not audit
the financial statements of certain subsidiaries which statements reflect total
assets constituting 45.0%, 51.5% and 48.2%, respectively, of consolidated total
assets at December 31, 1997, 1996 and 1995, and total revenues constituting
33.9%, 46.6% and 45.9%, respectively, of consolidated total revenues for the
years then ended. Those financial statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to the amounts included for such subsidiaries, before conversion to generally
accepted accounting principles in the United States, is based solely on the
reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits (which include the conversion
to generally accepted accounting principles in the United States) and the
reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of PetroFina S.A. at December 31, 1997, 1996 and 1995,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles in the United
States.
/s/ Michael C. Vaes
Michael C. Vaes
Statutory Auditor
Deloitte & Touche Reviseurs d'Entreprises scc
Brussels, Belgium
March 26, 1998
F-2
<PAGE> 141
[KPMG LOGO]
INDEPENDENT AUDITORS REPORT
To the Directors of PetroFina S.A.
We have audited the balance sheets of Fina Europe N.V. (a 99,9 percent
subsidiary of PetroFina S.A.) as of 31 December 1997, 1996 and 1995 and related
statements of income for each of the three years in the period ended December
31, 1997 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether these financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fina Europe N.V. at December
31, 1997, 1996 and 1995, and the results of its operations for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles in Belgium.
Antwerp, Belgium
March 20, 1998
Klynveld Peat Marwick Goerdeler Reviseurs d'Entreprises
Represented by
L. Ruysen
F-3
<PAGE> 142
[KPMG LOGO]
INDEPENDENT AUDITORS REPORT
To the Directors of PetroFina S.A.
We have audited the balance sheets of Fina Raffinaderij Antwerpen N.V. (a
99,9 percent subsidiary of PetroFina S.A.) as of 31 December 1997, 1996 and 1995
and related statements of income for each of the three years in the period ended
December 31, 1997 (not presented separately herein). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether these financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fina Raffinaderij Antwerpen
N.V. at December 31, 1997, 1996 and 1995, and the results of its operations for
each of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles in Belgium.
Antwerp, Belgium
March 20, 1998
Klynveld Peat Marwick Goerdeler Reviseurs d'Entreprises
Represented by
/s/ L. Ruysen
L. Ruysen
F-4
<PAGE> 143
[KPMG LOGO]
INDEPENDENT AUDITORS' REPORT
TO THE DIRECTORS OF PETROFINA S.A.
We have audited the balance sheets of Sigma Coatings B.V. (a wholly-owned
subsidiary of PetroFina S.A.) as of December 31, 1997, 1996 and 1995 and the
related statements of income for each of three years in the period ended
December 31, 1997 (not presently separately herein). These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sigma Coatings B.V. as of
December 31, 1997, 1996 and 1995, and the results of its operations for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles in the Netherlands.
The Hague, the Netherlands, March 20, 1998
/s/ KPMG Accountants NV
F-5
<PAGE> 144
[KPMG LOGO]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Petrofina S.A.:
We have audited the accompanying consolidated balance sheets of Petrofina
Delaware, Incorporated and subsidiaries (a wholly-owned subsidiary of PetroFina
S.A.) as of December 31, 1997, 1996 and 1995, and the related consolidated
statements of earnings, stockholder's equity and cash flows for each of the
years in the three-year period ended December 31, 1997 (not presented separately
herein). These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Petrofina
Delaware, Incorporated and subsidiaries as of December 31, 1997, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Dallas, Texas
January 26, 1998, except as to the
fourth paragraph of note 1(a)
which is as of February 17, 1998
F-6
<PAGE> 145
[KPMG LOGO]
INDEPENDENT AUDITORS' REPORT
To the Directors of
PetroFina S.A.
We have audited the balance sheets of Brittany Insurance Company Ltd. (a
wholly-owned subsidiary of PetroFina S.A.) as of December 31, 1997 and 1996 and
related statements of income and cash flows for each of the two years in the
period ended December 31, 1997 (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
an audit to obtain reasonable assurance about whether these financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brittany Insurance Company
Ltd. at December 31, 1997 and 1996 and the results of its operations and cash
flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles in the United States.
/s/ KPMG PEAT MARWICK
Chartered Accountants
Hamilton, Bermuda
February 10, 1998
F-7
<PAGE> 146
[KPMG LOGO]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PetroFina S.A.
We have audited the balance sheet of Brittany Insurance Company Ltd. as at
December 31, 1995 and the statements of operations and retained earnings and
changes in financial position for the year then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Bermuda and Canada that are substantially equivalent to auditing
standards generally accepted in the United States. Those standards require that
we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1995 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in
Bermuda and Canada.
/s/ KPMG PEAT MARWICK
Chartered Accountants
Hamilton, Bermuda
February 28, 1997
F-8
<PAGE> 147
[KPMG LOGO]
REPORT OF INDEPENDENT AUDITORS
To the Directors of Fina Plc:
We have audited the balance sheet of Fina plc (a wholly-owned subsidiary of
PetroFina SA) as of December 31, 1996 and 1995 and the related statements of
profit and loss and cash flows for each of the years in the two year period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom that are substantially equivalent to auditing
standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The basis of valuation of stock in the accompanying balance sheets, which
has been applied consistently since 1971, does not comply with Statement of
Standard Accounting Practice Number 9 (Revised) in that cost is ascertained, in
part, on a last in first out basis. Were stock to have been valued on a first in
first out basis, the value of stock in the balance sheet would have increased by
L4,880,000 and L3,092,000 as of December 31, 1996 and 1995 respectively, and the
profit before taxation for the years ended December 31, 1996 and 1995 would have
increased by L1,788,000 and L2,595,000 respectively.
In our opinion, except for the effects of valuation of stock as discussed
in the preceding paragraph, the financial statements referred to above present
fairly, in all material respects, the financial position of Fina plc as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 1996, in
conformity with generally accepted accounting principles in the United Kingdom.
/s/ KPMG AUDIT PLC
KPMG Audit Plc
Chartered Accountants
Registered Auditor
London, England
April 14, 1997
F-9
<PAGE> 148
[KPMG LOGO]
REPORT OF INDEPENDENT AUDITORS
To the Directors of Fina Exploration Norway SCA:
We have audited the balance sheet of The Branch of Fina Exploration Norway
SCA (a wholly-owned subsidiary of Petrofina SA) as of December 31, 1996 and 1995
and the related statements of profit and loss and cash flows for each of the
years in the two-period period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Norway that are substantially equivalent to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Branch of Fina
Exploration Norway SCA as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 1996, in conformity with generally accepted accounting principles
in Norway.
Sandvika, January 27, 1997
KPMG as
/s/ Jorgen Lorentzen-Styr
Jorgen Lorentzen-Styr
F-10
<PAGE> 149
PETROFINA
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in BEF millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
FIXED ASSETS
Intangible Assets........................................... 2,266 1,997 1,980
Tangible Assets............................................. 235,155 211,167 195,155
Financial Assets............................................ 6,879 6,597 6,587
Other Assets................................................ 11,794 11,272 9,450
------- ------- -------
256,094 231,033 213,172
CURRENT ASSETS
Stocks...................................................... 51,559 48,175 45,033
Trade Debtors............................................... 73,540 69,068 58,678
Other Debtors............................................... 12,127 10,904 10,323
Marketable Securities....................................... 6,640 4,885 3,844
Cash and Cash Equivalents................................... 3,658 2,723 2,842
------- ------- -------
147,524 135,755 120,720
Total Assets........................................... 403,618 366,788 333,892
======= ======= =======
CREDITORS AMOUNTS FALLING DUE WITHIN ONE YEAR
Finance Debt................................................ 30,186 35,643 34,605
Income Tax Payable.......................................... 8,915 10,130 6,346
Trade Creditors............................................. 52,678 46,002 40,902
Other Creditors............................................. 36,987 37,048 35,362
------- ------- -------
128,766 128,823 117,215
CREDITORS AMOUNTS FALLING DUE AFTER ONE YEAR
Finance Debt................................................ 59,976 49,326 44,732
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred Taxation........................................... 26,560 22,809 19,645
Other Provisions............................................ 25,556 25,056 24,216
------- ------- -------
112,092 97,191 88,593
Minority Shareholders' Interests............................ 6,845 5,763 4,986
SHAREHOLDERS' EQUITY........................................ 155,915 135,011 123,098
Subscribed Capital.......................................... 43,605 43,293 43,293
Share Premium............................................... 26,096 24,314 24,310
Retained Earnings........................................... 107,738 94,979 87,216
Cumulative Foreign Currency Translation Adjustment.......... (21,524) (27,575) (31,721)
------- ------- -------
155,915 135,011 123,098
Total Liabilities and Shareholders' Equity............. 403,618 366,788 333,892
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 150
PETROFINA
CONSOLIDATED STATEMENTS OF INCOME
(in BEF millions, except number of shares and per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating Revenue including Duties and Excise Taxes...... 727,031 622,145 558,724
Earnings from Investments, Equity Interests.............. 1,386 1,466 1,345
---------- ---------- ----------
Total Revenue............................................ 728,417 623,611 560,069
Cost of Products Sold.................................... (315,785) (259,484) (220,216)
Duties and Excise Taxes.................................. (234,070) (206,955) (195,414)
Direct Operating Expenses................................ (61,149) (54,514) (52,287)
Sales, General and Administrative Costs.................. (28,720) (27,662) (26,241)
Depreciation, Depletion and Amortization................. (28,703) (23,775) (22,533)
Exploration Costs........................................ (4,354) (3,030) (4,186)
Other Operating Costs.................................... (7,875) (7,661) (7,501)
Early Retirement Costs................................... (928) (1,142) (903)
---------- ---------- ----------
OPERATING INCOME......................................... 46,833 39,388 30,788
Interest Expense......................................... (4,691) (5,585) (6,079)
Other Financial Income, Net.............................. 95 519 908
---------- ---------- ----------
Income before Taxes and Minority Interests............... 42,237 34,322 25,617
Current Income Tax....................................... (16,839) (16,296) (12,150)
Deferred Income Tax...................................... (2,692) (1,382) (942)
Minority Interest........................................ (646) (696) (699)
---------- ---------- ----------
NET INCOME............................................... 22,060 15,948 11,826
Earnings per Share....................................... 945 686 509
Weighted average number of Shares used to calculate 23,350,612 23,252,764 23,252,414
Earnings per Share (basic and dilutive)................
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 151
PETROFINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in BEF millions)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH-FLOW FROM OPERATING ACTIVITIES
Net Income.................................................. 22,060 15,948 11,826
Minority Interest........................................... 646 696 699
Adjustments to Reconcile Net Earnings to Net Cash Provided
by Operating Activities:
Depreciation, Depletion, and Amortization (including
exploration costs)................................... 32,333 26,141 25,912
Provisions for Liabilities and Charges................. (1,163) (317) 502
Provisions for Losses on Accounts Receivable and
Inventories.......................................... 574 115 (221)
Deferred Income Taxes.................................. 2,692 1,382 942
------- ------- -------
CASH-FLOW (*)............................................... 57,142 43,965 39,660
Equity in Net Income of Affiliated Companies Net of
Dividend Received.................................... (223) (315) 300
Gain on Sales of Assets................................ (467) (1,334) (186)
Changes in Working Capital:
-- Accounts Receivable............................ (526) (6,701) 15
-- Inventories.................................... (1,020) (682) (3,148)
-- Trade Payables................................. 3,149 2,845 1,056
-- Other Current Liabilities...................... (2,229) 3,167 2,128
-- Income Tax Payable............................. (1,582) (860) 35
-- Other.......................................... (318) (3,266) (2,012)
------- ------- -------
Net Cash Provided by Operating Activities......... 53,926 36,819 37,848
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditure Including Exploration expenses.......... (43,246) (32,203) (26,695)
Proceeds from Sales of Assets............................... 1,571 4,122 1,975
Investments in Affiliates................................... (414) (939) (3,157)
------- ------- -------
Net Cash Used in Investing Activities............. (42,089) (29,020) (27,877)
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to Long Term Debt................................. 17,533 13,877 2,424
Payments of Long Term Debt.................................. (9,423) (16,825) (3,725)
Net Change in Short Term Notes Payable...................... (11,392) 3,455 (287)
Warrant Exercise Proceeds................................... 2,095 4 3
Minority Interest........................................... 7 12 16
Dividend Paid to the Minority Interest...................... (518) (353) (356)
Dividend Paid............................................... (9,301) (8,185) (7,441)
------- ------- -------
Net Cash Used in Financing Activities............. (10,999) (8,015) (9,366)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 838 (216) 605
Cash and Cash Equivalents at Beginning of Year.............. 2,723 2,842 2,274
Cash and Cash Equivalents at End of Year.................... 3,658 2,723 2,842
Effect of Exchange Rate Changes............................. 97 97 (37)
------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents........ 838 (216) 605
Income Taxes Paid........................................... (18,297) (13,070) (12,016)
Interest Paid............................................... (6,876) (6,883) (6,620)
</TABLE>
- ---------------
(*) PetroFina defines "Cash Flow", for purposes of its Belgian financial
reporting, as consolidated net income adjusted for depreciation and other
current year provisions to net income.
F-13
<PAGE> 152
PETROFINA
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in BEF millions except number of shares and per share data)
<TABLE>
<CAPTION>
CUMULATIVE
ORDINARY SHARES ISSUED FOREIGN
---------------------- ADDITIONAL CURRENCY TOTAL
STATUTORY PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
NUMBER CAPITAL CAPITAL EARNINGS ADJUSTMENT EQUITY
---------- --------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994......... 23,252,229 43,292 24,308 82,831 (26,933) 123,498
Warrants Exercised................ 222 1 2 3
Net Income 1995................... 11,826 11,826
Dividend Declared and Paid
(BEF 320 Per Share)............. (7,441) (7,441)
Foreign Currency Translation...... (4,788) (4,788)
---------- ------ ------ ------- ------- -------
Balance December 31, 1995......... 23,252,451 43,293 24,310 87,216 (31,721) 123,098
Warrants Exercised................ 412 4 4
Net Income 1996................... 15,948 15,948
Dividend Declared and Paid
(BEF 352 Per Share)............. (8,185) (8,185)
Foreign Currency Translation...... 4,146 4,146
---------- ------ ------ ------- ------- -------
Balance December 31, 1996......... 23,252,863 43,293 24,314 94,979 (27,575) 135,011
Warrants Exercised................ 167,569 312 1,782 2,094
Net Income 1997................... 22,060 22,060
Dividend Declared and Paid
(BEF 400 Per Share)............. (9,301) (9,301)
Foreign Currency Translation...... 6,051 6,051
---------- ------ ------ ------- ------- -------
Balance December 31, 1997......... 23,420,432 43,605 26,096 107,738 (21,524) 155,915
========== ====== ====== ======= ======= =======
</TABLE>
The statutory capital and additional paid-in capital of PetroFina S.A.
constitutes the nondistributable portion of Shareholders' Equity and is not
available for dividend purposes. Included in Shareholders' Equity for the Group
are retained earnings of certain subsidiary companies, under current debt
covenants or companies' acts, amounting to BEF 40.8 billion that are not
currently available for dividend distribution within the Group at December 31,
1997.
The Company has issued and outstanding 23,420,432 shares as of December 31,
1997 with aggregate subscribed capital of BEF 43,605,279,966 (BEF 1,862 per
share). By decision of the Company's shareholders, the Company's Board of
Directors is authorized to increase statutory capital by BEF 14.7 billion
(representing 7,888,285 shares).
The authorization is valid for a five-year period and available for renewal
at the end of the five-year term.
F-14
<PAGE> 153
PETROFINA
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements present the financial
position, results of operations and cash flows of PetroFina S.A. and its
consolidated subsidiaries (the "Group" or "PetroFina") and have been prepared in
accordance with United States generally accepted accounting principles (US
GAAP). The consolidated financial statements are presented in Belgian Franc
(BEF). All amounts presented are in BEF million unless otherwise indicated.
Following Belgian accounting laws, the Group is obliged to prepare its
financial statements in accordance with Belgian accounting principles. Following
article 8 of the Royal Decree dated 1st September 1986 concerning annual
financial statements and consolidated financial statements, the Belgian
Securities Exchange Commission (la Commission bancaire et financiere) authorized
PetroFina to depart from article 6 of the previous mentioned Royal Decree. This
departure allows PetroFina to prepare and publish the financial statements under
US GAAP. This authorisation is contingent upon the following conditions :
- PetroFina follows all US GAAP requirements
- PetroFina abides by all mandatory rules of the 7th European
Directive.
The decision by PetroFina to prepare and publish its financial statements
in accordance with US GAAP was based on the following :
- The registration of PetroFina securities with the New York Stock
Exchange obligates the Group to meet the reporting requirements of
the United States Securities and Exchange Commission. The Group is
required to prepare US GAAP financial statements or to prepare a
reconciliation to US GAAP.
- The Group's desire to publish comparable financial information
following the same format as other major worldwide energy companies.
In preparing the financial statements following US GAAP, the Group has
found no material contradiction with the mandatory rules of the 7th European
Directive.
USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
BASIS OF CONSOLIDATION
Subsidiaries in which the Group's holdings exceed 50% are consolidated in
the financial statements, unless effective control is limited due to contractual
provisions or governmental restrictions. The Group consolidates certain jointly
controlled entities in accordance with the proportionate consolidation method.
Under U.S. GAAP these companies should be accounted for under the equity method
(see note 22). All material intercompany transactions are eliminated in
consolidation.
The equity method of accounting is used for investments in which the
investment provides the Group with the ability to exercise significant influence
over the operating and financial policies of the investee company. In the
absence of other evidence, such influence is presumed to exist for investments
in companies in which the Group's direct or indirect ownership is between 20%
and 50% of total voting rights. Under the equity method, the Group's share of
profits and losses of associated companies is included in the consolidated
income statement and the carrying value of the Group's investment is adjusted.
F-15
<PAGE> 154
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The cost method of accounting is used for investments in which the Group's
ownership is less than 20% or for investees where the Group is unable to
exercise significant influence.
A full list of consolidated companies and companies excluded from the scope
of consolidation is available from the Public Relations and Communication
Department of PetroFina S.A., rue de l'Industrie 52, B-1040 Brussels.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions are recorded at the exchange rate on the date
of origin. Monetary assets and liabilities denominated in a foreign currency are
revalued at each balance sheet date for the effect of exchange rate changes
between the date of origin and settlement date. The resulting gains and losses
on revaluation are recorded in the consolidated income statement as other
financial income or expense.
FOREIGN SUBSIDIARIES
The income statements of foreign subsidiaries are translated into BEF at
the average rate of exchange prevailing during the year. Balance sheets are
translated at the exchange rate at the balance sheet date. Differences arising
on the translation of financial statements of foreign subsidiaries are recorded
to shareholders' equity as cumulative foreign currency translation adjustments.
Exchange rate differences attributable to loans and forward exchange
agreements in foreign currencies that are designated as a hedge of the net
assets of a foreign subsidiary are recorded directly to shareholders' equity,
together with the corresponding translation difference on the hedged net assets.
DERIVATIVE FINANCIAL INSTRUMENTS
PetroFina manages risk arising from fluctuations in interest rates and
currency exchange rates by using derivative financial instruments, and risks
from fluctuations in the price of crude oil, refined products, and natural gas
by using derivative commodity instruments. PetroFina does not enter into
derivative instruments for speculative trading purposes.
PetroFina's derivative financial instruments currently include interest
rate swaps, currency swaps, and foreign exchange forward contracts. The interest
rate swaps are accounted for under the accrual basis of accounting. The foreign
exchange forward contracts and currency swaps are recorded at cost and adjusted
for changes in the spot exchange rates at the reporting date. With respect to
derivative commodity instruments, PetroFina currently enters into crude oil and
refined product futures and forwards and natural gas futures.
Interest rate swap agreements are used by PetroFina to manage its interest
costs and reduce interest rate risk by managing the overall mix of fixed and
floating rate debt. PetroFina is able to modify the interest characteristics of
its debt portfolio from a fixed to a floating rate basis or vice versa. Interest
differentials are recorded on an accrual basis as an adjustment to interest
expense and interest payable.
Currency swaps and foreign exchange forward contracts are used by PetroFina
to manage funding costs and its exposure to fluctuations in foreign currency
denominated receivables and payables. This activity is intended to protect
PetroFina cash flows from adverse short term fluctuations in foreign currencies.
Gains and losses attributable to these contracts resulting from changes in
exchange rates are accrued in other current receivables/liabilities and
recognized as an adjustment to other financial income and expense in the period
in which the change occurs.
When a hedged obligation is terminated without being replaced by another
qualifying hedged item, the designated interest rate or currency swap is
recorded at fair value.
F-16
<PAGE> 155
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Crude oil and refined products futures and forwards are used to minimize
price risks related to the supply and sale of these products, respectively. Any
realized or unrealized changes in fair value are accrued in other current
receivables/liabilities and recognized as a component of operating expenses in
the period in which the change occurs.
Natural gas futures are used to hedge designated equity production. Gains
and losses on these qualifying hedges are deferred and included in the
measurement of the related transaction, in the month of production.
Derivative instruments are either exchange-traded or with counterparties of
high credit quality. Therefore the risk of nonperformance by the counterparties
is considered to be negligible.
CASH AND CASH EQUIVALENTS
The Group considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
MARKETABLE SECURITIES
The Group's investments in marketable securities are classified as
"trading" and are recorded at fair value. Changes in fair value, both unrealized
gains and unrealized losses, are recognized in each period's income statement.
STOCKS
Inventories are valued at the lower of cost or net realizable value. Crude
feedstocks, finished petroleum products and chemical products inventories are
valued according to the LIFO method (last in/first out). All other inventories
are valued at the lower of average cost (which approximates cost on a first
in/first out basis) or net realizable value. The costs of finished products
include raw material costs, direct costs and related production overhead costs
but exclude any interest charges. Net realizable value is defined as the
estimated selling price (in the normal course of business) of an inventory item
less the costs of completion and selling expenses.
TANGIBLE ASSETS
Cost
PetroFina follows the "successful efforts" method of accounting for the
cost of oil and gas exploration and production operations.
Lease acquisition costs related to properties held for oil, gas and mineral
exploration and production are capitalized when incurred. Unproved properties
with acquisition costs which are individually significant are assessed on a
property-by-property basis, and a loss is recognized, by provision of a
valuation allowance, when the assessment indicates an impairment in value.
Unproved properties with acquisition costs which are not individually
significant are generally aggregated and the portion of such costs estimated to
be non productive, based on historical experience, is amortized on an average
holding period basis.
Exploratory costs, excluding the costs of exploratory wells, are charged to
expense as incurred. Costs of drilling exploratory wells, including
stratigraphic test wells, are capitalized pending determination whether the
wells have found proved reserves which justify commercial development. If such
reserves are not found, the drilling costs are charged to exploration expenses.
All development costs related to proved oil and gas reserves are capitalized.
F-17
<PAGE> 156
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Interest is capitalized as a component of the cost of construction for
development projects in progress. Normal maintenance and repairs are charged to
expense as incurred. Renewals, betterments and major repairs that extend the
useful life or productivity of PP&E are capitalized and the assets replaced, if
any, are retired.
Impairment and Depreciation
For purposes of determining and recognizing impairment of long-lived
assets, the applicable carrying value is evaluated against the undiscounted
projection of net future pre-tax cash flows. The applicable grouping of assets
are based on the lowest practicable levels of identifiable cash flows,
consistent with the manner in which those assets are managed. If an impairment
exists, the carrying value is adjusted to the estimated fair value.
Assets to be disposed of are carried for at the lower of amortized cost or
fair value less cost to sell.
The capitalized costs related to producing activities, including tangible
and intangible costs, are amortized by field on the unit-of-production basis by
applying the ratio of produced oil and gas during the period to beginning of the
period proved developed oil and gas reserves. Estimated future restoration and
abandonment costs are accrued each period based on the associated
unit-of-production rate.
Depreciation of PP&E related to facilities other than producing properties
is provided using the straight-line method, over the asset's estimated useful
life. Typical useful lives of facilities are as follows :
<TABLE>
<S> <C>
- -- machinery & equipment 10 to 20 years
- -- buildings 20 years
- -- other 3 to 5 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets primarily consist of patents, licences, goodwill, and
capitalized software development costs for internal use. Intangible assets are
depreciated over their estimated economic life, ranging generally from 5 years
to 20 years.
ENVIRONMENTAL EXPENDITURES
The estimated future costs for known environmental remediation requirements
are accrued when it is probable that a liability has been incurred and the
amount of remediation costs can be reasonably estimated. These amounts are the
undiscounted, future estimated costs under existing regulatory requirements and
using existing technology. Other environmental expenditures, principally
maintenance or preventive in nature, are recorded when expended and are expensed
or capitalized as appropriate.
INCOME TAXES
Income taxes are accounted for pursuant to the liability method. Under the
liability method, deferred tax assets and liabilities are measured as the tax
effected value of differences between the carrying values of assets and
liabilities for financial reporting and their tax basis. Deferred income tax
expense is the change during the year in the deferred tax assets and
liabilities. Effects of changes in tax laws and tax rates are recognized at the
date the tax law changes are enacted. Deferred taxes are not provided on
undistributed earnings of most subsidiaries as such earnings are deemed to be
indefinitely reinvested. A valuation allowance is recorded when necessary to
reduce deferred tax assets to the amount that is more likely than not to be
realized.
F-18
<PAGE> 157
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Oil and gas sales are inclusive of production royalties paid in cash. Crude
oil and petroleum products trading activities are recorded in Sales and Costs of
sales when physical delivery takes place. Exchanges of crude oil and petroleum
products involving other oil companies are excluded from sales.
The Group uses the entitlement method for recording natural gas sales
revenues. Under the entitlement method, revenue is based on the Group's net
working interest in field production. Deliveries of natural gas in excess of the
company's working interest are recorded as liabilities while under-deliveries
are recorded as assets. Such differences are temporary in nature and have been
insignificant.
EARNINGS PER SHARE
Earnings per share is based on net income divided by the average number of
shares of common stock outstanding. When dilutive, stock warrants are included
in dilutive Earnings per share.
(2) SEGMENT DATA
The Group is a fully integrated energy company. The Group's principal lines
of business are crude oil and natural gas exploration and production and natural
gas marketing ("Upstream"), petroleum products refining, supply and
transportation and marketing ("Downstream"), chemicals manufacturing and
marketing ("Chemicals") and paint manufacturing and marketing ("Paints"). The
Group sells refined products in both the wholesale and retail markets. Natural
gas is sold primarily to marketers. Chemical products are primarily sold to
manufacturers of fiber, film, packaging and consumable products. Raw materials
are readily available and the Group is not dependent upon a single or limited
number of suppliers.
F-19
<PAGE> 158
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SEGMENT DATA -- (CONTINUED)
Information regarding the Group's industry and geographic segments are as
follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------
UPSTREAM DOWNSTREAM CHEMICALS PAINTS OTHER CONSOLIDATED
-------- ---------- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
EUROPE(1)
- -----------------------------------------
OPERATING REVENUE:
Operating Revenue.................... $49,077 $462,637 $55,687 $31,452 $ 463 $599,316
Inter-segment........................ (29,736) (13,325) (4,511) -- (47,572)
Operating Revenue from Non
Affiliates......................... 19,341 449,312 51,176 31,452 463 551,744
Equity in Net Income of Affiliated
Companies.............................. 690 744 (152) 24 31 1,337
Operating Income/(Loss).................. 23,353 9,430 6,086 1,617 (1,638) 38,848
Identifiable Assets...................... 65,346 145,419 37,513 19,706 16,979 284,963
Depreciation, Depletion, and
Amortization........................... (8,289) (8,633) (3,207) (914) (460) (21,503)
Exploration Expenses..................... (2,203) (2,203)
Capital Expenditures..................... 15,250 8,397 3,230 1,014 256 28,147
NORTH AMERICA
- -----------------------------------------
OPERATING REVENUE:
Operating Revenue.................... 39,188 109,327 37,560 15 186,090
Inter-segment........................ (6,562) (3,636) (605) (10,803)
Operating Revenue from Non
Affiliates......................... 32,626 105,691 36,955 15 175,287
Equity in Net Income of Affiliated
Companies.............................. 86 (2) (35) 49
Operating Income/(Loss).................. 1,935 2,575 4,353 (878) 7,985
Identifiable Assets...................... 30,342 49,607 30,931 7,775 118,655
Depreciation, Depletion, and
Amortization........................... (3,464) (2,203) (1,238) (295) (7,200)
Exploration Expenses..................... (2,151) (2,151)
Capital Expenditures..................... 7,766 1,695 5,753 299 15,513
CONSOLIDATED
- -----------------------------------------
OPERATING REVENUE:
Operating Revenue.................... 88,265 571,964 93,247 31,452 478 785,406
Inter-segment........................ (36,298) (16,961) (5,116) (58,375)
Operating Revenue from Non
Affiliates......................... 51,967 555,003 88,131 31,452 478 727,031
Equity in Net Income of Affiliated
Companies.............................. 776 742 (187) 24 31 1,386
Operating Income/(Loss).................. 25,288 12,005 10,439 1,617 (2,516) 46,833
Identifiable Assets...................... 95,688 195,026 68,444 19,706 24,754 403,618
Depreciation, Depletion, and
Amortization........................... (11,753) (10,836) (4,445) (914) (755) (28,703)
Exploration Expenses..................... (4,354) (4,354)
Capital Expenditures..................... 23,016 10,092 8,983 1,014 555 43,660
</TABLE>
- ---------------
(1) Europe includes Europe and other parts of the world outside North America
for Upstream, Downstream and Other segments. Other parts of the world
represent less than 1% of the operating revenues, profit, and total assets
of the respective segment.
F-20
<PAGE> 159
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SEGMENT DATA -- (CONTINUED)
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
EUROPE(1) UPSTREAM DOWNSTREAM CHEMICALS PAINTS OTHER CONSOLIDATED
--------- -------- ---------- --------- ------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Operating Revenue........................ 41,960 402,943 46,567 29,439 1,021 521,930
Inter-segment............................ (25,932) (10,357) (2,964) (3) (39,256)
Operating Revenue from Non Affiliates.... 16,028 392,586 43,603 29,436 1,021 482,674
Equity in Net Income of Affiliated
Companies................................ 892 814 7 20 (248) 1,485
Operating Income/(Loss).................... 21,996 5,697 4,184 1,207 (1,851) 31,233
Identifiable Assets........................ 57,702 141,749 35,712 18,717 19,725 273,605
Depreciation, Depletion, and
Amortization............................. 6,605 7,258 2,999 830 742 18,434
Exploration Expenses....................... 1,775 1,775
Capital Expenditures....................... 12,945 6,625 1,947 1,151 1,009 23,677
NORTH AMERICA
- -------------------------------------------
OPERATING REVENUE:
Operating Revenue........................ 23,252 93,418 31,837 -- 12 148,519
Inter-segment............................ (5,191) (3,400) (457) -- -- (9,048)
Operating Revenue from Non Affiliates.... 18,061 90,018 31,380 12 139,471
Equity in Net Income of Affiliated
Companies................................ -- 3 (22) -- -- (19)
Operating Income/(Loss).................... 2,169 (502) 7,153 -- (665) 8,155
Identifiable Assets........................ 22,703 43,168 22,489 -- 4,823 93,183
Depreciation, Depletion, and
Amortization............................. 2,320 1,879 999 -- 143 5,341
Exploration Expenses....................... 1,255 -- -- -- -- 1,255
Capital Expenditures....................... 5,019 2,346 1,740 -- 360 9,465
CONSOLIDATED
- -------------------------------------------
OPERATING REVENUE:
Operating Revenue........................ 65,212 496,361 78,404 29,439 1,033 670,449
Inter-segment............................ (31,123) (13,757) (3,421) (3) -- (48,304)
Operating Revenue from Non Affiliates.... 34,089 482,604 74,983 29,436 1,033 622,145
Equity in Net Income of Affiliated
Companies................................ 892 817 (15) 20 (248) 1,466
Operating Income/(Loss).................... 24,165 5,195 11,337 1,207 (2,516) 39,388
Identifiable Assets........................ 80,405 184,917 58,201 18,717 24,548 366,788
Depreciation, Depletion, and
Amortization............................. 8,925 9,137 3,998 830 885 23,775
Exploration Expenses....................... 3,030 3,030
Capital Expenditures....................... 17,964 8,971 3,687 1,151 1,369 33,142
</TABLE>
- ---------------
(1) Europe includes Europe and other parts of the world outside North America
for Upstream, Downstream and Other segments. Other parts of the world
represent less than 1% of the operating revenues, profit, and total assets
of the respective segment.
F-21
<PAGE> 160
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SEGMENT DATA -- (CONTINUED)
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------
EUROPE(1) UPSTREAM DOWNSTREAM CHEMICALS PAINTS OTHER CONSOLIDATED
--------- -------- ---------- --------- ------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Operating Revenue........................ 34,731 360,654 49,371 28,390 1,305 474,451
Inter-segment............................ (18,470) (12,452) (2,524) -- (333) (33,779)
Operating Revenue from Non Affiliates.... 16,261 348,202 46,847 28,390 972 440,672
Equity in Net Income of Affiliated
Companies................................ 484 600 359 15 (168) 1,290
Operating Income/(Loss).................... 13,841 348 10,438 854 (2,170) 23,311
Identifiable Assets........................ 48,174 136,636 35,893 17,813 19,202 257,718
Depreciation, Depletion, and
Amortization............................. 6,899 6,518 2,881 838 733 17,869
Exploration Expenses....................... 2,680 -- -- -- -- 2,680
Capital Expenditures....................... 9,801 6,572 4,604 745 795 22,517
------- ------- ------ ------ ------ -------
NORTH AMERICA
- -------------------------------------------
OPERATING REVENUE:
Operating Revenue........................ 13,867 81,034 30,570 -- 14 125,485
Inter-segment............................ (3,217) (3,996) (220) -- -- (7,433)
Operating Revenue from Non Affiliates.... 10,650 77,038 30,350 -- 14 118,052
Equity in Net Income of Affiliated
Companies................................ 48 1 (18) 24 55
Operating Income/(Loss).................... (441) (113) 8,576 -- (545) 7,477
Identifiable Assets........................ 18,007 36,868 17,076 -- 4,223 76,174
Depreciation, Depletion, and
Amortization............................. 1,778 2,080 701 -- 105 4,664
Exploration Expenses....................... 1,506 -- -- -- -- 1,506
Capital Expenditures....................... 2,487 1,246 3,389 -- 213 7,335
------- ------- ------ ------ ------ -------
CONSOLIDATED
- -------------------------------------------
OPERATING REVENUE:
Operating Revenue........................ 48,598 441,688 79,941 28,390 1,319 599,936
Inter-segment............................ (21,687) (16,448) (2,744) -- (333) (41,212)
Operating Revenue from Non Affiliates.... 26,911 425,240 77,197 28,390 986 558,724
Equity in Net Income of Affiliated
Companies................................ 532 601 341 15 (144) 1,345
Operating Income/(Loss).................... 13,400 235 19,014 854 (2,715) 30,788
Identifiable Assets........................ 66,181 173,504 52,969 17,813 23,425 333,892
Depreciation, Depletion, and
Amortization............................. 8,677 8,598 3,582 838 838 22,533
Exploration Expenses....................... 4,186 -- -- -- -- 4,186
Capital Expenditures....................... 12,288 7,818 7,993 745 1,008 29,852
</TABLE>
- ---------------
(1) Europe includes Europe and other parts of the world outside North America
for Upstream, Downstream and Other segments. Other parts of the world
represent less than 1% of the operating revenues, profit, and total assets
of the respective segment.
(3) RESEARCH COSTS
Research costs incurred and expensed amounted to BEF 3,230 million in 1997,
BEF 3,062 million in 1996 and 2,883 million in 1995.
F-22
<PAGE> 161
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Patents & licences.......................................... 2,758 2,760 2,279
Customer goodwill........................................... 2,501 2,159 2,310
Other intangible assets..................................... 3,832 3,338 3,572
------ ------ ------
9,091 8,257 8,161
Accumulated amortization.................................... (6,825) (6,260) (6,181)
------ ------ ------
2,266 1,997 1,980
</TABLE>
(5) TANGIBLE ASSETS
A summary of tangible assets follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Land & buildings............................................ 48,151 44,936 39,901
Plant & equipment........................................... 242,211 223,800 207,602
Proved oil & gas properties................................. 168,420 147,725 132,356
Unproved oil & gas properties............................... 17,923 16,800 14,408
Other tangible assets....................................... 13,042 9,903 8,876
Assets under construction................................... 33,371 17,002 9,366
-------- -------- --------
523,118 460,166 412,509
Accumulated depreciation, depletion and amortization........ (287,963) (248,999) (217,354)
-------- -------- --------
235,155 211,167 195,155
</TABLE>
Capitalized interest included in capital expenditures amounted to BEF 1,616
million in 1997, to BEF 863 million in 1996 and to BEF 440 million in 1995.
(6) FINANCIAL ASSETS
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Companies accounted for under equity method................. 5,208 4,107 4,589
Other companies............................................. 1,339 2,157 1,409
Loans....................................................... 332 333 589
----- ----- -----
6,879 6,597 6,587
</TABLE>
(7) OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
Deferred tax assets......................................... 1,556 2,079 1,761
Other long term receivables................................. 10,238 9,193 7,689
------ ------ -----
11,794 11,272 9,450
</TABLE>
F-23
<PAGE> 162
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) STOCKS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
A summary of inventories follows:
-- Petroleum products..................................... 28,934 27,581 24,121
-- Chemicals products and paints.......................... 15,788 13,811 13,970
-- Other products and materials........................... 6,837 6,783 6,942
------ ------ ------
51,559 48,175 45,033
</TABLE>
The carrying value of crude oil, finished petroleum products and chemical
products inventories accounted for using the LIFO method amounted to BEF 41.4
billion at December 31, 1997, BEF 38.2 billion at December 31, 1996 and BEF 34.8
billion at December 31, 1995.
The excess of replacement cost of these inventories over LIFO was BEF 1.1
billion, BEF 6.2 billion and BEF 1.3 billion for the same periods.
(9) TRADE DEBTORS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Trade receivables........................................... 76,325 71,885 61,178
Write-downs on trade receivables............................ (2,785) (2,817) (2,500)
------ ------ ------
73,540 69,068 58,678
</TABLE>
(10) OTHER DEBTORS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Taxes & withholding taxes to be recovered................... 2,301 2,373 2,608
Deferred tax assets......................................... 2,877 933 823
Deferred charges and accrued income......................... 3,144 2,743 3,109
Others...................................................... 3,805 4,855 3,783
------ ------ ------
12,127 10,904 10,323
</TABLE>
(11) INCOME TAX PAYABLE
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
At the beginning of the year................................ 10,130 6,346 6,324
Current income tax expense.................................. 16,839 16,296 12,150
Taxes paid during the year.................................. (18,297) (13,070) (12,016)
Translation effects......................................... 243 561 (111)
Other....................................................... -- (3) (1)
------- ------- -------
8,915 10,130 6,346
</TABLE>
F-24
<PAGE> 163
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(12) OTHER CREDITORS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Other taxes (VAT)........................................... 3,754 3,215 2,705
Accrued expenses and deferred income........................ 5,573 6,538 5,964
Excise duties............................................... 12,992 13,503 13,125
Salary and social benefits.................................. 3,648 3,755 3,358
Other....................................................... 11,020 10,037 10,210
------ ------ ------
36,987 37,048 35,362
</TABLE>
(13) CURRENT AND LONG TERM FINANCIAL DEBTS
SHORT TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Bank Obligations............................................ 24,060 27,439 19,514
Commercial Paper............................................ 1,587 5,812 8,296
Other....................................................... 32 885 769
------ ------ ------
25,679 34,136 28,579
Current portion of Long Term Debt........................... 4,507 1,507 6,026
------ ------ ------
30,186 35,643 34,605
</TABLE>
Weighted average interest rates on outstanding borrowings at December 31,
1997, 1996 and 1995 were 6.33%, 5.84% and 6.09% respectively.
LONG TERM BORROWINGS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Bonds and Notes (rates from 3.5% to 10% maturing through
2005)..................................................... 23,386 35,566 36,459
Bank Obligations (rates from 3.58% to 10.75% maturing
through 2008)............................................. 39,543 12,768 11,657
Capital Lease Obligations................................... 1,388 899 968
Other....................................................... 166 1,600 1,674
------ ------ ------
64,483 50,833 50,758
Less current portion........................................ (4,507) (1,507) (6,026)
------ ------ ------
59,976 49,326 44,732
</TABLE>
F-25
<PAGE> 164
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) CURRENT AND LONG TERM FINANCIAL DEBTS -- (CONTINUED)
LONG TERM BORROWINGS BY CURRENCY
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Excludes the effects of currency swap transactions:
US Dollars.................................................. 49,221 31,651 25,412
BEF......................................................... 9,738 11,254 12,999
DEM (German Mark)........................................... 27 6,186 8,530
NLG (Netherlands Gulden).................................... 4,052 222 15
Other currencies............................................ 1,445 1,520 3,802
------ ------ ------
64,483 50,833 50,758
</TABLE>
As of December 31, 1997 the Group had committed and unused credit
facilities with various banks in various currencies totaling BEF 52,374 million.
Commitment fees associated with these credit facilities range from 0.07% to
0.20% on undrawn amounts. The Group intends to use borrowings under these
facilities to finance the repayment of BEF 26,630 million of commercial paper
classified as long term debt at December 31, 1997.
Fixed and variable rate debt is borrowed in the most cost-effective means
to manage risk arising from fluctuations in interests rates. Petrofina's
interest rate swaps convert BEF 23.9 billion of variable rate debt to an average
fixed rate of 7.06%, and BEF 8.5 billion of fixed rate debt to an average
variable rate of 6.12% as of December 31, 1997.
The aggregate maturities of long term borrowings (in BEF million) are as
follows:
<TABLE>
<CAPTION>
YEAR LONG-TERM BORROWINGS
---- --------------------
<S> <C>
1998..................................................... BEF 4,507 million
1999..................................................... BEF 2,840 million
2000..................................................... BEF 12,524 million
2001..................................................... BEF 6,231 million
2002..................................................... BEF 14,835 million
2003 and later........................................... BEF 23,546 million
</TABLE>
Certain notes and credit facilities contain provisions that limit mergers
and sales of assets, limit the incurrence of indebtedness and restrict payments
within subsidiaries of the Group.
No material amounts of current or long term debt are collateralized by
Group assets.
F-26
<PAGE> 165
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) FINANCIAL INSTRUMENTS
Amounts related to Petrofina's financial instruments were as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET FINANCIAL INSTRUMENTS:
Marketable securities............... 6,640 6,640 4,885 4,885 3,844 3,844
Long term debt...................... 64,483 66,193 50,833 53,143 50,758 53,531
DERIVATIVE INSTRUMENTS:
Interest rate swaps................. (216) (753) 99 (510) 350 (993)
Currency swaps...................... (99) (123) (186) (265) (199) 171
Forward foreign exchange
contracts......................... 107 107 (175) (175) (108) (108)
Commodity contracts................. 12 12 208 208 2 2
</TABLE>
Petrofina's notional amount of debt covered under interest rate swaps
totaled approximately BEF 32.4 billion, BEF 26.7 billion and BEF 22.3 billion,
and under currency swaps totaled approximately BEF 4.3 billion BEF 7.1 billion
and BEF 9.1 billion at December 31, 1997, 1996, and 1995, respectively. Amounts
to be paid or received under these agreements are accrued on the balance sheet
over the life of the swap agreements. The fair value of the swap agreements are
not recognized in the consolidated financial statements since they are accounted
for as hedges of the underlying debt instruments.
For the periods ended December 31, 1997, 1996 and 1995, PetroFina had
forward foreign exchange buy contracts of BEF 49.2 billion, BEF 34.3 billion and
BEF 23.8 billion, respectively, principally denominated in Belgian franc and US
dollar, and sell contracts of BEF 49.2 billion, BEF 34.5 billion and BEF 23.9
billion, respectively, principally denominated in German mark, French franc,
Norwegian krone, and British pound and US dollar. Because these contracts are of
a short term nature (principally less than six months) their fair value and
carrying value are approximately the same.
Also for the periods ended December 31, 1997, 1996 and 1995, the Company
had crude oil and refined products futures and forward buy contracts of notional
amounts of BEF 1.5 billion, BEF 4.1 billion and BEF 1.4 billion, respectively;
and sell contracts of notional amounts of BEF 2.3 billion, BEF 1.6 billion and
BEF 0.2 billion, respectively. These contracts are recorded at fair value.
Natural gas contracts are insignificant at December 31, 1997, 1996 and 1995.
The carrying value of cash and cash equivalents, accounts receivable, and
accounts payable approximated their fair values due to the short term maturities
of these instruments. The estimated fair values of other financial instruments,
including debt and risk management instruments summarized above, have been
determined using available market information and valuation methodologies,
primarily discounted cash flow analysis.
(15) INCOME TAXES
Current tax expense for 1997, 1996 and 1995 was BEF 16,839 million, BEF
16,296 million and BEF 12,150 million, respectively. Deferred tax expense for
1997, 1996 and 1995 was BEF 2,692 million, BEF 1,382 million and BEF 942
million, respectively.
F-27
<PAGE> 166
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(15) INCOME TAXES -- (CONTINUED)
THE COMPONENTS OF DEFERRED INCOME TAX EXPENSE FOR EACH YEAR WERE AS
FOLLOWS:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
DECEMBER 31,
---------------------
1997 1996 1995
------ ----- ----
(in BEF million)
<S> <C> <C> <C>
Deferred tax expense, excluding items below................. 3,489 251 (512)
Benefits of tax loss carryforwards.......................... 991 482 832
Effect of foreign tax rate changes.......................... (1,257) -- --
Net change in valuation allowance........................... (531) 649 622
------ ----- ----
Deferred income tax expense................................. 2,692 1,382 942
</TABLE>
ACTUAL INCOME TAX EXPENSE DIFFERS FROM THE EXPECTED INCOME TAX EXPENSE
USING THE BELGIAN STATUTORY INCOME TAX RATE AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(in BEF million)
<S> <C> <C> <C>
Income before tax and minority interest..................... 42,237 34,322 25,617
Expected income tax at statutory tax rate of 40.17%......... 16,967 13,787 10,290
-- foreign tax rate differences........................ 6,915 5,979 4,474
-- uplift benefit(1)................................... (1,121) (1,220) (667)
-- non deductible expenses............................. 1,000 674 916
-- tax free income..................................... (2,195) (2,092) (2,619)
-- change in valuation allowance....................... (531) 649 622
-- effect of foreign tax rate changes(2)............... (1,257) -- --
-- other............................................... (247) (99) 76
------ ------ ------
Total income tax expense.................................... 19,531 17,678 13,092
</TABLE>
- ---------------
(1) Uplift is a special deduction allowed against revenues from oil and gas
activities on the Norwegian continental shelf.
(2) Effect primarily of tax rates reduction in the UK and in Italy.
F-28
<PAGE> 167
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(15) INCOME TAXES -- (CONTINUED)
THE DEFERRED INCOME TAX ASSETS AND LIABILITIES ARE AS FOLLOWS:
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(in BEF million)
<S> <C> <C> <C>
Deferred income tax assets:
-- tax loss carryforwards.............................. 8,273 9,431 9,473
-- deferred uplift (1)................................. 2,353 2,020 1,290
-- provisions and accrued liabilities.................. 2,114 3,804 3,737
-- investment deductions............................... 378 495 739
-- AMT credits (2)..................................... 4,763 3,638 1,795
--- other.............................................. 515 377 85
Valuation allowance......................................... (6,872) (8,658) (7,605)
------- ------- -------
Net deferred income tax assets.............................. 11,524 11,107 9,514
Deferred income tax liabilities :
-- PP&E related(3)..................................... (29,690) (25,423) (20,510)
-- untaxed reserves.................................... (5,041) (6,052) (6,549)
------- ------- -------
Total deferred income tax liabilities....................... (34,731) (31,475) (27,059)
Net deferred income tax liability........................... (23,207) (20,368) (17,545)
</TABLE>
- ---------------
(1) uplift is a special deduction allowed against revenues from oil and gas
activities on the Norwegian continental shelf
(2) AMT credits relate to the alternative minimum tax system in the United
States and are credit carryforwards available to reduce future regular
income taxes
(3) primarily related to depreciation and depletion rate differences
AT THE END OF 1997, PETROFINA HAD TAX LOSS CARRYFORWARDS OF BEF 19,196
MILLION PRIMARILY IN BELGIUM, FRANCE, GERMANY AND THE USA. CARRYFORWARD AMOUNTS
(WHICH ARE NOT RATE EFFECTED) EXPIRE AS FOLLOWS:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------
(in BEF million)
<S> <C>
1998........................................................ 1,467
1999........................................................ 395
2000........................................................ 149
2001........................................................ 20
2002........................................................ 21
After 2002.................................................. 3,937
Without expiration.......................................... 13,207
</TABLE>
(16) STATEMENT OF INCOME
Net income is affected by transactions that are not representative of the
Group's current operations.
These transactions, defined as "non recurrent elements" which can affect
the comparability of annual operating results, are summarized in the table
below.
F-29
<PAGE> 168
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(16) STATEMENT OF INCOME -- (CONTINUED)
NON RECURRENT ELEMENTS (IN BEF BILLION)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
UPSTREAM
a) Europe
Impairment test Ann/Alison............................... (0.5)
b) North America
Capital gains on assets sold............................. 0.3 0.2
DOWNSTREAM
a) Europe
Inventory (write-down), write-back....................... (0.1) 0.3 0.3
Accelerated depreciation................................. (0.2)
Provisions for site restoration.......................... (0.1)
Capital gains on assets sold............................. 1.0
b) North America
Inventory (write-down), write-back....................... (0.2)
CHEMICALS
Europe
Capital gains on assets sold................................ 0.3
PAINTS
Provisions for litigation................................... (0.1)
Provisions for site restoration............................. (0.1)
Accelerated depreciation.................................... (0.1)
EARLY RETIREMENT COSTS...................................... (0.9) (1.1) (0.9)
TAX
Tax on non recurrent elements............................... 0.1 (0.2)
Influence, on deferred taxes, of tax rate reduction in Italy
and U.K................................................... 1.3
---- ---- ----
(0.1) (0.6)
</TABLE>
b) PERSONNEL COSTS
<TABLE>
<CAPTION>
PROPORTIONAL
FULL CONSOLIDATION CONSOLIDATION TOTAL
------------------------ --------------------- ------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------ ------ ------ ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Personnel employed (number of employees)
Operational employees........... 4,466 3,923 3,948 443 438 512 4,909 4,361 4,460
Administrative employees........ 5,371 4,896 4,699 282 286 220 5,653 5,182 4,919
Management...................... 3,878 3,807 3,992 235 238 282 4,113 4,045 4,274
------ ------ ------ ----- ----- ----- ------ ------ ------
13,715 12,626 12,639 960 962 1,014 14,675 13,588 13,653
2. Personnel costs (in BEF million)
Salaries & direct social
benefits...................... 21,747 19,029 18,658 1,756 1,650 1,558 23,503 20,679 20,216
Employee's social security
contributions................. 4,534 4,457 4,444 508 497 504 5,042 4,954 4,948
Other payroll costs............. 1,869 1,592 1,741 240 237 214 2,109 1,829 1,955
------ ------ ------ ----- ----- ----- ------ ------ ------
28,150 25,078 24,843 2,504 2,384 2,276 30,654 27,462 27,119
</TABLE>
F-30
<PAGE> 169
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(16) STATEMENT OF INCOME -- (CONTINUED)
c) INTEREST EXPENSE
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Interest expense on interest-bearing debt................... (6,307) (6,448) (6,519)
Capitalized interest relating to assets under
construction.............................................. 1,616 863 440
------ ------ ------
(4,691) (5,585) (6,079)
</TABLE>
d) OTHER FINANCIAL INCOME NET
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- ----
<S> <C> <C> <C>
Income relating to marketable securities, cash and financial
loans..................................................... 951 1,026 934
Other financial income...................................... 527 199 270
Financial transaction costs................................. (1,000) (568) (303)
Exchange rate gain (loss)................................... (383) (138) 7
------ ----- ----
95 519 908
</TABLE>
(17) COMMITMENTS
PetroFina occupies certain marketing and production facilities and uses
certain equipment under leasing arrangements. Total rental expense incurred was
BEF 5,419 million, 4,782 million and BEF 4,527 million for 1997, 1996 and 1995.
Future minimum rental commitments as at December 31, 1997, under operating
leases having non cancellable lease terms in excess of one year are detailed in
the following schedule. Sublease rentals, contingent rentals, and capital lease
obligations are not significant.
LEASE EXPENSE
<TABLE>
<CAPTION>
(in BEF million)
<S> <C>
1998......................................... 2,851
1999......................................... 2,477
2000......................................... 2,081
2001......................................... 1,686
2002......................................... 1,389
Thereafter................................... 5,744
</TABLE>
The Group has contractual commitments to spend approximately BEF 3,395
million related to construction in progress at various locations at December 31,
1997.
The Group provided various bank guarantees to both third parties and
non-consolidated companies for BEF 3,355, BEF 3,362 million and BEF 6,720
million at December 31, 1997, 1996 and 1995, respectively. The fair value is not
readily determinable for these guarantees.
The Group receives and grants certain customs guarantees with third
parties. Guarantees granted and received amount to BEF 19,870 million, BEF
19,441 million and BEF 13,353 million and BEF 10,744 million BEF 9,799 million
and BEF 12,782 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
At December 31, 1996 and 1995 the Group factored with recourse accounts
receivable amounting to BEF 2,500 million.
F-31
<PAGE> 170
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(18) CONTINGENCIES
In its normal course of business, the Group is involved in various legal,
fiscal and environmental proceedings. Management is of the opinion that the
result of these proceedings will not have a material impact on the Group's
financial position or results of operations.
The Group is subject to legislation regarding environmental laws and
regulations. These regulations regulate the discharge of materials into the
environment and may require the Group to incur future obligations to investigate
the effects of the release or disposal of certain petroleum, chemical and
mineral substances at various sites; to remediate or restore these sites; to
compensate others for damage to property and natural resources and for
remediation and restoration costs.
At December 31, 1997, 1996 and 1995, the Group's accrued environmental
liabilities include BEF 4,368 million, BEF 3,717 million and BEF 3,119 million,
respectively, for dismantlement and removal costs primarily related to the
Group's interests in worldwide offshore production facilities. These costs are
accrued by the Group on the units-of-production method.
At December 31, 1997, 1996 and 1995, the Group's recorded accrued
liabilities for environmental remediation efforts were BEF 9,575 million, BEF
9,474 million and BEF 8,940 million, respectively. At December 31, 1997, 1996
and 1995, accrued environmental costs include BEF 684 million, BEF 625 million
and BEF 614 million, respectively, for remediation sites in the United States
where the Group has been named as a Potentially Responsible Party under United
States Superfund legislation.
The Group has determined these liabilities based on judgments made as to
the extent of and mechanisms for environmental remediation and the current
levels of costs for equipment and services. While there are certain assumptions
inherent in this process and changes to such assumptions could produce ranges in
the amount of expected remediation costs, it is PetroFina's belief that the
amounts accrued and disclosed represent the most probable amount. The likelihood
of material losses in excess of recorded amounts at known remediation sites is
remote.
(19) EMPLOYEE BENEFIT PLANS
Pension plans:
The Group maintains a number of defined benefit pension plans covering most
categories of employees. Plan benefits are generally based on employees' years
of service and latest salaries earned. The plans are administered by independent
pension trusts, insurance companies or internally. Funded pension plan assets
are primarily invested in fixed income securities, real estate, and marketable
equity securities. Actuarial values are
F-32
<PAGE> 171
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(19) EMPLOYEE BENEFIT PLANS -- (CONTINUED)
determined by independent experts. The method used for the determination of the
annual service cost and projected benefits obligations is the projected unit
credit method.
<TABLE>
<CAPTION>
BELGIAN NON BELGIAN
------------------------------ --------------------------------
PLAN ASSETS EXCEEDS ABO ABO EXCEEDS PLAN ASSETS
AS OF DECEMBER 31, AS OF DECEMBER 31,
------------------------------ --------------------------------
1997 1996 1995 1997 1996 1995
-------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
RECONCILIATION OF FUNDED STATUS
Pension benefit obligation:
-- Vested benefit obligation......... (5,403.7) (5,151.0) (4,930.0) (3,581.4) (3,331.3) (3,252.7)
-- Non vested........................ (505.5) (452.5) (429.6) (123.3) (109.2) (120.3)
-- Accumulated benefit obligation
(ABO).............................. (5,909.2) (5,603.5) (5,359.6) (3,704.7) (3,440.5) (3,373.0)
-- Effect of future salaries......... (2,650.1) (2,780.7) (2,649.9) (219.2) (227.7) (243.2)
-- Projected benefit obligation...... (8,559.3) (8,384.2) (8,009.5) (3,923.9) (3,668.2) (3,616.2)
Plan assets at fair value............. 9,323.1 8,781.7 8,262.2 0.0 0.0 0.0
Funded status......................... 763.8 397.5 252.7 (3,923.9) (3,668.2) (3,616.2)
Unrecognized net transition obligation
(assets)............................. (145.8) (165.3) (184.8) 300.7 353.4 403.8
Unrecognized prior service costs...... 39.5 0.0 0.0 20.1 17.5 18.3
Unrecognized net loss/(gain).......... (864.0) (383.6) (145.3) (131.8) (130.3) (151.9)
Additional liability.................. 0.0 (1.6) -- (41.4) (26.5)
Prepaid/(accrued) pension costs....... (206.5) (151.4) (79.0) (3,734.9) (3,469.0) (3,372.5)
PENSION EXPENSE
Service cost without interest......... 311.5 317.9 285.1 62.6 56.4 70.1
Interest cost......................... 606.5 566.5 579.8 246.9 229.4 226.2
Actual return of assets
-- Expected return................... (672.1) (584.0) (547.4) 0.0 0.0 0.0
-- Additional return................. 2.9 (269.0) (504.9) 0.0 0.0 0.0
-- Total actual return............... (669.2) (853.0) (1,052.3) 0.0 0.0 0.0
Net amortization and deferral......... (47.8) 249.5 485.4 52.2 46.9 47.8
Net periodic pension expense
(benefit)............................ 201.0 280.9 298.0 361.7 332.7 344.1
ASSUMPTIONS
Discount rate......................... 7% 7% 7% 6 to 8.5%
Assumed rate of return of plan
assets............................... 8.25% 8.25% 8.25%
Salary increase....................... 5% 5% 5% 2.0 to 6.5%
Inflation rate........................ 2.5% 3% 3% 2.0 to 4.5%
<CAPTION>
NON BELGIAN
----------------------------------
PLAN ASSETS EXCEEDS ABO
AS OF DECEMBER 31,
----------------------------------
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
RECONCILIATION OF FUNDED STATUS
Pension benefit obligation:
-- Vested benefit obligation......... (21,629.5) (15,885.0) (13,504.6)
-- Non vested........................ (552.7) (436.6) (398.9)
-- Accumulated benefit obligation
(ABO).............................. (22,182.2) (16,321.6) (13,903.5)
-- Effect of future salaries......... (3,361.0) (2,495.2) (2,179.5)
-- Projected benefit obligation...... (25,543.2) (18,816.8) (16,083.0)
Plan assets at fair value............. 33,453.7 25,877.5 21,345.1
Funded status......................... 7,910.5 7,060.7 5,262.1
Unrecognized net transition obligation
(assets)............................. (2,015.0) (2,078.7) (2,163.5)
Unrecognized prior service costs...... 58.3 55.1 56.5
Unrecognized net loss/(gain).......... (876.3) (1,427.4) (366.4)
Additional liability.................. -- 0.0 0.0
Prepaid/(accrued) pension costs....... 5,077.5 3,609.7 2,788.7
PENSION EXPENSE
Service cost without interest......... 603.2 556.6 423.8
Interest cost......................... 1,561.0 1,359.4 1,165.3
Actual return of assets
-- Expected return................... (2,505.6) (2,084.5) (1,709.1)
-- Additional return................. (2,424.3) (1,164.0) (1,464.4)
-- Total actual return............... (4,929.9) (3,248.5) (3,173.5)
Net amortization and deferral......... 2,030.5 873.6 1,201.7
Net periodic pension expense
(benefit)............................ (735.2) (458.9) (382.7)
ASSUMPTIONS
Discount rate......................... 6 to 8.25%
Assumed rate of return of plan
assets............................... 7 to 11%
Salary increase....................... 2.5 to 6.5%
Inflation rate........................ 2.0 to 4.5%
</TABLE>
Postretirement Plans:
In addition to providing pension benefits, certain health care and life
insurance benefits are provided to active and certain retired employees who meet
eligibility requirements defined in plan documents. The health care benefits in
excess of certain limits and the life insurance benefits are insured. The costs
of providing these benefits for active employees was BEF 291 million in 1997,
BEF 267 million in 1996 and BEF 254 million in 1995.
F-33
<PAGE> 172
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(19) EMPLOYEE BENEFIT PLANS -- (CONTINUED)
A summary of the postretirement plan's funded status and amounts recognized
in the consolidated balance sheet follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
-- retirees............................................... 1,403 1,215 1,237
-- fully eligible active plan participants................ 120 97 88
-- other active plan participants......................... 863 612 564
----- ----- -----
2,386 1,924 1,889
-- unrecognized net gain (loss)........................... (73) 39 (147)
-- unrecognized prior service cost........................ 7 6 6
----- ----- -----
Accrued postretirement benefit cost......................... 2,320 1,969 1,748
NET PERIODIC POSTRETIREMENT BENEFIT COST:
-- service cost........................................... 45 41 30
-- interest cost.......................................... 161 144 151
-- amortization of unrecognized prior service costs....... (1) (1) (1)
----- ----- -----
205 184 180
</TABLE>
The health care cost annual trend rate assumed for 1997, for pre-65 and
post-65 years of age, was 7.0% and 6.79%, respectively. For 1998, this rate was
assumed to be 6.55% and 6.43%, respectively, and gradually decrease to 6% and
5%, respectively. The health care cost trend rate has a significant effect on
the amounts reported. Increasing the trend rate by one percentage point in each
year would increase the accumulated postretirement benefit obligation by BEF 181
million as of December 31, 1997 and net periodic postretirement benefit cost by
BEF 12 million for 1997.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25%, 7.75% and 7.5% at December 31,
1997, 1996 and 1995, respectively. The effect of this change was an increase of
BEF 291 million, a decrease of BEF 52 million in 1996 and an increase of BEF 229
million in 1995 respectively, on the accumulated postretirement benefit
obligation.
(20) OTHER LONG TERM LIABILITIES
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Provisions for site restoration............................. 9,575 9,474 8,940
Pensions and similar commitments............................ 8,170 7,484 7,132
Other....................................................... 7,811 8,098 8,144
------ ------ ------
25,556 25,056 24,216
</TABLE>
(21) COMMON STOCK AND WARRANTS
PetroFina S.A. had issued and outstanding 23,420,432, 23,252,863 and
23,252,451 ordinary shares as at December 31, 1997, 1996 and 1995. The average
number of shares used to calculate earnings per share was 23,350,612, 23,252,764
and 23,252,414 for 1997, 1996 and 1995, respectively on a basic and dilutive
basis.
The Company issued 1,162,611 warrants in 1994. For every 20 PetroFina
shares held the Shareholder was granted one warrant at no cost. The warrants
were exercisable at a ratio of one warrant for one new share
F-34
<PAGE> 173
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(21) COMMON STOCK AND WARRANTS -- (CONTINUED)
during the period from May 20, 1997 through June 3, 1997 at a subscription price
of BEF 12,500 per share. In June 1997, 167,569 warrants were subscribed.
In June 1997, the company has issued for its personnel a debenture loan
with warrants.
The loan of BEF 375 million is composed of 75,000 bonds worth BEF 5,000
each, to which are attached 150,000 warrants. Each warrant grants the right to
subscribe to one PetroFina share at BEF 12,500 per share on the following dates:
June 30th 1998, 1999 and 2000. The maturity date of the debenture loan is set to
be the 30th of June 2000, to the extent that warrants have not been exercised
before.
(22) INVESTMENTS IN JOINT VENTURES
The Group consolidates certain jointly owned companies in accordance with
proportional consolidation principles, which under U.S. GAAP would be accounted
for under the equity method. The aggregate effect of applying the equity methods
of accounting would be a decrease in the Group's total assets of BEF 1.4
billion, in 1997 and an increase of BEF 1.9 billion and BEF 0.6 billion at
December 31, 1996 and 1995, respectively. This difference in accounting has no
effect on shareholders' equity or net income. These jointly owned companies
represent two industrial facilities, two smaller plants, and one marketing
company. All the above companies operate in either the Group's Downstream or
Chemical segments.
PetroFina's proportionate interests in the joint ventures, included in the
Group's consolidated financial statements, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
DECEMBER 31,
Current assets.............................................. 4,306 4,992 4,919
Noncurrent assets........................................... 18,667 18,430 17,919
Current liabilities......................................... (7,650) (4,583) (3,861)
Noncurrent liabilities...................................... (12,393) (12,807) (14,369)
FOR THE YEAR ENDED DECEMBER 31,
Operating revenues.......................................... 13,036 11,987 10,726
Operating income............................................ 795 852 1,146
Net loss.................................................... 88 (68) (47)
Cash flows from:
-- Operating activities................................... 3,763 2,360 2,296
-- Financing activities................................... (1,305) 122 (1,552)
-- Investing activities................................... (3,625) (2,440) (778)
</TABLE>
(23) RELATED PARTY TRANSACTIONS
The Group accounts for certain companies following the equity method of
accounting. The Group's investment in these companies is included in Financial
assets. The equity affiliates are primarily engaged in exploration, production,
refining, distribution and marketing of crude oil, petroleum products and paints
in the United Kingdom, France, Holland, the United States and Angola.
Accounts and Notes Receivable in the Consolidated Balance Sheet include BEF
274.5 million, BEF 193 million and BEF 589 million at December 31, 1997, 1996
and 1995, respectively, of amounts due from equity affiliates. Accounts Payable
include BEF 1,074.9, BEF 2,555 million and BEF 2,986 million at December 31,
1997, 1996 and 1995, respectively, of amounts due to equity affiliates. Sales to
related parties
F-35
<PAGE> 174
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(23) RELATED PARTY TRANSACTIONS -- (CONTINUED)
were BEF 111.9 million for 1997, BEF 574 million for 1996 and BEF 517 million
for 1995. Sales price are determinated on arms-length principles.
(24) FINANCIAL RELATIONS WITH DIRECTORS AND MANAGERS
Salaries attributed to staff in charge of daily management (four executive
directors with permanent functions and eight general managers) as well as the
managers of the main subsidiaries amounted to BEF 230,214,704.
Bonus allocated to directors and to the eight general managers amounted to
BEF 103,850,000.
(25) OIL AND GAS RESERVES PER GEOGRAPHIC AREA (UNAUDITED)
The following table presents the Company's estimate of its proved oil and
gas reserves, for each foreign geographic area in which significant reserves are
located. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of producing
oil and gas properties. Accordingly, the estimates are expected to change as
future information becomes available.
The proved reserve estimates have been prepared by the Company's internal
petroleum reservoir engineers. Proved reserves are the estimated quantities of
crude oil, natural gas and natural gas liquids which geological and engineering
data demonstrate to be reasonably certain of recovery in future years from known
reservoirs under existing economic and operating conditions.
F-36
<PAGE> 175
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(25) OIL AND GAS RESERVES PER GEOGRAPHIC AREA (UNAUDITED) -- (CONTINUED)
CRUDE OIL (INCLUDING CONDENSATES AND NGL)
<TABLE>
<CAPTION>
EUROPE
AND REST OF NORTH EQUITY
THE WORLD AMERICA AFFILIATES TOTAL
----------- ------- ---------- ------
(in million barrels)
<S> <C> <C> <C> <C>
PROVED DEVELOPED AND UNDEVELOPED RESERVES
At December 31, 1994...................................... 500.86 31.86 26.33 559.05
Production of the year.................................. (46.72) (4.00) (0.25) (50.97)
Sales of minerals in place.............................. (2.15) (2.15)
Purchases of minerals in place.......................... 0.09 0.09
Extensions and discoveries.............................. 0.02 0.70 0.72
Revisions of previous estimates......................... 36.07 1.43 37.50
Improved recovery(1).................................... 24.59 6.73 31.32
------ ----- ----- ------
At December 31, 1995...................................... 514.82 34.66 26.08 575.56
------ ----- ----- ------
Production of the year.................................. (45.28) (3.95) (0.89) (50.12)
Sales of minerals in place.............................. (0.74) (0.74)
Purchases of minerals in place.......................... 0.68 1.13 1.81
Extensions and discoveries.............................. 0.54 43.30 43.84
Revisions of previous estimates......................... 14.14 2.91 0.56 17.61
Improved recovery....................................... 0.08 0.08
------ ----- ----- ------
At December 31, 1996...................................... 484.98 77.31 25.75 588.04
------ ----- ----- ------
Production of the year.................................. (48.18) (3.96) (1.72) (53.86)
Sales of minerals in place.............................. (3.84) (3.84)
Purchases of minerals in place.......................... 0.50 0.50
Extensions and discoveries.............................. 15.74 3.30 19.04
Revisions of previous estimates......................... 3.22 (0.68) 0.32 2.86
Improved recovery(2).................................... 54.49 54.49
------ ----- ----- ------
At December 31, 1997...................................... 510.25 72.63 24.35 607.23
------ ----- ----- ------
PROVED DEVELOPED RESERVES
At December 31, 1995...................................... 363.99 19.30 26.08 409.37
At December 31, 1996...................................... 342.59 21.42 25.75 389.76
At December 31, 1997...................................... 352.06 17.99 24.35 394.41
</TABLE>
- ---------------
(1) Amounts for improved recovery in 1995 are due to the optimization of well
locations related to the Ekofisk II redevelopment, horizontal drilling and
increased water injection in Norway.
(2) In 1997, the amounts for improved recovery included 35 million barrels for
the water injection program for Eldfisk and 19,5 million barrels for the
redevelopment of Congolese fields.
F-37
<PAGE> 176
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(25) OIL AND GAS RESERVES PER GEOGRAPHIC AREA (UNAUDITED) -- (CONTINUED)
NATURAL GAS
<TABLE>
<CAPTION>
EUROPE
AND REST OF NORTH EQUITY
THE WORLD AMERICA AFFILIATES TOTAL
----------- ------- ---------- --------
(in billion of cubic feet)
<S> <C> <C> <C> <C>
PROVED DEVELOPED AND UNDEVELOPED RESERVES
At December 31, 1994.................................... 1,357.28 383.35 1,740.63
Production of the year................................ (150.11) (53.91) (204.02)
Sales of minerals in place............................ (12.97) (12.97)
Purchases of minerals in place........................ 0.10 0.10
Extensions and discoveries............................ 4.83 30.06 34.89
Revisions of previous estimates....................... 129.98 (9.73) 120.25
Improved recovery(1).................................. 85.80 0.29 86.09
-------- ------ --------
At December 31, 1995.................................... 1,427.78 337.19 1,764.97
-------- ------ --------
Production of the year.................................. (151.91) (58.77) (210.68)
Sales of minerals in place............................ (5.20) (5.20)
Purchases of minerals in place........................ 12.18 4.77 16.95
Extensions and discoveries............................ 10.92 134.62 145.54
Revisions of previous estimates....................... 50.24 (19.84) 30.40
Improved recovery
-------- ------ --------
At December 31, 1996.................................... 1,349.21 392.77 1,741.98
-------- ------ --------
Production of the year................................ (132.30) (76.58) (208.88)
Sales of minerals in place............................ (3.71) (3.71)
Purchases of minerals in place........................ 0.20 0.20
Extensions and discoveries............................ 6.42 88.47 94.89
Revisions of previous estimates....................... (77.90) (0.82) (78.72)
Improved recovery(2).................................. 42.56 42.56
-------- ------ --------
At December 31, 1997.................................... 1,187.99 400.33 1,588.32
-------- ------ --------
PROVED DEVELOPED RESERVES
At December 31, 1995.................................... 929.16 245.34 1,174.50
At December 31, 1996.................................... 801.24 249.61 1,050.85
At December 31, 1997.................................... 916.27 260.09 1,176.36
</TABLE>
- ---------------
(1) Amounts for improved recovery in 1995 are due to the optimization of well
locations related to the Ekofisk II redevelopment, horizontal drilling and
increased water injection in Norway.
(2) In 1997, the amounts for improved recovery included 42.4 billion cubic feet
for the water injection program for Eldfisk.
F-38
<PAGE> 177
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The following table presents the results of operations for oil and gas
producing activities for the three years ended December 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
NORTH NORTH NORTH
EUROPE AMERICA TOTAL EUROPE AMERICA TOTAL EUROPE AMERICA TOTAL
------ ------- ------ ------ ------- ------ ------ ------- ------
(in BEF million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales and other operating
revenues...................... 16,267 3,533 19,800 15,220 2,325 17,545 15,321 1,581 16,902
Transfers....................... 29,736 6,065 35,801 25,932 4,370 30,302 18,470 2,720 21,190
Operating Costs................... 13,070 2,253 15,323 11,764 1,671 13,435 11,014 1,684 12,698
Exploration Expenses.............. 2,203 2,151 4,354 1,775 1,255 3,030 2,681 1,505 4,186
Depreciation, Depletion and
Amortization.................... 8,289 3,452 11,741 6,605 2,310 8,915 6,899 1,770 8,669
------ ----- ------ ------ ----- ------ ------ ----- ------
Income Before Taxes............... 22,441 1,742 24,183 21,008 1,459 22,467 13,197 (658) 12,539
Income Tax Expenses............... 15,962 576 16,538 15,640 434 16,074 10,076 (235) 9,841
------ ----- ------ ------ ----- ------ ------ ----- ------
Results of Operations from
Producing Activities (Excluding
Interest Costs)................. 6,479 1,166 7,645 5,368 1,025 6,393 3,121 (423) 2,698
Group's Share of Equity Method
Investees' Results of Operations
for Producing Activities........ 690 86 776 892 -- 892 484 48 532
------ ----- ------ ------ ----- ------ ------ ----- ------
TOTAL: Results of Operations from
Producing Activities
(Excluding Interest
Costs)..................... 7,169 1,252 8,421 6,260 1,025 7,285 3,605 (375) 3,230
</TABLE>
F-39
<PAGE> 178
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COSTS INCURRED ON OIL & GAS PROPERTIES
A summary of costs incurred in oil and gas property acquisition,
exploration and development activities, (both capitalized and charged to
expense) for the periods noted follows:
<TABLE>
<CAPTION>
EUROPE
AND REST OF NORTH
THE WORLD AMERICA TOTAL
----------- ------- ------
(in BEF million)
<S> <C> <C> <C>
1997
Acquisition of unproved properties.......................... 98 473 571
Acquisition of proved properties............................ 6 -- 6
Exploration costs........................................... 2,819 1,910 4,729
Development costs........................................... 12,708 5,716 18,424
------ ----- ------
TOTAL............................................. 15,631 8,099 23,730
------ ----- ------
1996
Acquisition of unproved properties.......................... -- 256 256
Acquisition of proved properties............................ -- 128 128
Exploration costs........................................... 2,082 1,781 3,863
Development costs........................................... 11,357 3,035 14,392
------ ----- ------
TOTAL............................................. 13,439 5,200 18,639
------ ----- ------
1995
Acquisition of unproved properties.......................... -- 157 157
Acquisition of proved properties............................ -- 33 33
Exploration costs........................................... 2,189 1,464 3,653
Development costs........................................... 8,187 1,110 9,297
------ ----- ------
TOTAL............................................. 10,376 2,764 13,140
------ ----- ------
</TABLE>
SUPPLEMENT OIL & GAS DATA CAPITALIZED COSTS
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ---------------------------- ---------------------------
NORTH NORTH NORTH
EUROPE AMERICA TOTAL EUROPE AMERICA TOTAL EUROPE AMERICA TOTAL
-------- ------- -------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Proved Oil and Gas Properties....... 126,449 41,971 168,420 114,791 32,934 147,725 104,326 28,030 132,356
Unproved Oil and Gas Properties..... 12,388 5,535 17,923 11,155 5,645 16,800 10,210 4,198 14,408
Support facilities and other........ 22,493 8,054 30,547 14,097 5,152 19,249 6,187 2,919 9,106
-------- ------- -------- ------- ------- -------- ------- ------- -------
161,330 55,560 216,890 140,043 43,731 183,774 120,723 35,147 155,870
-------- ------- -------- ------- ------- -------- ------- ------- -------
Less Accumulated Depreciation,
Depletion, Amortization and
Impairment........................ (101,243) (31,096) (132,339) (87,865) (25,061) (112,926) (77,087) (19,457) (96,544)
-------- ------- -------- ------- ------- -------- ------- ------- -------
60,087 24,464 84,551 52,178 18,670 70,848 43,636 15,690 59,326
-------- ------- -------- ------- ------- -------- ------- ------- -------
Share of Net Capitalized Costs of
Equity Affiliates................. 1,087 863 843
</TABLE>
F-40
<PAGE> 179
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES
THEREIN RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED)
The following table, which presents a standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves, is presented pursuant to United States Statement of Financial
Accounting Standards No. 69. In computing this data, assumptions other than
those required by the Financial Accounting Standards Board could produce
different results. Accordingly, the data should not be considered as
representative of the fair market value of the Company's proved oil and gas
reserves.
Future cash inflows were computed by applying year end realized prices for
oil and gas production to estimated year end quantities of proved reserves.
Future price changes were considered only to the extent provided by contractual
agreements in existence at the date of computation. Future development and
production costs are computed by estimating the expenditures to be incurred in
developing and producing the proved oil and gas reserves, at the end of the
year, based on year end costs. Future income tax expenses were computed by
applying the year end statutory tax rate adjusted for tax credits, less the tax
basis of the properties involved. The impact of changes in the year end taxes on
future pre-tax net cash flows relating to proved oil and gas reserves is
considered to the extent that these changes are legislated. The standardized
measure of discounted future cash flows represents the present value of
estimated future net cash flows using a discount rate of 10%.
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
NORTH NORTH NORTH
EUROPE AMERICA TOTAL EUROPE AMERICA TOTAL EUROPE AMERICA TOTAL
-------- ------- -------- -------- ------- -------- -------- ------- --------
(in BEF million)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Future cash
inflows............ 418,548 67,203 485,751 484,770 94,541 579,311 393,173 37,069 430,242
Future production and
development
costs.............. (188,037) (28,497) (216,534) (182,152) (27,984) (210,136) (183,804) (14,391) (198,195)
Future income tax
expenses........... (138,065) (8,236) (146,301) (206,151) (18,426) (224,577) (135,424) (3,293) (138,717)
FUTURE NET CASH
FLOWS.............. 92,446 30,470 122,916 96,467 48,131 144,598 73,945 19,385 93,330
-------- ------- -------- -------- ------- -------- -------- ------- --------
10% annual discount
for estimated
timing of cash
flows.............. (33,610) (11,669) (45,279) (35,693) (20,379) (56,072) (31,698) (7,593) (39,291)
-------- ------- -------- -------- ------- -------- -------- ------- --------
Standardized measure
of discounted
future net cash
flows.............. 58,836 18,801 77,637 60,774 27,752 88,526 42,247 11,792 54,039
-------- ------- -------- -------- ------- -------- -------- ------- --------
Enterprise's share of
equity method
investee's
standardized
measure of
discounted future
net cash flows..... 1,447 0 1,447 1,956 0 1,956 1,548 0 1,548
</TABLE>
F-41
<PAGE> 180
PETROFINA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CHANGE IN THE STANDARDIZED MEASURE
STANDARDIZED MEASURE
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(in BEF million)
<S> <C> <C> <C>
STANDARDIZED MEASURE (beginning of year).................... 88,526 54,039 43,446
Change in sales prices related to future production......... (60,519) 53,243 27,710
Change in estimated future lifting and development costs.... (10,557) (2,453) 3,071
Sales and transfers of oil and gas produced during the
period, net of production costs........................... (41,092) (35,743) (26,006)
Extensions, discoveries and improved recovery, less related
costs..................................................... 17,625 17,795 7,657
Revisions in previously estimated quantities................ (11,555) 14,310 12,520
Previously estimated development costs incurred during the
period.................................................... 16,065 14,860 9,538
Sales of minerals in place.................................. (963) (923) (1,331)
Purchases of minerals in place.............................. 127 2,129 35
Accretion of discount....................................... 22,468 12,506 9,038
Net change in income taxes.................................. 50,075 (47,554) (27,683)
Exchange effect............................................. 7,437 6,317 (3,956)
------- ------- -------
STANDARDIZED MEASURE (END OF YEAR).......................... 77,637 88,526 54,039
</TABLE>
F-42
<PAGE> 181
SCHEDULE II
PETROFINA
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
BEGINNING CHARGED TO COSTS BALANCE
OF PERIOD AND EXPENSES DEDUCTIONS(1) AT END OF
--------- ---------------- ------------- ---------
(in BEF million)
<S> <C> <C> <C> <C>
December 31, 1995
-- allowance for doubtful receivables........ 2,527 389 (416) 2,500
-- inventory valuation reserve............... 1,173 (278) (60) 835
December 31, 1996
-- allowance for doubtful receivables........ 2,500 537 (220) 2,817
-- inventory valuation reserve............... 835 (299) 4 540
December 31, 1997
-- allowance for doubtful receivables........ 2,817 207 (239) 2,785
-- inventory valuation reserve............... 540 351 (368) 523
</TABLE>
- ---------------
(1) Utilization and monetary adjustments
F-43
<PAGE> 182
ANNEX A
GLOSSARY
Unless the context indicates otherwise, the following terms have the meanings
shown below:
"acreage".................. The total area, expressed in acres, over which
PetroFina has interests in exploration or
production. "Net acreage" is PetroFina's interest,
expressed in acres, in the relevant exploration or
production area.
"aromatics"................ Organic compounds, such as benzene, which contain
one or more unsaturated cyclic structures with
delocalized electrons.
"ADRs"..................... American Depositary Receipts evidencing PetroFina
ADSs.
"barrels" or "bbls"........ Barrels of crude oil, including condensate and
natural gas liquids.
"catalytic cracking"....... A process by which hydrocarbon molecules are broken
down (cracked) into lighter fractions by the action
of a catalyst.
"condensate"............... Light hydrocarbon substances produced with natural
gas which condense into liquid at normal
temperatures and pressures associated with surface
production equipment.
"conversion"............... Transformation of heavy fractions into light ones.
The term "deep conversion" refers to one such
process used for heavy fuel oils.
"crude oil"................ Crude oil, including condensate and natural gas
liquids.
"desulphuration"........... A generic name given to processes used to eliminate
or reduce various degrees of sulphur in petroleum
products.
"distillation"............. A process by which liquids are separated or refined
by vaporization followed by condensation.
"LPG"...................... Liquefied petroleum gas.
"PetroFina ADSs"........... American Depositary Shares representing the
PetroFina Shares. Each PetroFina ADS represents
one-tenth of one PetroFina Share.
"PetroFina Shares"......... Ordinary voting shares of PetroFina S.A.
"proved reserves".......... Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas and natural
gas liquids which geological and engineering data
demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs
under existing economic and operating conditions.
"proved developed
reserves".................. Proved developed oil and gas reserves are reserves
that can be expected to be recovered through
existing wells with existing equipment and
operating methods. Additional oil and gas expected
to be obtained through the application of fluid
injection or other improved recovery techniques for
supplementing natural forces and mechanisms of
primary recovery are included as "proved developed
reserves" only after testing by a pilot project or
after the operation of an installed program has
confirmed through production response that
increased recovery will be achieved.
"proved undeveloped
reserves".................. Proved undeveloped oil and gas reserves are
reserves that are expected to be recovered from new
wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required
for recomple-
A-1
<PAGE> 183
tion, but does not include reserves attributable to
any acreage for which an application of fluid
injection or other improved recovery technique is
contemplated, unless such techniques have been
proved effective by actual tests in the area and in
the same reservoir.
"steam cracking"........... A process by which hydrocarbon molecules are split
(cracked) into lighter fractions by steam.
"stream day"............... A day when a refinery is in operation.
ABBREVIATIONS
<TABLE>
<S> <C> <C> <C>
bbl......... barrel /d.......... per day
cf.......... cubic feet /y.......... per year
boe......... barrels of oil equivalent m........... thousand
t........... tonne M........... million
bpsd........ barrels per stream day B........... billion
</TABLE>
CONVERSION TABLE
<TABLE>
<S> <C> <C>
1 barrel..................... = 42 U.S. gallons
1 barrel of oil equivalent... = 1 barrel of crude oil = 6,000 cubic feet of gas(1)
1 barrel of crude oil per = approximately 50 tonnes of
day........................ crude oil (33 API) per year
1 cubic meter................ = 35,315 cubic feet
1 kilometer.................. = approximately 0.62 miles
1 square kilometer........... = 247.1 acres
1 tonne...................... = 1 metric ton = 1,000 kilograms
(approximately 2,203
pounds)
1 tonne of crude oil......... = 1 metric ton of crude oil = approximately 7.3 barrels
of crude oil (assuming a
specific gravity of 33
degrees API (American
Petroleum Institute))
</TABLE>
- ---------------
(1) Natural gas is converted to barrels of oil equivalent using an
industry-accepted ratio of cubic feet of actual gas per barrel.
A-2
<PAGE> 184
ANNEX B
AGREEMENT AND PLAN OF MERGER
AMONG
PETROFINA S.A.,
PETROFINA DELAWARE, INCORPORATED,
NEW FINA, INC.
AND
FINA, INC.
DATED AS OF FEBRUARY 17, 1998
B-1
<PAGE> 185
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE MERGER; CLOSING.................................... B- 4
1.1 The Merger................................... B- 4
1.2 Effective Time............................... B- 4
1.3 Time and Place of Closing.................... B- 5
1.4 Effect of the Merger......................... B- 5
ARTICLE II
THE SURVIVING CORPORATION.............................. B- 5
2.1 Certificate of Incorporation................. B- 5
2.2 By-laws...................................... B- 5
2.3 Directors and Officers....................... B- 5
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE..................... B- 5
3.1 Conversion of Securities..................... B- 5
3.2 Mergeco Common Shares........................ B- 6
3.3 Stock Options................................ B- 6
3.4 Dissenting Shares............................ B- 6
3.5 Exchange of Certificates..................... B- 6
3.6 No Liability................................. B- 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......... B- 8
4.1 Organization................................. B- 8
4.2 Capitalization............................... B- 8
4.3 Authorization of this Agreement;
Recommendation of Merger.......................... B- 8
4.4 Governmental Filings; No Conflicts........... B- 9
4.5 Disclosure and Financial Statements; No
Undisclosed Liabilities........................... B- 9
4.6 Vote Required................................ B-10
4.7 Opinion of Financial Advisor................. B-10
4.8 Finders and Investment Bankers............... B-10
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING MERGECO....... B-10
5.1 Organization................................. B-10
5.2 Capitalization............................... B-10
5.3 Authorization of this Agreement.............. B-11
5.4 Governmental Filings; No Violations.......... B-11
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING PDI........... B-12
6.1 Organization................................. B-12
6.2 Capitalization............................... B-12
6.3 Authorization of this Agreement.............. B-12
6.4 Governmental Filings; No Violations.......... B-12
</TABLE>
B-2
<PAGE> 186
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PARENT............... B-13
7.1 Organization............................... B-13
7.2 Capitalization............................. B-13
7.3 Subsidiaries............................... B-13
7.4 Authorization of this Agreement............ B-13
7.5 Governmental Filings; No Violations........ B-13
7.6 Disclosure and Financial Statements; No
Undisclosed Liabilities........................... B-14
7.7 Financial Ability to Perform............... B-14
7.8 Finders and Investment Bankers............. B-14
7.9 No Foreign Withholding..................... B-15
ARTICLE VIII
COVENANTS.............................................. B-15
8.1 Conduct of the Business of the Company..... B-15
8.2 Activities of Mergeco...................... B-15
8.3 Stockholders' Meeting...................... B-15
8.4 SEC Filings; Registration Statement........ B-15
8.5 Filings, Other Action...................... B-16
8.6 Public Announcements....................... B-16
8.7 NYSE Listing............................... B-17
8.8 Warrant Agreement.......................... B-17
8.9 Further Action............................. B-17
8.10 Directors' and Officers' Indemnification
and Insurance..................................... B-17
8.11 Transfer Taxes............................. B-18
8.12 DOL Application............................ B-18
ARTICLE IX
CLOSING CONDITIONS..................................... B-18
9.1 Conditions to the Obligations of Each
Party............................................. B-18
9.2 Conditions to the Obligations of Parent,
PDI and Mergeco................................... B-19
9.3 Conditions to the Obligations of the
Company........................................... B-19
ARTICLE X
TERMINATION AND ABANDONMENT............................ B-20
10.1 Termination................................ B-20
10.2 Procedure and Effect of Termination........ B-20
ARTICLE XI
MISCELLANEOUS.......................................... B-20
11.1 Amendment and Modification................. B-20
11.2 Waiver of Compliance; Consents............. B-21
11.3 Non-Survival of Representations, Warranties
and Agreements.................................... B-21
11.4 Notices.................................... B-21
11.5 Assignment; Parties in Interest............ B-22
11.6 Expenses................................... B-22
11.7 Specific Performance....................... B-22
11.8 Governing Law.............................. B-22
11.9 Counterparts............................... B-22
11.10 Interpretation............................. B-22
11.11 Entire Agreement........................... B-23
INDEX OF DEFINED TERMS...................................... B-25
</TABLE>
B-3
<PAGE> 187
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 17, 1998, among (i)
PetroFina S.A., a societe anonyme/naamloze vennootschap organized under the laws
of Belgium ("Parent"); (ii) New Fina, Inc., a Delaware corporation and an
indirect, wholly-owned subsidiary of Parent ("Mergeco"); (iii) Petrofina
Delaware, Incorporated, a Delaware corporation and an indirect, wholly-owned
subsidiary of Parent ("PDI"); and (iv) Fina, Inc., a Delaware corporation (the
"Company").
WHEREAS, Parent owns all of the capital stock of American Petrofina Holding
Company, a Delaware corporation ("APHC"), which owns all of the capital stock
of PDI (each of PDI and APHC are referred to hereinafter as a "Parent
Subsidiary," and together as the "Parent Subsidiaries"); and PDI owns an
aggregate of approximately 85% of the shares of Class A common stock, par value
$0.50 per share, and 100% of the shares of Class B common stock, par value $0.50
per share (collectively, the "Common Shares") of the Company;
WHEREAS, Parent has proposed to the Board of Directors of the Company that
Parent acquire through APHC and PDI the Common Shares not owned by PDI or any
other affiliate of Parent (the "Public Shares" and the holders thereof being
referred to as the "Public Shareholders");
WHEREAS, Parent desires to contribute the interest that it acquires in the
Public Shares to APHC and to cause APHC, in turn, to contribute such interest to
PDI;
WHEREAS, the Board of Directors of each of Parent and Mergeco believes it
is in the best interest of each of Parent and Mergeco and their respective
shareholders, and the Board of Directors of the Company believes it is in the
best interest of the Company and its shareholders, to consummate the merger of
Mergeco with and into the Company (the "Merger"), upon the terms and subject to
the conditions set forth in this Agreement;
WHEREAS, a Special Committee of the Board of Directors of the Company (the
"Special Committee"), has (i) determined that the Merger is fair to and in the
best interests of the Public Shareholders and (ii) recommended the approval of
this Agreement to the Board of Directors of the Company and the adoption of this
Agreement to the Public Shareholders; and
WHEREAS, the Boards of Directors of Parent, PDI, Mergeco and the Company
have approved this Agreement and approved the Merger upon the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER; CLOSING
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the General Corporation Law of the State
of Delaware (the "Delaware Corporation Law" or "DGCL"), at the Effective Time
(as hereinafter defined), Mergeco shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Mergeco shall cease
and the Company shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
1.2 Effective Time. As promptly as practicable after the satisfaction or,
if permissible, waiver of the conditions set forth in Article IX, but in no
event later than the Closing, the parties hereto shall cause the Merger to be
consummated by filing this Agreement or a certificate of merger or certificate
of ownership and merger (in either case, the "Certificate of Merger") with the
Secretary of State of the State of Delaware, in such form as is required by, and
executed in accordance with the relevant provisions of, the Delaware Corporation
Law and do any and all other lawful things necessary to cause the Merger to
become effective (the date and time of such filing being the "Effective Time").
B-4
<PAGE> 188
1.3 Time and Place of Closing. The closing of the Merger (the "Closing")
shall take place at the offices of Wilmer, Cutler & Pickering, 2445 M Street,
N.W., Washington, D.C. 20037, or such other place as the parties shall agree, as
soon as practicable following satisfaction or waiver of the conditions set forth
in Article IX. The date on which the Closing actually occurs is herein referred
to as the "Closing Date."
1.4 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the Delaware Corporation
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Mergeco shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of the
Company and Mergeco shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
ARTICLE II
THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of the Company shall be amended to read in its entirety as the
Certificate of Incorporation of Mergeco previously delivered to the Company
until thereafter amended as provided by the Delaware Corporation Law; provided,
however, that, at the Effective Time, Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read as follows:
"The name of the corporation is Fina, Inc."
2.2 By-laws. At the Effective Time, the By-laws of Mergeco previously
delivered to the Company shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by the Delaware Corporation Law, the Certificate
of Incorporation of the Surviving Corporation and such By-laws.
2.3 Directors and Officers. The directors of Mergeco immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE
3.1 Conversion of Securities.
(a) Each Common Share issued and outstanding immediately prior to the
Effective Time (other than any Common Shares to be canceled pursuant to
Section 3.1(b) and any Dissenting Shares (as hereinafter defined)), by
virtue of the Merger and without any action on the part of the holder
thereof, shall be converted as of the Effective Time into the right to
receive (i) $60.00 in cash (the "Cash Consideration") and (ii) one warrant
(a "Parent Warrant") to purchase nine-tenths (0.9) of one American
Depositary Share (a "Parent ADS") (subject to adjustment from and after
the date hereof as provided in the Warrant Agreement), evidenced by an
American Depositary Receipt (an "ADR"), each Parent ADS representing
one-tenth (0.1) of one ordinary voting share, without nominal value, of
Parent (each a "Parent Share"), with such Parent Warrant to be
substantially in the form annexed to the form of Warrant Agreement (the
"Warrant Agreement") attached hereto as Exhibit A and to have an exercise
price of $42.25 per Parent ADS (subject to adjustment as provided in the
Warrant Agreement) (the "Warrant Consideration"). The Cash Consideration
shall be payable without interest thereon, and the Cash Consideration and
the Warrant Consideration (collectively, the "Merger Consideration") shall
be payable to the holder of such Common Shares upon surrender of the
certificate representing such Common Shares.
(b) Each Common Share held in the treasury of the Company and each
Common Share issued and outstanding immediately prior to the Effective Time
which is then owned beneficially or of record by
B-5
<PAGE> 189
PDI, Parent or any direct or indirect wholly-owned subsidiary of Parent
shall, by virtue of the Merger and without any action on the part of the
holder thereof, be canceled and retired and cease to exist, without any
conversion thereof and no payment or distribution shall be made with
respect thereto.
(c) Subject to Section 3.4, at the Effective Time the holders of
certificates (the "Certificates") representing Common Shares shall cease
to have any rights as shareholders of the Company, except the right to
receive the Merger Consideration specified in Section 3.1(a) upon the
surrender of the Certificates in accordance with Section 3.5 subject,
however, to the Surviving Corporation's obligation to pay any dividends
with a record date prior to the Effective Time which have been declared by
the Company prior to the Effective Time and which remain unpaid at the
Effective Time.
3.2 Mergeco Common Shares. Each share of common stock, par value $0.01 per
share, of Mergeco issued and outstanding immediately prior to the Effective Time
(the "Mergeco Common Shares") shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and exchangeable for
one fully paid and nonassessable common share, par value $0.01 per share
("Surviving Corporation Common Shares"), of the Surviving Corporation.
3.3 Stock Options. Immediately prior to the Effective Time, the Company
shall adopt resolutions and take all other actions as may be necessary so that
each outstanding Company Option (as defined in Section 4.2) whether or not then
exercisable, shall be canceled by the Company immediately prior to the Effective
Time, and each holder for each canceled Company Option (each, a "Canceled
Option") shall be entitled to receive, as soon as practicable after the
Effective Time, for each Canceled Option (i) an amount in cash equal to the
product of (a) the total number of Common Shares previously subject to the
Canceled Option and (b) the excess, if any, of the amount of Cash Consideration
over the exercise price per Common Share previously subject to such Canceled
Option, and (ii) a number of Parent Warrants equal to the total number of Common
Shares previously subject to such Canceled Option.
3.4 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, if the holder of any Common Share shall have complied with the
provisions of Section 262 of the Delaware Corporation Law as to appraisal rights
with regard to that Common Share (a "Dissenting Share"), no such Dissenting
Share shall be deemed converted into and to represent the right to receive
Merger Consideration hereunder; and the holders of Dissenting Shares, if any,
shall be entitled to payment, solely from the Surviving Corporation, of the
appraised value of such Dissenting Shares to the extent permitted by and in
accordance with the provisions of Section 262 of the Delaware Corporation Law;
provided, however, that (i) if any holder of Dissenting Shares shall, under the
circumstances permitted by the Delaware Corporation Law, subsequently deliver a
written withdrawal of his or her demand for appraisal of such Dissenting Shares,
or (ii) if any holder fails to establish his or her entitlement to rights to
payment as provided in such Section 262, or (iii) if neither any holder of
Dissenting Shares nor the Surviving Corporation has filed a petition demanding a
determination of the value of all Dissenting Shares within the time provided in
such Section 262, such holder or holders (as the case may be) shall forfeit such
right to payment for such Dissenting Shares pursuant to such Section 262, and
the Common Shares of such holder or holders shall be deemed to be converted as
of the Effective Time into the right to receive the Merger Consideration in
accordance with the terms hereof. The Company shall give Parent (i) prompt
notice of any written demands for appraisal of any Common Shares, attempted
withdrawals of such demands, and any other instruments served pursuant to
applicable law received by the Company relating to stockholders' rights of
appraisal and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the Delaware Corporation Law. The
Company shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any demands for appraisals of Common Shares,
offer to settle any such demands or approve any withdrawal of any such demands.
3.5 Exchange of Certificates.
(a) As soon as practicable after the execution and delivery of this
Agreement and, in any event, not less than five Trading Days prior to the
mailing to holders of Common Shares of the Registration Statement (as
defined in Section 8.4), Parent shall designate a bank or trust company (or
such other person or persons as shall be reasonably acceptable to Parent
and the Company) to act as exchange agent
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(the "Exchange Agent") in effecting the exchange of Certificates that,
prior to the Effective Time, represented Common Shares (other than
Certificates representing Common Shares to be canceled pursuant to Section
3.1(b) or Dissenting Shares) for Merger Consideration pursuant to Section
3.1(a) hereof. Promptly after the Effective Time, the Surviving Corporation
shall cause to be mailed to each person who was, at the Effective Time, a
holder of record of Common Shares entitled to receive the Merger
Consideration pursuant to Section 3.1(a) a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of such
Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of the Certificates pursuant to such letter of transmittal.
Upon the surrender of each such Certificate, together with such letter of
transmittal duly completed and validly executed in accordance with the
instructions thereto, the Exchange Agent shall pay the holder of such
Certificate the Merger Consideration multiplied by the number of Common
Shares formerly represented by such Certificate in exchange therefor, and
such Certificate shall forthwith be canceled. Until so surrendered and
exchanged, each such Certificate (other than Certificates representing
Dissenting Shares or Common Shares to be canceled in accordance with
Section 3.1(b)) shall represent solely the right to receive Merger
Consideration. In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by Parent, the posting by such person of a bond in customary form and
amount as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration,
without any interest or dividends or other payments thereon, otherwise
deliverable upon due surrender of any such Certificate pursuant to this
Agreement.
(b) As of or promptly after the Effective Time, Parent shall deposit
the Warrant Consideration and deposit or cause to be deposited the Cash
Consideration, in trust with the Exchange Agent, for the benefit of the
holders of Common Shares, for exchange in accordance with this Article III.
(c) The cash portion of the aggregate Merger Consideration shall be
invested by the Exchange Agent, as directed by and for the benefit of the
Surviving Corporation, provided that such investments shall be limited to
direct obligations of the United States of America, obligations for which
the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest, commercial paper rated
of the highest quality by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P"),
and certificates of deposit issued by a commercial bank whose long-term
debt obligations are rated at least A2 by Moody's or at least A by S&P, in
each case having a maturity not in excess of one year.
(d) Promptly following the date which is six months after the
Effective Time, the Exchange Agent shall deliver to the Surviving
Corporation all cash, Common Shares, Parent Warrants, Certificates and
other documents in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate may surrender such Certificate to
the Surviving Corporation and (subject to applicable abandoned property,
escheat and similar laws and, in the case of Dissenting Shares, subject to
applicable law) receive in exchange therefor the applicable Merger
Consideration, without any interest or dividends or other payments thereon.
(e) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of Common Shares. If, after the
Effective Time, Certificates formerly representing Common Shares are
presented to the Surviving Corporation or the Exchange Agent, they shall be
canceled and (subject to applicable abandoned property, escheat and similar
laws and, in the case of Dissenting Shares, subject to applicable law)
exchanged for Merger Consideration, as provided in this Article III.
(f) Subject to and without derogation of the obligations of Parent
under Section 8 of the Warrant Agreement, the Surviving Corporation and the
Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
Common Shares and/ or Company Options such amounts that the Surviving
Corporation or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the United States
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Internal Revenue Code of 1986, as amended (the "Code"), the rules and
regulations promulgated thereunder or any provision of state, or local or
foreign tax law. To the extent there is withholding imposed on the Merger
Consideration, the full amount required to be withheld shall be satisfied
from the Cash Consideration. To the extent that amounts are so withheld by
the Surviving Corporation or the Exchange Agent, such amounts shall be
treated for all purposes of this Agreement as having been paid to the
holder of the Common Shares and/or Company Options in respect of which such
deduction and withholding was made by the Surviving Corporation or the
Exchange Agent.
3.6 No Liability. Neither Parent nor the Surviving Corporation shall be
liable to any holder of Common Shares for any Merger Consideration in respect of
such shares (or dividends or distributions with respect thereto) delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Mergeco as follows:
4.1 Organization. Each of the Company and its subsidiaries (each, a
"Company Subsidiary") is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not, individually or in the aggregate, have, or reasonably be expected to
have, a material adverse effect on the business, financial condition,
properties, or results of operations of the Company and its subsidiaries taken
as a whole (a "Company Material Adverse Effect").
4.2 Capitalization. The authorized capital stock of the Company consists
of (i) 40,000,000 Common Shares divided into two classes of 38,000,000 Class A
shares and 2,000,000 Class B shares, of which, on December 31, 1997, there were
29,221,972 Class A shares issued and outstanding and 2,000,000 Class B shares
issued and outstanding and (ii) 4,000,000 shares of preferred stock, par value
$1.00 per share, of which, on December 31, 1997, there were no preferred shares
issued and outstanding. Except as set forth above, there are no shares of
capital stock of the Company authorized or, as of the date hereof, issued or
outstanding. All issued and outstanding Common Shares are duly authorized,
validly issued, fully paid and nonassessable. Each of the Company's subsidiaries
is listed in the Company's Annual Report on Form 10-K for the fiscal year ending
December 31, 1996 (the "1996 Form 10-K"), and except, as and to the extent set
forth in the 1996 Form 10-K, the Company owns directly or indirectly all of the
issued and outstanding capital stock of each of the Company Subsidiaries, free
and clear of all liens, pledges, security interests, claims or other
encumbrances. Except for options to purchase 32,400 Common Shares issued
pursuant to the Company's Employee Non-Qualified Stock Option Plan (the
"Plan"), there are not now, and, at the Effective Time there will not be, any
existing stock option or similar plans, or options, warrants, calls,
subscriptions, preemptive rights or other agreements or commitments whatsoever
obligating the Company or any Company Subsidiary to issue, transfer, deliver or
sell or cause to be issued, transferred, delivered or sold any additional shares
of capital stock of the Company or any Company Subsidiary, or obligating the
Company or any Company Subsidiary to grant, extend or enter into any such
agreement or commitment. (The options outstanding under the Plan are hereinafter
referred to as a "Company Option" and collectively, the "Company Options.")
4.3 Authorization of this Agreement; Recommendation of Merger.
(a) The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by the Company's Board of Directors and,
except for the adoption of this Agreement by the stockholders of the
Company, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company, and subject
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only to adoption hereof by its stockholders (and assuming the due
authorization, execution and delivery hereof by Parent and Mergeco), this
Agreement constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(b) The Board of Directors of the Company (at a meeting duly noticed,
called and held on February 17, 1998 at which a quorum was present) has
determined that the Merger is fair to and in the best interests of the
stockholders of the Company and has resolved to recommend approval of the
Merger and adoption of this Agreement by the stockholders of the Company.
(c) At a meeting duly noticed, called and held on February 17, 1998,
the Special Committee unanimously determined that the Merger is fair to and
in the best interests of the Public Shareholders, and has recommended the
approval of this Agreement to the Board of Directors of the Company and the
adoption of this Agreement to the Public Shareholders.
4.4 Governmental Filings; No Conflicts.
(a) Except for (i) filings required by the applicable requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the Securities Act of 1933, as amended (the "Securities Act"), (ii) the
filing and recordation of appropriate merger documents as required by the
DGCL and, if applicable, the laws of other states in which the Company is
qualified to do business, (iii) filings under securities or blue sky laws
or takeover statutes of the various states, (iv) the listing requirements
of the American Stock Exchange and (v) filings in connection with any
applicable transfer or other taxes in any applicable jurisdiction, no
filing with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation by the Company
of the transactions contemplated by this Agreement, the failure to make or
obtain which would, individually or in the aggregate, have a Company
Material Adverse Effect or materially adversely affect the ability of the
Company to perform its obligations hereunder or to consummate the
transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by the
Company with any of the provisions hereof, will (i) conflict with or result
in any violation of any provision of the Certificate of Incorporation or
By-Laws of the Company, (ii) result in a violation or breach of, or
constitute a default (or give rise to any right of termination,
cancellation or acceleration) under, any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which the Company
or any Company Subsidiary is a party or by which any of them or any or
their properties or assets is bound or (iii) assuming the truth of the
representations and warranties of Parent and Mergeco contained herein and
their compliance with all agreements contained herein and assuming the due
making or obtaining of all filings, permits, authorizations, consents and
approvals referred to in the preceding sentence, violate any statute, rule,
regulation, order, injunction, writ or decree of any public body or
authority by which the Company or any Company Subsidiary or any of their
respective assets or properties is bound, excluding from the foregoing
clauses (ii) and (iii) violations, breaches, rights or defaults which,
would not individually or in the aggregate, have a Company Material Adverse
Effect or materially adversely affect the Company's ability perform its
obligations hereunder or to consummate the transactions contemplated
hereby.
4.5 Disclosure and Financial Statements; No Undisclosed Liabilities.
(a) The Company has filed all forms, reports and documents with the
Securities and Exchange Commission (the "SEC") since January 1, 1995,
required to be filed by it pursuant to the Securities Act and the Exchange
Act and the rules and regulations promulgated thereunder (collectively, the
"Company Disclosure Statements"), all of which have complied in all
material respects with all applicable requirements of the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder.
As of the date of this Agreement, none of such Company Disclosure
Statements, at the time filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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(b) As of the date of this Agreement, the consolidated balance sheets
and the related statements of consolidated income, consolidated cash flows
and consolidated retained earnings (including the notes and schedules
thereto) of the Company and its consolidated subsidiaries contained or
incorporated by reference in the Company Disclosure Statements have been
prepared from, and are in accordance with, the books and records of the
Company and its consolidated subsidiaries, comply in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, and present fairly the
consolidated financial position of the Company and its consolidated
subsidiaries as of their respective dates, and the consolidated results of
their operations and their cash flows for the periods presented therein, in
conformity with United States generally accepted accounting principles
("GAAP") applied on a consistent basis, except as otherwise noted therein,
and subject in the case of quarterly financial statements to normal
year-end audit adjustments, and except that the quarterly financial
statements do not contain all of the footnote disclosures required by GAAP.
(c) As of the date of this Agreement, there is no liability of the
Company or any Company Subsidiary of any nature, whether absolute, accrued,
contingent or otherwise, which, individually or in the aggregate, would
have a Company Material Adverse Effect other than as disclosed in the
Company Disclosure Statements.
4.6 Vote Required. The affirmative vote of the holders of a majority of
the outstanding Common Shares is the only vote of the holders of any class or
series of capital stock of the Company necessary to adopt the Merger Agreement
under the DGCL.
4.7 Opinion of Financial Advisor. The Special Committee has received the
opinion of Goldman, Sachs & Co. ("Goldman Sachs") dated February 17, 1998 that,
as of the date of such opinion, the Merger Consideration to be received by the
Public Shareholders pursuant to this Agreement is fair to the Public
Shareholders from a financial point of view.
4.8 Finders and Investment Bankers. No broker, investment banker or other
person is entitled to any broker's or finder's fee or similar compensation in
connection with this Agreement or the Merger based upon arrangements made by the
Company, except for Goldman Sachs whose fees shall be paid by the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING MERGECO
Each of Parent and Mergeco represents and warrants to the Company as
follows:
5.1 Organization. Mergeco is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Mergeco
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement. As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement and, except for
this Agreement and any other agreements or arrangements contemplated by this
Agreement or in furtherance of the transactions contemplated hereby, Mergeco has
not and will not have incurred, directly or indirectly, through any subsidiary
or affiliate, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person.
5.2 Capitalization. The authorized capital stock of Mergeco on February
17, 1998 consisted of 1000 Mergeco Common Shares, of which there were 10 shares
issued and outstanding, fully paid and nonassessable and owned by PDI free and
clear of all liens, claims and encumbrances. All of the Mergeco Common Shares
are entitled to vote on matters submitted to the stockholders of Mergeco. Except
as set forth above, there are no shares of capital stock of Mergeco authorized,
issued or outstanding. There are not now, and, at the Effective Time there will
not be, any existing stock option or similar plans or options, warrants, calls,
subscriptions, preemptive rights or other rights or other agreements or
commitments whatsoever obligating Mergeco or any of its subsidiaries to issue,
transfer, deliver or sell or cause to be issued, transferred, delivered
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or sold any additional shares of capital stock of Mergeco, or obligating Mergeco
to grant, extend or enter into any such agreement or commitment.
5.3 Authorization of this Agreement. Mergeco has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by the Board of Directors of Mergeco and by the
shareholders of Mergeco, and no other corporate proceedings on the part of
Mergeco are necessary to authorize this Agreement or consummate the transactions
contemplated hereby (other than, with respect to the Merger, the filing and
recordation of appropriate merger documents as required by Delaware Corporation
Law). This Agreement has been duly and validly executed and delivered by Mergeco
and (assuming the due authorization, execution and delivery hereof by the
Company) constitutes a valid and binding agreement of Mergeco, enforceable
against Mergeco in accordance with its terms.
5.4 Governmental Filings; No Violations.
(a) Except for (i) filings required by the applicable requirements of
the Exchange Act and the Securities Act, (ii) the filing and recordation of
appropriate merger documents as required by the DGCL, (iii) filings under
securities or blue sky laws or takeover statutes of the various states, and
(iv) filings in connection with any applicable transfer or other taxes in
any applicable jurisdiction, no filing with, and no permit, authorization,
consent or approval of, any public body or authority is necessary for the
consummation by Mergeco of the transactions contemplated by this Agreement,
the failure to make or obtain which would, individually or in the
aggregate, materially adversely affect the ability of Mergeco to perform
its obligations hereunder or to consummate the transactions contemplated
hereby.
(b) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by
Mergeco with any of the provisions hereof, will (i) conflict with or result
in any violation of any provision of the Certificate of Incorporation or
By-Laws of Mergeco, (ii) result in a violation or breach of, or constitute
a default (or give rise to any right of termination, cancellation or
acceleration) under, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which Mergeco is a party or
by which it or any of its properties or assets is bound or (iii) assuming
the truth of the representations and warranties of the Company contained
herein and its compliance with all agreements contained herein and assuming
the due making or obtaining of all filings, permits, authorizations,
consents and approvals referred to in the preceding sentence, violate any
statute, rule, regulation, order, injunction, writ or decree of any public
body or authority by which Mergeco or any of its respective assets or
properties is bound, excluding from the foregoing clauses (ii) and (iii)
violations, breaches, rights or defaults which would not, individually or
in the aggregate, materially adversely affect Mergeco's ability perform its
obligations hereunder or to consummate the transactions contemplated
hereby.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING PDI
Each of Parent and PDI represents and warrants to the Company as follows:
6.1 Organization. PDI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
has all requisite corporate power and authority to own, lease and operate
its properties and to conduct its business as now being conducted, except
where the failure to be so organized, existing and in good standing or to
have such power and authority would not, individually or in the aggregate,
have, or reasonably be executed to have, a material adverse effect on the
business, financial condition, properties or results of operations of
Parent and its subsidiaries taken as a whole (a "Parent Material Adverse
Effect").
6.2 Capitalization. The authorized capital stock of PDI on December
31, 1997 consisted of 250 shares of Class A Common Stock, par value $1.00
and 750 shares of Class B Common Stock, par value $1.00 (collectively, the
"PDI Shares"), of which there were 1,000 shares issued and outstanding,
fully paid and nonassessable and owned by APHC free and clear of all liens,
claims and encumbrances. All of the PDI Shares are entitled to vote on
matters submitted to the shareholders of PDI. Except as set forth above,
there are no shares of capital stock of PDI authorized, issued or
outstanding. There are not now, and, at the Effective Time there will not
be, any existing stock option or similar plans or options, warrants, calls,
subscriptions, preemptive rights or other rights or other agreements or
commitment whatsoever obligating PDI or any of its subsidiaries to issue,
transfer, deliver or sell or cause to be issued, transferred, delivered or
sold any additional shares of capital stock of PDI, or obligating PDI to
grant, extend or enter into any such agreement or commitment.
6.3 Authorization of this Agreement. PDI has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the Board of Directors of
PDI, and no other corporate proceedings on the part of PDI are necessary to
authorize this Agreement or consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
PDI and (assuming the due authorization, execution and delivery hereof by
the Company) constitutes a valid and binding agreement of PDI, enforceable
against PDI in accordance with its terms.
6.4 Governmental Filings; No Violations.
(a) Except for (i) filings required by the applicable requirements
of the Exchange Act and the Securities Act, (ii) the filing and
recordation of appropriate merger documents as required by the DGCL and,
if applicable, the laws of other states in which PDI is qualified to do
business, (iii) filings under securities or blue sky laws or takeover
statutes of the various states, and (iv) filings in connection with any
applicable transfer or other taxes in any applicable jurisdiction, no
filing with, and no permit, authorization, consent or approval of, any
public body or authority is necessary for the consummation by PDI of the
transactions contemplated by this Agreement, the failure to make or
obtain which would, individually or in the aggregate, materially
adversely affect the ability of PDI to perform its obligations hereunder
or to consummate the transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by
PDI with any of the provisions hereof, will (i) conflict with or result
in any violation of any provision of the Certificate of Incorporation or
By-Laws of PDI, (ii) result in a violation or breach of, or constitute a
default (or give rise to any right of termination, cancellation or
acceleration) under, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which PDI is a party or
by which it or any or its properties or assets is bound or (iii)
assuming the truth of the representations and warranties of the Company
contained herein and its compliance with all agreements contained herein
and assuming the due making or obtaining of all filings, permits,
authorizations, consents and approvals referred to in the preceding
sentence, violate any statute, rule, regulation, order, injunction, writ
or decree of any
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public body or authority by which PDI or any of its respective assets or
properties is bound, excluding from the foregoing clauses (ii) and (iii)
violations, breaches, rights or defaults which, would not individually
or in the aggregate, materially adversely affect PDI's ability perform
its obligations hereunder or to consummate the transactions contemplated
hereby.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
7.1 Organization. Parent is a societe anonyme/naamloze vennootschap
duly organized, validly existing and in good standing under the laws of the
Kingdom of Belgium and has all requisite corporate power and authority to
own, lease and operate its properties and to conduct its business as now
being conducted, except where the failure to be so organized, existing and
in good standing or to have such power and authority would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
7.2 Capitalization. The subscribed capital of Parent is
43,605,279,966 Belgian Francs. As of December 31, 1997, there were
23,420,432, ordinary voting shares, without nominal value, issued and
outstanding. All such issued and outstanding Parent Shares are duly
authorized, validly issued, fully paid, nonassessable and free of
preemptive rights (other than the preferential subscription rights
described in Parent's Registration Statement on Form 20-F filed with the
SEC on August 25, 1997 (File No. 1-14672)). Since such date, no additional
shares of capital stock of Parent have been issued. Parent has no
outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable
for securities having the right to vote) with the stockholders of Parent on
any matter. Except as contemplated by this Agreement and except for
warrants to purchase 150,000 Parent Shares issued to Parent employees,
there are not at the date of this Agreement any existing options, warrants,
calls, subscriptions, convertible securities, or other rights, agreements
or commitments which obligate Parent or any Parent Subsidiary to issue,
transfer, deliver or sell any shares of capital stock of Parent or any
Parent Subsidiary, or obligating Parent or any Parent Subsidiary to grant,
extend or enter into any such agreement or commitment.
7.3 Subsidiaries. Each of the outstanding shares of capital stock of
each Parent Subsidiary is duly authorized, validly issued, fully paid and
nonassessable. Each of the outstanding shares of capital stock of each
Parent Subsidiary is owned, directly or indirectly, by Parent free and
clear of all liens, pledges, security interests, claims or other
encumbrances other than liens imposed by local law which are not material.
7.4 Authorization of this Agreement. Parent has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized and approved by the Board of
Directors of Parent, and no other corporate proceedings on the part of
Parent are necessary to authorize this Agreement or consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Parent and, constitutes a valid and binding
agreement of Parent, enforceable against the Parent in accordance with its
terms.
7.5 Governmental Filings; No Violations.
(a) Except for (i) filings required by the applicable requirements
of the Exchange Act and the Securities Act, (ii) the filing and
recordation of appropriate merger documents as required by the DGCL,
(iii) filings under the securities or blue sky laws or takeover statutes
of the various states, (iv) filings required by the Belgian Commission
on Banking and Finance or the Brussels Stock Exchange, and (v) filings
in connection with any applicable transfer or other taxes in any
applicable jurisdiction, no filing with, and no permit, authorization,
consent or approval of, any public body or authority is necessary for
the consummation by Parent of the transactions contemplated by this
Agreement, the failure to make or obtain which would, individually or in
the aggregate, have a
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Parent Material Adverse Effect or materially adversely affect the
ability of Parent to perform its obligations hereunder or to consummate
the transactions contemplated hereby.
(b) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby nor compliance by
Parent with any of the provisions hereof will (i) conflict with or
result in any violation of any provision of the statuts/statuten of
Parent (ii) result in a violation or breach of, or constitute a default
(or give rise to any right of termination, cancellation or acceleration)
under any note, bond, mortgage, indenture, license, agreement or other
obligation to which Parent is a party, or by which it or any of its
respective properties or assets is bound, or (iii) assuming the truth of
the representations and warranties of the Company hereunder and its
compliance with all agreements contained herein and assuming the due
making or obtaining of all filings, permits, authorizations, consents
and approvals referred to in the preceding sentence, violate any
statute, rule, regulation, order, injunction, writ or decree of any
public body or authority by which Parent, or any of its respective
properties or assets is bound, excluding from the foregoing clauses (ii)
and (iii) violations, breaches, rights or defaults which, would not,
individually or in the aggregate, have a Parent Material Adverse Effect
or materially adversely affect the Parent's ability to perform its
obligations hereunder or to consummate the transactions contemplated
hereby.
7.6 Disclosure and Financial Statements; No Undisclosed Liabilities.
(a) Since September 2, 1997, Parent has filed all forms, reports
and documents with the SEC required to be filed by it pursuant to the
Securities Act and the Exchange Act, and the rules and regulations
promulgated thereunder (collectively, the "Parent Disclosure
Statements"), all of which have complied in all material respects with
all applicable requirements of the Securities Act and the Exchange Act
and the rules and regulations promulgated thereunder. As of the date of
this Agreement, none of such Parent Disclosure Statements, at the time
filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Prior to September 2, 1997,
Parent was not required to make filings under the Securities Act or
Exchange Act, except for filings pursuant to Rule 12g3-2(b) promulgated
under the Exchange Act.
(b) As of the date of this Agreement, the consolidated balance
sheets and the related statements of consolidated income, consolidated
cash flows and consolidated retained earnings (including the notes and
schedules thereto) of Parent and its consolidated subsidiaries contained
in the Parent's Registration Statement filed on Form 20-F (File No.
1-14672), have been prepared from, and are in accordance with, the books
and records of Parent and its consolidated subsidiaries, comply in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, and
present fairly the consolidated financial position of Parent and its
consolidated subsidiaries as of their respective dates, and the
consolidated results of their operations and their cash flows for the
periods presented therein, in conformity with GAAP applied on a
consistent basis, except as otherwise noted therein.
(c) As of the date of this Agreement, there is no liability of
Parent or any subsidiary of Parent of any nature, whether absolute,
accrued, contingent or otherwise, which, individually or in the
aggregate, would have a Parent Material Adverse Effect, other than as
disclosed in the Parent Disclosure Statements.
7.7 Financial Ability to Perform. Parent presently has, and at the
Effective Time will have, cash funds available sufficient to consummate the
transactions contemplated by this Agreement and to perform its obligations
under this Agreement.
7.8 Finders and Investment Bankers. No broker, investment banker or
other person is entitled to any broker's or finder's fee or similar
compensation in connection with this Agreement or the Merger based upon
arrangements made by Parent, except for Morgan, Stanley & Co., Incorporated
whose fees shall be paid by Parent.
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7.9 No Foreign Withholding. There is no law, rule or regulation of
any taxing authority or other governmental entity outside the United States
that would require Parent, the Surviving Corporation or the Exchange Agent
to deduct from or withhold any portion of the Merger Consideration.
ARTICLE VIII
COVENANTS
8.1 Conduct of the Business of the Company.
(a) Prior to the Effective Time, unless Parent shall otherwise
consent in writing (it being understood that Parent must act in good
faith whenever it withholds such consent), the Company shall, and shall
cause the Company Subsidiaries to, carry on their respective businesses
only in the ordinary course and consistent with past practice and, to
the extent consistent therewith and with the specific terms of this
Agreement, use all commercially reasonable efforts to preserve intact
their current business organizations, keep available the services of
their current employees and preserve their relationships with customers,
suppliers and others having business dealings with them.
(b) During the period from the date of this Agreement to the
Effective Time, the Company shall not declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, or agree to do
any of the foregoing; provided, however, that the Company shall declare
and pay regular quarterly dividends of $.80 per Common Share.
(c) Notwithstanding anything herein to the contrary, the Board of
Directors of the Company shall amend the Phantom Share Plan of the
Company (the "Phantom Plan") to (i) convert each Phantom Share (as
defined in the Phantom Plan) credited under the Phantom Plan to a cash
amount equal to the value of the Merger Consideration as of the Closing
Date, as determined in good faith by the Board of Directors of the
Company, (ii) provide that future amounts earned under the Phantom Plan
shall be credited in cash instead of Phantom Shares and (iii) provide
that cash amounts credited to the accounts of participants in the
Phantom Plan shall be credited with a reasonable rate of interest (as
determined in good faith by the Board of Directors of the Company) until
distributed in accordance with the terms of the Phantom Plan.
8.2 Activities of Mergeco. From the date of this Agreement to the
Effective Time, Mergeco will not conduct any business or engage in any
activities of any nature other than activities in connection with this
Agreement or the transactions contemplated hereby.
8.3 Stockholders' Meeting. The Company will take all action necessary
in accordance with applicable law and its Certificate of Incorporation and
By-laws to convene a meeting of its stockholders as promptly as practicable
to consider and vote upon the adoption of this Agreement. The Company shall
take all lawful action to solicit such adoption, including, without
limitation, timely mailing the Proxy Statement/Prospectus (as defined in
Section 8.4). In the Proxy Statement/Prospectus the Board of Directors of
the Company and the Special Committee shall recommend adoption of this
Agreement, subject to their respective fiduciary duties as advised by
independent counsel. At such meeting, Parent shall cause all Common Shares
then owned by it and its subsidiaries (including PDI) to be voted in favor
of the adoption of this Agreement.
8.4 SEC Filings; Registration Statement.
(a) Parent, PDI, Mergeco and the Company shall timely file with the
SEC a Schedule 13E-3 (the "Schedule 13E-3") with respect to the Merger
and disseminate to Public Shareholders such information as is required
by Rule 13e-3 under the Exchange Act.
(b) Parent and the Company shall cooperate and promptly prepare and
Parent shall file with the SEC as soon as practicable a Registration
Statement on Form F-4 (the "Registration Statement") under the
Securities Act, with respect to Parent Warrants issuable in the Merger
and Parent Shares represented by the Parent ADSs issuable upon exercise
of the Parent Warrants, a
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portion of which Registration Statement shall also serve as the proxy
statement with respect to the meeting of the stockholders of the Company
in connection with the Merger and the prospectus with respect to such
Registration Statement (the "Proxy Statement/Prospectus"). The Company
shall file the Proxy Statement/Prospectus with the SEC as soon as
practicable.
(c) The respective parties will cause the Schedule 13E-3, the Proxy
Statement/Prospectus and the Registration Statement to comply as to form
in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations
thereunder. Parent shall use all reasonable efforts, and the Company
will cooperate with Parent, to have the Registration Statement declared
effective by the SEC as promptly as practicable and to keep the
Registration Statement effective as long as is necessary to consummate
the Merger. Parent and the Company shall, as promptly as practicable,
provide copies to each other of any written comments received from the
SEC with respect to the Schedule 13E-3 and Registration Statement and
advise each other of any verbal comments with respect to the Schedule
13E-3 and Registration Statement received from the SEC. Parent shall use
its best efforts to obtain, prior to the effective date of the
Registration Statement, all necessary state securities law or "Blue Sky"
permits or approvals required to carry out the transactions contemplated
by this Agreement and will pay all expenses incident thereto. Parent
agrees that the Proxy Statement/Prospectus and each amendment or
supplement thereto at the time of mailing thereof and at the time of the
meeting of stockholders of the Company, and the Schedule 13E-3 and each
amendment or supplement thereto, at the time it is filed and the
Registration Statement, at the time it becomes effective, will not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing shall not
apply to the extent that any such untrue statements of a material fact
or omission to state a material fact was made by Parent in reliance upon
and in conformity with written information concerning the Company
furnished to Parent by the Company specifically for inclusion in the
Proxy Statement/Prospectus, Schedule 13E-3 or Registration Statement.
The Company agrees that the written information concerning the Company
provided by it specifically for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the meeting of stockholders
of the Company, and the written information concerning the Company
provided by the Company specifically for inclusion in the Schedule 13E-3
and each amendment or supplement thereto, at the time it is filed, and
the written information concerning the Company provided by it
specifically for inclusion in the Registration Statement, at the time it
becomes effective, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. No amendment or supplement
to the Registration Statement will be made by Parent or the Company
without the approval of the other party. Parent will advise the Company,
promptly after it receives notice thereof, of the time when the
Registration Statement has become effective.
8.5 Filings, Other Action. Subject to the terms and conditions herein
provided, the Company and Parent shall: (a) use all reasonable efforts to
cooperate with one another in (i) determining which filings are required to
be made prior to the Effective Time, and which consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time
from governmental or regulatory authorities of the United States, the
several states and foreign jurisdictions in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and timely
seeking all such consents, approvals, permits or authorizations; and (b)
use all reasonable efforts to take, or cause to be taken, all other action
and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated
by this Agreement.
8.6 Public Announcements. Parent and the Company will (i) consult
with each other before issuing any press release or otherwise making any
public statements with respect to the Merger, this Agreement and the
transactions contemplated hereby and (ii) not issue any such press release
or make
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any such public statement prior to such consultation, except as may be
required by law or by obligations pursuant to any listing agreement with
any securities exchange.
8.7 NYSE Listing. Parent agrees that it will use its best efforts to
cause the Parent Warrants and Parent ADSs issuable upon the exercise of the
Parent Warrants to be listed on the New York Stock Exchange ("NYSE"). To
the extent that the Parent Warrants or such Parent ADSs cannot be listed on
the NYSE, Parent shall use its best efforts to cause them to be listed on
the National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ").
8.8 Warrant Agreement. Prior to the Effective Time, Parent shall
execute and deliver the Warrant Agreement and cause the Warrant Agent (as
defined in the Warrant Agreement) to execute and deliver the Warrant
Agreement, with no changes from the form attached as Exhibit A hereto that
are adverse in any material respect to the holders of Common Shares.
8.9 Further Action. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further
acts and execute such documents as may be reasonably required to effect the
Merger.
8.10 Directors' and Officers' Indemnification and Insurance.
(a) The By-laws of the Surviving Corporation shall contain
provisions no less favorable with respect to indemnification and
exculpation than are set forth in Article 11 of the Certificate of
Incorporation of the Company, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would affect adversely the rights
thereunder of individuals who at or prior to the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company,
unless such modification shall be required by law.
(b) The Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger becomes effective,
indemnify and hold harmless, and, after the Effective Time, the
Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former
director, officer, employee, fiduciary and agent of the Company and each
Subsidiary and each fiduciary and agent of each such director and
officer (collectively, the "Indemnified Parties") against all costs and
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any
claim, action, suit, proceeding or investigation (whether arising before
or after the Effective Time), whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in
their capacity as an officer, director, employee, fiduciary or agent,
whether occurring before or after the Effective Time, until the
expiration of the statute of limitations relating thereto (and shall pay
any expenses in advance of the final disposition of such action or
proceeding to each Indemnified Party to the fullest extent permitted
under Delaware Corporation Law, upon receipt from the Indemnified Party
to whom expenses are advanced of any undertaking to repay such advances
required under Delaware Corporation Law). In the event of any such
claim, action, suit, proceeding or investigation, (i) the Company or the
Surviving Corporation, as the case may be, shall pay the reasonable fees
and expenses of counsel selected by the Indemnified Parties, which
counsel shall be reasonably satisfactory to the Company or the Surviving
Corporation, promptly after statements therefor are received and (ii)
the Company and the Surviving Corporation shall cooperate in the defense
of any such matter; provided, however, that neither the Company nor the
Surviving Corporation shall be liable for any settlement effected
without its written consent (which consent shall not be unreasonably
withheld); and provided, further, that neither the Company nor the
Surviving Corporation shall be obligated pursuant to this Section 8.10
(b) to pay the fees and expenses of more than one counsel (plus
appropriate local counsel) for all Indemnified Parties in any single
action except (x) that the persons who served as directors of the
Company who were not designees of Parent shall be entitled to retain one
additional counsel (plus appropriate local counsel) to represent them at
the expense of the Company or the Surviving Corporation, and (y) to the
extent that two or more of such Indemnified Parties shall have
conflicting interests in the outcome of such action, in which case such
additional counsel (including local counsel) as may be required to avoid
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any such conflict or likely conflict may be retained by the Indemnified
Parties at the expense of the Company or the Surviving Corporation; and
provided further that, in the event that any claim for indemnification
is asserted or made within the period prior to the expiration of the
applicable statute of limitations, all rights to indemnification in
respect of such claim shall continue until the disposition of such
claim.
(c) The Surviving Corporation shall use its reasonable efforts to
maintain in effect for six years from the Effective Time, the current
directors' and officers' liability insurance policies maintained by the
Company, or policies of at least the same coverage containing terms and
conditions which are not materially less favorable, with respect to
matters occurring prior to the Effective Time; provided, however, that
in no event shall the Surviving Corporation be required to expend
pursuant to this Section 8.10(c) more than an amount per year equal to
200% of current annual premiums paid by the Company for such insurance.
In the event that, but for the proviso to the immediately preceding
sentence, the Surviving Corporation would be required to expend more
than 200% of current annual premiums, the Surviving Corporation shall
obtain the maximum amount of such insurance obtainable by payment of
annual premiums equal to 200% of current annual premiums.
(d) In the event the Company or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers
all or substantially all of its properties and assets to any person,
then, and in each such case, proper provision shall be made so that the
successors and assigns of the Company or the Surviving Corporation, as
the case may be, or at Parent's option, Parent, shall assume the
obligations set forth in this Section 8.10.
8.11 Transfer Taxes. The Surviving Corporation shall pay any transfer
taxes (including any interest and penalties thereon and additions thereto)
payable in connection with the Merger and shall be responsible for the
preparation and filing of any required tax returns, declarations, reports,
schedules, terms and information returns with respect to such taxes.
8.12 DOL Application. On or before the Closing Date, the Company
shall submit an application (the "Application") to the United States
Department of Labor (the "DOL") for exemption from the application of
Section 406(a)(2) and 407(a) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), to the receipt, holding, exercise and
disposition of the Warrant Consideration by the Company's Capital
Accumulation Plan (the "CAP"). The parties hereto agree not to withdraw
the Application prior to a final decision thereon by the DOL and to use
their best efforts to cause the Application to be approved by the DOL.
During the pendency of the Application, one or more fiduciaries independent
of the Company and its affiliates (which shall include participants in the
CAP with respect to their own account balances) shall make all decisions
regarding the holding, disposition or exercise of the Warrant Consideration
by the CAP based solely on the best interest of participants and
beneficiaries thereunder (which participants and beneficiaries shall be
intended third party beneficiaries of this Section 8.12).
ARTICLE IX
CLOSING CONDITIONS
9.1 Conditions to the Obligations of Each Party. The respective
obligations of each party hereto to effect the Merger shall be subject to
the satisfaction or waiver, at or prior to the Effective Time, of the
following conditions:
(a) this Agreement shall have been adopted by the affirmative vote
of the holders of the requisite number of Common Shares in accordance
with the Certificate of Incorporation and By-Laws of the Company and the
DGCL;
(b) no statute, rule, regulation, temporary, preliminary or
permanent order or injunction shall have been promulgated, enacted,
entered, enforced or deemed applicable to the Merger or
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performance under this Agreement, by any state, federal or foreign
government or governmental authority or court or governmental agency of
competent jurisdiction and remain in effect that prohibits the
consummation of the Merger; and
(c) the Registration Statement shall have become effective and
shall be effective at the Effective Time, and no stop order suspending
effectiveness of the Registration Statement shall have been issued, and
no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing.
9.2 Conditions to the Obligations of Parent, PDI and Mergeco. The
obligations of Parent, PDI and Mergeco pursuant to this Agreement to
consummate the Merger are also subject to the satisfaction or waiver, at or
prior to the Effective Time, of the following additional conditions:
(a) the representations and warranties of the Company contained
herein shall be true and correct in all respects (in the case of any
representation or warranty containing any materiality qualification) or
in all material respects (in the case of any representation or warranty
without any materiality qualification) as of the date of this Agreement
and as of the Closing with the same effect as though all such
representations and warranties had been made as of Closing, except (i)
for any such representations and warranties made as of a specified date,
which shall be true and correct in all respects (in the case of any
representation or warranty containing any materiality qualification) or
in all material respects (in the case of any representation or warranty
without any materiality qualification) as of such date, or (ii) as
expressly contemplated by this Agreement, and Parent shall have received
from the Company's President and Chief Financial Officer an officers'
certificate to this effect; and
(b) each and all of the covenants and agreements of the Company to
be performed and complied with pursuant to this Agreement prior to the
Closing shall have been duly performed and complied with in all material
respects, and Parent shall have received from the Company's President
and Chief Financial Officer an officers' certificate to this effect.
9.3 Conditions to the Obligations of the Company. The obligation of
the Company pursuant to this Agreement to consummate the Merger is also
subject to the satisfaction or waiver, at or prior to the Effective Time,
of the following additional conditions:
(a) the representations and warranties of Parent, PDI and Mergeco
contained herein shall be true and correct in all respects (in the case
of any representation or warranty containing any materiality
qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) as of
the date of this Agreement and as of the Closing with the same effect as
though all such representations and warranties had been made as of
Closing, except (i) for any such representations and warranties made as
of a specified date, which shall be true and correct as of such date, or
(ii) as expressly contemplated by this Agreement, and the Company shall
have received from Parent, PDI and Mergeco officers' certificates to
this effect;
(b) each and all of the covenants and agreements of Parent and
Mergeco to be performed and complied with pursuant to this Agreement
prior to the Closing shall have been duly performed and complied with in
all material respects, and the Company shall have received from Parent
and Mergeco officers' certificates to this effect;
(c) the Warrant Agreement shall have been executed and delivered;
(d) the Parent Warrants issuable to the Company's stockholders as
contemplated by this Agreement, and the Parent ADSs issuable upon
exercise of the Parent Warrants, shall have been approved for listing on
the NYSE or NASDAQ, subject to official notice of issuance; and
(e) a Registration Statement on Form F-6 under the Securities Act
with respect to the Parent ADSs covered by the Parent Warrants shall be
effective, and no stop order suspending effectiveness of such
Registration Statement shall have been issued.
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ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the stockholders
of the Company:
(a) by mutual written consent duly authorized by the Board of
Directors of Parent and the Special Committee on behalf of the Board of
Directors of the Company;
(b) by either Parent or the Special Committee on behalf of the
Company if the Effective Time shall not have occurred on or before
September 30, 1998 (the "Termination Date"); provided, however, that
the right to terminate this Agreement under this Section 10.1(b) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure
of the Effective Time to occur on or before such date;
(c) by either Parent or the Special Committee on behalf of the
Company, if any court of competent jurisdiction in the United States or
other governmental agency of competent jurisdiction shall have issued an
order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger, and such
order, decree, ruling or other action shall have become final and
non-appealable;
(d) by the Special Committee, on behalf of the Company, at any
time, if any of the conditions set forth in Section 9.3(a) or (b) shall
not be satisfied at such time and (i) such condition is incapable of
being satisfied prior to the Termination Date or (ii) Parent and the
Parent Subsidiaries are not using their best efforts to cure the breach
resulting in such condition not being satisfied in as timely a manner as
practicable; or
(e) by Parent, at any time, if any of the conditions set forth in
Section 9.3(a) or (b) shall not be satisfied at such time and (i) such
condition is incapable of being satisfied prior to the Termination Date
or (ii) the Special Committee or the Company are not using their best
efforts to cure the breach resulting in such condition not being
satisfied in as timely a manner as practicable.
10.2 Procedure and Effect of Termination. In the event of termination
of this Agreement by either Parent or the Company pursuant to Section 10.1,
written notice thereof shall forthwith be given to the other parties
hereto, and this Agreement shall terminate and the Merger shall be
abandoned, without further action by any of the parties hereto. Mergeco and
PDI agree that any termination by Parent shall be conclusively binding upon
them, whether given expressly on their behalf or not, and the Company shall
have no further obligation with respect to them. If this Agreement is
terminated pursuant to Section 10.1, this Agreement shall forthwith become
void, and there shall be no liability on the part of any party hereto,
except as set forth in Section 11.3. Nothing herein shall relieve any party
from liability for any breach hereof.
ARTICLE XI
MISCELLANEOUS
11.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written
agreement of Parent, PDI, Mergeco and the Company at any time prior to the
Effective Time with respect to any of the terms contained herein; provided,
that (i) after this Agreement is adopted by the Company's stockholders
pursuant to Section 8.3, no such amendment or modification shall be made
that reduces the amount or changes the form of the Merger Consideration or
otherwise materially and adversely affects the rights of the Public
Shareholders hereunder, without the further approval of the holders of at
least a majority of the outstanding Common Shares and (ii) the approval of
the Special Committee shall be required for any amendment, modification or
supplementing of this Agreement, any extension by the Company of the time
for the performance of any obligations or other acts of Parent, PDI or
Mergeco and any waiver of any of the Company's rights under this Agreement.
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11.2 Waiver of Compliance; Consents. Any failure of Parent, PDI or
Mergeco on the one hand, or the Company, on the other hand, to comply with
any obligation, covenant, agreement or condition herein may be waived by
the Company (subject to the approval of the Special Committee as set forth
in Section 11.1(ii)) or Parent, respectively, only by a written instrument
signed by the party granting such waiver, but such waiver shall not operate
as a waiver of, or estoppel with respect to, any subsequent or other
failure. Any determination by the Company as to the existence of any such
failure on the part of Parent, PDI or Mergeco shall be made by the Special
Committee on behalf of the Company. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be
given in writing in a manner consistent with the requirements for a waiver
of compliance as set forth in Section 11.1(ii) and this Section 11.2.
Mergeco hereby agrees that any consent or waiver of compliance given by
Parent shall be conclusively binding upon it, whether given expressly on
its behalf or not.
11.3 Non-Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 10.1, as the case may be, except that (i) the
agreements set forth in Articles III and XI and Sections 8.9, 8.10 and 8.11
shall survive the Effective Time indefinitely and (ii) the agreements set
forth in Article XI and Section 10.2 shall survive the termination of this
Agreement indefinitely.
11.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if (i) delivered personally or by
overnight courier, (ii) mailed by registered or certified mail, return
receipt requested, postage prepaid, or (iii) transmitted by telecopy, and
in each case, addressed to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice;
provided that notices of a change of address shall be effective only upon
receipt thereto):
(a) If to Parent, PDI or Mergeco to
PetroFina S.A.
52 rue de l'Industrie
B-1040 Brussels, Belgium
Telecopy: 32-2-288-3610
Attention: Secretary General
with a required copy to:
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, D.C. 20037
Telecopy: 202-663-6363
Attention: Richard W. Cass
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(b) If to the Company, to:
Fina, Inc.
8350 North Central Expressway
Dallas, Texas 75206
Telecopy: 214-750-2570
Attention: Cullen M. Godfrey
with a required copy to:
Special Committee of the Board of Directors of Fina, Inc.
c/o Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Telecopy: (212)474-3700
Attention: Allen Finkelson
Any notice so addressed shall be deemed to be given (x) three business days
after being mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid and (y) upon delivery, if transmitted by
hand delivery, overnight courier or telecopy.
11.5 Assignment; Parties in Interest. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto without the prior
written consent of the other parties. Except for Sections 3.3, 8.10 and
8.12, which are intended to be for the benefit of the holders of Company
Options, Indemnified Parties and the participants and beneficiaries of the
CAP, respectively, this Agreement is not intended to confer upon any other
person except the parties any rights or remedies under or by reason of this
Agreement.
11.6 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses; provided, however, that the allocable share of each of Parent and
the Company for all expenses related to printing, filing and mailing the
proxy statement contained in the Registration Statement and all SEC and
other regulatory filing fees incurred in connection with the Schedule 13E-3
and the Registration Statement shall be one-half.
11.7 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or
equity.
11.8 Governing Law. This Agreement shall be governed by the laws of
the State of Delaware (regardless of the laws that might otherwise govern
under applicable principles of conflicts of law) as to all matters,
including but not limited to matters of validity, construction, effect,
performance and remedies.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10 Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (i) the term
"person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a limited, liability company,
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a trust, an unincorporated organization and a government or any department
or agency thereof; (ii) the terms "affiliate" and "associate" shall have
the meanings set forth in Rule 12b-2 of the General Rules and Regulations
promulgated under the Exchange Act; and (iii) the term "subsidiary" of any
specified corporation shall mean any corporation of which the outstanding
securities having ordinary voting power to elect a majority of the board of
directors are directly or indirectly owned by such specified corporation.
11.11 Entire Agreement. This Agreement, including the schedules and
exhibits hereto, embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements and the understandings between the parties
with respect to such subject matter.
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IN WITNESS WHEREOF, Parent, PDI, Mergeco, and the Company have caused this
Agreement to be signed, by their respective duly authorized officers or
directly, as of the date first above written.
PETROFINA S.A.
By: /s/ Francois Cornelis
------------------------------------
Name: Francois Cornelis
Title: Chief Executive Officer and
Managing Director
By: /s/ Michel-Marc Delcommune
------------------------------------
Name: Michel-Marc Delcommune
Title: Executive Director, Corporate
Finance -- Insurance
PETROFINA DELAWARE, INCORPORATED
By: /s/ Geoffroy Petit
------------------------------------
Name: Geoffroy Petit
Title: Vice President,
Administration and Finance
NEW FINA, INC.
By: /s/ Francois Cornelis
------------------------------------
Name: Francois Cornelis
Title: President
FINA, INC.
By: /s/ Ron W. Haddock
------------------------------------
Name: Ron W. Haddock
Title: President and Chief Executive
Officer
B-24
<PAGE> 208
INDEX OF DEFINED TERMS
(NOT PART OF THIS AGREEMENT)
<TABLE>
<CAPTION>
LOCATION
OF DEFINITION
-------------
<S> <C>
1996 Form 10-K.............................................. B-8
ADR......................................................... B-5
APHC........................................................ B-4
Application................................................. B-18
Canceled Option............................................. B-6
CAP......................................................... B-18
Cash Consideration.......................................... B-5
Certificate of Merger....................................... B-4
Certificates................................................ B-6
Closing..................................................... B-5
Closing Date................................................ B-5
Code........................................................ B-8
Common Shares............................................... B-4
Company..................................................... B-4
Company Disclosure Statements............................... B-9
Company Material Adverse Effect............................. B-8
Company Option.............................................. B-8
Company Options............................................. B-8
Company Subsidiary.......................................... B-8
Delaware Corporation Law.................................... B-4
DGCL........................................................ B-4
Dissenting Share............................................ B-6
DOL......................................................... B-18
Effective Time.............................................. B-4
ERISA....................................................... B-18
Exchange Act................................................ B-9
Exchange Agent.............................................. B-7
GAAP........................................................ B-10
Goldman Sachs............................................... B-10
Mergeco..................................................... B-4
Mergeco Common Shares....................................... B-6
Merger...................................................... B-4
Merger Consideration........................................ B-5
Moody's..................................................... B-7
NASDAQ...................................................... B-17
NYSE........................................................ B-17
Parent...................................................... B-4
Parent ADS.................................................. B-5
</TABLE>
B-25
<PAGE> 209
<TABLE>
<CAPTION>
LOCATION
OF DEFINITION
-------------
<S> <C>
Parent Disclosure Statements................................ B-14
Parent Material Adverse Effect.............................. B-12
Parent Share................................................ B-5
Parent Subsidiaries......................................... B-4
Parent Subsidiary........................................... B-4
Parent Warrant.............................................. B-5
PDI......................................................... B-4
PDI Shares.................................................. B-12
Phantom Plan................................................ B-15
Plan........................................................ B-8
Proxy Statement/Prospectus.................................. B-16
Public Shareholders......................................... B-4
Public Shares............................................... B-4
Registration Statement...................................... B-15
S&P......................................................... B-7
Schedule 13E-3.............................................. B-15
SEC......................................................... B-9
Securities Act.............................................. B-9
Special Committee........................................... B-4
Surviving Corporation....................................... B-4
Surviving Corporation Common Shares......................... B-6
Termination Date............................................ B-20
Warrant Agreement........................................... B-5
Warrant Consideration....................................... B-5
</TABLE>
B-26
<PAGE> 210
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AMONG
PETROFINA S.A.,
PETROFINA DELAWARE, INCORPORATED,
NEW FINA, INC.
AND
FINA, INC.
DATED AS OF MARCH 31, 1998
B-27
<PAGE> 211
FIRST AMENDMENT TO THE
AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made this 31st day
of March, 1998, by and among (i) PetroFina S.A., a societe anonyme/naamloze
vennootschap organized under the laws of Belgium ("Parent"); (ii) New Fina,
Inc., a Delaware corporation and an indirect, wholly-owned subsidiary of Parent
("Mergeco"); (iii) Petrofina Delaware, Incorporated, a Delaware corporation and
an indirect, wholly-owned subsidiary of Parent ("PDI"); and (iv) Fina, Inc., a
Delaware corporation ("Fina").
WHEREAS, Parent, Mergeco, PDI and Fina entered into that certain Agreement
and Plan of Merger dated as of February 17, 1998 (the "Agreement"); and
WHEREAS, Parent, Mergeco, PDI and Fina have agreed to amend certain terms
of the Agreement;
NOW, THEREFORE, the undersigned parties agree as follows:
1. Annex A of the Agreement is hereby amended to read as the Amended and
Restated Form of Warrant Agreement attached hereto as Annex A.
B-28
<PAGE> 212
IN WITNESS WHEREOF, Parent, PDI, Mergeco, and Fina have caused this
Agreement to be signed, by their respective duly authorized officers or
directly, as of the date first above written.
PETROFINA S.A.
By:
/s/ FRANCOIS CORNELIS
--------------------------------------
Name: Francois Cornelis
Title: Chief Executive Officer and
Managing Director
/s/ MICHEL-MARC DELCOMMUNE
--------------------------------------
Name: Michel-Marc Delcommune
Title: Executive Director, Corporate
Finance
PETROFINA DELAWARE, INCORPORATED
By:
/s/ FRANCOIS CORNELIS
--------------------------------------
Name: Francois Cornelis
Title: President
NEW FINA, INC.
By:
/s/ FRANCOIS CORNELIS
--------------------------------------
Name: Francois Cornelis
Title: President
FINA, INC.
By:
/s/ CULLEN M. GODFREY
--------------------------------------
Name: Cullen M. Godfrey
Title: Senior Vice President
B-29
<PAGE> 213
EXHIBIT A
[AMENDED AND RESTATED FORM OF WARRANT AGREEMENT]
WARRANT AGREEMENT
BETWEEN
PETROFINA S.A.
AND
CITIBANK, N.A.
DATED AS OF , 1998
B-30
<PAGE> 214
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Certain Definitions......................................... B-32
Section 2. Appointment of Warrant Agent................................ B-32
Section 3. Form of Warrant Certificates................................ B-33
Section 4. Countersignature and Registration........................... B-33
Section 5. Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Mutilated, Destroyed, Lost or Stolen Warrant
Certificates................................................ B-33
Section 6. Exercise of PetroFina Warrants; Exercise Price; Expiration
Date of PetroFina Warrants.................................. B-34
Section 7. Cancellation and Destruction of Warrant Certificates........ B-34
Section 8. Reservation and Availability of PetroFina Shares and
PetroFina ADSs; Listing..................................... B-35
Section 9. PetroFina ADS Record Date................................... B-35
Section 10. Adjustment of Exercise Price, Number of PetroFina ADSs or
Number of PetroFina Shares.................................. B-36
Section 11. Certification of Adjusted Exercise Price or Number of
PetroFina ADSs.............................................. B-39
Section 12. Reclassification, Consolidation, Merger, Combination, Sale
or Conveyance............................................... B-40
Section 13. Fractional PetroFina Warrants and Fractional PetroFina
ADSs........................................................ B-40
Section 14. Right of Action............................................. B-41
Section 15. Agreement of Warrant Certificate Holders.................... B-42
Section 16. Warrant Certificate Holder Not Deemed a Stockholder......... B-42
Section 17. Concerning the Warrant Agent................................ B-42
Section 18. Merger or Consolidation or Change of Name of Warrant
Agent....................................................... B-42
Section 19. Duties of Warrant Agent..................................... B-43
Section 20. Change of Warrant Agent..................................... B-44
Section 21. Issuance of New Warrant Certificates........................ B-44
Section 22. Purchase of PetroFina Warrants by PetroFina................. B-44
Section 23. Notice of Proposed Actions.................................. B-44
Section 24. Notices..................................................... B-45
Section 25. Supplements and Amendments.................................. B-45
Section 26. Successors.................................................. B-46
Section 27. Benefits of this Agreement.................................. B-46
Section 28. Governing Law............................................... B-46
Section 29. Counterparts................................................ B-46
Section 30. Captions.................................................... B-46
</TABLE>
B-31
<PAGE> 215
WARRANT AGREEMENT
This Warrant Agreement (the "Agreement") dated as of , 1998 [the
Closing Date], between PetroFina S.A., a societe anonyme/naamloze vennootschap
organized under the laws of the Kingdom of Belgium ("PetroFina"), and Citibank,
N.A., a national bank organized under the laws of the United States (the
"Warrant Agent").
W I T N E S S E T H
WHEREAS, PetroFina has entered into an Agreement and Plan of Merger, dated
as of February 17, 1998 (the "Merger Agreement"), with Fina, Inc., a Delaware
corporation ("Fina"), Petrofina Delaware, Inc., a Delaware corporation and New
Fina, Inc., a Delaware corporation and an indirect, wholly-owned subsidiary of
PetroFina ("Mergeco"), providing for the merger of Mergeco into Fina pursuant to
the terms of the Merger Agreement;
WHEREAS, the Merger Agreement provides that all of the outstanding shares
of common stock, par value $.50 per share, of Fina, except as provided in the
Merger Agreement, shall be converted into, exchanged for and represent the right
to receive consideration specified in the Merger Agreement, which consideration
is to include warrants (the "PetroFina Warrants") to purchase American
Depositary Shares ("PetroFina ADSs"), each PetroFina Warrant entitling the
holder thereof to purchase nine-tenths (0.9) of one PetroFina ADS and each
PetroFina ADS representing one-tenth (0.1) of one PetroFina Share (as defined
below) upon the terms and subject to the conditions hereinafter set forth;
WHEREAS, the PetroFina ADSs will be issued pursuant to that certain Second
Amended and Restated Deposit Agreement dated as of , 1998 (the "Deposit
Agreement") among PetroFina, Citibank, N.A. in its capacity as Depositary (the
"Depositary") and all Holders and Beneficial Owners of PetroFina ADSs issued
thereunder; and
WHEREAS, PetroFina wishes the Warrant Agent to act on behalf of PetroFina,
and the Warrant Agent is willing so to act, in connection with the issuance,
transfer, exchange and exercise of PetroFina Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Business Day" shall mean any day other than a Saturday, Sunday or
a day on which banking institutions in New York are authorized or obligated
by law or executive order to close.
(b) "Close of Business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(c) "Closing Date" shall have the meaning ascribed to it in the Merger
Agreement.
(d) "Person" shall mean an individual, corporation, association,
partnership, joint venture, trust, limited liability company,
unincorporated organization, government or political subdivision thereof or
governmental agency or other entity.
(e) "PetroFina Shares" shall mean the ordinary voting shares, without
nominal value, of PetroFina.
(f) "Trading Day" shall mean, with respect to any security, a day on
which the principal foreign or national securities exchange on which such
securities are listed or admitted to trading is open for the transaction of
business or, if such securities are not listed or admitted to trading on
any foreign or national securities exchange, any Business Day.
Section 2. Appointment of Warrant Agent. PetroFina hereby appoints the
Warrant Agent to act as agent for PetroFina in accordance with the terms and
conditions hereof, and the Warrant Agent hereby
B-32
<PAGE> 216
accepts such appointment. PetroFina may, with the prior written consent of the
Warrant Agent (it being understood that the Warrant Agent must act in good faith
whenever it withholds such consent), from time to time appoint such co-Warrant
Agents as it may, in its sole discretion, deem necessary or desirable.
Section 3. Form of Warrant Certificates. The certificates evidencing the
PetroFina Warrants (the "Warrant Certificates") (together with the form of
election to purchase PetroFina ADSs and the form of assignment to be printed on
the reverse thereof) shall be in registered form only and shall be substantially
in the form of Exhibit 1 hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as
PetroFina may deem appropriate and as are not inconsistent with the provisions
of this Agreement and the Merger Agreement or as may be required to comply with
any law or with any rule or regulation made pursuant thereto, or to conform to
usage. Subject to the provisions of Section 21 hereof, each Warrant Certificate,
whenever issued, shall be dated the Closing Date and on its face shall specify
the number of PetroFina Warrants evidenced by such Warrant Certificate. As
specified in such Warrant Certificate each PetroFina Warrant shall entitle the
holder thereof to purchase nine-tenths (0.9) of one PetroFina ADS at $42.25 per
PetroFina ADS (the "Exercise Price"), but the number of such PetroFina ADSs (and
any other securities or property purchasable together therewith or in lieu
thereof as set forth in Sections 10 or 12 hereof) and the Exercise Price shall
be subject to the adjustments as provided herein. Based on the initial Exercise
Price of $42.25 per PetroFina ADS, a holder of ten (10) PetroFina Warrants may
purchase nine (9) PetroFina ADSs for an aggregate purchase price of $380.25,
subject to the terms and conditions hereof.
Section 4. Countersignature and Registration. The Warrant Certificates
shall be executed on behalf of PetroFina by the Chairman and the Managing
Director, either manually or by facsimile signature, and have affixed thereto
PetroFina's seal or a facsimile thereof which shall be attested by the Secretary
of PetroFina, either manually or by facsimile signature. The Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of
PetroFina who shall have signed any of the Warrant Certificates shall cease to
be such officer of PetroFina before countersignature by the Warrant Agent and
issuance and delivery by PetroFina, such Warrant Certificates, nevertheless, may
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificate had not
ceased to be such officer of PetroFina; and any Warrant Certificate may be
signed on behalf of PetroFina by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of PetroFina to
sign such Warrant Certificate, although at the date of the execution of this
Agreement any such person was not such an officer.
The Warrant Agent will keep or cause to be kept, at one of its offices in
New York City, books for registration and transfer of the Warrant Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Warrant Certificates, the number of PetroFina Warrants
evidenced on its face by each of the Warrant Certificates and the date of each
of the Warrant Certificates.
Section 5. Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Mutilated, Destroyed, Lost or Stolen Warrant
Certificates. Subject to the provisions of Section 13 hereof, at any time after
the Close of Business on the date hereof, and at or prior to the Close of
Business on the Expiration Date (as defined below), any Warrant Certificate or
Warrant Certificates may be transferred, split up, combined or exchanged for
another Warrant Certificate or Warrant Certificates, entitling the registered
holder to purchase a like number of PetroFina ADSs as the Warrant Certificate or
Warrant Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any
Warrant Certificate shall make such request in writing delivered to the Warrant
Agent, and shall surrender to the Warrant Agent the Warrant Certificate or
Warrant Certificates to be transferred, split up, combined or exchanged.
Thereupon, the Warrant Agent shall countersign and deliver to the person
entitled thereto a Warrant Certificate or Warrant Certificates, as the case may
be, as so requested. PetroFina and the Warrant Agent may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Warrant
Certificates, together with reimbursement to PetroFina and the Warrant Agent of
all reasonable expenses incidental thereto.
B-33
<PAGE> 217
Upon receipt by PetroFina and the Warrant Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security in customary form and amount, and reimbursement to PetroFina and the
Warrant Agent of all reasonable expenses incidental thereto, and upon surrender
to the Warrant Agent and cancellation of the Warrant Certificate if mutilated,
PetroFina will make and deliver, or will cause to be made and delivered, a new
Warrant Certificate of like tenor to the registered holder in lieu of the
Warrant Certificate so lost, stolen, destroyed or mutilated.
Section 6. Exercise of PetroFina Warrants; Exercise Price; Expiration Date
of PetroFina Warrants.
(a) Subject to Section 6(c) below, the registered holder of any
Warrant Certificate may exercise the PetroFina Warrants evidenced thereby
in whole or in part upon surrender of the Warrant Certificate, with the
form of election to purchase on the reverse side thereof duly executed, to
the Warrant Agent at the principal office of the Warrant Agent set forth in
Section 24 hereof, together with payment of the Exercise Price for each
PetroFina ADS as to which the PetroFina Warrants are exercised, at any time
prior to the Close of Business on , 2003, [the fifth (5th)
anniversary of Closing Date] (the "Expiration Date"). PetroFina Warrants
not exercised prior to the Close of Business on the Expiration Date shall
become void and of no value.
(b) The Exercise Price for each PetroFina ADS pursuant to the exercise
of PetroFina Warrants initially shall be $42.25, subject to adjustment from
time to time as provided in Section 10 hereof. Based on the initial
Exercise Price of $42.25 per PetroFina ADS, a holder of ten (10) PetroFina
Warrants may purchase nine (9) PetroFina ADSs for an aggregate purchase
price of $380.25, subject to the terms and conditions hereof. The Exercise
Price shall be payable in lawful money of the United States of America.
(c) Upon receipt of a Warrant Certificate, with the form of election
to purchase duly executed, accompanied by payment of the Exercise Price for
the PetroFina ADSs to be purchased and an amount equal to any applicable
tax or governmental charge referred to in Section 8 in cash, or by
certified check or bank draft payable to the order of PetroFina or the
Warrant Agent for PetroFina's account, the Warrant Agent shall thereupon
promptly notify PetroFina in writing of such exercise.
(d) Upon exercise of any PetroFina Warrants in accordance with the
foregoing provisions, (a) PetroFina shall (i) issue (or cause to be issued)
the requisite number of PetroFina Shares issuable upon such exercise of the
PetroFina Warrants, (ii) cause the PetroFina Shares to be deposited with
the Custodian (as defined in the Deposit Agreement) in accordance with the
terms of the Deposit Agreement and (iii) deliver, as calculated by the
Warrant Agent in accordance with Section 13(b), the amount of cash to be
delivered in lieu of fractional PetroFina ADSs to the holder exercising
PetroFina Warrants; and (b) the Warrant Agent shall (i) requisition from
the Depositary certificates for the number of whole PetroFina ADSs to be
purchased and (ii) after receipt of such certificates, cause the same to be
delivered to or upon the order of the registered holder of such Warrant
Certificate, registered in such name or names as may be designated by such
holder, and, when appropriate, after receipt promptly deliver such cash to
or upon the order of the registered holder of such Warrant Certificate.
(e) The Warrant Agent is authorized and directed to accept
instructions to exercise PetroFina Warrants and to take delivery of such
PetroFina Warrants through any book-entry system in which the PetroFina
Warrants may be held.
(f) All payments received upon exercise of PetroFina Warrants shall be
promptly delivered to PetroFina by the Warrant Agent as reasonably
instructed in writing by PetroFina. In case the registered holder of any
Warrant Certificate shall exercise less than all PetroFina Warrants
evidenced thereby, a new Warrant Certificate evidencing PetroFina Warrants
equivalent to the PetroFina Warrants remaining unexercised shall be issued
by the Warrant Agent to the registered holder of such Warrant Certificate
or to his duly authorized assigns, subject to the provisions of Section 13
hereof.
Section 7. Cancellation and Destruction of Warrant Certificates. All
Warrant Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to PetroFina or to any of its
agents, be delivered to the Warrant Agent for cancellation or in canceled form,
or, if surrendered to
B-34
<PAGE> 218
the Warrant Agent, shall be canceled by it, and no Warrant Certificates shall be
issued in lieu thereof except as expressly permitted by any of the provisions of
this Agreement. PetroFina shall deliver to the Warrant Agent for cancellation
and retirement, and the Warrant Agent shall so cancel and retire, any other
Warrant Certificate purchased or acquired by PetroFina otherwise than upon the
exercise thereof. The Warrant Agent shall deliver all canceled Warrant
Certificates to PetroFina, or shall, at the written request of PetroFina,
destroy such canceled Warrant Certificates, and in such case shall deliver a
certificate of destruction thereof to PetroFina.
Section 8. Reservation and Availability of PetroFina Shares and PetroFina
ADSs; Listing. PetroFina covenants and agrees that it will issue PetroFina
Shares promptly following exercise of the PetroFina Warrants and keep sufficient
cash available for payment in lieu of fractional PetroFina ADSs.
PetroFina covenants and agrees that it will (a) reserve and keep available
for issuance such number of authorized but unissued PetroFina Shares or other
securities of PetroFina deliverable upon exercise of the PetroFina Warrants as
will be sufficient to permit the exercise in full of all outstanding PetroFina
Warrants and (b) cause the Depositary to reserve and keep available for issuance
(and maintain capacity under the existing Registration Statement on Form F-6
under the Securities Act of 1933 with respect to the PetroFina ADSs) such number
of authorized PetroFina ADSs issuable upon exercise of the PetroFina Warrants as
will be sufficient to permit the exercise in full of all outstanding PetroFina
Warrants.
PetroFina will use its best efforts to cause the PetroFina Shares and
PetroFina ADSs reserved for issuance as described above to be covered at all
times during the term of this Agreement by an effective registration statement
under the Securities Act of 1933.
PetroFina covenants and agrees that it will use its best efforts to cause
the PetroFina ADSs issuable upon the exercise of the PetroFina Warrants to be
listed on the NYSE (as defined below). To the extent that such PetroFina ADSs
cannot be listed on the NYSE, PetroFina shall use its best efforts to cause the
PetroFina ADSs to be listed on the NASDAQ (as defined below). PetroFina agrees
to use its best efforts to cause such listing, and the listing of the PetroFina
Warrants on the NYSE or NASDAQ, as the case may be, to be maintained.
PetroFina covenants and agrees that it will take all such actions as may be
necessary to insure that all PetroFina ADSs delivered upon exercise of PetroFina
Warrants and all of the PetroFina Shares represented thereby shall, at the time
of delivery of the certificates for such PetroFina ADSs, be duly authorized,
validly issued, fully paid and nonassessable.
PetroFina further covenants and agrees that it will pay when due and
payable any and all recording, transfer and similar taxes and charges which may
be payable in respect of the original issuance or delivery of the Warrant
Certificates or certificates evidencing PetroFina ADSs upon exercise of the
Warrant Certificate or other securities or other property issuable hereunder.
PetroFina shall not, however, be required (i) to pay any tax or governmental
charge which may be payable in respect of any transfer involved in (a) the
transfer or delivery of Warrant Certificates or (b) the issuance or delivery of
certificates for PetroFina ADSs in a name other than that of the registered
holder of a Warrant Certificate surrendered for exercise or (ii) to issue or
deliver any certificate for PetroFina ADSs upon the exercise of any PetroFina
Warrants until any such tax or governmental charge shall have been paid (any
such tax or governmental charge being payable by the holder of such Warrant
Certificate at the time of surrender) or until it has been established to
PetroFina's satisfaction that no such tax or governmental charge is due.
Section 9. PetroFina ADS Record Date. Upon receipt by PetroFina of a
Warrant Certificate at the principal office of the Warrant Agent, in proper form
for exercise, and payment of the applicable Exercise Price as required hereby,
the holder of such Warrant Certificate shall be deemed to be the holder of
record of the PetroFina ADSs issuable upon such exercise, notwithstanding that
the PetroFina ADS transfer books shall then be closed or that certificates
representing such PetroFina ADSs shall not then be actually delivered to the
holder of such Warrant Certificate.
B-35
<PAGE> 219
Section 10. Adjustment of Exercise Price, Number of PetroFina ADSs or
Number of PetroFina Shares. The Exercise Price and the number of PetroFina ADSs
issuable upon exercise of each PetroFina Warrant are subject to adjustment from
time to time as provided in this Section 10.
(a) Stock Dividend; Stock Splits; Reverse Stock Splits;
Reclassifications. In the event PetroFina shall at any time after the date
of the Merger Agreement (i) pay a dividend or make any other distribution
with respect to the PetroFina Shares in shares of any class of capital
stock of PetroFina, (ii) subdivide the outstanding PetroFina Shares into a
greater number of PetroFina Shares, (iii) combine the outstanding PetroFina
Shares into a smaller number of PetroFina Shares, (iv) change the number of
PetroFina Shares represented by each PetroFina ADS, or (v) issue any shares
of capital stock in a reclassification of PetroFina Shares (other than a
reclassification in connection with a consolidation, merger or other
business combination which will be governed by Section 12), the number and
kind of shares of capital stock issuable upon exercise of each PetroFina
Warrant on such date shall be proportionately adjusted so that the holder
of any PetroFina Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if
such PetroFina Warrant had been exercised immediately prior to such date
and at a time when the PetroFina ADS transfer books were open, such holder
would have owned upon such exercise and been entitled to receive by virtue
of such dividend, subdivision, combination, change or reclassification.
Whenever the number of PetroFina ADSs purchasable upon exercise of each
PetroFina Warrant is adjusted pursuant to this Section 10(a), the Exercise
Price of such PetroFina Warrant shall be adjusted so that it shall equal
the price determined by multiplying such Exercise Price immediately prior
to such adjustment by a fraction the numerator of which shall be the number
of PetroFina ADSs purchasable upon the exercise of each PetroFina Warrant
immediately prior to such adjustment and denominator of which shall be the
number of PetroFina ADSs so purchasable immediately thereafter.
(b) Rights; Options; Warrants. In the event PetroFina shall at any
time after the date of the Merger Agreement issue rights, options, warrants
or convertible or exchangeable securities (other than a convertible or
exchangeable security subject to Section 10(a)) to all holders of PetroFina
Shares (such rights, options, warrants or convertible or exchangeable
securities not being available to holders of PetroFina Warrants) entitling
them to subscribe for or purchase PetroFina Shares at a price per PetroFina
Share (or having a conversion, exercise or exchange price per share, in the
case of a security convertible into or exercisable or exchangeable for
PetroFina Shares) less than the Current Market Price (as defined in Section
10(e)) per PetroFina Share on the date of such issuance, the Exercise Price
to be in effect after the record date therefor shall be determined by
multiplying (i) the Exercise Price in effect immediately prior to such
record date by (ii) a fraction of which the numerator shall be the number
of PetroFina Shares outstanding on such record date plus the number of
PetroFina Shares which the aggregate offering price of the total number of
PetroFina Shares so to be offered (or the aggregate initial conversion,
exercise or exchange price of the convertible, exercisable or exchangeable
securities so to be offered) would purchase at such Current Market Price
and of which the denominator shall be the PetroFina Shares outstanding on
such record date plus the number of additional PetroFina Shares to be
offered for subscription or purchase (or into which the convertible,
exercisable or exchangeable securities so to be offered are initially
convertible, exercisable or exchangeable). In case such subscription price
may be paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as determined in
good faith by the Board of Directors of PetroFina, whose determination
shall be described in a statement filed with the Warrant Agent. Upon each
adjustment of the Exercise Price as a result of the calculations made in
this Section 10(b), each PetroFina Warrant outstanding immediately prior to
the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of PetroFina ADSs
(calculated to the nearest one-thousandth) obtained by (i) multiplying (x)
the number of PetroFina ADSs covered by a PetroFina Warrant immediately
prior to such adjustment by (y) the Exercise Price in effect immediately
prior to such adjustment of the Exercise Price and (ii) dividing the
product so obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
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(c) Distributions of Debt, Assets, Subscription Rights or Convertible
Securities. In the event PetroFina shall at any time after the date of the
Merger Agreement pay a dividend or make a distribution (other than cash
dividends payable in the ordinary course of business in accordance with
Belgian Corporation Law pursuant to a decision of the Ordinary General
Meeting of Shareholders and dividends or distributions referred to in
Section 10(a) above) of evidences of indebtedness or assets or subscription
rights or warrants (excluding those referred to in Section 10(b) above),
the Exercise Price to be in effect after the record date therefor shall be
determined by multiplying (i) the Exercise Price in effect immediately
prior to such record date by (ii) a fraction of which the numerator shall
be the Current Market Price (as defined in Section 10(e)) per share of
PetroFina Shares on such record date, less the fair market value (as
determined in good faith by the Board of Directors of PetroFina, whose
determination shall be described in a statement filed with the Warrant
Agent) of such distribution applicable to one PetroFina Share, and of which
the denominator shall be such Current Market Price per share of the
PetroFina Shares. Upon each adjustment of the Exercise Price as a result of
the calculations made in this Section 10(c), each PetroFina Warrant
outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Exercise Price,
that number of PetroFina ADSs (calculated to the nearest one-thousandth)
obtained by (i) multiplying (x) the number of PetroFina ADSs covered by a
PetroFina Warrant immediately prior to such adjustment by (y) the Exercise
Price in effect immediately prior to such adjustment of the Exercise Price
and (ii) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment of the Exercise Price.
(d) Issuance of Common Stock at Lower Values. In the event PetroFina
shall at any time after the date of the Merger Agreement, in a transaction
in which Sections 10 (a), (b) and (c) are not applicable, issue or sell
PetroFina Shares, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase
PetroFina Shares, at a price per PetroFina Share (determined in the case of
such rights, options, warrants or convertible or exchangeable securities,
by dividing (A) the total amount receivable by PetroFina in consideration
of the issuance and sale of such rights, options, warrants or convertible
or exchangeable securities, plus the total consideration, if any, payable
to PetroFina upon exercise conversion or exchange thereof, by (B) the total
number of PetroFina Shares covered by such rights, options, warrants or
convertible or exchangeable securities) that is lower than the Current
Market Price (as defined in Section 10 (e)) per PetroFina Share in effect
immediately prior to such sale or issuance, then the number of PetroFina
ADSs thereafter purchasable upon the exercise of each PetroFina Warrant
shall be determined by multiplying the number of PetroFina ADSs theretofore
purchasable upon exercise of such PetroFina Warrant by a fraction, the
numerator or which shall be the number of PetroFina Shares outstanding
immediately after such sale or issuance and the denominator of which shall
be the number of PetroFina Shares outstanding immediately prior to such
sale or issuance plus the number of PetroFina Shares which the aggregate
consideration received (determined as provided below) for such sale or
issuance would purchase at such Current Market Price per PetroFina Share.
Such adjustment shall be made successively whenever any such sale or
issuance is made. For purposes of this Section, the PetroFina Shares which
the holder of any such rights, options, warrants or convertible or
exchangeable securities shall be entitled to subscribe for or purchase
shall be deemed to be issued and outstanding as of the date of such sale
and issuance and the consideration received by PetroFina therefor shall be
deemed to be the consideration received by PetroFina for such rights,
options, warrants or convertible or exchangeable securities, plus the
consideration or premium stated in such rights, options, warrants or
convertible or exchangeable securities to be paid for the PetroFina Shares
covered thereby. Whenever the number of PetroFina ADSs purchasable upon
exercise of each PetroFina Warrant is adjusted pursuant to this Section
10(d), the Exercise Price of such PetroFina Warrant shall be adjusted so
that it shall equal the price determined by multiplying such Exercise Price
immediately prior to such adjustment by a fraction the numerator of which
shall be the number of PetroFina ADSs purchasable upon the exercise of each
PetroFina Warrant immediately prior to such adjustment and the denominator
of which shall be the number of PetroFina ADSs so purchasable immediately
thereafter.
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In case PetroFina shall issue and sell PetroFina Shares or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase PetroFina Shares for a consideration
consisting, in whole or in part, of property other than cash or its
equivalent, then in determining the "price per PetroFina Share" and the
"consideration" receivable by or payable to PetroFina for purposes of the
first sentence of this Section 10(d), the Board of Directors of PetroFina
shall determine, in good faith, the fair value of such property, which
determination shall be evidenced by a resolution of the Board of Directors
of PetroFina. In case PetroFina shall issue and sell rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase PetroFina Shares, together with one or more other
securities as part of a unit at a price per unit, then in determining the
"price per PetroFina Share" and the "consideration" receivable by or
payable to for purposes of the first sentence of this Section 10 (d), the
Board of Directors of PetroFina shall determine, in good faith, the fair
value of the rights, options, warrants or convertible or exchangeable
securities then being sold as part of such unit which determination shall
be evidenced by a resolution of the Board of Directors of PetroFina.
(e) For the purpose of any computation hereunder, the "Current Market
Price" per PetroFina Share on any date shall be deemed to be the average of
the daily Closing Prices per PetroFina Share for the 10 consecutive Trading
Days immediately prior to such date. The "Closing Price" per PetroFina
Share for each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the Brussels Stock Exchange. If on any such
Trading Day or Days such securities are not quoted by any such
organization, such Trading Day or Days shall be replaced for purposes of
the foregoing calculation by the requisite Trading Day or Days preceding
the commencement of such 10 Trading Day period on which such securities are
so quoted. If the PetroFina Shares are not so listed or traded, the
"Current Market Price" per PetroFina Share shall be deemed to be the fair
value per PetroFina Share as determined in good faith by the Board of
Directors of PetroFina, whose determination shall be described in a
statement filed with the Warrant Agent, based on (a) the most recently
completed arm's-length transaction between PetroFina and a Person other
than an affiliate of PetroFina, the closing of which occurred on such date
or within the three-month period preceding such date, or (b) if no such
transaction shall have occurred on such date or within such three-month
period, the value of the security as determined by an independent financial
expert selected by such Board and reasonably acceptable to the Warrant
Agent.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which by reason of this
Section 10(f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 10 shall be made to the nearest cent, the nearest
ten-thousandth of a PetroFina Share or the nearest one-thousandth of a
PetroFina ADS, as the case may be. Notwithstanding the first sentence of
this Section 10(f), any adjustment required by this Section 10 shall be
made no later than the earlier of (i) three years from the date of the
transaction which mandates such adjustment or (ii) the Expiration Date.
(g) In the event that at any time, as a result of an adjustment made
pursuant to Section 10(a), the holder of any PetroFina Warrant thereafter
exercised shall become entitled to receive any shares of capital stock of
PetroFina other than PetroFina ADSs, the number of such other shares so
receivable upon exercise of any PetroFina Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the shares contained in
Section 10(a) through (f) inclusive, and the provisions of Sections 6, 8, 9
and 12 with respect to the PetroFina ADSs shall apply on like terms to any
such other shares.
(h) Expiration of Rights, Options and Conversion Privileges. Upon the
expiration of any rights, options, warrants or conversion or exchange
privileges that have previously resulted in an adjustment hereunder, if any
thereof shall not have been exercised, the Exercise Price and the number of
PetroFina ADSs or PetroFina Shares issuable upon the exercise of each
PetroFina Warrant shall, upon such expiration, be readjusted and shall
thereafter, upon any future exercise, be such as they would have been
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had they been originally adjusted (or had the original adjustment not been
required, as the case may be) as if (i) the only PetroFina Shares so issued
were the PetroFina Shares, if any, actually issued or sold upon the
exercise of such rights, options, warrants or conversion or exchange rights
and (ii) such PetroFina Shares, if any, were issued or sold for the
consideration actually received by PetroFina upon such exercise plus the
consideration, if any, actually received by PetroFina for issuance, sale or
grant of all such rights, options, warrants or conversion or exchange
rights whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Exercise Price by an
amount, or decreasing the number of PetroFina ADSs or PetroFina Shares
issuable upon exercise of each PetroFina Warrant by a number, in excess of
the amount or number of the adjustment initially made in respect to the
issuance, sale or grant of such rights, options, warrants or conversion or
exchange rights.
(i) All PetroFina Warrants originally issued by PetroFina subsequent
to any adjustment made to the Exercise Price hereunder shall evidence the
right to purchase, at the adjusted Exercise Price, the number of PetroFina
ADSs purchasable from time to time hereunder upon exercise of the PetroFina
Warrants, all subject to further adjustment as provided herein.
(j) Irrespective of any adjustment or change in the Exercise Price or
the number of PetroFina ADSs issuable upon the exercise of the PetroFina
Warrants, the Warrant Certificates theretofore and thereafter issued may
continue to express the Exercise Price per PetroFina ADS and the number of
PetroFina ADSs which were expressed upon the initial Warrant Certificates
issued hereunder.
(k) PetroFina agrees that it will not, by amendment of its
statuts/statuten or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek
to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by
PetroFina.
(l) In any case in which this Section 10 shall require that an
adjustment in the Exercise Price be made effective as of a record date for
a specified event, PetroFina may elect to defer until the occurrence of
such event the issuance to the holder of any PetroFina Warrant exercised
after such record date the PetroFina ADSs or other capital stock of
PetroFina issuable upon such exercise over and above the amount of
PetroFina ADSs or other capital stock of PetroFina, if any, issuable upon
such exercise on the basis of the Exercise Price in effect prior to such
adjustment; provided, however, that PetroFina shall deliver to such holder
a due bill or other appropriate instrument evidencing such holder's right
to receive such additional PetroFina ADSs or other capital stock of
PetroFina upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 10 to the contrary notwithstanding,
PetroFina shall be entitled to make such reductions in the Exercise Price,
in addition to those adjustments expressly required by this Section 10, as
and to the extent that it in its sole discretion shall determine to be
advisable in order that any event treated for United States federal income
tax purposes as a distribution of stock or stock rights shall not be
taxable to the recipients.
(n) If any event occurs as to which the foregoing provisions of this
Section 10 are not strictly applicable or, if strictly applicable, would
not, in the good faith judgment of the Board of Directors of PetroFina,
fairly and adequately protect the purchase rights of the PetroFina Warrants
in accordance with the essential intent and principles of such provisions,
then such Board shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as
shall be reasonably necessary, in the good faith opinion of such board, to
protect such purchase rights as aforesaid, but in no event shall any such
adjustment have the effect of increasing the Exercise Price or decreasing
the number of PetroFina ADSs issuable upon exercise of any PetroFina
Warrant.
Section 11. Certification of Adjusted Exercise Price or Number of PetroFina
ADSs. Whenever the Exercise Price or the number of PetroFina ADSs issuable upon
the exercise of each PetroFina Warrant is adjusted as provided in Sections 10 or
12, PetroFina shall (a) promptly prepare a certificate setting forth the
Exercise Price as so adjusted and/or the number of PetroFina ADSs issuable upon
exercise of each PetroFina Warrant as so adjusted, and a brief statement of the
facts accounting for such adjustment, (b) promptly file
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with the Warrant Agent and with each transfer agent for the PetroFina ADSs a
copy of such certificate and (c) mail, or cause to be mailed, a brief summary
thereof to each holder of a Warrant Certificate in accordance with Section 24.
Section 12. Reclassification, Consolidation, Merger, Combination, Sale or
Conveyance. In case any of the following shall occur while any PetroFina
Warrants are outstanding: (i) any consolidation, merger or combination of
PetroFina with or into another corporation as a result of which holders of
PetroFina Shares shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
PetroFina Shares, or (ii) any sale or conveyance of all or substantially all of
the property or assets of PetroFina to any other entity as a result of which
holders of PetroFina Shares shall be entitled to receive stock, securities or
other property or assets (including cash) with respect to or in exchange for
such PetroFina Shares, then PetroFina, or such successor corporation or
transferee, as the case may be, shall make appropriate provision by amendment of
this Agreement or by the successor corporation or transferee executing with the
Warrant Agent an agreement so that the holders of the PetroFina Warrants then
outstanding shall have the right at any time thereafter, upon exercise of such
PetroFina Warrants, to receive the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, combination, sale or
conveyance as would be received by a holder of the number of PetroFina Shares
represented by the PetroFina ADSs issuable upon exercise of such PetroFina
Warrant immediately prior to such consolidation, combination, merger, sale or
conveyance.
If the holders of the PetroFina Shares may elect from choices the kind or
amount of securities, cash and other property receivable upon such
consolidation, merger, combination, sale or conveyance, then for the purpose of
this Section 12 the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, combination, sale or conveyance
shall be deemed to be the choice specified by the holder of the PetroFina
Warrant, which specification shall be made by the holder of the PetroFina
Warrant by the later of (i) 10 Trading Days after the holder of the PetroFina
Warrant is provided with a final version of all information required by law or
regulation to be furnished to holders of the PetroFina Shares concerning such
choice, or if no such information is required, 10 Trading Days after PetroFina
notified the holder of the PetroFina Warrant of all material facts concerning
such specification and (ii) the last time at which holders of PetroFina Shares
are permitted to make their specification known to PetroFina. If the holder of
the PetroFina Warrant fails to make any specification, the holder's choice shall
be deemed to be whatever choice is made by a plurality of holders of PetroFina
Shares not affiliated with PetroFina or any other party to the consolidation,
merger, combination, sale or conveyance. Such new PetroFina Warrants shall
provide for adjustments which, for events subsequent to the effective date of
such new PetroFina Warrants, shall be as nearly equivalent as may be practicable
to the adjustments provided for in Section 10 and this Section 12.
PetroFina shall mail, or cause to be mailed, by first-class mail, postage
prepaid, to each registered holder of a PetroFina Warrant, written notice of the
execution of any such amendment or agreement. Any new agreement entered into by
the successor corporation or transferee shall provide for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in Section 10. The Warrant Agent shall be under no responsibility to
determine the correctness of any provisions contained in such agreement relating
either to the kind or amount of securities or other property receivable upon
exercise of PetroFina Warrants or with respect to the method employed and
provided therein for any adjustments and shall be entitled to rely upon the
provisions contained in any such agreement.
The above provisions of this Section 12 shall similarly apply to successive
consolidations, mergers, combinations, sales or conveyances.
Section 13. Fractional PetroFina Warrants and Fractional PetroFina ADSs.
(a) Neither PetroFina nor the Warrant Agent shall be required to issue
fractions of PetroFina Warrants or to distribute Warrant Certificates which
evidence fractional PetroFina Warrants. In lieu of such fractional
PetroFina Warrants, there shall be paid to the persons to whom Warrant
Certificates representing such fractional PetroFina Warrants would
otherwise be issuable an amount in cash (without interest) equal to the
product of such fraction of a PetroFina Warrant multiplied by the Current
Market Price per whole PetroFina Warrant. For the purpose of any
computation under this Section 13(a),
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"Current Market Price" per PetroFina Warrant on any date shall be deemed to
be the average of the daily Closing Prices per PetroFina Warrant for the 10
consecutive Trading Days immediately prior to such date. The Closing Price
per PetroFina Warrant for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange,
Inc. ("NYSE") or, if such PetroFina Warrants are not listed or admitted to
trading on the NYSE, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which such securities are listed or
admitted to trading or, if such securities are not listed or admitted to
trading on any national securities exchange, the average of the high bid
and low asked prices in the over the counter market, as reported by
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ"). If on any such Trading Day or Days such securities are not
quoted by any such organization, such Trading Day or Days shall be replaced
for purposes of the foregoing calculation by the requisite Trading Day or
Days preceding the commencement of such 10 Trading Day period on which such
securities are so quoted. If the PetroFina Warrants are not so listed or
traded, the "Current Market Price" per PetroFina Warrant shall be deemed to
be the fair value per PetroFina Warrant as determined in good faith by the
Board of Directors of PetroFina, whose determination shall be described in
a statement filed with the Warrant Agent.
(b) Neither PetroFina nor the Depositary shall be required to issue
fractions of PetroFina ADSs upon exercise of PetroFina Warrants or to
distribute PetroFina ADS certificates which evidence fractional PetroFina
ADSs. In lieu of fractional PetroFina ADSs, there shall be paid to the
registered holders of Warrant Certificates at the time such Warrant
Certificates are exercised as herein provided an amount in cash (without
interest) equal to the product of such fractional part of a PetroFina ADS
multiplied by the Current Market Price per PetroFina ADS. For the purpose
of any computation under this Section 13(b), "Current Market Price" per
PetroFina ADS on any date shall be deemed to be the average of the daily
Closing Prices per PetroFina ADS for the 10 consecutive Trading Days
immediately prior to such date. The Closing Price per PetroFina ADS for
each day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted
to trading on the NYSE or, if such PetroFina ADSs are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which such securities are listed
or admitted to trading or, if such securities are not listed or admitted to
trading on any national securities exchange, the average of the high bid
and low asked prices in the over the counter market, as reported by NASDAQ.
If on any such Trading Day or Days such securities are not quoted by any
such organization, such Trading Day or Days shall be replaced for purposes
of the foregoing calculation by the requisite Trading Day or Days preceding
the commencement of such 10 Trading Day period on which such securities are
so quoted. If the PetroFina ADSs are not so listed or traded, the "Current
Market Price" per PetroFina ADS shall be deemed to be the fair value per
PetroFina ADS as determined in good faith by the Board of Directors of
PetroFina, whose determination shall be described in a statement filed with
the Warrant Agent, based on (a) the most recently completed arm's-length
transaction between PetroFina and a Person other than an affiliate of
PetroFina, the closing of which occurred on such date or within the
three-month period preceding such date, or (b) if no such transaction shall
have occurred on such date or within such three-month period, the value of
the security as determined by an independent financial expert selected by
such Board and reasonably acceptable to the Warrant Agent.
(c) The holder of a PetroFina Warrant by the acceptance of the
PetroFina Warrant expressly waives his right to receive any fractional
PetroFina Warrant or any fractional PetroFina ADS upon exercise of a
PetroFina Warrant (but not to the cash payment required to be made by
PetroFina in lieu thereof in accordance with this Section 13).
Section 14. Right of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Warrant
Certificates, and any registered holder of any Warrant Certificate,
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without the consent of the Warrant Agent or of the holder of any other Warrant
Certificate, may, on such holder's own behalf and for such holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
PetroFina to enforce, or otherwise act in respect of, such holder's right to
exercise the PetroFina Warrants evidenced by such Warrant Certificate in the
manner provided in such Warrant Certificate and in this Agreement.
Section 15. Agreement of Warrant Certificate Holders. Every holder of a
Warrant Certificate by accepting the same consents and agrees with PetroFina and
the Warrant Agent and with every other holder of a Warrant Certificate that:
(a) the Warrant Certificates are transferable only on the registry
books of the Warrant Agent if surrendered at the principal office of the
Warrant Agent, duly endorsed or accompanied by a proper instrument of
transfer; and
(b) PetroFina and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner
thereof and of the PetroFina Warrants evidenced thereby (notwithstanding
any notations of ownership or writing on the Warrant Certificates made by
anyone other than PetroFina or the Warrant Agent) for all purposes
whatsoever, and neither PetroFina nor the Warrant Agent shall be affected
by any notice to the contrary.
Section 16. Warrant Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Warrant Certificate shall be entitled to vote, receive
dividends or distributions on, or be deemed for any purpose the holder of,
PetroFina ADSs or PetroFina Shares or any other securities of PetroFina which
may at any time be issuable on the exercise or conversion of the PetroFina
Warrants represented thereby, nor shall anything contained herein or in any
Warrant Certificate be construed to confer upon the holder of any Warrant
Certificate, as such, any of the rights of a stockholder of PetroFina or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 23), or to receive dividends or
distributions or subscription rights, or otherwise, until the PetroFina Warrant
or PetroFina Warrants evidenced by such Warrant Certificate shall have been
exercised in accordance with the provisions hereof.
Section 17. Concerning the Warrant Agent. PetroFina agrees to pay to the
Warrant Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Warrant Agent, its reasonable
out-of-pocket expenses and counsel fees and other reasonable disbursements
incurred in the administration and execution of this Agreement and the exercise
and performance of its duties hereunder. PetroFina also agrees to indemnify the
Warrant Agent for, and to hold it harmless against, any loss, liability or
expense, incurred without gross negligence, bad faith or willful misconduct on
the part of the Warrant Agent, for anything done or omitted by the Warrant Agent
in connection with the acceptance and administration of this Agreement,
including the reasonable costs and expenses of defending against any claim of
liability in the premises. The provisions of this Section 17 shall survive
termination of this Agreement or the discharge of the Warrant Agent under the
terms hereof.
Section 18. Merger or Consolidation or Change of Name of Warrant
Agent. Any corporation into which the Warrant Agent or any successor Warrant
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Warrant Agent or any
successor Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent or any successor Warrant Agent,
shall be the successor to the Warrant Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Warrant Agent under the provisions of Section 20. In case at the
time such successor Warrant Agent shall succeed to the agency created by this
Agreement any of the Warrant Certificates shall have been countersigned but not
delivered, any such successor Warrant Agent may adopt the countersignature of
the predecessor Warrant Agent and deliver such Warrant Certificates so
countersigned; and in case at that time any of the Warrant Certificates shall
not have been countersigned, any successor Warrant Agent may countersign such
Warrant Certificates either in the name of the predecessor Warrant Agent or in
the name of the successor Warrant Agent; and in all
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such cases such Warrant Certificates shall have the full force provided in the
Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrant Certificates so countersigned; and in case at that time any
of the Warrant Certificates shall not have been countersigned, the Warrant Agent
may countersign such Warrant Certificates either in its prior name or in its
changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
Section 19. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, all of which PetroFina and the holders of Warrant Certificates, by
their acceptance thereof, shall be bound:
(a) The Warrant Agent may consult with legal counsel (who may be legal
counsel for PetroFina), and the opinion of such counsel shall be full and
complete authorization and protection to the Warrant Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or matter
be proved or established by PetroFina prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any managing or executive
director or the Secretary of PetroFina and delivered to the Warrant Agent;
and such certificate shall be full authentication to the Warrant Agent for
any action taken or suffered in good faith by it under the provisions of
this Agreement in reliance upon such certificate.
(c) The Warrant Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
(d) The Warrant Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Warrant Certificates (except its countersignature thereof) or be required
to verify the same, but all such statements and recitals are and shall be
deemed to have been made by PetroFina only.
(e) The Warrant Agent shall not be under any responsibility or
liability in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Warrant Agent) or
in respect of the validity or execution of any Warrant Certificate (except
its countersignature thereof); nor shall it be responsible or liable for
any breach by PetroFina of any covenant or condition contained in this
Agreement or in any Warrant Certificate; nor shall it be responsible or
liable for the adjustment of the Exercise Price or the making of any change
in the number of PetroFina ADSs or PetroFina Shares required under the
provisions of Sections 10 or 12 or responsible for the manner, method or
amount of any such change or the ascertaining of the existence of facts
that would require any such adjustment or change (except with respect to
the exercise of PetroFina Warrants evidenced by Warrant Certificates after
actual notice of any adjustment of the Exercise Price); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any PetroFina ADSs to be issued pursuant to
this Agreement or any Warrant Certificate or as to whether any PetroFina
ADSs or PetroFina Shares will, when issued, be duly authorized, validly
issued, fully paid and nonassessable.
(f) PetroFina agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Warrant Agent for the carrying out or performing by the
Warrant Agent of the provisions of this Agreement.
(g) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any managing or executive director or the Secretary of PetroFina, and to
apply to such officers for advice or instructions in connection with its
duties, and it shall
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not be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer.
(h) The Warrant Agent and any shareholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the PetroFina
Warrants or other securities of PetroFina or become pecuniarily interested
in any transaction in which PetroFina may be interested, or contract with
or lend money to PetroFina or otherwise act as fully and freely as though
it were not Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for PetroFina
or for any other legal entity.
(i) The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorney or agents, and the Warrant Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to PetroFina resulting from
any such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
Section 20. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement upon 60 days' notice in writing
mailed to PetroFina and to each transfer agent of the PetroFina ADSs by
registered or certified mail, and to the holders of the Warrant Certificates by
first-class mail. PetroFina may remove the Warrant Agent or any successor
Warrant Agent upon 60 days' notice in writing, mailed to the Warrant Agent or
successor Warrant Agent, as the case may be, and to each transfer agent of the
PetroFina ADSs by registered or certified mail, and to the holders of the
Warrant Certificates by first-class mail. If the Warrant Agent shall resign or
be removed or shall otherwise become incapable of acting, PetroFina shall
appoint a successor to the Warrant Agent. If PetroFina shall fail to make such
appointment within a period of 60 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by the holder of a Warrant Certificate (who
shall, with such notice, submit his Warrant Certificate for inspection by
PetroFina), then the registered holder of any Warrant Certificate may apply to
any court of competent jurisdiction for the appointment of a new Warrant Agent.
Any successor Warrant Agent, whether appointed by PetroFina or by a court, shall
be a corporation organized and doing business under the laws of the United
States or of a state thereof, in good standing, which is authorized under such
laws to exercise corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Warrant Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Warrant Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the
predecessor Warrant Agent shall deliver and transfer to the successor Warrant
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, PetroFina shall file notice
thereof in writing with the predecessor Warrant Agent and each transfer agent of
the PetroFina ADSs, and mail a notice thereof in writing to the registered
holders of the Warrant Certificates. However, failure to give any notice
provided for in this Section 20, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 21. Issuance of New Warrant Certificates. Notwithstanding any of
the provisions of this Agreement or of the PetroFina Warrants to the contrary,
PetroFina may, at its option, issue new Warrant Certificates evidencing
PetroFina Warrants in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Exercise Price per PetroFina ADS and the
number or kind or class of shares of stock or other securities or property
purchasable under the several Warrant Certificates made in accordance with the
provisions of this Agreement.
Section 22. Purchase of PetroFina Warrants by PetroFina. Nothing in this
Agreement shall prevent PetroFina from acquiring PetroFina Warrants.
Section 23. Notice of Proposed Actions. In case PetroFina shall propose
(a) to declare a dividend on the PetroFina Shares payable in shares of capital
stock of any class or to make any other distribution to all holders of PetroFina
Shares (including any distribution made in connection with a consolidation,
merger or
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<PAGE> 228
combination in which PetroFina is the continuing corporation), or (b) to offer
rights, options or warrants to all holders of PetroFina Shares entitling them to
subscribe for or purchase PetroFina Shares (or securities convertible into or
exercisable or exchangeable for PetroFina Shares or any other securities), or
(c) to offer any shares of capital stock in a reclassification of PetroFina
Shares (including any such reclassification in connection with a consolidation,
merger or combination in which PetroFina is the continuing corporation), or (d)
to effect any consolidation, merger or combination into or with, or to effect
any sale or other transfer (or to permit one or more of its subsidiaries to
effect any sale or other transfer), in one or more transactions, of more than
50% of the assets or net income of PetroFina and its subsidiaries (taken as a
whole) to, any other Person, (e) to effect the liquidation, dissolution or
winding up of PetroFina or (f) to take any other action referred to in Section
10, then, in each such case, PetroFina shall give, or cause to be given, to each
registered holder of a PetroFina Warrant, in accordance with Section 24, a
notice of such proposed action, which shall specify the date of such stock
dividend, distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, winding up or other action referred to in Section 10 is to take
place and the date of participation therein by the holders of PetroFina Shares,
if any such date is to be fixed, and such notice shall be so given at least 20
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of PetroFina Shares, whichever shall be the
earlier. The failure to give notice required by this Section 23 or any defect
therein shall not affect the legality or validity of the action taken by
PetroFina or the vote upon any such action. Unless specifically required by
Section 10, the Exercise Price, the number of PetroFina ADSs covered by each
PetroFina Warrant and the number of PetroFina Warrants outstanding shall not be
subject to adjustment as a result of PetroFina being required to give notice
pursuant to this Section 23.
Section 24. Notices. Notices or demands authorized by this Agreement to be
given or made (i) by the Warrant Agent or by the holder of any Warrant
Certificate to or on PetroFina, (ii) subject to the provisions of Section 20, by
PetroFina or by the holder of any Warrant Certificate to or on the Warrant Agent
or (iii) by PetroFina or the Warrant Agent to the holder of any Warrant
Certificate, shall be deemed given (x) on the date delivered, if delivered
personally, (y) on the first Trading Day following the deposit thereof with
Federal Express, DHL or another recognized overnight courier, if sent by Federal
Express, DHL or another recognized overnight courier, and (z) on the fourth
Trading Day following the mailing thereof with postage prepaid, if mailed by
registered or certified mail (return receipt requested), in each case to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to PetroFina, to:
PetroFina S.A.
52 Rue de l'Industrie
B-1040 Brussels, Belgium
(32-2) 288 91 11
Telecopy: 32-2-288-3610
Attention: Secretary General
(b) If to the Warrant Agent, to:
Citibank, N.A.
111 Wall Street
New York, New York 10043
Attention: Depositary Receipts Department
(c) If to the holder of any Warrant Certificate, to the address of
such holder as shown on the register of PetroFina Warrants.
Section 25. Supplements and Amendments.
(a) PetroFina and the Warrant Agent may from time to time supplement
or amend this Agreement without the approval of any holders of Warrant
Certificates in order to cure any ambiguity, to correct or
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<PAGE> 229
supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or to make any other
provisions with regard to matters or questions arising hereunder which
PetroFina and the Warrant Agent may deem necessary or desirable and which
shall not materially adversely affect the interests of the holders of
Warrant Certificates.
(b) In addition to the foregoing, with the consent of holders other
than PetroFina or any affiliate thereof of not less than a majority in
number of the then outstanding PetroFina Warrants (other than those held by
PetroFina or any affiliate thereof), PetroFina and the Warrant Agent may
modify this Agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this
Agreement or modifying in any manner the rights of the holders of the
Warrant Certificates; provided, however, that no modification of the terms
(including but not limited to the adjustments described in Section 10) upon
which the PetroFina Warrants are exercisable or reducing the percentage
required for consent to modification of this Agreement or otherwise
modifying, or adding a provision inconsistent with, this Section 25(b) may
be made without the consent of the holder of each outstanding PetroFina
Warrant affected thereby.
Section 26. Successors. All covenants and provisions of this Agreement by
or for the benefit of PetroFina or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
Section 27. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give any Person other than PetroFina, the Warrant Agent and the
registered holders of the Warrant Certificates any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of PetroFina, the Warrant Agent and the registered holders
of the Warrant Certificates.
Section 28. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the conflicts of law principles thereof.
Section 29. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 30. Captions. The caption of the sections of this Agreement have
been inserted for convenience only and shall not control or affect the meaning
or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
PETROFINA S.A.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CITIBANK, N.A., as Warrant Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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<PAGE> 230
Exhibit 1 to Warrant Agreement
[Form of Warrant Certificate]
Certificate No. M-
____________ Warrants
NOT EXERCISABLE AFTER , 2003
Warrant Certificate
PETROFINA
This certifies that , or registered assigns, is
the registered owner of the number of PetroFina Warrants set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Warrant Agreement dated as of , 1998
[the Closing Date] (the "Agreement") between PetroFina S.A., a company organized
under the laws of Belgium ("PetroFina"), and Citibank, N.A., a national bank
organized under the laws of the United States (the "Warrant Agent"), to purchase
or receive from PetroFina at any time after , 1998 [the
Closing Date] and prior to 5:00 P.M. (New York City time) on
, 2003, the [fifth (5th) anniversary of the Closing Date],
at the principal office of the Warrant Agent located at 111 Wall Street, New
York, New York 10043, or its successors as Warrant Agent, in New York City,
nine-tenths (0.9) of one American Depositary Share (each, a "PetroFina ADS"),
each PetroFina ADS representing one-tenth of one ordinary voting share (a
"PetroFina Share") of PetroFina, to be purchased at $42.25 per PetroFina ADS
(the "Exercise Price"), in each case upon presentation and surrender of this
Warrant Certificate with the Form of Election to Purchase duly executed,
accompanied by payment of the Exercise Price for the PetroFina ADSs to be
purchased and any applicable taxes or charges. The number of PetroFina ADSs
which may be purchased upon exercise of the PetroFina Warrants evidenced by this
Warrant Certificate and the Exercise Price set forth above are the number and
Exercise Price as of [date of the Merger Agreement], based on the PetroFina ADSs
as constituted at such date. As provided in the Agreement, the Exercise Price
and the number and type of securities which may be purchased upon the exercise
of the PetroFina Warrants evidenced by this Warrant Certificate are subject to
modification and adjustment upon the occurrence of certain events. Based on the
initial Exercise Price of $42.25 per PetroFina ADS, a holder of ten (10)
PetroFina Warrants may purchase nine (9) PetroFina ADSs for an aggregate
purchase price of $380.25.
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Agreement, which terms, provisions and conditions are hereby
incorporated herein by reference and made a part hereof and to which Agreement
reference is hereby made for a full description of the rights, limitations of
rights, obligations, duties and immunities hereunder of the Warrant Agent,
PetroFina and the holders of the Warrant Certificates. Copies of the Agreement
are on file at the above-mentioned office of the Warrant Agent.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Warrant Agent, may be exchanged for
another Warrant Certificate or Warrant Certificates of like tenor and date
evidencing PetroFina Warrants entitling the holder to purchase a like aggregate
number of PetroFina ADSs, in each case as the PetroFina Warrants evidenced by
the Warrant Certificate or Warrant Certificates surrendered shall have entitled
such holder to purchase or receive. If this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Warrant Certificates for the number of
PetroFina Warrants not exercised.
PetroFina shall make a cash payment in lieu of issuing fractional PetroFina
Warrants or fractional PetroFina ADSs, as provided in the Agreement.
No holder of this Warrant Certificate shall be entitled to vote,
participate in any shareholder meeting, receive dividends or distributions on,
or be deemed for any purpose the holder of, PetroFina ADSs or PetroFina Shares
or of any other securities of PetroFina which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Agreement or herein be
construed to confer upon the holder hereof,
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<PAGE> 231
as such, any of the rights of a stockholder of PetroFina or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action, or
to receive notice of meetings or other actions affecting stockholders (except as
provided in the Agreement), or to receive dividends or subscription rights, or
otherwise, until the PetroFina Warrant or PetroFina Warrants evidenced by this
Warrant Certificate shall have been exercised as provided in the Agreement.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
WITNESS the facsimile signature of the proper officers of PetroFina and its
corporate seal. Dated as of , 199 .
<TABLE>
<S> <C>
ATTEST: PETROFINA S.A.
By:
- ------------------------------------ -----------------------------
Secretary Name:
---------------------------
Title:
--------------------------
Countersigned: By:
-----------------------------
Name:
---------------------------
Title:
- ------------------------------------ --------------------------
By
----------------------------------
Authorized signature
</TABLE>
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<PAGE> 232
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate.)
To ______________________________, as Warrant Agent:
The undersigned hereby irrevocably elects to exercise ____________
PetroFina Warrants represented by this Warrant Certificate to purchase the
PetroFina ADSs issuable upon the exercise of such PetroFina Warrants and
requests that Certificates for such PetroFina ADSs be issued in the name of
and delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of PetroFina Warrants shall not be all the PetroFina Warrants
evidenced by this Warrant Certificate, a new Warrant Certificate for the balance
remaining of such PetroFina Warrants shall be registered in the name of and
delivered to:
Please insert social security
or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:
-------------------------
- -------------------------------
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate)
Signature Guaranteed:
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<PAGE> 233
Annex A to Warrant
ASSIGNMENT FORM
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificates)
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers unto
Name:
---------------------------------------------------------------------------
(please typewrite or print in block letters)
Address:
------------------------------------------------------------------------
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer within the Warrant Certificate the same on the books of PetroFina, with
full power of substitution in the premises.
Date ________________ , ____
Signature
--------------------------------------
Signature Guaranteed:
Notice
The signature to the foregoing assignment must correspond to the name as
written upon the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE> 234
ANNEX C
OPINION OF GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
(GOLDMAN, SACHS & CO. LETTERHEAD)
(GOLDMAN, SACHS LOGO)
PERSONAL AND CONFIDENTIAL
- --------------------------------------------------------------------------------
February 17, 1998
Special Committee of the Board of Directors
Fina, Inc.
8350 N. Central Expressway
Dallas, TX 75206
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders, other than PetroFina S.A. ("Parent") and its affiliates, of
the outstanding shares of Class A Common Stock, par value $0.50 per share (the
"Shares"), of Fina, Inc. (the "Company") of the Consideration (as defined below)
to be received by such holders pursuant to the Agreement and Plan of Merger,
dated as of February 17, 1998, among Parent, New Fina, Inc., an indirect,
wholly-owned subsidiary of Parent ("Mergeco"), Petrofina Delaware, Incorporated,
an indirect, wholly-owned subsidiary of Parent ("PDI"), and the Company (the
"Agreement"). Pursuant to the Agreement, at the Effective Time (as defined in
the Agreement), Mergeco will be merged with and into the Company and each
outstanding Share (other than Shares held in the Company's treasury or
beneficially owned by PDI, Parent or any direct or indirect wholly-owned
subsidiary of Parent, which shall be canceled, and other than Dissenting Shares
(as defined in the Agreement)) shall be converted into the right to receive (i)
$60 in cash and (ii) one warrant (the "Parent Warrant" and, collectively with
the cash consideration, the "Consideration") to purchase nine-tenths of one
American Depository Share ("Parent ADS"), evidenced by an American Depositary
Receipt, each Parent ADS representing one-tenth of one ordinary voting share,
without nominal value, of Parent (each a "Parent Share"), with an exercise price
of $42.25 per Parent ADS pursuant to the terms of the Warrant Agreement (the
"Warrant Agreement") attached as Exhibit A to the Agreement.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as the financial advisor to the Special
Committee of the Board of Directors of the Company in connection with, and
having participated in certain of the negotiations leading to, the Agreement.
Goldman, Sachs & Co. provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities of the Company or Parent for its
own account or the accounts of customers. As of the date hereof, we have
accumulated for our own account a long position of 28,269 Parent Shares.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Warrant Agreement; Annual Reports to Stockholders and Annual
Reports on Form 10-K of the Company for the five
(GOLDMAN, SACHS & CO. FOOT)
C-1
<PAGE> 235
years ended December 31, 1996; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company. With respect to Parent, we have
reviewed Annual Reports to Stockholders of the Parent for the five years ended
December 31, 1996; and certain interim reports to stockholders of the Parent. We
have also held discussions with members of the senior management of the Company
and Parent regarding their past and current business operations, financial
condition and future prospects of their respective companies. In addition, we
have reviewed the reported price and trading activity for the Shares and the
ADRs, compared certain financial and stock market information for the Company
and Parent with similar information for certain other companies the securities
of which are publicly traded and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed, with your consent, that the financial forecasts of the Company that
have been furnished to us have been reasonably prepared on a basis reflecting
the best currently available judgments and estimates of the Company. In
addition, we have not made an independent evaluation or appraisal of the assets
and liabilities of the Company or Parent or any of their subsidiaries and we
have not been furnished with any such evaluation or appraisal. We were not
requested or authorized to solicit, and did not solicit, interest from any party
with respect to an acquisition of the Shares, the Company or its constituent
businesses. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Special Committee of the Board of
Directors of the Company in connection with its consideration of the transaction
contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction. Our opinion is necessarily based on economic and market conditions
and other circumstances as they exist and can be evaluated by us on the date
hereof. For the purposes of our opinion we have assumed that the Warrant
Agreement will be executed in the form attached as Exhibit A to the Agreement.
We are not expressing any opinion herein as to the prices at which the Parent
Warrants may trade if and when they are issued.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Consideration to be received by the holders of Shares, other than Parent and its
affiliates, pursuant to the Agreement is fair from a financial point of view to
such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
--------------------------------------
(GOLDMAN, SACHS & CO.)
C-2
<PAGE> 236
ANNEX D
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value the stockholder's stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
'stockholder' means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words 'stock' and 'share' mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title) sec. 252, sec. 254, 257, 258, 263 or 264 of this
title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 stockholders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to sec.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation; or depository receipts in respect
thereof;
b. Shares of stock of any other corporation which shares of stock or
depository receipts or depository receipts in respect thereof, at
the effective date of the merger or consolidation will be either
listed on a national securities exchange, or held of record by
more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts or designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
D-1
<PAGE> 237
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice to all such holders on or within 10 days after
such effective date; provided, however, that if such second notice is sent
more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in accordance
with this subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the
D-2
<PAGE> 238
value of the stock of all such stockholders. Notwithstanding the foregoing, at
any time within 60 days after the effective date of the merger or consolidation,
any stockholder shall have the right to withdraw his demand for appraisal and to
accept the terms offered upon the merger or consolidation. Within 120 days after
the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon written
request, shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
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<PAGE> 239
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE> 240
ANNEX E
MANAGEMENT OF THE COMPANY, PDI, APHC AND MERGECO
THE COMPANY
Set forth below for each director and executive officer of Company as of
June 15, 1998, are: his or her name, present principal occupation or employment,
the date as of which he or she initially commenced serving as a director or
executive officer, and material occupations, positions, offices or employments
and business addresses thereof for the past five years. Unless otherwise
indicated, the current business address of each person is Fina Plaza, 8350 North
Central Expressway, Dallas, Texas, 75206. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with the
Company of which such individual is director or officer. All directors and
officers listed below are citizens of the United States, except for Messrs.
Cornelis, de Broqueville, Delcommune, Petit and Daumerie (Belgium); Mr. Rebelo
(Portugal); and Dr. Marcos (Mexico).
BOARD OF DIRECTORS
The Company's current directors and certain biographical information
concerning such individuals are set forth below.
<TABLE>
<CAPTION>
NAME POSITION DIRECTOR SINCE
- ---- -------- --------------
<S> <C> <C>
Francois Cornelis................... Director. See "PetroFina Management and April 17, 1985
Ownership of PetroFina Shares."
Axel de Broqueville................. Director. See "PetroFina Management and April 11, 1990
Ownership of PetroFina Shares."
Albert V. Casey..................... Director April 16, 1997
Michel-Marc Delcommune.............. Director. See "PetroFina Management and August 16, 1995
Ownership of PetroFina Shares."
Ron W. Haddock...................... Director, President and Chief Executive December 17, 1987
Officer of the Company
Ernesto Marcos...................... Director October 19, 1995
Paul D. Meek........................ Chairman of the Board of the Company July 10, 1968
Jose G. Rebelo...................... Director. See "PetroFina Management and February 22, 1996
Ownership of PetroFina Shares."
Patricia M. Wallington.............. Director April 20, 1995
</TABLE>
Mr. Casey is the Distinguished Executive in Residence at Southern Methodist
University, Cox School of Business in Dallas, Texas. Prior to that time, he was
President and Chief Executive Officer of Resolution Trust Corporation from
October 1991 to March 1993, and Chairman and Chief Executive Officer of AMR
Corp., the parent company of American Airlines from 1974 to 1985. He is a member
of the Boards of Directors of MAG Aerospace Industries and Arkansas General
Industries. His current business address is Southern Methodist University, P.O.
Box 750333, Dallas, Texas 75275.
Mr. Haddock was elected President and Chief Executive Officer effective
January 1, 1989, having served as Executive Vice President and Chief Operating
Officer since June 1986. Prior to that time he was an officer and a director of
Esso Eastern, an Exxon subsidiary, for the preceding three years.
Dr. Marcos is President of E. Marcos & Associates, A.C. since 1995. He also
serves as a director of Empresas ICA. Prior to that time, he was Chief Financial
Officer of PEMEX from 1989 until 1994. He advises clients in the energy industry
as to many aspects of business in Mexico. His current business address is Marcos
& Asociados, Andres Bello No. 45, PISO 13, Col. Chapultepec Polanco, C.P. 11560,
Mexico D.F.
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<PAGE> 241
Mr. Meek was first elected Chairman of the Board of the Company in October
1984. He was President and Chief Executive Officer from April 1983 to June 1986.
Prior to that time, he was President and Chief Operating Officer since 1976. Mr.
Meek retired from active employment with the Company on June 1, 1989. His
current business address is P.O. Box 2159, Dallas, Texas 75221. He served as a
Commissioner of the Public Utility Commission of Texas from November 1989 to
April 1992.
Ms. Wallington has been Corporation Vice President and Chief Information
Officer of Xerox Corporation since 1992. She currently has responsibility to
direct and manage Xerox Corporation's information systems. Her current business
address is Xerox Corporation, 800 Long Ridge Road, Stamford, Connecticut 06904.
EXECUTIVE OFFICERS
The Company's executive officers and certain biographical information
concerning such individuals are set forth below.
<TABLE>
<CAPTION>
SERVED AS AN
NAME POSITION OFFICER SINCE
- ---- -------- -------------
<S> <C> <C>
Ron W. Haddock..................... President and Chief Executive Officer. See June 19, 1986
"-- The Company -- Board of Directors."
Cullen M. Godfrey.................. Senior Vice President, Secretary April 15, 1987
and General Counsel
Michael J. Couch................... Senior Vice President April 30, 1984
H. Patrick Jack.................... Senior Vice President August 23, 1989
Richard L. Charter II.............. Vice President April 24, 1997
Michel Daumerie.................... Vice President April 20, 1995
Richard C. Lindley................. Vice President April 20, 1995
Jeff D. Morris..................... Vice President April 20, 1995
Geoffroy Petit..................... Vice President and Chief Financial Officer September 1, 1997
S. R. West......................... Vice President May 2, 1983
Kevin A. Rupp...................... Vice President and Controller April 20, 1995
Edward A. Nash..................... Vice President April 23, 1998
Hilda Kouvelis..................... Treasurer February 20, 1997
Linda Middleton.................... Assistant Secretary August 20, 1984
</TABLE>
Mr. Cullen M. Godfrey was elected Senior Vice President, Secretary and
General Counsel effective April 1995. Prior to that time, he was Vice President
of the company since August 1990. He is also a Vice President and General
Counsel of PDI. He has managed the Company's Legal and Security Department since
August 1990 and he managed the Public Affairs Department from July 1994 to May
1997.
Mr. M. J. Couch was elected as Senior Vice President in April 1995. He
served as Vice President from April 1984. His principal duties in fiscal 1997
were to manage the refining and marketing activities associated with the
Company's Southeastern Business Unit. He is now responsible for the Steam
Cracker Joint Venture. He formerly served as Vice President since April 1984 and
as General Manager of Supply and Transportation and Manager of Raw Materials
since joining the Company in 1977.
Mr. H. Patrick Jack was elected Senior Vice President in April 1995. From
February 1985 Mr. Jack was General Manager of Chemicals Marketing until his
promotion to Vice President in August 1989. His principal duty is to manage the
chemicals business of the Company.
E-2
<PAGE> 242
Mr. Richard L. Charter II was elected Vice President effective April 1997.
Prior to that time he was manager of environmental affairs and health and safety
for the Company since 1988. His principal duty is to manage the environmental
affairs and health and safety of the Company.
Mr. Michel Daumerie was elected Vice President effective April 1995. Prior
to that time, he was manager of technology for the Company since 1988. His
principal duty is to manage the laboratory research of the Company.
Mr. Richard C. Lindley was elected Vice President effective April 1995.
Prior to that time, he was general manager of the company's natural gas
business. His principal duty is to manage the natural gas marketing business of
the Company.
Mr. Jeff D. Morris was elected Vice President effective April 1995. His
principal duty is to manage the Company's Southeastern Business Unit. Prior to
February 1998, he managed the refining and marketing activities associated with
the Company's Southwestern Business Unit.
Mr. Geoffroy Petit was elected Vice President and Chief Financial Officer
in September 1997. He is also Vice president and a Director of PDI. Prior to
that time he was manager and a Director of Petrofina International Group S.A., a
financial subsidiary of PetroFina S.A. for at least the preceding five-year
period. He is responsible for the financial affairs of the Company.
Mr. S. Robert West was elected Vice President in May 1983 and served
additionally as Controller from May 1983 through December 1991. His principal
duty is to manage the Information Systems and Internal Audit Departments of the
Company.
Mr. Kevin A. Rupp was elected Vice President in April 1998. He has served
as Controller since May 1995. Prior to that time, he was Coordinator of
Corporate Planning for the Company from 1992 and a Division Controller from
October 1989.
Mr. Edward A. Nash was elected Vice President in April 1998. He has served
as General Manager for all onshore exploration and production activities of the
Company since February 1998. Prior to that time, he served as Senior General
Manager of Human Resources and General Services.
Ms. Hilda Kouvelis was elected Treasurer in February 1997. Prior to that
time, she was General Manager of the Company's treasury operations from 1995 and
Manager of General Accounting from 1993. Her principal duty is to direct and
coordinate the debt and cash management of the Company.
Ms. Linda Middleton was elected Assistant Secretary in August 1984. Her
principal duty is to assist the corporate Secretary.
APHC
Set forth below for each director and executive officer of APHC as of June
15, 1998, are: his or her name, present principal occupation or employment, the
date as of which he or she initially commenced serving as a director or
executive officer, and material occupations, positions, offices or employments
and business addresses thereof for the past five years. All directors and
officers are citizens of Belgium, except for Mr. Oliver and Ms. Middleton who
are citizens of the United States.
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<PAGE> 243
BOARD OF DIRECTORS
APHC's current directors and certain biographical information concerning
such individuals are set forth below.
<TABLE>
<CAPTION>
NAME POSITION DIRECTOR SINCE
---- -------- --------------
<S> <C> <C>
Francois Cornelis............. Chairman of the Board. See "PetroFina May 11, 1990
Management and Ownership of PetroFina Shares."
Geoffroy Petit................ Director. See " -- The Company -- Executive September 1, 1997
Officers."
M. Leon Oliver................ Director. June 28, 1984
</TABLE>
Mr. Oliver has served as a Vice President of APHC since April 1984 and a
director of APHC and PDI since 1984. He also serves as Assistant General Counsel
to Fina Oil and Chemical Company, the operating subsidiary of the Company,
overseeing its natural gas and environmental legal issues, since 1986.
EXECUTIVE OFFICERS
APHC's current officers and certain biographical information concerning
such individuals are set forth below.
<TABLE>
<CAPTION>
SERVED AS AN
NAME POSITION OFFICER SINCE
---- -------- -------------
<S> <C> <C>
Francois Cornelis............. President. See "PetroFina Management and May 11, 1990
Ownership of PetroFina Shares."
Geoffroy Petit................ Vice President, Administration & Finance. September 1, 1997
See " -- The Company -- Executive Officers."
M. Leon Oliver................ Vice President & General Counsel. See April 14, 1982
"-- APHC -- Board of Directors."
Linda Middleton............... Secretary. See " -- The Company -- Executive April 9, 1986
Officers."
</TABLE>
PDI
Set forth below for each director and executive officer of PDI as of June
15, 1998, are: his or her name, present principal occupation or employment, the
date as of which he or she initially commenced serving as a director or
executive officer, and material occupations, positions, offices or employments
and business addresses thereof for the past five years. All directors and
officers of PDI are citizens of Belgium, except for Mr. Oliver, Mr. Godfrey and
Ms. Middleton (United States) and Mr. Vieira (Portugal).
E-4
<PAGE> 244
BOARD OF DIRECTORS
PDI's current directors and certain biographical information concerning
such individuals are set forth below.
<TABLE>
<CAPTION>
NAME POSITION DIRECTOR SINCE
---- -------- --------------
<S> <C> <C>
Francois Cornelis............. Chairman of the Board. See "PetroFina January 4, 1989
Management and Ownership of PetroFina Shares."
Axel de Broqueville........... Director. See "PetroFina Management and April 1, 1990
Ownership of PetroFina Shares."
Michel-Marc Delcommune........ Director. See "PetroFina Management and January 1, 1993
Ownership of PetroFina Shares."
Henrique Bandeira Vieira...... Director. See "PetroFina Management and April 2, 1981
Ownership of PetroFina Shares."
M. Leon Oliver................ Director. See " -- APHC -- Board of Directors." June 22, 1984
Geoffroy Petit................ Director. See " -- The Company -- Executive September 1, 1997
Officers."
</TABLE>
EXECUTIVE OFFICERS
PDI's executive officers and certain biographical information concerning
such individuals are set forth below.
<TABLE>
<CAPTION>
SERVED AS AN
NAME POSITION OFFICER SINCE
---- -------- -------------
<S> <C> <C>
Francois Cornelis............ President. See "PetroFina Management and January 1, 1993
Ownership of PetroFina Shares."
Geoffroy Petit............... Vice President, Administration & Finance. See September 1, 1997
" -- The Company -- Executive Officers."
Cullen M. Godfrey............ Vice President and General Counsel. See August 1, 1990
" -- The Company -- Executive Officers."
Albert Boutefeu.............. Vice President, Exploration and Development November 10, 1997
Linda Middleton.............. Secretary. See " -- The Company -- Executive April 9, 1986
Officers."
</TABLE>
Mr. Boutefeu has held his current position since November 1997. Prior to
that time, he served as general manager of Fina Italiana S.p.A. and Chairman of
the Board of Raffineria di Roma from October 1995 through October 1997, and
Exploration and Production Manager of Fina Italiana S.p.A. from October 1994
until October 1995. From September 1992 until October 1995 he served as North
American Coordinator for PetroFina Exploration and Production and General
Manager of PetroFina Canadian Branch S.A.
MERGECO
Set forth below for each director and executive officer of Mergeco as of
June 15, 1998, are: his name, present principal occupation or employment, the
date as of which he initially commenced serving as a director or executive
officer, and material occupations, positions, offices or employments and
business addresses thereof for the past five years. All directors and officers
of Mergeco are citizens of Belgium.
E-5
<PAGE> 245
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME PRESENT PRINCIPAL OCCUPATION DIRECTOR SINCE
---- ---------------------------- --------------
<S> <C> <C>
Francois Cornelis.............. Director. See "PetroFina Management and February 11, 1998
Ownership of PetroFina Shares."
Axel de Broqueville............ Director. See "PetroFina Management and February 11, 1998
Ownership of PetroFina Shares."
Michel-Marc Delcommune......... Director. See "PetroFina Management and February 11, 1998
Ownership of PetroFina Shares."
</TABLE>
EXECUTIVE OFFICERS.
Mergeco's executive officers and certain biographical information
concerning such individuals are set forth below.
<TABLE>
<CAPTION>
SERVED AS AN
NAME PRESENT PRINCIPAL OCCUPATION OFFICER SINCE
---- ---------------------------- -------------
<S> <C> <C>
Francois Cornelis.............. President. See "PetroFina Management and February 13, 1998
Ownership of PetroFina Shares."
Michel-Marc Delcommune......... Secretary and Treasurer. See "PetroFina February 13, 1998
Management and Ownership of PetroFina Shares."
</TABLE>
E-6
<PAGE> 246
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Belgian law, the directors may be liable for damages to Parent in
case of improper performance of their duties. The directors may be liable to
Parent and to third parties for infringement of the statuts/statuten or the
Belgian company law, or tortious conduct. Under certain circumstances, directors
may be criminally liable.
ITEM 21. EXHIBITS
<TABLE>
<S> <C>
Exhibit 2.1: Agreement and Plan of Merger, dated as of February 17, 1998,
among PetroFina, Petrofina Delaware Incorporated, New Fina,
Inc. and Fina, Inc., as amended by the First Amendment to
Merger Agreement, dated as of March 31, 1998 (included as
Annex B to the Proxy Statement Prospectus)
Exhibit 4.1: Statuts/Statuten (Articles of Association) of PetroFina
Exhibit 4.2: Warrant Agreement (included in Exhibit 2.1)
Exhibit 5.1: Opinion of Francois Vincke, General Counsel of PetroFina, as
to the legality
of PetroFina Warrants and certain Belgian income tax matters
Exhibit 8.1: Opinion of Wilmer, Cutler & Pickering as to certain U.S.
federal income tax matters
Exhibit 12.1: Statement re: Computation of ratio of earnings to fixed
charges
Exhibit 21.1: Subsidiaries of PetroFina
Exhibit 23.1: Consent of Deloitte & Touche
Exhibit 23.2: Consent of Klynveld Peat Marwick Goerdeler Reviseurs
d'Enterprises
Exhibit 23.3: Consent of Klynveld Peat Marwick Goerdeler Reviseurs
d'Enterprises
Exhibit 23.4: Consent of KPMG Accountants N.V.
Exhibit 23.5: Consent of KPMG Peat Marwick LLP
Exhibit 23.6: Consent of KPMG Peat Marwick
Exhibit 23.7: Consent of KPMG Peat Marwick
Exhibit 23.8: Consent of KPMG Peat Marwick LLP
Exhibit 23.9: Consent of Liedekerke, Wolters, Waelbroeck & Kirkpatrick
Exhibit 23.10: Consent of KPMG
Exhibit 23.11: Consent of KPMG Audit plc
Exhibit 23.12: Consent of Wilmer, Cutler & Pickering (included in Exhibit
8.1)
Exhibit 23.13: Consent of Francois Vincke (included in Exhibit 5.1)
Exhibit 24.1: Power of Attorney (included on signature page to this
Registration Statement)
Exhibit 99.1: Form of Letter of Transmittal
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
II-1
<PAGE> 247
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of this chapter at the
start of any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the Act
need not be furnished, provided, that the registrant includes in the prospectus,
by means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(b)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(C), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes: (i) to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means; and (ii) to arrange or provide for a
facility in the U.S. for the purpose of responding to such requests.
II-2
<PAGE> 248
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
ITEM 23. FINANCIAL STATEMENTS AND SCHEDULES
See pages F-1 through F-41 of the Proxy Statement/Prospectus.
II-3
<PAGE> 249
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 4 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Brussels, Belgium
on July 14, 1998.
PetroFina S.A.
By: /s/ MICHEL-MARC DELCOMMUNE
------------------------------------
Name: Michel-Marc Delcommune
Title: Executive Director, Corporate
Finance
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ * Chairman July 14, 1998
- ------------------------------------------------
Albert Frere
/s/ * Vice Chairman, Chief Executive July 14, 1998
- ------------------------------------------------ Officer and Managing Director
Francois Cornelis
Vice Chairman , 1998
- ------------------------------------------------
Etienne Davignon
/s/ * Executive Director, July 14, 1998
- ------------------------------------------------ Chemicals
Axel de Broqueville
/s/ MICHEL-MARC DELCOMMUNE Executive Director, Corporate July 14, 1998
- ------------------------------------------------ Finance
Michel-Marc Delcommune (Principal Financial Officer)
/s/ * Executive Director, Marketing July 14, 1998
- ------------------------------------------------
Henrique Bandeira Vieira
/s/ * Director July 14, 1998
- ------------------------------------------------
Jean-Louis Beffa
Director , 1998
- ------------------------------------------------
Yves Boel
/s/ * Director July 14, 1998
- ------------------------------------------------
Jacques Calvet
/s/ * Director July 14, 1998
- ------------------------------------------------
Guy Dejouany
</TABLE>
II-4
<PAGE> 250
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
Director , 1998
- ------------------------------------------------
Paul Desmarais, Sr.
/s/ * Director July 14, 1998
- ------------------------------------------------
Paul Desmarais, Jr.
Director , 1998
- ------------------------------------------------
Paul Janssen
/s/ * Director July 14, 1998
- ------------------------------------------------
Jean-Pierre de Launoit
/s/ * Director July 14, 1998
- ------------------------------------------------
Gerard Mestrallet
/s/ * Director July 14, 1998
- ------------------------------------------------
Brian Mulroney
/s/ * Director July 14, 1998
- ------------------------------------------------
Thierry de Rudder
/s/ * Director July 14, 1998
- ------------------------------------------------
Gilles Samyn
/s/ * Director July 14, 1998
- ------------------------------------------------
Luc Wauters
/s/ * Principal Accounting Officer July 14, 1998
- ------------------------------------------------
Freddy Mean
</TABLE>
* By: /s/ MICHEL-MARC DELCOMMUNE
--------------------------------
Michel-Marc Delcommune
Attorney-in-fact
II-5
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
PetroFina S.A.
We consent to the use in this Amendment No. 4 to Registration Statement No. 333-
of PetroFina S.A. on Form F-4 of our report dated March 26, 1998, appearing in
the Prospectus, which is part of this Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
PetroFina S.A.. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
July, 13, 1998
The Statutory Auditor
/s/ MICHEL C. VAES
DELOITTE & TOUCHE
Reviseurs d'Entreprises s.c.c.
Represented by Michael C. Vaes
<PAGE> 1
EXHIBIT 23.2
[KPMG REVISEURS D'ENTREPRISES LETTERHEAD]
TO THE BOARD OF DIRECTORS OF PETROFINA S.A.
We consent to the inclusion in the registration statement on Form F-4 of
PetroFina S.A. of our report dated March 20, 1998, with respect to the balance
sheets of Fina Europe N.V. as of December 31, 1997, 1996 and 1995, and the
related statements of income for each of the years in the three-year period
ended December 31, 1997 and to the reference to our firm under the heading
"Experts" in the registration statement.
Antwerp, Belgium
July 13, 1998
Klynveld Peat Marwick Goerdeler Reviseurs d'Entreprises
Represented by
/s/ G. M. TIMMERMAN
G. M. Timmerman
<PAGE> 1
EXHIBIT 23.3
[KPMG REVISEURS D'ENTREPRISES LETTERHEAD]
TO THE BOARD OF DIRECTORS OF PETROFINA S.A.
We consent to the inclusion in the registration statement on Form F-4 of
PetroFina S.A. of our report dated March 20, 1998, with respect to the balance
sheets of Fina Raffinaderij Antwerpen N.V. as of December 31, 1997, 1996 and
1995, and the related statements of income for each of the years in the
three-year period ended December 31, 1997 and to the reference to our firm
under the heading "Experts" in the registration statement.
Antwerp, Belgium
July 13, 1998
Klynveld Peat Marwick Goerdeler Reviseurs d'Entreprises
Represented by
/s/ G. M. TIMMERMAN
G. M. Timmerman
<PAGE> 1
EXHIBIT 23.4
To the Board of Directors of PetroFina S.A.
We consent to the inclusion in the registration statement on Form F-4 of
PetroFina S.A. (333-49315) of our report dated January 26, 1998, except as to
the fourth paragraph of note 1(a), which is as of February 17, 1998, with
respect to the consolidated balance sheets of PetroFina Delaware, Incorporated
and subsidiaries as of December 31, 1997, 1996 and 1995, and the related
consolidated statements of earnings, stockholder's equity and cash flows for
each of the years in the three-year period ended December 31, 1997 and to the
reference to our firm under the heading "Experts" in the registration statement.
/S/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Dallas, Texas
July 10, 1998
<PAGE> 1
EXHIBIT 23.5
To the Board of Directors of PetroFina S.A.
We consent to the inclusion in the registration statement on Form F-4 of
PetroFina S.A. of our report dated February 10, 1998, with respect to the
balance sheets of Brittany Insurance Company Ltd. as of December 31, 1997 and
1996, and the related statements of income and cash flows for each of the years
in the two-year period ended December 31, 1997, and to the reference to our firm
under the heading "Experts" in the registration statement.
/S/ KPMG PEAT MARWICK
KPMG Peat Marwick
Hamilton, Bermuda
July 13, 1998
<PAGE> 1
EXHIBIT 23.6
To the Board Of Directors of PetroFina S.A.
We consent to the inclusion in the registration statement on Form F-4 of
PetroFina S.A. of our report dated February 28, 1997, with respect to the
balance sheet of Brittany Insurance Company Ltd. as of December 31, 1995, and
the related statements of operations and retained earnings and changes in
financial position for the year then ended and to the reference to our firm
under the heading "Experts" in the registration statement.
/s/ KPMG PEAT MARWICK
Hamilton, Bermuda KPMG Peat Marwick
July 13, 1998
<PAGE> 1
EXHIBIT 23.7
[KPMG ACCOUNTANTS LETTERHEAD]
TO THE BOARD OF DIRECTORS OF PETROFINA S.A.
We consent to the inclusion in the registration statement on Form F-4 of
PetroFina S.A. of our report dated March 20, 1998, with respect to the balance
sheets of Sigma Coatings B.V. as of December 31, 1997, 1996 and 1995, and the
related statements of income for each of the years in the three-year period
ended December 31, 1997 and to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG ACCOUNTANTS N.V.
KPMG Accountants N.V.
The Hague, the Netherlands
July 13, 1998
<PAGE> 1
EXHIBIT 23.8
To the Board of Directors of PetroFina S.A.
We consent to the incorporation by reference in the registration statement on
Form F-4 of PetroFina S.A. (333-49315) of our report dated January 26, 1998,
except as to the third paragraph of note 1(a), which is as of February 17,
1998, with respect to the consolidated balance sheets of FINA, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997 and related financial
statement schedule, which report appears in the December 31, 1997 annual report
on Form 10-K of FINA, Inc.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Dallas, Texas
July 10, 1998
<PAGE> 1
[KPMG LETTERHEAD]
EXHIBIT 23.10
To the Board of Directors of Petrofina S.A.
INDEPENDENT AUDITORS REPORT
We consent to the inclusion in this Registration Statement of Petrofina on Form
F-4 of our report dated January 27, 1997 on the financial statements of The
Branch of Fina Exploration Norway S.C.A. for the years ended of December 31,
1995 and 1996.
Sandvika, Norway July 13, 1998
KPMG as
/s/JORGEN LORENTZEN-STYR
- -----------------------------
Jorgen Lorentzen-Styr
<PAGE> 1
EXHIBIT 23.11
To the Directors of Fina Plc:
We consent to the inclusion in the registration statement on Form F-4 of
PetroFina S.A. of our report dated April 14, 1997, with respect to the balance
sheets of Fina plc as of December 31, 1996 and 1995, and the related statements
of profit and loss and cash flows for each of the two years ended December 31,
1996.
Our report dated April 14, 1997, contains a qualification related to the Fina
plc basis of valuation stock, which does not comply with Statement of Standard
Accounting Practice Number 9 (Revised) in that cost is ascertained, in part, on
a last in first out basis. The financial statements do not include any
adjustment for this deviation from generally accepted accounting principles in
the United Kingdom.
/s/ KPMG Audit plc
- -----------------------
KPMG Audit plc
Chartered Accountants
Registered Auditor
London, England
July 13, 1998
