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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
MCFARLAND ENERGY, INC.
(Name of Subject Company)
MCFARLAND ENERGY, INC.
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
CUSIP NO. 580432 10 2
(CUSIP Number of Class of Securities)
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CRAIG M. STURTEVANT
VICE PRESIDENT AND GENERAL COUNSEL
MCFARLAND ENERGY, INC.
10425 SOUTH PAINTER AVENUE
SANTA FE SPRINGS, CALIFORNIA 90670
(562) 944-0181
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing statement)
With a copy to:
WALTER J. SMITH
BAKER & BOTTS, L.L.P.
910 LOUISIANA
ONE SHELL PLAZA
HOUSTON, TEXAS 77002-4995
(713) 229-1234
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is McFarland Energy, Inc., a Delaware
corporation ("McFarland" or the "Company"). The address of the principal
executive offices of McFarland is 10425 South Painter Avenue, Santa Fe Springs,
California 90670. The title of the class of equity securities to which this
Schedule relates is McFarland's Common Stock, par value $1.00 per share (the
"Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule relates to the tender offer by Monterey Acquisition
Corporation, a Delaware corporation (the "Offeror"), and a wholly owned
subsidiary of Monterey Resources, Inc., a Delaware corporation ("Monterey"), to
purchase all outstanding shares of Common Stock at the purchase price of $18.55
per share of Common Stock, net to the tendering holder (pre-tax) in cash, on the
terms and subject to the conditions set forth in the Offer to Purchase dated
June 23, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal
(which together constitute the "Offer"). The Offer is disclosed in a Tender
Offer Statement on Schedule 14D-1 dated June 23, 1997. According to the Offer to
Purchase, the principal executive offices of the Offeror and Monterey are
located at 5201 Truxtun Avenue, Bakersfield, California 93309.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of June 16, 1997 (the "Merger Agreement"), among McFarland, Monterey and the
Offeror. A copy of the Merger Agreement is filed as Exhibit 1 to this Schedule
and is incorporated herein by reference in its entirety. For a summary of the
material terms of the Merger Agreement, see Annex I to this Schedule. The Merger
Agreement provides that following the completion of the Offer, the Offeror will
be merged into McFarland, with McFarland continuing as a wholly owned subsidiary
of Monterey (the "Merger"). In the Merger, all remaining shares of Common Stock
not tendered in the tender offer (other than shares of Common Stock owned by
McFarland or any subsidiary of McFarland, the Offeror, Monterey or any other
subsidiary of Monterey and shares of Common Stock held by stockholders who
perfect any available appraisal rights under Delaware General Corporation Law)
will be converted into the right to receive $18.55 per share in cash.
ITEM 3. IDENTITY AND BACKGROUND.
(a) Identity.
The name and business address of McFarland, which is the person filing this
Schedule, are set forth in Item 1 above.
(b) Contracts.
Except as otherwise described in this Schedule or in the exhibits or
annexes hereto, to the knowledge of McFarland, as of the date hereof, there are
no material contracts, agreements, arrangements or understandings, or any actual
or potential conflicts of interest, between McFarland or its affiliates and (i)
McFarland or its executive officers, directors or affiliates, or (ii) the
Offeror, Monterey or their executive officers, directors or affiliates.
Information with respect to certain contracts, agreements, arrangements or
understandings between McFarland and certain of its directors, executive
officers and affiliates is set forth in Annexes I and III hereto and is
incorporated herein by reference. Descriptions of how outstanding options to
purchase Common Stock, some of which are held by officers and directors of
McFarland, will be treated in connection with the Offer and the Merger, and of
provisions in the Merger Agreement dealing with the indemnification of and
insurance for officers and directors of McFarland and certain employee benefit
and employment matters are set forth in Annex I, "Description of Merger
Agreement," under the captions "Treatment of Stock Options," "Indemnification
and Insurance" and "Employee Benefits." Information regarding employment
agreements between McFarland and its executive officers, the Company's Change in
Control Retention/Severance Plan and a consulting agreement between the Company
and a director of the Company is set forth in Annex III under the captions
"Executive Compensation -- Employment Agreements" and "-- Severance Plan" and
"Certain Relationships and Related Transactions," respectively.
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STOCKHOLDERS AGREEMENT
J. C. McFarland and William E. Carl, directors, and in the case of Mr.
McFarland, an executive officer, of the Company, Carolyn J. McFarland and the
McFarland Family Trust, of which Mr. McFarland is a Trustee (the
"Stockholders"), are each party to a Stockholders Agreement dated June 16, 1997
with Monterey and the Offeror. The Stockholders Agreement provides that each of
the Stockholders will tender all of such Stockholder's shares of Common Stock
into the Offer so long as the Per Share Amount is not less than $18.55 in cash
(net to the seller). Additionally, each of the Stockholders has agreed to sell,
and the Offeror has agreed to purchase, such Stockholder's shares of Common
Stock at a price per share equal to $18.55, or such higher price per share as
may be offered by the Offeror in the Offer, provided that such obligations to
purchase and sell are both subject to (i) the Offeror having accepted Shares for
payment under the Offer and the Minimum Condition (as defined in the Merger
Agreement) of the Offer (minus any shares which are the subject of the
Stockholders Agreement but are not purchased in the Offer) having been
satisfied, and (ii) the expiration or termination of any applicable waiting
period under the HSR Act. Each of the Stockholders also has agreed not to
transfer, or agree to transfer, such Stockholder's shares, grant a proxy for
such shares or enter into a voting agreement regarding them, or take any other
action that would in any way restrict, limit or interfere with the performance
of such Stockholder's obligations under the Stockholders Agreement. The
Stockholders Agreement terminates upon the earlier of (i) the Merger Agreement
being terminated by the Company, Monterey or the Offeror, or (ii) the purchase
and sale of the shares held by the Stockholders as described above. The
foregoing summary of the Stockholders Agreement is qualified in its entirety by
the text of the Stockholders Agreement, a copy of which is filed as Exhibit 3 to
this Schedule and is incorporated herein by reference.
CONFIDENTIALITY AGREEMENT
On April 29, 1997, the Company and Monterey entered into a confidentiality
agreement (the "Confidentiality Agreement") pursuant to which the Company agreed
to provide to Monterey and its representatives certain information and material
concerning the Company on a confidential basis. In consideration of such
disclosure, Monterey agreed that, subject to certain exceptions and for a period
of 18 months, it would not solicit to employ any of the current officers and
employees of the Company without the Company's prior written consent. Monterey
also agreed on behalf of itself and its affiliates to certain standstill
provisions for a period of 18 months with respect to certain actions involving
or leading to a transaction with the Company without the prior consent of the
Company. The foregoing summary of the Confidentiality Agreement is qualified in
its entirety by the text of the Confidentiality Agreement, a copy of which is
filed as Exhibit 4 to this Schedule and is incorporated herein by reference.
CONSULTING AGREEMENT
Prior to the Tender Offer Acceptance Date (as defined in the Merger
Agreement), but conditioned thereon, Monterey and J. C. McFarland will enter
into a consulting agreement pursuant to which Mr. McFarland will agree to
consult with Monterey and assist on any project or subject within his area of
expertise, as reasonably requested and subject to the limitation that such
activities shall not require more than one-half of his professional time. The
agreement will have a four-year term, contain a non-compete provision in favor
of Monterey and provide for compensation in an amount per year equal to Mr.
McFarland's current base salary with the Company, together with health benefits
and reimbursement for all direct out-of-pocket expenses reasonably incurred. In
addition, prior to the end of 1997, Mr. McFarland will be appointed to
Monterey's Board of Directors as a member of the class of directors whose term
expires in the year 2000. In such capacity, Mr. McFarland will be considered a
non-employee director and will receive all compensation and other benefits
granted by Monterey to non-employee directors, other than the annual cash
retainer. Pursuant to the consulting agreement, Mr. McFarland will agree to
utilize all cash severance benefits payable under his employment agreement with
the Company, net of any taxes owing thereon, to purchase shares of common stock
of Monterey in the open market.
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INDEMNIFICATION AGREEMENTS
The Company entered into indemnification agreements with each person who as
of June 16, 1997 was a director or executive officer of the Company. The
indemnification agreements generally provide (i) for the prompt indemnification
to the fullest extent permitted by law against (a) any and all expenses
(including attorneys' fees) and all other costs paid or incurred in connection
with investigating, preparing to defend, defending or otherwise participating in
any threatened, pending or completed action, suit or proceeding related to the
fact that such indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company or is or was serving at the Company's request as a
director, officer, employee, agent or fiduciary of another entity, or by reason
of anything done or not done by such indemnitee in any such capacity and (b) any
and all judgments, fines, penalties and amounts paid in settlement of any claim,
unless the "Reviewing Party" (defined as one or more members of the Board or
appointee(s) of the Board who are not parties to the particular claim, or
independent legal counsel) determines that such indemnification is not permitted
under applicable law and (ii) for the prompt advancement of expenses to an
indemnitee as well as the reimbursement by such indemnitee of such advancement
to the Company if the Reviewing Party determines that the indemnitee is not
entitled to such indemnification under applicable law. In addition, the
indemnification agreements provide (i) a mechanism through which an indemnitee
may seek court relief in the event the Reviewing Party determines that the
indemnitee would not be permitted to be indemnified under applicable law (and
would therefore not be entitled to indemnification or expense advancement under
the indemnification agreement) and (ii) indemnification against all expenses
(including attorneys' fees), and the advancement thereof, if requested, incurred
by the indemnitee in any action brought by the indemnitee to enforce an
indemnity claim or to collect an advancement of expenses or to recover under a
directors' and officers' liability insurance policy, regardless of whether such
action is ultimately successful or not. Furthermore, the indemnification
agreements provide that after there has been a "change in control" in the
Company (as defined in the indemnification agreements), then, with respect to
all determinations regarding rights to indemnification and the advancement of
expenses, the Company will seek legal advice as to the right of the indemnitee
to indemnification under applicable law only from independent legal counsel
selected by the Company and approved by the indemnitee.
The indemnification agreements impose upon the Company the burden of
proving that an indemnitee is not entitled to indemnification in any particular
case and negate certain presumptions that may otherwise be drawn against an
indemnitee seeking indemnification in connection with the termination of actions
in certain circumstances. Indemnitees' rights under the indemnification
agreements are not exclusive of any other rights they may have under Delaware
law, the Company's By-laws or otherwise. Although not requiring the maintenance
of directors' and officers' liability insurance, the indemnification agreements
require that indemnitees be provided with the maximum coverage available for any
Company director or officer if there is such a policy. A copy of the form of
indemnification agreement has been filed as Exhibit 11 to this Schedule and is
incorporated herein by reference in its entirety.
INDEMNIFICATION UNDER DELAWARE LAW AND THE COMPANY'S CHARTER
The Company is a Delaware corporation. Reference is made to Section 145 of
the Delaware General Corporation Law ("Delaware Law"), which provides that a
corporation may indemnify any person who is, or is threatened to be made, a
party to any threatened, pending or completed legal action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of such corporation), by reason of the fact that such person
is or was an officer, director, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such officer, director, employee or
agent acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests and, for criminal proceedings, had
no reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
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liable to the corporation. If an officer or director is successful on the merits
or otherwise in the defense of any action referred to above, the corporation
must indemnify him against the expenses that such officer or director actually
and reasonably incurred.
Reference is also made to Section 102(b)(7) of Delaware Law, which enables
a corporation in its original certificate of incorporation or an amendment
thereto to eliminate or limit the personal liability of a director to the
corporation or its stockholders for violations of the director's fiduciary duty,
except (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of Law, (iii) pursuant to
Section 174 of Delaware Law (providing for liability of directors for unlawful
payment of dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which a director derived an improper personal benefit.
Article VII of the Amended and Restated Certificate of Incorporation of the
Company provides that, except under certain circumstances, directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duties as a director.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation.
THE BOARD OF DIRECTORS OF MCFARLAND (THE "BOARD") UNANIMOUSLY HAS
DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS
OF, THE STOCKHOLDERS OF MCFARLAND. THE BOARD UNANIMOUSLY RECOMMENDS THAT ALL
HOLDERS OF COMMON STOCK ACCEPT THE OFFER AND TENDER ALL THEIR SHARES OF COMMON
STOCK PURSUANT TO THE OFFER. The Board's determination and recommendation were
made at the Board's June 16, 1997 meeting at which all the Company's directors
were present in person or by conference telephone.
The Board's recommendation is based in part on the oral opinion delivered
by Oppenheimer & Co., Inc. ("Oppenheimer") on June 16, 1997, that, as of such
date, the consideration to be received by the stockholders of McFarland pursuant
to the Merger Agreement was fair from a financial point of view to the
stockholders of McFarland. Oppenheimer subsequently confirmed its opinion in
writing on June 16, 1997 following the Board meeting. The full text of such
opinion, which sets forth the assumptions made, the matters considered and the
limitations on the review undertaken by Oppenheimer, is set forth as Annex II
hereto and is incorporated herein by reference.
A copy of the letter to McFarland's stockholders communicating the Board's
recommendation is filed as Exhibit 2 to this Schedule and is incorporated herein
by reference.
(b) Background and Reasons for the Recommendation.
In late February 1997, Mr. James Parkman of Petrie Parkman & Co., Inc.,
Monterey's financial advisor, contacted Mr. J. C. McFarland, Chairman of the
Board and Chief Executive Officer of the Company. Mr. Parkman told Mr. McFarland
he would like to meet to discuss the level of interest that the Company might
have in a potential transaction in which the Company would be acquired by
Monterey.
At a meeting on March 4, 1997, Mr. Parkman advised Mr. McFarland that
Monterey was interested in pursuing a cash acquisition of the Company at what he
characterized as a significant premium to the then market price. Mr. Parkman
explained that Monterey was interested in a cash rather than stock acquisition
because of constraints on Monterey's ability to issue stock resulting from its
proposed spin-off from Santa Fe Energy Resources, Inc. Mr. Parkman stressed that
Monterey believed it could achieve significant economies and efficiencies by
combining the Company's Midway-Sunset properties with its own. Mr. McFarland
responded that he would report Monterey's interest to the Company's Board and
respond directly to Monterey's management in a couple of weeks.
Mr. McFarland reported the substance of his meeting with Mr. Parkman at the
regular meeting of the Board held on March 12, 1997. After considerable
discussion, the Board directed Mr. McFarland to arrange a
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meeting with Monterey's Chief Executive Officer, Mr. R. Graham Whaling, to gain
a better understanding of the level of Monterey's interest in the Company and
the potential acquisition parameters. Mr. McFarland subsequently telephoned Mr.
Whaling and they arranged for a meeting on March 17, 1997.
Messrs. McFarland and Whaling met on March 17, 1997, at which meeting Mr.
McFarland informed Mr. Whaling that the Company was not for sale and that he was
not authorized to speak for the Board, but was only authorized to gain more
information about Monterey's level of interest and report back to the Board. Mr.
Whaling informed Mr. McFarland that, based on the public information reviewed by
Monterey, Monterey was prepared to make a cash offer in the $14 to $16 per share
range, subject to further diligence and fact-finding. Mr. McFarland responded
that he believed that a proposal made at that level would not be of interest to
the Board. At Mr. Whaling's request, Mr. McFarland agreed to supply Monterey
with additional information concerning the Company's non-California properties,
with Mr. Whaling expressing the view that perhaps, upon reviewing additional
information, the quoted range could be increased.
On March 18, 1997, Mr. McFarland reported informally to the directors
concerning his meeting with Mr. Whaling.
On March 26, 1997, Messrs. McFarland and Whaling spoke by telephone to
discuss Monterey's review of the additional information provided by the Company.
Mr. Whaling reiterated Monterey's interest in the previously stated range. Mr.
McFarland responded that he did not believe the Board would find that
acceptable, but that he would report to the Board and get back to Mr. Whaling.
On March 27, 1997, Messrs. McFarland and Whaling again spoke by telephone
concerning the additional information provided.
On March 30, 1997, Mr. McFarland reported informally to the directors
concerning his conversations with Mr. Whaling.
On April 3, 1997, the Board held a special meeting by telephone to review
the status of discussions between the Company and Monterey. The Board concluded
that Monterey's proposal was inadequate. The Board determined that it would be
advisable to retain legal and financial advisors to advise it concerning its
legal responsibilities with respect to Monterey's proposal and explore
alternatives to maximize stockholders' value. The Board also directed Mr.
McFarland to contact Mr. Whaling to request that Monterey submit its proposal in
writing, advise him of the Board's decision to retain legal and financial
advisors and advise him of the Board's conclusion concerning Monterey's
proposal. Following the meeting, the Company retained Baker & Botts, L.L.P. as
the Company's legal counsel and Oppenheimer as the Company's financial advisor.
On April 4, 1997, Mr. McFarland telephoned Mr. Whaling and advised him as
instructed by the Board.
By letter dated April 8, 1997, Monterey expressed an interest in a cash
merger with the Company in a range between $15 and $16.50 per share. Monterey
requested a brief period within which to conduct a due diligence review and
suggested that, following such review, it would be prepared to submit a
definitive offer, perhaps at a higher price than that suggested in the letter.
Mr. McFarland telephoned Mr. Whaling upon receipt of the letter to convey his
disappointment at the range quoted in the letter.
On April 17, 1997, a special meeting of the Board was held to consider what
action, if any, the Board desired to take with respect to Monterey's written
proposal or otherwise concerning the possible sale or merger of the Company. At
the meeting, Mr. McFarland reviewed with the directors his discussions with Mr.
Whaling, and the Company's legal and financial advisors made presentations to
the Board. The Board considered the Company's prospects, developments in the
California heavy crude markets and overall market conditions in the oil and gas
industry. The Board considered the advisability of contacting additional
companies with California operations to determine their level of interest in a
possible merger or sale transaction. Oppenheimer and the Company's management
proceeded to identify a group of companies other than Monterey that they
believed might have an interest in acquiring or merging with the Company, and
suggested two companies from the group that they believed were likely to have
both a high degree of interest in, and the financial capability to consummate,
such a transaction. The Board concluded that, although no decision had yet been
made to sell the Company, it was appropriate under the circumstances to take
certain
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steps in order to be in a position to consider such matter on a fully informed
basis in the future. The Board instructed Mr. McFarland and Oppenheimer to
establish a process to solicit indications of interest from Monterey and the two
other likely interested parties previously identified by Oppenheimer and the
Company's management. Mr. McFarland also was instructed by the Board to inform
Monterey that the range outlined in the April 8 letter was unacceptable. At the
meeting, the Board also considered and approved the Company's Change in Control
Severance/Retention Plan and instructed its legal and financial advisors to
begin work on a stockholder rights plan.
On April 18, 1997, Mr. McFarland telephoned Mr. Whaling and informed him of
the Board's decision and invited Monterey to participate in the next phase of
the process.
Between April 18 and April 30, 1997, two other potential interested parties
and Monterey were contacted by management of the Company and Oppenheimer and
confidentiality/standstill agreements were executed with such parties. The
agreement with Monterey was executed on April 29, 1997 and contained an 18-month
standstill provision.
On April 29, 1997, the Board held a special meeting by telephone to receive
reports from its legal and financial advisors concerning the possible adoption
of a stockholder rights plan. No formal action was taken by the Board at the
meeting.
By letter dated May 6, 1997, the other interested parties and Monterey were
advised by Oppenheimer of the procedures to be followed in submitting
preliminary indications of interest by May 14, 1997, and were provided with
operational and technical information describing the Company, its operations and
assets. The letter indicated that the Company and Oppenheimer intended to review
the indications of interest for the purpose of determining whether a party would
be invited to participate in the second phase of the review process. During the
next eight days, numerous discussions were held between representatives of the
interested parties and management of the Company and Oppenheimer concerning the
Company's operations.
By letter dated May 14, 1997, Monterey submitted an offer of $17.00 per
share, in cash, subject only to a brief period to conduct confirming due
diligence.
On May 20, 1997, the Board held a special meeting by telephone to review
the indications of interest received from Monterey and other interested parties
and discuss possible courses of action with management and the Company's legal
and financial advisors. The Board instructed Mr. McFarland and Oppenheimer to
contact Mr. Whaling and the chief executive officer of one other interested
party and invite them to participate in the second phase of the process and make
definitive offer proposals. Mr. McFarland and Oppenheimer also were instructed
to inform Monterey that its offer of $17.00 per share was not the highest bid
received by the Company in the first phase of the process. In addition, legal
counsel and management were instructed to prepare a form of transaction
agreement to be delivered to Monterey and the other interested party with an
invitation to comment thereon when submitting their definitive proposals.
By letter dated May 23, 1997, Oppenheimer notified Monterey and the other
interested party of procedures to be followed in the second phase of the
process, including that definitive bids were to be received by the Company prior
to noon on Monday, June 9, 1997.
Definitive proposals were submitted by Monterey and the other interested
party on June 9, 1997. Monterey proposed that, subject to certain conditions, it
would acquire the Company in a cash merger at $18.25 per share. The Company's
management and legal and financial advisors analyzed Monterey's proposal and
contacted Monterey's management and legal advisors to clarify various matters in
Monterey's proposal.
On June 11, 1997, the Board held a special meeting by telephone to receive
reports from management and Oppenheimer on the definitive proposals and consult
with its legal advisors. Mr. McFarland was directed to negotiate with Monterey
to see if an acquisition with appropriate price and other conditions
satisfactory to the Company could be structured. Later that day, Messrs.
McFarland and Whaling met to discuss Monterey's offer. At such meeting, Mr.
Whaling indicated Monterey's willingness to increase its offer to $18.55 per
share, an amount Mr. McFarland suggested he would be willing to recommend to the
Board for approval.
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Thereafter, on June 12, 1997, negotiations and discussions among
representatives of Monterey and the Company and their respective legal and
financial advisors began with respect to the terms and conditions of a Merger
Agreement. Monterey proceeded to complete its remaining confirmatory due
diligence review and the parties proceeded to resolve substantially all issues
regarding the form of proposed Merger Agreement.
On the evening of June 16, 1997, a special meeting of the Board was held.
Two directors were present in person at the meeting and five directors were
present by telephone. At the meeting, the Board received presentations from
management and the Company's legal and financial advisors regarding Monterey's
offer as well as the results of negotiation of the Merger Agreement with
Monterey. In addition, Oppenheimer delivered its oral opinion (subsequently
confirmed in writing that evening) that, as of that date and subject to the
matters described by it and set forth in the written opinion, the consideration
to be received by the stockholders of McFarland pursuant to the Merger Agreement
was fair from a financial point of view to the stockholders of McFarland. The
Board also considered the Company's business, financial condition, results of
operations, current business strategy and future prospects, recent and
historical prices for the Common Stock and other matters. In addition,
Oppenheimer reviewed and updated its presentations made earlier to the Board.
The Board was also advised that Monterey's Board had approved the Merger
Agreement, the Offer and the Merger. At the meeting, the Board, among other
things, by unanimous vote (i) determined that the Offer and the Merger were fair
to and in the best interests of the stockholders of the Company, (ii) authorized
and approved the Merger Agreement, and (iii) recommended that the stockholders
of the Company accept the Offer and tender their shares pursuant to the Offer.
Immediately after the conclusion of the meeting, the Company, Offeror and
Monterey executed the Merger Agreement, pursuant to which Offeror agreed to make
the Offer. In addition, a stockholders agreement by and among Monterey, the
Offeror, Mr. and Mrs. J. C. McFarland, William E. Carl and the McFarland Family
Trust (the "Stockholders Agreement") was executed, pursuant to which such
persons agreed to tender their shares of Common Stock in the Offer and to sell
such shares to the Offeror, at the price paid in the Offer, subject to certain
conditions. The parties issued a joint press release publicly announcing the
transaction before the opening of the markets on June 17, 1997.
See Annex I, "Description of Merger Agreement," for additional summary
information regarding the terms and conditions of the Merger Agreement.
(c) Factors Considered by the Board.
In determining to recommend to the Company's stockholders that they accept
the Offer and tender their Common Stock pursuant thereto, the Board considered a
number of factors, including, without limitation, the following:
(i) the Board's familiarity with and review of the Company's business,
financial condition, results of operations, business strategy and
prospects;
(ii) the financial and other terms and conditions of the Offer and the
Merger Agreement, and the fact that the $18.55 per share cash consideration
offered for the Common Stock in the Offer and Merger was higher than the
consideration offered in any other indication of interest or definitive
proposal received in the Company's process of evaluating strategic
alternatives;
(iii) the written opinion, dated June 16, 1997, of Oppenheimer that,
as of such date, the consideration to be received by the stockholders of
McFarland pursuant to the Merger Agreement was fair from a financial point
of view to the stockholders of McFarland; a copy of such opinion, setting
forth procedures followed, assumptions made, areas of reliance and other
matters considered by Oppenheimer in arriving at their opinion, is attached
as Annex II to this Schedule and is incorporated herein by reference, and
should be read in its entirety; in considering such opinion, the Board was
aware that, upon delivery thereof, Oppenheimer became entitled to certain
fees described in Item 5 below in connection with its engagement by the
Company and that, in addition, Oppenheimer expressed no opinion or
recommendation as to how the stockholders of the Company should vote with
respect to the Merger;
(iv) the presentations of Oppenheimer in connection with such opinion
as to various financial and other considerations deemed relevant to the
Board's evaluation of the Offer and the Merger;
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(v) the historic and recent market prices of the Shares and the fact
that the $18.55 per share Offer price represents, among other things, a
premium of 12% over the closing price for the Common Stock on the Nasdaq
National Market on the trading day before the announcement of the Offer, of
40% over such closing price on the day two trading days before the
announcement of the Offer and of 50% over such closing price 30 days before
such announcement;
(vi) the terms and conditions of the Offer and the Merger Agreement,
including that the Offer is not subject to financing but is subject to
minimum tender conditions and that the Board is entitled, prior to the
consummation of the Offer, to terminate the Merger Agreement and withdraw
its recommendation of the Offer in order to approve an alternative
transaction with a third party on terms more favorable to the Company's
stockholders from a financial point of view than the Offer and the Merger
taken together, provided that the Company is obligated to pay Monterey a
fee of $2.78 million upon any such termination (such amount representing
2 1/2% of the aggregate cash consideration of $111.2 million); in assessing
the termination fee, the Board of Directors considered the likelihood of
any third party making a proposal for a third party transaction and that
the effect of the termination fee would be to increase by the amount of
such termination fee the costs to a third party of acquiring the Company;
(vii) the financial ability of Monterey to consummate the Offer and
the Merger;
(viii) the possible impact of the Offer and the Merger and of
alternatives thereto on the Company's business and prospects; and
(ix) the fact that, following the consummation of the Offer and the
Merger, the current stockholders of the Company will no longer be able to
participate in any increases or decreases in the value of the Company's
business and profits.
The foregoing discussion of the information and facts considered by the
Board is not intended to be exclusive. In view of the wide variety of factors
considered in connection with its evaluation of the Offer and the Merger, the
Board did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the individual factors considered in reaching its
determination. In addition, individual members of the Board may have given
different weights to different factors.
(d) Opinion of Financial Advisor.
Oppenheimer was retained by McFarland to act as financial advisor in
connection with the Offer. In connection with such engagement, McFarland
requested that Oppenheimer render its opinion as to the fairness, from a
financial point of view, to McFarland's stockholders of the consideration to be
received by such stockholders in the Offer and subsequent Merger.
On June 16, 1997, at a meeting of the Board of Directors of McFarland held
to evaluate the proposed Offer, Oppenheimer delivered an oral opinion
(subsequently confirmed by delivery of a written opinion dated such date) to the
Board of Directors of McFarland (the "Oppenheimer Opinion") to the effect that,
as of the date of such opinion, and subject to certain assumptions, factors and
limitations set forth in such written opinion, the consideration to be received
by the stockholders of McFarland was fair, from a financial point of view, to
the stockholders of McFarland.
THE FULL TEXT OF THE OPPENHEIMER OPINION IS ATTACHED AS ANNEX II TO THIS
SCHEDULE. MCFARLAND STOCKHOLDERS ARE URGED TO READ THE OPPENHEIMER OPINION
CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE
FACTORS CONSIDERED, THE ASSUMPTIONS AND QUALIFICATIONS MADE BY OPPENHEIMER IN
RENDERING ITS OPINION AND OTHER FACTORS RELATING TO OPPENHEIMER'S ENGAGEMENT BY
MCFARLAND'S BOARD OF DIRECTORS. THE OPPENHEIMER OPINION, WHICH WAS DIRECTED TO
THE BOARD OF DIRECTORS OF MCFARLAND, RELATES ONLY TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS
OF MCFARLAND PURSUANT TO THE MERGER AGREEMENT, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY STOCKHOLDER OF MCFARLAND AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE
MERGER. THE SUMMARY OF THE OPPENHEIMER OPINION SET FORTH IN THIS SCHEDULE IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
9
<PAGE> 10
The Oppenheimer Opinion is for the use and benefit of the Board of
Directors of McFarland and was rendered to the Board of Directors in connection
with its consideration of the Offer. The Oppenheimer Opinion was only one of
many factors considered by the Board of Directors of McFarland in its evaluation
of the Offer and should not be viewed as determinative of the views of
McFarland's Board of Directors or management with respect to the Offer or the
proposed Merger. Oppenheimer was not requested to and did not make any
recommendation to the Board of Directors of McFarland as to the form or amount
of consideration to be offered to McFarland's stockholders in the Offer, which
was determined through arm's-length negotiations between McFarland and Monterey.
In arriving at its opinion, Oppenheimer did not ascribe a specific range of
value to McFarland, but made its determination as to fairness, from a financial
point of view, to McFarland's stockholders of the Offer on the basis of
financial and comparative analyses summarized below.
The Oppenheimer Opinion contemplates economic, market, financial and other
facts and conditions existing as of June 16, 1997, and is based on the
information made available to Oppenheimer as of such date and on the review and
analyses conducted by Oppenheimer as of such date. Events and conditions
subsequent to such date have not been considered and may materially alter the
assumptions relied upon and the conclusions stated by Oppenheimer in the
Oppenheimer Opinion. Oppenheimer has no obligation to update, revise or reaffirm
the fairness opinion rendered in the Oppenheimer Opinion, and McFarland does not
intend to seek any such updating, revisions or reaffirmation by Oppenheimer.
In arriving at its opinion, Oppenheimer reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of McFarland concerning the business, operations
and prospects of McFarland. Oppenheimer examined certain publicly available
business and financial information relating to McFarland, as well as certain
financial forecasts and other data which were provided to Oppenheimer by the
senior management of McFarland. Oppenheimer reviewed the financial terms of the
Merger as set forth in the Merger Agreement in relation to, among other things:
current and historic market prices and trading volumes of the Common Stock;
McFarland's historic and projected earnings and cash flow; and the
capitalization and financial condition of McFarland. Oppenheimer also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which Oppenheimer considered
comparable in evaluating the Merger, and analyzed certain financial, stock
market and other publicly available information relating to the businesses of
other companies whose operations it considered comparable in evaluating those of
McFarland. In addition to the foregoing, Oppenheimer conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Oppenheimer deemed appropriate in arriving at its opinion.
In rendering its opinion, Oppenheimer assumed and relied upon, without
independent verification, the accuracy and completeness of all financial and
other information publicly available, including such information furnished to
Oppenheimer or otherwise discussed with Oppenheimer by management of McFarland.
With respect to financial forecasts and other information so provided or
otherwise discussed with Oppenheimer, Oppenheimer assumed, with the consent of
the Board of Directors of McFarland, that such forecasts and other information
were reasonably prepared to reflect the best currently available estimates and
good faith judgments of the management of McFarland as to the expected future
financial performance of McFarland. Other than reserve reports prepared by
Netherland, Sewell & Associates as of December 31, 1996 and DeGolyer &
MacNaughton as of December 31, 1996, Oppenheimer did not make and was not
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of McFarland, nor has Oppenheimer made
physical inspection of all of the properties or assets of McFarland.
The following is a summary of the material factors considered and principal
financial analyses performed by Oppenheimer to arrive at the Oppenheimer
Opinion. Oppenheimer performed certain procedures, including each of the
financial analyses described below, and reviewed with the management of
McFarland the assumptions on which such analyses were based and other factors,
including the historical financial results and the estimated financial results
for McFarland.
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<PAGE> 11
Analysis of Certain Publicly Traded Companies
Using publicly available information, Oppenheimer compared selected
historical and projected operating and financial data and ratios of McFarland to
the corresponding data and ratios of certain publicly traded oil and natural gas
companies considered by Oppenheimer to be reasonably comparable to McFarland,
including companies with properties in California (the "Comparable California
Companies") and companies with similar operating strategies as McFarland (i.e.,
acquire and exploit properties) (the "Comparable U.S. Exploitation Companies").
The Comparable California Companies consist of Berry Petroleum, Harcor Energy,
Monterey Resources, Nuevo Energy, Plains Resources, Saba Petroleum and Vintage
Petroleum. The Comparable U.S. Exploitation Companies consist of Abraxas
Petroleum, Belco Oil & Gas, Bellwether Exploration, Callon Petroleum, Chesapeake
Energy, Coho Energy, Comstock Resources, Costilla Energy, Denbury Resources,
Lomak Petroleum, National Energy Group and Swift Energy.
Oppenheimer's analysis included, among other things, the consideration of a
company's market capitalization of common stock as of June 13, 1997 (the "Market
Capitalization") as a multiple of the latest 12-month period ("LTM") operating
cash flow ("OCF") and estimated 1997 and 1998 OCF. OCF is defined as net income
before extraordinary items plus deferred taxes, depreciation, depletion and
amortization and any other noncash charges, excluding changes to working
capital. Oppenheimer's analysis also included the consideration of a company's
Market Capitalization plus total debt, and preferred stock less cash and cash
equivalents ("Aggregate Value"), as a multiple of LTM and estimated 1997 and
1998 earnings before interest, taxes and depreciation, depletion and
amortization ("EBITDA"), and the consideration of the ratio of Aggregate Value
to PV-10 Value. Projected OCF and EBITDA for McFarland, Comparable California
Companies and Comparable U.S. Exploitation Companies were based on estimates
compiled by Institutional Brokers Estimate Service and published estimates of
selected investment banking firms, including Oppenheimer.
Although Oppenheimer used the information with respect to these companies
for comparison purposes, none of such companies is identical to McFarland. Such
analysis indicated that the average values, excluding highest and lowest values
(the "adjusted average values"), of Market Capitalization as a multiple of LTM
OCF and estimated fiscal years 1997 and 1998 OCF were 8.8x, 6.0x and 4.7x,
respectively, for the Comparable California Companies, and 6.1x, 4.6x, and 3.6x,
respectively, for the Comparable U.S. Exploitation Companies, as compared to the
Company's implied multiples of 8.3x, 7.8x and 6.2x based upon the proposed
$18.55 offer price the ("Acquisition Price"). The adjusted average values of
Aggregate Value as a multiple of LTM EBITDA and estimated 1997 and 1998 EBITDA
were 7.6x, 6.6x and 5.4x, respectively, for the Comparable California Companies,
and 8.7x, 5.7x and 4.6x, respectively, for the Comparable U.S. Exploitation
Companies, as compared to the Company's implied multiples of 6.6x, 6.7x and 5.7x
based on the Acquisition Price. The adjusted average values of Aggregate Value
as a multiple of PV-10 Value was 0.7x for the Comparable California Companies
and 0.9x for the Comparable U.S. Exploitation Companies, as compared to the
Company's implied multiple of 0.9x based on the Acquisition Price.
Transaction Analysis
Oppenheimer reviewed publicly available information relating to certain
acquisitions of oil and natural gas companies which were announced from January
1994 through June 1997. These transactions, included, among others, the
following: Apache Corporation and Phoenix Resource Companies, Inc.; HS
Resources, Inc. and Tide West Oil Co.; Enron Oil & Gas Company and Coda Energy,
Inc.; Hugoton Energy Corporation and Consolidated Oil & Gas, Inc.; YPF Sociedad
Anonima and Maxus Energy Corporation; Lomak Petroleum, Inc. and Red Eagle
Resources Corporation; United Meridian Corporation and General Atlantic
Resources, Inc.; Alexander Energy Corporation and American Natural Energy
Corporation; Devon Energy Corporation and Alta Energy Corporation; Norcen Energy
Resources Ltd. and Basic Petroleum International, Ltd.; Texas Pacific Group and
Belden & Blake; Mesa Inc. and Parker & Parsley Petroleum; Lomak Petroleum and
American Cometra; and Columbia Gas Systems, Inc. and Alamco Inc., among others.
These selected transactions were not intended to represent the complete list of
oil and natural gas transactions which have occurred or been announced during
this period; rather, such transactions represent selected recent transactions
involving publicly traded oil and natural gas companies engaged in oil and gas
exploration and production
11
<PAGE> 12
activities that were deemed by Oppenheimer to operate in comparable producing
basins or have comparable financial and operating characteristics to McFarland.
Oppenheimer reviewed the consideration paid in such transactions in terms
of the price paid for the common stock ("Equity Purchase Price") as a multiple
of LTM OCF. Oppenheimer also reviewed the Equity Purchase Price plus total debt,
preferred stock and transaction costs less cash and cash equivalents ("Total
Transaction Value") of such transactions as a multiple of LTM EBITDA, PV-10
Value and total proved reserves on a BOE basis.
The analysis of Equity Purchase Price as a multiple of LTM OCF indicated a
range of these transaction values of 4.3x to 51.9x and an adjusted average value
of 11.2x, compared to the implied value of McFarland based on the Acquisition
Price of 8.0x. The analysis of Total Transaction Value as a multiple of LTM
EBITDA, PV-10 Value and total proved reserves indicated the following: (i) on a
LTM EBITDA basis, a range of 3.4x to 19.1x and an adjusted average value of
8.6x; (ii) on a PV-10 Value basis, a range of 0.50x to 2.56x and an adjusted
average value of 1.14x; and (iii) on a proved BOE basis, a range of $2.19 to
$13.18 per BOE and an adjusted average value of $5.80 per BOE. This compares to
the implied values for McFarland based on the Acquisition Price of 7.8x LTM
EBITDA, 1.24x the PV-10 Value of McFarland's proved reserves using "normalized
pricing" and $6.15 per BOE. The PV-10 Value of McFarland's proved reserves at
December 31, 1996 under "normalized pricing" is calculated based upon a
per-barrel oil price of $15.67 and a per-mcf gas price of $1.81, which the
Company's 1997 budget estimates to be the average prices received for its oil
and gas during the first quarter of 1997, as opposed to the PV-10 Value
calculated by McFarland's independent engineers that used prices at December 31,
1996, which were significantly higher than historic averages.
No company or transaction used in the analysis described above was directly
comparable to McFarland or the proposed transaction. Accordingly, analysis of
the results of the foregoing was not simply mathematical nor necessarily
precise; rather, it involved complex consideration and judgments concerning
differences in financial and operating characteristics of companies and other
factors that could affect public trading values.
Net Asset Appraisal
Oppenheimer determined a net asset appraisal value for McFarland by
calculating a net asset value net of long-term debt and other noncurrent
liabilities outstanding as estimated at the time of the Merger. McFarland's
asset value was based on (i) the PV-10 Value of McFarland's proved reserves
using normalized pricing, (ii) the net working capital estimate at the time of
the Merger, and (iii) certain other assets deemed appropriate by Oppenheimer. As
a result, Oppenheimer calculated a net asset appraisal value for McFarland of
$110.8 million or $18.45 per share on a fully diluted basis under normalized
pricing.
Comparable Reserve Acquisitions
Oppenheimer also reviewed selected acquisitions of oil and gas reserves
from January 1, 1995 to June 13, 1997. There were over 335 transactions. The
selected transactions were obtained from John S. Herold, Inc. and were not
intended to represent the complete list of oil and natural gas transactions
which have occurred or been announced. Oppenheimer reviewed transactions
involving the purchase of properties in the United States, particularly focusing
on the acquisition of California oil and gas properties.
Oppenheimer reviewed the consideration paid in such transactions in terms
of the aggregate purchase price paid as a multiple of the reported total proved
reserves on a BOE basis. The analyses of purchase price as a multiple of proved
reserves indicated an adjusted average value of $4.43 per BOE for all
transactions, $4.75 per BOE for acquisitions of U.S. properties with aggregate
purchase prices between $50 million and $200 million, and $2.52 per BOE for
California property acquisitions, as compared to the implied multiple of $6.15
per BOE for McFarland based upon the Acquisition Price.
The summary set forth above does not purport to be a complete description
of the analyses performed by Oppenheimer. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances
12
<PAGE> 13
and, therefore, such an opinion is not readily susceptible to summary
description. The preparation of a fairness opinion does not involve a
mathematical evaluation or weighing of the results of the individual analyses
performed, but requires Oppenheimer to exercise its professional judgment based
on its experience and expertise in considering a wide variety of analyses taken
as a whole. Each of the analyses conducted by Oppenheimer was carried out in
order to provide a different perspective on the transaction and add to the total
mix of information available. Oppenheimer did not form a conclusion as to
whether any individual analysis, considered in isolation, supported or failed to
support an opinion as to fairness. Rather, in reaching its conclusion,
Oppenheimer considered the results of the analyses in light of each other and
ultimately reached its opinion based on the results of all analyses taken as a
whole. Oppenheimer did not place particular reliance or weight on any individual
analysis, but instead concluded that its analyses, taken as whole, supported its
determination. Accordingly, notwithstanding the separate factors summarized
above, Oppenheimer believes that its analyses must be considered as a whole and
that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors, may create an incomplete view of
the evaluation process underlying its opinion. In performing its analyses,
Oppenheimer made numerous assumptions with respect to industry performances,
business and economic conditions and other matters. The analyses performed by
Oppenheimer are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses.
Financial Advisor Fee
Oppenheimer is a nationally recognized investment banking firm and was
selected by the Board of Directors of McFarland to act as McFarland's financial
advisor, based on Oppenheimer's substantial experience in transactions similar
to the Merger and familiarity with McFarland and its operations and the oil and
natural gas industry generally. Oppenheimer regularly engages in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements, and valuations for corporate and
other purposes.
For information concerning the terms of the fee arrangement between
McFarland and Oppenheimer, see Item 5 below. The terms of the fee arrangement
with Oppenheimer, which Oppenheimer and McFarland believe are customary in
transactions of this nature, were negotiated at arm's-length between McFarland
and Oppenheimer, and the Board of Directors of McFarland was aware of such
arrangement. In the ordinary course of its business, Oppenheimer and its
affiliates may actively trade the securities of McFarland and Monterey for its
own account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to an engagement letter dated May 12, 1997 (the "Engagement
Letter"), McFarland has retained Oppenheimer to render certain financial
advisory and investment banking services to McFarland in connection with a
possible "Transaction." The Engagement Letter defines "Transaction" as (a) any
merger, consolidation, reorganization, recapitalization, business combination or
other transaction pursuant to which either the Company is acquired by, or
combined with, a third party or (b) the acquisition, directly or indirectly, by
a third party, in a single transaction or a series of transactions, of (i) all
or substantially all of the assets or operations of the Company, or (ii) 50% or
more of the Company's outstanding common stock (whether by way or tender or
exchange offer, open market purchases, negotiated purchases or otherwise).
For such financial advisory and investment banking services, McFarland has
paid or agreed to pay Oppenheimer under the Engagement Letter as follows: (a) an
engagement fee (the "Engagement Fee") of $25,000; plus (b) an additional cash
fee (the "Rights Plan Fee") of $10,000 payable at the time the Company requests
Oppenheimer to begin advising it with respect to the possible adoption of a
stockholder rights plan; plus (c) an additional cash fee (the "Memorandum Fee")
of $25,000 payable at the time the Company requests Oppenheimer to begin
assisting it in the preparation of a confidential placement memorandum; plus (d)
an opinion fee (the "Opinion Fee") of $250,000 payable upon delivery of an oral
or written opinion as to the fairness, from a financial point of view, of the
consideration to be received by McFarland or its
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<PAGE> 14
stockholders in connection with a Transaction; plus (e) a transaction fee (the
"Transaction Fee") equal to (i) 0.875% of the Consideration (as hereinafter
defined) up to $100 million, plus (ii) 1.50% of the consideration in excess of
$100 million. The Engagement Fee, the Rights Plan Fee, the Memorandum Fee and
the Opinion Fee may be credited in their entirety, if previously paid to
Oppenheimer, against the Transaction Fee. The Transaction Fee is payable in full
upon consummation of a Transaction during the term of the Engagement Letter.
McFarland also has agreed to reimburse Oppenheimer for its reasonable direct,
out-of-pocket expenses and to indemnify Oppenheimer and certain related persons
against certain liabilities resulting from or arising out of its performance
under the Engagement Letter.
The Engagement Letter defines "Consideration" as the value of all cash,
securities, the assumption of debt by the purchaser and any other forms of
payment received or to be received, directly or indirectly, by McFarland or the
stockholders of McFarland pursuant to a Transaction, including the total of all
interest-bearing indebtedness of McFarland (both long term and short term,
including capitalized leases) outstanding, assumed or refinanced at the closing
of a Transaction and also including any infusions of cash, securities, assets or
other forms of value into McFarland pursuant to a Transaction. The term
"Consideration" expressly includes (i) the value of all options and warrants
purchased or assumed in connection with a Transaction, and (ii) the value of any
of the Company's securities, including but not limited to its Common Stock,
which remain outstanding subsequent to the consummation of a Transaction.
Neither McFarland nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to security holders on their behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Transactions in Securities.
To the knowledge of McFarland, no transactions in the Common Stock have
been effected during the past 60 days by McFarland or by any executive officer,
director, affiliate or subsidiary of McFarland.
(b) Intent to Tender.
To the knowledge of McFarland, all of its executive officers, directors,
affiliates or subsidiaries currently intend to tender pursuant to the Offer all
shares of Common Stock that are held of record or beneficially owned by such
persons.
Under the Stockholders Agreement, J. C. McFarland, Carolyn J. McFarland,
William E. Carl and the McFarland Family Trust have agreed to tender their
shares of Common Stock in the Offer and to sell such shares to the Offeror, at
the price paid in the Offer, subject to certain conditions. See Item 3(b) above.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Negotiations.
Except as set forth in this Schedule, no negotiation is being undertaken or
is underway by McFarland in response to the Offer which relates to or would
result in: (i) an extraordinary transaction, such as a merger or reorganization,
involving McFarland or any subsidiary thereof; (ii) a purchase, sale or transfer
of a material amount of assets by McFarland or any subsidiary thereof; (iii) a
tender offer for or other acquisition of securities by or of McFarland; or (iv)
any material change in the present capitalization or dividend policy of
McFarland.
(b) Transactions and Other Matters.
Except as set forth in this Schedule, there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to in
Item 7(a) above.
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<PAGE> 15
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1 -- Agreement and Plan of Merger, dated as of June 16, 1997,
among McFarland, Monterey and the Offeror.
**2 -- Letter to the stockholders of the Company dated June 23,
1997.
*3 -- Stockholders Agreement, dated as of June 16, 1997, among
Monterey, the Offeror, J. C. McFarland, Carolyn J.
McFarland, the McFarland Family Trust, and William E.
Carl.
*4 -- Confidentiality Agreement dated as of April 29, 1997
between McFarland Energy, Inc. and Monterey.
*5 -- Agreement dated as of August 9, 1995 by and between
McFarland Energy, Inc. and J. C. McFarland.
*6 -- Agreement dated as of August 8, 1995 by and between
McFarland Energy, Inc. and Ronald T. Yoshihara.
*7 -- Agreement dated as of August 8, 1995, as amended on
December 10, 1996, by and between McFarland Energy, Inc.
and Craig M. Sturtevant.
*8 -- Agreement dated as of August 25, 1995, as amended on
December 10, 1996, by and between McFarland Energy, Inc.
and William H. Moodie.
*9 -- Agreement dated as of August 10, 1995 by and between
McFarland Energy, Inc. and Robert E. Ransom.
*10 -- Change in Control Retention/Severance Plan.
*11 -- Form of Indemnification Agreement between McFarland
Energy, Inc. and its directors and executive officers.
**12 -- Opinion of Oppenheimer & Co., Inc. dated June 16, 1997.
</TABLE>
- - ---------------
* Filed herewith.
** Included in copies mailed to Stockholders.
15
<PAGE> 16
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
MCFARLAND ENERGY, INC.
By: /s/ J. C. MCFARLAND
----------------------------------
J. C. McFarland
Chairman and Chief Executive
Officer
Dated: June 23, 1997
16
<PAGE> 17
ANNEX I
DESCRIPTION OF MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary is not a complete description of the terms and conditions thereof
and is qualified in its entirety by reference to the full text thereof, which is
incorporated herein by reference and a copy of which has been filed as Exhibit 1
to this Schedule. Capitalized terms used in this Annex I and not otherwise
defined in this Schedule have the meanings ascribed to them in the Merger
Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable, but in no event later than five business
days after the initial public announcement of Offeror's intention to commence
the Offer. The obligation of Offeror to accept for payment Shares tendered
pursuant to the Offer is subject to (i) the condition (the "Minimum Condition")
that at least the number of Shares that, when combined with the Shares already
owned by Monterey and its direct or indirect subsidiaries and any Shares
purchased pursuant to the Stockholders Agreement, constitute a majority of the
then outstanding Shares on a fully diluted basis, including, without limitation,
all Shares issuable upon the conversion of any convertible securities or upon
the exercise of any options, warrants or rights shall have been validly tendered
and not withdrawn prior to the expiration of the Offer and (ii) the satisfaction
or waiver of the other conditions described below under "Conditions to the
Offer." Offeror and Monterey have agreed that no change in the Offer may be made
which (a) decreases the price per Share payable in the Offer, (b) reduces the
maximum number of Shares to be purchased in the Offer, (c) imposes conditions to
the Offer in addition to those described below under "Conditions to the Offer,"
(d) amends or changes the terms and conditions of the Offer in any manner
materially adverse to the holders of Shares other than Monterey and its
subsidiaries or (e) changes or waives the Minimum Condition.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof (and described below under "Conditions to the
Merger"), and in accordance with Delaware Law, at the effective time of the
Merger under Delaware Law (the "Effective Time"), Offeror shall be merged with
and into the Company. As a result of the Merger, the separate corporate
existence of Offeror will cease and the Company will continue as the Surviving
Corporation and will become a wholly owned subsidiary of Monterey. Upon
consummation of the Merger, each issued and then outstanding Share (other than
any Shares held in the treasury of the Company, or owned by Offeror, Monterey or
any direct or indirect wholly owned subsidiary of Monterey or of the Company and
any Shares that are held by stockholders who have not voted in favor of the
Merger or consented thereto in writing and who shall have demanded properly in
writing appraisal for such Shares in accordance with Delaware Law) shall be
canceled and converted automatically into the right to receive an amount equal
to the price per share being paid by Offeror in the Offer (the "Merger
Consideration").
Pursuant to the Merger Agreement, each share of common stock, par value
$.01 per share, of Offeror issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one share of common
stock, par value $1.00 per share, of the Surviving Corporation.
The Merger Agreement provides that the directors of Offeror immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation. The
Merger Agreement provides that, at the Effective Time, unless otherwise
determined by Monterey prior to the Effective Time, and subject to the
requirements of sections of the Merger Agreement that provide for
indemnification of directors and officers (as described herein), the Certificate
of Incorporation of the Offeror, as in effect immediately prior to the Effective
Time, will be the Certificate of Incorporation of the Surviving Corporation and
shall be amended and restated to conform to the Certificate of Incorporation of
Offeror as in effect immediately prior to the Effective Time. The Merger
Agreement also provides that the By-laws of Offeror, as in effect immediately
prior to the Effective Time, and subject to the requirements of sections of the
Merger Agreement that provide for indemnification of directors and officers,
will be the By-laws of the Surviving Corporation.
I-1
<PAGE> 18
Agreements of Monterey, Offeror and the Company. Pursuant to the Merger
Agreement, subject to its fiduciary duties under applicable law as advised in
writing by independent counsel, the Company, acting through the Board, shall, if
required by applicable law and the Company's Certificate of Incorporation and
By-laws, duly call, give notice of, convene and hold an annual or special
meeting of its stockholders as soon as practicable following consummation of the
Offer for the purpose of considering and taking action on the Merger Agreement
and the transactions contemplated thereby (the "Stockholders' Meeting").
Proxy Statement. The Merger Agreement provides that, if required by
applicable law, the Company shall, as soon as practicable following consummation
of the Offer, file with the Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and use its reasonable best efforts to
have cleared by the Commission, a proxy statement and related proxy materials
(the "Proxy Statement") with respect to the Stockholders' Meeting and shall
cause the Proxy Statement to be mailed to Stockholders of the Company at the
earliest practicable time. The Company has also agreed, subject to its fiduciary
duties under applicable law as advised by counsel, to include in the Proxy
Statement the recommendation of the Board that the stockholders of the Company
approve and adopt the Merger Agreement and the transactions contemplated
thereby. To the extent permitted by law, Monterey and Offeror have each agreed
to vote all shares beneficially owned by them in favor of the Merger.
Conduct of Business. Pursuant to the Merger Agreement, the Company has
covenanted and agreed that, between the date of the Merger Agreement and the
election or appointment of Offeror's designees to the Board (as described in the
next following paragraph) upon the purchase by Offeror of any Shares pursuant to
the Offer (the "Offeror's Election Date"), unless Monterey shall otherwise agree
in writing, the businesses of the Company and its subsidiaries (the
"Subsidiaries" and, individually, a "Subsidiary") shall be conducted only in,
and the Company and the Subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice; and
the Company shall use its reasonable best efforts to preserve substantially
intact the business organization of the Company and the Subsidiaries, to keep
available the services of the current officers, employees and consultants of the
Company and the Subsidiaries and to preserve the goodwill of those current
relationships of the Company and the Subsidiaries with customers, suppliers and
other persons with which the Company or any Subsidiary has significant business
relations. The Merger Agreement provides that by way of amplification and not
limitation, and except as contemplated therein, the Company shall not, between
the date of the Merger Agreement and Offeror's Election Date, directly or
indirectly do, or propose to do, any of the following, without the prior written
consent of Monterey: (a) amend or otherwise change the certificate of
incorporation or by-laws or equivalent organizational documents of the Company
or the Subsidiaries; (b) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i)
any shares of capital stock of any class of the Company or any Subsidiary, or
any options, warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest) of the Company or any
Subsidiary (except for the issuance of Shares issuable pursuant to Options (as
hereinafter defined) outstanding on the date of the Merger Agreement), or (ii)
any assets of the Company or any Subsidiary, except for sales of products in the
ordinary course of business and in a manner consistent with past practice; (c)
declare, set aside, make or pay any dividend or other distribution, payable in
cash, stock, property or otherwise, with respect to any of its capital stock
(except for such declarations, set asides, dividends, and other distributions
made from any Subsidiary to the Company); (d) reclassify, combine, split,
subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any
of its capital stock; (e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership,
other business organization or any division thereof or any material amount of
assets other than in the ordinary course of business, (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,
the obligations of any person, or make any loans or advances, except in the
ordinary course of business and consistent with past practice, or (iii) enter
into or amend any contract, agreement, commitment or arrangement with respect to
any of the foregoing matters in this clause (e); (f) increase the compensation
payable or to become payable to its officers or employees, except for increases
in accordance with past practices in salaries or wages of employees of the
Company or any Subsidiary who are not officers of the Company, or grant any
severance or termination pay to, or enter into any employment or
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<PAGE> 19
severance agreement with any director, officer or other employee of the Company
or any Subsidiary, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee; (g) make any
tax election or settle or compromise any material federal, state, local or
foreign income tax liability; (h) pay, discharge or satisfy any claim, liability
or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the ordinary
course of business and consistent with past practice, of liabilities reflected
or reserved against in the 1996 Balance Sheet or subsequently incurred in the
ordinary course of business and consistent with past practice; (i) settle or
compromise any pending or threatened suit, action or claim which is material or
which relates to the Offer, the Merger, or any of the transactions contemplated
thereby; (j) undertake any capital commitment not reflected in the Company's
budget in an individual amount greater than $100,000 or, when aggregated with
all other capital commitments not reflected in the Company's budget, in an
aggregate amount greater than $1,000,000; or (k) take or offer or propose to
take, or agree to take in writing, or otherwise, any of the actions described
above or any action that would result in any of the conditions to the Offer not
being satisfied (other than as contemplated by the Merger Agreement).
Designation of Directors. The Merger Agreement provides that, promptly upon
the purchase by Offeror of Shares pursuant to the Offer, and from time to time
thereafter, Offeror shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board as shall give
Offeror representation on the Board equal to the product of the total number of
directors on the Board (giving effect to the directors elected pursuant to this
sentence), multiplied by the percentage that the aggregate number of Shares
beneficially owned by Offeror or any affiliate of Offeror at such time bears to
the total number of Shares then outstanding, and the Company shall, at such
time, promptly take all actions necessary to cause Offeror's designees to be
elected as directors of the Company, including increasing the size of the Board
or securing the resignations of incumbent directors, or both. The Merger
Agreement also provides that, at such times, the Company shall use its best
efforts to cause persons designated by Offeror to constitute the same percentage
as persons designated by Offeror shall constitute of the Board of (i) each
committee of the Board (some of the members of which may be required to be
independent as required by applicable law), (ii) each board of directors of each
domestic Subsidiary and (iii) each committee of each such board, in each case
only to the extent permitted by applicable law. Notwithstanding the foregoing,
until the time Offeror acquires a majority of the then outstanding Shares on a
fully diluted basis, the Company has agreed to use its best efforts to ensure
that all the members of the Board and each committee of the Board and such
boards and committees of the domestic Subsidiaries as of the date of the Merger
Agreement who are not employees of the Company shall remain members of the Board
and of such boards and committees.
Amendments. The Merger Agreement provides that following the election or
appointment of Offeror's designees in accordance with the immediately preceding
paragraph and prior to the Effective Time, any amendment of the Merger Agreement
or the Certificate of Incorporation or Bylaws, of the Company, any termination
of the Merger Agreement by the Company, any extension by the Company of the time
for the performance of any of the obligations or other acts of Monterey or
Offeror or waiver of any of the Company's rights thereunder, will require the
concurrence of a majority of those directors of the Company then in office who
were neither designated by Offeror nor are employees of the Company or if no
such directors are then in office, no such amendment, termination, extension or
waiver shall be effected which is materially adverse to the holders of Shares
(other than Monterey and its subsidiaries).
Access to Information; Confidentiality. Pursuant to the Merger Agreement,
from the date of the Merger Agreement until the consummation of the Offer, the
Company shall, and shall cause the Subsidiaries and the officers, directors,
employees, auditors and agents of the Company and the Subsidiaries to, afford
the officers, employees and agents of Monterey and Offeror and persons providing
or committing to provide Monterey or Offeror with financing for the transactions
contemplated by the Merger Agreement complete access at all reasonable times to
the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company and each Subsidiary, and shall
furnish Monterey and Offeror and persons providing or committing to provide
Monterey or Offeror with financing for the transactions contemplated by the
Merger
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<PAGE> 20
Agreement with all financial, operating and other data and information as
Monterey or Offeror, through its officers, employees or agents, may reasonably
request. Monterey and Offeror have agreed to keep such information confidential
in accordance with the terms of a Confidentiality Agreement dated as of April
29, 1997 entered into between the Company and Monterey, a copy of which has been
filed as Exhibit 4 to this Schedule 14D-9 and is incorporated herein by
reference in its entirety.
The Company has agreed that to the extent permitted by applicable law, in
order to facilitate the continuing operation of the Company by Monterey and
Offeror from and after the completion of the Offer without disruption and to
assist in an achievement of an orderly transition in the ownership and
management of the Company, from the date of the Merger Agreement and until
completion of the Offer, the Company, Monterey and Offeror shall cooperate
reasonably with each other to effect an orderly transition including, without
limitation, with respect to communications with employees.
No Solicitation of Transactions. The Company has agreed that, until the
Merger Agreement shall have been terminated according to its terms (as described
below), neither it nor any Subsidiary shall, directly or indirectly, through any
officer, director or any agent, investment banker, financial advisor, attorney,
accountant or other representative retained by the Company or any Subsidiary or
otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person relating to any acquisition or purchase of all or (other
than in the ordinary course of business) any substantial portion of the assets
of, or any equity interest in, the Company (including, without limitation, any
take-over bid or tender offer or exchange offer, merger, consolidation or
similar transaction involving the Company or any of its subsidiaries (other than
the transactions contemplated by the Merger Agreement) (any of such transactions
being an "Acquisition Transaction") or any business combination with the Company
or, except to the extent required by fiduciary obligations under applicable law
as advised by independent counsel, participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that nothing contained in the Merger Agreement shall prohibit
the Board from furnishing information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited (from the date
of the Merger Agreement) proposal in writing by such person to acquire the
Company pursuant to a merger, consolidation, share exchange, business
combination or other similar transaction or to acquire all or substantially all
of the assets of the Company or any of its Subsidiaries, if, and only to the
extent that, (i) the Board, after consultation with independent counsel (which
may include its regularly engaged independent counsel), determines in good faith
that such action is required for the Board to act in a manner that is consistent
with its fiduciary duties to stockholders imposed by Delaware Law (such
determination having been made by the full Board and not having been delegated
to any committee thereof) and (ii) prior to furnishing such information to, or
entering into discussions or negotiations with, such person the Company obtains
from such person an executed confidentiality agreement on terms no less
favorable to the Company than those contained in the Confidentiality Agreement
with Monterey. The Merger Agreement required the Company immediately to cease
and cause to be terminated any discussions or negotiations existing at the date
of the Merger Agreement with any parties conducted prior to the date of the
Merger Agreement with respect to any of the foregoing. The Company has also
agreed to notify Monterey promptly if any such proposal or offer, or any inquiry
or contact with any person with respect thereto, is made. The Company has also
agreed not to release any third party from any confidentiality restriction or,
subject to the fiduciary duties of the Board, standstill agreement to which the
Company is or may become a party.
Treatment of Stock Options. Prior to the date on which Offeror shall have
accepted for payment all Shares validly tendered and not withdrawn prior to the
expiration date with respect to the Offer (the "Tender Offer Acceptance Date"),
the Company shall enter into an agreement with each holder of an employee or
director stock option to purchase Shares (in each case, an "Option") that
provides that, immediately prior to the Effective Time, each Option that is then
outstanding, whether or not then exercisable or vested, shall be canceled by the
Company, and each holder of a canceled Option shall be entitled to receive from
the Offeror at the time of such cancellation, an amount in cash equal to the
product of (i) the number of Shares previously subject to such Option, whether
or not then exercisable or vested, and (ii) the excess, if any, of the
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<PAGE> 21
Per Share Amount over the exercise price per Share applicable to such Option,
reduced by any applicable withholding.
Indemnification and Insurance. The Merger Agreement further provides that
the Certificate of Incorporation of the Surviving Corporation and each of its
Subsidiaries shall contain provisions no less favorable with respect to
limitation of liability than are set forth in Article VII of the Certificate of
Incorporation of the Company as of the date of the Merger Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who from and after the date of the Merger
Agreement and to and including the Effective Time were directors, officers,
employees, fiduciaries or agents of the Company or any of its Subsidiaries in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the matters contemplated by the Merger
Agreement), unless such modification is required by law. The Company has agreed
that from and after the Offeror's Election Date, the Company shall not amend,
repeal or otherwise modify the limitation of liability provisions of Article VII
of the Certificate of Incorporation of the Company or the indemnification or
advancement of expenses provisions in the Certificate of Incorporation of any of
the Company's Subsidiaries in any manner that would adversely affect the rights
thereunder of individuals who at any time from and after the date of the Merger
Agreement and to and including the Effective Time were directors, officers,
employees, fiduciaries or agents of the Company or any of its Subsidiaries in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the matters contemplated by the Merger
Agreement), unless such modification is required by law.
The Merger Agreement also provides that the Company shall, to the fullest
extent permitted under applicable law and regardless of whether the Merger
becomes effective, indemnify and hold harmless, and after the Effective Time,
the Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former director,
officer, employee, fiduciary and agent of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any threatened or
actual claim, action, suit, proceeding or investigation (whether arising before
or after the Effective Time) (a "Claim"), whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer, director, employee, fiduciary or agent
(including, without limitation, any Claim arising out of the Merger Agreement or
any of the transactions contemplated thereby), whether occurring before or after
the Effective Time, whether asserted prior to or at or after the Effective Time,
for a period of six years after the later of the date of the Merger Agreement
and the Effective Time in each case to the fullest extent permitted under
Delaware Law (and will pay any expenses in advance of the final disposition of
any such action or proceeding to each Indemnified Party to the fullest extent
permitted under Delaware Law, upon receipt from the Indemnified Party to whom
expenses are advanced of any undertaking to repay such advances required under
Delaware Law). In the event of any such claim, action, suit, proceeding or
investigation, the Merger Agreement provides that (i) the Indemnified Parties
may retain counsel, including local counsel, satisfactory to them and the
Company or the Surviving Corporation, as the case may be, shall pay the
reasonable fees and expenses of such counsel promptly after statements therefor
are received and (ii) the Company and the Surviving Corporation shall use all
reasonable efforts in the vigorous defense of any such matter; provided,
however, that neither the Company nor the Surviving Corporation shall be liable
for any settlement effected without its written consent (which consent may not
be unreasonably withheld); and provided, further, that neither the Company nor
the Surviving Corporation shall be obligated to pay the fees and expenses of
more than one counsel (plus appropriate local counsel) for all Indemnified
Parties in any single action unless there is, as determined by counsel to the
Indemnified Parties, under applicable standards of professional conduct, a
conflict or a reasonable likelihood of a conflict on any significant issue
between the positions of any two or more Indemnified Parties, in which case such
additional counsel (including local counsel) as may be required to avoid any
such conflict or likely conflict may be retained by the Indemnified Parties at
the expense of the Company or the Surviving Corporation; and provided, further,
that, in the event that any claim for indemnification is asserted or made within
such six-year period, all rights to indemnification in respect of such claim
shall continue until the disposition of such claim.
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<PAGE> 22
The Merger Agreement provides that the Company shall, from and after the
date of the Merger Agreement and to and including the Effective Time, and the
Surviving Corporation shall, for six years from the Effective Time, maintain in
effect the current directors' and officers' liability insurance policies
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous to such officers
and directors so long as substitution does not result in gaps or lapses in
coverage) with respect to matters occurring prior to the Effective Time.
The Merger Agreement also provides that except as otherwise provided in the
Merger Agreement and only to the extent permitted by applicable law and public
policy, the Surviving Corporation, Monterey and Offeror each release and
discharge each Indemnified Party from, and covenant not to sue any Indemnified
Party with regard to, any Claim, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in their
capacity as an officer, director, employee, fiduciary or agent (including,
without limitation, any Claim arising out of the Merger Agreement or any of the
transactions contemplated thereby or the operations of the Company or the
condition of the assets of the Company). Such release and covenant not to sue
include Claims resulting in any way from the negligence or strict liability of
any Indemnified Party, whether the negligence or strict liability is active,
passive, joint, concurrent, or sole.
Monterey, Offeror and the Company have also agreed that in the event the
Company or the Surviving Corporation or any of their respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in each such case, proper provision shall be made so
that the successors and assigns of the Company or the Surviving Corporation, as
the case may be, or at Monterey's option, Monterey, shall assume the foregoing
indemnity obligations.
The Merger Agreement provides that the By-laws of the Surviving Corporation
and each of its Subsidiaries shall contain the provisions with respect to
indemnification and advancement of expenses set forth in the By-laws of the
Company on the date of the Merger Agreement, and that such provisions shall not
be amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at any time from and after the date of the Merger Agreement
and to and including the Effective Time were directors, officers, employees,
fiduciaries or agents of the Company or any of its Subsidiaries in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by the Merger Agreement),
unless such modification is required by law or is desired to conform such
provisions with comparable provisions in the By-laws of Monterey, which By-law
provisions shall be at least as favorable to such individuals as the provisions
contained in the By-laws of Monterey on the date of the Merger Agreement. From
and after the Offeror's Election Date, the Company shall not amend, repeal or
otherwise modify the indemnification, defense and advancement of expenses
provisions of the By-laws of the Company or the indemnification, defense and
advancement of expenses provisions in the By-laws of any of the Company's
Subsidiaries in any manner that would adversely affect the rights thereunder of
individuals who at any time from and after the date of the Merger Agreement and
to and including the Effective Time were directors, officers, employees,
fiduciaries or agents of the Company or any of its Subsidiaries in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the matters contemplated by the Merger Agreement), unless
such modification is required by law or is desired to conform such provisions
with comparable provisions in the By-laws of Monterey, which By-law provisions
shall be at least as favorable to such individuals as the provisions contained
in the By-laws of Monterey on the date of the Merger Agreement.
The Merger Agreement provides that the obligations of the Company or the
Surviving Corporation with respect to the above-described agreements regarding
indemnification and insurance shall not be terminated or modified in such a
manner as to adversely affect any director, officer, employee, fiduciary and
agent to whom the indemnification and insurance provisions therein apply without
the consent of each affected director, officer, employee, fiduciary and agent.
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<PAGE> 23
The Merger Agreement provides that in the event that the Company or the
Surviving Corporation should fail, at any time from and after the Offeror's
Election Date, to comply with any of the foregoing indemnification and insurance
obligations for any reason, Monterey shall be responsible therefor. Monterey
agreed to perform such obligations unconditionally without regard to any defense
or other basis for nonperformance which the Company or the Surviving Corporation
may have or claim (except as would otherwise be prohibited by applicable
Delaware Law). Monterey, Offeror, and the Company intend that the officers,
directors, employees, fiduciaries and agents of the Company and its Subsidiaries
shall be fully indemnified and that the foregoing indemnification provisions
shall be obligation of Monterey and not merely a guarantee by Monterey of the
obligations of the Company or Offeror.
Employee Benefits. Except to the extent otherwise required by the next
paragraph, under the Merger Agreement Monterey has agreed to provide the
Company's employees with compensation and employee benefit plans or programs on
substantially the same basis as the same are provided to similarly situated
employees of Monterey or any of its subsidiaries; provided, however, in lieu
thereof Monterey may elect to continue one or more of the Company's existing
benefit plans for any continuing employees for such period or periods as
Monterey may determine; and provided further, however, that employees of the
Company shall be given credit for years of service with Monterey and Offeror
equal to the number of years of service with the Company.
Monterey has also agreed that until two years after the Tender Offer
Acceptance Date, the Surviving Corporation will provide (i) severance payments
consistent with the Company's existing Change in Control Retention/Severance
Plan to all officers and employees, and (ii) reasonable outplacement services
for all officers of the Company and its subsidiaries employed by the Company or
its subsidiaries at the Tender Offer Acceptance Date, in each case, who are
terminated without cause (as that term is defined in the Company's Change in
Control Retention/Severance Plan), prior to such date.
Monterey has agreed further that the occurrence of the Tender Offer
Acceptance Date shall be treated as a Change in Control for purposes of the
Company's Change in Control Retention/Severance Plan and for each of the
Agreements regarding employment between the Company and each of J. C. McFarland,
Craig M. Sturtevant, Ronald T. Yoshihara, William H. Moodie, Robert E. Ransom
and Reinhard J. Suchsland. Monterey has agreed that cash amounts owing under
such Agreements if the employment of the executive a party thereto is
Involuntarily Terminated are as calculated and set forth in a schedule thereof
previously delivered to Monterey.
In addition, Monterey has agreed to cause the Company's Employee Retirement
Savings and Stock Ownership Plan and Trust to be amended to provide that all
participants therein as of the Tender Offer Acceptance Date shall be fully
vested in their benefits thereunder as of such date.
Further Action. The Merger Agreement provides that, subject to its terms
and conditions, each of the parties thereto shall (i) make promptly its
respective filings, and thereafter make any other required submissions, under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the transactions, (ii) use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits (including, without limitation,
environmental permits), consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts with the Company and
the Subsidiaries as are necessary for the consummation of the transactions
contemplated by the Merger Agreement and to fulfill the conditions to the Offer
and the Merger, and (iii) except as contemplated by the Merger Agreement, use
its reasonable best efforts not to take any action, or enter into any
transaction, which would cause any of its representations or warranties
contained in the Merger Agreement to be untrue or result in a breach of any
covenant made by it in the Merger Agreement.
Under the Merger Agreement, Monterey has agreed to take all action
necessary to cause Offeror to perform all of Offeror's, and the Surviving
Corporation to perform all of the Surviving Corporation's, agreements, covenants
and obligations under the Merger Agreement and to consummate the Offer and the
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<PAGE> 24
Merger on the terms and conditions set forth in the Merger Agreement. The Merger
Agreement provides that Monterey shall be liable for any breach of any
representation, warranty, covenant or agreement of Offeror and for any breach of
the foregoing covenant.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company as to the absence of certain changes or events
concerning the Company's business, compliance with law, litigation, employee
benefit plans, labor matters, financial statements, brokers and taxes.
Conditions of the Offer. The Merger Agreement provides that,
notwithstanding any other provision of the Offer, the Offeror shall not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied, (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer
after 30 days from the commencement of the Offer or (iii) at any time on or
after the date of the Merger Agreement, and prior to the acceptance for payment
of Shares, any of the following conditions shall exist:
(a) there shall have been issued and remain in effect any temporary
restraining order, preliminary or final injunction, order or decree by any
court or governmental, administrative or regulatory authority or agency,
domestic or foreign, resulting from any action or proceeding brought by any
person which (i) restrains or prohibits the making of the Offer or the
consummation of any other Transaction, (ii) prohibits or limits ownership
or operation by the Company, Monterey or Offeror of all or any material
portion of the business or assets of the Company and its Subsidiaries,
taken as a whole, Monterey or any of their subsidiaries, or compels the
Company, Monterey or any of their subsidiaries to dispose of or hold
separate all or any material portion of the business or assets of the
Company, Monterey or any of their subsidiaries or imposes any material
limitation on the ability of Monterey or Offeror to conduct such business
or own such assets, in each case as a result of the Transactions; (iii)
imposes material limitations on the ability of Monterey or Offeror to
exercise effectively full rights of ownership of any Shares, including,
without limitation, the right to vote any Shares acquired by Offeror
pursuant to the Offer, or otherwise on all matters properly presented to
the Company's stockholders, including, without limitation, the approval and
adoption of the Merger Agreement and the Transactions; (iv) requires
divestiture by Monterey or Offeror of any Shares;
(b) there shall have been any action taken, or any statute, rule,
regulation, order or injunction enacted, entered, enforced, promulgated,
amended, issued or deemed applicable to (i) Monterey, the Company or any
subsidiary or affiliate of Monterey or the Company or (ii) any Transaction,
by any legislative body, court, government or governmental, administrative
or regulatory authority or agency, domestic or foreign, in the case of both
(i) and (ii) other than the routine application of the waiting period
provisions of the HSR Act to the Offer, or the Merger, in each case which
results in any of the consequences referred to in clauses (i) through (iv)
of paragraph (a) above;
(c) there shall have occurred and be continuing (i) any general
suspension of, or limitation on prices for, trading in securities on the
New York Stock Exchange or in the over-the-counter market, (ii) a
declaration of a banking moratorium or any substantial limitation or
suspension of, payments in respect of banks in the United States, (iii) any
limitation (whether or not mandatory) by any U.S. federal or state
government or governmental, administrative or regulatory authority or
agency on the extension of credit by banks or other lending institutions,
(iv) a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
or (v) in the case of any of the foregoing existing on the date hereof, a
material acceleration or worsening thereof;
(d) (i) the Board shall have withdrawn or modified in a manner adverse
to Monterey or Offeror the approval or recommendation of the Offer, the
Merger or the Merger Agreement or approved or recommended any takeover
proposal or any other acquisition of Shares other than the Offer and the
Merger or (ii) the Board shall have resolved to do any of the foregoing;
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(e) any representation and warranty of the Company in the Merger
Agreement shall not be true and correct and the failure to be true and
correct has a Material Adverse Effect and such failure shall not have been
cured (provided five days' written notice of such failure has been provided
by Offeror to the Company) (if a representation and warranty of the Company
shall, by its terms, only be not true and correct if the consequences
thereof constitute a Material Adverse Effect, then the failure of such
representation and warranty to be true and correct shall be deemed to have
a Material Adverse Effect with in the meaning of this paragraph (e));
(f) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or covenant of the Company to be performed or complied
with by it under the Merger Agreement and shall not have cured such default
(provided five days' written notice of such failure has been provided by
Offeror to the Company);
(g) the Merger Agreement shall have been terminated in accordance with
its terms; or
(h) Offeror and the Company shall have agreed that Offeror shall
terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder;
The Merger Agreement provides that the foregoing conditions are for the
sole benefit of Offeror and Monterey and may be asserted by Offeror or Monterey
regardless of the circumstances giving rise to any such condition or may be
waived by Offeror or Monterey in whole or in part at any time and from time to
time in their sole discretion. The failure by Monterey or Offeror at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
Conditions of the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions and only the
following conditions: (a) the Merger Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the stockholders of the Company
to the extent required by Delaware Law and the Company's Certificate of
Incorporation; (b) any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated; (c) no foreign, United States or state governmental authority or
other agency or commission or foreign, United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making the acquisition of Shares by Monterey or Offeror or any
affiliate of either of them illegal or otherwise preventing or prohibiting
consummation of the Transactions; and (d) Offeror or its permitted assignee
shall have purchased all Shares validly tendered and not withdrawn pursuant to
the Offer; provided, however, neither Monterey nor Offeror shall be entitled to
assert the failure of this condition if, in breach of the Merger Agreement or
the terms of the Offer, Offeror fails to purchase any Shares validly tendered
and not withdrawn pursuant to the Offer.
Termination; Fees and Expenses. The Merger Agreement provides that it may
be terminated and the Merger and the other transactions may be abandoned at any
time prior to the Effective Time, notwithstanding any requisite approval and
adoption of the Merger Agreement and the transactions by the stockholders of the
Company: (a) by mutual written consent duly authorized by the Boards of
Directors of Monterey, Offeror and the Company prior to Offeror's Election Date;
(b) by Monterey, Offeror or the Company if (i) the Effective Time shall not have
occurred on or before September 30, 1997; provided, however, that the right to
terminate this Agreement under this clause (b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date or (ii) any court of competent jurisdiction in the United
States or other governmental authority shall have issued an order, decree,
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action shall have become
final and nonappealable; (c) by Monterey if (i) due to an occurrence or
circumstance that results in a failure to satisfy any condition set forth in
Annex A to the Merger Agreement, Offeror shall have (A) failed to commence the
I-9
<PAGE> 26
Offer within 10 days following the date of the Merger Agreement, (B) terminated
the Offer without having accepted any Shares for payment thereunder or (C)
failed to pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer, unless any such failure listed above shall have been
caused by or resulted from the failure of Monterey or Offeror to perform in any
material respect any material covenant or agreement of either of them contained
in the Merger Agreement or the material breach by Monterey or Offeror of any
material representation or warranty of either of them contained in the Merger
Agreement or (ii) prior to the purchase of Shares pursuant to the Offer, Board
or any committee thereof (A) shall have withdrawn or modified in a manner
adverse to Offeror or Monterey its approval or recommendation of the Offer, the
Merger Agreement, the Merger or any other Transaction or (B) shall have
recommended another Acquisition Transaction with a third party; (d) by the
Company, upon approval of the Board, if (i) Offeror shall have (A) failed to
commence the Offer within 10 days following the date of this Agreement, (B)
terminated the Offer without having accepted any Shares for payment thereunder
or (C) failed to pay for Shares pursuant to the Offer within 90 days following
the commencement of the Offer, unless such failure to pay for Shares shall have
been caused by or resulted from the failure of the Company to satisfy the
conditions set forth in paragraphs (f) or (g) of Annex A to the Merger Agreement
or (ii) prior to the purchase of Shares pursuant to the Offer, the Board, after
consultation with independent counsel, shall have withdrawn or modified in a
manner adverse to Offeror or Monterey its approval or recommendation of the
Offer, the Merger Agreement or the Merger as a result of a proposal by a third
party for an Acquisition Transaction.
In the event of the termination of the Merger Agreement, the Merger
Agreement provides that it shall forthwith become void and there shall be no
liability thereunder on the part of any party thereto except under the
provisions of the Merger Agreement related to fees and expenses described below
and under certain other provisions of the Merger Agreement which survive
termination.
Under the Merger Agreement, provided that neither Monterey nor Offeror
shall be in material breach of its obligations under the Merger Agreement (which
breach has not been cured promptly following receipt by Monterey or Offeror, as
the case may be, of written notice thereof by the Company specifying in
reasonable detail the basis of such alleged breach), the Company shall pay to
Monterey the sum of $2,780,000 (the "Termination Fee") if (i) this Agreement is
terminated either (A) by the Company prior to the purchase of Shares pursuant to
the Offer, the Board, after consultation with independent counsel, shall have
withdrawn or modified in a manner adverse to Offeror or Monterey its approval or
recommendation of the Offer, the Merger Agreement or the Merger as a result of a
proposal by a third party for an Acquisition Transaction or (B) by Monterey or
Offeror if prior to the purchase of Shares pursuant to the Offer, the Board or
any committee thereof, shall have withdrawn or modified in a manner adverse to
Offeror or Monterey its approval or recommendation of the Offer, the Merger
Agreement, the Merger or any other Transaction or shall have recommended another
Acquisition Transaction with a third party. Any payment required by this
paragraph shall become payable upon termination of the Merger Agreement in the
manner provided.
Except as set forth in the preceding paragraph, all costs and expenses
incurred in connection with the Merger Agreement, the Stockholders Agreement and
the transactions contemplated by the Merger Agreement shall be paid by the party
incurring such expenses, whether or not any such transaction is consummated.
I-10
<PAGE> 27
ANNEX II
[OPPENHEIMER LETTERHEAD]
June 16, 1997
PERSONAL AND CONFIDENTIAL
The Board of Directors
McFarland Energy, Inc.
10425 South Painter Avenue
Santa Fe Springs, California 90670
Gentlemen:
You have requested Oppenheimer & Co., Inc. ("Oppenheimer") to render an
opinion (the "Opinion") as to the fairness to the holders of the common stock of
McFarland Energy, Inc. ("McFarland" or the "Company"), from a financial point of
view, of the consideration to be received by such holders pursuant to the
proposed Agreement and Plan of Merger dated June 16, 1997 (the "Merger
Agreement"), by and among McFarland, Monterey Resources, Inc. ("Monterey") and
Monterey Acquisition Corporation, a wholly owned subsidiary of Monterey
("Offeror"). The Merger Agreement provides that, among other items, (i) each
issued and outstanding share of McFarland common stock, par value $1.00, will be
acquired for $18.55 in cash (the "Offer"), and (ii) Offeror will be merged with
and into McFarland and McFarland will be the surviving corporation and will
become a wholly-owned subsidiary of Monterey and the separate corporate
existence of Offeror shall cease.
In arriving at our opinion, we reviewed the latest available draft of the
Merger Agreement and held discussions with certain senior officers, directors
and other representatives and advisors of the Company concerning its business,
operations and prospects. We examined certain publicly available business and
financial information relating to the Company as well as certain financial
forecasts, reserve reports and other data which were provided to us by
McFarland's senior management. We reviewed the Offer and related financial terms
set forth in the Merger Agreement in relation to, among other things, the
current and historic market prices and related trading volumes of McFarland's
common stock, the Company's historic and projected earnings and cash flow and
the Company's capitalization and financial condition. We also considered, to the
extent publicly available, the financial terms of certain other similar
transactions recently effected which we considered comparable to the transaction
set forth in the Merger Agreement and we analyzed certain financial, stock
market and other publicly available information relating to the business of
other companies whose operations we considered comparable to those of the
Company. In addition to the foregoing, we conducted such other analyses and
examinations and considered such other financial, economic, market and other
criteria as we deemed necessary to arrive at the Opinion.
In rendering our Opinion, we have relied upon and assumed, without
independent verification or investigation, the accuracy and completeness of all
financial and other information available to us from public sources and provided
to us by McFarland and its representatives. With respect to financial forecasts
and other information so provided or otherwise discussed with us by McFarland,
we assumed with the consent of McFarland's Board of Directors, that such
forecasts and other information were reasonably prepared to reflect the best
currently available estimates and good faith judgments of the Company's
management as to McFarland's expected future financial performance. Other than
the reserve reports prepared for McFarland by Netherland, Sewell & Associates,
Inc. and DeGolyer and MacNaughton, both as of December 31, 1996, we have not
been provided with, nor have we made any, independent evaluations or appraisals
of the Company's assets or liabilities (contingent or otherwise). In addition,
we have not made a physical inspection of all of McFarland's properties or other
assets. Our Opinion is necessarily based upon financial, economic, stock market
and other conditions and circumstances existing and disclosed to us as of the
date hereof and changes in such conditions and circumstances would require
re-evaluation of this Opinion. We disclaim any obligations to update, revise or
reaffirm this Opinion.
II-1
<PAGE> 28
Oppenheimer has been engaged to render financial advisory services to
McFarland in connection with the transaction and activities leading up to the
receipt of the Offer as set forth in the Merger Agreement. Oppenheimer will
receive a fee for such services which includes the delivery of this Opinion. In
the ordinary course of our business, we and our affiliates may actively trade
the securities of McFarland and Monterey (collectively, the "Securities"), for
our own account or for the accounts of our customers and, accordingly, may at
any time hold a long or short position in the Securities.
Our advisory services and the Opinion expressed herein are provided for the
use of McFarland's Board of Directors in its evaluation of the Merger Agreement,
and are not intended to confer rights or remedies upon any stockholder of the
Company. The Opinion may not be published or otherwise used or referred to, in
whole or in part, nor shall any public reference to Oppenheimer be made without
our prior written consent; provided that this Opinion may be included in its
entirety in any filing made by McFarland or Monterey with the Securities and
Exchange Commission with respect to the merger contemplated by the Merger
Agreement and the transactions related thereto. This Opinion does not constitute
a recommendation to any stockholder of the Company as to how such stockholders
should vote with respect to the merger contemplated by the Merger Agreement.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the consideration to be received
by the holders of McFarland's common stock, pursuant to the Merger Agreement, is
fair from a financial point of view, to the common stockholders of McFarland.
Very truly yours,
OPPENHEIMER & CO., INC.
II-2
<PAGE> 29
ANNEX III
MCFARLAND ENERGY, INC.
10425 SOUTH PAINTER AVENUE
SANTA FE SPRINGS, CALIFORNIA 90670
---------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
---------------------
NO VOTE OR OTHER ACTION OF MCFARLAND'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND A PROXY TO MCFARLAND.
---------------------
This Information Statement is being mailed on or about June 23, 1997 as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") to the holders of shares of the Company's Common Stock,
par value $1.00 per share (the "Common Stock"), of McFarland Energy, Inc., a
Delaware corporation ("McFarland" or the "Company"). Capitalized terms used and
not otherwise defined herein shall have the meanings set forth in the Schedule
14D-9. This Information Statement is being furnished in connection with the
possible designation by Monterey Resources, Inc., a Delaware corporation
("Monterey"), and the direct parent of Monterey Acquisition Corporation, a
Delaware corporation ("Offeror") of persons (the "Offeror Designees") to the
Board of Directors of McFarland (the "Board"). Such designation is to be made
pursuant to an Agreement and Plan of Merger dated June 16, 1997 (the "Merger
Agreement") among McFarland, Monterey and Offeror.
The Merger Agreement provides that, promptly upon the purchase by Offeror
of Shares pursuant to the Offer, and from time to time thereafter, Offeror shall
be entitled to designate up to such number of directors, rounded up to the next
whole number, on the Board as shall give Offeror representation on the Board
equal to the product of the total number of directors on the Board (giving
effect to the directors elected pursuant to this sentence), multiplied by the
percentage that the aggregate number of Shares beneficially owned by Offeror or
any affiliate of Offeror at such time bears to the total number of Shares then
outstanding, and the Company shall, at such time, promptly take all actions
necessary to cause Offeror's designees to be elected as directors of the
Company, including increasing the size of the Board or securing the resignations
of incumbent directors, or both. The Merger Agreement also provides that, at
such times, the Company shall use its best efforts to cause persons designated
by Offeror to constitute the same percentage as persons designated by Offeror
shall constitute of the Board of (i) each committee of the Board (some of the
members of which may be required to be independent as required by applicable
law), (ii) each board of directors of each domestic Subsidiary and (iii) each
committee of each such board, in each case only to the extent permitted by
applicable law. Notwithstanding the foregoing, until the time Offeror acquires a
majority of the then outstanding Shares on a fully diluted basis, the Company
has agreed to use its best efforts to ensure that all the members of the Board
and each committee of the Board and such boards and committees of the domestic
Subsidiaries as of the date of the Merger Agreement who are not employees of the
Company shall remain members of the Board and of such boards and committees.
The information contained in this Information Statement concerning Monterey
and the Offeror Designees has been furnished to McFarland by such persons, and
McFarland assumes no responsibility for the accuracy or completeness of such
information.
III-1
<PAGE> 30
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
GENERAL
The outstanding voting securities of McFarland as of May 31, 1997 consisted
of 5,727,422 shares of Common Stock, with 443,313 shares reserved for issuance
pursuant to outstanding stock options granted by McFarland to employees,
directors and consultants. The holders of the McFarland's Common Stock are
entitled to one vote for each share of such stock held of record by them.
BENEFICIAL OWNERSHIP
The following table sets forth, as of March 28, 1997, the information with
respect to ownership of the Company's Common Stock by (i) each person known by
the Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each director of McFarland, (iii) the Chief Executive Officer and each of the
four most highly compensated executive officers of McFarland, and (iv) all
executive officers and directors of McFarland as a group. Unless otherwise
indicated, to McFarland's knowledge, such persons have sole voting and
investment power with respect to such shares, and all such shares are owned
beneficially and of record by the person indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------
NUMBER OF PERCENT
BENEFICIAL OWNER SHARES(1) OF CLASS
---------------- --------- --------
<S> <C> <C>
White River Corporation(2)(3)............................... 640,200 11.2%
777 Westchester Avenue, Suite 201
White Plains, NY 10604
David L. Babson & Co.(3).................................... 553,700 9.7%
One Memorial Drive
Cambridge, MA 02142-1300
McFarland Family Trust(4)................................... 527,696 9.3%
10425 South Painter Avenue
Santa Fe Springs, CA 90670
Croft-Leominster, Inc. ..................................... 334,900 5.9%
207 E. Redwood Street
Baltimore, MA 21202
Dimensional Funds Advisors, Inc.(5)......................... 308,500 5.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Fund American Enterprises Holdings, Inc.(3)(6).............. 300,000 5.3%
The 1820 House, Main Street
Norwich, VT 05055-0850
J. C. McFarland............................................. 169,920(4)(7) 3.0%
William E. Carl............................................. 120,362(4)(8) 2.1%
Daniel J. Redden............................................ 7,100(8) *
Herbert M. Rome............................................. 19,542(8) *
Daniel E. Pasquini.......................................... 4,000(8) *
John C. Capshaw............................................. 6,000(8) *
John B. Pollara............................................. 4,500(9) *
Ronald T. Yoshihara......................................... 43,480(10) *
Robert E. Ransom............................................ 36,625(11) *
William H. Moodie........................................... 7,875(12) *
Craig M. Sturtevant......................................... 8,125(13) *
All executive officers and directors as a group (11
persons).................................................. 427,529(14) 7.4%
</TABLE>
III-2
<PAGE> 31
- - ---------------
* Less than one percent
(1) Includes shares owned by spouses of individuals, but does not include
shares in the Employee Retirement Savings and Stock Ownership Plan.
(2) Prior to December 22, 1993, White River Corporation ("WRC") was a
wholly-owned subsidiary of Fund American Enterprises Holdings, Inc.
("FAEH"), formerly Fireman's Fund Corporation. WRC purchased the shares of
the Company from FAEH on September 24, 1993 as part of the initial
capitalization of WRC. In October 1993, FAEH provided the Company with a
letter which stated that WRC had agreed to be bound by all the obligations
of FAEH as set forth in that certain Letter Agreement dated September 1,
1989, between FAEH and the Company (the "Letter Agreement"). The Letter
Agreement provides that for a period of no less than five years FAEH (a)
will not buy shares of Common Stock without its consent if the purchases
would increase FAEH's holding above 15%; (b) if by the Company's actions
the percentage ownership would be increased to more than 15% of the Common
Stock, and if the Company asks FAEH, FAEH will sell back to the Company, at
a price both parties consider reasonable, enough stock to hold the shares
owned by FAEH to 15%; (c) FAEH will continue to support the Company's
current senior management and Board of Directors at stockholder meetings
and will vote as the Company asks; and (d) FAEH will not sell its shares as
a block without first discussing with the Company and in a manner amenable
to the Company. On January 4, 1993, the principal terms of the Letter
Agreement were extended to January 4, 1998 in conjunction with the
Company's refinancing of its $2.6 million convertible note through FAEH.
The newly issued convertible note had a conversion rate of one share of
Common Stock for each $6.50 principal amount and was convertible by FAEH
after January 4, 1994. Provisions (a) and (b) of the Letter Agreement were
amended to exclude any shares issued upon conversion of the convertible
note. See Note (6) below regarding conversion of the note.
(3) Based upon Schedule 13D or 13G as filed with the Securities and Exchange
Commission.
(4) As part of the transaction whereby the Company acquired Carl Oil & Gas Co.,
Messrs. L. C. McFarland and William E. Carl entered into a Stockholder
Agreement dated July 15, 1988, as amended, which contained obligations and
restrictions on sales of the Company's shares by Carl and what is now the
estate of Mr. L. C. McFarland. The Stockholder Agreement has now expired by
its terms.
(5) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 308,500 shares of
McFarland stock as of December 31, 1996, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(6) On January 29, 1996, the Company converted the $2.6 million convertible
note held by FAEH into 400,000 shares of Common Stock. These unregistered
shares are subject to all of the provisions of the Letter Agreement
identified in Note (2) above, as amended.
(7) Includes 94,625 shares which are purchasable upon exercise of outstanding
stock options.
(8) Includes 4,000 shares which are purchasable upon exercise of outstanding
stock options.
(9) Includes 2,000 shares which are purchasable upon exercise of outstanding
stock options.
(10) Includes 40,750 shares which are purchasable upon exercise of outstanding
stock options.
(11) Consists of 36,625 shares which are purchasable upon exercise of
outstanding stock options.
(12) Consists of 7,875 shares which are purchasable upon exercise of outstanding
stock options.
(13) Consists of 8,125 shares which are purchasable upon exercise of outstanding
stock options.
(14) Includes 197,000 shares which are purchasable upon exercise of outstanding
stock options.
III-3
<PAGE> 32
THE BOARD OF DIRECTORS
OFFEROR DESIGNEES
Monterey has informed McFarland that each of the Offeror Designees listed
below has consented to act as a director. To the best knowledge of McFarland,
none of the Offeror Designees or their associates beneficially owns any equity
securities of McFarland or has been involved in any transaction with McFarland
or any of its directors or executive officers that is required to be disclosed
pursuant to the rules and regulations of the SEC.
It is expected that, upon assuming office, the Offeror Designees will
thereafter constitute at least a majority of the Board of McFarland.
Monterey may designate the following individuals to the Board of McFarland.
Each such individual's name, age as of the date hereof, current principal
occupation or employment and five-year employment history is set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
---- ---- -------------------------------
<S> <C> <C>
R. Graham Whaling....................... 42 Chairman and Chief Executive Officer of Monterey; Mr.
Whaling was Senior Vice President and Chief Financial
Officer of Santa Fe Energy Resources, Inc. ("SFR") from
January 1995 to November 1996. Prior to that time he was
with CS First Boston, an investment banking firm, as Vice
President, Corporate Finance from 1991 to 1994 and
Director, Corporate Finance from 1994 to 1995. Prior to
joining First Boston, Mr. Whaling served as a petroleum
engineer for Sun Oil Corporation and petroleum reservoir
consulting engineer for Ryder Scott. Mr. Whaling has been
an officer and director of Monterey since September 1996.
Craig A. Huff........................... 32 Principal in Ziff Brothers Investments since July of 1993.
Prior to joining Ziff Brothers, Mr. Huff received a degree
from the Harvard Business School in 1993. Ziff Brothers
currently holds approximately 3.7% of SFR's outstanding
common stock and approximately 0.8% of Monterey's
outstanding common stock. Mr. Huff was a director of SFR in
1996.
Robert J. Wasielewski................... 34 Employed by GKH Partners, L.P. ("GKH") since October 1991.
GKH is an investment partnership whose general partners
include entities controlled by Jay and Tom Pritzker, Dan W.
Lufkin and Melvyn N. Klein. From July 1996 to the present,
Mr. Wasielewski has held the position of Managing Director
of GKH. He was employed by Citicorp in the Leveraged
Capital Division from September 1987 to October 1991,
serving as Assistant Vice-President from December 1990
until joining GKH. Mr. Wasielewski serves as a director and
officer of various privately-held affiliates of GKH. GKH
through an affiliate, HC Associates, a Delaware general
partnership, currently holds approximately 5.5% of SFR's
outstanding common stock.
Michael A. Morphy....................... 65 Retired Chairman and Chief Executive Officer of California
Portland Cement Company. Mr. Morphy is also a director of
Cyprus Amax Minerals Co. and Santa Fe Pacific Pipelines,
Inc. and was a director of SFR from 1990 to 1996.
</TABLE>
III-4
<PAGE> 33
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND FIVE-YEAR
NAME AGE EMPLOYMENT HISTORY
---- ---- -------------------------------
<S> <C> <C>
James L. Payne.......................... 60 Chairman of the Board, President and Chief Executive
Officer of SFR since June 1990, Mr. Payne was President of
Santa Fe Energy Corporation, a predecessor in interest of
SFR, from January 1986 to January 1990, when he became
President of SFR. Mr. Payne is also a director of Pool
Energy Services Co., an oilfield services corporation.
Robert F. Vagt.......................... 50 President and Chief Operating Officer of Seagull Energy
Corporation since October 1996, Mr. Vagt was Chairman of
the Board, President, Chief Executive Officer and director
of Global Natural Resources, Inc. (oil and gas exploration
and production) from May 1992 to October 1996; President
and Chief Operating Officer of Adobe Resources Corporation
(oil and gas exploration and production) from November 1990
to May 1992; Executive Vice President of Adobe from August
1987 to October 1990; and Senior Vice President of Adobe
from October 1985 to August 1987. Mr. Vagt is also a
director of First Albany Corporation (brokerage firm) and
was a director of SFR from 1992 to 1996.
</TABLE>
CURRENT DIRECTORS
The following table sets forth the name, age as of the date hereof, term
and current principal occupation or employment and five-year employment history
for the seven members currently serving on the Company's Board of Directors.
McFarland's Restated Certificate of Incorporation and By-laws provide that the
directors of McFarland are to be divided into three classes, with the directors
in each class serving for three-year terms and until their successors are
elected. The terms of the persons currently serving on the Board expire at the
annual meetings of stockholders for the years indicated: Messrs. Rome and
Pasquini: 1998; Messrs. Capshaw and Pollara: 1999; and Messrs. McFarland, Carl
and Redden: 2000. Unless otherwise noted, each director has maintained the same
principal occupation during the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND FIVE-YEAR
NAME AGE DIRECTOR SINCE EMPLOYMENT HISTORY
---- --- -------------- -------------------------------
<S> <C> <C> <C>
J. C. McFarland................ 50 1982 Mr. McFarland is the Chairman of the Board and
Chief Executive Officer of the Company. He also
serves as a member of the Nominating Committee
of the Board of Directors. Mr. McFarland joined
the Company in 1977 and served as Treasurer,
Secretary, Vice President and Chief Operating
Officer prior to attaining his current
positions.
William E. Carl................ 71 1988(1) Mr. Carl is the Vice Chairman of the Board of
Directors of the Company. From 1988 to 1995, Mr.
Carl was president of Carl Oil & Gas Co., a
wholly owned subsidiary of the Company engaged
in oil and gas exploration and production. Carl
Oil & Gas merged into McFarland in 1995. Mr.
Carl serves as a member of the Audit and
Nominating Committees of the Board of Directors
of McFarland.
</TABLE>
III-5
<PAGE> 34
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT AND FIVE-YEAR
NAME AGE DIRECTOR SINCE EMPLOYMENT HISTORY
---- --- -------------- -------------------------------
<S> <C> <C> <C>
Daniel J. Redden............... 55 1986 Mr. Redden is a principal of Redden-Schaffer
Group, a retained executive search and
management consultant firm. Mr. Redden serves as
a member of the Nominating and Compensation
Committees of the Board of Directors of
McFarland.
Herbert M. Rome................ 70 1992 Mr. Rome served as Executive Vice President of
Eldon Industries, Inc. from 1978 until his
retirement in 1991. He also served on Eldon
Industries, Inc.'s Board of Directors from 1979
through 1990. Mr. Rome currently serves as a
member of the Audit and Compensation Committees
of the Board of Directors of McFarland.
Daniel E. Pasquini............. 54 1994 Mr. Pasquini served as President and Chief
Executive Officer of Fortune Petroleum
Corporation from 1987 through 1994. He currently
serves as a Member of the Compensation Committee
of the Board of Directors of McFarland.
John C. Capshaw................ 64 1994 Mr. Capshaw served as Chairman, Chief Executive
Officer and President of Hadson Energy Resources
Corporation until his retirement in 1993. Mr.
Capshaw also served as Chief Executive Officer
and President of UMC Petroleum Corporation from
1988 to 1989. He currently serves as a Member of
the Audit Committee of the Board of Directors of
McFarland.
John B. Pollara................ 49 1996 Mr. Pollara is President, Chief Executive
Officer and part owner of Zieman Manufacturing
Company, a leading manufacturer of recreational
and equipment hauling trailers. Mr. Pollara
serves as a Member of the Audit Committee of the
Board of Directors of McFarland.
</TABLE>
- - ---------------
(1) Initially elected to the Board of Directors pursuant to the terms of the
Stockholder Agreement discussed in Note (4) following the table in the
"Security Ownership of Certain Beneficial Owners and Management" section.
III-6
<PAGE> 35
BOARD COMMITTEES
The Board of Directors maintains standing Audit, Compensation and
Nominating Committees. The purpose and objective of the Audit Committee is to
provide assistance and advice to the directors in connection with corporate
accounting, auditing and reporting practices and to facilitate communication
between the Board and the independent auditors of the Company. It meets
periodically with management and external auditors and reviews the Company's
accounting policies and internal controls. The committee recommends the firm of
independent accountants to be retained by the Company and approves all material
non-audit services provided by them.
The Compensation Committee's functions are to review the Company's policies
and programs for the development of management personnel; to make
recommendations to the Board with respect to any proposals for compensation or
compensation adjustments for other elected officers of the Company; to
administer the Company's stock option plans; and to make recommendations to the
Board with respect to director's compensation.
The Nominating Committee considers and makes recommendations to the Board
as to the number of directors to constitute the whole Board, the names of
persons whom it concludes should be considered for Board membership, and
recommends matters relating to the selection, tenure and retirement of
directors.
DIRECTOR COMPENSATION
The Company does not pay any salaried employee of the Company additional
compensation for service on the Board of Directors or any Board committee. For
directors who are not salaried employees of the Company, the currently
established fee for attending meetings of the Board is $1,000. The fee for
attending meetings of the Audit, Compensation and Nominating Committees is $500
if a meeting occurs on the same day as a regularly scheduled Board meeting;
however, if a meeting occurs on a day separate from a Board meeting, the fee is
$1,000. In addition, except for any salaried employee or retained consultant,
directors receive an annual retainer of $10,000. The Company has entered into a
two-year Consulting Agreement with William E. Carl, which is described in
further detail hereafter under the heading "Certain Relationships and Related
Transactions."
Pursuant to the Non-Employee Director Stock Option Plan, each non-employee
director receives an initial option to purchase 2,000 shares of Common Stock.
Annually thereafter, options to purchase 1,000 shares of Common Stock are
granted to each non-employee director. The option exercise price is equal to the
fair market value of the Common Stock on the date of grant. The options are
exercisable immediately after grant date.
III-7
<PAGE> 36
EXECUTIVE COMPENSATION
The following tables set forth, for the fiscal year ended December 31,
1996, certain information concerning compensation paid to or accrued for all
executives who were serving as executive officers during 1996 and whose annual
salary and bonus exceeded $100,000 in the current fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
NUMBER OF
SHARES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
--------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
J. C. McFarland...................... 1996 $190,184 $143,100 20,000 $10,500
Chairman of the Board and 1995 182,896 82,300 15,000 10,500
Chief Executive Officer 1994 166,322 77,700 13,500 7,582
Ronald T. Yoshihara.................. 1996 105,704 71,500 11,000 10,076
Vice President and Treasurer 1995 101,276 42,100 7,000 8,861
1994 92,122 36,050 5,000 6,753
Robert E. Ransom..................... 1996 97,681 53,200 9,500 8,597
Vice President -- Corporate 1995 93,625 30,200 6,000 8,493
Development 1994 87,115 31,800 5,000 6,385
William H. Moodie.................... 1996 86,890 59,100 9,500 8,399
Vice President -- Operations 1995 82,863 33,600 6,000 7,265
1994 79,116 27,700 5,000 5,535
Craig M. Sturtevant.................. 1996 93,207 53,200 7,500 5,927
Vice President and General 1995 87,828 30,200 5,000 3,152
Counsel 1994 14,475 -- 5,000 --
</TABLE>
- - ---------------
(1) Amounts represent the matching contributions made by the Company under its
Employees Savings and Stock Ownership Plan.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3)
OPTIONS EMPLOYEES BASE PIRCE EXPIRATION --------------------
NAME GRANTED(1) IN 1996 PER SHARE(2) DATE 5% 10%
---- ---------- ---------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
J. C. McFarland............. 20,000 23% $7.50 1/10/06 $94,500 $238,500
Ronald T. Yoshihara......... 11,000 13 7.50 1/10/06 51,975 131,175
Robert E. Ransom............ 9,500 11 7.50 1/10/06 44,888 113,288
William H. Moodie........... 9,500 11 7.50 1/10/06 44,888 113,288
Craig M. Sturtevant......... 7,500 9 7.50 1/10/06 35,438 89,438
</TABLE>
- - ---------------
(1) Option holders vest in the granted options at the rate of 25% per year,
commencing on the first anniversary of the grant date.
(2) All options were granted at the Company's Common Stock fair market value on
the date of grant.
(3) These columns present hypothetical future values of the stock obtainable
upon exercise of the options net of the option's exercise price, assuming
that the market price of the Company's Common Stock appreciates at a five
and ten percent compound annual rate over the ten-year term of the options.
The five and ten percent rates of stock price appreciation are presented as
examples pursuant to the Securities and Exchange Commission Rules and do not
necessarily reflect management's assessment of the Company's future stock
price performance. The potential realizable values presented are not
intended to indicate the value of the options.
III-8
<PAGE> 37
AGGREGATED OPTION EXERCISES IN 1996 AND
YEAR ENDED DECEMBER 31, 1996 VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. C. McFarland......................... -- -- 82,500 38,000 $628,188 $205,000
Ronald T. Yoshihara..................... -- -- 35,250 18,750 267,969 98,906
Robert E. Ransom........................ -- -- 31,500 16,500 238,500 87,563
William H. Moodie....................... 2,500 $10,938 2,750 15,250 17,406 78,969
Craig M. Sturtevant..................... -- -- 3,750 13,750 24,531 73,906
</TABLE>
- - ---------------
(1) The amounts represent the difference between the fair market value of the
Common Stock on December 31, 1996 of $12.125 and the option exercise price.
These amounts do not reflect the actual amounts, if any, which may be
realized in the future upon exercise of stock options and should not be
considered indicative of future stock performance.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. McFarland,
Yoshihara, Ransom, Moodie and Sturtevant. The initial term of each employment
agreement expires on December 31, 1999, or 24 months following a "Change in
Control" (as defined below). The consummation of the Offer will constitute a
Change of Control for purposes of these agreements. Mr. McFarland's agreement
provides that if, following a Change of Control, he is terminated without "Good
Cause" (as defined below) or voluntarily resigns for "Good Reason" (as defined
below), he will receive a cash lump payment equal to two times his base salary
plus bonus, be entitled to receive medical benefits for a two-year period and
receive outplacement services for a one-year period. In the event Mr. McFarland
is involuntarily terminated without Good Cause prior to a Change in Control, the
agreement generally provides that he will be entitled to receive a lump sum
amount equal to two weeks salary for every year of service and medical benefits
for the same number of weeks as the number of weeks of salary he is entitled to
receive. The employment agreements of Messrs. Yoshihara, Ransom, Moodie and
Sturtevant generally provide, in the event of involuntary termination without
Good Cause or resignation for Good Reason following a Change in Control, for a
cash lump sum payment equal to one and one-half times their salary plus bonus,
and otherwise are identical to Mr. McFarland's employment agreement.
Under the agreements, a "Change in Control" is defined as the occurrence of
an event whereby (i) the directors in office at the beginning of a 24-month
period cease to constitute a majority of the directors then in office; (ii) any
person or group becomes the beneficial owner of 35% or more of the combined
voting power of the Company's outstanding securities; or (iii) subject to
certain limitations, the Company merges or combines into another corporation.
Under the agreements, termination with "Good Cause" shall mean that any of the
following conditions are met: (i) grounds exists to terminate the employment of
the individual pursuant to California Labor Code Section 2924; (ii) the
individual engages in serious or willful misconduct which is detrimental to the
interests of the employer or its stockholders; or (iii) the individual willfully
refuses to carry out the directions and responsibilities assigned to him. Under
the agreements, an employee is deemed to have "Good Reason" to resign
voluntarily if (i) there is a significant adverse change in the nature or scope
of his authorities or duties, (ii) there is a significant reduction in
compensation or benefits or (iii) the geographic location at which he is
required to perform his principal duties is moved more than 50 miles from where
he previously carried out such duties.
It is currently estimated that Mr. McFarland would receive approximately
$527,287, Mr. Yoshihara approximately $282,851, Mr. Ransom approximately
$250,460, Mr. Moodie approximately $246,140 and Mr. Sturtevant approximately
$242,960 as severance payments upon termination in connection with the
consummation of the change in control of McFarland, and, in each case, with the
health benefits and outplacement services described above.
III-9
<PAGE> 38
SEVERANCE PLAN
On April 17, 1997, the Company adopted the McFarland Energy, Inc. Change in
Control Retention/Severance Plan (the "Severance Plan") covering regular
full-time or part-time employees of the Company who continue in the employ of
the Company after a "Change in Control" (as defined below). The Severance Plan
provides that Messrs. McFarland, Yoshihara, Ransom, Moodie and Sturtevant are
not entitled to benefits under the Plan. A Change of Control for purposes of the
Severance Plan occurs (i) at such time any person becomes the beneficial owner
of more than 35% of the then outstanding Common Stock or the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors, (ii) at such time individuals who, as of
the date the Severance Plan was adopted, constituted all of the members of the
Board of Directors of the Company cease for any reason to constitute at least a
majority of the members of the Board, (iii) upon consummation of a
reorganization, merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company, or (iv) upon the approval of the
stockholders of the Company of a complete liquidation or dissolution of the
Company, unless (with respect to clause (iii)) the stockholders of the Company
retain at least 75% of the voting power of the resulting or acquiring entity, no
person owns 35% or more of the resulting or acquiring entity and at least a
majority of the resulting or acquiring entity's directors were members of the
Board at the time of the execution of the initial agreement providing for such
reorganization, merger, consolidation or sale. Consummation of the Offer by the
Offeror will result in a Change of Control under the Severance Plan. Under the
Severance Plan, severance benefits are payable only in the event a covered
employee is terminated without "Cause" or resigns under certain circumstances
(for "Good Reason") within 24 months of the date of consummation of a Change of
Control. Termination for "Cause" means a covered employee is terminated because
of the willful and continued failure of the employee to perform substantially
the employee's duties or the willful engaging by the employee in illegal conduct
or gross misconduct that is materially and demonstrably injurious to the
Company. "Good Reason" includes a material reduction in a covered employee's
duties, responsibilities or annual salary or benefits or any transfer of the
employee's job to a location more than 50 miles from his or her current work
site. Severance benefits under the Severance Plan are generally equal to one
month's pay for each whole or partial year of service not exceeding nine, plus
one-half month's pay for each year of service in excess of nine, subject to a
minimum benefit of three months of pay, payable in cash, and continued coverage
under medical benefits and life insurance arrangements substantially similar to,
and at no greater cost to the employee than, those in effect immediately prior
to a Change of Control for a period of time equal to that used to measure the
cash severance benefit. A copy of the Severance Plan has been filed as Exhibit
10 to this Schedule and is incorporated herein by reference in its entirety.
ACCELERATION AND TREATMENT OF OPTIONS
The Merger Agreement provides that prior to the date on which Offeror shall
have accepted for payment all shares validly tendered and not withdrawn prior to
the expiration date with respect to the Offer (the "Tender Offer Acceptance
Date"), the Company shall enter into an agreement with each holder of an
employee or director stock option to purchase Shares (in each case, an "Option")
that provides that, immediately prior to the effective time, each Option that is
then outstanding, whether or not then exercisable or vested, shall be canceled
by the Company, and each holder of a canceled Option shall be entitled to
receive from the Offeror at the time of such cancellation, an amount in cash
equal to the product of (i) the number of Shares previously subject to such
Option, whether or not then exercisable or vested, and (ii) the excess, if any,
of the per share price paid in the Offer over the exercise price per Share
applicable to such Option, reduced by any applicable withholding.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a two-year Consulting Agreement with William E.
Carl, a director, commencing on July 15, 1995, and terminating on July 14, 1997,
pursuant to which he would continue as a consultant to the Company. In
consideration of such consulting services, the Company pays Mr. Carl $60,000 per
year. In addition, the Company provides Mr. Carl with group dental and term life
insurance and pays the cost of Medicare supplemental coverage.
III-10
<PAGE> 39
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and the rules thereunder require
McFarland's directors and executive officers, and persons who own more than 10%
of a registered class of McFarland's equity securities, to file reports of
ownership and changes in ownership of shares of McFarland's stock with the
Securities and Exchange Commission and the Nasdaq National Market and to furnish
McFarland with copies. Based on McFarland's review of the copies of such reports
received by it, or written representations from certain reporting persons,
McFarland believes that, from January 1 through December 31, 1996, all filing
requirements applicable to its officers, directors, and greater than 10%
beneficial owners were complied with.
III-11
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*1 -- Agreement and Plan of Merger, dated as of June 16, 1997,
among McFarland, Monterey and the Offeror.
**2 -- Letter to the stockholders of the Company dated June 23,
1997.
*3 -- Stockholders Agreement, dated as of June 16, 1997, among
Monterey, the Offeror, J. C. McFarland, Carolyn J.
McFarland, the McFarland Family Trust, and William E.
Carl.
*4 -- Confidentiality Agreement dated as of April 29, 1997
between McFarland Energy, Inc. and Monterey.
*5 -- Agreement dated as of August 9, 1995 by and between
McFarland Energy, Inc. and J. C. McFarland.
*6 -- Agreement dated as of August 8, 1995 by and between
McFarland Energy, Inc. and Ronald T. Yoshihara.
*7 -- Agreement dated as of August 8, 1995, as amended on
December 10, 1996, by and between McFarland Energy, Inc.
and Craig M. Sturtevant.
*8 -- Agreement dated as of August 25, 1995, as amended on
December 10, 1996, by and between McFarland Energy, Inc.
and William H. Moodie.
*9 -- Agreement dated as of August 10, 1995 by and between
McFarland Energy, Inc. and Robert E. Ransom.
*10 -- Change in Control Retention/Severance Plan.
*11 -- Form of Indemnification Agreement between McFarland
Energy, Inc. and its directors and executive officers.
**12 -- Opinion of Oppenheimer & Co., Inc. dated June 16, 1997.
</TABLE>
- - ---------------
* Filed herewith.
** Included in copies mailed to Stockholders.
<PAGE> 1
EXHIBIT 1
- - -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
MONTEREY RESOURCES, INC.
MONTEREY ACQUISITION CORPORATION
and
McFARLAND ENERGY, INC.
Dated as of June 16, 1997
- - -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE OFFER .............................................................2
SECTION 1.01. The Offer....................................................2
SECTION 1.02. Company Action...............................................3
ARTICLE II
THE MERGER .............................................................4
SECTION 2.01. The Merger...................................................4
SECTION 2.02. Effective Time; Closing......................................5
SECTION 2.03. Effect of the Merger.........................................5
SECTION 2.04. Certificate of Incorporation; By-laws........................5
SECTION 2.05. Directors and Officers.......................................5
SECTION 2.06. Conversion of Securities.....................................5
SECTION 2.07. Employee Stock Options; Director Options.....................6
SECTION 2.08. Dissenting Shares............................................6
SECTION 2.09. Surrender of Shares; Stock Transfer Books....................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................8
SECTION 3.01. Organization and Qualification; Subsidiaries.................8
SECTION 3.02. Certificate of Incorporation and By-laws.....................9
SECTION 3.03. Capitalization...............................................9
SECTION 3.04. Authority Relative to this Agreement........................10
SECTION 3.05. No Conflict; Required Filings and Consents..................10
SECTION 3.06. SEC Filings; Financial Statements...........................11
SECTION 3.07. Absence of Certain Changes or Events........................12
SECTION 3.08. Absence of Litigation.......................................12
SECTION 3.09. Compliance with Applicable Laws.............................13
SECTION 3.10. Employee Benefit Plans......................................13
SECTION 3.11. Labor Matters...............................................15
SECTION 3.12. Offer Documents; Schedule 14D-9.............................15
SECTION 3.13. Taxes.......................................................15
SECTION 3.14. Brokers.....................................................17
SECTION 3.15. Insurance...................................................18
-i-
<PAGE> 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.....................18
SECTION 4.01. Corporate Organization......................................18
SECTION 4.02. Authority Relative to this Agreement........................18
SECTION 4.03. No Conflict; Required Filings and Consents..................18
SECTION 4.04. Offer Documents; Proxy Statement............................19
SECTION 4.05. Brokers.....................................................20
SECTION 4.06. Financing...................................................20
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER.....................................20
SECTION 5.01. Conduct of Business by the Company Pending the
Purchaser's Election Date...................................20
ARTICLE VI
ADDITIONAL AGREEMENTS ....................................................22
SECTION 6.01. Stockholders Meeting........................................22
SECTION 6.02. Proxy Statement.............................................22
SECTION 6.03. Company Board Representation; Section 14(f).................23
SECTION 6.04. Access to Information; Confidentiality......................24
SECTION 6.05. No Solicitation of Transactions.............................24
SECTION 6.06. Employee Compensation and Other Employee Benefits Matters...25
SECTION 6.07. Directors' and Officers' Indemnification and Insurance......25
SECTION 6.08. Further Action; Reasonable Best Efforts.....................28
SECTION 6.09. Compliance with Antitrust Laws..............................29
SECTION 6.10. Public Announcements........................................29
SECTION 6.11. Parent Guarantee............................................29
SECTION 6.12. Participation in Closing....................................29
SECTION 6.13. Notification of Certain Other Matters.......................29
SECTION 6.14. State Takeover Statutes.....................................30
ARTICLE VII
CONDITIONS TO THE MERGER...................................................30
SECTION 7.01. Conditions to the Merger....................................30
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER..........................................30
SECTION 8.01. Termination.................................................30
-ii-
<PAGE> 4
SECTION 8.02. Effect of Termination.......................................31
SECTION 8.03. Costs and Expenses..........................................32
SECTION 8.04. Amendment...................................................32
SECTION 8.05. Waiver......................................................32
ARTICLE IX
GENERAL PROVISIONS.........................................................33
SECTION 9.01. Non-Survival of Representations, Warranties and Agreements..33
SECTION 9.02. Scope of Representations and Warranties.....................33
SECTION 9.03. Notices.....................................................33
SECTION 9.04. Certain Definitions.........................................35
SECTION 9.05. Severability................................................35
SECTION 9.06. Entire Agreement; Assignment................................36
SECTION 9.07. Parties in Interest.........................................36
SECTION 9.08. Specific Performance........................................36
SECTION 9.09. Governing Law...............................................36
SECTION 9.10. Headings....................................................36
SECTION 9.11. Counterparts................................................36
ANNEX A Conditions to the Offer
ANNEX B Employee Benefits
-iii-
<PAGE> 5
Glossary of Defined Terms
Location of
Defined Term Definition
Acquisition Transaction............................. Section 6.05
affiliate........................................... Section 9.04(a)
Agreement........................................... Preamble
beneficial owner.................................... Section 9.04(b)
Blue Sky Laws....................................... Section 3.05(b)
Board............................................... Recitals
business day........................................ Section 9.04(c)
Certificate of Merger............................... Section 2.02
Certificates........................................ Section 2.09(b)
Claim............................................... Section 6.07(b)
Code................................................ Section 3.10(a)
Company............................................. Preamble
Company Common Stock................................ Recitals
Company Preferred Stock............................. Section 3.03
Confidentiality Agreement........................... Section 6.04(c)
control............................................. Section 9.04(d)
Delaware Law........................................ Recitals
Disclosure Schedule................................. Section 3.01
Dissenting Shares................................... Section 2.08(a)
Effective Time...................................... Section 2.02
ERISA............................................... Section 3.10(a)
Exchange Act........................................ Section 1.01(a)
GAAP................................................ Section 3.06(b)
Governmental Entity................................. Section 3.09
HSR Act............................................. Section 3.05(b)
Indemnified Parties................................. Section 6.07(b)
IRS................................................. Section 3.10(a)
JCMc................................................ Annex B
Material Adverse Effect............................. Section 3.01
Merger.............................................. Recitals
Merger Consideration................................ Section 2.06(a)
Minimum Condition................................... Section 1.01(a)
Multiemployer Plan.................................. Section 3.10(b)
Multiple Employer Plan.............................. Section 3.10(b)
1996 Balance Sheet.................................. Section 3.06(c)
Offer............................................... Recitals
Offer Documents..................................... Section 1.01(b)
Offer to Purchase................................... Section 1.01(b)
-iv-
<PAGE> 6
Oppenheimer......................................... Section 1.02(a)
Option.............................................. Section 2.07
Parent.............................................. Preamble
Paying Agent........................................ Section 2.09(a)
Per Share Amount.................................... Recitals
person.............................................. Section 9.04(e)
Plans............................................... Section 3.10(a)
Proxy Statement..................................... Section 4.04
Purchaser........................................... Preamble
Purchaser's Election Date........................... Section 5.01
Restated Certificate................................ Section 1.02
Returns............................................. Section 3.13(a)
Schedule 14D-1...................................... Section 1.01(b)
Schedule 14D-9...................................... Section 1.02(b)
SEC................................................. Section 1.01(b)
SEC Reports......................................... Section 3.06(a)
Securities Act...................................... Section 3.06(a)
Shares.............................................. Recitals
Stock Option Plans.................................. Section 2.07
Stockholders Agreement.............................. Recitals
Stockholders Meeting................................ Section 6.01(a)
Subsidiary.......................................... Section 3.01
subsidiary.......................................... Section 9.04(f)
Surviving Corporation............................... Section 2.01
Tax................................................. Section 3.13(o)
Tender Offer Acceptance Date........................ Section 2.07
Transactions........................................ Section 1.02(a)
-v-
<PAGE> 7
AGREEMENT AND PLAN OF MERGER, dated as of June 16, 1997 (this
"Agreement"), among Monterey Resources, Inc., a Delaware corporation ("Parent"),
Monterey Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent ("Purchaser"), and McFarland Energy, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Purchaser and the
Company have each determined that it is in the best interests of their
respective stockholders for Parent, through Purchaser, to acquire the Company
upon the terms and subject to the conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, it is proposed
that Purchaser shall make a cash tender offer (the "Offer") to acquire all the
issued and outstanding shares of Common Stock, par value $1.00 per share, of the
Company ("Company Common Stock"; shares of Company Common Stock being
hereinafter collectively referred to as the "Shares") for $18.55 per Share (such
amount, or any greater amount per Share paid pursuant to the Offer, being
hereinafter referred to as the "Per Share Amount") net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions of this
Agreement and the Offer; and
WHEREAS, the Board of Directors of Parent and Purchaser have
approved the making of the Offer and the transactions related thereto; and
WHEREAS, the Board of Directors of the Company (the "Board")
has approved the making of the Offer and resolved and agreed, subject to the
terms and conditions contained herein, to recommend that holders of Shares
tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the Boards
of Directors of Parent, Purchaser and the Company have each approved the merger
(the "Merger") of Purchaser with and into the Company in accordance with the
General Corporation Law of the State of Delaware ("Delaware Law") following the
consummation of the Offer and upon the terms and subject to the conditions set
forth herein; and
WHEREAS, Parent and certain stockholders of the Company have
entered into a Stockholders Agreement, dated as of the date hereof (the
"Stockholders Agreement"), providing for the agreement of such stockholders to
tender pursuant to the Offer all Shares owned by such stockholders subject to
the terms and conditions of the Stockholders Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual representations, warranties, covenants and agreements herein contained,
and intending to be legally bound hereby, Parent, Purchaser and the Company
hereby agree as follows:
<PAGE> 8
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement
shall not have been terminated in accordance with Section 8.01 and none of the
events set forth in Annex A hereto shall have occurred or be existing (unless
such event shall have been waived by Purchaser), Parent shall cause Purchaser to
commence (within the meaning of Rule 14d-2(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), and Purchaser shall commence, the Offer
at the Per Share Amount as promptly as reasonably practicable after the date
hereof, but in no event later than five business days after the public
announcement of Purchaser's intention to commence the Offer. The obligation of
Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer shall be subject only to (i) the condition (the "Minimum Condition") that
at least the number of Shares that, when combined with the Shares already owned
by Parent and its direct or indirect subsidiaries and any Shares purchased
pursuant to the Stockholders Agreement, constitute a majority of the then
outstanding Shares on a fully diluted basis, including, without limitation, all
Shares issuable upon the conversion of any convertible securities or upon the
exercise of any options, warrants or rights, shall have been validly tendered
and not withdrawn prior to the expiration of the Offer and (ii) the satisfaction
or waiver of the other conditions set forth in Annex A hereto. Purchaser
expressly reserves the right to waive any such condition (other than the Minimum
Condition), to increase the per Share Amount, and to make any other changes in
the terms and conditions of the Offer; provided, however, that (notwithstanding
Section 8.04) no change may be made which (A) decreases the Per Share Amount,
(B) reduces the maximum number of Shares to be purchased in the Offer, (C)
imposes conditions to the Offer in addition to those set forth in Annex A
hereto, (D) amends or changes the terms and conditions of the Offer in any
manner materially adverse to the holders of Shares (other than Parent and its
subsidiaries) or (E) changes or waives the Minimum Condition. The Per Share
Amount shall, subject to applicable withholding of taxes, be net to the seller
in cash, without interest thereon, upon the terms and subject to the conditions
of the Offer. Subject to the terms and conditions of the Offer (including,
without limitation, the Minimum Condition), Purchaser shall accept for payment
and pay, as promptly as practicable after expiration of the Offer, for all
Shares validly tendered and not withdrawn.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, Purchaser shall file with the Securities and Exchange
Commission (the "SEC") and disseminate to holders of Shares to the extent
required by law a Tender Offer Statement on Schedule 14D-1 (together with all
amendments and supplements thereto, the "Schedule 14D-1") with respect to the
Offer and the other Transactions (as hereinafter defined). The Schedule 14D-1
shall contain or shall incorporate by reference an offer to purchase (the "Offer
to Purchase") and forms of the related letter of transmittal and any related
summary advertisement (the Schedule 14D-1, the Offer to Purchase and such other
documents, together with all supplements and amendments thereto, being referred
to herein collectively as the "Offer Documents"). Parent, Purchaser and the
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become false or misleading, and
Parent and Purchaser further agree to take all steps
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necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC
and the other Offer Documents as so corrected to be disseminated to holders of
Shares, in each case as and to the extent required by applicable federal
securities laws. The Company and its counsel shall be given an opportunity to
review and comment on the Offer Documents and any amendments thereto prior to
the filing thereof with the SEC. Parent and Purchaser will provide the Company
and its counsel with a copy of any written comments or telephonic notification
of any verbal comments Parent or Purchaser may receive from the SEC or its staff
with respect to the Offer Documents promptly after the receipt thereof and will
provide the Company and its counsel with a copy of any written responses and
telephonic notification of any verbal response of Parent, Purchaser or their
counsel. In the event that the Offer is terminated or withdrawn by Purchaser,
Parent and Purchaser shall cause all tendered Shares to be returned to the
registered holders of the Shares represented by the certificate or certificates
surrendered to the Paying Agent (as defined herein).
SECTION 1.02. Company Action. (a) The Company hereby approves
of and consents to the Offer and represents that (i) the Board, at a meeting
duly called and held on June 16, 1997, has unanimously (A) determined that this
Agreement and the transactions contemplated hereby, including, without
limitation, each of the Offer and the Merger (the "Transactions"), are fair to
and in the best interests of the holders of Shares (other than Parent and its
subsidiaries), (B) approved and adopted this Agreement and the Transactions,
including for purposes of satisfying the requirements of Section 203(a)(1) of
the Delaware Law with respect to the Transactions, (C) taken all action as may
be required by the Company's Restated Certificate of Incorporation (the
"Restated Certificate") so that Article VIII, Section A.1 of the Restated
Certificate is not applicable to the Transactions and, as a result, the
supermajority voting requirements of Article VIII, Section A.1 of the Restated
Certificate will not apply to this Agreement and the Transactions, (D) to the
extent required by that certain letter agreement dated September 1, 1989, as
amended January 4, 1993, between the Company and certain of its stockholders,
approved the tender by such stockholders of their Shares for purchase pursuant
to the Offer and the sale of such Shares in the Merger and (E) resolved to
recommend, subject to the conditions set forth herein, that the stockholders of
the Company accept the Offer and approve and adopt this Agreement and the
Transactions, and (ii) Oppenheimer & Co., Inc. ("Oppenheimer") has delivered to
the Board a written opinion that the consideration to be received by the holders
of Shares pursuant to each of the Offer and the Merger is fair to such holders
from a financial point of view. The Company has been authorized by Oppenheimer,
subject to prior review by such financial advisor, to include such fairness
opinion (or references thereto) in the Offer Documents and in the Schedule 14D-9
(as defined in paragraph (b) of this Section 1.02) and the Proxy Statement
referred to in Section 4.04. Subject to the fiduciary duties of the Board under
applicable law as advised in writing by independent counsel (which shall, for
all purposes under this Agreement, include the Company's regular outside
counsel), the Company hereby consents to the inclusion in the Offer Documents of
the recommendation of the Board described above.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing, subject
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to the fiduciary duties of the Board under applicable law as advised in writing
by independent counsel, the recommendation of the Board described in Section
1.02(a) and shall disseminate the Schedule 14D-9 to the extent required by Rule
14D-9 promulgated under the Exchange Act and any other applicable federal
securities laws; provided, however, that such recommendation may be withdrawn,
modified or changed to the extent that the Board determines after consultation
with independent counsel that such withdrawal, modification or change is
consistent with its fiduciary obligations. Any such withdrawal, modification or
change shall not constitute a breach of this Agreement, but will nonetheless be
subject to the provisions of Sections 8.01 and 8.03. The Company, Parent and
Purchaser agree to correct promptly any information provided by any of them for
use in the Schedule 14D-9 which shall have become false or misleading, and the
Company further agrees to take all steps necessary to cause the Schedule 14D-9
as so corrected to be filed with the SEC and disseminated to holders of Shares,
in each case as and to the extent required by applicable federal securities
laws. Parent, Purchaser and their counsel shall be given a reasonable
opportunity to review and comment on the Schedule 14D-9 and any amendments
thereto prior to the filing thereof with the SEC. The Company will provide
Parent and Purchaser and their counsel with a copy of any written comments or
telephonic notification of any oral comments the Company may receive from the
SEC or its staff with respect to the Offer Documents promptly after the receipt
thereof and will provide Parent and Purchaser and their counsel with a copy of
any written responses and telephonic notification of any oral response of the
Company or its counsel.
(c) The Company shall promptly furnish Purchaser with mailing
labels containing the names and addresses of all record holders of Shares and
with security position listings of Shares held in stock depositories, each as of
the most recent date reasonably practicable, together with all other available
listings and computer files containing names, addresses and security position
listings of record holders and non-objecting beneficial owners of Shares as of
the most recent date reasonably practicable. The Company shall furnish Purchaser
with such additional information, including, without limitation, updated
listings and computer files of stockholders, mailing labels and security
position listings, and such other assistance as Parent, Purchaser or their
agents may reasonably request. Subject to the requirements of applicable law,
and except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Offer or the Merger, Parent
and Purchaser shall hold in confidence the information contained in such labels,
listings and files, shall use such information only in connection with the Offer
and the Merger, and, if this Agreement shall be terminated in accordance with
Section 8.01, shall, at the request of the Company, deliver promptly to the
Company all copies of such information then in their possession and shall
certify in writing to the Company its compliance with this Section 1.02(c).
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in Article VII, and in accordance with Delaware Law, at
the Effective Time (as hereinafter defined), Purchaser shall be merged with and
into the Company. As a result of the Merger, the separate
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corporate existence of Purchaser shall cease and the Company shall continue as
the surviving corporation of the Merger (the "Surviving Corporation").
SECTION 2.02. Effective Time; Closing. As promptly as
practicable after the satisfaction or, if permissible, waiver of the conditions
set forth in Article VII, the parties hereto shall cause the Merger to be
consummated by filing this Agreement or a certificate of merger (in either case,
the "Certificate of Merger") with the Secretary of State of the State of
Delaware, in such form as is required by, and executed in accordance with the
relevant provisions of, Delaware Law (the date and time of such filing being the
"Effective Time"). Prior to such filing, a closing shall be held at the offices
of Baker & Botts, L.L.P., 910 Louisiana, Suite 3000, Houston, Texas 77002, or
such other place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Article VII.
SECTION 2.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and duties
of the Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04. Certificate of Incorporation; By-laws. (a)
Subject to the requirements of Section 6.07, at the Effective Time, the
Certificate of Incorporation of Purchaser, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation.
(b) Subject to the requirements of Section 6.07, the By-laws
of Purchaser, as in effect immediately prior to the Effective Time, shall be the
By-laws of the Surviving Corporation until thereafter amended as provided by
law, the Certificate of Incorporation of the Surviving Corporation and such
By-laws.
SECTION 2.05. Directors and Officers. The directors of
Purchaser immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 2.06. Conversion of Securities. At the Effective
Time, by virtue of the Merger and without any action on the part of Purchaser,
the Company or the holders of any of the Shares:
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(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to
Section 2.06(b) and any Dissenting Shares (as hereinafter defined))
shall be cancelled and shall be converted automatically into the right
to receive an amount equal to the Per Share Amount in cash (the "Merger
Consideration") payable, without interest, to the holder of such Share,
upon surrender, in the manner provided in Section 2.09, of the
certificate that formerly evidenced such Share;
(b) Each Share held in the treasury of the Company and each
Share owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or of the Company immediately prior to the
Effective Time shall be cancelled without any conversion thereof and no
payment or distribution shall be made with respect thereto; and
(c) Each share of common stock, par value $.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Common Stock, par value $1.00 per
share, of the Surviving Corporation.
SECTION 2.07. Employee Stock Options; Director Options. Prior
to the date on which Purchaser shall have accepted for payment all Shares
validly tendered and not withdrawn prior to the expiration date with respect to
the Offer (the "Tender Offer Acceptance Date"), the Company shall enter into an
agreement with each holder of an employee or director stock option to purchase
Shares (in each case, an "Option") that provides that, immediately prior to the
Effective Time, each Option that is then outstanding, whether or not then
exercisable or vested, shall be cancelled by the Company, and each holder of a
cancelled Option shall be entitled to receive from the Purchaser at the time of
such cancellation, and Purchaser shall pay, an amount in cash equal to the
product of (i) the number of Shares previously subject to such Option, whether
or not then exercisable or vested, and (ii) the excess, if any, of the Per Share
Amount over the exercise price per Share applicable to such Option, reduced by
any applicable withholding.
SECTION 2.08. Dissenting Shares. (a) Notwithstanding any
provision of this Agreement to the contrary, Shares that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such Shares in
accordance with Section 262 of the Delaware Law (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the
Merger Consideration. Such stockholders shall be entitled to receive payment
from the Surviving Corporation of the appraised value of such Shares held by
them in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
Shares under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration, without any interest thereon, upon surrender,
in the manner provided in Section 2.09, of the certificate or certificates that
formerly evidenced such Shares.
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(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other instruments served pursuant to Delaware Law in respect of Dissenting
Shares and received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under
Delaware Law. The Company shall not, except with the prior written consent of
Parent, make any payment with respect to any demands for appraisal or offer to
settle or settle any such demands.
SECTION 2.09. Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Purchaser shall designate a bank or trust company
reasonably satisfactory to the Company to act as agent (the "Paying Agent") in
connection with the Merger to receive the funds to which holders of Shares shall
become entitled pursuant to Section 2.06(a). Immediately prior to the Effective
Time, Parent shall cause Surviving Corporation to have sufficient funds to
deposit, and shall cause Surviving Corporation to deposit in trust with the
Paying Agent, cash in the aggregate amount equal to the product of (i) the
number of shares outstanding immediately prior to the Effective Time (other than
Shares owned by Parent or Purchaser and Shares as to which dissenters' rights
have been exercised as of the Effective Time) and (ii) the Per Share Amount.
Such funds shall be invested by the Paying Agent as directed by the Surviving
Corporation, provided that such investments shall be in obligations of or
guaranteed by the United States of America or of any agency thereof and backed
by the full faith and credit of the United States of America, in commercial
paper obligations rated A-1 or P-1 or better by Moody's Investors Services, Inc.
or Standard & Poor's Corporation, respectively, or in deposit accounts,
certificates of deposit or banker's acceptances of, repurchase or reverse
repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital, surplus and undivided profits aggregating in
excess of $100 million (based on the most recent financial statements of such
bank which are then publicly available at the SEC or otherwise); provided,
however, that no loss on any investment made pursuant to this Section 2.09 shall
relieve Parent or the Surviving Corporation of its obligation to pay the Per
Share Amount for each Share outstanding immediately prior to the Effective Time.
(b) Promptly after the Effective Time, Parent shall cause the
Surviving Corporation to mail to each person who was, at the Effective Time, a
holder of record of Shares entitled to receive the Merger Consideration pursuant
to Section 2.06(a) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share formerly
evidenced by such Certificate, and such Certificate shall then be cancelled. No
interest shall accrue or be paid on the Merger Consideration payable upon the
surrender of any Certificate for the benefit of the holder of such Certificate.
If payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered on the stock
transfer books of the Company, it shall be a condition of payment that the
Certificate so surrendered shall
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be endorsed properly or otherwise be in proper form for transfer and that the
person requesting such payment shall have paid all transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such taxes
either have been paid or are not applicable. The Surviving Corporation shall pay
all charges and expenses, including those of the Paying Agent, in connection
with the distribution of the Merger Consideration.
(c) At any time following the third month after the Effective
Time, the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds which had been made available to the Paying Agent and
not disbursed to holders of Shares (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it) and, thereafter, such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) only as general creditors thereof with respect to any Merger Consideration
that may be payable upon due surrender of the Certificates held by them.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Share for any Merger Consideration
delivered in respect of such Share to a public official pursuant to any
abandoned property, escheat or other similar law.
(d) At Effective Time, the stock transfer books of the Company
shall be closed and, thereafter, there shall be no further registration of
transfers of Shares on the records of the Company. From and after the Effective
Time, the holders of Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Shares except as otherwise
provided herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Purchaser that:
SECTION 3.01. Organization and Qualification; Subsidiaries.
Each of the Company and each subsidiary of the Company (a "Subsidiary") is a
corporation or partnership duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power and authority
would not, individually or in the aggregate, have a Material Adverse Effect (as
defined below). The Company and each Subsidiary is duly qualified or licensed as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, have a Material
Adverse Effect. When used in connection with the Company or any Subsidiary, the
term "Material Adverse Effect" means any change or effect that, when taken
together with all other adverse changes
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and effects, is or is reasonably likely to be materially adverse to the
business, operations, assets, or condition (financial or otherwise) of the
Company and the Subsidiaries taken as a whole. A true and complete list of all
the Subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary, and the percentage of the outstanding capital stock of each
Subsidiary owned by the Company and each other Subsidiary, is set forth in
Section 3.01 of the Disclosure Schedule delivered concurrently with the
execution and delivery of this Agreement by the Company to Parent (the
"Disclosure Schedule"). Except as disclosed in such Section 3.01 of the
Disclosure Schedule, the Company does not directly or indirectly own any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for or have voting rights with respect to, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity, other than indirect equity and similar interests held for
investment which are not, in the aggregate, material to the Company. Except as
set forth in Section 3.01 of the Disclosure Schedule, there are not now, and on
the Tender Offer Acceptance Date there will not be, any voting trusts or other
agreements or understandings to which the Company or any Subsidiary is a party
or is bound with respect to the voting of the capital stock of the Company. No
Subsidiary is material to the business, operations or condition (financial or
otherwise) of the Company or has any material assets or liabilities.
SECTION 3.02. Certificate of Incorporation and By-laws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Certificate of Incorporation and the By-laws or equivalent organizational
documents, each as amended to date, of the Company and its Subsidiaries. Such
Certificate of Incorporation, By-laws and equivalent organization documents are
in full force and effect. Neither the Company nor any Subsidiary is in violation
of any provision of its Certificate of Incorporation, By-laws or equivalent
organizational documents.
SECTION 3.03. Capitalization. The authorized capital stock of
the Company consists of 10,000,000 Shares and 10,000,000 shares of Preferred
Stock, par value $1.00 per share ("Company Preferred Stock"). As of May 31,
1997, (i) 5,727,422 Shares were issued and outstanding, all of which were
validly issued, fully paid and nonassessable and not subject to preemptive
rights, (ii) no Shares were held in the treasury of the Company, (iii) no Shares
were held by the Subsidiaries, and (iv) 650,687 Shares were reserved for future
issuance pursuant to the Stock Option Plans of which 443,313 Shares were
reserved for issuance upon exercise of existing options. As of the date hereof,
no shares of Company Preferred Stock are issued and outstanding. Since May 31,
1997 to the date of this Agreement, the Company has not issued any Shares or
granted any Options covering Shares. Except as set forth in this Section 3.03,
or Section 3.03 of the Disclosure Schedule, there are no options, convertible
securities, warrants or other rights, agreements, arrangements or commitments
relating to the issued or unissued capital stock obligating the Company or any
Subsidiary to issue or sell or cause to be issued, delivered or sold, additional
shares of capital stock of the Company or obligating the Company to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment any shares of capital stock
of, or other equity interests in, the Company or any Subsidiary. All Shares
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid
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and nonassessable. There are no outstanding contractual obligations of the
Company or any Subsidiary to repurchase, redeem or otherwise acquire any Shares
or any capital stock of any Subsidiary or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Subsidiary or any other person. Except as disclosed in Section 3.01 of the
Disclosure Schedule, (i) all of the outstanding capital stock of, or other
ownership interests in, each Subsidiary, has been validly issued, is (in the
case of capital stock) fully paid and nonassessable and (in the case of
partnership interests) not subject to current or future capital calls, and is
owned by the Company, directly or indirectly, free and clear of any lien and
free of any other charge, claim, encumbrance, limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests) and (ii) there are not now, and
on the Tender Offer Acceptance Date there will not be, any outstanding
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of any of the Subsidiaries, or otherwise
obligating the Company or any Subsidiary to issue, transfer or sell any such
securities or to make any payments in respect of any of its securities or its
equity.
SECTION 3.04. Authority Relative to this Agreement. The
Company has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
Transactions, subject, with respect to the Merger, to the approval and adoption
of this Agreement by the affirmative votes of the stockholders of the Company to
the extent required by Delaware Law, and the filing and recordation of
appropriate merger documents as required by Delaware Law. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the Transactions
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the affirmative votes of the stockholders of the Company to the
extent required by Delaware Law, and the filing and recordation of appropriate
merger documents as required by Delaware Law). This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Purchaser, constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Restated Certificate or By-laws of the Company, (ii) assuming that
required filings under the HSR Act (as hereinafter defined) and Delaware Law are
made by the appropriate parties, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or by which any
property or asset of the Company is bound or affected, or (iii) except as set
forth in Section 3.05 of the Disclosure Schedule, result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of the Company or any of its
Subsidiaries pursuant to, any note, bond, mortgage or indenture, deed of trust,
license,
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lease or, to the knowledge of the Company, any other contract, agreement, or
other instrument or obligation to which the Company is a party or by which the
Company or any such Subsidiary or any property or asset of the Company or
Subsidiary is bound or affected, except, in the cases of (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which do
not, individually or in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any governmental or regulatory authority to be obtained or made
by the Company, domestic or foreign, except (i) for applicable requirements, if
any, of the Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws")
and state takeover laws, the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), and filing and recordation of
appropriate merger documents as required by Delaware Law or (ii) where failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Offer
or the Merger, or otherwise prevent the Company from performing its obligations
in any material way under this Agreement, and does not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.06. SEC Filings; Financial Statements. (a) The
Company has filed all forms, reports and documents required to be filed by it
with the SEC since December 31, 1995 (collectively, the "SEC Reports"). The SEC
Reports (i) were prepared in all material respects in accordance with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Exchange Act, as the case may be, and the rules and regulations
thereunder and as of their respective filing dates, complied as to form in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act, and (ii) did not, at the time they were filed (or at the effective
date thereof in the case of registration statements), contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary is currently required to file any form, report or other document with
the SEC under Section 12 of the Exchange Act.
(b) Each of the consolidated audited and unaudited financial
statements (including, in each case, any notes thereto) of the Company contained
in the SEC Reports was prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis ("GAAP") throughout
the periods indicated (except as may be indicated in the notes thereto and
except that financial statements included with quarterly reports on Form 10-Q do
not contain all GAAP notes to such financial statements) and each fairly
presented the consolidated financial position, results of operations and changes
in stockholders' equity and cash flows of the Company and the consolidated
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected, individually
or in the aggregate, to have a Material Adverse Effect).
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(c) Except as (i) and to the extent set forth on the
consolidated balance sheet of the Company and the consolidated Subsidiaries as
at December 31, 1996, including the notes thereto (the "1996 Balance Sheet"),
(ii) set forth in Section 3.06(c) of the Disclosure Schedule or (iii) disclosed
in any SEC Report filed by the Company after December 31, 1996, neither the
Company nor any Subsidiary has any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise) which would be required to
be reflected on a balance sheet, or in the notes thereto, prepared in accordance
with GAAP, except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since December 31, 1996 which
would not, individually or in the aggregate, be material in amount.
SECTION 3.07. Absence of Certain Changes or Events. Since
December 31, 1996, except as contemplated by this Agreement or disclosed in any
SEC Report or as set forth in Section 3.07 of the Disclosure Schedule, there has
not been (i) any event or change having, individually or in the aggregate, a
Material Adverse Effect, except for general economic changes and changes that
may affect generally the industries in which the Company operates, (ii) any
material change by the Company in its accounting methods, principles or
practices, (iii) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company or any redemption,
purchase or other acquisition of any of its securities, (iv) any entry into any
agreement or understanding, whether written or (if enforceable) oral, between
the Company or any Subsidiary on the one hand, and any of their respective
employees, on the other hand, providing for the employment of any such employees
or any severance or termination benefits payable or to become payable by the
Company or any Subsidiary to any employee, or (v) except as permitted by this
Agreement and except for increases made prior to the date of this Agreement in
accordance with past practices, any increase (including any increase effective
in the future) in (A) the compensation, severance or termination benefits
payable or to become payable by the Company or any Subsidiary to any employee
(or any increase in benefits under any change in control severance arrangement
applicable to employees of the Company and the subsidiaries, generally) or (B)
any bonus, insurance, pension or other employee benefits (including without
limitation the granting of stock options, stock appreciation rights or
restricted stock awards) made to, for or with any employee. All contracts,
agreements or understandings, whether written or (if enforceable) oral, between
the Company or any Subsidiary on the one hand, and any of their respective
employees on the other hand, are set forth in Schedule 3.07 of the Disclosure
Schedule and have been furnished to Parent prior to the date hereof. At April
30, 1997, the working capital (current assets minus current liabilities) of the
Company was $10.1 million, of which $9.9 million consisted of cash, and the
long-term indebtedness of the Company was less than $2.4 million. Since such
date, except as contemplated by this Agreement or as set forth in Section 3.07
of the Disclosure Schedule, there has not been (i) any decrease in the working
capital of the Company other than such as may result from actions taken in the
ordinary course of business of the Company or (ii) any increase in the long-term
indebtedness of the Company.
SECTION 3.08. Absence of Litigation. Except as disclosed in
the SEC Reports filed prior to the date of this Agreement or in Section 3.08
of the Disclosure Schedule, there is no claim, action, proceeding or
investigation pending or, to the best knowledge of the Company, threatened
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against the Company or any Subsidiary, or affecting any property or asset of the
Company or any Subsidiary, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which (i)
individually or in the aggregate, is reasonably expected to have a Material
Adverse Effect (other than any claim, action, proceeding or investigation
seeking to delay or prevent the consummation of any Transaction) or (ii) seeks
to delay or prevent the consummation of any Transaction. Neither the Company nor
any Subsidiary nor any property or asset of the Company or any Subsidiary is
subject to any order, writ, judgment, injunction, decree, determination or award
having, individually or in the aggregate, a Material Adverse Effect.
SECTION 3.09. Compliance with Applicable Laws. The Company and
each Subsidiary hold all licenses, franchises, permits and authorizations
necessary for the lawful conduct of its business as it is currently conducted
except where the failure to so hold is not reasonably expected to have a
Material Adverse Effect. Except as disclosed in the Disclosure Schedule or in
any SEC Report filed prior to the date of this agreement or as to matters for
which reserves have been established and which reserves have been disclosed to
Purchaser, the businesses of the Company and the Subsidiaries currently are not
being conducted, and have not previously been conducted, in violation of any
law, ordinance or regulation of any court, governmental authority or other
regulatory or administrative agency or commission, domestic or foreign
("Governmental Entity"), except for possible violations which individually or in
the aggregate do not have a Material Adverse Effect. Except as described in SEC
Reports filed prior to the date of this Agreement, no investigation or review by
any Governmental Entity concerning any such possible violations by the Company
or any Subsidiary is pending or, to the knowledge of the executive officers of
the Company, threatened, nor has any Governmental Entity indicated an intention
to conduct the same in each case other than those the outcome of which could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. (a) Section 3.10 of the
Disclosure Schedule contains a true and complete list of (i) all employee
benefit plans (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements to which the Company or any Subsidiary is a party,
with respect to which the Company or any Subsidiary has any obligation or which
are maintained, contributed to or sponsored by the Company or any Subsidiary for
the benefit of any current or former employee, officer or director of the
Company or any Subsidiary and (ii) each employee benefit plan for which the
Company or any Subsidiary could incur liability not otherwise provided for in
the Company's financial statements contained in the SEC Reports under Section
4069 of ERISA, in the event such plan were terminated, or under Section 4212(c)
of ERISA, or in respect of which the Company or any Subsidiary remains
secondarily liable under Section 4204 of ERISA (collectively, (i) and (ii)
referred to herein as the "Plans"). Each Plan is in writing and the Company has
made available to Parent true and complete copies of each Plan and true and
complete copies of each material document prepared in connection with each such
Plan, including, without limitation, (i) a copy of each trust or other funding
arrangement, (ii) each
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<PAGE> 20
summary plan description and summary of material modifications, (iii) the most
recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the most
recently prepared actuarial report and financial statement in connection with
each such Plan. Except as specifically provided by this Agreement, neither the
Company nor any Subsidiary has any express or implied commitment (i) to create,
incur liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (ii) to enter into any contract or agreement to
provide compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Internal Revenue Code of 1986, as amended
(the "Code").
(b) None of the Plans is a multiemployer plan, within the
meaning of Section 3(37) or 4001(a)(3) of ERISA (a "Multiemployer Plan"), or is
a single employer pension plan, within the meaning of Section 4001(a)(15) of
ERISA, for which the Company or any Subsidiary could incur liability under
Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). Except to the extent
set forth in Plans listed in Section 3.09 of the Disclosure Schedule, none of
the Plans (i) provides for the payment of separation, severance, termination or
similar-type benefits to any person, (ii) obligates the Company or any
Subsidiary to pay separation, severance, termination or other benefits as a
result of any Transaction or (iii) obligates the Company or any Subsidiary to
make any payment or provide any benefit that could be subject to a tax under
Section 4999 of the Code. Except as disclosed in Section 3.09 of the Disclosure
Schedule, none of the Plans provides for or promises retiree medical, disability
or life insurance benefits to any current or former employee, officer or
director of the Company or any Subsidiary.
(c) Each Plan which is intended to be qualified under Section
401(a) or 401(k) of the Code has received a favorable determination letter from
the IRS that such Plan is so qualified, and each trust established in connection
with any Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
such trust is so exempt. No fact or event has occurred that could adversely
affect the qualified status of any such Plan or the exempt status of any such
trust, other than those which have been remedied by the IRS' Voluntary
Compliance Resolution or Closing Agreement Programs. Each trust maintained or
contributed to by the Company or any Subsidiary which is intended to be
qualified as a voluntary employees' beneficiary association exempt from federal
income taxation under Sections 501(a) and 501(c)(9) of the Code has received a
favorable determination letter from the IRS that it is so qualified and so
exempt, and no fact or event has occurred that could adversely affect such
qualified or exempt status.
(d) Except to the extent as does not constitute a Material
Adverse Effect, each Plan is now and has been operated in all respects in
accordance with the requirements of all applicable laws, including, without
limitation, ERISA and the Code, and the Company and each Subsidiary have
performed all obligations required to be performed by them under, are not in any
respect in default under or in violation of, and have no knowledge of any
default or violation by any party to, any Plan. No Plan has incurred an
"accumulated funding deficiency" (within the meaning of Section 302 of ERISA or
Section 412 of the Code), whether or not waived. The Company's financial
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<PAGE> 21
statements contained in the SEC Reports reflect an accrual (through March 31,
1997) of all material amounts of employer contributions and premiums accrued but
unpaid with respect to the Plans. With respect to each Plan subject to Title IV
of ERISA, the Company has no knowledge that, as of the date hereof, the excess
of the accumulated benefit obligations of such Plan over the fair market value
of the assets of such Plan has increased above such excess determined as of the
date of the most recent actuarial valuation report prepared for such Plan.
(e) The Company and the Subsidiaries have not incurred any
liability under, and have complied in all respects with, the Worker Adjustment
Retraining Notification Act and the regulations promulgated thereunder and do
not reasonably expect to incur any such liability as a result of actions taken
or not taken prior to the consummation of the Offer.
(f) Except as set forth in Section 3.10 of the Disclosure
Schedule, each Plan may be unilaterally terminated at any time by the Company or
a Subsidiary without material liability.
SECTION 3.11. Labor Matters. Except as set forth in Section
3.11 of the Disclosure Schedule, and other than exceptions as do not have a
Material Adverse Effect, (i) there are no controversies including any labor
strike, material organized work stoppage or other material organized labor
controversy pending or, to the best knowledge of the Company, threatened between
the Company or any Subsidiary and any of their respective employees; (ii)
neither the Company nor any Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company or any Subsidiary, nor, to the best knowledge of the Company, are there
any activities or proceedings of any labor union to organize any such employees;
(iii) there are no grievances outstanding against the Company or any Subsidiary
under any such agreement or contract; (iv) there are no unfair labor practice
complaints pending against the Company or any Subsidiary before the National
Labor Relations Board or any current union representation questions involving
employees of the Company or any Subsidiary; (v) there is no strike, slowdown,
work stoppage or lockout, or, to the best knowledge of the Company, threat
thereof, by or with respect to any employees of the Company or any Subsidiary
and (vi) the Company and each Subsidiary is in compliance with all applicable
agreements, contracts and policies relating to employment, employment practices,
wages, hours and terms and conditions of employment of the employees.
SECTION 3.12. Offer Documents; Schedule 14D-9. Neither the
Schedule 14D-9 nor any information supplied by the Company for inclusion in the
Offer Documents shall, at the respective times the Schedule 14D-9, the Offer
Documents, or any amendments or supplements thereto are filed with the SEC or
are first published, sent or given to stockholders of the Company, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading, except that no representation or warranty is made by the
Company with respect to information supplied by Purchaser or Parent for
inclusion in the Schedule 14D-9. The Schedule 14D-9 shall comply in all material
respects as to form with the requirements of the Exchange Act and the rules and
regulations thereunder.
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SECTION 3.13. Taxes. (a) Except as set forth on Section 3.13
of the Disclosure Schedule, (i) the Company and each Subsidiary, and any
affiliated, combined or unitary group of which the Company or any Subsidiary is
or was a member has properly completed and timely (taking into account any
extensions) filed all federal and all material state, local and foreign returns,
declarations, reports, estimates, information returns and statements ("Returns")
required to be filed in respect of any Tax and has timely paid all Taxes that
are shown by such Returns to be due and payable and (ii) the Returns correctly
and accurately (except perhaps for one or more matters the aggregate effect of
which is not material) reflect the facts regarding the income, business and
assets, operations, activities, status or other matters of the Company required
to be shown thereon or any other information required to be shown thereon and
are not subject to penalties under Section 6662 of the Code, relating to
accuracy-related penalties, or any corresponding provision of applicable state,
local or foreign tax law or any predecessor provision law, (iii) the Company and
each Subsidiary has established reserves that are adequate in the aggregate for
the payment of all material Taxes not yet due and payable with respect to the
results of operations of the Company and the Subsidiary through the date hereof,
and (iv) the Company and each Subsidiary have complied in all material respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and the filing of federal Returns and any material state or
local Return.
(b) Section 3.13 of the Disclosure Schedule sets forth the
last taxable period through which the federal income Tax Returns of the Company
and each Subsidiary have been examined by the IRS. Except to the extent being
contested in good faith, all material deficiencies asserted as a result of such
examinations and any examination by any applicable state or local taxing
authority have been paid, fully settled or adequately provided for in the
Company's most recent audited financial statements. Except as provided for in
Section 3.13 of the Disclosure Schedule, no material federal, state or local
income or franchise tax audits or other administrative proceedings or court
proceedings are presently pending with regard to any Taxes for which the Company
or any of the Subsidiaries would be liable, and no material deficiency which has
not yet been paid for any such Taxes has been proposed, asserted or assessed
against the Company or any of the Subsidiaries with respect to any period.
(c) Except as disclosed on Section 3.13 of the Disclosure
Schedule, neither the Company nor any Subsidiary has executed or entered into
(or prior to the close of business on the Closing Date will execute or enter
into) with the IRS or any taxing authority (i) any agreement extending the
period for assessment or collection of any Tax for which the Company or any
Subsidiary is liable or (ii) a closing agreement pursuant to Section 7121 of the
Code or any similar provision of state or local income tax law that relates to
the Company or any Subsidiary. Neither the Company nor any Subsidiary has made
an election under Section 341(f) of the Code or has agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company or
any Subsidiary. Except as set forth in Schedule 3.13, neither the Company nor
any Subsidiary is a party to, is bound by or has any obligation under any tax
sharing agreement or similar agreement or arrangement. Neither the Company nor
any Subsidiary is a party to any agreement or other arrangement that would
result
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separately or in the aggregate in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code.
(d) There are no liens for Taxes (other than for current Taxes
not yet due and payable) on the assets of the Company or any Subsidiary.
(e) Except for the group of which the Company is presently a
member, neither the Company nor any Subsidiary has ever been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code, other than as a common parent corporation.
(f) After the date hereof, no election which is inconsistent
with past practices with respect to Taxes will be made without the written
consent of Buyer
(g) None of the assets of the Company or any Subsidiary is
property that the Company is required to treat as being owned by any other
person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code.
(h) None of the assets of the Company or any Subsidiary
directly or indirectly secures any debt the interest on which is tax-exempt
under Section 103(a) of the Code.
(i) None of the assets of the Company or any Subsidiary is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(j) Neither the Company nor any Subsidiary has agreed to make
nor is it required to make any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise which will have any adverse
effect on any Tax for a period which ends after December 31, 1996.
(k) Neither the Company nor any Subsidiary has participated in
an international boycott within the meaning of Section 999 of the Code.
(l) Neither the Company nor any Subsidiary has nor has either
had a permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States and such foreign
country.
(m) Schedule 3.13 of the Disclosure Schedule identifies each
arrangement to which the Company or a Subsidiary is a party and which is a
partnership for federal income tax purposes and which was required to file an
income tax return for a taxable year of such partnership which ended in 1996
(taking into account any election which permitted such arrangement not to file
such a return).
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(n) Schedule 3.13 of the Disclosure Schedule identifies the
Company's basis and excess loss account, if any, in each Subsidiary which had on
December 31, 1996 assets with a fair market value in excess of $500,000.
(o) "Tax" or "Taxes" means any and all taxes, fees, levies,
duties, tariffs, imposts, and other charges of any kind (together with any and
all interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and custom duties, tariffs, and
similar charges.
SECTION 3.14. Brokers. No broker, finder intermediary or
investment banker (other than Oppenheimer) is entitled to any brokerage,
finder's or other fee or commission in connection with the Transactions based
upon arrangements made by or on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and Oppenheimer pursuant to which such firm would be
entitled to any payment relating to the Transactions.
SECTION 3.15. Insurance. Section 3.15 of the Disclosure
Schedule lists all insurance policies currently held by the Company or any of
the Subsidiaries insuring occurrences or claims on or made on the date hereof.
There is no default by the Company or any subsidiary with respect to any
provision contained in any such insurance policy which would permit the denial
of coverage or cancellation of coverage thereunder, except for defaults or
failures which, individually or in the aggregate, would not have a Material
Adverse Effect and the Subsidiaries taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 4.01. Corporate Organization. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to have such
power and authority would not, individually or in the aggregate, have a material
adverse effect on the ability of Parent and Purchaser to perform their
obligations hereunder and to consummate the Transactions.
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<PAGE> 25
SECTION 4.02. Authority Relative to this Agreement. Each of
Parent and Purchaser has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions, subject, with respect to the Merger, to the filing
and recordation of appropriate merger documents as required by Delaware Law. The
execution and delivery of this Agreement by Parent and Purchaser and the
consummation by Parent and Purchaser of the Transactions have been duly and
validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Parent or Purchaser are necessary to authorize this
Agreement or to consummate the Transactions (other than, with respect to the
Merger, the filing and recordation of appropriate merger documents as required
by Delaware Law). This Agreement has been duly and validly executed and
delivered by Parent and Purchaser and, assuming the due authorization, execution
and delivery by the Company, constitutes a legal, valid and binding obligation
of each of Parent and Purchaser enforceable against each of Parent and Purchaser
in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by Parent and Purchaser do not, and
the performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation or Bylaws of either Parent or
Purchaser, (ii) assuming that required filings under the HSR Act and Delaware
Law are made by the appropriate parties, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or Purchaser or by
which any property or asset of either of them is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance on any property or asset of Parent
or Purchaser pursuant to, any note, bond, mortgage or indenture, deed of trust,
license, lease or, to the knowledge of Parent and Purchaser, any other contract,
agreement or other instrument or obligation to which Parent or Purchaser is a
party or by which Parent or Purchaser or any property or asset of either of them
is bound or affected, except, in the cases of (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, prevent Parent and Purchaser from performing
their respective obligations in any material way under this Agreement and
consummating the Transactions.
(b) The execution and delivery of this Agreement by Parent and
Purchaser do not, and the performance of this Agreement by Parent and Purchaser
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Exchange Act,
Blue Sky Laws and state takeover laws, the HSR Act, and filing and recordation
of appropriate merger documents as required by Delaware Law and (ii) where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
the Transactions, or otherwise prevent Parent or Purchaser from performing their
respective obligations in any material way under this Agreement.
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<PAGE> 26
SECTION 4.04. Offer Documents; Proxy Statement. The Offer
Documents will not, at the time the Offer Documents are filed with the SEC or
are first published, sent or given to stockholders of the Company, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading. The information supplied by Parent for inclusion in the
proxy statement to be sent to the stockholders of the Company in connection with
the Stockholders Meeting (as hereinafter defined) (such proxy statement, as
amended and supplemented, being referred to herein as the "Proxy Statement") and
Schedule 14D-9 will not, on the date the Proxy Statement or Schedule 14D-9 (or
any amendment or supplement thereto) is first mailed to stockholders of the
Company, at the time of the Stockholders Meeting and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders Meeting which shall have become
false or misleading. Notwithstanding the foregoing, Parent and Purchaser make no
representation or warranty with respect to any information supplied by the
Company or any of its representatives which is contained in any of the foregoing
documents or the Offer Documents. The Offer Documents shall comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.
SECTION 4.05. Brokers. No broker, finder, intermediary or
investment banker (other than Petrie Parkman & Co., Inc.) is entitled to any
brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of Parent or
Purchaser.
SECTION 4.06. Financing. Parent has, or will have available to
it at the time Purchaser is required to pay for Shares under the terms of the
Offer, and will make available to Purchaser, sufficient funds to permit
Purchaser to acquire all the outstanding Shares in the Offer and the Merger.
Parent has obtained written commitments for such funds and has provided the
Company with copies of such commitments.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the
Purchaser's Election Date. The Company covenants and agrees that, between the
date of this Agreement and the election or appointment of Purchaser's designees
to the Board pursuant to Section 6.03 upon the purchase by Purchaser of any
Shares pursuant to the Offer (the "Purchaser's Election Date"), unless Parent
shall otherwise agree in writing, the businesses of the Company and the
Subsidiaries shall be conducted only in, and the Company and the Subsidiaries
shall not take any action except in, the ordinary course of business and in a
manner consistent with past practice; and the Company shall
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<PAGE> 27
use its reasonable best efforts to preserve substantially intact the business
organization of the Company and the Subsidiaries, to keep available the services
of the current officers, employees and consultants of the Company and the
Subsidiaries and to preserve the goodwill of those current relationships of the
Company and the Subsidiaries with customers, suppliers and other persons with
which the Company or any Subsidiary has significant business relations. By way
of amplification and not limitation, except as contemplated by this Agreement or
as disclosed in Section 5.01 of the Disclosure Schedule, the Company shall not,
between the date of this Agreement and the Purchaser's Election Date, directly
or indirectly do, or propose to do, any of the following without the prior
written consent of Parent:
(a) amend or otherwise change the certificate of incorporation
or by-laws or equivalent organizational documents of the Company or
the Subsidiaries;
(b) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance
of, (i) any shares of capital stock of any class of the Company or any
Subsidiary, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom
interest), of the Company or any Subsidiary (except for the issuance of
Shares issuable pursuant to Options outstanding on the date hereof) or
(ii) any assets of the Company or any Subsidiary, except for sales of
products in the ordinary course of business and in a manner consistent
with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock (except for such declarations, set
asides, dividends and other distributions made from any Subsidiary to
the Company);
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets other than in the ordinary course of
business; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contribution to, or investments in,
any other person (other than such of the foregoing as are made by the
Company to or in a wholly-owned subsidiary of the Company), except in
the ordinary course of business and consistent with past practice; or
(iii) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this Section
5.01(e);
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(f) increase the compensation payable or to become payable to
its officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any
Subsidiary who are not officers of the Company or any Subsidiary, or
grant any severance or termination pay to, or enter into any employment
or severance agreement with, any director, officer or other employee of
the Company or any Subsidiary, or establish, adopt, enter into or amend
any collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(g) make any tax election or settle or compromise any
material federal, state, local or foreign income tax liability;
(h) pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the 1996 Balance Sheet or
subsequently incurred in the ordinary course of business and consistent
with past practice;
(i) settle or compromise any pending or threatened suit,
action or claim which is material or which relates to any of the
Transactions;
(j) undertake any capital commitment not reflected in the
Company's budget in an individual amount greater than $100,000 or, when
aggregated with all other capital commitments not reflected in the
Company's budget, in an aggregate amount greater than $1,000,000; or
(k) take or offer or propose to take, or agree to take in
writing, or otherwise, any of the actions described in paragraphs (a)
through (j) of this Section 5.01 or any action which would result in
any of the conditions to the Offer not being satisfied (other than as
contemplated by this Agreement).
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders Meeting. Subject to its fiduciary
duties under applicable law as advised by independent counsel, the Company,
acting through the Board, shall, if required by applicable law and the Restated
Certificate and By-laws of the Company, (a) duly call, give notice of, convene
and hold an annual or special meeting of its stockholders as soon as practicable
following consummation of the Offer for the purpose of considering and taking
action on this Agreement and the transactions contemplated hereby (the
"Stockholders Meeting") and (b) include in the Proxy Statement the
recommendation of the Board that the stockholders of the
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Company approve and adopt this Agreement and the Transactions; provided,
however, that such recommendation and approval may be withdrawn, modified or
changed to the extent that the Board determines after consultation with
independent counsel that such withdrawal, modification or change is consistent
with its fiduciary duties. Any such withdrawal, modification or change shall not
constitute a breach of this Agreement but will nonetheless be subject to the
provisions of Sections 8.01 and 8.03. To the extent permitted by law, Parent and
Purchaser each agree to vote all Shares beneficially owned by them in favor of
the Merger.
SECTION 6.02. Proxy Statement. As soon as practicable
following the purchase of all Shares validly tendered and not withdrawn pursuant
to the Offer, if required by applicable law the Company shall file the Proxy
Statement with the SEC under the Exchange Act, and shall use its reasonable best
efforts to have the Proxy Statement cleared by the SEC. Parent, Purchaser and
the Company shall cooperate with each other in the preparation of the Proxy
Statement, and the Company shall notify Parent of the receipt of any comments of
the SEC with respect to the Proxy Statement and of any requests by the SEC for
any amendment or supplement thereto or for additional information and shall
provide to Parent promptly copies of all correspondence between the Company or
any representative of the Company and the SEC. The Company shall give Parent and
its counsel the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give Parent and its counsel the opportunity to
review all amendments and supplements to the Proxy Statement and all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. Each of the Company, Parent and Purchaser
agrees to use its reasonable best efforts, after consultation with the other
parties hereto, to respond promptly to all such comments of and requests by the
SEC and to cause the Proxy Statement and all required amendments and supplements
thereto to be mailed to the holders of Shares entitled to vote at the
Stockholders Meeting at the earliest practicable time with the intent being to
complete the Merger before September 30, 1997.
SECTION 6.03. Company Board Representation; Section 14(f). (a)
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, Purchaser shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the Board as
shall give Purchaser representation on the Board equal to the product of the
total number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Purchaser or any affiliate of Purchaser
at such time bears to the total number of Shares then outstanding, and the
Company shall, at such time, promptly take all actions necessary to cause
Purchaser's designees to be elected as directors of the Company, including
increasing the size of the Board or securing the resignations of incumbent
directors or both. At such times, the Company shall use its best efforts to
cause persons designated by Purchaser to constitute the same percentage as
persons designated by Purchaser shall constitute of the Board of (i) each
committee of the Board (some of whom may be required to be independent as
required by applicable law or rules of the National Association of Securities
Dealers Automated Quotation National market System ("NASDAQ/NMS")), (ii) each
board of directors of each domestic Subsidiary and (iii) each committee of each
such board, in each case only to the extent permitted by applicable law.
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Notwithstanding the foregoing, until the time Purchaser acquires a majority of
the then outstanding Shares on a fully diluted basis, the Company shall use its
best efforts to ensure that all the members of the Board and each committee of
the Board and such boards and committees of the domestic Subsidiaries as of the
date hereof who are not employees of the Company shall remain members of the
Board and of such boards and committees.
(b) The Company shall promptly take all actions required
pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations under this Section 6.03 and shall
include in the Schedule 14D-9 an Information Statement pursuant to Section 14(f)
providing such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill such
obligations. Parent or Purchaser shall supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1.
(c) Following the election or appointment of designees of
Purchaser pursuant to this Section 6.03, prior to the Effective Time, any
amendment of this Agreement or the Restated Certificate or By-laws of the
Company, any termination of this Agreement by the Company, any extension by the
Company of the time for the performance of any of the obligations or other acts
of Parent or Purchaser or waiver of any of the Company's rights hereunder shall
require the concurrence of a majority of the directors of the Company then in
office who neither were designated by Purchaser nor are employees of the Company
or if no such directors are then in office, no such amendment, termination,
extension or waiver shall be effected which is materially adverse to the holders
of Shares (other than Parent and its subsidiaries).
SECTION 6.04. Access to Information; Confidentiality. (a) From
the date hereof to the consummation of the Offer, the Company shall, and shall
cause the Subsidiaries and the officers, directors, employees, auditors and
agents of the Company and the Subsidiaries to, afford the officers, employees
and agents of Parent and Purchaser and persons providing or committing to
provide Parent or Purchaser with financing for the Transactions complete access
at all reasonable times to the officers, employees, agents, properties, offices,
plants and other facilities, books and records of the Company and each
Subsidiary, and shall furnish Parent and Purchaser and persons providing or
committing to provide Parent or Purchaser with financing for the Transactions
with all financial, operating and other data and information as Parent or
Purchaser, through its officers, employees or agents, may reasonably request.
(b) To the extent permitted by applicable law, in order to
facilitate the continuing operation of the Company by Parent and Purchaser from
and after the completion of the Offer without disruption and to assist in the
achievement of an orderly transition in the ownership and management of the
Company, from the date of this Agreement and until completion of the Offer, the
Company, Parent and Purchaser shall cooperate reasonably with each other to
effect an orderly transition including, without limitation, with respect to
communications with employees.
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(c) All information obtained by Parent or Purchaser pursuant
to this Section 6.04 shall be kept confidential in accordance with the
confidentiality agreement, dated April 29, 1997 (the "Confidentiality
Agreement"), between Parent and the Company.
SECTION 6.05. No Solicitation of Transactions. Until this
Agreement shall have been terminated pursuant to Section 8.01, neither the
Company nor any Subsidiary shall, directly or indirectly, through any officer,
director or any agent, investment banker, financial advisor, attorney,
accountant or other representative retained by the Company or any Subsidiary or
otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person relating to any acquisition or purchase of all or (other
than in the ordinary course of business) any substantial portion of the assets
of, or any equity interest in, the Company (including, without limitation, any
take-over bid or tender offer or exchange offer, merger, consolidation or
similar transaction involving the Company or any of its subsidiaries (other than
the transactions contemplated by this Agreement) (any of such transactions being
an "Acquisition Transaction") or any business combination with the Company or,
except to the extent required by fiduciary obligations under applicable law as
advised by independent counsel, participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that nothing contained in this Section 6.05 shall prohibit
the Board from furnishing information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited (from the date
of this Agreement) proposal in writing by such person to acquire the Company
pursuant to a merger, consolidation, share exchange, business combination or
other similar transaction or to acquire all or substantially all of the assets
of the Company or any of its Subsidiaries, if, and only to the extent that, (i)
the Board, after consultation with independent counsel (which may include its
regularly engaged independent counsel), determines in good faith that such
action is required for the Board to act in a manner that is consistent with its
fiduciary duties to stockholders imposed by Delaware Law (such determination
having been made by the full Board and not having been delegated to any
committee thereof) and (ii) prior to furnishing such information to, or entering
into discussions or negotiations with, such person the Company obtains from such
person an executed confidentiality agreement on terms no less favorable to the
Company than those contained in the Confidentiality Agreement. The Company
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Company shall notify Parent promptly if any such proposal or
offer, or any inquiry or contact with any person with respect thereto, is made
after the execution hereof. The Company agrees not to release any third party
from, or waive any provision of, any confidentiality or, subject to the
fiduciary duties of the Board, standstill agreement to which the Company is or
may become a party.
SECTION 6.06. Employee Compensation and Other Employee
Benefits Matters. Annex B hereto sets forth certain agreements among the parties
hereto with respect to the Plans and other employee benefits matters.
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SECTION 6.07. Directors' and Officers' Indemnification
and Insurance.
(a) The Certificate of Incorporation of the Surviving
Corporation and each of its Subsidiaries shall contain provisions no less
favorable with respect to limitation of liability than are set forth in Article
VII of the Restated Certificate and Article V of the Bylaws of the Company as of
the date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would affect adversely the rights thereunder of individuals who at
any time from and after the date of this Agreement and to and including the
Effective Time were directors, officers, employees, fiduciaries or agents of the
Company or any of its Subsidiaries in respect of actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the matters
contemplated by this Agreement), unless such modification is required by law.
From and after the Purchaser's Election Date, the Company shall not amend,
repeal or otherwise modify the limitation of liability provisions of Article VII
of the Restated Certificate or the indemnification or advancement of expenses
provisions in the Restated Certificate of any of the Company's Subsidiaries in
any manner that would adversely affect the rights thereunder of individuals who
at any time from and after the date of this Agreement and to and including the
Effective Time were directors, officers, employees, fiduciaries or agents of the
Company or any of its Subsidiaries in respect of actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the matters
contemplated by this Agreement), unless such modification is required by law.
(b) The Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger becomes effective,
indemnify, hold harmless and defend, and, after the Effective Time, the
Surviving Corporation shall, to the fullest extent permitted under applicable
law, indemnify, hold harmless and defend, each present and former director,
officer, employee, fiduciary and agent of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any threatened or
actual claim, action, suit, proceeding or investigation (whether arising before,
on or after the Effective Time) ("Claim"), whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer, director, employee, fiduciary or agent
(including, without limitation, any Claim arising out of this Agreement or any
of the transactions contemplated hereby or the operations of the Company or the
condition of the assets of the Company), whether occurring before, on or after
the Effective Time, whether asserted or claimed prior to, at or after the
Effective Time, for a period of six years after the later of the date of this
Agreement and the Effective Time, in each case to the fullest extent permitted
under Delaware Law (and shall pay any expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under Delaware Law, upon receipt from the Indemnified
Party to whom expenses are advanced of any undertaking to repay such advances
required under Delaware Law). In the event of any such claim, action, suit,
proceeding or investigation, (i) the Indemnified Parties may retain counsel
(including local counsel) satisfactory to them and the Company or the Surviving
Corporation, as the case may be, shall pay the reasonable fees and expenses of
such counsel, promptly after statements therefor are received and (ii) the
Company and the Surviving Corporation
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shall use all reasonable efforts in the vigorous defense of any such matter;
provided, however, that neither the Company nor the Surviving Corporation shall
be liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld); and provided further that neither the
Company nor the Surviving Corporation shall be obligated pursuant to this
Section 6.07(b) to pay the fees and expenses of more than one counsel (plus
appropriate local counsel) for all Indemnified Parties in any single action
unless there is, as determined by counsel to the Indemnified Parties, under
applicable standards of professional conduct, a conflict or a reasonable
likelihood of a conflict on any significant issue between the positions of any
two or more Indemnified Parties, in which case such additional counsel
(including local counsel) as may be required to avoid any such conflict or
likely conflict may be retained by the Indemnified Parties at the expense of the
Company or the Surviving Corporation; and provided further that, in the event
that any claim for indemnification is asserted or made within such six-year
period, all rights to indemnification in respect of such claim shall continue
until the disposition of such claim.
(c) The Company shall, from and after the date of this
Agreement and to and including the Effective Time, and the Surviving Corporation
shall, for six years from the Effective Time, maintain in effect the current
directors' and officers' liability insurance policies maintained by the Company
(provided that the Surviving Corporation may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions which are no
less advantageous to such officers and directors so long as substitution does
not result in gaps or lapses in coverage) with respect to matters occurring
prior to the Effective Time.
(d) Except as otherwise provided in this Agreement and only to
the extent permitted by applicable law and public policy, the Surviving
Corporation, Parent and Purchaser each hereby release and discharge each
Indemnified Party from, and covenant not to sue any Indemnified Party with
regard to, any Claim, whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as an
officer, director, employee, fiduciary or agent (including, without limitation,
any Claim arising out of this Agreement or any of the transactions contemplated
hereby or the operations of the Company or the condition of the assets of the
Company). Such release and covenant not to sue include Claims resulting in any
way from the negligence or strict liability of any Indemnified Party, whether
the negligence or strict liability is active, passive, joint, concurrent, or
sole.
(e) In the event the Company or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of the Company
or the Surviving Corporation, as the case may be, or at Parent's option, Parent,
shall assume the obligations set forth in this Section 6.07.
(f) The By-laws of the Surviving Corporation and each of its
Subsidiaries shall contain the provisions with respect to indemnification,
defense and advancement of expenses set
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forth in the By-laws of the Company on the date of this Agreement, and such
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would affect adversely the
rights thereunder of individuals who at any time from and after the date of this
Agreement and to and including the Effective Time were directors, officers,
employees, fiduciaries or agents of the Company or any of its Subsidiaries in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), unless such modification is required by law or is desired to conform
such provisions with comparable provisions in the By-laws of Parent, which
By-law provisions shall be at least as favorable to such individuals as the
provisions contained in the Bylaws of Parent on the date of this Agreement. From
and after the Purchaser's Election Date, the Company shall not amend, repeal or
otherwise modify the indemnification, defense and advancement of expenses
provisions of the By-laws of the Company or the indemnification, defense and
advancement of expenses provisions in the By-laws of any of the Company's
Subsidiaries in any manner that would adversely affect the rights thereunder of
individuals who at any time from and after the date of this Agreement and to and
including the Effective Time were directors, officers, employees, fiduciaries or
agents of the Company or any of its Subsidiaries in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the matters contemplated by this Agreement), unless such
modification is required by law or is desired to conform such provisions with
comparable provisions in the By-laws of Parent, which By-law provisions shall be
at least as favorable to such individuals as the provisions contained in the
Bylaws of Parent on the date of this Agreement.
(g) The obligations of the Company or the Surviving
Corporation under this Section 6.07 shall not be terminated or modified in such
a manner as to adversely affect any director, officer, employee, fiduciary and
agent to whom this Section 6.07 applies without the consent of each affected
director, officer, employee, fiduciary and agent (it being expressly agreed that
the directors, officers, employees, fiduciaries and agents to whom this Section
6.07 applies shall be third-party beneficiaries of this Section 6.07).
(h) In the event that the Company or the Surviving Corporation
should fail, at any time from and after the Purchaser's Election Date, to comply
with any of the foregoing obligation set forth in this Section 6.07, for any
reason, Parent shall be responsible therefor and hereby agrees to perform such
obligations unconditionally without regard to any defense or other basis for
nonperformance which the Company or the Surviving Corporation may have or claim
(except as would be prohibited by applicable Delaware Law), it being the
intention of this subsection (h) that the officers, directors, employees,
fiduciaries and agents of the Company and its Subsidiaries shall be fully
indemnified and that the provisions of this subsection (h) be a primary
obligation of Parent and not merely a guarantee by Parent of the obligations of
the Company or Purchaser.
(i) Parent and Purchaser understand that the Company has
entered into contractual indemnification arrangements with each of its current
directors and executive officers.
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SECTION 6.08. Further Action; Reasonable Best Efforts. Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
(i) make promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions, (ii) use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Transactions, including, without limitation, using its reasonable best efforts
to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and the Subsidiaries as are necessary for the consummation of
the Transactions and to fulfill the conditions to the Offer and the Merger and
(iii) except as contemplated by this Agreement, use its reasonable best efforts
not to take any action, or enter into any transaction, which would cause any of
its representations or warranties contained in this Agreement to be untrue or
result in a breach of any covenant made by it in this Agreement. If, at any time
after the Effective Time the Surviving Corporation considers or is advised that
any deeds, bills of sale assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or otherwise in
the Surviving Corporation its right, title or interest in, to or under any of
the rights, properties or assets of either of the parties to the Merger acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with the Merger or otherwise to carry out the purposes of this Agreement, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of each of the parties to the
Merger or otherwise, all such deeds, bills of sale, assignments and assurances
and to take and do, in the name and on behalf of each, all such other actions
and things as may be necessary or desirable to vest, perfect or conform any and
all right, title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out the purposes of this
Agreement.
SECTION 6.09. Compliance with Antitrust Laws. Each of Parent,
Purchaser and the Company will use its reasonable best efforts to resolve such
objections, if any, which may be asserted with respect to the Offer or the
Merger under the antitrust laws. In the event a suit is instituted challenging
the Offer or the merger as violative of the antitrust laws, each of Parent,
Purchaser and the Company will use its reasonable best efforts to resist or
resolve such suit. Parent, Purchaser and the Company will use their reasonable
best efforts to take such action as may be required (a) by the Antitrust
Division of the Department of Justice or the Federal Trade Commission in order
to resolve such objections as either of them may have to the Offer or the Merger
under the antitrust laws or (b) by any federal or state court of the United
States, in any suit brought by a private party or Governmental Entity
challenging the Offer or the merger as violative of the antitrust laws, in order
to avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other order which has the effect of preventing
the consummation of the Offer or the Merger.
SECTION 6.10. Public Announcements. Parent and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or the Transactions
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
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agreement with a national securities exchange or the NASDAQ/NMS to which Parent
or the Company is a party.
SECTION 6.11. Parent Guarantee. Parent agrees to take all
action necessary to cause Purchaser to perform all of Purchaser's, and the
Surviving Corporation to perform all of the Surviving Corporation's, agreements,
covenants and obligations under this Agreement and to consummate the Offer and
the Merger on the terms and conditions set forth in this Agreement. Parent shall
be liable for any breach of any representation, warranty, covenant or agreement
of Purchaser and for any breach of this covenant.
SECTION 6.12. Participation in Closing. Parent and Purchaser
agree that their participation in the closing of the Offer and the Merger
constitutes an acknowledgment by them that they have had access to sufficient
information concerning the Company to make an informed decision to consummate
the Transactions.
SECTION 6.13. Notification of Certain Other Matters. The
Company will promptly notify Parent of:
(a) any written notice or other written communication from any
third party alleging that the consent of such third party is or may be
required in connection with the Transactions;
(b) any written notice or other written communication from
any Governmental Entity in connection with the Transactions; and
(c) any fact, development or occurrence that constitutes a
Material Adverse Effect or is reasonably expected to result in such an
effect.
SECTION 6.14. State Takeover Statutes. The Company will use
its reasonable best efforts to (i) exempt the Company, the Offer and the Merger
from requirements of any state takeover law by action of the Company's Board of
Directors or otherwise and (ii) assist in any challenge by Purchaser to the
validity or applicability to the Offer or the Merger of any state takeover law.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The respective
obligations of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions and
only the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the affirmative vote of the
stockholders of the Company to the extent required by Delaware Law
and the Restated Certificate;
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(b) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated;
(c) No Order. No foreign, United States or state governmental
authority or other agency or commission or foreign, United States or
state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive
order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of
making the acquisition of Shares by Parent or Purchaser or any
affiliate of either of them illegal or otherwise preventing or
prohibiting consummation of the Transactions; and
(d) Offer. Purchaser or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the
Offer; provided, however, that neither Parent nor Purchaser shall be
entitled to assert the failure of this condition if, in breach of this
Agreement or the terms of the Offer, Purchaser fails to purchase any
Shares validly tendered and not withdrawn pursuant to the Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated
and the Merger and the other Transactions may be abandoned at any time prior to
the Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders of the
Company:
(a) By mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company prior to Purchaser's
Election Date; or
(b) By Parent, Purchaser or the Company if (i) the Effective
Time shall not have occurred on or before September 30, 1997; provided,
however, that the right to terminate this Agreement under this Section
8.01(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date
or (ii) any court of competent jurisdiction in the United States or
other governmental authority shall have issued an order, decree, ruling
or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; or
(c) By Parent if (i) due to an occurrence or circumstance that
results in a failure to satisfy any condition set forth in Annex A
hereto, Purchaser shall have (A) failed to commence the Offer within 10
days following the date of this Agreement, (B) terminated the Offer
without having accepted any Shares for payment thereunder or (C) failed
to pay for
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Shares pursuant to the Offer within 90 days following the commencement
of the Offer, unless any such failure listed above shall have been
caused by or resulted from the failure of Parent or Purchaser to
perform in any material respect any material covenant or agreement of
either of them contained in this Agreement or the material breach by
Parent or Purchaser of any material representation or warranty of
either of them contained in this Agreement or (ii) prior to the
purchase of Shares pursuant to the Offer, the Board or any committee
thereof (A) shall have withdrawn or modified in a manner adverse to
Purchaser or Parent its approval or recommendation of the Offer, this
Agreement, the Merger or any other Transaction or (B) shall have
recommended another Acquisition Transaction with a third party.
(d) By the Company, upon approval of the Board, if (i)
Purchaser shall have (A) failed to commence the Offer within 10 days
following the date of this Agreement, (B) terminated the Offer without
having accepted any Shares for payment thereunder or (C) failed to pay
for Shares pursuant to the Offer within 90 days following the
commencement of the Offer, unless such failure to pay for Shares shall
have been caused by or resulted from the failure of the Company to
satisfy the conditions set forth in paragraphs (f) or (g) of Annex A or
(ii) prior to the purchase of Shares pursuant to the Offer, the Board,
after consultation with independent counsel, shall have withdrawn or
modified in a manner adverse to Purchaser or Parent its approval or
recommendation of the Offer, this Agreement or the Merger as a result
of a proposal by a third party for an Acquisition Transaction.
SECTION 8.02. Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 8.01, this Agreement shall
forthwith become void, and there shall be no liability on the part of any party
hereto, except as set forth in Section 8.03 and Section 9.01, and nothing herein
shall relieve any party from liability for any breach hereof.
SECTION 8.03. Costs and Expenses. Except as specified herein,
all costs and expenses incurred in connection with this Agreement and the
Transactions shall be paid by the party incurring such expenses, regardless of
whether any Transaction is consummated. To compensate Parent for entering into
this Agreement, taking actions to consummate the transactions contemplated
hereunder and incurring the costs and expenses related thereto and other losses
and expenses, including the foregoing the pursuit of other opportunities by
Parent, the Company and Parent agree as follows:
(a) Provided that neither Parent nor Purchaser shall be in
material breach of its obligations under this Agreement (which breach has not
been cured promptly following receipt by Parent or Purchaser, as the case may
be, of written notice thereof by the Company specifying in reasonable detail the
basis of such alleged breach), the Company shall pay to the Parent the sum of
$2,780,000 (the "Termination Fee") if (i) this Agreement is terminated either
(A) by the Company under the provisions of Section 8.01(d)(ii) or (B) by Parent
or Purchaser under the provisions of Section 8.01(c)(ii).
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<PAGE> 39
(b) Any payment required by paragraph (a) of this Section
shall become payable upon termination of the Agreement in the manner provided in
such paragraph.
(c) The Company acknowledges that the agreements contained in
this Section 8.02 are an integral party of the transactions contemplated in this
Agreement, and that, without these agreements, Parent would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the Termination Fee
when due, the Company shall in addition thereto pay to Parent all costs and
expenses (including fees and disbursements of counsel) incurred in collecting
such Termination Fee, as the case may be, together with interest on the amount
of the Termination Fee (or any unpaid portion thereof) from the date such
payment was required to be made until the date such payment is received by
Parent at the prime rate of The Chase Manhattan Bank, N.A., as in effect from
time to time during such period.
SECTION 8.04. Amendment. Subject to the limitations set forth
in Section 6.03(c), this Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that no amendment may be made
which (i) reduces the amount or changes the type of consideration into which
each Share shall be converted upon consummation of the Merger, (ii) imposes
conditions to the Merger in addition to those set forth in Section 7.01 or (iii)
would otherwise amend or change the terms and conditions of the Merger in any
manner materially adverse to the holders of Shares. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
SECTION 8.05. Waiver. Subject to the limitations set forth in
Section 6.03(c), at any time prior to the Effective Time, any party hereto may
(i) extend the time for the performance of any obligation or other act of any
other party hereto, (ii) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that (i) the
representations and warranties of the Company set forth in Article III shall
terminate on the Purchaser's Election Date, (ii) the agreements set forth in
Articles II and IX and Sections 6.06, 6.07 and 6.11 shall survive the Effective
Time indefinitely and (iii) the agreements set forth in Sections 6.04(c) and
8.03 and Article IX shall survive termination indefinitely.
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<PAGE> 40
SECTION 9.02. Scope of Representations and Warranties.
(a) Except as and to the extent expressly set forth in this
Agreement, the Company makes no, and disclaims any, representations or
warranties whatsoever, whether express or implied. The Company disclaims all
liability or responsibility for any other statement or information made or
communicated (orally or in writing) to Parent, Purchaser, their affiliates or
any stockholder, officer, director, employee, representative, consultant,
attorney, agent, lender or other advisor of Parent, Purchaser or their
affiliates (including, but not limited to, any opinion, information or advice
which may have been provided to any such person by any representative of the
Company or any other person or contained in the files or records of the
Company), wherever and however made.
(b) Except as and to the extent expressly set forth in this
Agreement, neither Parent nor Purchaser makes, and each disclaims, any
representations or warranties whatsoever, whether express or implied. Each of
Parent and Purchaser disclaims all liability and responsibility for any other
statement or information made or communicated (orally or in writing) to the
Company, its affiliates or any stockholder, officer, director, employee,
representative, consultant, attorney, agent, lender or other advisor of the
Company or its affiliates (including, but not limited to, any opinion,
information or advice which may have been provided to any such person by any
representative of Parent, Purchaser or any other person), wherever and however
made.
SECTION 9.03. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.03):
if to Parent or Purchaser:
Monterey Resources, Inc.
5201 Truxtun Avenue
Bakersfield, California
Facsimile No.: (805) 864-3050
Attention: R. Graham Whaling
with a copy to:
Andrews & Kurth L.L.P.
600 Travis, Suite 4200
Houston, Texas 77002
Facsimile No.: (713) 220-4285
Attention: G. Michael O'Leary
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<PAGE> 41
if to the Company:
McFarland Energy, Inc.
10425 South Painter Avenue
Santa Fe Springs, California 90670
Facsimile No.: (562) 906-4022
Attention: J. C. McFarland
with a copy to:
Baker & Botts, L.L.P.
910 Louisiana, Suite 3000
Houston, Texas 77002
Facsimile No.: (713) 229-1522
Attention: Walter J. Smith, Esq.
and
Oppenheimer & Co., Inc.
10880 Wilshire Boulevard
Los Angeles, California 90024
Facsimile No.: (310) 446-7444
Attention: Ronald D. Ormand
SECTION 9.04. Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified person;
(b) "beneficial owner" with respect to any Shares means a
person who shall be deemed to be the beneficial owner of such Shares
(i) which such person or any of its affiliates or associates (as such
term is defined in Rule 12b-2 promulgated under the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such person or
any of its affiliates or associates has, directly or indirectly, (A)
the right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the
right to vote pursuant to any agreement, arrangement or understanding
or (iii) which are beneficially owned, directly or indirectly, by any
other persons with whom such person or any of its affiliates or
associates or person with whom such person or any of its affiliates or
associates has any agreement,
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<PAGE> 42
arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any Shares;
(c) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or,
in the case of determining a date when any payment is due, any day on
which banks are not required or authorized to close in the City of Los
Angeles, California;
(d) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management and policies of a person, whether through the
ownership of voting securities, as trustee or executor, by contract or
credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation,
a "person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of the Company, the
Surviving Corporation, Parent or any other person means an affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries.
SECTION 9.05. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the Transactions is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 9.06. Entire Agreement; Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes, except as set forth in Section 6.04(c), all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof, except that the Confidentiality
Agreement shall remain in full force and effect. This Agreement shall not be
assigned by operation of law or otherwise, except that Parent and Purchaser may
assign all or any of their rights and obligations hereunder to any wholly owned
subsidiary of Parent provided that no such assignment shall relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligations.
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<PAGE> 43
SECTION 9.07. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than Section 6.07 (which is intended to be for
the benefit of the persons covered thereby and may be enforced by such persons).
SECTION 9.08. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
SECTION 9.09. Governing Law. Except to the extent that
Delaware Law applies to the Transactions, this Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware applicable
to contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any Delaware state or federal court sitting in the City of
Wilmington.
SECTION 9.10. Headings. The descriptive headings contained
in this Agreement are included for convenience of reference only and shall
not affect in any way the meaning or interpretation of this Agreement.
SECTION 9.11. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
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<PAGE> 44
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
MONTEREY RESOURCES, INC.
By /s/ R. Graham Whaling
--------------------------------------
Name: R. Graham Whaling
Title: Chairman of the Board and
Chief Executive Officer
MONTEREY ACQUISITION CORPORATION
By /s/ R. Graham Whaling
--------------------------------------
Name: R. Graham Whaling
Title: Chairman of the Board and
Chief Executive Officer
McFARLAND RESOURCES, INC.
By /s/ J. C. McFarland
--------------------------------------
Name: J. C. McFarland
Title: Chairman of the Board and
Chief Executive Officer
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<PAGE> 45
ANNEX A
-------
Conditions to the Offer
Notwithstanding any other provision of the Offer, Purchaser
shall not be required to accept for payment or pay for any Shares tendered
pursuant to the Offer, and may terminate or amend the Offer and may postpone the
acceptance for payment of and payment for Shares tendered, if (i) the Minimum
Condition shall not have been satisfied, (ii) any applicable waiting period
under the HSR Act shall not have expired or been terminated prior to the
expiration of the Offer after 30 days from the commencement of the Offer or
(iii) at any time on or after the date of this Agreement, and prior to the
acceptance for payment of Shares, any of the following conditions shall exist:
(a) there shall have been issued and remain in effect any
temporary restraining order, preliminary or final injunction, order or
decree by any court or governmental, administrative or regulatory
authority or agency, domestic or foreign, resulting from any action or
proceeding brought by any person which (i) restrains or prohibits the
making of the Offer or the consummation of any other Transaction, (ii)
prohibits or limits ownership or operation by the Company, Parent or
Purchaser of all or any material portion of the business or assets of
the Company and its Subsidiaries, taken as a whole, Parent or any of
their subsidiaries, or compels the Company, Parent or any of their
subsidiaries to dispose of or hold separate all or any material portion
of the business or assets of the Company, Parent or any of their
subsidiaries or imposes any material limitation on the ability of
Parent or Purchaser to conduct such business or own such assets, in
each case as a result of the Transactions; (iii) imposes material
limitations on the ability of Parent or Purchaser to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Purchaser pursuant
to the Offer, or otherwise on all matters properly presented to the
Company's stockholders, including, without limitation, the approval and
adoption of this Agreement and the Transactions; (iv) requires
divestiture by Parent or Purchaser of any Shares;
(b) there shall have been any action taken, or any statute,
rule, regulation, order or injunction enacted, entered, enforced,
promulgated, amended, issued or deemed applicable to (i) Parent, the
Company or any subsidiary or affiliate of Parent or the Company or (ii)
any Transaction, by any legislative body, court, government or
governmental, administrative or regulatory authority or agency,
domestic or foreign, in the case of both (i) and (ii) other than the
routine application of the waiting period provisions of the HSR Act to
the Offer, or the Merger, in each case which results in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a)
above;
(c) there shall have occurred and be continuing (i) any
general suspension of, or limitation on prices for, trading in
securities on the New York Stock Exchange or in the over-the-counter
market, (ii) a declaration of a banking moratorium or any substantial
limitation
A-1
<PAGE> 46
or suspension of, payments in respect of banks in the United States,
(iii) any limitation (whether or not mandatory) by any U.S. federal or
state government or governmental, administrative or regulatory
authority or agency on the extension of credit by banks or other
lending institutions, (iv) a commencement of a war or armed hostilities
or other national or international calamity directly or indirectly
involving the United States or (v) in the case of any of the foregoing
existing on the date hereof, a material acceleration or worsening
thereof;
(d) (i) the Board shall have withdrawn or modified in a manner
adverse to Parent or Purchaser the approval or recommendation of the
Offer, the Merger or this Agreement or approved or recommended any
takeover proposal or any other acquisition of Shares other than the
Offer and the Merger or (ii) the Board shall have resolved to do any of
the foregoing;
(e) any representation and warranty of the Company in this
Agreement shall not be true and correct and the failure to be true and
correct has a Material Adverse Effect and such failure shall not have
been cured (provided five days' written notice of such failure has been
provided by Purchaser to the Company) (if a representation and warranty
of the Company shall, by its terms, only be not true and correct if the
consequences thereof constitute a Material Adverse Effect, then the
failure of such representation and warranty to be true and correct
shall be deemed to have a Material Adverse Effect with in the meaning
of this paragraph (e));
(f) the Company shall have failed to perform in any material
respect any material obligation or to comply in any material respect
with any material agreement or covenant of the Company to be performed
or complied with by it under this Agreement and shall not have cured
such default (provided five days' written notice of such failure has
been provided by Purchaser to the Company);
(g) this Agreement shall have been terminated in accordance
with its terms; or
(h) Purchaser and the Company shall have agreed that Purchaser
shall terminate the Offer or postpone the acceptance for payment of or
payment for Shares thereunder;
The foregoing conditions are for the sole benefit of Purchaser
and Parent and may be asserted by Purchaser or Parent regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser or
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
A-2
<PAGE> 47
ANNEX B
-------
Employee Benefits
(a) Employees. Nothing in this Agreement shall operate or be
construed as an obligation of Parent, the Company or any Subsidiary to continue
the employment of any employee of the Company or any of its Subsidiaries for any
fixed period after the Tender Offer Acceptance Date.
(b) Compensation and Benefits. Except to the extent otherwise
required by paragraph (c) of this Annex B, Parent agrees to provide the
Company's employees with compensation and employee benefit plans or programs on
substantially the same basis as the same are provided to similarly situated
employees of Parent or any of its subsidiaries; provided, however, in lieu
thereof Parent may elect to continue one or more of the Company's existing
benefit plans for any continuing employees for such period or periods as Parent
may determine; and provided further, however, that employees of the Company
shall be given credit for all purposes for years of service with the Parent and
Purchaser equal to the number of years of service with the Company.
(c) Severance; Outplacement. Parent agrees that until two
years after the Tender Offer Acceptance Date, the Surviving Corporation will
provide (i) severance payments consistent with the Company's existing Change in
Control Retention/Severance Plan to all officers and employees, and (ii)
reasonable outplacement services for all officers of the Company and its
subsidiaries employed by the Company or its subsidiaries at the Tender Offer
Acceptance Date, in each case, who are terminated without cause (as that term is
defined in the Company's Change in Control Retention/Severance Plan), prior to
such date.
(d) Individual Agreements. Parent agrees that the occurrence
of the Tender Offer Acceptance Date shall be treated as a Change in Control for
purposes of the Company's Change in Control Retention/Severance Plan and for
each of the Agreements regarding employment listed below:
Name of Executive Date of Agreement
----------------- -----------------
J. C. McFarland August 9, 1995
Craig M. Sturtevant August 8, 1995 (as amended December 10, 1996)
Ronald T. Yoshihara August 8, 1995
William H. Moodie August 25, 1995 (as amended December 10, 1996)
Robert E. Ransom August 10, 1995
Reinhard J. Suchsland July 22, 1996
Parent agrees that the cash amounts and benefits owing under
such Agreements if the employment of the executive a party thereto is
Involuntarily Terminated are as calculated and set forth in a schedule thereof
previously delivered to Parent.
B-1
<PAGE> 48
(e) Full Vesting. Parent commits that the Company's Employee
Retirement Savings and Stock Ownership Plan and Trust shall be amended to
provide that all participants therein as of the Tender Offer Acceptance Date
shall be fully vested in their benefits thereunder as of such date.
(f) Consulting Agreement. Prior to the Tender Offer Acceptance
Date, but conditioned thereon, Parent and J. C. McFarland ("JCMc") will enter
into a consulting agreement pursuant to which JCMc will agree to consult with
Parent and assist on any project or subject within his area of expertise, as
reasonably requested and subject to the limitation that such activities shall
not require more than one-half of his time. The agreement will have a four-year
term and will provide for compensation in an amount per year equal to JCMc's
current base salary with the Company, together with health benefits and
reimbursement for all direct out-of-pocket expenses reasonably incurred. In
addition, prior to the end of 1997, JCMc will be appointed to Parent's Board of
Directors as a member of the class of directors whose term expires in the year
2000. In such capacity, JCMc will be considered a non-employee director and will
receive all compensation and other benefits granted by Parent to non-employee
directors, other than the annual cash retainer. Pursuant to the consulting
agreement, JCMc will agree to utilize all cash severance benefits payable under
his employment agreement with the Company, net of any taxes owing thereon, to
purchase shares of common stock of Parent in the open market. The parties agree
that the compensation to be received by Mr. McFarland pursuant to the Consulting
Agreement is reasonable compensation for services to be rendered under the
agreement.
B-2
<PAGE> 1
EXHIBIT 3
STOCKHOLDERS AGREEMENT dated as of June 17, 1997, among
Monterey Resources, Inc., a Delaware corporation ("Parent"), Monterey
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
Parent ("Purchaser"), and the other parties identified on Schedule A hereto
(each, a "Stockholder").
WHEREAS, each Stockholder desires that McFarland Energy, Inc.,
a Delaware corporation (the "Company"), Parent and Purchaser enter into an
Agreement and Plan of Merger dated as of the date hereof (as the same may be
amended or supplemented, the "Merger Agreement") with respect to the merger of
Purchaser with and into the Company (the "Merger"); and
WHEREAS, each Stockholder is executing this Agreement as an
inducement to Parent and Purchaser to enter into and execute the Merger
Agreement.
NOW, THEREFORE, in consideration of the execution and delivery
by Parent and Purchaser of the Merger Agreement and the mutual covenants,
conditions and agreements contained herein and therein, the parties agree as
follows:
Section 1. Representations and Warranties. Each
Stockholder severally, and not jointly, represents and warrants to Parent and
Purchaser as follows:
(a) Such Stockholder is the record or beneficial owner of
the number of shares of Common Stock, par value $1.00 per share, of
the Company (the "Company Common Stock"), and holds options for shares
of Company Common Stock, each as set forth opposite such Stockholder's
name in Schedule A hereto (as may be adjusted from time to time
pursuant to Section 4, such Stockholder's "Shares"). Except for such
Stockholder's Shares, such Stockholder is not the record or beneficial
owner of any shares of Company Common Stock. Any of such Shares which
are described on Schedule A as option shares shall be deemed "Option
Shares" for the purposes of this Agreement. All other shares shall be
deemed "Owned Shares." Any Option Shares which are exercised prior to
the termination of this Agreement shall be deemed to be "Owned
Shares."
(b) This Agreement has been duly authorized, executed and
delivered by such Stockholder and constitutes the legal, valid and
binding obligation of such Stockholder, enforceable against such
Stockholder in accordance with its terms. Neither the execution and
delivery of this Agreement nor the consummation by such Stockholder of
the transactions contemplated hereby will result in a violation of, or
a default under, or conflict with, any contract, trust, commitment,
agreement, understanding, arrangement or restriction of any kind to
which such Stockholder is a party or bound or to which such
Stockholder's Shares are subject. To the best of such Stockholder's
knowledge, consummation by such Stockholder of the transactions
contemplated hereby will not violate, or require any consent,
approval, or notice under, any provision of any judgment, order,
decree, statute, law, rule or regulation applicable to such
Stockholder or such Stockholder's Shares, except for any necessary
filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), or state takeover laws.
<PAGE> 2
(c) Such Stockholder's Owned Shares and the certificates
representing such Owned Shares are now and at all times during the
term hereof will be held by such Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances arising hereunder.
(d) Such Stockholder understands and acknowledges that
Parent is entering into, and causing Purchaser to enter into, the
Merger Agreement in reliance upon such Stockholder's execution and
delivery of this Agreement.
Section 2. Purchase and Sale of Shares. So long as the
Per Share Amount in the Offer is not less than $18.55 in cash (net to the
seller), each Stockholder hereby severally agrees that it shall tender its
Shares into the Offer prior to the expiration of the Offer and that it shall
not withdraw any Shares so tendered (it being understood that the obligation
contained in this sentence is unconditional). In addition, each Stockholder
hereby severally agrees to sell to Purchaser, and Purchaser hereby agrees to
purchase, all such Stockholder's Owned Shares at a price per Share equal to
$18.55, or such higher price per Share as may be offered by Purchaser in the
Offer, provided that such obligations to purchase and sell are both subject to
(i) Purchaser having accepted Shares for payment under the Offer and the
Minimum Condition (as defined in the Merger Agreement) (minus any Shares which
are the subject of this Agreement but are not purchased in the Offer) having
been satisfied, and (ii) the expiration or termination of any applicable
waiting period under the HSR Act.
Section 3. Covenants. Each Stockholder severally, and
not jointly, agrees with, and covenants to, Parent and Purchaser as follows:
such Stockholder shall not, except as contemplated by the terms of this
Agreement, during the term of this Agreement, (i) transfer (which term shall
include, without limitation, for the purposes of this Agreement, any sale,
gift, pledge or other disposition), or consent to any transfer of, any or all
of such Stockholder's Shares or any interest therein, (ii) enter into any
contract, option or other agreement or understanding with respect to any
transfer of any or all of such Shares or any interest therein, (iii) grant any
proxy, power-of-attorney or other authorization or consent in or with respect
to such Shares, (iv) deposit such Shares into a voting trust or enter into a
voting agreement or arrangement with respect to such Shares or (v) take any
other action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated
hereby; provided that each Stockholder shall be entitled to transfer all or any
portion of such Shareholder's Shares to any person or entity which agrees in
writing to be bound by the provisions of this Agreement.
Section 4. Certain Events. Each Stockholder agrees that
this Agreement and the obligations hereunder shall attach to such Stockholder's
Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise, including without limitation such Stockholder's heirs, guardians,
administrators or successors. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or other change in the capital
structure of the Company affecting the Company Common Stock, or the acquisition
of additional shares of Company Common Stock or other securities or rights of
the
-2-
<PAGE> 3
Company by any Stockholder, the number of Owned Shares and Option Shares listed
on Schedule A beside the name of such Stockholder shall be adjusted
appropriately and this Agreement and the obligations hereunder shall attach to
any additional shares of Company Common Stock or other securities or rights of
the Company issued to or acquired by such Stockholder.
Section 5. Transfer. Each Stockholder agrees with and
covenants to Parent that such Stockholder shall not request that the Company
register the transfer (booked as entry or otherwise) of any certificated or
uncertificated interest representing any of the securities of the Company,
unless such transfer is made in compliance with this Agreement.
Section 6. Voidability. If prior to the execution
hereof, the Board of Directors of the Company shall not have duly and validly
authorized and approved by all necessary corporate action the acquisition of
Company Common Stock by Parent and Purchaser and other transactions
contemplated by this Agreement and the Merger Agreement, so that by the
execution and delivery hereof Parent or Purchaser would become, or could
reasonably be expected to become, an "interested stockholder" with whom the
Company would be prevented for any period pursuant to Section 203 of the DGCL
from engaging in any "business combination" (as such terms are defined in
Section 203 of the DGCL), then this Agreement shall be void and unenforceable
until such time as such authorization and approval shall have been duly and
validly obtained.
Section 7. Stockholder Capacity. No person executing
this Agreement who is or becomes during the term hereof a director or officer
of the Company makes any agreement or understanding herein in his or her
capacity as such director or officer. Each Stockholder signs solely in his or
her capacity as the record holder and beneficial owner of such Stockholder's
Shares and nothing herein shall limit or affect any actions taken by a
Stockholder in its capacity as an officer or director for the Company to the
extent specifically permitted by the Merger Agreement.
Section 8. Further Assurances. Each Stockholder shall,
upon request of Parent or Purchaser, execute and deliver any additional
documents and take such further actions as may reasonably be deemed by Parent
or Purchaser to be necessary or desirable to carry out the provisions hereof.
Section 9. Termination. This Agreement, and all rights
and obligations of the parties hereunder, shall terminate upon the earlier of
(a) the date upon which the Merger Agreement is terminated by the Company,
Parent or Purchaser for any reason in accordance with its terms or (b) the date
that Parent or Purchaser shall have purchased and paid for the Shares of each
Stockholder pursuant to Section 2.
Section 10. Miscellaneous.
(a) Capitalized terms used and not otherwise defined in
this Agreement shall have the respective meanings assigned to such
terms in the Merger Agreement.
-3-
<PAGE> 4
(b) All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier
(providing proof of delivery) to the parties at the following
addresses (or such other address for a party as shall be specified by
like notice): (i) if to Parent or Purchaser, to the address set forth
in Section 9.03 of the Merger Agreement; and (ii) if to a Stockholder,
to the address set forth on Schedule A hereto, or such other address
as may be specified in writing by such Stockholder.
(c) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same
agreement, and shall become effective (even without the signature of
any other Stockholder) as to any Stockholder when one or more
counterparts have been signed by each of Parent, Purchaser and such
Stockholder and delivered to Parent, Purchaser and such Stockholder.
(e) This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement, and
supersedes all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
(f) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of
conflicts or laws thereof.
(g) Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in
whole or in party, by operation of law or otherwise, by any of the
parties without the prior written consent of the other parties, except
by laws of descent. Any assignment in violation of the foregoing
shall be void.
(h) If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any
extent, be held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions herein and the application thereof to any
other circumstances, shall remain in full force and effect, shall not
in any way be affected, impaired or invalidated, and shall be enforced
to the fullest extent permitted by law.
(i) Each Stockholder agrees that irreparable damage would
occur and that Parent and Purchaser would not have any adequate remedy
at law in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that Parent and
Purchaser shall be entitled to an injunction or injunctions to prevent
breaches by any Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement.
-4-
<PAGE> 5
(j) No amendment, modification or waiver in respect of
this Agreement shall be effective against any party unless it shall be
in writing and signed by such party.
-5-
<PAGE> 6
IN WITNESS WHEREOF, Parent, Purchaser and the Stockholders
have caused this Agreement to be duly executed and delivered as of the date
first written above.
MONTEREY RESOURCES, INC.
By: /s/ R. Graham Whaling
-------------------------------------
R. Graham Whaling
Chairman of the Board and
Chief Executive Officer
MONTEREY ACQUISITION CORPORATION
By: /s/ R. Graham Whaling
-------------------------------------
R. Graham Whaling
Chairman of the Board and
Chief Executive Officer
McFARLAND FAMILY TRUST
By: /s/ J. C. McFarland
-------------------------------------
J.C. McFarland, Trustee
By: /s/ Ruth S. McFarland
-------------------------------------
Ruth S. McFarland, Trustee
/s/ J. C. McFarland
-------------------------------------
J.C. McFARLAND
/s/ Carolyn J. McFarland
-------------------------------------
CAROLYN J. McFARLAND
/s/ William E. Carl
-------------------------------------
WILLIAM E. CARL
-6-
<PAGE> 7
Schedule A
----------
<TABLE>
<CAPTION>
Number of Shares of Common Stock
Number of Shares of Issuable upon Exercise of
Stockholder (including address) Common Stock Owned Options
------------------------------- ------------------ ---------------------------------
<S> <C> <C>
McFarland Family Trust 527,696 0
10425 So. Painter Avenue
Santa Fe Springs, CA 90670
J.C. McFarland and 75,295 140,500
Carolyn J. McFarland
10425 So. Painter Avenue
Santa Fe Springs, CA 90670
William E. Carl 116,362 5,000
RR HCR8
Box 641
Beeville, TX 78104
</TABLE>
-7-
<PAGE> 1
EXHIBIT 4
CONFIDENTIALITY AGREEMENT
April 29, 1997
Monterey Resources, Inc.
5201 Truxtun Avenue, Suite 100
Bakersfield, CA 93309
Attention: R. Graham Whaling
Chairman and Chief Executive Officer
Gentlemen:
In connection with your analysis of a possible negotiated
transaction with McFarland Energy, Inc. (the "Company"), you have been or will
be furnished certain information that is proprietary, non-public or
confidential concerning the Company from Representatives (as defined below) of
the Company, including the Company's financial advisors, Oppenheimer & Co.,
Inc. (collectively, and together with the Company, the "Disclosing Parties").
In consideration of furnishing you with such information to assist you in such
regard, you hereby agree to the following (it being understood that you are
also agreeing to cause your affiliates to comply with the applicable provisions
hereof):
1. Use of Evaluation Material. The Evaluation Material
(as defined below) will be used solely for the purpose of evaluating a possible
negotiated acquisition or other business combination transaction between you
and the Company approved by the Board of the Directors of the Company and not
in a manner detrimental to the Company. Unless and until you have completed an
acquisition or other business combination with the Company, all the Evaluation
Material will be kept confidential by you and will not be disclosed to any
other persons in any manner; provided that you may disclose the Evaluation
Material or portions thereof to those of your Representatives who need to know
such information for the purpose of evaluating a possible negotiated
transaction involving you and the Company (it being understood that such
Representatives shall be informed by you of the confidential nature of such
information and shall agree to treat such information confidentially in
accordance with this letter). You agree to be responsible for compliance with
this agreement by any of your Representatives.
2. Legally Required Disclosures. In the event that you
or any of your Representatives is requested or required (by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process) to disclose any of the Evaluation Material, you shall provide
the Company with prompt prior written notice of such request
<PAGE> 2
-2- April 29, 1997
or requirement, and you shall cooperate with the Company so that the Company
may seek a protective order or other appropriate remedy or, if it so elects,
waive compliance with the terms of this agreement. In the event that such
protective order or other remedy is not obtained, or the Company waives
compliance with the provisions hereof, you or such Representative, as the case
may be, may disclose only that portion of the Evaluation Material that you are
advised by counsel is legally required to be disclosed and shall exercise all
reasonable efforts to obtain assurance that confidential treatment will be
accorded such Evaluation Material.
3. Definition of Evaluation Material. The term
"Evaluation Material" as used in this agreement shall mean all information and
documents which any Disclosing Party furnishes or otherwise discloses to you or
any of your Representatives, together with all analyses, compilations, studies
or other documents, records or data (in whatever form maintained, whether
documentary, computer storage or otherwise) prepared by you or any of your
Representatives which contain or otherwise reflect or are generated from such
information and documents. The term "Evaluation Material" does not include any
information that (i) at the time of disclosure or thereafter is generally
available to and known by the public (other than as a result of a disclosure by
you or any of your Representatives), or (ii) is or was available to you on a
nonconfidential basis from a source other than the Disclosing Parties who to
your knowledge after reasonable inquiry is not prohibited from transmitting the
information to you by a contractual, legal or fiduciary obligation to the
Company.
4. Return or Destruction of Materials. Upon request of
the Company you will return promptly to the Company all copies of the
Evaluation Material then in your possession or in the possession of any of the
Representatives, and any copies, notes or extracts thereof, without retaining
any copy thereof, except that you may destroy promptly (in lieu of returning)
all copies of any analyses, compilations, studies or other documents, records
or data prepared by you or your Representatives which contain or otherwise
reflect or are generated from the Evaluation Material, and you will certify to
the Company that such destruction has been accomplished.
5. Nondisclosure of Possible Transaction. Without the
prior written consent of the Company, and except as required by law or stock
exchange rule, you will not, and will direct and cause your Representatives not
to, disclose to any person (i) that Evaluation Material has been made available
to you, (ii) that discussions or negotiations are taking place concerning a
possible transaction between the Company and you or any of your affiliates,
(iii) that you or any of your affiliates are considering or reviewing a
transaction involving or relating to the Company or taking any of the actions
described in paragraph 8 or (iv) the terms, conditions or other facts with
respect to any such possible transaction or actions, including the status
thereof. Your obligations in the preceding sentence shall survive any return
or destruction of the Evaluation Material pursuant to paragraph 4.
<PAGE> 3
-3- April 29, 1997
6. Contacts With Company Personnel. Until the earliest
of (i) the execution by you of a Definitive Business Combination Agreement (as
defined below), (ii) an acquisition of the Company by a third party or (iii)
eighteen (18) months from the date of this agreement, you agree not to initiate
or maintain contact (except for those contacts made in the ordinary course of
business) with any officer, director or key employee of the Company or any of
its subsidiaries regarding its business, assets, operations, prospects or
finances, except with the express permission of a duly authorized executive
officer of the Company. It is understood that Oppenheimer & Co., Inc., or such
other parties as may be designated in writing by the Company, will arrange for
appropriate contacts for due diligence purposes. It is further understood that
all (a) communications regarding a possible transaction, (b) requests for
additional information, (c) requests for facility tours or management meetings
and (d) discussions or questions regarding procedures will be submitted or
directed to Oppenheimer & Co., Inc., or such other party as may be designated
in writing by the Company. Except as provided in a Definitive Business
Combination Agreement, you agree that for a period of eighteen (18) months from
the date hereof, you will not solicit for employment any officer, director or
key employee of the Company or its subsidiaries; provided, that this
prohibition shall not apply to solicitations made by you to the public or the
industry generally, and that you shall not be prohibited from employing any
such person who contacts you on his or her own initiative without any
prohibited solicitation.
7. No Representation or Warranty. Although the Company
has endeavored to include in the Evaluation Material information known to it
which it believes to be relevant for the purpose of your investigation, you
understand that neither the Company nor any of its Representatives have made or
make any representation or warranty as to the accuracy or completeness of the
Evaluation Material. You agree that neither the Company nor its
Representatives shall have any liability to you or any of your Representatives
resulting from the use of the Evaluation Material. Only those representations
or warranties that are made in a Definitive Business Combination Agreement
when, as and if it is executed, and subject to such limitations and
restrictions as may be specified in such Definitive Business Combination
Agreement, will have any legal effect.
8. Other Restrictions. Until the expiration of eighteen
(18) months from the date hereof, neither you nor any of your affiliates nor
any of your Representatives shall, without the prior written consent of the
Board of Directors of the Company, directly or indirectly, (a) effect or seek,
offer or propose (whether publicly or otherwise) to effect, or cause or
participate in or in any way assist any other person to effect or seek, offer
or propose (whether publicly or otherwise) to effect or participate in, (i) any
acquisition of any securities or rights to acquire any securities (or any other
beneficial ownership thereof) or assets of the Company or any of its
subsidiaries (provided that the foregoing shall not apply to any acquisition by
any of your employee benefit plans in the ordinary course of business); (ii)
any merger or other business combination or tender or exchange offer involving
the Company or any of its subsidiaries; (iii) any recapitalization,
restructuring,
<PAGE> 4
-4- April 29, 1997
liquidation, dissolution or other extraordinary transaction with respect to the
Company or any of its subsidiaries; or (iv) any "solicitation" of "proxies" (as
such terms are used in the proxy rules of the Securities and Exchange
Commission) or consents to vote or otherwise with respect to any voting
securities of the Company, or make any communication exempted from the
definition of "solicitation" by Rule 14a-1(1)(2)(iv) under the Securities
Exchange Act of 1934; (b) form, join or in any way participate in a "group" (as
defined under the Securities Exchange Act of 1934) with respect to the Company;
(c) otherwise act, alone or in concert with others, to seek to control or
influence the management, Board of Directors or policies of the Company; (d)
take any action which the Company has been advised by counsel would require it
to make a public announcement regarding any of the types of matters set forth
in (a) above; or (e) enter into any discussions or arrangements with any third
party with respect to any of the foregoing. You agree during such period not
to publicly request the Company (or its Representatives), directly or
indirectly, to amend or waive any provision of this paragraph (including this
sentence).
9. Definitive Business Combination Agreement. You also
understand and agree that no contract or agreement providing for a business
combination transaction between the Company and you or your affiliates shall be
deemed to exist unless and until a definitive business combination agreement
has been executed and delivered by you and each of the other parties thereto
("Definitive Business Combination Agreement"), and you hereby waive, in
advance, any claims (including, without limitation, breach of contract) in
connection with such a transaction unless and until a Definitive Business
Combination Agreement has been executed and delivered by you and each of the
other parties thereto. It is also agreed that unless and until a Definitive
Business Combination Agreement between the Company and you with respect to a
business combination involving the Company has been executed and delivered,
neither the Company nor its stockholders has any legal obligation of any kind
whatsoever with respect to any such transaction. For purposes of this
paragraph, the term "Definitive Business Combination Agreement" does not
include an executed letter of intent or any other preliminary written
agreement, nor does it include any written or oral offer or bid on your part or
any written or oral acceptance thereof. You further understand that the
Company shall be free to conduct any process for the sale of the Company as it
in its sole discretion shall determine. Neither this paragraph nor any other
provision in this agreement can be waived or amended except by written consent
of the Company, which consent shall specifically refer to this paragraph (or
such other provision) and explicitly make such waiver or amendment.
10. Securities Laws. You hereby acknowledge that you are
aware, and that you will advise your Representatives who are informed as to the
matters that are the subject of this agreement, that the United States
securities laws prohibit any person who has material, non-public information
concerning the matters which are the subject of this agreement from purchasing
or selling securities of the Company or from communicating such information to
any other person
<PAGE> 5
-5- April 29, 1997
under circumstances in which it is reasonably foreseeable that such person is
likely to purchase or sell such securities.
11. Remedies. You agree that money damages would not be
a sufficient remedy for any breach of this agreement and that the Company shall
be entitled to equitable relief, including injunction and specific performance,
in the event of any breach of the provisions of this agreement, in addition to
all other remedies available to the Company at law or in equity. You also
agree to reimburse the Company for all costs and expense, including reasonable
attorneys' fees, incurred by it in enforcing your obligations hereunder.
12. Access. In the event you desire physical access to
any of the Company's properties, you agree to indemnify, defend and hold
harmless the Company, its affiliates and subsidiaries from and against any and
all liabilities, claims and causes of action for personal injury, death or
property damage occurring on or to such property as a result of your entry onto
the premises. You agree to comply fully with all rules, regulations and
instructions issued by the Company regarding your actions while upon, entering
or leaving the property of the Company.
13. No Waiver. It is further understood and agreed that
no failure or delay in exercising any right, power or privilege hereunder will
operate as a waiver thereof, nor will any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. This agreement represents the entire
understanding of the parties with respect to the matters referred to herein and
supersedes all prior understandings, written or oral, between the parties with
respect thereto.
14. Person; Representatives. As used in this agreement,
(i) the term "person" will be interpreted broadly to include, without
limitation, any corporation, company, group, partnership, limited liability
company, other entity or individual, and (ii) the term "Representatives," used
with respect to a person, shall include the directors, officers, employees,
representatives, agents, attorneys, consultants, accountants, financial and
other advisors, and banks and other financing sources of or to such person.
15. Notices. All notices to be given to a party hereunder
shall be in writing and delivered personally, by overnight courier or by
facsimile, addressed to the Chief Executive Officer of such party, with a copy
to the General Counsel of such party, at the corporate headquarters of such
party.
This agreement is for the benefit of the Company and you and
will be governed by and construed in accordance with the laws of the State of
Delaware, without giving effect to the choice of law rules thereof.
<PAGE> 6
-6- April 29, 1997
If you agree with the foregoing, please sign both copies of
this agreement and return one to the Company, which will constitute our
agreement with respect to the subject matter of this letter.
Very truly yours,
MCFARLAND ENERGY, INC.
By: /s/ Craig M. Sturtevant
-----------------------------
CRAIG M. STURTEVANT
CONFIRMED AND AGREED
as of the date written above
MONTEREY RESOURCES, INC.
By: /s/ David B. Kilpatrick
--------------------------------
Title: President
<PAGE> 1
EXHIBIT 5
AGREEMENT
This Agreement is entered into by and between McFarland Energy, Inc.,
(the "Company") and J. C. McFarland ("Executive").
WHEREAS, the Company has a talented and dedicated management team
which has made many valuable contributions to the success of the Company; and
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited amount of financial security to key management
members in the event that they are terminated without cause;
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited additional amount of financial security to key
management members in the event that they are terminated without cause
following a change in control of the Company;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, it is agreed as follows:
1. Payment of Benefits In The Event Of Termination Of Employment
Following A Change in Control.
In the event that a "Change in Control" (as defined in this
Section) occurs on or before December 31, 1999, and that the employment of
Executive is thereafter "Involuntarily Terminated" (as defined in this Section)
within twenty-four (24) calendar months of the effective date of the Change in
Control, the Company (or Post-Change Employer as hereinafter described and
defined) will provide Executive with the benefits set forth in this Section.
a. Definition of "Change in Control."
As used in this Agreement, a "Change in Control" means the
occurrence of any of the following events:
(i) A majority of the members of the Board of
Directors at the end of any consecutive twenty-four (24) calendar month period
is not comprised of "Incumbent Directors" (as defined in this Section). For
purposes of this Agreement, a Director shall be considered to be an "Incumbent
Director" if either of the following conditions is met:
(A) The Director was a Director at the
beginning of the consecutive
twenty-four (24) calendar month
period in question; or
1
<PAGE> 2
(B) The Director's election by the
Company's stockholders, or
nomination for election by the
Company's stockholders, was approved
by a vote of a majority of the
members of the Board at a time when
a majority of the members of the
Board were Incumbent Directors.
Such approval may be made by any
resolution of the Board expressing
approval of the Director or nominee,
or by any communication to the
Company's stockholders, which
communication is authorized by the
Board and which communication
recommends election of the Director
or nominee. Such approval may be
made by the Board after the Director
has been elected, provided that a
majority of the members of the Board
at the time of approval consists of
Incumbent Directors.
(ii) Any "person", including a "group" (as such
terms are used in Rule 13(d)(5) of the Securities Exchange Act of 1934 (the
"1934 Act")), but excluding the Company, any of its Subsidiaries, and any
employee benefit plan of the Company or any of its Subsidiaries) is or becomes
the "beneficial owner" (as defined in Rule 13(d)(3) under the 1934 Act),
directly or indirectly, of securities of the Company representing thirty-five
(35%) percent or more of the combined voting power of the Company's then
outstanding securities.
(iii) A merger or other business combination of the
Company takes place, whereby the Company merges or combines with or into
another corporation, provided that the other corporation is not a "Subsidiary"
of the Company (as defined herein). For purposes of this Section, a
corporation shall be considered to be a "Subsidiary" of the Company if either
of the following conditions is met:
(A) A majority of the directors of the
corporation are also directors of
the Company; or
(B) The Company is the "beneficial
owner" (as defined in Rule 13(d)(3)
under the 1934 Act), directly or
indirectly, of securities of the
corporation representing more than
fifty (50%) percent of the combined
voting power of the corporation's
then outstanding securities.
Notwithstanding any other provision of this Section, a merger or other
business combination of the Company shall not constitute a "Change in
Control" if any of the following conditions is met:
(A) A majority of the directors of the
merged or combined corporation were
Incumbent Directors of the Company
immediately before the merger or
combination; or
2
<PAGE> 3
(B) "Beneficial ownership" (as defined
in Rule 13(d)(3) under the 1934
Act), directly or indirectly, of
more than fifty (50%) percent of the
combined voting power of the merged
or combined corporation is held,
immediately after the merger or
combination, by persons (as that
term is used in the 1934 Act) who
held beneficial ownership, directly
or indirectly, of more than fifty
(50%) percent of the combined voting
power of the Company immediately
before the merger or combination; or
(C) Securities representing more than
fifty (50%) percent of the combined
voting power of the merged or
combined corporation (as measured
immediately after the merger or
combination), are issued or conveyed
to stockholders of the Company in
exchange for or in consideration of
their shares in the Company.
b. Involuntary Termination of Employment, Qualifying
Executive for Benefits.
Executive will be entitled to receive the benefits set forth
in this Section 1 if the employment of Executive is "Involuntarily Terminated"
(as defined in this Section) within twenty-four (24) calendar months of the
effective date after the Change in Control.
(i) For purposes of this Section, Executive will
be considered to be "Involuntarily Terminated" if, within twenty-four (24)
calendar months after the effective date of the Change in Control, Executive's
employment with the Company or with any successor corporation which employs
Executive as a result of a merger or combination which constitutes a Change in
Control under Section 1a(iii) of this Agreement (collectively, the "Post-
Change Employer"), is terminated for any of the following reasons:
(A) If Executive is terminated by the
Post-Change Employer without "Good
Cause." For purposes of this
Subsection, the Post-Change Employer
shall have Good Cause to terminate
Executive's employment if any of the
following conditions are met:
(a) If grounds exist to terminate
the employment of Executive
pursuant to California Labor
Code Section 2924; or
3
<PAGE> 4
(b) If Executive engages in serious
or willful misconduct which
is detrimental to the
interests of the Post-Change
Employer or its stockholders;
or
(c) If Executive willfully refuses
to carry out the directions
and responsibilities assigned
to Executive by the Chief
Executive Officer of the
Post-Change Employer.
(B) If Executive resigns from employment
for "Good Reason."
(a) For purposes of this
Subsection, Executive will
have Good Reason to resign
from employment if any of the
following conditions are met:
(1) There is a significant
adverse change in the
nature or scope of
Executive's authorities
or duties; or
(2) There is a significant
reduction in
Executive's
compensation or
benefits provided by
the Post-Change
Employer in comparison
with the compensation
and benefits which
Executive was receiving
from the Company
immediately before the
Change in Control; or
(3) The geographic location
at which Executive is
required to perform
Executive's principal
duties is moved to a
location more than fifty
(50) miles from such
location existing
immediately before
the Change in Control.
(b) Notwithstanding any other
provision of this Agreement,
Executive will not be
considered to have Good
Reason to resign from
employment unless both of the
following conditions are met:
(1) Executive has given the
Post-Change Employer
timely written notice
of the fact that
Executive contends that
Executive has Good
Reason to resign from
employment, and of the
grounds for Executive's
contention. To be
timely, such notice
must be given within a
4
<PAGE> 5
reasonable time after
Executive learns of the
circumstances which
give rise to the
contention that
Executive has Good
Reason to resign from
employment. If
Executive's contention
is based on Subsections
1b(i)(B)(a)(2) or
1b(i)(B)(a)(3) of this
Agreement, a period of
fourteen (14) calendar
days shall be presumed
to constitute a
"reasonable time" for
Executive to give such
notice. If Executive's
contention is based on
Subsection
1b(i)(B)(a)(1) of this
Agreement, a
"reasonable time" to
give such notice shall
be a period of time
sufficient for
Executive to fully
assess the extent and
consequences of any
change in the nature or
scope of Executive's
authorities or duties,
and to make a full and
fair determination as
to whether such change
is "adverse."
(2) The Post-Change
Employer fails to cure
the circumstances
which give rise to
Executive's contention
that Executive has Good
Reason to resign from
employment within
thirty (30) calendar
days following receipt
of such written notice
from Executive.
(C) If Executive is terminated on
account of disability, unless the
disability is such that Executive is
eligible for benefits under the
Post-Change Employer's Long-Term
Disability Plan then in effect, if
any.
(ii) For purposes of this Section,
Executive will not be considered to be "Involuntarily Terminated" if
Executive's employment with the Post-Change Employer is terminated for
any of the following reasons:
(A) On account of Executive's death;
(B) On account of Executive's
disability which renders
Executive eligible for benefits
under the Post-Change Employer's
Long-Term Disability Plan,
provided such eligibility and
benefits are substantially
similar to those in Company's
Plan immediately prior to the
Change in Control;
5
<PAGE> 6
(C) If Executive is terminated by
the Post-Change Employer for
"Good Cause" (as defined in
this Section).
(D) If Executive voluntarily resigns
from employment without "Good
Reason" (as defined in this
Section).
(iii) In the event of any dispute as to whether
Executive has been Involuntarily Terminated, such dispute shall be decided by
final and binding arbitration as provided in this Agreement.
c. Amount and Payment of Benefits.
(i) If Executive becomes eligible for benefits
under this Section 1, Executive shall be entitled, upon being Involuntarily
Terminated from employment, to receive from the Post-Change Employer, the
following benefits:
(A) An amount of cash equal to:
(a) The greater of two times:
(1) Executive's annualized
base salary, plus the
amount of Executive's
annualized car allowance,
if any, in effect at the
end of the month
immediately prior to the
Change in Control; or
(2) Executive's annualized
base salary, plus the
amount of Executive's
annualized car allowance,
if any, in effect at the
end of the month
immediately prior to the
Change in Control; or
date Executive is
Involuntarily Terminated;
and
(b) The greater of two times:
(1) The amount of bonus, if
any, or accrued to
Executive for the most
recently ended calendar
year immediately prior
to the Change in Control;
or
(2) The amount of bonus, if
any, paid or accrued to
Executive for the most
recently ended
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calendar year prior to
the date Executive is
Involuntarily Terminated.
The Post-Change Employer shall make
the cash payments described in this
Subsection 1c(i)(A) as a lump sum
payment payable within thirty (30)
calendar days after the date that
Executive is Involuntarily
Terminated, or, at Executive's
written request delivered within
fifteen (15) calendar days after the
date Executive is Involuntarily
Terminated, in twelve (12) equal and
consecutive monthly installments
with the first installment payable
within thirty (30) calendar days
after the date Executive is
Involuntarily Terminated.
(B) Standard outplacement services
provided by a qualified outplacement
agency selected by the Post-Change
Employer, which services will be
made available for a period of
twelve (12) consecutive calendar
months from the date Executive is
Involuntarily Terminated, or until
the date Executive accepts
employment with another employer,
whichever occurs first; and
(C) Compensation for the loss of group
medical and dental insurance
benefits (excluding coverage under
any life or long-term disability
programs), which may be provided, at
the sole discretion of the
Post-Change Employer, by either of
the following options:
(a) By continuing in effect those
group medical and dental
insurance benefits which were
provided by the Post-Change
Employer immediately before
Executive was Involuntarily
Terminated, on the same terms
and conditions which were in
effect immediately before
Executive was Involuntarily
Terminated, provided that
such coverage is
substantially similar to the
coverage (including any
dependent coverage) Executive
was receiving from the
Company immediately prior to
the Change in Control, for a
period of twenty-four (24)
calendar months from the date
of Executive is Involuntarily
Terminated or until Executive
obtains coverage under a
group insurance arrangement
or program sponsored by a new
employer, whichever occurs
first; or
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<PAGE> 8
(b) By payment of a lump sum amount
equal to twenty-four (24)
times the greater of the
following amounts:
(1) the monthly premium
necessary for Executive
to maintain Executive's
group medical and
dental insurance
benefits, pursuant to
COBRA, under the plan
provided by the
Post-Change Employer,
net of Executive's
required co-payments;
or
(2) the monthly premium
which would have been
necessary for Executive
to maintain Executive's
group medical and
dental insurance
benefits, pursuant to
COBRA, under the plan
provided by the Company
immediately prior to
the Change in Control,
net of Executive's
required co-payments.
(ii) In the event that the payments hereunder, or
that the payments hereunder together with any other payments by the Company
under any other plan or arrangement, would cause the loss of deductibility of
any portion of such payments by the Company under Section 280G of the Internal
Revenue Code, then the amounts payable under this Section 1, shall be limited
to an amount that would not cause such loss of deduction. Further, in the
event that any payments are required to be made by any Post-Change Employer to
Executive on or after the date Executive is Involuntarily Terminated, pursuant
to any decree, court award, employment agreement or severance agreement (other
than under this Agreement), or under any plan or policy of the Post-Change
Employer (excluding any retirement, savings or thrift plans), or under the laws
of any government (collectively "Other Required Payments"), the amounts payable
under this Section 1 shall be reduced by the amount of such Other Required
Payments.
(iii) Notwithstanding any other provision of this
Agreement, Executive shall be entitled to receive, in addition to the payments
and benefits provided by this Agreement, any and all wages and vacation pay
actually earned and accrued by Executive during the period of Executive's
employment, which are unpaid as of the time of Executive's termination from
employment.
d. Rights in the Event of Default. In the event that
the Post-Change Employer defaults on its obligations under this Section 1 and,
fails to remedy such default within thirty (30) calendar days after having
received written notice of the default from Executive or Executive's estate or
"Beneficiary" (as defined in Subsection 5a of this Agreement), the Post-Change
Employer shall thereupon pay or transfer to such party, in full discharge of
its obligations under this Section 1, a lump sum amount representing all
payments required under this Section 1, and with interest on the
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<PAGE> 9
amount thereof at the rate of eight (8%) percent per annum, compounded daily,
from the otherwise due date of such payment or transfer.
2. Payment of Benefits In The Event Of Termination Of Employment
In The Absence Of A Change in Control.
If Company (or in the case of a termination which occurs more
than two years after a Change in Control, the Post-Change Employer) terminates
Executive's employment without "Good Cause" (as defined in this Section) and
such termination does not occur within two years after a Change in Control,
then Executive shall be entitled to receive, but limited to receive, from the
Company (or Post-Change Employer), the following benefits:
a. A lump sum severance payment in an amount equal to
the greater of:
(i) Two weeks salary for every year or partial
year of service with the Company (computed
using Executive's most recent annualized base
salary and annualized car allowance, if any,
combined), or
(ii) Four weeks salary, likewise computed.
b. Compensation for the loss of group medical and dental
insurance benefits (excluding coverage under any life
or long-term disability programs) for the same number
of weeks as the number of weeks of salary which
Executive receives under Subsection a of this Section
2, which may be provided, at the sole discretion of
the Company, by either of the following options:
(a) By continuing in effect those group
medical and dental insurance
benefits which were provided by the
Company immediately before Executive
was terminated, on the same terms
and conditions which were in effect
immediately before executive was
terminated, or
(b) By payment of a lump sum amount
computed by the following formula:
(0.23) x (the number of weeks of
benefit which Executive is entitled
to receive) x (the monthly premium
necessary for Executive to maintain
Executive's group medical and dental
insurance benefits, pursuant to
COBRA, under the plan provided by
the Company).
Termination with "Good Cause," as used in this Section 2,
shall mean a termination of Executive's employment where any of the following
conditions are met:
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<PAGE> 10
(a) If grounds exist to terminate the employment of
Executive pursuant to California Labor Code Section
2924; or
(b) If Executive engages in serious or willful misconduct
which is detrimental to the interests of the Company
or its stockholders; or
(c) If Executive wilfully refuses to carry out the
directions and responsibilities assigned to Executive
by the Chief Executive Office of the Company.
3. Termination of Employment.
The parties hereto each expressly agree that Executive's
employment with the Company may be terminated at any time by either Executive
or by the Company, for any reason, with or without cause and with or without
notice. Executive agrees that in the event of the termination of Executive's
employment, either before or after a Change in Control, the sole and exclusive
contractual rights and remedies which Executive shall be entitled to enforce
are the rights and remedies expressly set forth in this Agreement, and that
this Agreement replaces and supersedes any contract or agreement, express or
implied, which in any way limits the rights of Executive or of the Company to
terminate the employment relationship between them without liability; provided,
however, that nothing in this Agreement shall replace, supersede, or modify any
written employment contract which may be in effect, or may hereafter take
effect, between Executive and the Company, if such written employment contract
is or has been duly executed by both Executive and by the Chief Executive
Officer of the Company and has been approved by the express authorization or
ratification of the Company's Board of Directors.
4. Enforcement By Arbitration.
The parties hereto each expressly agree that any dispute or
controversy arising under or in connection with this Agreement, or arising in
any way out of Executive's employment with the Company (a "Dispute") shall be
resolved exclusively by final and binding arbitration in Los Angeles County in
the State of California.
Any such arbitration shall be governed by the Rules of the
American Arbitration Association For The Resolution Of Employment Disputes then
in effect. There shall be one arbitrator, who shall be a retired judge of the
Los Angeles County Superior Court.
The arbitrator's determination shall be final and binding upon
all parties. Judgment upon the arbitrator's award may be entered in any court
having jurisdiction thereof.
The prevailing party in any such arbitration will be entitled
to recover reasonable costs, expenses and attorneys' fees for such arbitration
and for any court proceedings for the entry or enforcement of the arbitrator's
award; provided, however, that if any claim or Dispute is at issue
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<PAGE> 11
in such arbitration, which claim or Dispute is based upon a statute or
regulation which contains provisions for the award of attorneys' fees, costs or
expenses, such statute or regulation will supersede the provisions of this
Agreement with respect to the award of attorneys' fees, costs or expenses in
connection with that claim or Dispute.
The arbitration provisions contained in this Section 4 shall
not apply to any Dispute involving a claim or demand by Executive for workers'
compensation benefits. The arbitration provisions contained in this Section 4
shall not apply to any Dispute which is prohibited by law to be resolved
through arbitration.
5. Miscellaneous.
a. Successors, Binding Agreement.
This Agreement shall be binding, upon Executive and the
Company, and upon any assignee or successor of the Company (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the Company's voting securities or assets, and upon any
Post-Change Employer.
This Agreement shall inure to the benefit of and, be
enforceable by, Executive and by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die, any benefits then due and payable to
Executive under Section 1 of this Agreement shall be paid to Executive's
"Beneficiary" as designated by Executive from time to time under Executive's
then most recent principal life insurance coverage provided to Executive by the
Post-Change Employer or Company.
b. Amendment or Termination. No provision of this
Agreement may be modified, amended, waived or terminated, unless such
modification, amendment, wavier or termination is expressly agreed to in
writing, and is signed by Executive and by the Chief Executive Officer of the
Company, and has been approved by the express authorization or ratification of
the Company's Board of Directors.
c. No Vested Interest. Neither Executive nor Executive's
Beneficiary nor any other person shall have any right, title or interest in any
benefit under this Agreement prior to the occurrence of the right to payment
thereof.
d. No Alienation of Benefits. Executive shall not have
any right to pledge, hypothecate, anticipate or in any way create a lien upon
any amounts provided under this Agreement, and no benefits payable hereunder
shall be assignable in anticipation of payment either by voluntary or
involuntary acts.
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<PAGE> 12
e. Prior Agreement. This Agreement contains the entire
understanding between the parties hereto relating to the subject matter hereof,
and supersedes any prior or contemporaneous agreements, contracts or
understandings, express or implied, between the Company (or any predecessor or
subsidiary of the Company) and Executive. If there is any discrepancy or
conflict between this Agreement and any plan, policy or program of the Company,
the language of this Agreement shall govern.
f. Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or government regulation or ruling.
g. No Waiver, No Representations. No waiver by any
party hereto at any time of any breach by another party hereto of any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreement or representations, oral or
otherwise, express or implied, relating to the subject matter hereof have been
made by either party that are not set forth expressly on this Agreement.
Executive represents and agrees that Executive understands Executive's right to
thoroughly discuss all aspects of this Agreement with an attorney of
Executive's choice. Executive further represents that Executive has carefully
read and fully understands all of the provisions of this Agreement, and is
voluntarily entering into this Agreement.
h. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
i. Applicable Law. This Agreement is made and entered
into in the State of California and shall in all respects be interpreted,
enforced and governed under the laws of said state. The language of all parts
of this Agreement shall, in all cases, be construed as a whole, according to
its fair meaning, and not strictly for or against any of the parties.
j. Notice. Notices and other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when actually delivered. Delivery shall be effective as follows: If to
the Company, at the location of the Company's then principal place of business
and directed to the attention of the Chief Executive Officer. If to Executive,
at the address in the records of the Company listed as Executive's current
address. The parties hereto may change such address upon sending notice of
same to the other party, with such change of address to be effective upon
receipt.
k. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all together only
one agreement; provided, however, that such executed counterparts will not be
effective to execute this Agreement unless all counterparts consist of
identical language.
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<PAGE> 13
PLEASE READ CAREFULLY. THIS IS A BINDING CONTRACT,
AND AFFECTS IMPORTANT LEGAL RIGHTS.
Date: 8/8/95 /s/ J. C. McFARLAND
--------------- -------------------------------
J. C. McFarland
Executive
McFARLAND ENERGY, INC.
Date: 8/9/95 By: /s/ DANIEL J. REDDEN
--------------- ----------------------------
Daniel J. Redden,
Chairman Compensation
Committee of the Board of
Directors of McFarland
Energy, Inc.
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<PAGE> 1
EXHIBIT 6
AGREEMENT
This Agreement is entered into by and between McFarland Energy, Inc.,
(the "Company") and Ronald T Yoshihara ("Executive").
WHEREAS, the Company has a talented and dedicated management team
which has made many valuable contributions to the success of the Company; and
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited amount of financial security to key management
members in the event that they are terminated without cause;
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited additional amount of financial security to key
management members in the event that they are terminated without cause
following a change in control of the Company;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, it is agreed as follows:
1. Payment of Benefits In The Event Of Termination Of Employment
Following A Change in Control.
In the event that a "Change in Control" (as defined in this
Section) occurs on or before December 31, 1999, and that the employment of
Executive is thereafter "Involuntarily Terminated" (as defined in this Section)
within twenty-four (24) calendar months of the effective date of the Change in
Control, the Company (or Post-Change Employer as hereinafter described and
defined) will provide Executive with the benefits set forth in this Section.
a. Definition of "Change in Control."
As used in this Agreement, a "Change in Control" means the
occurrence of any of the following events:
(i) A majority of the members of the Board of
Directors at the end of any consecutive twenty-four (24) calendar month period
is not comprised of "Incumbent Directors" (as defined in this Section). For
purposes of this Agreement, a Director shall be considered to be an "Incumbent
Director" if either of the following conditions is met:
(A) The Director was a Director at the
beginning of the consecutive
twenty-four (24) calendar month
period in question; or
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<PAGE> 2
(B) The Director's election by the
Company's stockholders, or
nomination for election by the
Company's stockholders, was approved
by a vote of a majority of the
members of the Board at a time when
a majority of the members of the
Board were Incumbent Directors.
Such approval may be made by any
resolution of the Board expressing
approval of the Director or nominee,
or by any communication to the
Company's stockholders, which
communication is authorized by the
Board and which communication
recommends election of the Director
or nominee. Such approval may be
made by the Board after the Director
has been elected, provided that a
majority of the members of the Board
at the time of approval consists of
Incumbent Directors.
(ii) Any "person", including a "group" (as such
terms are used in Rule 13(d)(5) of the Securities Exchange Act of 1934 (the
"1934 Act")), but excluding the Company, any of its Subsidiaries, and any
employee benefit plan of the Company or any of its Subsidiaries) is or becomes
the "beneficial owner" (as defined in Rule 13(d)(3) under the 1934 Act),
directly or indirectly, of securities of the Company representing thirty-five
(35%) percent or more of the combined voting power of the Company's then
outstanding securities.
(iii) A merger or other business combination of the
Company takes place, whereby the Company merges or combines with or into
another corporation, provided that the other corporation is not a "Subsidiary"
of the Company (as defined herein). For purposes of this Section, a
corporation shall be considered to be a "Subsidiary" of the Company if either
of the following conditions is met:
(A) A majority of the directors of the
corporation are also directors of
the Company; or
(B) The Company is the "beneficial
owner" (as defined in Rule 13(d)(3)
under the 1934 Act), directly or
indirectly, of securities of the
corporation representing more than
fifty (50%) percent of the combined
voting power of the corporation's
then outstanding securities.
Notwithstanding any other provision of this Section, a merger or other
business combination of the Company shall not constitute a "Change in
Control" if any of the following conditions is met:
(A) A majority of the directors of the
merged or combined corporation were
Incumbent Directors of the Company
immediately before the merger or
combination; or
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<PAGE> 3
(B) "Beneficial ownership" (as defined
in Rule 13(d)(3) under the 1934
Act), directly or indirectly, of
more than fifty (50%) percent of the
combined voting power of the merged
or combined corporation is held,
immediately after the merger or
combination, by persons (as that
term is used in the 1934 Act) who
held beneficial ownership, directly
or indirectly, of more than fifty
(50%) percent of the combined voting
power of the Company immediately
before the merger or combination; or
(C) Securities representing more than
fifty (50%) percent of the combined
voting power of the merged or
combined corporation (as measured
immediately after the merger or
combination), are issued or conveyed
to stockholders of the Company in
exchange for or in consideration of
their shares in the Company.
b. Involuntary Termination of Employment, Qualifying
Executive for Benefits.
Executive will be entitled to receive the benefits set forth
in this Section 1 if the employment of Executive is "Involuntarily Terminated"
(as defined in this Section) within twenty-four (24) calendar months after the
effective date of the Change in Control.
(i) For purposes of this Section, Executive will
be considered to be "Involuntarily Terminated" if, within twenty-four (24)
calendar months after the effective date of the Change in Control, Executive's
employment with the Company or with any successor corporation which employs
Executive as a result of a merger or combination which constitutes a Change in
Control under Section 1a(iii) of this Agreement (collectively, the "Post-
Change Employer"), is terminated for any of the following reasons:
(A) If Executive is terminated by the
Post-Change Employer without "Good
Cause." For purposes of this
Subsection, the Post-Change Employer
shall have Good Cause to terminate
Executive's employment if any of the
following conditions are met:
(a) If grounds exist to terminate
the employment of Executive
pursuant to California Labor
Code Section 2924; or
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<PAGE> 4
(b) If Executive engages in serious
or willful misconduct which
is detrimental to the
interests of the Post-Change
Employer or its stockholders;
or
(c) If Executive willfully refuses
to carry out the directions
and responsibilities assigned
to Executive by the Chief
Executive Officer of the
Post-Change Employer.
(B) If Executive resigns from employment
for "Good Reason."
(a) For purposes of this
Subsection, Executive will
have Good Reason to resign
from employment if any of the
following conditions are met:
(1) There is a significant
adverse change in the
nature or scope of
Executive's authorities or
duties; or
(2) There is a significant
reduction in Executive's
compensation or benefits
provided by the
Post-Change Employer in
comparison with the
compensation and benefits
which Executive was
receiving from the Company
immediately before the
Change in Control; or
(3) The geographic location at
which Executive is
required to perform
Executive's principal
duties is moved to a
location more than fifty
(50) miles from such
location existing
immediately before the
Change in Control.
(b) Notwithstanding any other
provision of this Agreement,
Executive will not be
considered to have Good
Reason to resign from
employment unless both of the
following conditions are met:
(1) Executive has given the
Post-Change Employer timely
written notice of the fact
that Executive contends that
Executive has Good Reason to
resign from employment, and
of the grounds for
Executive's contention. To
be timely, such notice must
be given within a
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<PAGE> 5
reasonable time after
Executive learns of the
circumstances which give
rise to the contention that
Executive has Good Reason to
resign from employment. If
Executive's contention is
based on Subsections
1b(i)(B)(a)(2) or
1b(i)(B)(a)(3) of this
Agreement, a period of
fourteen (14) calendar days
shall be presumed to
constitute a "reasonable
time" for Executive to give
such notice. If Executive's
contention is based on
Subsection 1b(i)(B)(a)(1) of
this Agreement, a
"reasonable time" to give
such notice shall be a
period of time sufficient
for Executive to fully
assess the extent and
consequences of any change
in the nature or scope of
Executive's authorities or
duties, and to make a full
and fair determination as to
whether such change is
"adverse."
(2) The Post-Change Employer
fails to cure the
circumstances which give rise
to Executive's contention
that Executive has Good
Reason to resign from
employment within thirty (30)
calendar days following
receipt of such written
notice from Executive.
(C) If Executive is terminated on
account of disability, unless the
disability is such that Executive is
eligible for benefits under the
Post-Change Employer's Long-Term
Disability Plan then in effect, if
any.
(ii) For purposes of this Section,
Executive will not be considered to be "Involuntarily Terminated" if
Executive's employment with the Post-Change Employer is terminated for
any of the following reasons:
(A) On account of Executive's death;
(B) On account of Executive's
disability which renders
Executive eligible for benefits
under the Post-Change
Employer's Long-Term Disability
Plan, provided such eligibility
and benefits are substantially
similar to those in Company's
Plan immediately prior to the
Change in Control;
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<PAGE> 6
(C) If Executive is terminated by
the Post-Change Employer for
"Good Cause" (as defined in
this Section).
(D) If Executive voluntarily
resigns from employment without
"Good Reason" (as defined in
this Section).
(iii) In the event of any dispute as to whether
Executive has been Involuntarily Terminated, such dispute shall be decided by
final and binding arbitration as provided in this Agreement.
c. Amount and Payment of Benefits.
(i) If Executive becomes eligible for benefits
under this Section 1, Executive shall be entitled, upon being Involuntarily
Terminated from employment, to receive from the Post-Change Employer, the
following benefits:
(A) An amount of cash equal to:
(a) The greater of one and one half
times:
(1) Executive's annualized base
salary, plus the amount of
Executive's annualized car
allowance, if any, in effect
at the end of the month
immediately prior to the
Change in Control; or
(2) Executive's annualized base
salary, plus the amount of
Executive's annualized car
allowance, if any, in effect
at the end of the month
immediately prior to the date
Executive is Involuntarily
Terminated; and
(b) The greater of one and one half
times:
(1) The amount of bonus, if any,
paid or accrued to Executive
for the most recently ended
calendar year immediately
prior to the Change in
Control; or
(2) The amount of bonus, if any,
paid or accrued to Executive
for the most recently ended
calendar year prior to the
date Executive is
Involuntarily Terminated.
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<PAGE> 7
The Post-Change Employer shall make the
cash payments described in this
Subsection 1c(i)(A) as a lump sum
payment payable within thirty (30)
calendar days after the date that
Executive is Involuntarily
Terminated, or, at Executive's
written request delivered within
fifteen (15) calendar days after the
date Executive is Involuntarily
Terminated, in twelve (12) equal and
consecutive monthly installments
with the first installment payable
within thirty (30) calendar days
after the date Executive is
Involuntarily Terminated.
(B) Standard outplacement services
provided by a qualified outplacement
agency selected by the Post-Change
Employer, which services will be
made available for a period of
twelve (12) consecutive calendar
months from the date Executive is
Involuntarily Terminated, or until
the date Executive accepts
employment with another employer,
whichever occurs first; and
(C) Compensation for the loss of group
medical and dental insurance
benefits (excluding coverage under
any life or long-term disability
programs), which may be provided, at
the sole discretion of the
Post-Change Employer, by either of
the following options:
(a) By continuing in effect those
group medical and dental insurance
benefits which were provided by the
Post-Change Employer immediately
before Executive was Involuntarily
Terminated, on the same terms and
conditions which were in effect
immediately before Executive was
Involuntarily Terminated, provided
that such coverage is substantially
similar to the coverage (including
any dependent coverage) Executive
was receiving from the Company
immediately prior to the Change in
Control, for a period of eighteen
(18) calendar months from the date
of Executive is Involuntarily
Terminated or until Executive
obtains coverage under a group
insurance arrangement or program
sponsored by a new employer,
whichever occurs first; or
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<PAGE> 8
(b) By payment of a lump sum amount
equal to eighteen (18) times
the greater of the following
amounts:
(1) the monthly premium necessary
for Executive to maintain
Executive's group medical and
dental insurance benefits,
pursuant to COBRA, under the
plan provided by the
Post-Change Employer, net of
Executive's required
co-payments; or
(2) the monthly premium which
would have been necessary for
Executive to maintain
Executive's group medical and
dental insurance benefits,
pursuant to COBRA, under the
plan provided by the Company
immediately prior to the
Change in Control, net of
Executive's required
co-payments.
(ii) In the event that the payments hereunder, or
that the payments hereunder together with any other payments by the Company
under any other plan or arrangement, would cause the loss of deductibility of
any portion of such payments by the Company under Section 280G of the Internal
Revenue Code, then the amounts payable under this Section 1, shall be limited
to an amount that would not cause such loss of deduction. Further, in the
event that any payments are required to be made by any Post-Change Employer to
Executive on or after the date Executive is Involuntarily Terminated, pursuant
to any decree, court award, employment agreement or severance agreement (other
than under this Agreement), or under any plan or policy of the Post-Change
Employer (excluding any retirement, savings or thrift plans), or under the laws
of any government (collectively "Other Required Payments"), the amounts payable
under this Section 1 shall be reduced by the amount of such Other Required
Payments.
(iii) Notwithstanding any other provision of this
Agreement, Executive shall be entitled to receive, in addition to the payments
and benefits provided by this Agreement, any and all wages and vacation pay
actually earned and accrued by Executive during the period of Executive's
employment, which are unpaid as of the time of Executive's termination from
employment.
d. Rights in the Event of Default. In the event that
the Post-Change Employer defaults on its obligations under this Section 1 and,
fails to remedy such default within thirty (30) calendar days after having
received written notice of the default from Executive or Executive's estate or
"Beneficiary" (as defined in Subsection 5a of this Agreement), the Post-Change
Employer shall thereupon pay or transfer to such party, in full discharge of
its obligations under this Section 1, a lump sum amount representing all
payments required under this Section 1, and with interest on the
8
<PAGE> 9
amount thereof at the rate of eight (8%) percent per annum, compounded daily,
from the otherwise due date of such payment or transfer.
2. Payment of Benefits In The Event Of Termination Of Employment
In The Absence Of A Change in Control.
If Company (or in the case of a termination which occurs more
than two years after a Change in Control, the Post-Change Employer) terminates
Executive's employment without "Good Cause" (as defined in this Section) and
such termination does not occur within two years after a Change in Control,
then Executive shall be entitled to receive, but limited to receive, from the
Company, the following benefits:
a. A lump sum severance payment in an amount equal to
the greater of:
(i) Two weeks salary for every year or partial
year of service with the Company (computed
using Executive's most recent annualized base
salary and annualized car allowance, if any,
combined), or
(ii) Four weeks salary, likewise computed.
b. Compensation for the loss of group medical and dental
insurance benefits (excluding coverage under any life
or long-term disability programs) for the same number
of weeks as the number of weeks of salary which
Executive receives under Subsection a of this Section
2, which may be provided, at the sole discretion of
the Company, by either of the following options:
(a) By continuing in effect those group
medical and dental insurance
benefits which were provided by the
Company immediately before Executive
was terminated, on the same terms
and conditions which were in effect
immediately before executive was
terminated, or
(b) By payment of a lump sum amount
computed by the following formula:
(0.23) x (the number of weeks of
benefit which Executive is entitled
to receive) x (the monthly premium
necessary for Executive to maintain
Executive's group medical and dental
insurance benefits, pursuant to
COBRA, under the plan provided by
the Company).
Termination with "Good Cause," as used in this Section 2,
shall mean a termination of Executive's employment where any of the following
conditions are met:
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<PAGE> 10
(a) If grounds exist to terminate the employment of
Executive pursuant to California Labor Code Section
2924; or
(b) If Executive engages in serious or willful misconduct
which is detrimental to the interests of the Company
or its stockholders; or
(c) If Executive wilfully refuses to carry out the
directions and responsibilities assigned to Executive
by the Chief Executive Office of the Company.
3. Termination of Employment.
The parties hereto each expressly agree that Executive's
employment with the Company may be terminated at any time by either Executive
or by the Company, for any reason, with or without cause and with or without
notice. Executive agrees that in the event of the termination of Executive's
employment, either before or after a Change in Control, the sole and exclusive
contractual rights and remedies which Executive shall be entitled to enforce
are the rights and remedies expressly set forth in this Agreement, and that
this Agreement replaces and supersedes any contract or agreement, express or
implied, which in any way limits the rights of Executive or of the Company to
terminate the employment relationship between them without liability; provided,
however, that nothing in this Agreement shall replace, supersede, or modify any
written employment contract which may be in effect, or may hereafter take
effect, between Executive and the Company, if such written employment contract
is or has been duly executed by both Executive and by the Chief Executive
Officer of the Company and has been approved by the express authorization or
ratification of the Company's Board of Directors.
4. Enforcement By Arbitration.
The parties hereto each expressly agree that any dispute or
controversy arising under or in connection with this Agreement, or arising in
any way out of Executive's employment with the Company (a "Dispute") shall be
resolved exclusively by final and binding arbitration in Los Angeles County in
the State of California.
Any such arbitration shall be governed by the Rules of the
American Arbitration Association For The Resolution Of Employment Disputes then
in effect. There shall be one arbitrator, who shall be a retired judge of the
Los Angeles County Superior Court.
The arbitrator's determination shall be final and binding upon
all parties. Judgment upon the arbitrator's award may be entered in any court
having jurisdiction thereof.
The prevailing party in any such arbitration will be entitled
to recover reasonable costs, expenses and attorneys' fees for such arbitration
and for any court proceedings for the entry or enforcement of the arbitrator's
award; provided, however, that if any claim or Dispute is at issue
10
<PAGE> 11
in such arbitration, which claim or Dispute is based upon a statute or
regulation which contains provisions for the award of attorneys' fees, costs or
expenses, such statute or regulation will supersede the provisions of this
Agreement with respect to the award of attorneys' fees, costs or expenses in
connection with that claim or Dispute.
The arbitration provisions contained in this Section 4 shall
not apply to any Dispute involving a claim or demand by Executive for workers'
compensation benefits. The arbitration provisions contained in this Section 4
shall not apply to any Dispute which is prohibited by law to be resolved
through arbitration.
5. Miscellaneous.
a. Successors; Binding Agreement.
This Agreement shall be binding upon Executive and the
Company, and upon any assignee or successor of the Company (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the Company's voting securities or assets, and upon any
Post-Change Employer.
This Agreement shall inure to the benefit of and, be
enforceable by, Executive and by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die, any benefits then due and payable to
Executive under Section 1 of this Agreement shall be paid to Executive's
"Beneficiary" as designated by Executive from time to time under Executive's
then most recent principal life insurance coverage provided to Executive by the
Post-Change Employer or Company.
b. Amendment or Termination. No provision of this
Agreement may be modified, amended, waived or terminated, unless such
modification, amendment, wavier or termination is expressly agreed to in
writing, and is signed by Executive and by the Chief Executive Officer of the
Company, and has been approved by the express authorization or ratification of
the Company's Board of Directors.
c. No Vested Interest. Neither Executive nor
Executive's Beneficiary nor any other person shall have any right, title or
interest in any benefit under this Agreement prior to the occurrence of the
right to payment thereof.
d. No Alienation of Benefits. Executive shall not have
any right to pledge, hypothecate, anticipate or in any way create a lien upon
any amounts provided under this Agreement, and no benefits payable hereunder
shall be assignable in anticipation of payment either by voluntary or
involuntary acts.
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<PAGE> 12
e. Prior Agreement. This Agreement contains the entire
understanding between the parties hereto relating to the subject matter hereof,
and supersedes any prior or contemporaneous agreements, contracts or
understandings, express or implied, between the Company (or any predecessor or
subsidiary of the Company) and Executive. If there is any discrepancy or
conflict between this Agreement and any plan, policy or program of the Company,
the language of this Agreement shall govern.
f. Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or government regulation or ruling.
g. No Waiver, No Representations. No waiver by any
party hereto at any time of any breach by another party hereto of any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreement or representations, oral or
otherwise, express or implied, relating to the subject matter hereof have been
made by either party that are not set forth expressly on this Agreement.
Executive represents and agrees that Executive understands Executive's right to
thoroughly discuss all aspects of this Agreement with an attorney of
Executive's choice. Executive further represents that Executive has carefully
read and fully understands all of the provisions of this Agreement, and is
voluntarily entering into this Agreement.
h. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
i. Applicable Law. This Agreement is made and entered
into in the State of California and shall in all respects be interpreted,
enforced and governed under the laws of said state. The language of all parts
of this Agreement shall, in all cases, be construed as a whole, according to
its fair meaning, and not strictly for or against any of the parties.
j. Notice. Notices and other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when actually delivered. Delivery shall be effective as follows: If to
the Company, at the location of the Company's then principal place of business
and directed to the attention of the Chief Executive Officer. If to Executive,
at the address in the records of the Company listed as Executive's current
address. The parties hereto may change such address upon sending notice of
same to the other party, with such change of address to be effective upon
receipt.
k. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all together only
one agreement; provided, however, that such executed counterparts will not be
effective to execute this Agreement unless all counterparts consist of
identical language.
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<PAGE> 13
PLEASE READ CAREFULLY. THIS IS A BINDING CONTRACT,
AND AFFECTS IMPORTANT LEGAL RIGHTS.
Date: 8/8/95 /s/ RONALD T. YOSHIHARA
----------------------- ------------------------------------
Ronald T Yoshihara
Executive
McFARLAND ENERGY, INC.
Date: 8/8/95 By: /s/ J. C. McFarland
----------------------- ---------------------------------
J. C. McFarland
Chairman and Chief Executive
Officer
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<PAGE> 1
EXHIBIT 7
AGREEMENT
This Agreement is entered into by and between McFarland
Energy, Inc., (the "Company") and Craig M. Sturtevant ("Executive").
WHEREAS, the Company has a talented and dedicated management
team which has made many valuable contributions to the success of the Company;
and
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited amount of financial security to key management
members in the event that they are terminated without cause;
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited additional amount of financial security to key
management members in the event that they are terminated without cause
following a change in control of the Company;
NOW, THEREFORE, in consideration of the premises and mutual
promises contained herein, it is agreed as follows:
1. Payment of Benefits In The Event Of Termination Of Employment
Following A Change in Control.
In the event that a "Change in Control" (as defined in this
Section) occurs on or before December 31, 1999, and that the employment of
Executive is thereafter "Involuntarily Terminated" (as defined in this Section)
within twenty-four (24) calendar months after the effective date of the Change
in Control, the Company (or Post-Change Employer as hereinafter described and
defined) will provide Executive with the benefits set forth in this Section.
a. Definition of "Change in Control."
As used in this Agreement, a "Change in Control" means the
occurrence of any of the following events:
(i) A majority of the members of the Board of
Directors at the end of any consecutive twenty-four (24) calendar month period
is not comprised of "Incumbent Directors" (as defined in this Section). For
purposes of this Agreement, a Director shall be considered to be an "Incumbent
Director" if either of the following conditions is met:
(A) The Director was a Director at the
beginning of the consecutive
twenty-four (24) calendar month
period in question; or
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(B) The Director's election by the
Company's stockholders, or
nomination for election by the
Company's stockholders, was approved
by a vote of a majority of the
members of the Board at a time when
a majority of the members of the
Board were Incumbent Directors.
Such approval may be made by any
resolution of the Board expressing
approval of the Director or nominee,
or by any communication to the
Company's stockholders, which
communication is authorized by the
Board and which communication
recommends election of the Director
or nominee. Such approval may be
made by the Board after the Director
has been elected. provided that a
majority of the members of the Board
at the time of approval consists of
Incumbent Directors.
(ii) Any "person", including a "group" (as such
terms are used in Rule 13(d)(5) of the Securities Exchange Act of 1934 (the "
1934 Act")), but excluding the Company, any of its Subsidiaries, and any
employee benefit plan of the Company or any of its Subsidiaries) is or becomes
the "beneficial owner" (as defined in Rule 13(d)(3) under the 1934 Act),
directly or indirectly, of securities of the Company representing thirty-five
(35%) percent or more of the combined voting power of the Company's then
outstanding securities.
(iii) A merger or other business combination of the
Company takes place, whereby the Company merges or combines with or into
another corporation, provided that the other corporation is not a "Subsidiary"
of the Company (as defined herein). For purposes of this Section, a
corporation shall be considered to be a "Subsidiary" of the Company if either
of the following conditions is met:
(A) A majority of the directors of the
corporation are also directors of
the Company; or
(B) The Company is the "beneficial
owner" (as defined in Rule 13(d)(3)
under the 1934 Act), directly or
indirectly, of securities of the
corporation representing more than
fifty (50%) percent of the combined
voting power of the corporation's
then outstanding securities.
Notwithstanding any other provision of this Section, a merger or other business
combination of the Company shall not constitute a "Change in Control" if any of
the following conditions is met:
(A) A majority of the directors of the
merged or combined corporation were
Incumbent Directors of the Company
immediately before the merger or
combination; or
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<PAGE> 3
(B) "Beneficial ownership" (as defined
in Rule 13(d)(3) under the 1934
Act), directly or indirectly, of
more than fifty (50%) percent of the
combined voting power of the merged
or combined corporation is held,
immediately after the merger or
combination, by persons (as that
term is used in the 1934 Act) who
held beneficial ownership, directly
or indirectly, of more than fifty
(50%) percent of the combined voting
power of the Company immediately
before the merger or combination; or
(C) Securities representing more than
fifty (50%) percent of the combined
voting power of the merged or
combined corporation (as measured
immediately after the merger or
combination), are issued or conveyed
to stockholders of the Company in
exchange for or in consideration of
their shares in the Company.
b. Involuntary Termination of Employment, Qualifying
Executive for Benefits,
Executive will be entitled to receive the benefits set forth
in this Section 1 if the employment of Executive is "Involuntarily Terminated"
(as defined in this Section) within twenty-four (24) calendar months after the
effective date of the Change in Control.
(i) For purposes of this Section, Executive will
be considered to be "Involuntarily Terminated" if, within twenty-four (24)
calendar months after the effective date of the Change in Control, Executive's
employment with the Company or with any successor corporation which employs
Executive as a result of a merger or combination which constitutes a Change in
Control under Section 1a(iii) of this Agreement (collectively, the "Post-Change
Employer"), is terminated for any of the following reasons:
(A) If Executive is terminated by the
Post-Change Employer without "Good
Cause." For purposes of this
Subsection, the Post-Change Employer
shall have Good Cause to terminate
Executive's employment if any of the
following conditions are met:
(a) If grounds exist to terminate
the employment of Executive
pursuant to California Labor
Code Section 2924; or
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<PAGE> 4
(b) If Executive engages in serious
or willful misconduct which
is detrimental to the
interests of the Post-Change
Employer or its stockholders;
or
(c) If Executive willfully refuses
to carry out the directions
and responsibilities assigned
to Executive by the Chief
Executive Officer of the
Post-Change Employer.
(B) If Executive resigns from employment
for "Good Reason."
(a) For purposes of this Subsection,
Executive will have Good Reason to
resign from employment if any of
the following conditions are met:
(1) There is a significant adverse
change in the nature or scope
of Executive's authorities or
duties; or
(2) There is a significant
reduction in Executive's
compensation or benefits
provided by the Post-Change
Employer in comparison with
the compensation and benefits
which Executive was receiving
from the Company immediately
before the Change in Control;
or
(3) The geographic location at
which Executive is required to
perform Executive's principal
duties is moved to a location
more than fifty (50) miles
from such location existing
immediately before the
Change in Control.
(b) Notwithstanding any other
provision of this Agreement,
Executive will not be considered to
have Good Reason to resign from
employment unless both of the
following conditions are met:
(1) Executive has given the
Post-Change Employer timely
written notice of the fact
that Executive contends that
Executive has Good Reason to
resign from employment, and
of the grounds for
Executive's contention. To
be
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<PAGE> 5
timely, such notice must be
given within a reasonable time
after Executive learns of the
circumstances which give rise
to the contention that
Executive has Good Reason to
resign from employment. If
Executive's contention is
based on Subsections
1b(i)(B)(a)(2) or
lb(i)(B)(a)(3) of this
Agreement, a period of
fourteen (14) calendar days
shall be presumed to
constitute a "reasonable time"
for Executive to give such
notice. If Executive's
contention is based on
Subsection lb(i)(B)(a)(1) of
this Agreement, a "reasonable
time" to give such notice
shall be a period of time
sufficient for Executive to
fully assess the extent and
consequences of any change in
the nature or scope of
Executive's authorities or
duties, and to make a full and
fair determination as to
whether such change is
"adverse."
(2) The Post-Change Employer fails
to cure the circumstances
which give rise to
Executive's contention that
Executive has Good Reason to
resign from employment within
thirty (30) calendar days
following receipt of such
written notice from
Executive.
(C) If Executive is terminated on
account of disability, unless the
disability is such that Executive is
eligible for benefits under the
Post-Change Employer's Long-Term
Disability Plan then in effect, if
any.
(ii) For purposes of this Section, Executive will
not be considered to be "Involuntarily Terminated" if Executive's
employment with the Post-Change Employer is terminated for any of the
following reasons:
(A) On account of Executive's death;
(B) On account of Executive's disability
which renders Executive eligible for
benefits under the Post-Change
Employer's Long-Term Disability
Plan, provided such eligibility and
benefits
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<PAGE> 6
are substantially similar to those in
Company's Plan immediately prior to
the Change in Control;
(C) If Executive is terminated by the
Post-Change Employer for "Good
Cause" (as defined in this Section).
(D) If Executive voluntarily resigns
from employment without "Good
Reason" (as defined in this
Section).
(iii) In the event of any dispute as to whether
Executive has been Involuntarily Terminated, such dispute shall be decided by
final and binding arbitration as provided in this Agreement.
c. Amount and Payment of Benefits.
(i) If Executive becomes eligible for benefits
under this Section 1, Executive shall be entitled, upon being Involuntarily
Terminated from employment, to receive from the Post-Change Employer, the
following benefits:
(A) An amount of cash equal to:
(a) The greater of:
(1) Executive's annualized
base salary, plus the
amount of Executive's
annualized car allowance,
if any, in effect at the
end of the month
immediately prior to the
Change in Control; or
(2) Executive's annualized
base salary, plus the
amount of Executive's
annualized car allowance,
if any, in effect at the
end of the month
immediately prior to the
date Executive is
Involuntarily
Terminated; and
(b) The greater of:
(1) The amount of bonus, if
any, paid or accrued to
Executive for the most
recently ended calendar
year immediately prior to
the Change in Control; or
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<PAGE> 7
(2) The amount of bonus, if
any, paid or accrued to
Executive for the most
recently ended calendar
year prior to the date
Executive is Involuntary
Terminated.
The Post-Change Employer shall make the
cash payments described in this
Subsection 1c(i)(A) as a lump sum
payment payable within thirty (30)
calendar days after the date that
Executive is Involuntarily
Terminated, or, at Executive's
written request delivered within
fifteen (15) calendar days after the
date Executive is Involuntarily
Terminated, in twelve (12) equal and
consecutive monthly installments
with the first installment payable
within thirty (30) calendar days
after the date Executive is
Involuntarily Terminated.
(B) Standard outplacement services
provided by a qualified
out-placement agency selected by the
Post-Change Employer, which services
will be made available for a period
of twelve (12) consecutive calendar
months from the date Executive is
Involuntarily Terminated, or until
the date Executive accepts
employment with another employer,
whichever occurs first; and
(C) Compensation for the loss of group
medical and dental insurance
benefits (excluding coverage under
any life or long-term disability
programs), which may be provided, at
the sole discretion of the
Post-Change Employer, by either of
the following options:
(a) By continuing in effect those
group medical and dental
insurance benefits which were
provided by the Post-Change
Employer immediately before
Executive was Involuntarily
Terminated, on the same terms
and conditions which were in
effect immediately before
Executive was Involuntarily
Terminated, provided that
such coverage is
substantially similar to the
coverage (including any
dependent coverage) Executive
was receiving from the
Company immediately prior to
the Change in Control, for a
period of twelve (12)
calendar months from the date
of Executive is Involuntarily
Terminated or until Executive
obtains coverage under a
group insurance
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<PAGE> 8
arrangement or program sponsored
by a new employer, whichever
occurs first; or
(b) By payment of a lump sum amount
equal to twelve (12) times
the greater of the following
amounts:
(1) the monthly premium necessary
for Executive to maintain
Executive's group medical and
dental insurance benefits,
pursuant to COBRA, under the
plan provided by the
Post-Change Employer, net of
Executive's required
co-payments; or
(2) the monthly premium which
would have been necessary for
Executive to maintain
Executive's group medical and
dental insurance benefits,
pursuant to COBRA, under the
plan provided by the Company
immediately prior to the
Change in Control, net of
Executive's required
co-payments.
(ii) In the event that the payments hereunder, or
that the payments hereunder together with any other payments by the Company
under any other plan or arrangement, would cause the loss of deductibility of
any portion of such payments by the Company under Section 280G of the Internal
Revenue Code, then the amounts payable under this Section 1, shall be limited
to an amount that would not cause such loss of deduction. Further, in the
event that any payments are required to be made by any Post-Change Employer to
Executive on or after the date Executive is Involuntarily Terminated, pursuant
to any decree, court award, employment agreement or severance agreement (other
than under this Agreement), or under any plan or policy of the Post-Change
Employer (excluding any retirement, savings or thrift plans), or under the laws
of any government (collectively "Other Required Payments"), the amounts payable
under this Section 1 shall be reduced by the amount of such Other Required
Payments.
(iii) Notwithstanding any other provision of this
Agreement, Executive shall be entitled to receive, in addition to the payments
and benefits provided by this Agreement, any and all wages and vacation pay
actually earned and accrued by Executive during the period of Executive's
employment, which are unpaid as of the time of Executive's termination from
employment.
d. Rights in the Event of Default. In the event that
the Post-Change Employer defaults on its obligations under this Section 1 and,
fails to remedy such default within thirty (30) calendar days after having
received written notice of the default from Executive or Executive's estate
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<PAGE> 9
or "Beneficiary" (as defined in Subsection 5a of this Agreement), the
Post-Change Employer shall thereupon pay or transfer to such party, in full
discharge of its obligations under this Section 1, a lump sum amount
representing all payments required under this Section 1, and with interest on
the amount thereof at the rate of eight (8%) percent per annum, compounded
daily, from the otherwise due date of such payment or transfer.
2. Payment of Benefits In The Event Of Termination Of Employment
In The Absence Of A Change in Control.
If Company (or in the case of a termination which occurs more
than two years after a Change of Control, the Post-Change Employer) terminates
Executive's employment without "Good Cause" (as defined in this Section) and
such termination does not occur within two years after a Change in Control,
then Executive shall be entitled to receive, but limited to receive, from the
Company (or Post-Change Employer), the following benefits:
a. A lump sum severance payment in an amount equal to
the greater of:
(i) Two weeks salary for every year or partial
year of service with the Company (computed
using Executive's most recent annualized base
salary and annualized car allowance, if any,
combined), or
(ii) Four weeks salary, likewise computed.
b. Compensation for the loss of group medical and dental
insurance benefits (excluding coverage under any life
or long-term disability programs) for the same number
of weeks as the number of weeks of salary which
Executive receives under Subsection a of this Section
2, which may be provided, at the sole discretion of
the Company, by either of the following options:
(a) By continuing in effect those group medical and
dental insurance benefits which were provided by the
Company immediately before Executive was terminated,
on the same terms and conditions which were in
effect immediately before executive was terminated,
or
(b) By payment of a lump sum amount computed by the
following formula: (0.23) x (the number of weeks of
benefit which Executive is entitled to receive) x
(the monthly premium necessary for Executive to
maintain Executive's group medical and dental
insurance benefits, pursuant to COBRA, under
the plan provided by the Company).
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<PAGE> 10
Termination with "Good Cause," as used in this Section 2,
shall mean a termination of Executive's employment where any of the following
conditions are met:
(a) If grounds exist to terminate the employment of
Executive pursuant to the California Labor Code
Section 2924; or
(b) If Executive engages in serious or willful misconduct
which is detrimental to the interests of the Company
or its stockholders; or
(c) If Executive willfully refuses to carry out the
directions and responsibilities assigned to Executive
by the Chief Executive Office of the Company.
3. Termination of Employment.
The parties hereto each expressly agree that Executive's
employment with the Company may be terminated at any time, by either Executive
or by the Company, for any reason, with or without cause and with or without
notice. Executive agrees that in the event of the termination of Executive's
employment, either before or after a Change in Control, the sole and exclusive
contractual rights and remedies which Executive shall be entitled to enforce
are the rights and remedies expressly set forth in this Agreement, and that
this Agreement replaces and supersedes any contract or agreement, express or
implied, which in any way limits the rights of Executive or of the Company to
terminate the employment relationship between them without liability; provided,
however, that nothing in this Agreement shall replace, supersede, or modify any
written employment contract which may be in effect, or may hereafter take
effect, between Executive and the Company, if such written employment contract
is or has been duly executed by both Executive and by the Chief Executive
Officer of the Company and has been approved by the express authorization or
ratification of the Company's Board of Directors.
4. Enforcement By Arbitration.
The parties hereto each expressly agree that any dispute or
controversy arising under or in connection with this Agreement, or arising in
any way out of Executive's employment with the Company (a "Dispute") shall be
resolved exclusively by final and binding arbitration in Los Angeles County in
the State of California.
Any such arbitration shall be governed by the Rules of the
American Arbitration Association For The Resolution Of Employment Disputes then
in effect. There shall be one arbitrator, who shall be a retired judge of the
Los Angeles County Superior Court.
The arbitrator's determination shall be final and binding upon
all parties. Judgment upon the arbitrator's award may be entered in any court
having jurisdiction thereof.
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<PAGE> 11
The prevailing party in any such arbitration will be entitled
to recover reasonable costs, expenses and attorneys' fees for such arbitration
and for any court proceedings for the entry or enforcement of the arbitrator's
award; provided, however, that if any claim or Dispute is at issue in such
arbitration which claim or Dispute is based upon a statute or regulation which
contains provisions for the award of attorneys' fees, costs or expenses, such
statute or regulation will supersede the provisions of this Agreement with
respect to the award of attorneys' fees, costs or expenses in connection with
that claim or Dispute.
The arbitration provisions contained in this Section 4 shall
not apply to any Dispute involving a claim or demand by Executive for workers'
compensation benefits. The arbitration provisions contained in this Section 4
shall not apply to any Dispute which is prohibited by law to be resolved
through arbitration.
5. Miscellaneous.
a. Successors, Binding Agreement.
This Agreement shall be binding upon Executive and the
Company, and upon any assignee or successor of the Company (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the Company's voting securities or assets, and upon any
Post-Change Employer.
This Agreement shall inure to the benefit of and, be
enforceable by, Executive and by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die, any benefits then due and payable to
Executive under Section 1 of this Agreement shall be paid to Executive's
"Beneficiary" as designated by Executive from time to time under Executive's
then most recent principal life insurance coverage provided to Executive by the
Post-Change Employer or Company.
b. Amendment or Termination. No provision of this
Agreement may be modified, amended, waived or terminated, unless such
modification, amendment, wavier or termination is expressly agreed to in
writing, and is signed by Executive and by the Chief Executive Officer of the
Company, and has been approved by the express authorization or ratification of
the Company's Board of Directors.
c. No Vested Interest. Neither Executive nor
Executive's Beneficiary nor any other person shall have any right, title or
interest in any benefit under this Agreement prior to the occurrence of the
right to payment thereof.
d. No Alienation of Benefits. Executive shall not have
any right to pledge, hypothecate, anticipate or in any way create a lien upon
any amounts provided under this Agreement,
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<PAGE> 12
and no benefits payable hereunder shall be assignable in anticipation of
payment either by voluntary or involuntary acts.
e. Prior Agreement. This Agreement contains the entire
understanding between the parties hereto relating to the subject matter
hereof, and supersedes any prior or contemporaneous agreements, contracts or
understandings, express or implied, between the Company (or any predecessor or
subsidiary of the Company) and Executive. If there is any discrepancy or
conflict between this Agreement and any plan, policy or program of the Company,
the language of this Agreement shall govern.
f. Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or government regulation or ruling.
g. No Waiver, No Representations. No waiver by any
party hereto at any time of any breach by another party hereto of any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreement or representations, oral or
otherwise, express or implied, relating to the subject matter hereof have been
made by either party that are not set forth expressly on this Agreement.
Executive represents and agrees that Executive understands Executive's right to
thoroughly discuss all aspects of this Agreement with an attorney of
Executive's choice. Executive further represents that Executive has carefully
read and fully understands all of the provisions of this Agreement, and is
voluntarily entering into this Agreement.
h. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
i. Applicable Law. This Agreement is made and entered
into in the State of California and shall in all respects be interpreted,
enforced and governed under the laws of said state. The language of all parts
of this Agreement shall, in all cases, be construed as a whole, according to
its fair meaning, and not strictly for or against any of the parties.
j. Notice. Notices and other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when actually delivered. Delivery shall be effective as follows: If to
the Company, at the location of the Company's then principal place of business
and directed to the attention of the Chief Executive Officer. If to Executive,
at the address in the records of the Company listed as Executive's current
address. The parties hereto may change such address upon sending notice of
same to the other party, with such change of address to be effective upon
receipt.
k. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all together only
one agreement; provided, however, that such executed counterparts will not be
effective to execute this Agreement unless all counterparts consist of
identical language.
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<PAGE> 13
PLEASE READ CAREFULLY. THIS IS A BINDING CONTRACT,
AND AFFECTS IMPORTANT LEGAL RIGHTS.
Date: 8/8/95 /s/ Craig M. Sturtevant
---------------------- ------------------------------
Craig M. Sturtevant
Executive
MCFARLAND ENERGY, INC.
Date: 8/8/95 /s/ J. C. McFarland
---------------------- ------------------------------
J. C. McFarland
Chairman and Chief Executive
Officer
Addendum: If Executive is named a Vice President of the Company during
the term of this Agreement the amounts payable, if any, to
Executive under Subsections 1.C(i)(A) and (C) shall be
increased by a factor of 1.5 times.
COMPANY EXECUTIVE
By: /s/ J. C. McFarland By: /s/ Craig M. Sturtevant
--------------------------- ---------------------------
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<PAGE> 14
AMENDMENT NO. 1 TO AGREEMENT
Whereas, Craig M. Sturtevant and McFarland Energy, Inc. ("McFarland'), entered
that Agreement dated August 8, 1995 (the "Agreement") including an Addendum
thereto, covering the matters contained therein, including the consequences of
a " change of control" of McFarland;
Whereas, Craig M. Sturtevant has been elected "Vice President and General
Counsel" of McFarland; and
Whereas, Craig M. Sturtevant and McFarland desire to implement the Addendum by
amending the Agreement to increase the benefits due Craig M. Sturtevant,
effective the date of his election as Vice President and General Counsel, under
the terms of the Agreement and the Addendum thereto in the event of a change of
control.
Now therefore, in consideration of Craig M. Sturtevant being elected a Vice
President of McFarland, the mutual benefits contained herein and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged the parties hereto agree as follows:
1. The words "one and one half times" are added after "An amount of cash
equal to" in subsection 1.c(i)(A) of the Agreement.
2. The word and number "twelve (12)" are deleted from subsection
1.c(i)(C)(a) of the Agreement and the word and number "eighteen (18)" are
substituted therefor.
3. The word and number "twelve (12)" are deleted from subsection
l.c(i)(C)(b) of the Agreement and the word and number "eighteen (18)" are
substituted therefor.
4. The Addendum to the Agreement is deleted.
5. Except as modified herein the Agreement remains in full force and
effect.
Executed in duplicate originals and effective on December 10, 1996.
McFarland Energy, Inc.
By: /s/ J. C. McFarland
--------------------------------------
J. C. "Mac" McFarland
Chairman and Chief Executive Officer
Craig M. Sturtevant
/s/ Craig M. Sturtevant
---------------------------------------
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<PAGE> 1
EXHIBIT 8
AGREEMENT
This Agreement is entered into by and between McFarland
Energy, Inc., (the "Company") and William H. Moodie ("Executive").
WHEREAS, the Company has a talented and dedicated management
team which has made many valuable contributions to the success of the Company;
and
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited amount of financial security to key management
members in the event that they are terminated without cause;
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited additional amount of financial security to key
management members in the event that they are terminated without cause
following a change in control of the Company;
NOW, THEREFORE, in consideration of the premises and mutual
promises contained herein, it is agreed as follows:
1. Payment of Benefits In The Event Of Termination Of Employment
Following A Change in Control.
In the event that a "Change in Control" (as defined in this
Section) occurs on or before December 31, 1999, and that the employment of
Executive is thereafter "Involuntarily Terminated" (as defined in this Section)
within twenty-four (24) calendar months after the effective date of the Change
in Control, the Company (or Post-Change Employer as hereinafter described and
defined) will provide Executive with the benefits set forth in this Section.
a. Definition of "Change in Control."
As used in this Agreement, a "Change in Control" means the
occurrence of any of the following events:
(i) A majority of the members of the Board of
Directors at the end of any consecutive twenty-four (24) calendar month period
is not comprised of "Incumbent Directors" (as defined in this Section). For
purposes of this Agreement, a Director shall be considered to be an "Incumbent
Director" if either of the following conditions is met:
(A) The Director was a Director at the
beginning of the consecutive
twenty-four (24) calendar month
period in question; or
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<PAGE> 2
(B) The Director's election by the
Company's stockholders, or
nomination for election by the
Company's stockholders, was approved
by a vote of a majority of the
members of the Board at a time when
a majority of the members of the
Board were Incumbent Directors.
Such approval may be made by any
resolution of the Board expressing
approval of the Director or nominee,
or by any communication to the
Company's stockholders, which
communication is authorized by the
Board and which communication
recommends election of the Director
or nominee. Such approval may be
made by the Board after the Director
has been elected, provided that a
majority of the members of the Board
at the time of approval consists of
Incumbent Directors.
(ii) Any "person," including a "group" (as such
terms are used in Rule 13(d)(5) of the Securities Exchange Act of 1934 (the
"1934 Act")), but excluding the Company, any of its Subsidiaries, and any
employee benefit plan of the Company or any of its Subsidiaries) is or becomes
the "beneficial owner" (as defined in Rule 13(d)(3) under the 1934 Act),
directly or indirectly, of securities of the Company representing thirty-five
(35%) percent or more of the combined voting power of the Company's then
outstanding securities.
(iii) A merger or other business combination of the
Company takes place, whereby the Company merges or combines with or into
another corporation, provided that the other corporation is not a "Subsidiary"
of the Company (as defined herein). For purposes of this Section, a
corporation shall be considered to be a "Subsidiary" of the Company if either
of the following conditions is met:
(A) A majority of the directors of the
corporation are also directors of
the Company; or
(B) The Company is the "beneficial
owner" (as defined in Rule 13(d)(3)
under the 1934 Act), directly or
indirectly, of securities of the
corporation representing more than
fifty (50%) percent of the combined
voting power of the corporation's
then outstanding securities.
Notwithstanding any other provision of this Section, a merger or other business
combination of the Company shall not constitute a "Change in Control" if any of
the following conditions is met:
(A) A majority of the directors of the
merged or combined corporation were
Incumbent Directors of the Company
immediately before the merger or
combination; or
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<PAGE> 3
(B) "Beneficial ownership" (as defined
in Rule 13(d)(3) under the 1934
Act), directly or indirectly, of
more than fifty (50%) percent of the
combined voting power of the merged
or combined corporation is held,
immediately after the merger or
combination, by persons (as that
term is used in the 1934 Act) who
held beneficial ownership, directly
or indirectly, of more than fifty
(50%) percent of the combined voting
power of the Company immediately
before the merger or combination; or
(C) Securities representing more than
fifty (50%) percent of the combined
voting power of the merged or
combined corporation (as measured
immediately after the merger or
combination), are issued or conveyed
to stockholders of the Company in
exchange for or in consideration of
their shares in the Company.
b. Involuntary Termination of Employment, Qualifying
Executive for Benefits.
Executive will be entitled to receive the benefits set forth
in this Section 1 if the employment of Executive is "Involuntarily Terminated"
(as defined in this Section) within twenty-four (24) calendar months after the
effective date of the Change in Control.
(i) For purposes of this Section, Executive will
be considered to be "Involuntarily Terminated" if, within twenty-four (24)
calendar months after the effective date of the Change in Control, Executive's
employment with the Company or with any successor corporation which employs
Executive as a result of a merger or combination which constitutes a Change in
Control under Section la(iii) of this Agreement (collectively, the "Post-
Change Employer"), is terminated for any of the following reasons:
(A) If Executive is terminated by the
Post-Change Employer without "Good
Cause." For purposes of this
Subsection, the Post-Change Employer
shall have Good Cause to terminate
Executive's employment if any of the
following conditions are met:
(a) If grounds exist to terminate
the employment of Executive
pursuant to California Labor
Code Section 2924; or
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<PAGE> 4
(b) If Executive engages in serious
or willful misconduct which
is detrimental to the
interests of the Post-Change
Employer or its stockholders;
or
(c) If Executive willfully refuses
to carry out the directions
and responsibilities assigned
to Executive by the Chief
Executive Officer of the
Post-Change Employer.
(B) If Executive resigns from employment for "Good Reason."
(a) For purposes of this
Subsection, Executive will
have Good Reason to resign
from employment if any of the
following conditions are met:
(1) There is a significant
adverse change in the nature
or scope of Executive's
authorities or duties; or
(2) There is a significant
reduction in Executive's
compensation or benefits
provided by the Post-Change
Employer in comparison with
the compensation and
benefits which Executive was
receiving from the Company
immediately before the
Change in Control; or
(3) The geographic location at
which Executive is required
to perform Executive's
principal duties is moved to
a location more than fifty
(50) miles from such location
existing immediately before
the Change in Control.
(b) Notwithstanding any other
provision of this Agreement,
Executive will not be considered
to have Good Reason to resign
from employment unless both of
the following conditions are met:
(1) Executive has given the
Post-Change Employer timely
written notice of the fact
that Executive contends that
Executive has Good Reason to
resign from employment, and
of the grounds for
Executive's contention. To
be
4
<PAGE> 5
timely, such notice must be
given within a reasonable
time after Executive learns
of the circumstances which
give rise to the contention
that Executive has Good
Reason to resign from
employment. If Executive's
contention is based on
Subsections lb(i)(B)(a)(2) or
lb(i)(B)(a)(3) of this
Agreement, a period of
fourteen (14) calendar days
shall be presumed to
constitute a "reasonable
time" for Executive to give
such notice. If Executive's
contention is based on
Subsection lb(i)(B)(a)(1) of
this Agreement, a "reasonable
time" to give such notice
shall be a period of time
sufficient for Executive to
fully assess the extent and
consequences of any change in
the nature or scope of
Executive's authorities or
duties, and to make a full
and fair determination as to
whether such change is
"adverse."
(2) The Post-Change Employer
fails to cure the
circumstances which give rise
to Executive's contention
that Executive has Good
Reason to resign from
employment within thirty
(30) calendar days
following receipt of such
written notice from
Executive.
(C) If Executive is terminated on
account of disability, unless the
disability is such that Executive is
eligible for benefits under the
Post-Change Employer's Long-term
Disability Plan then in effect, if
any.
(ii) For purposes of this Section, Executive will
not be considered to be "Involuntarily Terminated" if Executive's employment
with the Post-Change Employer is terminated for any of the following reasons:
(A) On account of Executive's death;
(B) On account of Executive's disability
which renders Executive eligible for
benefits under the Post-Change
Employer's Long-Term Disability
Plan, provided such eligibility and
benefits
5
<PAGE> 6
are substantially similar to those in
Company's Plan immediately prior to
the Change in Control;
(C) If Executive is terminated by the
Post-Change Employer for "Good
Cause" (as defined in this Section).
(D) If Executive voluntarily resigns
from employment without "Good
Reason" (as defined in this
Section).
(iii) In the event of any dispute as to whether
Executive has been Involuntarily Terminated, such dispute shall be decided by
final and binding arbitration as provided in this Agreement.
c. Amount and Payment of Benefits.
(i) If Executive becomes eligible for benefits
under this Section 1, Executive shall be entitled, upon being Involuntarily
Terminated from employment, to receive from the Post-Change Employer, the
following benefits:
(A) An amount of cash equal to:
(a) The greater of:
(1) Executive's annualized base
salary, plus the amount of
Executive's annualized car
allowance, if any, in effect
at the end of the month
immediately prior to the
Change in Control; or
(2) Executive's annualized base
salary, plus the amount of
Executive's annualized car
allowance, if any, in effect
at the end of the month
immediately prior to the
date Executive is
Involuntarily Terminated;
and
(b) The greater of:
(1) The amount of bonus, if any,
paid or accrued to Executive
for the most recently ended
calendar year immediately
prior to the Change in
Control; or
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<PAGE> 7
(2) The amount of bonus, if any,
paid or accrued to Executive
for the most recently ended
calendar year prior to the
date Executive is
Involuntarily Terminated.
The Post-Change Employer shall make the
cash payments described in this
Subsection 1c(i)(A) as a lump sum
payment payable within thirty (30)
calendar days after the date that
Executive is Involuntarily
Terminated, or, at Executive's
written request delivered within
fifteen (15) calendar days after the
date Executive is Involuntarily
Terminated, in twelve (12) equal and
consecutive monthly installments
with the first installment payable
within thirty (30) calendar days
after the date Executive is
Involuntarily Terminated.
(B) Standard outplacement services
provided by a qualified outplacement
agency selected by the Post-Change
Employer, which services will be
made available for a period of
twelve (12) consecutive calendar
months from the date Executive is
Involuntarily Terminated, or until
the date Executive accepts
employment with another employer,
whichever occurs first; and
(C) Compensation for the loss of group
medical and dental insurance
benefits (excluding coverage under
any life or long-term disability
programs), which may be provided, at
the sole discretion of the
Post-Change Employer, by either of
the following options:
(a) By continuing in effect those
group medical and dental
insurance benefits which were
provided by the Post-Change
Employer immediately before
Executive was Involuntarily
Terminated, on the same terms
and conditions which were in
effect immediately before
Executive was Involuntarily
Terminated, provided that
such coverage is
substantially similar to the
coverage (including any
dependent coverage) Executive
was receiving from the
Company immediately prior to
the Change in Control, for a
period of twelve (12)
calendar months from the date
of Executive is Involuntarily
Terminated or until Executive
obtains coverage under a
group insurance
7
<PAGE> 8
arrangement or program sponsored
by a new employer, whichever
occurs first; or
(b) By payment of a lump sum amount
equal to twelve (12) times
the greater of the following
amounts:
(1) the monthly premium necessary
for Executive to maintain
Executive's group medical and
dental insurance benefits,
pursuant to COBRA, under the
plan provided by the
Post-Change Employer, net of
Executive's required
co-payments; or
(2) the monthly premium which
would have been necessary for
Executive to maintain
Executive's group medical and
dental insurance benefits,
pursuant to COBRA, under the
plan provided by the Company
immediately prior to the
Change in Control, net of
Executive's required
co-payments.
(ii) In the event that the payments hereunder, or
that the payments hereunder together with any other payments by the Company
under any other plan or arrangement, would cause the loss of deductibility of
any portion of such payments by the Company under Section 280G of the Internal
Revenue Code, then the amounts payable under this Section 1, shall be limited
to an amount that would not cause such loss of deduction. Further, in the
event that any payments are required to be made by any Post-Change Employer to
Executive on or after the date Executive is Involuntarily Terminated, pursuant
to any decree, court award, employment agreement or severance agreement (other
than under this Agreement), or under any plan or policy of the Post-Change
Employer (excluding any retirement, savings or thrift plans), or under the laws
of any government (collectively "Other Required Payments"), the amounts payable
under this Section 1 shall be reduced by the amount of such Other Required
Payments.
(iii) Notwithstanding any other provision of this
Agreement, Executive shall be entitled to receive, in addition to the payments
and benefits provided by this Agreement, any and all wages and vacation pay
actually earned and accrued by Executive during the period of Executive's
employment, which are unpaid as of the time of Executive's termination from
employment.
d. Rights in the Event of Default. In the event that
the Post-Change Employer defaults on its obligations under this Section 1 and
fails to remedy such default within thirty (30) calendar days after having
received written notice of the default from Executive or Executive's estate
8
<PAGE> 9
or "Beneficiary" (as defined in Subsection 5a of this Agreement), the
Post-Change Employer shall thereupon pay or transfer to such party, in full
discharge of its obligations under this Section 1, a lump sum amount
representing all payments required under this Section 1, and with interest on
the amount thereof at the rate of eight (8%) percent per annum, compounded
daily, from the otherwise due date of such payment or transfer.
2. Payment of Benefits In The Event Of Termination Of Employment
In The Absence Of A Change in Control.
If Company (or in the case of a termination which occurs more
than two years after a Change of Control, the Post-Change Employer) terminates
Executive's employment without "Good Cause" (as defined in this Section) and
such termination does not occur within two years after a Change in Control,
then Executive shall be entitled to receive, but limited to receive, from the
Company (or Post-Change Employer), the following benefits:
a. A lump sum severance payment in an amount equal to
the greater of:
(i) Two weeks salary for every year or partial
year of service with the Company (computed
using Executive's most recent annualized base
salary and annualized car allowance, if any,
combined), or
(ii) Four weeks salary, likewise computed.
b. Compensation for the loss of group medical and dental
insurance benefits (excluding coverage under any life
or long-term disability programs) for the same number
of weeks as the number of weeks of salary which
Executive receives under Subsection a of this Section
2, which may be provided, at the sole discretion of
the Company, by either of the following options:
(a) By continuing in effect those group
medical and dental insurance
benefits which were provided by the
Company immediately before Executive
was terminated, on the same terms
and conditions which were in effect
immediately before executive was
terminated, or
(b) By payment of a lump sum amount
computed by the following formula:
(0.23) x (the number of weeks of
benefit which Executive is entitled
to receive) x (the monthly premium
necessary for Executive to maintain
Executive's group medical and dental
insurance benefits, pursuant to
COBRA, under the plan provided by
the Company).
9
<PAGE> 10
Termination with "Good Cause," as used in this Section 2,
shall mean a termination of Executive's employment where any of the following
conditions are met:
(a) If grounds exist to terminate the employment of
Executive pursuant to California Labor Code Section
2924; or
(b) If Executive engages in serious or willful misconduct
which is detrimental to the interests of the Company
or its stockholders; or
(c) If Executive willfully refuses to carry out the
directions and responsibilities assigned to Executive
by the Chief Executive Office of the Company.
3. Termination of Employment.
The parties hereto each expressly agree that Executive's
employment with the Company may be terminated at any time, by either Executive
or by the Company, for any reason, with or without cause and with or without
notice. Executive agrees that in the event of the termination of Executive's
employment, either before or after a Change in Control, the sole and exclusive
contractual rights and remedies which Executive shall be entitled to enforce
are the rights and remedies expressly set forth in this Agreement, and that
this Agreement replaces and supersedes any contract or agreement, express or
implied, which in any way limits the rights of Executive or of the Company to
terminate the employment relationship between them without liability; provided,
however, that nothing in this Agreement shall replace, supersede, or modify any
written employment contract which may be in effect, or may hereafter take
effect, between Executive and the Company, if such written employment contract
is or has been duly executed by both Executive and by the Chief Executive
Officer of the Company and has been approved by the express authorization or
ratification of the Company's Board of Directors.
4. Enforcement By Arbitration.
The parties hereto each expressly agree that any dispute or
controversy arising under or in connection with this Agreement, or arising in
any way out of Executive's employment with the Company (a "Dispute") shall be
resolved exclusively by final and binding arbitration in Los Angeles County in
the State of California.
Any such arbitration shall be governed by the Rules of the
American Arbitration Association For The Resolution Of Employment Disputes then
in effect. There shall be one arbitrator, who shall be a retired judge of the
Los Angeles County Superior Court.
The arbitrator's determination shall be final and binding upon
all parties. Judgment upon the arbitrator's award may be entered in any court
having jurisdiction thereof.
10
<PAGE> 11
The prevailing party in any such arbitration will be entitled
to recover reasonable costs, expenses and attorneys' fees for such arbitration
and for any court proceedings for the entry or enforcement of the arbitrator's
award; provided, however, that if any claim or Dispute is at issue in such
arbitration, which claim or Dispute is based upon a statute or regulation which
contains provisions for the award of attorneys' fees, costs or expenses, such
statute or regulation will supersede the provisions of this Agreement with
respect to the award of attorneys' fees, costs or expenses in connection with
that claim or Dispute.
The arbitration provisions contained in this Section 4 shall
not apply to any Dispute involving a claim or demand by Executive for workers'
compensation benefits. The arbitration provisions contained in this Section 4
shall not apply to any Dispute which is prohibited by law to be resolved
through arbitration.
5. Miscellaneous.
a. Successors; Binding Agreement.
This Agreement shall be binding upon Executive and the
Company, and upon any assignee or successor of the Company (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the Company's voting securities or assets, and upon any
Post-Change Employer.
This Agreement shall inure to the benefit of and, be
enforceable by, Executive and by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die, any benefits then due and payable to
Executive under Section 1 of this Agreement shall be paid to Executive's
"Beneficiary" as designated by Executive from time to time under Executive's
then most recent principal life insurance coverage provided to Executive by the
Post-Change Employer or Company.
b. Amendment or Termination. No provision of this
Agreement may be modified, amended, waived or terminated, unless such
modification, amendment, wavier or termination is expressly agreed to in
writing, and is signed by Executive and by the Chief Executive Officer of the
Company, and has been approved by the express authorization or ratification of
the Company's Board of Directors.
c. No Vested Interest. Neither Executive nor
Executive's Beneficiary nor any other person shall have any right, title or
interest in any benefit under this Agreement prior to the occurrence of the
right to payment thereof.
d. No Alienation of Benefits. Executive shall not have
any right to pledge, hypothecate, anticipate or in any way create a lien upon
any amounts provided under this Agreement,
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<PAGE> 12
and no benefits payable hereunder shall be assignable in anticipation of
payment either by voluntary or involuntary acts.
e. Prior Agreement. This Agreement contains the entire
understanding between the parties hereto relating to the subject matter hereof,
and supersedes any prior or contemporaneous agreements, contracts or
understandings, express or implied, between the Company (or any predecessor or
subsidiary of the Company) and Executive. If there is any discrepancy or
conflict between this Agreement and any plan, policy or program of the Company,
the language of this Agreement shall govern.
f. Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or government regulation or ruling.
g. No Waiver, No Representations. No waiver by any
party hereto at any time of any breach by another party hereto of any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreement or representations, oral or
otherwise, express or implied, relating to the subject matter hereof have been
made by either party that are not set forth expressly on this Agreement.
Executive represents and agrees that Executive understands Executive's right to
thoroughly discuss all aspects of this Agreement with an attorney of
Executive's choice. Executive further represents that Executive has carefully
read and fully understands all of the provisions of this Agreement, and is
voluntarily entering into this Agreement.
h. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
i. Applicable Law. This Agreement is made and entered
into in the State of California and shall in all respects be interpreted,
enforced and governed under the laws of said state. The language of all parts
of this Agreement shall, in all cases, be construed as a whole, according to
its fair meaning, and not strictly for or against any of the parties.
j. Notice. Notices and other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when actually delivered. Delivery shall be effective as follows: If to
the Company, at the location of the Company's then principal place of business
and directed to the attention of the Chief Executive Officer. If to Executive,
at the address in the records of the Company listed as Executive's current
address. The parties hereto may change such address upon sending notice of
same to the other party with such change of address to be effective upon
receipt.
k. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all together only
one agreement; provided, however, that such executed counterparts will not be
effective to execute this Agreement unless all counterparts consist of
identical language.
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<PAGE> 13
PLEASE READ CAREFULLY. THIS IS A BINDING CONTRACT,
AND AFFECTS IMPORTANT LEGAL RIGHTS.
Date: 8/25/95 /s/ William H. Moodie
------------------- -------------------------------------
William H. Moodie
Executive
McFARLAND ENERGY, INC.
Date: 8/25/95 By: /s/ J. C. McFarland
------------------- ----------------------------------
J. C. McFarland
Chairman and Chief Executive
Officer
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<PAGE> 14
AMENDMENT NO. 1 TO AGREEMENT
Whereas, William H. Moodie and McFarland Energy, Inc. ("McFarland"), entered
that Agreement dated August 25, 1995 (the "Agreement") covering the matters
contained therein, including the consequences of a "change of control" of
McFarland;
Whereas, William H. Moodie has been elected "Vice President-Operations" of
McFarland; and
Whereas, William H. Moodie and McFarland desire to amend the Agreement to
increase the benefits due William H. Moodie, effective the date of his election
as Vice President-Operations, under the terms of the Agreement in the event of
a change of control.
Now therefore, in consideration of William H. Moodie being elected a Vice
President of McFarland, the mutual benefits contained herein and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged the parties hereto agree as follows:
1. The words "one and one half times" are added after "An amount of cash
equal to" in subsection 1.c(i)(A) of the Agreement.
2. The word and number "twelve (12)" are deleted from subsection
1.c(i)(C)(a) of the Agreement and the word and number "eighteen (18)" are
substituted therefor.
3. The word and number "twelve (12)" are deleted from subsection
1.c(i)(C)(b) of the Agreement and the word and number "eighteen (18)" are
substituted therefor.
4. Except as modified herein the Agreement remains in full force and
effect.
Executed in duplicate originals and effective on December 10, 1996.
McFarland Energy, Inc.
By: /s/ J. C. McFarland
-------------------------------------
J. C. "Mac" McFarland
Chairman and Chief Executive Officer
William H. Moodie
/s/ William H. Moodie
-------------------------------------
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<PAGE> 1
EXHIBIT 9
AGREEMENT
This Agreement is entered into by and between McFarland
Energy, Inc., (the "Company") and Robert E. Ransom ("Executive").
WHEREAS, the Company has a talented and dedicated management
team which has made many valuable contributions to the success of the Company;
and
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited amount of financial security to key management
members in the event that they are terminated without cause;
WHEREAS, the Board of Directors of the Company believes it is
important to provide a limited additional amount of financial security to key
management members in the event that they are terminated without cause
following a change in control of the Company;
NOW, THEREFORE, in consideration of the premises and mutual
promises contained herein, it is agreed as follows:
1. Payment of Benefits In The Event Of Termination Of Employment
Following A Change in Control.
In the event that a "Change in Control" (as defined in this
Section) occurs on or before December 31, 1999, and that the employment of
Executive is thereafter "Involuntarily Terminated" (as defined in this Section)
within twenty-four (24) calendar months after the effective date of the Change
in Control, the Company (or Post-Change Employer as hereinafter described and
defined) will provide Executive with the benefits set forth in this Section.
a. Definition of "Change in Control."
As used in this Agreement, a "Change in Control" means the
occurrence of any of the following events:
(i) A majority of the members of the Board of
Directors at the end of any consecutive twenty-four (24) calendar month period
is not comprised of "Incumbent Directors" (as defined in this Section). For
purposes of this Agreement, a Director shall be considered to be an "Incumbent
Director" if either of the following conditions is met:
(A) The Director was a Director at the
beginning of the consecutive
twenty-four (24) calendar month
period in question; or
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<PAGE> 2
(B) The Director's election by the
Company's stockholders, or
nomination for election by the
Company's stockholders, was approved
by a vote of a majority of the
members of the Board at a time when
a majority of the members of the
Board were Incumbent Directors.
Such approval may be made by any
resolution of the Board expressing
approval of the Director or nominee,
or by any communication to the
Company's stockholders, which
communication is authorized by the
Board and which communication
recommends election of the Director
or nominee. Such approval may be
made by the Board after the Director
has been elected, provided that a
majority of the members of the Board
at the time of approval consists of
Incumbent Directors.
(ii) Any "person," including a "group" (as such
terms are used in Rule 13(d)(5) of the Securities Exchange Act of 1934 (the
"1934 Act")), but excluding the Company, any of its Subsidiaries, and any
employee benefit plan of the Company or any of its Subsidiaries) is or becomes
the "beneficial owner" (as defined in Rule 13(d)(3) under the 1934 Act),
directly or indirectly, of securities of the Company representing thirty-five
(35%) percent or more of the combined voting power of the Company's then
outstanding securities.
(iii) A merger or other business combination of the
Company takes place, whereby the Company merges or combines with or into
another corporation, provided that the other corporation is not a "Subsidiary"
of the Company (as defined herein). For purposes of this Section, a
corporation shall be considered to be a "Subsidiary" of the Company if either
of the following conditions is met:
(A) A majority of the directors of the
corporation are also directors of
the Company; or
(B) The Company is the "beneficial
owner" (as defined in Rule 13(d)(3)
under the 1934 Act), directly or
indirectly, of securities of the
corporation representing more than
fifty (50%) percent of the combined
voting power of the corporation's
then outstanding securities.
Notwithstanding any other provision of this Section, a merger or other business
combination of the Company shall not constitute a "Change in Control" if any of
the following conditions is met:
(A) A majority of the directors of the
merged or combined corporation were
Incumbent Directors of the Company
immediately before the merger or
combination; or
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<PAGE> 3
(B) "Beneficial ownership" (as defined
in Rule 13(d)(3) under the 1934
Act), directly or indirectly, of
more than fifty (50%) percent of the
combined voting power of the merged
or combined corporation is held,
immediately after the merger or
combination, by persons (as that
term is used in the 1934 Act) who
held beneficial ownership, directly
or indirectly, of more than fifty
(50%) percent of the combined voting
power of the Company immediately
before the merger or combination; or
(C) Securities representing more than
fifty (50%) percent of the combined
voting power of the merged or
combined corporation (as measured
immediately after the merger or
combination), are issued or conveyed
to stockholders of the Company in
exchange for or in consideration of
their shares in the Company.
b. Involuntary Termination of Employment, Qualifying Executive for
Benefits.
Executive will be entitled to receive the benefits set forth
in this Section 1 if the employment of Executive is "Involuntarily Terminated"
(as defined in this Section) within twenty-four (24) calendar months after the
effective date of the Change in Control.
(i) For purposes of this Section, Executive will be
considered to be "Involuntarily Terminated" if, within twenty-four (24)
calendar months after the effective date of the Change in Control, Executive's
employment with the Company or with any successor corporation which employs
Executive as a result of a merger or combination which constitutes a Change in
Control under Section la(iii) of this Agreement (collectively, the "Post-
Change Employer"), is terminated for any of the following reasons:
(A) If Executive is terminated by the
Post-Change Employer without "Good
Cause." For purposes of this
Subsection, the Post-Change Employer
shall have Good Cause to terminate
Executive's employment if any of the
following conditions are met:
(a) If grounds exist to terminate
the employment of Executive
pursuant to California Labor
Code Section 2924; or
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<PAGE> 4
(b) If Executive engages in serious
or willful misconduct which
is detrimental to the
interests of the Post-Change
Employer or its stockholders;
or
(c) If Executive willfully refuses
to carry out the directions
and responsibilities assigned
to Executive by the Chief
Executive Officer of the
Post-Change Employer.
(B) If Executive resigns from employment for "Good
Reason."
(a) For purposes of this
Subsection, Executive will
have Good Reason to resign
from employment if any of the
following conditions are met:
(1) There is a significant adverse
change in the nature or scope of
Executive's authorities or duties;
or
(2) There is a significant reduction
in Executive's compensation or
benefits provided by the
Post-Change Employer in comparison
with the compensation and benefits
which Executive was receiving from
the Company immediately before the
Change in Control; or
(3) The geographic location at which
Executive is required to perform
Executive's principal duties is
moved to a location more than
fifty (50) miles from such
location existing immediately
before the Change in Control.
(b) Notwithstanding any other provision of
this Agreement, Executive will not be
considered to have Good Reason to
resign from employment unless both of
the following conditions are met:
(1) Executive has given the
Post-Change Employer timely
written notice of the fact
that Executive contends that
Executive has Good Reason to
resign from employment, and
of the grounds for Executive's
contention. To be
4
<PAGE> 5
timely, such notice must be given
within a reasonable time after
Executive learns of the
circumstances which give rise to
the contention that Executive has
Good Reason to resign from
employment. If Executive's
contention is based on Subsections
lb(i)(B)(a)(2) or lb(i)(B)(a)(3)
of this Agree- ment, a period of
fourteen (14) calendar days shall
be presumed to constitute a
"reasonable time" for Executive to
give such notice. If Executive's
contention is based on Subsection
lb(i)(B)(a)(1) of this Agreement,
a "reasonable time" to give such
notice shall be a period of time
sufficient for Executive to fully
assess the extent and consequences
of any change in the nature or
scope of Executive's authorities
or duties, and to make a full and
fair determination as to whether
such change is "adverse."
(2) The Post-Change Employer fails to
cure the circumstances which give
rise to Executive's contention
that Executive has Good Reason to
resign from employment within
thirty (30) calendar days
following receipt of such written
notice from Executive.
(C) If Executive is terminated on account of
disability, unless the disability is such that
Executive is eligible for benefits under the
Post-Change Employer's Long-term Disability
Plan then in effect, if any.
(ii) For purposes of this Section, Executive will
not be considered to be "Involuntarily Terminated" if Executive's employment
with the Post-Change Employer is terminated for any of the following reasons:
(A) On account of Executive's death;
(B) On account of Executive's disability
which renders Executive eligible for
benefits under the Post-Change
Employer's Long-Term Disability
Plan, provided such eligibility and
benefits
5
<PAGE> 6
are substantially similar to those in
Company's Plan immediately prior to the
Change in Control;
(C) If Executive is terminated by the
Post-Change Employer for "Good Cause"
(as defined in this Section).
(D) If Executive voluntarily resigns from
employment without "Good Reason" (as defined
in this Section).
(iii) In the event of any dispute as to whether
Executive has been Involuntarily Terminated, such dispute shall be decided by
final and binding arbitration as provided in this Agreement.
c. Amount and Payment of Benefits.
(i) If Executive becomes eligible for benefits under this
Section 1, Executive shall be entitled, upon being Involuntarily Terminated
from employment, to receive from the Post-Change Employer, the following
benefits:
(A) An amount of cash equal to:
(a) The greater of one and one half times:
(1) Executive's annualized base
salary, plus the amount of
Executive's annualized car
allowance, if any, in effect
at the end of the month
immediately prior to the
Change in Control; or
(2) Executive's annualized base
salary, plus the amount of
Executive's annualized car
allowance, if any, in effect
at the end of the month
immediately prior to the date
Executive is Involuntarily
Terminated; and
(b) The greater of one and one half times:
(1) The amount of bonus, if any, paid
or accrued to Executive for the
most recently ended calendar year
immediately prior to the Change
in Control; or
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<PAGE> 7
(2) The amount of bonus, if any,
paid or accrued to Executive
for the most recently ended
calendar year prior to the
date Executive is
Involuntarily Terminated.
The Post-Change Employer shall make the
cash payments described in this
Subsection 1c(i)(A) as a lump sum
payment payable within thirty (30)
calendar days after the date that
Executive is Involuntarily Terminated,
or, at Executive's written request
delivered within fifteen (15) calendar
days after the date Executive is
Involuntarily Terminated, in twelve
(12) equal and consecutive monthly
installments with the first installment
payable within thirty (30) calendar
days after the date Executive is
Involuntarily Terminated.
(B) Standard outplacement services
provided by a qualified outplacement
agency selected by the Post-Change
Employer, which services will be
made available for a period of
twelve (12) consecutive calendar
months from the date Executive is
Involuntarily Terminated, or until
the date Executive accepts
employment with another employer,
whichever occurs first; and
(C) Compensation for the loss of group
medical and dental insurance
benefits (excluding coverage under
any life or long-term disability
programs), which may be provided, at
the sole discretion of the
Post-Change Employer, by either of
the following options:
(a) By continuing in effect those
group medical and dental
insurance benefits which were
provided by the Post-Change
Employer immediately before
Executive was Involuntarily
Terminated, on the same terms
and conditions which were in
effect immediately before
Executive was Involuntarily
Terminated, provided that
such coverage is
substantially similar to the
coverage (including any
dependent coverage) Executive
was receiving from the
Company immediately prior to
the Change in Control, for a
period of eighteen (18)
calendar months from the date
of Executive is Involuntarily
Terminated or until Executive
obtains coverage under a
group insurance
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<PAGE> 8
arrangement or program sponsored
by a new employer, whichever
occurs first; or
(b) By payment of a lump sum amount
equal to eighteen (18) times
the greater of the following
amounts:
(1) the monthly premium necessary
for Executive to maintain
Executive's group medical and
dental insurance benefits,
pursuant to COBRA, under the
plan provided by the
Post-Change Employer, net of
Executive's required
co-payments; or
(2) the monthly premium which
would have been necessary for
Executive to maintain
Executive's group medical and
dental insurance benefits,
pursuant to COBRA, under the
plan provided by the Company
immediately prior to the
Change in Control, net of
Executive's required
co-payments.
(ii) In the event that the payments hereunder, or
that the payments hereunder together with any other payments by the Company
under any other plan or arrangement, would cause the loss of deductibility of
any portion of such payments by the Company under Section 280G of the Internal
Revenue Code, then the amounts payable under this Section 1, shall be limited
to an amount that would not cause such loss of deduction. Further, in the
event that any payments are required to be made by any Post-Change Employer to
Executive on or after the date Executive is Involuntarily Terminated, pursuant
to any decree, court award, employment agreement or severance agreement (other
than under this Agreement), or under any plan or policy of the Post-Change
Employer (excluding any retirement, savings or thrift plans), or under the laws
of any government (collectively "Other Required Payments"), the amounts payable
under this Section 1 shall be reduced by the amount of such Other Required
Payments.
(iii) Notwithstanding any other provision of this
Agreement, Executive shall be entitled to receive, in addition to the payments
and benefits provided by this Agreement, any and all wages and vacation pay
actually earned and accrued by Executive during the period of Executive's
employment, which are unpaid as of the time of Executive's termination from
employment.
d. Rights in the Event of Default. In the event that
the Post-Change Employer defaults on its obligations under this Section 1 and
fails to remedy such default within thirty (30) calendar days after having
received written notice of the default from Executive or Executive's estate
8
<PAGE> 9
or "Beneficiary" (as defined in Subsection 5a of this Agreement), the
Post-Change Employer shall thereupon pay or transfer to such party, in full
discharge of its obligations under this Section 1, a lump sum amount
representing all payments required under this Section 1, and with interest on
the amount thereof at the rate of eight (8%) percent per annum, compounded
daily, from the otherwise due date of such payment or transfer.
2. Payment of Benefits In The Event Of Termination Of Employment
In The Absence Of A Change in Control.
If Company (or in the case of a termination which occurs more
than two years after a Change of Control, the Post-Change Employer) terminates
Executive's employment without "Good Cause" (as defined in this Section) and
such termination does not occur within two years after a Change in Control,
then Executive shall be entitled to receive, but limited to receive, from the
Company, the following benefits:
a. A lump sum severance payment in an amount equal to
the greater of:
(i) Two weeks salary for every year or partial
year of service with the Company (computed
using Executive's most recent annualized base
salary and annualized car allowance, if any,
combined), or
(ii) Four weeks salary, likewise computed.
b. Compensation for the loss of group medical and dental
insurance benefits (excluding coverage under any life
or long-term disability programs) for the same number
of weeks as the number of weeks of salary which
Executive receives under Subsection a of this Section
2, which may be provided, at the sole discretion of
the Company, by either of the following options:
(a) By continuing in effect those group
medical and dental insurance
benefits which were provided by the
Company immediately before Executive
was terminated, on the same terms
and conditions which were in effect
immediately before executive was
terminated, or
(b) By payment of a lump sum amount
computed by the following formula:
(0.23) x (the number of weeks of
benefit which Executive is entitled
to receive) x (the monthly premium
necessary for Executive to maintain
Executive's group medical and dental
insurance benefits, pursuant to
COBRA, under the plan provided by
the Company).
9
<PAGE> 10
Termination with "Good Cause," as used in this Section 2,
shall mean a termination of Executive's employment where any of the following
conditions are met:
(a) If grounds exist to terminate the employment of
Executive pursuant to California Labor Code Section
2924; or
(b) If Executive engages in serious or willful misconduct
which is detrimental to the interests of the Company
or its stockholders; or
(c) If Executive willfully refuses to carry out the
directions and responsibilities assigned to Executive
by the Chief Executive Office of the Company.
3. Termination of Employment.
The parties hereto each expressly agree that Executive's
employment with the Company may be terminated at any time, by either Executive
or by the Company, for any reason, with or without cause and with or without
notice. Executive agrees that in the event of the termination of Executive's
employment, either before or after a Change in Control, the sole and exclusive
contractual rights and remedies which Executive shall be entitled to enforce
are the rights and remedies expressly set forth in this Agreement, and that
this Agreement replaces and supersedes any contract or agreement, express or
implied, which in any way limits the rights of Executive or of the Company to
terminate the employment relationship between them without liability; provided,
however, that nothing in this Agreement shall replace, supersede, or modify any
written employment contract which may be in effect, or may hereafter take
effect, between Executive and the Company, if such written employment contract
is or has been duly executed by both Executive and by the Chief Executive
Officer of the Company and has been approved by the express authorization or
ratification of the Company's Board of Directors.
4. Enforcement By Arbitration.
The parties hereto each expressly agree that any dispute or
controversy arising under or in connection with this Agreement, or arising in
any way out of Executive's employment with the Company (a "Dispute") shall be
resolved exclusively by final and binding arbitration in Los Angeles County in
the State of California.
Any such arbitration shall be governed by the Rules of the
American Arbitration Association For The Resolution Of Employment Disputes then
in effect. There shall be one arbitrator, who shall be a retired judge of the
Los Angeles County Superior Court.
The arbitrator's determination shall be final and binding upon
all parties. Judgment upon the arbitrator's award may be entered in any court
having jurisdiction thereof.
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<PAGE> 11
The prevailing party in any such arbitration will be entitled
to recover reasonable costs, expenses and attorneys' fees for such arbitration
and for any court proceedings for the entry or enforcement of the arbitrator's
award; provided, however, that if any claim or Dispute is at issue in such
arbitration, which claim or Dispute is based upon a statute or regulation which
contains provisions for the award of attorneys' fees, costs or expenses, such
statute or regulation will supersede the provisions of this Agreement with
respect to the award of attorneys' fees, costs or expenses in connection with
that claim or Dispute.
The arbitration provisions contained in this Section 4 shall
not apply to any Dispute involving a claim or demand by Executive for workers'
compensation benefits. The arbitration provisions contained in this Section 4
shall not apply to any Dispute which is prohibited by law to be resolved
through arbitration.
5. Miscellaneous.
a. Successors; Binding Agreement.
This Agreement shall be binding upon Executive and the
Company, and upon any assignee or successor of the Company (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the Company's voting securities or assets, and upon any
Post-Change Employer.
This Agreement shall inure to the benefit of and, be
enforceable by, Executive and by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die, any benefits then due and payable to
Executive under Section 1 of this Agreement shall be paid to Executive's
"Beneficiary" as designated by Executive from time to time under Executive's
then most recent principal life insurance coverage provided to Executive by the
Post-Change Employer or Company.
b. Amendment or Termination. No provision of this
Agreement may be modified, amended, waived or terminated, unless such
modification, amendment, wavier or termination is expressly agreed to in
writing, and is signed by Executive and by the Chief Executive Officer of the
Company, and has been approved by the express authorization or ratification of
the Company's Board of Directors.
c. No Vested Interest. Neither Executive nor
Executive's Beneficiary nor any other person shall have any right, title or
interest in any benefit under this Agreement prior to the occurrence of the
right to payment thereof.
d. No Alienation of Benefits. Executive shall not have
any right to pledge, hypothecate, anticipate or in any way create a lien upon
any amounts provided under this Agreement,
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<PAGE> 12
and no benefits payable hereunder shall be assignable in anticipation of
payment either by voluntary or involuntary acts.
e. Prior Agreement. This Agreement contains the entire
understanding between the parties hereto relating to the subject matter hereof,
and supersedes any prior or contemporaneous agreements, contracts or
understandings, express or implied, between the Company (or any predecessor or
subsidiary of the Company) and Executive. If there is any discrepancy or
conflict between this Agreement and any plan, policy or program of the Company,
the language of this Agreement shall govern.
f. Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall
be required pursuant to any law or government regulation or ruling.
g. No Waiver, No Representations. No waiver by any
party hereto at any time of any breach by another party hereto of any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time. No agreement or representations, oral or
otherwise, express or implied, relating to the subject matter hereof have been
made by either party that are not set forth expressly on this Agreement.
Executive represents and agrees that Executive understands Executive's right to
thoroughly discuss all aspects of this Agreement with an attorney of
Executive's choice. Executive further represents that Executive has carefully
read and fully understands all of the provisions of this Agreement, and is
voluntarily entering into this Agreement.
h. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
i. Applicable Law. This Agreement is made and entered
into in the State of California and shall in all respects be interpreted,
enforced and governed under the laws of said state. The language of all parts
of this Agreement shall, in all cases, be construed as a whole, according to
its fair meaning, and not strictly for or against any of the parties.
j. Notice. Notices and other communications provided
for in this Agreement shall be in writing and shall be deemed to have been duly
given when actually delivered. Delivery shall be effective as follows: If to
the Company, at the location of the Company's then principal place of business
and directed to the attention of the Chief Executive Officer. If to Executive,
at the address in the records of the Company listed as Executive's current
address. The parties hereto may change such address upon sending notice of
same to the other party with such change of address to be effective upon
receipt.
k. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all together only
one agreement; provided, however, that such executed counterparts will not be
effective to execute this Agreement unless all counterparts consist of
identical language.
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PLEASE READ CAREFULLY. THIS IS A BINDING CONTRACT,
AND AFFECTS IMPORTANT LEGAL RIGHTS.
Date: 8/10/95 /s/ Robert E. Ranson
----------------- -------------------------------
Robert E. Ransom
Executive
McFARLAND ENERGY, INC.
Date: 8/10/95 By: /s/ J. C. McFarland
----------------- -------------------------------
J. C. McFarland
Chairman and Chief Executive
Officer
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<PAGE> 1
EXHIBIT 10
MCFARLAND ENERGY, INC.
CHANGE IN CONTROL RETENTION/SEVERANCE PLAN
Introduction
The Board of Directors of McFarland Energy, Inc. considers the
prevention of the loss of employees and the avoidance of distraction of
employees as a result of an actual or contemplated Change in Control to be
essential to protecting and enhancing the best interests of the Corporation and
its shareholders. The Board also believes that during the pendency of a Change
in Control and the transition period thereafter, the Board should be able to
receive and rely on disinterested service from employees regarding the best
interests of the Corporation and its shareholders without concern that
employees might be distracted or concerned by personal uncertainties and risks.
Accordingly the Board has determined that appropriate steps
should be taken to assure the Corporation and its affiliates of the continued
employment and attention and dedication to duty of their employees and to seek
to ensure the availability of their continued service, notwithstanding a Change
in Control.
Therefore, in order to fulfill the above purposes, the
following plan has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Corporation hereby establishes a
separation compensation plan to be known as the McFarland Energy, Inc. Change
in Control Retention/Severance Plan, as set forth in this document.
ARTICLE II
DEFINITIONS
(a) Board. The Board of Directors of McFarland Energy, Inc.
(b) Change in Control. Any of the following events:
(1) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of either (i) the then outstanding shares of
common stock of the
-1-
<PAGE> 2
Corporation (the "Outstanding Corporation Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"); provided, however, that for purposes of this
paragraph (1), the following acquisitions shall not in and of themselves
constitute a Change in Control hereunder: (i) any acquisition of securities of
the Corporation made directly from the Corporation and approved by a majority
of the directors then comprising the Incumbent Board (as defined below), (ii)
any acquisition of beneficial ownership of a higher percentage of the
Outstanding Corporation Common Stock or the Outstanding Corporation Voting
Securities that results solely from the acquisition, purchase or redemption of
securities of the Corporation by the Corporation so long as such action by the
Corporation was approved by a majority of the directors then comprising the
Incumbent Board, or (iii) any acquisition by any corporation pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of paragraph (3)
hereof; or
(2) Individuals who, as of April 17, 1997,
constituted the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to April 17, 1997 whose election, or
nomination for election by the Corporation's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board; or
(3) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all the
assets of the Corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities that were the beneficial owners, respectively, of the
Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities immediately prior to such Business Combination beneficially owned,
directly or indirectly, more than 75% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Corporation or all or substantially all the Corporation's
assets either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities, as the case may be, (ii) no Person (excluding
any corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 35% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Corporation or all or substantially all the
Corporation's assets either directly or through one or more subsidiaries) or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members
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of the Incumbent Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business Combination; or
(4) Approval by the shareholders of the
Corporation of a complete liquidation or dissolution of the Corporation.
(c) Code. The Internal Revenue Code of 1986, as amended
from time to time.
(d) Committee. The Compensation Committee of the Board.
(e) Corporation. McFarland Energy, Inc., a Delaware
corporation.
(f) Date of Termination. The date a Participant's
employment is terminated.
(g) Defined Pay. A Participant's compensation for
purposes of the Plan, determined as follows for the following categories of
employees:
(i) Key Employees - The sum of (1) the Key
Employee's highest annual salary during the current and three calendar years
preceding the Effective Date, (2) the Participant's highest annual bonus during
such three preceding years and (3) the Participant's annualized highest car
allowance during such three preceding years;
(ii) All other Participants - The Participant's
annual salary or wages, including, where applicable, scheduled overtime, in
effect at his Date of Termination (or if the rate of such salary or wages has
been reduced following a Change in Control, the highest rate of annual salary
or wages in effect for such Participant at any time since the Change in
Control).
(h) Effective Date. April 17, 1997.
(i) Employee. Any regular full-time or part-time
employee of an Employer. The term shall exclude all individuals retained as
independent contractors.
(j) Employer. The Corporation and each Subsidiary that
has adopted the Plan pursuant to Article V and VI hereof and that are listed on
Schedule B hereof, as it may be modified from time to time.
(k) Key Employees. The key employees of the Employers
identified on the attached Schedule A, as it may be modified from time to time.
(l) Participant. An individual who is designated as such
pursuant to Section 3.1.
(m) Plan. The McFarland Energy, Inc. Change in Control
Retention/Severance Plan.
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<PAGE> 4
(n) Severance Benefit. A benefit to which a Participant
may become entitled pursuant to Article IV hereof.
(o) Subsidiary. Any corporation or other entity in which
the Corporation, directly or indirectly, holds a majority of the voting power
or profits or capital interest of such entity.
ARTICLE III
ELIGIBILITY
3.1 Participation. Each Employee of an Employer on the Effective
Date shall become a Participant in the Plan. Any individual who subsequently
becomes an Employee prior to a Change in Control shall become a Participant on
his or her date of hire. Employees listed on Schedule C shall not be eligible
to participate.
3.2 Duration of Participation. A Participant shall cease to be a
Participant in the Plan as a result of an amendment or termination of the Plan
complying with Article VII of the Plan, or when he or she ceases to be an
Employee of any Employer, unless, at the time he or she ceases to be an
Employee, such Participant is entitled to payment of a Severance Benefit as
provided in the Plan. A Participant entitled to payment of a Severance Benefit
or any other amounts under the Plan shall remain a Participant in the Plan
until the full amount of the Severance Benefit and any other amounts payable
under the Plan have been paid to the Participant.
ARTICLE IV
SEVERANCE BENEFITS
4.1 Right to Severance Benefit. A Participant shall be entitled
to receive from his or her Employer Severance Benefits in accordance with
Section 4.3 if the Participant's employment by an Employer shall terminate in
any circumstance specified in Section 4.2(a), whether the termination is
voluntary or involuntary.
4.2 Termination of Employment.
(a) Terminations That Give Rise to Severance Benefits
Under This Plan.
(i) Except as set forth in subsection (b) below,
any termination of employment with an Employer by action of the Employer or any
of its affiliates (excluding any transfer to another Employer, but treating as
a termination of employment the sale of any assets or the stock of the
Participant's Employer, unless a plan covering the Participant with benefits
equivalent to those payable hereunder that recognizes that a Change in Control
has already occurred is adopted by the entity that thereafter employs the
Participant), at any time after a Change in Control and before the second
anniversary of a Change in Control, shall entitle a Participant to a Severance
Benefit in accordance with Section 4.3.
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<PAGE> 5
(ii) If, at any time after a Change in Control and
before the second anniversary of the Change in Control, a Participant's duties,
responsibilities or annual salary or bonus opportunity or car allowance or
hourly wages as an Employee are diminished or reduced in any material respect
in comparison to the duties, responsibilities and annual salary, bonus
opportunity, car allowance or hourly wages enjoyed by the Participant on the
Effective Date or, if later, the Participant's date of hire, he may terminate
his employment within 90 days of the occurrence of such reduction and be
entitled to a Severance Benefit in accordance with Section 4.3.
(iii) If, at any time after a Change in Control and
before the second anniversary of the Change in Control, a Participant is
required to be based at a location more than 50 miles from the location where
the Participant was based and performed services immediately prior to a Change
in Control, he may terminate his employment within 90 days of the notice of
such relocation and be entitled to a Severance Benefit in accordance with
Section 4.3.
(b) Terminations That Do Not Give Rise to Severance
Benefits Under This Plan. If a Participant's employment is terminated for
Cause, or voluntarily by the Participant in the absence of any event described
in subsection (a)(ii) or (iii) of this Section 4.2, the Participant shall not
be entitled to a Severance Benefit under the Plan.
A termination for Cause shall have occurred where a Participant is terminated
because of:
(i) the willful and continued failure of the
Participant to perform substantially the Participant's duties with the Employer
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Participant by the Board or a duly- elected officer of the
Corporation which specifically identifies the manner in which the Board or the
elected officer believes that the Participant has not substantially performed
the Participant's duties, or
(ii) the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially and demonstrably
injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the part of the
Participant, shall be considered "willful" unless it is done, or omitted to be
done, by the Participant in bad faith or without reasonable belief that the
Participant's action or omission was in the best interests of the Corporation.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done,
by the Participant in good faith and in the best interests of the Corporation.
4.3 Severance Benefits.
(a) If a Participant's employment is terminated in
circumstances entitling the Participant to a Severance Benefit as provided in
Section 4.2(a), the Participant's Employer or the Corporation shall pay such
Participant, within ten days of the Date of Termination, a cash lump sum
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as set forth in subsection (b) below and the continued medical benefits and
life insurance coverages as set forth in subsection (b) below.
(b) A Participant's Severance Benefits shall be:
<TABLE>
<CAPTION>
Benefit Computation of Benefit
------- -----------------------
<S> <C>
Cash Severance One-twelfth of Defined Pay for each whole or partial year of service not
exceeding nine, plus one twenty-fourth of Defined Pay for each whole or
partial year of service in excess of nine, subject to a minimum benefit of
three-twelfths of Defined Pay.
Medical Continued coverage under medical benefits arrangements substantially similar
to that in effect immediately prior to a Change in Control at no greater cost
to Participant than that applicable immediately prior to the Change in Control
for a period equal to one month for each one-twelfth of Defined Pay paid as
cash severance.
Life Insurance Continued coverage under life insurance arrangements substantially similar to
that in effect immediately prior to a Change in Control at no greater cost to
Participant than that applicable immediately prior to the Change in Control
for a period equal to one month for each one-twelfth of Defined Pay paid as
cash severance.
</TABLE>
4.4 Other Benefits Payable. The benefits payable hereunder shall
be payable in addition to, and not in lieu of, all other accrued or vested or
earned but deferred compensation, rights, options or other benefits that may be
owed to a Participant upon or following termination, including but not limited
to earned but unused vacation, amounts or benefits payable under any bonus or
other compensation plan, stock option plan, stock ownership plan, stock
purchase plan, life insurance plan, health plan, disability plan or similar or
successor plan; provided, however, that the benefits payable under this Plan
shall be deemed to include any severance pay or pay in lieu of notice required
to be paid to such Participant under applicable law. This Plan shall supersede
and replace any severance pay plan, program or arrangement that may previously
have been adopted by any Employer, but not any individual agreement between the
Employer and any employee. Benefits payable under this plan shall be reduced
by any cash severance benefits payable under any individual employment
contract.
4.5 Payment Obligation Absolute.
The obligations of the Employers to pay or provide the
Severance Benefits described in Section 4.3 shall be absolute and unconditional
and shall not be affected by any circumstances,
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<PAGE> 7
including, without limitation, any set-off, counterclaim, recoupment, defense
or other right which an Employer may have against any Participant. In no event
shall a Participant be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to or benefits provided to a
Participant under any of the provisions of this Plan, nor shall the amount of
any payment hereunder be reduced by any compensation earned by or benefits
provided to a Participant as a result of employment by another employer.
ARTICLE V
PARTICIPATING EMPLOYERS
This Plan may be adopted by any Subsidiary of the Corporation
if the Board approves such adoption. Upon such adoption, the Subsidiary shall
become an Employer hereunder and the provisions of the Plan shall be fully
applicable to the Employees of that Subsidiary who are Participants pursuant to
Section 3.1.
ARTICLE VI
SUCCESSOR TO EMPLOYER.
This Plan shall bind any successor of an Employer,
substantially all its assets or substantially all its businesses (whether
direct or indirect, by purchase, merger, consolidation or otherwise), in the
same manner and to the same extent that the Employer would be obligated under
this Plan if no succession had taken place.
In the case of any transaction in which a successor would not
by the foregoing provision or by operation of law be bound by this Plan, the
Corporation shall require such successor expressly and unconditionally to
assume and agree to perform an Employer's obligations under this Plan, in the
same manner and to the same extent that the Employer would be required to
perform if no such succession had taken place. The term "Employer," as used in
this Plan, shall mean the Employer as hereinbefore defined and any successor or
assignee to the business or assets which by reason hereof becomes bound by this
Plan.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
7.1 Duration. If a Change in Control has not occurred, this Plan
shall last until amended or terminated by resolution adopted by the Board. If
a Change in Control occurs, this Plan shall continue in full force and effect
and shall not terminate or expire until all Participants who become entitled to
any payments hereunder shall have received such payments in full and all
adjustments required to be made pursuant to Section 4.5 have been made.
7.2 Termination and Amendment. The Plan shall be subject to
amendment, change, substitution, deletion, revocation or termination
(collectively, "Amendment") by the Board at any
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<PAGE> 8
time prior to a Change in Control other than at the request of a third party
who has taken steps reasonably calculated to effect a Change in Control. After
a Change in Control, the Plan shall not be subject to Amendment in any respect
which adversely affects the rights of a Participant without the consent of that
Participant.
7.3 Form of Amendment. The form of any amendment of the Plan
shall be a written instrument signed by any person authorized to sign by the
Board. An amendment of the Plan in accordance with the terms hereof shall
automatically effect a corresponding amendment to all Participants' rights
hereunder.
ARTICLE VIII
MISCELLANEOUS
8.1 Indemnification. If after a Change in Control a Participant
institutes any legal action in seeking to obtain or enforce, or is required to
defend in any legal action the validity or enforceability of, any right or
benefit provided by this Plan, the Corporation or the Employer will pay for all
actual legal fees and expenses reasonably incurred (as incurred) by such
Participant, regardless of the outcome of such action.
8.2 Employment Status. This Plan does not constitute a contract
of employment or impose on the Participant's Employer any obligation to retain
the Participant as an Employee, to change or not change the status of the
Participant's employment, or to change the Corporation's policies or those of
its Subsidiaries regarding termination of employment.
8.3 Claim Procedure. If an Employee or former Employee makes a
written request alleging a right to receive benefits under this Plan or
alleging a right to receive an adjustment in benefits being paid under the
Plan, the Corporation shall treat it as a claim for benefits. All claims for
benefits under the Plan shall be sent to the President of the Corporation and
must be received within 30 days after termination of employment. If the
President determines that any individual who has claimed a right to receive
benefits, or different benefits, under the Plan is not entitled to receive all
or any part of the benefits claimed, he will inform the claimant in writing of
its determination and the reasons therefor in terms calculated to be understood
by the claimant. The notice will be sent within 90 days of the claim unless
the President determines additional time, not exceeding 90 days, is needed.
The notice shall make specific reference to the pertinent Plan provisions on
which the denial is based, and describe any additional material or information
that is necessary. Such notice shall, in addition, inform the claimant what
procedure the claimant should follow to take advantage of the review procedures
set forth below in the event the claimant desires to contest the denial of the
claim. The claimant may within 90 days thereafter submit in writing to the
Corporation a notice that the claimant contests the denial of his or her claim
by the President and desires a further review. The Corporation shall within 60
days thereafter review the claim and authorize the claimant to appear
personally and review pertinent documents and submit issues and comments
relating to the claim to the persons responsible for making the determination
on behalf of the Corporation. The Corporation will render its final decision
with specific reasons therefor in writing and will transmit
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<PAGE> 9
it to the claimant within 60 days of the written request for review, unless the
Corporation determines additional time, not exceeding 60 days, is needed.
8.4 Validity and Severability. The invalidity or unenforceability
of any provision of the Plan shall not affect the validity or enforceability of
any other provision of the Plan, which shall remain in full force and effect,
and any prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
8.5 Governing Law. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of
Delaware, without reference to principles of conflict of law.
ARTICLE IX
BOARD APPROVAL AND EFFECTIVE DATE
This Plan was adopted by the Board on April 17, 1997, to be
effective as of the date of adoption.
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SCHEDULE A
Key Employees:
[Omitted]
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<PAGE> 11
SCHEDULE B
Downstream Operations, Inc.
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<PAGE> 12
SCHEDULE C
John C. McFarland
Ronald T. Yoshihara
Robert E. Ransom
William H. Moodie
Craig M. Sturtevant
Reinhard J. Suchsland
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<PAGE> 1
EXHIBIT 11
INDEMNIFICATION AGREEMENT
This AGREEMENT is made and entered into this ____ day of
______, 1997, by and between McFarland Energy, Inc., a Delaware corporation
(the "Company"), and ___________________________ (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract
as directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the
increased risk of litigation and other claims routinely being asserted against
directors and officers of public companies in today's environment, and the
attendant costs of defending even wholly frivolous claims;
WHEREAS, it has become increasingly difficult to obtain
insurance against the risk of personal liability of directors and officers on
terms providing reasonable protection at reasonable cost;
WHEREAS, the Bylaws of the Company provide certain
indemnification rights to the directors and officers of the Company, and its
directors and officers have been otherwise assured indemnification, as provided
by Delaware law;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's
continued service to the Company in an effective manner, the increasing
difficulty in obtaining and maintaining satisfactory insurance coverage, and
Indemnitee's reliance on past assurances of indemnification, the Company wishes
to provide in this Agreement for the indemnification of and the advancing of
expenses to Indemnitee to the fullest extent permitted by law (whether partial
or complete) and as set forth in this Agreement, and, to the extent insurance
is maintained, for the continued coverage of Indemnitee under the Company's
directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements contained herein and Indemnitee's continuing to serve
as a director of the Company, the parties hereto agree as follows:
1. Certain Definitions:
<PAGE> 2
(a) Change in Control: shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended), other
than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or
indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under such
Act), directly or indirectly, of securities of the Company
representing 20% or more of the total voting power represented by the
Company's then outstanding Voting Securities, or (ii) during any
period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company and any
new director whose election by the Board of Directors or nomination
for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into Voting Securities of the surviving entity)
at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of
the Company approve a plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all the
Company's assets.
(b) Claim: any threatened, pending or completed
action, suit or proceeding, whether instituted by or on behalf of the
Company or any other party, or any inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any
such action, suit or proceeding, whether civil (including intentional
and unintentional tort claims), criminal, administrative,
investigative or other.
(c) Expenses: include attorneys' fees and all
other costs, expenses and obligations paid or incurred in connection
with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or
participate in any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence
related to the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or is or was serving at
the request of the Company as a director, officer, employee, trustee,
agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by Indemnitee in any such capacity.
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<PAGE> 3
(e) Independent Legal Counsel: an attorney or
firm of attorneys, selected in accordance with the provisions of
Section 3, who shall not have otherwise performed services for the
Company or Indemnitee within the last five years (other than with
respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnification
agreements).
(f) Reviewing Party: any appropriate person or
body consisting of a member or members of the Company's Board of
Directors or any other person or body appointed by the Company's Board
of Directors who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) Voting Securities: any securities of the
Company which vote generally in the election of directors.
2. Basic Indemnification Arrangement.
(a) In the event Indemnitee was, is or becomes a
party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, a Claim by reason
of (or arising in part out of) an Indemnifiable Event, the Company
shall indemnify Indemnitee to the fullest extent permitted by law as
soon as practicable but in any event no later than 30 days after
written demand is presented to the Company, against any and all
Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable
in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Claim. If so
requested by Indemnitee, the Company shall advance (within two
business days of such request) any and all Expenses to Indemnitee (an
"Expense Advance").
(b) Notwithstanding the foregoing, (i) the
obligations of the Company under Section 2(a) shall be subject to the
condition that the Reviewing Party shall not have determined (which
determination shall, in all cases, be made in writing, specifying in
reasonable detail the reasons therefor) that Indemnitee would not be
permitted to be indemnified under applicable law, and (ii) the
obligation of the Company to make an Expense Advance pursuant to
Section 2(a) shall be subject to the condition that, if, when and to
the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the
Company shall be entitled to be reimbursed by Indemnitee (who hereby
agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the
Reviewing Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee
shall not be required to reimburse the Company for any Expense Advance
until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or
lapsed). If there has not been a Change in Control, the Reviewing
Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, the Reviewing Party shall be the
Independent
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<PAGE> 4
Legal Counsel referred to in Section 3 hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party
determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation in any court in the State of
Delaware or the State of California having subject matter jurisdiction
thereof and in which venue is proper seeking an initial determination
by the court or challenging any such determination by the Reviewing
Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and
agrees to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on the
Company and Indemnitee.
3. Change in Control. The Company agrees that if there
is a Change in Control of the Company, then with respect to all matters
thereafter arising concerning the rights of Indemnitee to indemnity payments
and Expense Advances under this Agreement or any other agreement or Company
Bylaw now or hereafter in effect relating to Claims for Indemnifiable Events,
the Company shall seek legal advice only from Independent Legal Counsel
selected by the Company and approved by Indemnitee (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above.
4. Indemnification for Additional Expenses. The Company
shall indemnify Indemnitee against any and all expenses (including attorneys'
fees) and, if requested by Indemnitee, shall (within two business days of such
request) advance such expenses to Indemnitee, which are incurred by Indemnitee
in connection with any action brought by Indemnitee (whether pursuant to
Section 17 of this Agreement or otherwise) for (i) indemnification or advance
payment of Expenses by the Company under this Agreement or any other agreement
or Company Bylaw now or hereafter in effect relating to Claims for
Indemnifiable Events or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
5. Partial Indemnity. If Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, penalties and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
6. Burden of Proof. In connection with any
determination by the Reviewing Party or otherwise as to whether Indemnitee is
entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
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<PAGE> 5
7. No Presumptions. For purposes of this Agreement, the
termination of any claim, action, suit or proceeding, by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief.
8. Nonexclusivity; Subsequent Change in Law. The rights
of the Indemnitee hereunder shall be in addition to any other rights Indemnitee
may have under the Company's Bylaws or the General Corporation Law of the State
of Delaware or otherwise. To the extent that a change in the General
Corporation Law of the State of Delaware (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the Company's Bylaws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
9. Liability Insurance. To the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
10. Amendments; Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
11. Subrogation. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
and shall do everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.
12. No Duplication of Payments. The Company shall not be
liable under this Agreement to make any payment in connection with any Claim
made against Indemnitee to the extent Indemnitee has otherwise actually
received payment (under any insurance policy, Bylaw or otherwise) of the
amounts otherwise indemnifiable hereunder.
13. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors (including any direct or
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indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a
director of the Company or of any other enterprise at the Company's request.
14. Severability. The provisions of this Agreement shall
be severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable in any
respect, and the validity and enforceability of any such provision in every
other respect and of the remaining provisions hereof shall not be in any way
impaired and shall remain enforceable to the fullest extent permitted by law.
15. Effective Date. This Agreement shall be effective as
of the date hereof and shall apply to any claim for indemnification by the
Indemnitee on or after such date.
16. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws.
17. Injunctive Relief. The parties hereto agree that
Indemnitee may enforce this Agreement by seeking specific performance hereof,
without any necessity of showing irreparable harm or posting a bond, which
requirements are hereby waived, and that by seeking specific performance,
Indemnitee shall not be precluded from seeking or obtaining any other relief to
which he may be entitled.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
MCFARLAND ENERGY, INC.
By:
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Name:
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Title:
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