12
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File No.
0-6119
TRI-VALLEY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 84-061743
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Identification Number)
Organization)
230 South Montclair Street, Suite 101, Bakersfield, California 93309
(Address of Principal Executive Offices)
Registrant's Telephone Number Including Area Code: (661) 837-9300
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirement for
the past 90 days. Yes___X__ No_____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB, if
applicable, or any amendment to this Form 10-KSB.
___X__
The issuer's revenues for the most recent fiscal year were $2,686,129
As of December 31, 1999, 19,301,248 common shares were issued and outstanding.
As of February25, 2000, 19,317,248 common shares were issued and outstanding,
and the aggregate market value of the common shares of Tri-Valley Corporation
held by non-affiliates on that date was approximately$45,386,167.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes; No X
---
Exhibit Index appears on page 42.
PART I
ITEM 1. BUSINESS
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Tri-Valley Corporation, a Delaware corporation, is in the business of exploring,
acquiring and developing prospective and producing petroleum and precious metals
properties and interests therein. Tri-Valley has two wholly owned subsidiaries,
Tri-Valley Oil & Gas Company ("TVOG") operates the oil & gas activities. TVOG
derives the majority of its revenue from gas production. Tri-Valley Power
Corporation is the other wholly owned subsidiary. However, this subsidiary is
inactive at the present time. The precious metals activity is operated directly
by Tri-Valley Corporation.
TVOG primarily generates its own exploration prospects from internal data, and
also screens submittals from other geologists and companies. TVOG enters
exploration co-ventures from time to time with major industry companies such as
Phillips Petroleum Company (Houston Regional Office), Occidental USA and Texaco
USA. Typically, TVOG will enter agreements to look for potential projects to
co-venture with another major oil company within a geographic area of mutual
interest ("AMI"). When TVOG proposes a potential project, or "play," within the
AMI, it offers the play to its potential co-venturers. The co-venturers must
then accept or reject up to 50% of the play under the terms of the agreement
involved, within a limited time period. TVOG is the operator of these
co-ventures.
In 1987, the Company acquired precious metals claims on Alaska state lands. The
Company has conducted exploration operations on these properties and has reduced
its original claims to a block of approximately 39,360 acres (61.5 square
miles). The Company has conducted trenching, core drilling, bulk sampling and
assaying activities to date and has reason to believe that mineralization exists
to justify additional exploration and development activities. However, to date,
the Company has not identified probable mineral reserves on these properties
ITEM 2. PROPERTIES
- --------------------
The Company's headquarters and administrative offices are located at 230 South
Montclair Street, Suite 101, Bakersfield, California 93309. The Company leases
approximately 2,500 square feet of office space at that location. The principal
properties of the Company consist of proven and unproven oil and gas and
precious metal properties, maps and geologic records related to prospective oil
and gas and precious metal properties, office and other equipment.
Oil and Gas Operations
- -------------------------
The oil and gas properties in which the Company holds interests are primarily
located in the area of central California known as the Sacramento Valley. The
Company also leases exploration acreage in the San Joaquin and Santa Maria
Valleys. The Company contracts for the drilling of all its wells and does not
own any drilling equipment, bulk storage facilities, transportation pipelines or
refineries.
The company has retained the services of Cecil Engineering, an independent
engineer, for the purposes of estimating the Company's net share of proved
developed oil and gas reserves on all the Company's oil and gas properties at
December 31, 1999. The Company does not include any undeveloped reserves in
these reserve studies and, accordingly, only proved developed reserves are
reported herein. Price is a material factor in the stated reserves of the
Company, because higher prices permit relatively higher-cost reserves to be
produced economically. Higher prices generally permit longer recovery, hence
larger reserves at higher values. Conversely, lower prices generally limit
recovery to lower-cost reserves, hence smaller reserves. The process of
estimating oil and gas reserve quantities is inherently imprecise. Ascribing
monetary values to those reserves, therefore, yields imprecise estimated data at
best.
The estimated future net recoverable oil and gas reserves from proved developed
properties as of December 31, 1999, December 31, 1998 and December 31, 1997 were
as follows:
BBL MCF
--- -----
December 31, 1999 Condensate 185 Natural Gas 1,540,003
December 31, 1998 Condensate 234 Natural Gas 1,434,539
December 31, 1997 Condensate 224 Natural Gas 1,903,139
ITEM 2. PROPERTIES
- --------------------
Using year-end oil and gas prices and current levels of lease operating
expenses, the estimated present value of the future net revenue to be derived
from the Company's proved developed oil and gas reserves, discounted at 10%, was
$1,308,178 at December 31, 1999, $1,213,400 at December 31, 1998,and $1,996,100
at December 31, 1997. Reference is made to the unaudited supplemental
information of the consolidated financial statements for further information on
oil and gas reserves and estimated values.
The following table sets forth the net quantities of natural gas and crude oil
produced by Registrant during:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
Natural Gas (MCF) 210,333 277,946 323,879
Crude Oil (BBL) 119 137 225
The following table sets forth the average sales price and average production
(lifting) cost per unit of oil and gas produced by registrant during:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998 1997
Natural gas (per MCF) $2.20 $2.20 $2.40
Production Costs
(per MCF) .20 .20 .30
Net Profit per MCF $2.00 $2.00 $2.10
As of December 31, 1999, the Company had the following gross and net position in
wells and developed acreage:
Wells (1) Acres (2)
---------- ----------
Gross Net Gross Net
12 5.125 2192 645
(1) "Gross" wells represent the total number of producing wells in which the
Company has a working interest or overriding royalty. "Net" wells represent the
number of gross producing wells multiplied by the percentages of the working
interests and/or royalty interests therein by the Company.
(2) "Gross" acres represent the total acres in which the Company has a
working interest; "net" acres represent the aggregate of the working interests
of the Company in the gross acres.
(3) The above table, regarding net wells, recognizes only those wells in
which the Company holds an overriding royalty interest or an earned working
interest. Working interests to be earned at payout have not been included.
The following table sets forth the number of productive and dry exploratory and
development wells drilled by the Company during:
ITEM 2. PROPERTIES
- --------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1999 1998* 1997
Exploratory
Producing -0- -0- 1.0
Dry -0- -0- -0-
Total -0- -0- 1.0
Development
Producing -0- -0- 2.0
Dry -0- -0- -0-
Total -0- -0- 2.0
*Two exploratory wells were drilled in 1998. No determination has been made as
to the ability to commercially produce these wells.
The Company deals with both industry and sophisticated individual investors on
its oil and gas projects.
The Company continually screens oil and gas prospects developed by the Company's
own staff and by other sources for potential leasing.
The following table sets forth information regarding undeveloped oil and gas
acreage in which the Company had an interest on December 31, 1999.
State Gross Acres Net Acres
----- ----------- ---------
11,112
California 13,339
Some of the Company's undeveloped acreage is held pursuant to leases from
landowners. Such leases have varying dates of execution and generally expire
one to five years after the date of the lease.
Precious Metals
- ----------------
The precious metals properties are located in interior Alaska. They are
comprised of 832 40-acre claims, of which 84 are leased from others, and 40
160-acre prospecting sites, located solely on State open lands requiring annual
assessment work, and an annual per claim fee. All fees are current. However,
the Company reduced its claim block, in Alaska, subsequent to November 30, 1995,
to concentrate on the most advanced targets.
The following table sets forth the information regarding the acreage position
the Company has under lease in Alaska as of December 31, 1999:
Net Acres
---------
State Gross Acres
----- -----------
Alaska 39,680.00 38,886.00
Mineral properties claimed on Open State land require minimum annual assessment
work of $100 worth per State of Alaska claim. The Company has no Federal
claims. In 1998 and 1999, the Company conducted additional staking to bring its
present land position to approximately 33,000 acres (61.5 square miles).
Expenditures on the Richardson, Alaska acreage have already carried forward
annual assessment requirements more than four years on all its claims.
ITEM 2. PROPERTIES
- --------------------
In 1991, Tri-Valley entered into an agreement with the Moscow based Central
Research Institute of Geological Prospecting for Base and Precious Metals
("TsNIGRI") to demonstrate their proprietary technology for evaluating large
areas of covered sub-arctic terrain. TsNIGRI has performed over 1,000 line
miles of ground traverses for geological, geochemical, biochemical,
hydrochemical sampling and geophysical profiles throughout Tri-Valley's claim
block and surroundings. More than 5,000 samples have been run through a variety
of laboratory analysis including over 1,000 samples assayed by Bondar-Clegg, an
industry accepted assay house. Physical gold has been found at 60 locations
wide spread over a 20 mile swath on the claims and TsNIGRI has increased their
forecast to over 2 million ounces of recoverable gold. Based on the results of
this study of the Company's then 64 square mile lode gold claim block,
Tri-Valley management believes it prudent for continued development of this
precious metals segment of the Company.
In 1998, the Company retained the services of M. J. Bright and Associates, an
independent registered geologist based in Denver, Colorado to analyze the data
from one core drill site and surrounding trench samples at the Democrat Dike, to
estimate probable reserves. M. J. Bright delineated 141,500 tons grading 0.11
ounces per ton (opt) or about 15,000 ounces, beginning at surface to 80 feet
subsurface. An additional 12,000 ounces is indicated from an additional 20 feet
depth of 108,500 tons also grading 0.11 opt. for a total of over 27,000 probable
ounces. This occurs in an area approximately 1,200 feet long, 250 feet deep and
300 to 600 feet wide. This represents approximately 12 million tons projected
to grade about 0.06 opt. for a possible resource of about 720,000 ounces. The
Company is undertaking further review and exploration of the potential resources
in this area.
Management believes it has demonstrated that the Company possesses a superior
mineral property which could reward the shareholders dramatically from discovery
success with little downside exposure at present.
Environmental
- -------------
The Company's energy operations are subject to a number of regulations relating
to environmental protection, as are all exploration and production companies.
However, the Company believes it is in full compliance with all environmental
related rules and regulations.
ITEM 3. LEGAL PROCEEDINGS
- ----------------------------
During the year ended 1997, the Company filed an action in Contra Costa Superior
Court against an unrelated Corporation (defendant) for breach of contract,
declaratory relief, breach of confidence, deceit, negligent misrepresentation,
interference with prospective economic advantage, unfair competition, and
constructive trust. The matter proceeded to trial on January 19, 1999, and
resulted in a judgement for defendants. The judgement was entered in favor of
defendants on July 26, 1999. Thereafter, defendants filed a motion for their
attorney fees pursuant to California Civil Code. On December 21, 1999, the Court
issued an order awarding attorneys' fees to defendants in the amount of
$370,367, with interest accruing at the statutory rate of 10% per annum from
December 1, 1999. On January 19, 2000, the Company filed its appeal of the
order. While the final outcome of this matter cannot be determined presently
with certainty, the Company believes it has meritorious grounds for appeal and
intends to vigorously pursue the reversal of this order and therefore has not
recognized a liability in the financial statements. An unfavorable outcome of
this litigation could have a material adverse effect on the Company's financial
position, liquidity and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------
On November 19, 1999, the Company held its annual meeting. The matters
submitted to a vote of the security holders included the election of directors,
an amendment to the Certificate of Incorporation to increase the number of
authorized shares, the election by the Company to be governed by 203 of the
Delaware General Corporation Laws, and an amendment to the Company's Incentive
Stock Option Plan to increase the number of authrorized shares. The
shareholders elected all of the nominees for director who were recommended by
the board. They adopted the proposals to increase the number of authorized
shares
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------------
and amend the stock option plan, but they rejected the proposal to be governed
by Section 203 of the Delaware General Corporation Law. The shareholder votes
were as follows:
FOR AGAINST ABSTAIN
Earl H. Beistline 18,148,896 4,750 54,960
F. Lynn Blystone 18,127,110 26,536 54,960
Milton J. Carlson 18,151,896 1,750 54,960
Dennis P. Lockhart 18,149,396 4,250 54,960
Loren J. Miller 18,151,896 1,750 54,960
Clive Stockdale 18,152,896 750 54,960
Measure #2 - Approved an amendment to the Certificate of Incorporation to
increase the number of authorized shares.
16,811,836 838,970 557,800
Measure #3 - Election by the Company to be governed by 203 of the Delaware
General
Corporation Laws.
12,015,080 100,565 6,092,961
Failed to secure necessary 2/3rds majority of outstanding stock due to
abstentions having to be counted as "no" votes.
Measure #4 - Approved an amendment to the Company's Incentive Stock Option Plan
to
increase the number of authorized shares.
11,360,287 987,151 5,861,168
<PAGE>
- ------
PART II
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ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
- --------------------------------------------------------------------------------
HOLDER MATTERS
- ---------------
Shares of Tri-Valley Corporation stock are traded over-the-counter on the
Electronic Bulletin Board under the symbol "TRIL". The following table shows
the high and low bid and asked prices of Tri-Valley stock for the quarterly
periods indicated as reported by the OTC Stock Journal:
<TABLE>
<CAPTION>
Bid Prices Asked Prices
----------- -------------
High Low High Low
----------- ------------- ----- -----
<S> <C> <C> <C> <C>
1999:
First Quarter. $ .470 $ .34 $ .56 $ .34
Second Quarter $ 1.063 $ .38 $1.12 $ .38
Third Quarter. $ 1.188 $ .72 $1.31 $ .63
Fourth Quarter $ 1.969 $ 1.19 $2.16 $1.19
</TABLE>
Bid Prices Asked Prices
----------- -------------
High Low High Low
---- --- ---- ---
1998:
First Quarter $ 1.688 $ .91 $ 1.63 $ 1.02
Second Quarter $ .969 $ .53 $ .97 $ .69
Third Quarter $ .719 $ .31 $ .78 $ .59
Fourth Quarter $ .625 $ .19 $ .56 $ .38
As of December 31, 1999, the Company estimates that its common stock was held by
approximately 2,000 shareholders of record in 40 states and at least 4 foreign
countries.
The Company historically has paid no dividends, and at this time does not plan
to pay any dividends in the immediate future. Rather, the Company strives to
add share value through discovery success. As of 3/06/00, the Company had 13
market makers for our stock. In 1999, trading volume exceeded 8.2 million
shares.
Recent Sales of unregistered Securities
- -------------------------------------------
During 1999 there were 18,000 shares issued at $0.50 each from the exercise of
stock options held by three directors and one former employee. Additionally,
175,000 shares were sold to individuals in private placement, 75,000 at a price
of $0.50 per share and 100,000 at a price of $1.25 per share, all exempt under
Section 4(2) of the Securities Act of 1933.
DESCRIPTION OF SECURITIES.
- ----------------------------
We are authorized to issue up to100 million shares of one class of Common Stock,
par value $0.001 per share, and 5 million shares of Preferred Stock, par value
$.001 per share. On December 31, 1999, 19,301,248 shares of Common Stock and no
shares of Preferred Stock were issued and outstanding.
Common Stock
- -------------
Each shareholder of the Common Stock is entitled to one vote for each share of
common stock held on all matters to be voted on by shareholders. The Company's
Certificate of Incorporation precludes cumulative voting in elections of
directors. However, because the Company is qualified to do business in
California and its principal place of business and many of its shareholders are
in California, the Company must comply with certain provisions of the California
Corporations Code concerning the rights of shareholders. Thus, the Company is
subject to Section 708 of the California Corporations Code, permitting
shareholders to cumulate their votes at any election of directors. In the
election of directors, cumulative voting permits each shareholder give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of shares held by the shareholder, or to distribute
that number of votes among as many candidates as the shareholder sees fit. No
shareholder may cumulate votes in an election of directors
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
- --------------------------------------------------------------------------------
HOLDER MATTERS
- ---------------
unless a shareholder has given notice of the intention to cumulate votes prior
to the commencement of voting. If any shareholder has given notice of the
intent to cumulate votes, then all shareholders may do so. Shareholders have no
preemptive rights or other rights to subscribe for additional shares.
Shareholders have no conversion rights, redemption rights, or sinking fund
provisions. Shareholders are entitled to receive dividends, when declared by
its board of directors, out of funds legally available therefore, subject to the
restrictions set forth in the Delaware Statutes. If the Company were to
liquidate, dissolve, or wind up, the holders of the Common Stock would be
entitled to receive, pro rata, the net assets of the Company remaining after the
Company satisfies its obligations with its creditors. Under Article Eleventh of
its Certificate of Incorporation, the Company has eliminated the potential
liability of directors to it, and is also required to indemnify its directors
against any liability for monetary damages, to the extent allowed by Delaware
law. All outstanding shares of Common Stock are fully paid and not subject to
further calls or assessments.
Preferred Stock
- ----------------
We are authorized to issue up to five million shares of Preferred Stock, par
value $0.001 per share. No shares of Preferred Stock have been issued. The
Certificate of Incorporation of the Company does not specify any powers, rights,
or preferences for the Preferred Stock other than the Common Stock.
Anti-Takeover Provisions - the Share Purchase Rights Plan
- ----------------------------------------------------------------
At our annual meeting of the shareholders of the Company in November 1999, the
shareholders voted in favor amending the Certificate of Incorporation to
increase the shares of Common Stock the Company is authorized to issue to 100
million shares. One reason for the increase was to permit the Board to adopt a
Share Purchase Rights Plan. After the shareholders approved the amendment, the
Board adopted the rights plan.
The rights in the Share Purchase Rights Plan are designed to protect and
maximize the value of the outstanding equity interests in Tri-Valley in the
event of an unsolicited attempt by an acquirer to take over Tri-Valley, in a
manner or on terms not approved by the Board of Directors. Takeover attempts
frequently include coercive tactics to deprive a company's board of directors
and its stockholders of any real opportunity to determine the destiny of the
company. The rights were declared in order to deter these types of coercive
tactics, which, include a gradual accumulation of shares in the open market of a
15% or greater position to be followed by a merger or a partial or two-tier
tender offer that does not treat all stockholders equally. These tactics
unfairly pressure stockholders, squeeze them out of their investment without
giving them any real choice and deprive them of the full value of their shares.
Our Board of Directors believes that the rights represent a sound and reasonable
means of addressing the complex issues of corporate policy created by the
current takeover environment. However, the rights may have the effect of
rendering more difficult or discouraging an acquisition of Tri-Valley deemed
undesirable by the Board of Directors. The rights may cause substantial dilution
to a person or group that attempts to acquire Tri-Valley on terms or in a manner
not approved by our Board of Directors.
Pursuant to the Share Purchase Rights Plan, we will issue one preferred stock
share purchase right for each outstanding share of common stock. Each right
entitles the registered holder to purchase from the Company 1/100 of a share of
our preferred stock at a purchase price of $20 per share, subject to adjustment.
The rights become exercisable after the lapse of either (i) 10 days following a
public announcement or disclosure that a person or group of affiliated or
associated persons, or an acquiring person, has acquired beneficial ownership of
15% or more of the outstanding shares of our Common Stock, or (ii) 10 business
days, or a later date as may be determined by the Board prior to the time a
person or group becomes an acquiring person, following the announcement of an
intention to make a tender offer or exchange offer the consummation of which
would result in a person or group becoming an acquiring person.
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
- --------------------------------------------------------------------------------
HOLDER MATTERS
- ---------------
The earlier of those dates is called the distribution date. No person or group
will be an acquiring person if the board determines in good faith that the
person or group who would otherwise be an acquiring person has become one
inadvertently, and that person or group promptly takes the actions necessary so
that it would no longer be considered an acquiring person.
The rights will expire in December 2009, ten years after the Board adopted the
rights plan, unless the rights are redeemed earlier or unless the Board elects
to extend the expiration date.
The number of outstanding rights and the number of shares of common stock
issuable upon the exercise of each right also will be subject to adjustment in
the event of a stock split of the Common Stock or a stock dividend on the Common
Stock payable in Common Stock or subdivisions, consolidations or combinations of
the Common Stock occurring, in any such case, prior to distribution of the
rights.
If any person or group becomes and acquiring person, each holder of a right,
other than the acquiring person, will have the right to receive upon exercise
that number of shares of Common Stock having a market value of two times the
exercise price of the right unless the event causing the person or group to
become an acquiring person is a merger, acquisition or other business
combination described in the next paragraph. If we do not have a sufficient
amount of authorized Common Stock to satisfy the obligation to issue shares of
Common Stock, we must deliver upon payment of the exercise price of a right an
amount of cash or other securities equivalent in value to the shares of Common
Stock issuable upon exercise of a right.
If any person or group becomes an acquiring person and (i) we merge into or
engage in certain other business combination transactions with an acquiring
person, or (ii) 50% or more of out consolidated assets or earning power are sold
to an acquiring person, each holder of a right, other than the acquiring person
will have the right to receive that number of shares of Common Stock of the
acquiring company which will have a market value of two times the exercise price
of the right.
At any time after any person becomes an acquiring person and prior to that
person or group acquiring 50% or more of the outstanding shares of Common Stock,
the Board may exchange the rights, other than rights owned by the acquiring
person, at an exchange ratio of one share of Common Stock, or 1/100 of a
preferred share per right.
With certain exceptions, no adjustment in the purchase price will be required
until cumulative adjustments require an adjustment of a least 1% in the purchase
price. No fractional preferred shares will be issued. However, fractions which
are integral multiples of 1/100 of a preferred share may, at our election, be
evidenced by depositary receipts. In lieu of fractional shares, an adjustment
in case will be based on the market price of the preferred shares on the last
trading day prior to the date of exercise.
At any time prior to such time as a person or group becomes an acquiring person,
the Board may redeem all, but not some, of the rights at a price of $0.001 per
right. The redemption of the rights may be made effective at the time, on the
basis and with any conditions as the Board in its sole discretion may establish.
After the period for redemption of the rights has expired, the Board may not
amend the rights agreement to extend the period for redemption of the rights.
The right to exercise the rights terminates immediately when they are redeemed
and the only right of the holders of rights after that time will be to receive
the redemption price.
The terms of the rights may be amended by a resolution of the Board without the
consent of the holders of the rights. However, from and after such time as any
person or group becomes an acquiring person, no amendment may adversely affect
the interests of the holders of the rights other than an acquiring person.
Until a right is exercised, the holder will have no rights as a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends.
The preferred shares purchasable upon exercise of the rights, described above,
will not be redeemable. Each preferred share will be entitled to a quarterly
dividend payment of 100 times the dividend declared per share of Common Stock.
Each preferred share will have 100 votes, voting together with the shares of
Common Stock. In the event of any merger, consolidation or other transaction in
which shares of Common
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
- --------------------------------------------------------------------------------
HOLDER MATTERS
- ---------------
A copy of the rights agreement that was adopted by the Board has been filed with
the Securities and Stock are exchanged, each preferred share will be entitled to
receive 100 times the amount received per share of Common Stock. In the event
of liquidation, each preferred share will be entitled to a $1.00 preference, and
after payment of the preference, the holders of the preferred shares will be
entitled to an aggregate payment of 100 times the aggregate payment made per
share of Common Stock. Because of the nature of the preferred shares' dividend,
liquidation and voting rights, the value of the 1/100 interest in a preferred
share purchasable upon exercise of each right should approximate the value of
the one share of Common Stock.
Exchange Commission as an exhibit to this annual report.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ----------------------------------------------------------------------------
Notice Regarding Forward-Looking Statements
This report contains forward-looking statements. The words, "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "could," "may,"
"foresee," and similar expressions are intended to identify forward-looking
statements. These statements include information regarding expected development
of the Company's business, lending activities, relationship with customers, and
development in the oil and gas industry. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, actual
results may vary materially and adversely from those anticipated, believed,
estimated or otherwise indicated.
Computer Uncertainties for the Year 2000
The Company has examined its computer software and it has not had any problem
with the "Year 2000" issue and does not expect any.
Natural Gas Activities
The Company generally sells a percentage of production on a fixed contract price
and the remainder at the monthly spot price. However, for 1999 the Company
believed that continued weakness in the oil and gas sector would persist.
Therefore the Company sold 100% on a fixed price contract. For 2000, the
Company's contract will be for a portion of a fixed contract price and the
balance on the spot market.
Our hydrocarbon reserves were valued by independent engineers at a net present
value of $1,217,299 at December 31, 1999, an increase of $38,954 from December
31, 1998 after taking into account the SEC mandatory 10% discount rate and also
taking into consideration the effect of income tax. This value does not appear
on the balance sheet because accounting rules require discovered reserves to be
carried on the balance sheet at the cost of obtaining them rather than the
actual future net revenue from producing them.
Tri-Valley arranges to be carried in the test wells on prospects. Therefore, it
incurs very little cost and very little value of discovered reserves appear on
the balance sheet despite the fact that reserves are a very important value to
the Company,
Petroleum Activities
The main activity of the Company during 1999 was operating its producing wells
and reworking a well that had been shut-in. For the last three years, the
Company has successfully been leasing land for its EKHO Project. In 1999, the
Company raised $9,500,000.00 dollars for this project and began drilling
February 7, 2000 and is currently drilling ahead to a target depth of over
19,000 feet.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ---------------------------------------------------------------------------
Precious Metals Activity
The price of gold has fluctuated in the last 12 months from a high of $324.50
per oz. to a low of $253.00 per oz. However, the Company believes its
properties contain deposits that can produce the gold at a cost that will still
allow a significant profit.
On March 22, 1999, Tri-Valley and Placer Dome U.S., Inc., executed a definitive
agreement for PDUS to explore, develop and mine approximately 36 square miles of
Tri-Valley's 50.5-square mile claim block at Richardson, Alaska.
Terms of the agreement call for PDUS to expend a minimum of US $6.5 million in
work on the property and partially reimburse Tri-Valley for some of its previous
exploration, all within five years, in order for PDUS to earn 51% interest in
the property. PDUS paid the Company $225,000 in 1999 and is required to pay the
Company $200,000 in the year 2000 pursuant to this agreement. PDUS may earn an
additional 29% interest by completing a bankable feasibility study on no less
than 750,000 ounces of gold and enacting a positive production decision on same.
Tri-Valley estimates such a study could cost in excess of US$10 million.
Tri-Valley believes the PDUS exploration acreage hosts a massive gold-bearing
zone system related to the pluton underlying Buck Mountain and the Buckeye Creek
on the flank where samples grading high values of gold (1.5 opt), tellurium,
bismuth and tungsten with weaker arsenic values were found.
Tri-Valley retained approximately 14.5 square miles for its own account,
including a potentially high grade dike system and high grade creek as well as
placer rights over the entire 51.5 square miles of claims and prospecting sites.
During 1999, Tri-Valley added 10 square miles of claims to bring their claim
block to a total of 61.5 square miles.
Telecommunications
In May of 1997, the Company loaned the 3rd Mobil of Central New York general
partnership $125,000 dollars, which is secured by property, on a 6 month note
which was subsequently extended for an additional period of time. This note is
now in default and the Company is proceeding with foreclosure actions on these
secured assets.
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 1999 and 1998
- ------------------------------------------------------------
Balance Sheet
- --------------
The Company had $8,050,469 cash on hand at December 31, 1999 compared to
$191,226 as of December 31, 1998. This increase was the result of the Company
being advanced funds from the joint interest partners for their participation in
a well to be drilled during the year 2000. Accounts receivable are down for the
year ended December 31, 1999 by $152,389 due to less drilling activity by the
Company in 1999. The Company has a note receivable for a loan the Company made
to the telecommunications partnership. This loan is now in default and has been
reclassified as a non-current asset. However, the Company believes the
collatteral for this loan is more than sufficient to satisfy this debt. Trade
accounts payable are $191,429 less for the year ended December 31, 1999 from the
same period last year due in large part to lack of drilling activity.
Revenues
Oil and Gas sales decreased to $522,591 for the period ended December 31, 1999
from $833,380 for the year ended December 31, 1998. This decrease of $310,789
was due to declining production. Interest income was down $32,353 due to fewer
funds available to the company to invest in interest bearing accounts, as has
been the case in preceding years. Other income was up $1,975,866, which was the
result
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ----------------------------------------------------------------------------
of the sale of its Ekho No. 1 Project, which allowed the Company to recoup costs
it had expended in prior years to put this project together.
Costs and Expenses
- --------------------
Cost and expenses were up $677,030 from last year due in part to oil and gas
lease expenses increasing by $1,113,469 due to expenses related to the sale of a
well project. General and administrative costs decreased $506,923 over last
year primarily due to decreased legal expenses related to the lawsuit between
TVOG and ABA Energy Corporation, et al. See item 3. Legal Proceedings, page 5.
In 1999, the Company wrote off $148,334 of previously capitalized costs related
to the due diligence of the telecommunications partnerships. Depreciation,
depletion and amortization expense decreased $55,009 due to a decrease in
depletion expenses as production from existing wells continues to decline.
<PAGE>
- ------
ITEM 7: FINANCIAL STATEMENTS
<PAGE>
TRI-VALLEY CORPORATION
INDEX
Page(s)
-------
Report of Brown Armstrong Randall Reyes Paulden & McCown,
Independent Auditor's Report 15
Consolidated Balance Sheets at December 31, 1999 and 1998 16-17
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 18
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1999 and 1998 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 20
Notes to Consolidated Financial Statements 21-32
Supplemental Information about Oil and Gas Producing
Activities (Unaudited) 33-36
<PAGE>
15
REPORT OF INDEPENDENT AUDITOR'S
The Board of Directors
Tri-Valley Corporation
Bakersfield, California
We have audited the accompanying consolidated balance sheets of Tri-Valley
Corporation as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years 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 audits.
We conducted our audits in accordance with generally accepted auditing standards
used in the United States which are not significantly different than those used
in Canada. Those standards require that we plan and perform the audits 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 Tri-Valley Corporation
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
BROWN ARMSTRONG RANDALL
REYES PAULDEN & McCOWN
ACCOUNTANCY CORPORATION
Bakersfield, California
February 14, 2000
<PAGE>
The accompanying notes are an integral part of these financial statements.
18
TRI-VALLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
1999 1998
------------ -------------
Current Assets
Cash $ 8,050,469 $ 191,226
Accounts receivable, trade 155,184 307,573
Prepaid expenses 2,029 2,029
------------------- -------------------
Total Current Assets 8,207,682 500,828
---------------- -----------------
Property and Equipment, Net (Notes 1 and 2) 1,059,755
----------------
1,038,237
-----
Other Assets
Deposits 100,000 100,000
Note receivable 125,000 125,000
Acquisition costs (Note 1) 50,000 183,342
Investments in partnerships (Note 1) 12,006 10,686
Well Database (net of accumulated amortization of $37,755
and $33,089 at December 31, 1999 and 1998, respectively) 70,895
61,561
Goodwill (net of accumulated amortization of $199,747
and $188,901 at December 31, 1999 and 1998, respectively) (Note 1)
234,106 244,952
Other 13,914 13,913
------------------ ------------------
Total Other Assets 605,921 739,454
----------------- -----------------
TOTAL ASSETS $ 9,873,358 $ 2,278,519
=============== ===============
<PAGE>
TRI-VALLEY CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, December 31,
1999 1998
------------ -------------
Current Liabilities
Notes payable (Note 3) $ 10,554 $ 9,641
Trade accounts payable 391,104 582,533
Amounts payable to joint venture participants 95,986 244,664
Advances from joint venture participants, net 7,877,600 135,032
Due to related parties - 5,712
-------------------- -------------------
Total Current Liabilities 8,375,244 977,582
--------------- -----------------
Long-Term Portion of Notes Payable
(Note 3) 21,055 8,527
----------------- -------------------
Shareholders' Equity
Common stock, $.001 par value; 100,000,000 shares authorized;
19,301,248 and 19,088,248, issued and outstanding at
December 31, 1999 and 1998, respectively 19,281 19,088
Less: common stock in treasury, at cost, 179,425 and 172,925
shares at December 31, 1999 and 1998, respectively (45,163)
(41,061)
Capital in excess of par value 8,344,462 8,177,655
Accumulated deficit (6,841,521) (6,863,272)
-------------- ---------------
Total Shareholders' Equity 1,477,059 1,292,410
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,873,358 $
-------------- -
2,278,519
-------
<PAGE>
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ -------------
$ 522,591 $ 833,380
Revenues 7,434 -
Sale of oil and gas 32,353 66,627
Gain on sale of oil prospect 2,053,751 77,885
---------------- -------------------
Interest income
Other income 2,686,129 977,892
---------------- ------------------
Cost and Expenses
Mining exploration costs 193,069 228,707
Oil and gas leases 1,222,279 108,810
General and administrative 1,002,258 1,509,181
Depreciation, depletion and amortization 80,946 135,955
Interest 17,492 4,695
Impairment of acquisition costs 148,334
-----------------
- -
2,664,378 1,987,348
---------------- -----------------
Net Income (Loss) Before Income Taxes 21,751 (1,009,456)
Tax Provision (Note 5) - -
--------------------- ---------------------
Net Income (Loss) $ 21,751 $ (1,009,456)
================= ================
Basic Earnings (Loss) per Common Share $ .00 $
-------------------- -
(.05)
-----
Weighted Average Number of Shares Outstanding 18,957,278
---------------
18,887,870
------
<PAGE>
The accompanying notes are an integral part of these financial statements.
19
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
Capital in
Excess of Accumulated Treasury Shareholders'
Shares Par Value Par Value Deficit
----------- ------------- ------------- ------------
Stock Equity
---- -----------
Balance at
December 31, 1997 18,922,248 $ 18,922 $ 8,048,331 $
(5,853,816) $ (28,639) $ 2,184,798
Issuance of common
stock to investors 166,000 166 145,584 - (12,422)
133,328
Stock issuance costs - - (16,260) - - (16,260)
Net loss - - -
----------------- ----------------- ----------------
(1,009,456) - (1,009,456)
- ---------- ----------------- --------------
Balance at
December 31, 1998 19,088,248 19,088 8,177,655 (6,863,272)
(41,061) 1,292,410
Issuance of common
stock to investors 193,000 193 171,307 - (4,102)
167,398
Stock issuance costs - - (4,500) - - (4,500)
Net income - - -
----------------- ----------------- -----------------
21,751 - 21,751
- ---------------- ----------------- ---------------
Balance at
December 31, 1999 19,281,248 $ 19,281 $ 8,344,462 $
------------ -------------- ------------ -
(6,841,521) $ (45,163) $ 1,477,059
---------- -------------- ------------
<PAGE>
The accompanying notes are an integral part of these financial statements.
20
TRI-VALLEY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended
December 31, December 31,
1999 1998
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 21,751 $ (1,009,456)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, depletion, and amortization 80,946 135,955
(Gain) on sale of property (77,434) -
Impairment, dry hole and other disposals of property and equipment
164,529 -
Changes in operating capital:
Decrease in accounts receivable 152,389 389,185
(Increase) in deposits and other assets (28,992) (5)
Increase (decrease) in trade accounts payable (191,431) 507,737
(Decrease) in amounts payable to joint venture participants
and related parties (154,390) (451,587)
------------------ -----------------
Net Cash Used by Operating Activities (32,632)
-------------------
(428,171)
----
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property 80,000 -
Capital expenditures (105,713) (374,517)
Investment in partnerships (1,320)
--------------------
(2,265)
Net Cash Used by Investing Activities (27,033)
-------------------
(376,782)
----
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in advances from joint venture participants
7,742,568 (1,710,032)
Principal payments on long-term debt (5,134) (86,449)
Proceeds from issuance of common stock 192 63
Additional paid in capital 166,807 42,687
Purchase of treasury stock (4,102) (12,422)
Proceeds from loan 18,575 -
Stock issuance costs - (16,260)
---------------------- ------------------
Net Cash Provided (Used) by Financing Activities 7,918,906
------------------
(1,782,413)
- ----------
Net Increase (Decrease) in Cash and Cash Equivalents 7,859,241
(2,587,366)
Cash at Beginning of Year 191,226 2,778,592
------------------- ----------------
Cash at End of Year $ 8,050,469 $ 191,226
----------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 17,492 $ 4,695
------------------- ------------------
Income taxes paid $ 4,662 $ 2,125
-------------------- ------------------
NONCASH FINANCING AND INVESTING ACTIVITIES:
Conversion of investor payable to common stock $ -
--------------------
$ 103,000
----------------
<PAGE>
<PAGE>
TRI-VALLEY CORPORATION
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
This summary of significant accounting policies of Tri-Valley Corporation is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Business Combinations
- ----------------------
The information contained in the financial statements and accompanying notes is
that of Tri-Valley Corporation with which the subsidiary company (Tri-Valley Oil
& Gas Co.) has been consolidated.
Use of Estimates in the Preparation of Financial Statements
- -------------------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities and disclosures at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant change
relate to the estimate of Company oil and gas reserves prepared by an
independent engineering consultant. Such estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves.
Estimated reserves are used in the calculation of depletion, depreciation and
amortization as well as the Company's assessment of proved oil and gas
properties for impairment.
History and Business Activity
- --------------------------------
Historically an oil and gas exploration and production company, emphasizing the
Sacramento Valley natural gas province, the Company added precious metals
exploration in fiscal year 1987. The Company conducts its oil and gas business
primarily through its wholly owned oil and gas subsidiary, Tri-Valley Oil & Gas
Company ("TVOG"). TVOG is engaged in the exploration, acquisition and production
of oil and gas properties. At present, the precious metals exploration
activities are conducted directly by the parent, Tri-Valley Corporation ("TVC").
TVC has traditionally sought acquisition or merger opportunities within and
outside of petroleum and mineral industries.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Basis of Accounting
- ---------------------
The Company prepares its financial statements using the accrual basis of
accounting in conformity with generally accepted accounting principles used in
the United States consistently applied. These principles do not result in
significant differences from those used in Canada. Oil and gas and mining
activities are recorded using the successful efforts method of accounting.
Substantially all of the Company's exploration, development and production
activities are conducted in the form of joint venture agreements with others and
accordingly, the financial statements reflect only the Company's proportionate
interest in these joint ventures.
Cash Equivalent and Short-Term Investments
- ----------------------------------------------
Cash equivalents include cash on hand and on deposit, and highly liquid debt
instruments with original maturities of three months or less.
Goodwill
- --------
The consolidated financial statements include the net assets purchased of
Tri-Valley Corporation's wholly owned oil and gas subsidiary, TVOG. Net assets
are carried at their fair market value at the acquisition date. The excess of
acquisition costs over the fair value of assets acquired is included in and has
been allocated to goodwill. Goodwill of $433,853 is being amortized on a
straight-line basis over 40 years. The carrying amount of goodwill is evaluated
periodically. Factors used in the evaluation include the Company's ability to
raise capital as a public company and anticipated cash flows from operating and
non-operating mineral properties. Tri-Valley Corporation has not established an
allowance for the impairment of goodwill which may be realized should the
Company be acquired or merged with another organization.
Acquisition Costs
- ------------------
In prior years, the Company capitalized costs as a part of a potential
acquisition of 26 wireless communication licenses held by five partnerships. As
discussed in Note 9, the licenses and equipment, which the Company may
eventually acquire, are included in a security agreement as collateral between
the debtor and the Company. During 1999, $148,334 of previously capitalized
acquisition costs were considered impaired.
Drilling Agreements/Joint Ventures
- ------------------------------------
Tri-Valley frequently participates in drilling agreements whereby it acts as
operator of drilling and producing activities. As operator, TVOG is
contingently liable for the activities of these ventures. The Company owns a
carried interest and/or overriding royalty interest in such ventures, earning a
working interest at payout.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Drilling Agreements/Joint Ventures (Continued)
- ------------------------------------
Receivables from and amounts payable to these related parties (as well as other
related parties) have been segregated in the accompanying financial statements.
In the event the Company has expended funds for a project in an amount greater
than the original contribution from investors, these costs offset advances from
other projects on the consolidated balance sheet until such time as the
investors contribute more monies to fund these projects. The Company had three
projects at December 31, 1998, that had over expended funds in the amounts of
$552,179. Transactions with these parties are within the ordinary course of
business.
Oil and Gas Property and Equipment (Successful Efforts)
- --------------------------------------------------------------
The Company accounts for its oil and gas exploration and development costs on
the successful efforts method. Under this method, costs to acquire mineral
interests in oil and gas properties, to drill and complete exploratory wells
that find proved reserves and to drill and complete development wells are
capitalized. Exploratory dry-hole costs, geological and geophysical costs and
costs of carrying and retaining unproved properties are expensed when incurred.
Depletion, depreciation and amortization of oil and gas producing properties are
computed on an aggregate basis using the units-of-production method.
The Financial Accounting Standards Board (FASB), Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and/or Long-Lived Assets to be Disposed of," requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. It establishes guidelines for determining recoverability based on
future net cash flows from the use of the asset and for the measurement of the
impairment loss. Impairment loss under SFAS No. 121 is calculated as the
difference between the carrying amount of the asset and its fair value. Any
impairment loss is recorded in the current period in which the recognition
criteria are first applied and met. Under the successful efforts method of
accounting for oil and gas operations, the Company periodically assesses its
proved properties for impairments by comparing the aggregate net book carrying
amount of all proved properties with their aggregate future net cash flows. The
statement requires that the impairment review be performed on the lowest level
of asset groupings for which there are identifiable cash flows. In the case of
the Company, this results in a field by field impairment review.
Upon the sale of oil and gas reserves in place, costs less accumulated
amortization of such property are removed from the accounts and resulting gain
or loss on sale is reflected in operations. Upon abandonment of properties, the
reserves are deemed fully depleted and any unamortized costs are recorded in the
statement of operations under leases sold, relinquished and impaired.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Gold Mineral Property
- -----------------------
The Company has invested in several gold mineral properties with economic
development potential. All mineral claim acquisition costs and exploration and
development expenditures are charged to expense as incurred. The Securities and
Exchange Commission permits capitalization of acquisition, exploration and
development costs only after persuasive engineering evidence is obtained to
support recoverability of these costs (ideally upon determination of proven
and/or probable reserves based upon dense drilling samples and feasibility
studies by a recognized independent engineer). Although the Company has
performed drilling samples, and an independent engineer has deemed the gold
properties contain profitable reserves, management has chosen to follow the more
conservative method of accounting by expensing gold mineral costs in the period
the expense is incurred.
Properties and Equipment
- --------------------------
Properties and equipment are depreciated using the straight-line method over the
following estimated useful lives:
Office furniture and fixtures 3 - 7 years
Building 40 years
Leasehold improvements are amortized over the life of the lease.
Maintenance and repairs, which neither materially add to the value of the
property nor appreciably prolong its life, are charged to expense as incurred.
Gains or losses on dispositions of property and equipment other than oil and gas
are reflected in operations.
Concentration of Credit Risk
- -------------------------------
The Company sells oil, gas and natural gas liquids to various oil and gas
purchasers primarily in the northern California region. Credit is extended
based on an evaluation of the customer's financial condition, and generally
collateral is not required.
The Company places its temporary cash investments with high credit quality
financial institutions and limits the amount of credit exposure to any one
financial institution.
Earnings (Loss) Per Share (SFAS 128)
- -----------------------------------------
Financial Accounting Standards Board (FASB), Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share", was adopted by the Company
for the year ended December 31, 1997. SFAS 128 replaces the presentation of
primary earnings per share with a presentation of basic earnings per share based
upon the weighted average number of common shares for the period. It also
requires dual presentation of basic and diluted earnings per share for companies
with complex structures. The effect of dilutive securities and stock options are
considered anti-dilutive and are not included in the computation of earnings per
share.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Reclassification
- ----------------
Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
NOTE 2 - PROPERTY AND EQUIPMENT
------------------------
Oil and gas properties, and equipment and fixtures consist of the following:
Year Ended Year Ended
December 31, December 31,
1999 1998
-------------- --------------
Oil and Gas - California
- ----------------------------
Proved properties, net of accumulated depletion of $496,282 and
$444,686 at December 31, 1999 and 1998, respectively $ 200,104
$ 254,267
Unproved properties 762,521 698,319
------------------- -------------------
Total Oil and Gas Properties 962,625
-------------------
952,586
--
Other Property and Equipment
- -------------------------------
Land 11,281 11,281
Building net of accumulated depreciation $8,367 and
$7,238 at December 31, 1999 and 1998, respectively 36,758 37,886
Office equipment, vehicle, and leasehold improvements
net of accumulated depreciation of $125,427 and
$110,099 at December 31, 1999 and 1998, respectively
49,091 36,484
- --------------------
Total Other Property and Equipment 97,130
--------------------
85,651
- ------
Property and Equipment (Net) $ 1,059,755 $ 1,038,237
----------------- -----------------
<PAGE>
NOTE 3 - NOTES PAYABLE
--------------
Year Ended Year Ended
December 31, December 31,
1999 1998
------------- -------------
Note payable to National Bank of Alaska dated August 27, 1992;
secured by property; payable in monthly installments of $539
including interest. Interest rate at 12.00%, December 31, 1999,
and December 31, 1998. $ 8,460 $ 13,594
Note payable to Imperial Premium Finance, Inc., dated June 9,
1997; secured by contractual policy; interest at 12.00%; payable
in monthly installments of $680 including interest. 4,574 4,574
Note payable to Union Bank, dated January 15, 2000; secured by a
vehicle; interest at 8.5%; payable in 60 monthly statements of $380.
18,575 -
- ------ -----------------------
31,609 18,168
Less current portion 10,554 9,641
-------------------- ---------------------
Long-Term Portion of Notes Payable $ 21,055 $
------------------- -
8,527
---
Maturities of long-term debt for the years subsequent to December 31, 1999 are
as follows:
December 31,
- ---------------
2000 $ 10,554
2001 7,354
2002 4,567
2003 4,567
2004 4,567
---------------------
$ 31,609
-------------------
NOTE 4 - RELATED PARTY TRANSACTIONS
----------------------------
Employee Stock Options
- ------------------------
The Company has a qualified and a nonqualified stock option plan which provide
for the granting of options to key employees, consultants, and nonemployee
directors of the Company. The option price, number of shares and grant date are
determined at the discretion of the Company's board of directors. Options
granted under the plans are exercisable for a period also to be determined by
the board of directors.
The Company has elected to account for the stock option plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued for Employees,"
and related interpretations. Accordingly, no compensation expense has been
recognized for the stock option plans.
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
----------------------------
Employee Stock Options (Continued)
- ------------------------
Had compensation expense for the stock plans been determined based on the fair
value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation," the Company's net income would have been decreased by
$371,560 and the net income per common share would have decreased by $0.02 in
1999. The weighted average fair value of the options granted during 1999 was
estimated using the Black-Scholes option pricing model with the following
assumptions:
Grant Date June 19,1999 September 1, 1999
------------------- ------------ -----------------
Shares granted 150,000 447,000
Risk-free interest rate 7.25% 7.25%
Expected life (years) 8 2
Expected volatility 83.1% 83.1%
Expected dividends - -
A summary of option transactions during the years ended December 31, 1999 and
1998 is presented below:
Weighted-
Average
Number Exercise
of Shares Price
----------------- ------------
Outstanding at December 31, 1997 569,000 $0.69
Granted -
Exercised (13,000) $0.50
Canceled -
----------------------
Outstanding at December 31, 1998 556,000
Granted 597,000 $0.69
Exercised (18,000)
Canceled - $0.62
----------------------
$0.50
Outstanding at December 31, 1999 1,135,000
------------------
Exercisable at December 31, 1999 1,135,000 $0.66
------------------
Available for Issuance at December 31, 1999 3,000,000 $0.66
-----------------
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS
----------------------------
Employee Stock Options (Continued)
- ------------------------
Weighted-Average
Remaining Contractual
Number of Shares Life of Shares Number of Shares
Exercise Price Outstanding Outstanding
----------------- ---------------- -------------------
Exercisable
-----------
726,000 726,000
159,000 159,000
$0.50 150,000 7.5 150,000
$0.55 100,000 7.5 100,000
---------- ----------
$1.00 7.5
$1.50 1,135,000 7.5 1,135,000
========== =========
Beneficial Owners
- ------------------
The following is known to the Company to be the only beneficial owner of 5% or
more of the Company's outstanding common stock at December 31, 1999:
Ownership Shares Percentage
---------------- ----------
Dennis Vaughan 1,033,200 5.4%
Albert C. Kutcher 1,303,900 6.8%
Partnerships
- ------------
Tri-Valley is a general partner and operator of the Tri-Valley Oil & Gas
exploration Programs 1971-1 and Martins-Severin Partnerships. Income derived
from these activities follows:
Year Ended Year Ended
December 31, December 31,
1999 1998
------------- ------------
Partnership income, net of expenses $ 73,463 $ 258,520
------------------- ---------------
Issuance of Stock
- -------------------
On August 31, 1999, the Company granted its Chief Financial Officer and
President of TVOG 10,000 shares of stock each in lieu cash payments for services
rendered to the company.
<PAGE>
NOTE 5 - INCOME TAXES
-------------
At December 31, 1999, the Company had available net operating loss carry
forwards for financial statements and federal income tax purposes of
approximately $3,500,000. These loss carryforwards expire between 2000 and 2014.
The components of the net deferred tax assets were as follows:
Year Ended Year Ended
December 31, December 31,
1999 1998
------------- ------------
Deferred Tax Assets:
Net operating loss carryforwards $ 1,160,000 $ 1,280,000
Statutory depletion carryforwards 215,000
------------------
200,000
-
Total Deferred Tax Assets 1,375,000 1,480,000
----------------- -----------------
Valuation Allowance (1,375,000) (1,480,000)
----------------- ----------------
Net Deferred Tax Assets $ - $ -
-------------------- ---------------------
A full valuation allowance has been established for the deferred tax assets
generated by net operating loss and statutory depletion carryforwards due to the
uncertainty of future utilization.
NOTE 6 - MAJOR CUSTOMERS
----------------
Oil and Gas
- -------------
The Company received in excess of 10% of its oil and gas revenue from various
sources as follows:
A Other
---------- ----------
Period Ended:
December 31, 1998 777,688 55,692
December 31, 1999 491,573 31,018
All oil and gas sales have occurred in the northern California gas market.
<PAGE>
NOTE 7 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
--------------------------------------------------------
The Company adopted SFAS No. 131, Disclosure About Segments of an Enterprise and
Related Information in 1998 which changes the way the Company reports
information about its operating segments.
The Company identifies reportable segments by product and country, although the
Company currently does not have foreign country segments. The Company includes
revenues from both external customers and revenues from transactions with other
operating segments in its measure of segment profit or loss. The Company also
includes interest revenue and expense, DD&A, and other operating expenses in its
measure of segment profit or loss.
The accounting policies of the reportable segments are the same as those
described in the Summary of Significant Accounting Principles (see Note 1).
The Company's operations are classified into two principal industry segments.
Following is a summary of segmented information for 1999 and 1998:
Oil and Gas Precious Metals Total
------------- --------------- -------------
Year Ended December 31, 1999
- --------------------------------
Revenues from External Customers $ 522,591 $ -
--------------- -------------------
$ 522,591
- ---------------
Interest Revenue $ 32,353 $ - $
---------------- ------------------- -
32,353
--
Interest Expense $ 17,492 $ - $
---------------- ------------------- -
17,492
--
Expenditures for Segment Assets $ 105,713 $ -
--------------- -------------------
$ 105,713
- ---------------
Depreciation, Depletion, and Amortization $ 80,946 $
---------------- -
- - $ 80,946
- - ----------------
Total Assets $ 9,873,358 $ - $ 9,873,358
-------------- ------------------- -------------
Net Income (Loss) $ 214,820 $ (193,069) $ 21,751
--------------- ---------------- ---------------
Year Ended December 31, 1998
- --------------------------------
Revenues from External Customers $ 833,380 $ -
--------------- -------------------
$ 833,380
- ---------------
Interest Revenue $ 66,627 $ - $
---------------- ------------------- -
66,627
--
Interest Expense $ 4,695 $ - $
----------------- ------------------- -
4,695
----
Expenditures for Segment Assets $ 310,182 $ -
--------------- -------------------
$ 310,182
- ---------------
Depreciation, Depletion, and Amortization $ 135,955 $
--------------- -
- - $ 135,955
- - ---------------
Total Assets $ 2,278,519 $ - $ 2,278,519
-------------- ------------------- --------------
Net Income (Loss) $ (780,749) $ (228,707) $ (1,009,456)
--------------- ---------------- --------------
<PAGE>
NOTE 8 - COMMON STOCK
-------------
During 1999 the Company issued 193,000 shares of unregistered, restricted common
stock in private placement transactions.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
-------------------------------
Litigation
- ----------
During the year ended 1997, the Company filed an action in Contra Costa Superior
Court against an unrelated Corporation (defendant) for breach of contract,
declaratory relief, breach of confidence, deceit, negligent misrepresentation,
interference with prospective economic advantage, unfair competition, and
constructive trust. The matter proceeded to trial on January 19, 1999, and
resulted in a judgement for defendants. The judgement was entered in favor of
defendants on July 26, 1999. Thereafter, defendants filed a motion for their
attorney fees pursuant to California Civil Code. On December 21, 1999, the Court
issued an order awarding attorneys' fees to defendants in the amount of
$370,367, with interest accruing at the statutory rate of 10% per annum from
December 1, 1999. On January 19, 2000, the Company filed its appeal of the
order. While the final outcome of this matter cannot be determined presently
with certainty, the Company believes it has meritorious grounds for appeal and
intends to vigorously pursue the reversal of this order and therefore has not
recognized a liability in the financial statements. An unfavorable outcome of
this litigation could have a material adverse effect on the Company's financial
position, liquidity and results of operations.
On May 7, 1997, the Company executed a note receivable with 3rd Mobile in the
amount of $125,000, and a Security Agreement dated May 9, 1997 which secured the
note. The Security Agreement indicates that the Company holds a security
interest in all assets and personal property of 3rd Mobile including, but not
limited to, all accounts receivable, office equipment, automobiles,
communications towers and business facilities and equipment, customer lists, FCC
licenses (known and unknown), pending customer orders, and work product in
progress, together with the proceeds thereof (the Collateral). The Collateral
secures the amounts due under the $125,000 note, including interest, in addition
to all costs and fees, including attorneys' fees, in regard to enforcement
against the Collateral. During 1998, the note receivable went into default. An
action was filed by the Company against 3rd Mobile on June 23, 1999 in the New
York Supreme Court, Onondaga County to foreclose on the Collateral. Subsequent
to June 23, 1999, the Company learned that the Collateral was included as listed
assets of Central New York Mobile Systems, L.C., whom had filed Chapter 11
bankruptcy in Sacramento, California. The Company believes that it properly and
legally secured its interest in the Collateral. The Company has filed a motion
to force the issue of ownership. The motion is presently scheduled to be heard
on March 29, 2000.
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
-------------------------------
Mining Activities
- ------------------
On March 22, 1999, the Company and Placer Dome U.S., Inc. (PDUS), executed a
definitive agreement for PDUS to explore, develop and mine approximately 36
square miles of the Company's 50.5-square mile claim block at Richardson,
Alaska. Terms of the agreement called for PDUS to expend a minimum of $6.5
million in work on the property and partially reimburse the Company for some of
its previous exploration, all within five years, in order for PDUS to earn 51%
interest in the property. PDUS may earn an additional 29% interest by completing
a bankable feasibility study on no less than 750,000 ounces of gold enacting a
positive production decision. The Company estimates such a study could cost in
excess of $10 million. The Company received payments from PDUS totaling $225,000
during 1999, which was recorded as other revenue. PDUS may terminate this
agreement at any time.
Contingencies
- -------------
The Company is subject to possible loss contingencies pursuant to federal, state
and local environmental laws and regulations. These include existing and
potential obligations to investigate the effects of the release of certain
hydro-carbons or other substances at various sites; to remediate or restore
these sites; and to compensate others for damages and to make other payments as
required by law or regulation. These obligations relate to sites owned by the
Company or others, and are associated with past and present oil and gas
operations. The amount of such obligations is indeterminate and will depend on
such factors as the unknown nature and extent of contamination, the unknown
timing, extent and method of remedial actions which may be required, the
determination of the Company's liability in proportion to other responsible
parties, and the state of the law.
Leases
- ------
The Company leases its office space on a month to month basis.
<PAGE>
------
TRI-VALLEY CORPORATION
SUPPLEMENTAL INFORMATION ABOUT OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
The following estimates of proved oil and gas reserves, both developed and
undeveloped, represent interests owned by the Company located solely in the
United States. Proved reserves represent estimated quantities of crude oil and
natural gas which geological and engineering data demonstrate to be reasonably
certain to be recoverable in the future from known reservoirs under existing
economic and operating conditions. Proved developed oil and gas reserves are
reserves that can be expected to be recovered through existing wells, with
existing equipment and operating methods. Proved undeveloped oil and gas
reserves are reserves that are expected to be recovered from new wells on
undrilled acreage, or from existing wells for which relatively major
expenditures are required for completion.
Disclosures of oil and gas reserves which follow are based on estimates prepared
by independent engineering consultants for the year ended December 31, 1999 and
1998. Such analyses are subject to numerous uncertainties inherent in the
estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. These estimates
do not include probable or possible reserves.
These estimates are furnished and calculated in accordance with requirements of
the Financial Accounting Standards Board and the Securities and Exchange
Commission ("SEC"). Because of unpredictable variances in expenses and capital
forecasts, crude oil and natural gas price changes, largely influenced and
controlled by U.S. and foreign government actions, and the fact that the basis
for such estimates vary significantly, management believes the usefulness of
these projections is limited. Estimates of future net cash flows presented do
not represent management's assessment of future profitability or future cash
flows to the Company. Management's investment and operating decisions are based
upon reserve estimates that include proved reserves prescribed by the SEC as
well as probable reserves, and upon different price and cost assumptions from
those used here.
It should be recognized that applying current costs and prices and a 10 percent
standard discount rate does not convey absolute value. The discounted amounts
arrived at are only one measure of the value of proved reserves.
Capitalized costs relating to oil and gas producing activities and related
accumulated depletion, depreciation and amortization were as follows:
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ -------------
Aggregate capitalized costs:
Proved properties $ 696,386 $ 698,953
Unproved properties 778,716 698,319
Accumulated depletion, depreciation and
Amortization (496,282) (444,686)
----------------- -----------------
Net capitalized costs $ 978,820 $ 952,586
---------------- -----------------
<PAGE>
The following sets forth costs incurred for oil and gas property acquisition,
exploration and development activities, whether capitalized or expensed, during:
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ -------------
Acquisition of producing properties and productive
and non-productive acreage $ 80,398 $ 298,501
----------------- -----------------
Results of operations from oil and gas producing activities
- -------------------------------------------------------------------
The results of operations from oil and gas producing activities are as follows:
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ -------------
Sales to unaffiliated parties $ 521,271 $ 833,380
Production costs (161,518) (108,810)
Depletion, depreciation and amortization (51,596)
-----------------
(80,330)
-------
308,157 644,240
Income tax expenses (103,431) (219,042)
---------------- ------------------
Results of operations from activities before extraordinary items
(excluding blending operations, corporate overhead and
interest costs) $ 204,726 $ 425,198
---------------- -----------------
Changes in estimated reserve quantities
- -------------------------------------------
The net interest in estimated quantities of proved developed and undeveloped
reserves of crude oil and natural gas at December 31, 1999 and 1998, and changes
in such quantities during each of the years then ended, were as follows:
Year Ended Year Ended
December 31, 1999 December 31, 1998
------------------------ ----------------------
Oil Gas Oil Gas
(BBL) (MCF) (BBL) (MCF)
-------- --------- ------- ---------
Proved developed and undeveloped reserves:
Beginning of year 234 1,434,499 224 1,903,154
Revisions of previous estimates extensions,
discoveries and other additions 70 315,838 147 (190,709)
Production (119) (210,333) (137) (277,946)
---------- ----------- --------- -----------
End of year 185 1,540,004 234 1,434,499
----------- ----------- ---------- -----------
Proved developed reserves:
Beginning of year 234 1,434,499 224 1,903,154
----------- ----------- ---------- -----------
End of year 185 1,540,004 234 1,434,499
----------- ----------- ---------- -----------
<PAGE>
- ------
Standardized measure of discounted future net cash flows relating to proved oil
- --------------------------------------------------------------------------------
and gas reserves
- ------------------
A standardized measure of discounted future net cash flows is presented below
for the year ended December 31, 1999 and 1998.
The future net cash inflows are developed as follows:
(1) Estimates are made of quantities of proved reserves and the future
periods during which they are expected to be produced based on year-end economic
conditions.
(2) The estimated future production of proved reserves is priced on the
basis of year-end prices.
(3) The resulting future gross revenue streams are reduced by estimated
future costs to develop and to produce proved reserves, based on year end cost
estimates.
(4) The resulting future net revenue streams are reduced to present
value amounts by applying a ten percent discount.
Disclosure of principal components of the standardized measure of discounted
future net cash flows provides information concerning the factors involved in
making the calculation. In addition, the disclosure of both undiscounted and
discounted net cash flows provides a measure of comparing proved oil and gas
reserves both with and without an estimate of production timing. The
standardized measure of discounted future net cash flows relating to proved
reserves reflects income taxes.
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ -------------
Future cash in flows $ 3,265,995 $ 2,999,514
Future production and development costs (875,081) (956,472)
Future income tax expenses (122,128) (59,166)
---------------- ------------------
Future net cash flows 2,268,786 1,983,876
10% annual discount for estimated timing of cash flows 1,051,537
----------------
805,581
-------
Standardized measure of discounted future net cash flow $ 1,217,249
---------------
$ 1,178,295
----------------
Changes in standardized measure of discounted future net cash flow from proved
- --------------------------------------------------------------------------------
reserve quantities
- -------------------
This statement discloses the sources of changes in the standardized measure from
year to year. The amount reported as "Net changes in prices and production
costs" represents the present value of changes in prices and production costs
multiplied by estimates of proved reserves as of the beginning of the year. The
"accretion of discount" was computed by multiplying the ten percent discount
factor by the standardized measure as of the beginning of the year. The "Sales
of oil and gas produced, net of production costs" is expressed in actual dollar
amounts. "Revisions of previous quantity estimates" is expressed at year-end
prices. The "Net change in income taxes" is computed as the change in present
value of future income taxes.
<PAGE>
- ------
Changes in standardized measure of discounted future net cash flow from proved
- --------------------------------------------------------------------------------
reserve quantities (Continued)
- -------------------
Year Ended Year Ended
December 31, December 31,
1999 1998
------------ -------------
Standardized measure - beginning of period $ 1,178,295 $
--------------- -
1,757,195
----
Sales of oil and gas produced, net of production costs (260,215)
(724,570)
Revisions of estimates of reserves provided in prior years:
Net changes in prices and production costs 40,691 34,516
Revisions of previous quantity estimates 354,958 (285,184)
Accretion of discount 221,930 175,720
Changes in production rates (timing) and other (381,372) (100,292)
Net change in income taxes 62,962 320,910
------------------ ------------------
Net increase 38,954 (578,900)
------------------ ------------------
Standardized measure - end of period $ 1,217,249 $ 1,178,295
--------------- -----------------
<PAGE>
------
PART III
---------
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------------
None.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------------
The following information is furnished with respect to each director:
Year First
Elected as Position With
Name of Director Age Director Company
F. Lynn Blystone 64 1974 President,
Chief Executive
Officer
Dennis P. Lockhart 53 1982 None
Milton J. Carlson 69 1985 None
Earl H. Biestline 83 1992 None
Loren J. Miller(1) 55 1992 None
Clive Stockdale 60 1999 None
(1)- Audit Representative
The following is a list of Tri-Valley executive officers, their ages and their
positions and offices:
Name Age Position and Date Elected to Position
F. Lynn Blystone 64 President and Chief Executive Officer,
TVC (October 9, 1981)
CEO TVOG (October 9, 1981)
Pres. and CEO TVPC (December 11, 1997)
Thomas J. Cunningham 57 Treasurer and Chief Financial Officer
TVC/TVOG (February 28, 1997)
TVPC (December 11, 1997)
Secretary TVC/TVOG/TVPC
(December 21, 1998)
Joseph R. Kandle 57 President TVOG (December 21, 1998)
<PAGE>
- ------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------------
F. LYNN BLYSTONE - 64 President and Chief Executive Officer of
- -------------------------
1974
Tri-Valley Corporation and Tri-Valley Power
Corporation, and CEO of Tri-Valley Oil & Gas
Company, which are two wholly owned
subsidiaries of Tri-Valley Corporation,
Bakersfield, California
Mr. Blystone became president of Tri-Valley Corporation in October, 1981, and
was nominally vice president from July to October, 1981. His background
includes institution management, venture capital and various management
functions for a mainline pipeline contractor including the Trans Alaska
Pipe-line Project. He has founded, run and sold companies in several fields
including Learjet charter, commercial construction, municipal finance and land
development. He is also president of a family corporation, Bandera Land
Company, Inc., with real estate interests in Kern, Riverside and Orange Counties
California. A graduate of Whittler College, California, he did graduate work at
George Williams College, Illinois in organization management. He gives full
time to Tri-Valley.
DENNIS P. LOCKHART - 53 President 1982
- ---------------------------
Heller International Group, Inc.
Chicago, Illinois
After service as a corporate banking officer of Citibank since 1971, most
recently as vice President in the Central and South America Group
responsible for debt-to-equity conversions, Mr. Lockhart has become president of
Heller International, an old line firm now owned by Fuji Bank Group. Heller
provides financing in 20 countries. While with Citibank, Mr. Lockhart served
the bank's international operations in Jedda and Riyahd, Saudi Arabia; Athens,
Greece; Beirut, Lebanon; and as executive vice president of Iranian's Bank of
Tehran, Iran. He then served as vice president and regional executive for
corporate banking in the seven southeastern states and Puerto Rico for Citicorp
(USA) Inc. A graduate of Stanford University, he has an M.A. from John Hopkins
University.
MILTON J. CARLSON - 69 Investor, Kalispell, Montana
- --------------------------
1985
Mr. Carlson is a principal in Earthsong Corporation which, in part, consults on
environmental matters and performs environmental audits for government agencies
and public and private concerns. Until its merger with another firm, Mr.
Carlson formerly was vice president and corporate secretary of Union Sugar
Company, a $100 million unit of Sara Lee Corporation. He was involved in
representing industrial end users of energy tthrough the California
Manufacturers Association as the former chairman of the CMA steering committee
of the standing energy and environmental committees. Mr. Carlson was also the
energy and environmental representative with Sara Lee energy advisory group and
monitored related matters before the California Public Utilities Commission and
Energy Commission as well as serving as the legislative representative in
Sacramento and Washington, D.C. Mr. Carlson attended the University of Colorado
at Boulder and the University of Denver.
LOREN J. MILLER, CPA - 55 Controller, Petro America, Inc. 1992
- -------------------------
Treasurer, Jankovich Company
San Pedro, California
Mr. Miller has served in a treasury and chief financial officer capacity as Vice
president successively of Hershey Oil Corporation and Mock Resources, Inc.
Prior to that he was vice president and general manager of Tosco Production
Finance Corporation and formerly a senior auditor with Touche Ross & Co. He is
experienced in exploration, production, product trading, refining and
distribution as well as corporate finance. He holds a B.S. in accounting and a
M.B.A. in finance from the University of Southern California.
<PAGE>
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------------
EARL H. BEISTLINE, LLD. - 83 Mining Consultant 1992
- -----------------------------
Fairbanks, Alaska
Dr. Beistline is a past chairman of the Alaska State Minerals Commission and
Dean Emeritus of the School of Mineral Industry of the University of Alaska.
Born in Juneau, he has achieved a special position in Alaska during its
transition from territorial status into statehood. He has numerous honors from
local, state and federal governments, academia, professional and civic
organizations and the mineral industry. An active miner in the Central-Circle
Mining District, Dr. Beistline also serves as a director of one of the state's
primary companies, Usibelli Coal Mines, Inc. He holds a Bachelor of Mining
Engineering, Engineer of Mines and Honorary Doctor of Law degree from the
University of Alaska.
CLIVE STOCKDALE - 59 Vice President, Oil
- -----------------------
Analyst 1999
- ------
Canaccord Capital Corporation
Vancouver, British Columbia
For the last fifteen years, Mr. Stockdale has been Vice President and Oil
Analyst for Canaccord Capital Corporation, one of the largest investment firms
in British Columbia. Prior to Canaccord, he was a consultant specializing in
oil securities. He has been an oil analyst for Loewen Ondaatje, Pemberton
Securities and Dominion Securities. Mr. Stockdale also was a planning economist
for Mobile Oil Corp. He was born in Marylebone, England and graduated from the
London School of Economics and is now a Canadian citizen.
THOMAS J. CUNNINGHAM - 57 Secretary, Treasurer and Chief Financial
- -----------------------------
1997
Officer of Tri-Valley Corporation, and its
wholly owned subsidiaries, Tri-Valley Oil &
Gas Company and Tri-Valley Power
Corporation, Bakersfield, California
Named as Tri-Valley Corporation's Treasurer and Chief Financial Officer in
February 1997, and as Corporate Secretary on December 21, 1998. Mr. Cunningham
has over 25 years experience in corporate finance, Securities and Exchange
Commission public company reporting shareholder relations, and employee
benefits. In his career he served as Staff Accountant for Forest Oil,
Accounting Company, and as Executive Vice President, Chief Financial Officer and
Director for Star Resources, Inc. Most recently he was a Management Consultant
in finance, marketing and human resource matters including employee benefit
planning. He received his education in accounting and business administration
from Angelo State University, Texas.
JOSEPH R. KANDLE - 57 President and Chief Operating Officer
- -------------------------
1998
- --
Tri-Valley Oil & Gas Company, wholly
owned subsidiary of Tri-Valley Corporation
Bakersfield, California
Mr. Kandle was named as President of Tri-Valley Oil & Gas Co. February 1, 1999
after having joined Tri-Valley Oil & Gas on June 1, 1998, as Vice President -
Engineering. Mr. Kandle is a 1965 graduate of the Montana school of mines with
a B.S. degree in Petroleum Engineering. Mr. Kandle has 34 years of experience in
drilling, production, and operations starting with Mobil in 1965 where he
specialized in deep drilling. After Mobil, he has held positions of V.P. &
Chief Engineer of Great Basins Petroleum, V.P. - Engineering with Star Resources
and V.P.- Engineering with Atlantic Oil Company.
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange
Commission regulations require that the Company's directors, certain officers,
and greater than 10 percent shareholders must file reports of ownership and
changes in ownership with the SEC and must furnish the Company with copies of
all such reports they file. Based solely on the information furnished to the
Company, we believe that no person failed to file required Section 16(a) reports
on a timely basis during or in respect of 1999.
ITEM 10. EXECUTIVE COMPENSATION
----------------------------------
The following table summarizes the compensation of the chairman of the board and
the president of the Company and its subsidiaries, F. Lynn Blystone, for the
fiscal year ended December 31, 1999, 1998, and 1997.
Long Term
Compensation
Annual Compensation Awards
(a) (b) ( c ) (d) (e)
----- ---
Other Securities
Name Period Covered Salary Compensation
Underlying Options
F. Lynn FYE 12/31/99 $195,712(1)
Blystone, CEO FYE 12/31/98 $156,000(1)
FYE 12/31/97 $197,660 (1)
195,000(2)
(1) Includes salary that was deferred when Mr. Blystone took a reduced
salary in 1996.
(2) 95,000 options expired unexercised in December, 1997.
Aggregated 1999 Option Exercises and Year-End Values
- ----------------------------------------------------------
The following table summarizes the number and value of all unexercised stock
options held by the Named Officers and Directors at the end of 1999.
( A ) ( B ) ( C )
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options/SARs at
Options/SARs at FY-End (#) FY-End ($)*
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
F. Lynn Blystone 348,000/0 0/0
Dennis P. Lockhart 30,000/0 0/0
40,000/0 0/0
Milton J. Carlson 28,000/0 0/0
40,000/0 0/0
Loren J. Miller 30,000/0 0/0
40,000/0 0/0
Earl H. Beistline 8,000/0 0/0
40,000/0 0/0
( A ) ( B ) ( C )
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options/SARs at
Options/SARs at FY-End (#) FY-End ($)*
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
Clive Stockdale 70,000/0 0/0
*Based on a fair market value of $1.47 per share, which was the closing bid
price of the Company's Common Stock in the Nasdaq National Market System on
December 31, 1998.
Compensation of Directors
- ---------------------------
The Company compensates non-employee directors for their service on the board of
directors. No directors received any stock options in 1999. The following
tables sets forth information regarding the cash compensation paid to outside
directors in 1999.
(A) (B)
NAME FEES
---- ----
Earl Beistline $1,700
Milton Carlson $2,958
Dennis P. Lockhart $1,194
Loren J. Miller $1,700
Clive Stockdale $0
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
As of December 31, 1999, there were 19,301,248 shares of the Company's common
stock outstanding. The following persons were known by the Company to be the
beneficial owners of more than 5% of such outstanding common stock:
Number of Percent of
Name and Address Shares Total
Albert C. Kutcher
12052 Linda Flora Drive
Ojai, CA 93023 1,303,900 6.8%
Dennis Vaughan
2298 Featherhill Road
Santa Barbara, CA 93108 1,033,200 5.4%
The following table sets forth the beneficial ownership of the Company's common
stock as of December 31, 1999 by each director, by each of the executive
officers named in Item 11, and by all executive officers and directors as a
group:
Number of Percent of
Directors Shares(1) Total(2)
F. Lynn Blystone 769,264(3) 3.9%
Dennis P. Lockhart 122,091(3) *
Milton J. Carlson 129,000(3) *
Loren J. Miller 95,300(3) *
Earl H. Beistline 78,000(3) *
Clive Stockdale 0 *
Total group (all directors and
- ------------
Executive officers - 6 persons) 1,193,655(3) 6.2%
*Less than 1%
(1) Includes shares which the listed shareholder has the right to acquire,
from options, before August 22, 2008 as follows: Dennis P. Lockhart 70,000;
Milton J. Carlson 69,000; Loren J. Miller 70,000 and Earl H. Beistline 48,000.
F. Lynn Blystone has 98,000.
(2) Based on total outstanding shares of 19,301,248 as of December 31, 1999.
The persons named herein have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable.
(3) Includes 30,200 shares held in the name of Bandera Land Company, Inc., a
family corporation of which Mr. Blystone is the president.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------------
None.
ITEM 13. EXHIBITS, LISTS, AND REPORTS ON FORM 8-K
- ---------------------------------------------------------
(a) Exhibits.
Exhibit
Number Description of Exhibit Page
3.1 Certificate of Incorporation *
3.2 Amendment to Certificate of Incorporation
3.3 Amended and Restated By-Laws
99.1 Share Rights Purchase Plan (filed herewith)
*Included as exhibit in the Registrant's Registration Statement and is hereby
incorporated by reference herein.
(b) Reports on Form 8-K
- - None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
___________________, 2000 By:_/s/ F. Lynn Blystone____________________
F. Lynn Blystone
President, Chief Executive Officer and
Director
___________________, 2000 By:__/s/ Thomas J. Cunningham________________
Thomas J. Cunningham
Secretary, Treasurer, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates included:
___________________, 2000 By:__/s/ Dennis P. Lockhart__________________
Dennis P. Lockhart, Director
___________________, 2000 By:__/s/ Milton J. Carlson___________________
Milton J. Carlson, Director
___________________, 2000 By:__/s/ Earl H. Beistline___________________
Earl H. Beistline, Director
___________________, 2000 By:__/s/ Loren J. Miller____________________
Loren J. Miller, Director
___________________, 2000 By:__/s/ Clive Stockdale____________________
Clive Stockdale, Director
EXHIBIT 3.2
-----------
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
TRI-VALLEY CORPORATION
Tri-Valley Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That at a meeting of the Board of Directors of TRI-VALLEY CORPORATION
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "Fourth (a)" so that, as
amended, said Article shall be and read as follows:
"FOURTH. (a) The total number of shares of stock which the corporation is
authorized to issue is one hundred million shares of common stock at .001 par
value, and five (5) million shares of preferred stock at .001 par value."
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by adding a new Article thereof numbered "Fourteenth" which Article
Fourteenth shall be and read as follows:
"FOURTEENTH. In accordance with the terms of Section 203(b) of the General
Corporation Law of the State of Delaware, the corporation hereby elects to have
Section 203 of the General Corporation Law of the State of Delaware govern the
corporation"
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
meeting of the stockholders of said corporation was duly called and held upon
notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said TRI-VALLEY CORPORATION has caused this certificate to
be signed by Thomas J. Cunningham, an Authorized Officer, this ___ day of
__________, ____.
BY: ___________________________________________
THOMAS J. CUNNINGHAM, CHIEF FINANCIAL OFFICER
EXHIBIT 3.3
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T R I - V A L L E Y C O R P O R A T I O N
(Formerly, Commodity Resources Incorporated, as amended)
-o-O-o-
A M E N D E D A N D R E S T A T E D
B Y - L A W S
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ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held in the City of Denver, State of Colorado at such place as may be
fixed from time to time by the board of directors or at such other place either
within or without the State of Delaware as shall be designated from time to time
by the board of directors and stated in the notice of the meeting. Meetings of
stockholders for any other purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1972,
shall be held on the third Monday of April if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 2:00 P.M., or at such
other date and time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting, at which they shall elect by
a plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than sixty days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The Board of Directors has the authority to expand or contract
the number of board seats. However, the Board may not remove a director by such
action. The current number of directors which shall constitute the whole board
shall be six. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders. (As amended by the board of directors, June
28, 1985; July 19, 1997; November 19, 1999; and ratified by the shareholders at
the annual meeting on November 19, 1999).
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by its board of
directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may bo called by the president on
three days' notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors.
Section 8. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. At each meeting, the directors
may request that the secretary of the Corporation be present to record the
minutes of such meeting, or the directors may appoint a member of the board, or
such other person as the board may direct, to act as secretary of such meeting.
If a quorum is not present at any meeting of the board of directors, the
directors that are present may adjourn the meeting from time to time, without
notice other than announcement of the meeting, and until a quorum shall be
present. (As amended by the board of directors, June 28, 1985).
Section 9. Unless otherwise restricted by the certificate of incorporation
or these by-laws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to consist
of one or more of the directors of the corporation. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise all the powers and authority of the board of
directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 11. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 12. Unless otherwise restricted by the certificate of
incorporation, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board of
directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. The board of directors shall, from time to time, choose a
president, one or more vice-presidents, secretary and a treasurer. The board of
directors shall determine the term of such officers. (As amended by the board
of directors, June 28, 1985).
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation shall
be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his inability
or refusal to act, the vice-president (or in the event there be more than one
vice-president, the vice-presidents in the order designated, or in the absence
of any designation, then in the order of their election) shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. The vice-presidents shall
perform such other duties end have such other powers as the board of directors
may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall, at the request of the board of directors,
attend all meetings of the board of directors and all meetings of the
stockholders and record all the proceedings of the meetings of the corporation
and of the board of directors, if so requested, and shall perform like duties
for the standing committees when required; the secretary shall keep a record
book for the purpose of complying with the foregoing provisions. He shall give,
or cause to be given, notice of all meetings of the stockholders and special
meetings of the board of directors, and shall perform such other duties as may
be prescribed by the board of directors or president under whose supervision he
shall be. He shall have custody of the corporate seal of the corporation and
he, or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his signature
or by the signature of such assistant secretary. The board of directors may
give general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature. (As amended by the board of
directors, June 28, 1985).
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors (or
if there be no such determination then in the order of their election), shall,
in the absence of the treasurer or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the treasurer and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the board of directors or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that-fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation begins on the first day of
January and ends on the thirty-first day of December in each year.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new by-laws
may be adopted by the stockholders or by the board of directors, when such power
is conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors if notice of
such alteration, amendment, repeal or adoption of new by-laws be contained in
the notice of such special meeting.
72
EXHIBIT 99.1: RIGHTS AGREEMENT
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This Rights Agreement (the "Agreement"), is hereby entered into by and
between Tri-Valley Corporation, a Delaware corporation (the "Company"), and
Registrar and Transfer Company, as Rights Agent (the "Rights Agent").
The board of directors of the Company (the "Board of Directors") has
authorized and declared a dividend of one common stock share purchase right (a
"Right") for each Common Share (as that term is defined below) of the Company
that is outstanding on November 19, 1999 (the "Record Date"), each Right
representing the right to purchase one Common Share of the Company, upon the
terms and subject to the conditions herein set forth, and has further authorized
and directed the issuance of one Right with respect to each Common Share of the
Company that shall become outstanding between the Record Date and the earliest
of the Distribution Date, the Redemption Date and the Final Expiration Date (as
such terms are hereinafter defined).
Accordingly, 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) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be or become the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding, but
shall not include (i) the Company, (ii) any Subsidiary of the Company, or (iii)
any employee benefit plan of the Company or of any Subsidiary of the Company, or
any entity holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding anything in this definition of Acquiring Person to the contrary,
no Person shall become an "Acquiring Person" as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 15% or more of the Common Shares of the Company then outstanding;
provided, however, that if a Person shall become the Beneficial Owner of 15% or
more of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person." Notwithstanding
anything in this definition of Acquiring Person to the contrary, if the Board of
Directors determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
(b) "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement.
(c) "Associate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act as in effect on the
date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights, rights
(other than these Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (B) the right to vote, or the right to direct the vote, pursuant to any
agreement, arrangement or understanding; provided, however , that a Person
shall not be deemed the Beneficial Owner of, or to beneficially own, any
security, if the agreement, arrangement or understanding to vote, or direct the
vote of, such security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations
promulgated under the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section 1(d)(ii)(B))
or disposing of any securities of the Company. Notwithstanding anything in this
definition of Beneficial Ownership to the contrary, the phrase "then
outstanding", when used with reference to a Person's Beneficial Ownership of
securities of the Company, shall mean the number of such securities then issued
and outstanding together with the number of such securities not then actually
issued and outstanding which such Person would be deemed to own beneficially
hereunder.
(e) "Board of Directors" shall have the meaning set forth above.
(f) "Business Day" shall mean any day other than a Saturday, a Sunday, or a day
on which banking institutions in California are authorized or obligated by law
or executive order to close.
(g) "Close of Business" on any given date shall mean 5:00 P.M., California
time, on such date; provided, however, that, if such date is not a Business Day,
it shall mean 5:00 P.M., California time, on the next succeeding Business Day.
(h) "Common Shares" when used with reference to the Company shall mean the
shares of common stock, par value $.001 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(i) "Company" shall have the meaning set forth above.
(j) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.
(m) "Final Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(n) "Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
(o) "Purchase Price" shall have the meaning set forth in Section 4 hereof.
(p) "Record Date" shall have the meaning set forth in the preamble hereof.
(q) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(r) "Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
(s) "Right" shall have the meaning set forth in the preamble hereof.
(t) "Right Certificate" shall have the meaning set forth in Section 3(a)
hereof.
(u) "Rights Agent" shall have the meaning set forth in the preamble hereof.
(v) "Security" shall have the meaning set forth in Section 11(d) hereof.
<PAGE>
(w) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person has
become such.
(x) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
(y) "Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
(z) "Trading Day" shall have the meaning set forth in Section 11(d) hereof.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall, prior to the Distribution Date, also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
SECTION 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the earlier of (i) the
tenth day after the Shares Acquisition Date or (ii) the tenth Business Day (or
such later date as may be determined by action of the Board of Directors prior
to such time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the terms of any
such plan) of, or of the first public announcement of the intention of any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer the consummation of which would result in
any Person becoming the Beneficial Owner of Common Shares of the Company
aggregating 15% or more of the then outstanding Common Shares (the earlier of
such dates being herein referred to as the "Distribution Date"), (x) the Rights
will be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right Certificates
will be transferable only in connection with the transfer of Common Shares. As
soon as practicable after the Distribution Date, the Company will prepare and
execute, the Rights Agent will countersign, and the Company will send or cause
to be sent (and the Rights Agent will, if requested, send) by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
records of the Company, a Right Certificate, in substantially the form of
Exhibit A hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held. From and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
<PAGE>
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights, in substantially the form of Exhibit B
hereto (the "Summary of Rights"), by first-class, postage-prepaid mail, to each
record holder of Common Shares as of the Close of Business on the Record Date,
at the address of such holder shown on the records of the Company. With respect
to certificates for Common Shares outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date, shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
"This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between Tri-Valley Corporation and
_______________________, dated as of November 19, 1999 (the "Rights Agreement"),
the terms of which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of Tri-Valley Corporation.
Under certain circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be evidenced by
this certificate. Tri-Valley Corporation will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt of a
written request thereof. Under certain circumstances, as set forth in the
Rights Agreement, Rights issued to any Person who becomes an Acquiring Person
(as defined in the Rights Agreement) may become null and void."
With respect to such certificates containing the foregoing legend, until
the Distribution Date, the Rights associated with the Common Shares represented
by such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
<PAGE>
SECTION 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit A hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or automated
quotation system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of Common
Shares of the Company as shall be set forth therein at the price per Common
Share set forth therein (the "Purchase Price"), but the number of such Common
Shares and the Purchase Price shall be subject to adjustment as provided herein.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION. The Right Certificates shall
be executed on behalf of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, any of its Vice Presidents, or its Treasurer,
either manually or by facsimile signature, shall have affixed thereto the
Company's seal or a facsimile thereof, and shall be attested by the Secretary or
an Assistant Secretary of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the individual who
signed such Right Certificates had not ceased to be such officer of the Company;
and any Right Certificate may be signed on behalf of the Company by any
individual who, at the actual date of the execution of such Right Certificate,
shall be a proper officer of the Company to sign such Right Certificate although
at the date of the execution of this Agreement any such individual was not such
an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its principal office, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right Certificates and the date of each of the Right
Certificates.
<PAGE>
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. Subject
to the provisions of Section 14 hereof, at any time after the Close of Business
on the Distribution Date, and at or prior to the Close of Business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined, or exchanged for another Right Certificate or other Right Certificates
entitling the registered holder to purchase a like number of Common Shares as
the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the principal office of the Rights Agent. Thereupon the Rights
Agent shall countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company 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 Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein), in whole or in part, at
any time after the Distribution Date, upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each Common Share as to which the Rights are
exercised, at or prior to the earliest of (i) the Close of Business on September
30, 2009, (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each Common Share purchasable pursuant to the
exercise of a Right shall initially be $0.01 per Common Share, and shall be
subject to adjustment from time to time as provided in Section 11 or 13 hereof,
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
<PAGE>
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the shares to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Common
Shares certificates for the number of Common Shares to be purchased and the
Company hereby irrevocably authorizes any such transfer agent to comply with all
such requests, or (B) requisition from the depositary agent depositary receipts
representing such number of Common Shares as are to be purchased (in which case
certificates for the Common Shares represented by such receipts shall be
deposited by the transfer agent of the Common Shares with such depositary agent)
and the Company hereby directs such depositary agent to comply with such
request; (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof; (iii) promptly after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder; and (iv) when appropriate, after receipt, promptly
deliver such cash to or upon the order of the registered holder of such Right
Certificate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such cancelled Right Certificates, and, in such case, shall
deliver a certificate of destruction thereof to the Company.
SECTION 9. AVAILABILITY OF COMMON SHARES. The Company covenants and agrees
that it will cause to be reserved and kept available out of its authorized and
unissued Common Shares or any Common Shares held in its treasury, the number of
Common Shares that will be sufficient to permit the exercise in full of all
outstanding Rights in accordance with Section 7. The Company covenants and
agrees that it will take all such action as may be necessary to ensure that all
Common Shares delivered upon exercise of Rights shall, at the time of delivery
of the certificates for such Common Shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
<PAGE>
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Common Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Common
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Common Shares upon the exercise of
any Rights until any such tax shall have been paid (any such tax being payable
by the holder of such Right Certificate at the time of surrender) or until it
has been established to the Company's reasonable satisfaction that no such tax
is due.
SECTION 10. COMMON SHARES RECORD DATE. Each Person in whose name any
certificate for Common Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Common Shares
represented thereby on, and such certificate shall be dated, the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon which the
Common Shares transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Common Shares
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a holder of Common Shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF
RIGHTS. The Purchase Price, the number of Common Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding
Common Shares into a smaller number of Common Shares or (D) issue any shares of
its capital stock in a reclassification of the Common Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a), the Purchase Price in effect at the time of the
record date for such dividend 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, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such Right had
been exercised immediately prior to such date and at a time when the Common
Shares transfer books of the Company were open, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right.
<PAGE>
(ii) In the event that any Person shall become an Acquiring Person and the
Rights shall then be outstanding, the Company shall not take any action which
would eliminate or diminish the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that are or were
acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence, or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence shall be cancelled.
(iii) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit the exercise in full of
the Rights in accordance with this agreement, the Company shall take all such
action as may be necessary to authorize additional Common Shares for issuance
upon exercise of the Rights.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Common Shares entitling them to subscribe
for or purchase Common Shares or securities convertible into Common Shares at a
price per Common Share (or having a conversion price per share, if a security
convertible into Common Shares) less than the then current market price per
share of the Common Shares on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of Common Shares outstanding on such
record date plus the number of Common Shares which the aggregate offering price
of the total number of Common Shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price and the denominator of which shall be the
number of Common Shares outstanding on such record date plus the number of
additional Common Shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible);
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of one Right. 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, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and holders of the Rights. Common Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Common Shares) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current market price per share of the Common Shares on such record date,
less the fair market value (as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and holders of the Rights)
of the portion of the assets or evidences of indebtedness so to be distributed
or of such subscription rights or warrants applicable to one Common Share and
the denominator of which shall be such current market price per share of the
Common Shares; provided, however, that in no event shall the consideration to be
paid upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company to be issued upon exercise of one Right.
Such adjustments shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, the current market price
per share of any security (a "Security" for the purpose of this Section 11(d))
on any date shall be deemed to be the average of the daily closing prices per
share of such Security for the 30 consecutive Trading Days immediately prior to
such date. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
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 or, if the Security
is not listed or admitted to trading on the New York Stock Exchange, as reported
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the- counter market, as reported on the Nasdaq National Market or such
other system then in use, or, if on any such date the Security is not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Security
selected by the Board of Directors. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
<PAGE>
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-hundredths of a
Common Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment or (ii)
the date of the expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Common Shares, thereafter
the number of such other shares so receivable upon exercise of any Right 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 Common Shares
contained in Section 11(a) through (c), inclusive, and the provisions of
Sections 7, 9, 10 and 13 with respect to the Common Shares shall apply on like
terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of Common Shares
(calculated to the nearest one one-hundredths of a Common Share) obtained by (A)
multiplying (x) the number of Common Shares covered by a Right immediately prior
to this adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (B) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.
<PAGE>
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights in substitution for any adjustment
in the number of Common Shares purchasable upon the exercise of a Right. Each of
the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of Common Shares for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one one-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of Common Shares issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Purchase Price and the number of Common Shares which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the Common Shares issuable
upon exercise of the Rights, the Company shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Common Shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Common Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Common Shares and other capital
stock or securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it, in its sole discretion, shall determine to be advisable in
order that any consolidation or subdivision of the Common Shares, issuance
wholly for cash of any Common Shares at less than the current market price,
issuance wholly for cash of Common Shares or securities which by their terms are
convertible into or exchangeable for Common Shares, dividends on Common Shares
payable in Common Shares or issuance of rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Company to holders of its
Common Shares shall not be taxable to such stockholders.
<PAGE>
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares, or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of Common Shares purchasable after such event upon proper exercise of
each Right shall be determined by multiplying the number of Common Shares so
purchasable immediately prior to such event by a fraction, the numerator of
which is the number of Common Shares outstanding immediately before such event
and the denominator of which is the number of Common Shares outstanding
immediately after such event, and (B) each Common Share outstanding immediately
after such event shall have issued with respect to it that number of Rights
which each Common Share outstanding immediately prior to such event had issued
with respect to it. The adjustments provided for in this Section 11(n) shall be
made successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Common Shares a copy of such certificate and (c) mail a brief summary thereof to
each holder of a Right Certificate in accordance with Section 25 hereof.
<PAGE>
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER. In the event, directly or indirectly, at any time after a Person has
become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of Common Shares for
which a Right is then exercisable, such number of Common Shares of such other
Person (including the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of Common Shares for which a Right is then
exercisable and dividing that product by (B) 50% of the then current market
price per share of the Common Shares of such other Person (determined pursuant
to Section 11(d) hereof) on the date of consummation of such consolidation,
merger, sale or transfer; (ii) the issuer of such Common Shares shall thereafter
be liable for, and shall assume, by virtue of such consolidation, merger, sale
or transfer, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such
issuer; and (iv) such issuer shall take such steps (including, but not limited
to, the reservation of a sufficient number of its Common Shares in accordance
with Section 9 hereof) in connection with such consummation as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to the Common Shares thereafter deliverable
upon the exercise of the Rights. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and
such issuer shall have executed and delivered to the Rights Agent a supplemental
agreement so providing. The Company shall not enter into any transaction of the
kind referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company shall
not be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, there shall
be paid to the registered holders of the Right Certificates with regard to which
such fractional Rights would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Right. For the purposes
of this Section 14(a), the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable. The closing
price for any day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the 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 or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported on the Nasdaq National Market or such other system then in use or,
if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors.
If on any such date no such market maker is making a market in the Rights, the
fair value of the Rights on such date as determined in good faith by the Board
of Directors shall be used.
<PAGE>
(b) The Company shall not be required to issue fractions of Common Shares
upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares. In lieu of fractional Common Shares, the Company
shall pay to the registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Common Share. For the purposes of
this Section 14(b), the current market value of a Common Share shall be the
closing price of a Common Share (as determined pursuant to Section 11(d) hereof)
for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper instrument
of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in whose
name the Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificate or the associated Common Shares certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
<PAGE>
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Common Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company 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 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Common Shares or Common Shares or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
<PAGE>
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights 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 Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and, in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights 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
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company 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 one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights 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 Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights 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 Right
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 the Company only.
<PAGE>
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11 hereof) or any adjustment in the
terms of the Rights (including the manner, method or amount thereof) provided
for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Right Certificates after actual notice that
such change or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any Common Shares to be issued pursuant to this Agreement or any
Right Certificate or as to whether any Common Shares will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company 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 Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights 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 attorneys or agents, and the Rights 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 the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
<PAGE>
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Common Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Common Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of the State of New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of New York), in good standing, having an office in the State of New York,
which is authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights 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, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Common Shares, and mail a notice
thereof in writing to the registered holders of the Right Certificates. Failure
to give any notice provided for in this Section 21, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Rights Agent or the appointment of the successor Rights Agent, as the
case may be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by the Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement.
<PAGE>
SECTION 23. REDEMPTION. (a) The Board of Directors may, at its option, at
any time prior to such time as any Person becomes an Acquiring Person, redeem
all but not less than all of the then outstanding Rights at a redemption price
of $.01 per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price"). The redemption
of the Rights by the Board of Directors may be made effective at such time, on
such basis and with such conditions as the Board of Directors, in its sole
discretion, may establish.
(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23, and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights, the Company shall mail a notice of redemption to all
the holders of the then outstanding Rights at their last addresses as they
appear upon the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or Associates may redeem, acquire
or purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and other
than in connection with the purchase of Common Shares prior to the Distribution
Date.
SECTION 24. EXCHANGE. (a) The Board of Directors may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11 hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
<PAGE>
(b) Immediately upon the action of the Board of Directors ordering the
exchange of any Rights pursuant to paragraph (a) of this Section 24 and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights shall
be to receive that number of Common Shares equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall promptly
give public notice of any such exchange; provided, however, that the failure to
give, or any defect in, such notice shall not affect the validity of such
exchange. The Company promptly shall mail a notice of any such exchange to all
of the holders of such Rights at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the Common Shares for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11 hereof)
held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit any exchange of Rights
as contemplated in accordance with this Section 24, the Company shall take all
such action as may be necessary to authorize additional Common Shares for
issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to Section 11(d) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
SECTION 25. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall propose
(i) to pay any dividend payable in stock of any class to the holders of its
Common Shares or to make any other distribution to the holders of its Common
Shares (other than a regular cash dividend), (ii) to offer to the holders of its
Common Shares rights or warrants to subscribe for or to purchase any additional
Common Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Common Shares (other than a
reclassification involving only the subdivision of outstanding Common Shares),
(iv) to effect any consolidation or merger 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 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to, any other Person, (v) to effect the liquidation, dissolution or winding up
of the Company, or (vi) to declare or pay any dividend on the Common Shares
payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, or distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Shares and/or Common
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Common Shares for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Common Shares,
whichever shall be the earlier.
<PAGE>
(b) In case the event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11 hereof.
SECTION 26. NOTICES. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Tri-Valley Corporation
230 S. Montclair, Suite 101
Bakersfield, CA 93309
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Attention: ______________________
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Rights Agent.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights.
SECTION 28. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
<PAGE>
SECTION 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
SECTION 30. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
SECTION 31. GOVERNING LAW. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
SECTION 32. 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 33. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are 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 and attested, all as of the day and year first above written.
THE COMPANY: THE RIGHTS AGENT:
- ------------- -------------------
Tri-Valley Corporation Registrar and Transfer Company
By:______________________________ By:______________________________
Name:___________________________ Name:___________________________
Title:____________________________ Title:____________________________
<PAGE>
EXHIBIT A
---------
FORM OF RIGHT CERTIFICATE
Certificate No. _______ ________ Rights
NOT EXERCISABLE AFTER ____________________________, OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
-----------------
TRI-VALLEY CORPORATION
This certifies that ________________________ , or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of November 19, 1999 (the "Rights
Agreement"), between Tri-Valley Corporation, a Delaware corporation (the
"Company"), and Registrar and Transfer Company (the "Rights Agent"), to purchase
from the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 P.M., California time, on
________________, ______, at the principal office of the Rights Agent, or at the
office of its successor as Rights Agent, one share of Common Stock, par value
$0.001 per share, of the Company (the "Common Shares"), at a purchase price of
$0.01 per Common Share (the "Purchase Price"), upon presentation and surrender
of this Right Certificate with the Form of Election to Purchase duly executed.
The number of Rights evidenced by this Right Certificate (and the number of
Common Shares which may be purchased upon exercise hereof) set forth above, and
the Purchase Price set forth above, are the number and Purchase Price as of
_____________________, _______, based on the Common Shares as constituted at
such date. As provided in the Rights Agreement, the Purchase Price and the
number of Common Shares which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the offices of the Rights Agent.
<PAGE>
This Right Certificate, with or without other Right Certificates,
upon surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Common Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged by the Company in
whole or in part for Common Shares.
No fractional Common Shares will be issued upon the exercise of
any Right or Rights evidenced hereby, but, in lieu thereof, a cash payment will
be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Common Shares
or of any other securities of the Company which may at any time be issuable on
the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company 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
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the signature (facsimile signatures shall be acceptable
and binding) of the proper officers of the Company and its corporate seal. Dated
as of ________________, ______.
THE COMPANY: COUNTERSIGNED BY THE RIGHTS AGENT:
- ------------- --------------------------------------
Tri-Valley Corporation Registrar and Transfer Company
By:______________________________ By:______________________________
Name:___________________________ Name:___________________________
Title:____________________________ Title:____________________________
<PAGE>
------
FORM OF REVERSE SIDE OF RIGHT CERTIFICATE
-----------------------------------------
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Right Certificate.)
FOR VALUE RECEIVED _______________________ hereby sells, assigns and
transfers unto: (Please print name and address of transferee)
____________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _____________________________
Attorney-in-fact, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _________________ , _____
______________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States or by another eligible guarantor institution,
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
- -------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
______________________
Signature
- - -------------------------------------------------------------
(To be executed if holder desires to exercise Rights represented by the Right
Certificate.)
To: TRI-VALLEY CORPORATION
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Right Certificate to purchase the Common Shares issuable
upon the exercise of such Rights and requests that certificates for such Common
Shares be issued in the name of:
Please insert social security or other identifying
number:_______________________________.
(Please print name and address)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
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 Guaranteed:
<PAGE>
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States or by another eligible guarantor institution,
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
- -------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
______________________
Signature
- - -------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
<PAGE>
74
EXHIBIT B
---------
SUMMARY OF RIGHTS TO PURCHASE
COMMON SHARES
-------------
Our Board of Directors believes that it is in Tri-Valley's best interests
to adopt a Share Purchase Rights Plan (the "Rights Plan") which would make it
more difficult for another person or entity to engage in a hostile or unwanted
takeover of Tri-Valley and would provide an incentive to such a person or entity
to negotiate directly with the Board of Directors instead of attempting a
hostile takeover. The following description of the Rights Plan is intended as a
summary only and is subject to the terms and conditions contained in the Rights
Agreement (as defined below).
Pursuant to the Rights Plan, we will issue one common stock share purchase
right (a "Right") for each outstanding share of common stock. Each Right will
entitle the registered holder to purchase from Tri-Valley one additional share
of our common stock at a price of $0.01 per share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement"), between Tri-Valley and Registrar
and Transfer Company as Rights Agent. The Rights Agreement is on file with
Tri-Valley, was attached as an exhibit to the 1999 Proxy Statement for
Tri-Valley, and has been filed with the SEC.
We will not issue separate certificates representing the Rights until a
third party acquires or makes a tender offer or exchange offer to acquire 15% or
more of our common stock. Until one of those events occurs, the Rights will be
evidenced by the certificates already representing our common stock. Until such
an acquisition, tender offer or exchange offer occurs, (or until the Rights
expire), the Rights will be transferred with and only with our common stock, and
our stock certificates will carry a notation incorporating the Rights Agreement
by reference.
Ten business days after a third party or group makes a public announcement
that they have acquired beneficial ownership of 15% or more of our outstanding
common stock, or ten days after a third party or group commences an exchange
offer or tender offer that could result in their owning 15% or more of our
outstanding common stock (or such later date as determined by our Board prior to
when any person acquires 15% or more of our outstanding common stock), the
Rights will become exercisable. We will then mail separate certificates
evidencing the Rights to our common stockholders of record as of the close of
business on date when the Rights became exercisable.
When the Rights become exercisable B after a person or group acquires 15%
or more of our stock B the Rights will have the following characteristics:
1. Each holder of a Right (other than Rights beneficially owned by the
person or group that acquired the 15% interest) will have the right to exercise
their Right and receive that number of shares of common stock having a market
value of two times the exercise price of the Right.
2. If Tri-Valley is acquired in a merger or other business combination
transaction, or if 50% or more of its consolidated assets or earning power are
sold, each holder of a Right (other than Rights beneficially owned by the
person or group that acquired the 15% interest) will thereafter have the right
to receive, upon the exercise thereof at the then-current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right.
3. After the person or group acquires their 15% interest but before they
acquire 50% or more of our outstanding stock, our Board may exchange the Rights
(other than Rights owned by the 15% interest holders, which have become void),
in whole or in part, at an exchange ratio of one share of common stock per Right
(subject to adjustment).
4. The Rights that are owned beneficially by the party or group that
acquired the 15% interest will become void and unexerciseable after they acquire
their 15%.
The Rights will expire on the 10th anniversary of the date of issuance
unless we extend their expiration date or unless we redeem or exchange the
Rights prior to their expiration as summarized below.
At any time before a person or group acquires beneficial ownership of 15%
or more of our outstanding common stock, our Board may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time on such basis
and with such conditions as our Board, in its sole discretion, may establish.
Immediately upon any redemption of the Rights, the right to exercise the rights
will terminate and the only right of the holders of the Rights will be that they
are eligible to receive the Redemption Price.
The terms of the Rights may be amended by our Board without the consent of
the holders of the Rights; provided, however, that, from and after such time as
any person or group of affiliated or associated persons becomes an Acquiring
Person, no such amendment may adversely affect the interests of the holders of
the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a Tri-Valley stockholder, such as the right to vote or to receive
dividends.
The number of outstanding Rights and the number of shares of common stock
issuable upon exercise of each Right also will be subject to adjustment in the
event of a stock split of the common stock or a stock dividend on the common
stock payable in common stock or subdivisions, consolidations or combinations of
the common stock occurring, in any such case, prior to distribution of the
Rights.
With certain exceptions, no adjustment in the Rights' Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional shares of common stock will be
issued, and in lieu thereof, an adjustment in cash will be made based on the
market price of the common stock on the last trading day prior to the date of
exercise.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group of persons that attempts to acquire
Tri-Valley on terms not approved by our Board. The Rights should not interfere
with any merger or other business combination approved by our Board prior to the
time that a person or group has acquired beneficial ownership of 15% percent or
more of the common stock since the Rights may be redeemed by us at the
Redemption Price until such time.
