<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998
REGISTRATION NO. 333-61513
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
REMINGTON OIL AND GAS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1311 75-2369148
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation of Classification Code Number) Identification Number)
organization)
</TABLE>
8201 PRESTON ROAD, SUITE 600
DALLAS, TEXAS 75225-6211
(214) 210-2650
(address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAMES A. WATT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
REMINGTON OIL AND GAS CORPORATION
8201 PRESTON ROAD, SUITE 600
DALLAS, TEXAS 75225-6211
(214) 210-2650
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement is declared
effective and all other conditions of the merger (the "Merger") of S-Sixteen
Holding Company with and into Remington Oil and Gas Corporation pursuant to the
Merger Agreement described in the enclosed Prospectus and Proxy Statement have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
REMINGTON LETTERHEAD
October , 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting and Special Meeting
of Stockholders of Remington Oil and Gas Corporation ("Remington" or the
"Company"). The Annual Meeting will be held at the , Dallas, Texas, on
1998, starting at a.m. The Special Meeting will be held
immediately upon the close of the Annual Meeting. A notice of the Annual Meeting
and a notice of the Special Meeting, a proxy card and a Prospectus and Proxy
Statement containing important information about the matters to be acted upon at
the Annual and Special Meetings are enclosed.
At the Annual Meeting, holders of Remington Oil and Gas Corporation Class A
(Voting) Common Stock ("Remington Class A Stock"), will be asked to consider and
elect a board of nine directors and ratify Arthur Andersen LLP as Remington's
auditors for 1998. Holders of Remington Oil and Gas Corporation Class B
(Non-Voting) Common Stock ("Remington Class B Stock") will not be entitled to
vote at the Annual Meeting.
At the Special Meeting, holders of both Remington Class A Stock and
Remington Class B Stock will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger, dated June 22, 1998 (the
"Merger Agreement"), under which S-Sixteen Holding Company, Inc., a Delaware
corporation, ("SSHC") will be merged into Remington with Remington being the
surviving corporation (the "Merger"). As a result of the Merger, Remington will
acquire all of the assets and assume all liabilities of SSHC immediately prior
to the Merger's effective date except for the shares of Remington held directly
by SSHC, which will be canceled. SSHC's principal asset is an interest in an oil
pipeline that transports Remington's oil produced from certain wells in the
South Pass area to onshore Louisiana.
Pursuant to the Merger Agreement, the Remington Class A stock and the
Remington Class B Stock will be recapitalized into one class of common stock
("Remington Common Stock")having equal voting rights. Each outstanding share of
Remington Class A Stock will be converted into the right to receive 1.15 shares
of Remington Common Stock and each outstanding share of Remington Class B Stock
will be converted into the right to receive 1 share of Remington Common Stock.
The Merger and the recapitalization of the common stock, as well as certain
amendments to Remington's Certificate of Incorporation and By-Laws discussed in
the Prospectus and Proxy Statement are hereinafter collectively referred to as
the "Transaction." Remington has entered into the Merger Agreement with SSHC
because the Board of Directors of Remington believes that the conversion to a
single class of voting stock and the elimination of SSHC as the holding company
for a majority of Remington's voting stock will serve numerous business
interests of Remington including, but not limited to, increasing the liquidity
and trading efficiency of the common stock of Remington, improving Remington's
access to the capital markets, providing an efficient instrument for other
business combinations that are in the best interests of Remington and
eliminating transactions with a controlling stockholder.
Through its ownership of 57% of the Remington Class A Stock, SSHC is
currently the controlling stockholder of the Company. SSHC in turn is owned by
entities controlled by Mr. J. R. Simplot of Boise, Idaho. The shareholder of
SSHC has already approved the Merger Agreement, and SSHC and Mr. Simplot have
advised the Company that they intend to vote in favor of the Merger Agreement at
the Special Meeting. As a result of the Transaction, the percentage ownership of
the Company's voting stock held by Mr. Simplot and his affiliates will be
reduced from approximately 57% to approximately 27%.
<PAGE> 3
Your Board of Directors established a Special Transaction Committee of the
Board ("STC"), comprised of the independent Board members to carefully review
and consider the terms and conditions of the Merger Agreement. THE BOARD OF
DIRECTORS AND MANAGEMENT BELIEVE THAT THE PROPOSED TRANSACTION IS IN THE BEST
INTERESTS OF REMINGTON AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMEND THAT YOU
VOTE TO APPROVE THE MERGER AGREEMENT. For a further discussion of the STC's and
full Board's consideration and evaluation of the Transaction as well as a
discussion of the interests of certain Directors and executive officers of
Remington in the Transaction, see "The Transaction -- Background of the
Transaction," "-- Potential Conflicts of Interest," "-- Proceedings of the STC"
and "-- Remington's Reasons for the Transaction" in the Prospectus and Proxy
Statement.
The accompanying Prospectus and Proxy Statement provides you with detailed
information concerning the Transaction, including the Merger Agreement (a copy
of which is included therein as Appendix I). Please give all of this information
your careful attention.
At the Special Meeting, holders of Remington Class A Stock and Remington
Class B Stock will vote as separate classes. Approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of Remington Class A Stock, voting as a separate class, and the
affirmative vote of the holders of a majority of the Remington Class B Stock
that is voted at the Special Meeting in person or by proxy.
WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND THE ANNUAL AND SPECIAL
MEETINGS, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE. If you attend the Annual
and Special Meetings, you may revoke your proxy and vote your shares in person
if you wish. Your prompt cooperation is greatly appreciated.
Sincerely,
BOARD OF DIRECTORS
Remington Oil and Gas Corporation
<PAGE> 4
REMINGTON OIL AND GAS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER , 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting ("Annual Meeting") of the
holders of the Class A (Voting) Common Stock of Remington Oil and Gas
Corporation ("Remington Class A Stock"), a Delaware corporation ("Remington" or
the "Company"), will be held at the , Dallas, Texas, on
1998, starting at a.m. for the following purposes:
1. To Elect a Board of Nine Directors.
2. To ratify the Appointment of Auditors for Fiscal Year 1998.
3. To transact such other business as may properly be brought before
the meeting or any adjournments or postponements thereof.
Only holders of Remington Class A Stock of record at the close of business
on October , 1998 are entitled to notice of and to vote at the Annual Meeting
or any adjournments or postponements thereof. A complete list of the holders of
Remington Class A Stock entitled to vote will be available for examination by
any holder of Remington Class A Stock during normal business hours at the
Company's offices at 8201 Preston Road, Suite 600, Dallas, Texas for a period of
ten business days prior to the date of the Annual Meeting.
Holders of Remington Class A Stock are invited to attend the Annual
Meeting. Whether or not you expect to attend, WE URGE YOU TO SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE. If you
attend the Annual Meeting, you may vote your shares in person, after revoking
your proxy, if any.
If your shares are held of record by a broker, bank or other nominee and
you wish to attend the Annual Meeting for the purpose of voting in person, you
should obtain a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares and bring it to the Annual Meeting. In order
to vote your shares at the Annual Meeting, you must obtain from the record
holder a proxy issued in your name.
Regardless of how many shares you own, your vote is appreciated. PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
BY ORDER OF THE BOARD OF DIRECTORS
J. Burke Asher,
Secretary
<PAGE> 5
REMINGTON OIL AND GAS CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (together
with any adjournment or postponement thereof, the "Special Meeting") of
Remington Oil and Gas Corporation, a Delaware corporation ("Remington" or the
"Company"), will be held at , Dallas, Texas, starting immediately
following the Annual Meeting of Remington. The Annual Meeting will be held on
1998, starting at a.m. The Special Meeting is being held for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of June 22, 1998 (the "Merger
Agreement") by and between Remington and S-Sixteen Holding Company, a
Delaware corporation ("SSHC"). Pursuant to the Merger Agreement, among
other things, (i) SSHC will merge with and into Remington with the result
that Remington will be the surviving corporation and SSHC will cease to
exist, and each outstanding share of common stock of SSHC will be converted
into the right to receive 72.329 shares of Remington Common Stock (as
hereinafter defined), and the sole stockholder of SSHC will receive a
warrant to purchase 300,000 shares of Remington Common Stock at prices
ranging from $7.00 per share to $11.00 per share, (ii) the two classes of
common stock of Remington will be converted into a single class of common
stock, each share of which will be entitled to one vote ("Remington Common
Stock"), with each outstanding share of Remington Oil and Gas Corporation
Class A (Voting) Common Stock ("Remington Class A Stock") converted into
the right to receive 1.15 shares of Remington Common Stock and each
outstanding share of Remington Oil and Gas Corporation Class B (Non-Voting)
Common Stock ("Remington Class B Stock") converted into the right to
receive 1 share of Remington Common Stock, (iii) the Certificate of
Incorporation of Remington will be amended and restated as described in the
enclosed Prospectus and Proxy Statement and (iv) the By-Laws of Remington
will be amended as described in the enclosed Prospectus and Proxy
Statement. The terms of the Merger Agreement are described in detail in the
accompanying Prospectus and Proxy Statement, and the full text of the
Merger Agreement (exclusive of legal opinions and Disclosure Schedules) is
included as Appendix I to the Prospectus and Proxy Statement.
2. To transact such other business as may properly come before the
Special Meeting.
Holders of record of Remington Class A Stock at the close of business on
October , 1998, are entitled to notice of and to vote as a class on the Merger
Agreement at the Special Meeting. The affirmative vote of the holders of record
of a majority of the outstanding shares of Remington Class A Stock is required
for approval by the Class A stockholders, of the Merger Agreement. Holders of
record of Remington Class B Stock at the close of business on October , 1998
are hereby provided notice of and are invited to vote as a class on the Merger
Agreement at the Special Meeting. The affirmative vote of the holders of record
of a majority of the Remington Class B Stock voted on the Merger Agreement at
the Special Meeting is required for approval by the Class B stockholders of the
Merger Agreement. The requisite affirmative vote of each class is required for
approval of the Merger Agreement. A complete list of the Class A and Class B
stockholders eligible to vote at the Special Meeting will be available for
examination by any holder of Remington Class A or Class B Stock during normal
business hours at Remington's offices at 8201 Preston Road, Suite 600, Dallas,
Texas for a period of ten business days prior to the date of the Special
Meeting. On any other matter presented at the Special Meeting, only holders of
record of Remington Class A Stock as of October , 1998 will be entitled to
vote.
Neither the holders of Remington Class A Stock nor Remington Class B Stock
are entitled to appraisal rights in connection with the Merger.
A copy of the Prospectus and Proxy Statement relating to the Special
Meeting and a form of Proxy accompany this Notice. This Prospectus and Proxy
Statement also relates to the shares of Remington Common Stock that Remington
stockholders will receive pursuant to the Transaction.
<PAGE> 6
Any holder of Remington Class A Stock or Remington Class B Stock who
executes and returns a proxy card may revoke such proxy at any time before it is
voted by (i) notifying in writing the Secretary of the Company, 8201 Preston
Road, Suite 600, Dallas, Texas 75225-6211, (ii) granting a duly executed proxy
bearing a later date or (iii) appearing in person and voting at the Special
Meeting. Attendance at the Special Meeting will not in and of itself constitute
revocation of a proxy.
If your shares are held of record by a broker, bank or other nominee and
you wish to attend the Special Meeting for the purpose of voting in person, you
should obtain a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares and bring it to the Special Meeting. In order
for you to vote your shares at the Special Meeting, you must obtain from the
record holder a proxy issued in your name.
THE BOARD OF DIRECTORS OF REMINGTON HAS CAREFULLY CONSIDERED THE TERMS OF
THE MERGER AGREEMENT AND BELIEVES THAT THE MERGER AGREEMENT IS FAIR TO, AND IN
THE BEST INTERESTS OF, REMINGTON AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
TO ASSURE THAT YOUR INTERESTS WILL BE REPRESENTED AT THE SPECIAL MEETING,
REGARDLESS OF WHETHER YOU PLAN TO ATTEND IN PERSON, PLEASE COMPLETE, DATE, AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. If you attend the
Special Meeting, you may revoke your proxy and vote your shares in person if you
wish. Your prompt cooperation is greatly appreciated.
By Order of the Board of Directors
J. Burke Asher
Secretary
<PAGE> 7
PROXY STATEMENT
FOR
REMINGTON OIL AND GAS CORPORATION
PROSPECTUS
FOR
REMINGTON OIL AND GAS CORPORATION
FOR UP TO 21,431,791 SHARES OF COMMON STOCK ($0.01 PAR VALUE)
This Prospectus and Proxy Statement ("Prospectus and Proxy Statement") is
being furnished to the stockholders of Remington Oil and Gas Corporation, a
Delaware corporation ("Remington" or the "Company"), in connection with the
solicitation of proxies by its Board of Directors for use at the Annual Meeting
of the holders of Remington Class A (Voting) Common Stock (the "Annual Meeting")
scheduled to be held on , November , 1998 at a.m., at , Dallas, Texas, and
any adjournment or postponement thereof, and at the Special Meeting of
Stockholders of Remington (the "Special Meeting"), scheduled to be held
immediately upon the close of the Annual Meeting, and any adjournment or
postponement thereof.
At the Annual Meeting, the holders of Remington Oil and Gas Corporation
Class A (Voting) Common Stock ("Remington Class A Stock") will be asked to
consider and elect a nine member Board of Directors and ratify the appointment
of Arthur Andersen LLP as Remington's auditors for 1998. Holders of Remington
Oil and Gas Corporation Class B (Non-Voting) Common Stock ("Remington Class B
Stock") will not be entitled to vote at the Annual Meeting.
At the Special Meeting, the holders of Remington Class A Stock and Remington
Class B Stock, voting as separate classes, will be asked to consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Merger dated June
22, 1998 (the "Merger Agreement") by and between Remington and S-Sixteen Holding
Company, a Delaware corporation ("SSHC"), pursuant to which SSHC will merge into
Remington with Remington as the surviving corporation (the "Merger"). See "The
Transaction." SSHC, which owns approximately 57% of the Remington Class A Stock,
is owned by entities controlled by Mr. J.R. Simplot of Boise, Idaho. Its assets
include an interest in an oil pipeline that is used to transport oil produced by
certain of the Company's offshore wells in the Gulf of Mexico. After
consummation of the Transaction, Mr. Simplot and entities controlled by him will
own approximately 27% of the outstanding Remington Common Stock and a warrant to
purchase 300,000 additional shares of Remington Common Stock.
Under the Merger Agreement, Remington will convert its two classes of common
stock, Remington Class A Stock and Remington Class B Stock, into a single class
of common stock, each share of which will be entitled to one vote ("Remington
Common Stock"). Pursuant to the Merger Agreement, each outstanding share of
Remington Class A Stock (other than shares held directly by SSHC, which will be
cancelled) will be converted into the right to receive 1.15 shares of Remington
Common Stock, and each outstanding share of Remington Class B Stock (other than
shares held directly by SSHC, which will be cancelled) will be converted into
the right to receive 1 share of Remington Common Stock. See "The Transaction."
The Merger Agreement provides for the amendment of Remington's Certificate of
Incorporation to provide for 100 million authorized shares of Remington Common
Stock and 25 million authorized shares of "blank check" preferred stock in
addition to other amendments to Remington's Certificate of Incorporation and
By-Laws. See "Remington's Restated Certificate of Incorporation" and "Amendments
to Remington's By-Laws." The Merger, the issuance of a warrant to purchase
300,000 shares of Remington Common Stock, the recapitalization of the two
classes of common stock into a single class, and the amendments to Remington's
Certificate of Incorporation and By-Laws are hereinafter collectively referred
to as the "Transaction." The stockholder of SSHC approved the Transaction, and
Mr. Simplot and SSHC have advised the Company that they intend to vote to
approve the Merger Agreement.
This Prospectus and Proxy Statement also constitutes the Prospectus of
Remington pursuant to the Securities Act of 1933, as amended, (the "Securities
Act"), with respect to the issuance of up to 21,431,791 shares of Remington
Common Stock.
This Prospectus and Proxy Statement is first being mailed to stockholders of
Remington on or about October , 1998.
Application has been made to list the shares of Remington Common Stock on
the Nasdaq National Market and the Pacific Exchange on which the shares of
Remington Class A Stock and Remington Class B Stock are currently listed. On
October 9, 1998, the closing prices of Remington Class A Stock and Remington
Class B Stock, as reported by the Nasdaq Stock Market, were $4.000 and $3.750,
respectively.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT STOCKHOLDERS SHOULD CONSIDER PRIOR TO EXECUTING A PROXY OR CASTING A VOTE.
THE SHARES OF REMINGTON COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE
MERGER AGREEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus and Proxy Statement is October , 1998.
<PAGE> 8
TABLE OF CONTENTS
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PAGE
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<S> <C>
AVAILABLE INFORMATION....................................... (iii)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. (iii)
SUMMARY..................................................... 1
FORWARD-LOOKING INFORMATION................................. 8
RISK FACTORS................................................ 8
GENERAL INFORMATION ABOUT THE SPECIAL MEETING............... 13
THE TRANSACTION............................................. 15
General Description of the Transaction.................... 15
Background of the Transaction............................. 15
Alternatives to the Transaction........................... 17
Potential Conflicts of Interest........................... 18
Proceedings of the STC.................................... 18
Remington's Reasons for the Transaction................... 21
Recommendation of Remington's Board of Directors.......... 22
Opinion of Financial Advisor.............................. 23
Accounting Treatment...................................... 27
Certain Federal Income Tax Consequences................... 27
Resale Restrictions....................................... 28
No Appraisal Rights....................................... 28
Consequences if the Merger Agreement is Not Approved...... 28
TERMS OF THE TRANSACTION.................................... 29
Consideration for the Merger.............................. 29
Conversion of Capital Stock of Remington and SSHC......... 29
The Certificate of Incorporation.......................... 30
Effective Time of the Transaction......................... 30
Exchange of Certificates.................................. 30
Conditions to the Consummation of the Merger.............. 31
Representations and Warranties............................ 31
Covenants................................................. 31
Additional Agreements..................................... 32
Termination of the Merger Agreement....................... 32
Amendment of the Merger Agreement......................... 33
Expenses Related to the Transaction....................... 33
REMINGTON'S RESTATED CERTIFICATE OF INCORPORATION........... 34
AMENDMENTS TO REMINGTON'S BY-LAWS........................... 40
DESCRIPTION OF REMINGTON CAPITAL STOCK...................... 43
MARKET FOR REMINGTON'S COMMON STOCK AND DIVIDEND POLICY..... 44
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS...................... 45
PRO FORMA FINANCIAL INFORMATION............................. 45
INFORMATION CONCERNING REMINGTON............................ 52
SELECTED FINANCIAL DATA -- REMINGTON OIL AND GAS
CORPORATION............................................... 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF REMINGTON.................... 62
INFORMATION CONCERNING SSHC................................. 72
SELECTED CONSOLIDATED FINANCIAL DATA -- S-SIXTEEN HOLDING
COMPANY AND SUBSIDIARIES.................................. 73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF SSHC......................... 74
INFORMATION ABOUT THE ANNUAL MEETING........................ 76
LEGAL MATTERS............................................... 81
EXPERTS..................................................... 81
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX I Agreement and Plan of Merger
APPENDIX II Opinion of Howard, Weil, Labouisse, Friedrichs,
Incorporated
</TABLE>
(ii)
<PAGE> 9
AVAILABLE INFORMATION
Remington is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D. C. 20549 and the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511 and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
the prescribed rates. The Commission maintains an internet website at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Such reports, proxy statements and other information filed by
Remington may also be inspected and copied at the offices of the Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. and at the offices of The Pacific
Exchange, 301 Pine Street, San Francisco, California 94104, on which Remington
Class A Stock and Remington Class B Stock are listed.
Remington has filed with the Commission a registration statement on Form
S-4 under the Securities Act with respect to the securities offered hereby (the
"Registration Statement"). This Prospectus and Proxy Statement, which
constitutes part of the Registration Statement, does not contain all of the
information included in the Registration Statement, certain portions of which
are omitted as permitted by the rules and regulations of the Commission. For
further information with respect to Remington and the securities offered hereby,
reference is made to the Registration Statement, including the exhibits thereto,
which may be inspected at the Commission's offices, without charge, or copies of
which may be obtained from the Commission upon payment of prescribed fees.
Statements contained in this Prospectus and Proxy Statement as to the contents
of any document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance, reference is hereby made to the copy
of such document filed as an exhibit to the Registration Statement for a more
complete description of the matter involved, and each such statement being
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Remington with the Commission
are incorporated by reference herein:
(a) Company's Form 10-K for the fiscal year ended December 31, 1997;
(b) Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1998 and June 30, 1998; and
(c) Company's Current Report on Form 8-K filed September 4, 1998.
All documents filed by Remington pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and Proxy Statement
and prior to the date of the Annual and Special Meetings shall be deemed to be
incorporated by reference in this Prospectus and Proxy Statement and to be a
part hereof from the date of the filing of such documents. Any statement
contained in this Prospectus and Proxy Statement or in a document incorporated
or deemed to be incorporated by reference in this Prospectus and Proxy Statement
shall be deemed to be modified or superseded for purposes of this Prospectus and
Proxy Statement to the extent that a statement contained in this Prospectus and
Proxy Statement or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus and
Proxy Statement.
Remington undertakes to provide without charge to each person to whom a
copy of this Prospectus and Proxy Statement has been delivered, upon request, a
copy of any and all of the documents incorporated by reference herein, other
than the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus and Proxy
Statement incorporates. Requests for copies should be directed to Remington Oil
and Gas Corporation, 8201 Preston Road, Suite 600, Dallas, Texas 75225-6211,
Attention: Corporate Secretary (Telephone number (214) 210-2650).
(iii)
<PAGE> 10
SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus and
Proxy Statement or in the documents incorporated by reference. Stockholders are
urged to read this Prospectus and Proxy Statement and the attached Appendices in
their entirety.
REMINGTON OIL AND GAS CORPORATION
Remington Oil and Gas Corporation, a Delaware corporation ("Remington"), is
engaged in the exploration, exploitation, development and production of oil, gas
and other hydrocarbons. Its two classes of common stock are listed on the Nasdaq
National Market and The Pacific Exchange. Its executive offices are located at
8201 Preston Road, Suite 600, Dallas, Texas 75225-6211. The telephone number is
(214) 210-2650. See "Information Concerning Remington."
S-SIXTEEN HOLDING COMPANY
S-Sixteen Holding Company, a Delaware corporation ("SSHC"), is a privately
held corporation whose chief business is to act as the controlling stockholder
of several subsidiary corporations. SSHC holds approximately 57% of Remington
Class A Stock. With the exception of its holdings in Remington, all of SSHC's
stockholdings are in private companies, including a 94% interest in CKB
Petroleum, Inc. ("CKBP") and a 94% interest in CKB & Associates, Inc. ("CKBA").
SSHC's business address is 999 Main Street, Boise, Idaho 83702. Its telephone
number is (208) 389-7306. SSHC is controlled, through BBHC Acquisition Co.,
L.L.C., by Mr. J. R. Simplot. See "Information Concerning SSHC."
PURPOSE OF ANNUAL MEETING AND SPECIAL MEETING
At the Annual Meeting, holders of Remington Class A Stock will be asked to
elect nine directors and to ratify the appointment of Arthur Andersen LLP as
Remington's auditors for the fiscal year ending December 31, 1998. Holders of
Remington Class B Stock will not be entitled to vote at the Annual Meeting. The
Special Meeting will be called to order immediately following the close of the
Annual Meeting. The purpose of the Special Meeting is to consider and approve
the Merger Agreement pursuant to which the Transaction will be consummated.
Holders of Remington Class A Stock and Remington Class B Stock will vote as
separate classes on the Transaction. See "Information About the Annual Meeting"
and "General Information About the Special Meeting."
1
<PAGE> 11
THE TRANSACTION
The following chart sets forth the ownership structure of SSHC and
Remington prior to the Transaction.
[Chart]
At the Special Meeting, the holders of Remington Class A Stock and
Remington Class B Stock will be asked to consider and approve the Merger
Agreement. If the Merger Agreement is approved, SSHC will merge into Remington,
with Remington as the surviving corporation, and SSHC will cease to exist. Each
outstanding share of SSHC common stock will be converted into the right to
receive 72.329 shares, or an aggregate of 2,785,028 shares, of Remington Common
Stock. As a result of the Merger, Remington will control the subsidiaries of
SSHC, including CKBP, which owns an interest in the offshore pipeline through
which Remington ships its oil to shore from the South Pass Complex in the Gulf
of Mexico (the "Pipeline"), and CKBA, which owns 205,975 shares of Remington
Class B Stock. In addition, SSHC owns approximately 1.8 million shares of
Remington Class A Stock and 88,668 shares of Remington Class B Stock, which will
be cancelled in the Merger, as well as other nonmaterial assets. See "The
Transaction."
Approval of the Merger Agreement will constitute approval to convert the
two classes of common stock of Remington into a single class of common stock,
with each share having one vote. Each outstanding share of Remington Class A
Stock (other than shares held directly by SSHC, which will be cancelled) will be
converted into the right to receive 1.15 shares of Remington Common Stock. Each
outstanding share of Remington Class B Stock (other than shares held directly by
SSHC, which will be cancelled) will be converted into the right to receive 1
share of Remington Common Stock. See "The Transaction."
2
<PAGE> 12
A chart depicting the Transaction is set forth below.
[Chart]
The post Transaction structure of Remington is depicted in the following
chart.
[Remington Oil and Gas Chart]
Included in the Merger Agreement are several amendments to Remington's
Certificate of Incorporation and By-Laws. These amendments include revising
Remington's capital structure to increase the number of authorized shares of
common stock from 45 million to 100 million and to authorize 25 million shares
of "blank check" preferred stock. Further amendments to the Certificate of
Incorporation include requiring that all stockholder action take place at an
annual or special meeting and not by written consent, and permitting special
meetings of the stockholders to be called only by Remington's Chairman of the
Board, President, or a majority of the Board of Directors. Provisions covering
the number of directors, term of office, resignation, removal, vacancies, and
indemnification of directors, officers, employees and agents are also included
among the amendments to the Certificate of Incorporation. The amendments to the
By-Laws conform to the amendments to the Certificate of Incorporation as well as
the establishment of a procedure for stockholder nominations for directors which
would eliminate director nominations from the floor of a meeting in which
directors are to be elected. See "Remington's Restated Certificate of
Incorporation" and "Amendments to Remington's By-Laws."
3
<PAGE> 13
SHARES ISSUED IN THE MERGER
In the Transaction, an aggregate of 2,785,028 shares of Remington Common
Stock will be issued to the stockholder of SSHC, 2,846,000 shares of Remington
Common Stock will be issued to Mr. J.R. Simplot, and approximately 15,800,762
shares of Remington Common Stock will be issued to stockholders of Remington
other than Mr. Simplot and his affiliates. In addition, as part of the
Transaction the stockholder of SSHC will receive a Warrant (the "Warrant") to
purchase 300,000 shares of Remington Common Stock at prices ranging from $7.00
per share to $11.00 per share.
REASONS FOR THE TRANSACTION
Remington entered into the Merger Agreement with SSHC because the Board of
Directors of Remington believes that the conversion to a single class of voting
stock and the elimination of SSHC as the holding company for a majority of
Remington's voting stock will serve numerous business interests of Remington
including, but not limited to, increasing the liquidity and trading efficiency
of the common stock of Remington, improving Remington's access to the capital
markets, providing an efficient instrument for other business combinations that
are in the best interests of Remington, and eliminating transactions with a
controlling stockholder. See "The Transaction -- Remington's Reasons for the
Transaction."
THE SPECIAL TRANSACTION COMMITTEE AND OPINION OF OUTSIDE FINANCIAL ADVISOR
The Board of Directors of Remington established a Special Transaction
Committee of the Board (the "STC") to consider the Merger Agreement, including
the Transaction contemplated thereunder. The STC determined that the Transaction
is fair to Remington and its stockholders other than SSHC and its affiliates. To
aid in its review of the Transaction, the STC retained an outside financial
advisor. This financial advisor, Howard, Weil, Labouisse, Friedrichs
Incorporated, has issued a written opinion to the effect that, from a financial
point of view, the Transaction is fair to Remington and its stockholders other
than SSHC and its affiliates. See "The Transaction -- Proceedings of the STC"
and "-- Opinion of STC Financial Advisor."
4
<PAGE> 14
SUMMARY FINANCIAL INFORMATION
REMINGTON OIL AND GAS CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ----------------------------------------------------
1998 1997 1997(1) 1996 1995 1994 1993
------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue.............................. $24,563 $ 34,194 $ 61,053 $ 70,210 $ 59,493 $ 59,244 $ 37,102
Net income (loss).......................... $(3,152) $1,345... $(26,790) $ (7,662) $ 5,392 $ 9,157 $ 2,161
Basic and diluted income (loss) per
share.................................... $ (0.15) $ 0.06 $ (1.31) $ (0.37) $ 0.26 $ 0.44 $ 0.10
Total assets............................... $99,476 $134,835 $ 98,515 $136,599 $145,491 $135,041 $128,882
8 1/4% convertible Subordinated notes...... $38,371 $ 55,077 $ 38,371 $ 55,077 $ 55,077 $55,077.. $ 55,077
Other indebtedness......................... 9,700 -- $ 6,000 -- -- -- $ 1,970
Cash dividends per share................... -- -- -- -- -- -- --
Stockholders' equity....................... $41,544 $ 72,635 $ 44,287 $ 74,356 $ 82,047 $ 75,513 $ 67,655
Book value per share....................... $ 2.04 $ 3.57 $ 2.18 $ 3.57 $ 3.94 $ 3.63 $ 3.25
Shares outstanding
Class A Common Stock..................... 3,222 3,219 3,219 3,250 3,250 3,250 3,245
Class B Common Stock..................... 17,147 17,137 17,087 17,553 17,553 17,553 17,558
Net cash flow provided by operations....... $11,497 $ 17,953 $ 27,546 $ 28,955 $ 24,047 $ 27,644 $ 11,006
</TABLE>
- ---------------
(1) In 1997, the Company recorded a $14.6 million deferred income tax expense
when the net deferred tax asset that had been recorded by the Company in
1992 was written down to a carrying value of zero.
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------- ---------------------------
1998 1997 1997(1) 1996 1995(2)
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total revenue............................................... $ 1,727 $ 1,665 $ 3,335 $ 3,189 $ 5,679
Net income (loss)........................................... $ 886 $ (53) $ (564) $ (44) $ 1,019
Basic and diluted income (loss) per share................... $ 22.72 $ (1.23) $(13.42) $ (1.02) $ 23.70
Total assets................................................ $16,563 $19,104 $14,716 $24,007 $30,123
Short-term notes payable.................................... $ 5,803 $ 7,407 $ 6,690 $ 1,020 $ 124
Long-term notes payable..................................... $ 1,895 -- $ 1,899 $ 6,471 $10,472
Minority interest........................................... $ 113 $ 251 $ 154 $ 257 $ 192
Cash dividends per share.................................... N/M N/M N/M N/M N/M
Stockholders' equity........................................ $ 8,609 $11,219 $ 5,826 $16,129 $17,947
Book value per share........................................ $223.59 $261.47 $151.31 $375.90 $418.59
Shares outstanding
Class A Common Stock...................................... 33 33 33 33 0
Class B Common Stock...................................... 38,472 42,875 38,472 42,875 42,875
Net cash flow provided by (used in) operations.............. $ 1,117 $ 131 $ 1,116 $ 27 $ (425)
</TABLE>
- ---------------
(1) On August 29, 1997, entities controlled by Mr. J.R. Simplot purchased all 33
shares of Class A (Voting) Common Stock and 38,472 shares (89.7%) of the
Class B (Non-Voting) Common Stock of BBHC from Don D. Box, Gary D. Box,
Thomas D. Box and Douglas D. Box (the "Box Brothers") and settled all
litigation existing between and among Mr. Simplot and the Box Brothers. On
October 14, 1997, SSHC acquired the remaining 4,403 shares (10.3%) of the
Class B (Non-Voting) Common Stock of BBHC as treasury stock. The treasury
stock was subsequently cancelled.
(2) Total revenues in 1995 include a net gain on sale of securities totaling
$2.6 million.
N/M -- Not Meaningful
5
<PAGE> 15
PRO FORMA SUMMARY FINANCIAL DATA
REMINGTON OIL AND GAS CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1998 1997
-------------- ------------
(UNAUDITED AND IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenue............................................ $ 24,585 $ 61,271
Net income (loss)........................................ $ (2,468) $(27,750)
Basic and diluted income (loss) per share................ $ (0.12) $ (1.29)
Total assets............................................. $101,012 (1)
8 1/4% convertible subordinated notes payable............ $ 38,371 (1)
Cash dividends per share................................. N/M (1)
Stockholders' equity..................................... $ 42,527 (1)
Book value per share..................................... $ 2.00 (1)
Common stock outstanding................................. 21,226 (1)
Net cash flow provided by operations..................... $ 12,614 $ 28,662
</TABLE>
- ---------------
(1) The Transaction will be accounted for as a purchase transaction. Pro forma
balance sheet financial information has been prepared as of June 30, 1998
and pro forma income statement information has been prepared for the six
months ended June 30, 1998 and the year ended December 31, 1997.
N/M -- Not meaningful.
EFFECTS OF THE TRANSACTION
As a result of the Merger SSHC will cease to exist, Remington will acquire
all the assets and assume all the liabilities of SSHC, and the subsidiaries of
SSHC will become subsidiaries of Remington. Following the Merger and the
resulting conversion of Remington Class A Stock and Remington Class B Stock into
Remington Common Stock, approximately 21,225,815 shares of Remington Common
Stock will be outstanding. An additional 6,848,213 shares (including 300,000
shares subject to the Warrant to be issued to SSHC's sole stockholder in the
Transaction) will be reserved for issuance pursuant to outstanding warrants,
options, and convertible securities. In connection with the Merger, the
amendments to Remington's Certificate of Incorporation and By-Laws will become
effective.
Prior to the Merger, SSHC and its affiliates, including Mr. Simplot,
control approximately 57% of Remington's voting stock through their beneficial
ownership of 1,840,525 shares of Remington Class A Stock. In addition, Mr.
Simplot owns 2,846,000 shares of Remington Class B Stock. Immediately following
the Merger, Mr. Simplot and his affiliates will beneficially own 5,631,028
shares of Remington Common Stock (exclusive of the Warrant to acquire Remington
Common Stock), representing approximately 27% of the outstanding Remington
Common Stock. Accordingly, Mr. Simplot and his affiliates will no longer control
a majority of the voting stock of Remington. See "The Transaction."
MATERIAL TAX CONSEQUENCES
Stockholders of Remington will not recognize gain or loss upon the exchange
of their shares of Remington Class A Stock or Remington Class B Stock for shares
of Remington Common Stock, except with respect to cash, if any, received in lieu
of fractional shares. The aggregate tax basis of the shares of Remington Common
Stock received solely in exchange for Remington Class A Stock or Remington Class
B Stock, as applicable, will be the same as the aggregate tax basis of the
shares of Remington Class A Stock and Remington Class B Stock, as the case may
be, except with respect to cash, if any, received in lieu of fractional shares,
exchanged for shares of Remington Common Stock. See "Certain Material Federal
Income Tax Consequences."
6
<PAGE> 16
APPRAISAL RIGHTS
The General Corporation Law of the State of Delaware does not provide
Remington stockholders appraisal rights in connection with the Merger. See "The
Transaction."
VOTE REQUIRED FOR APPROVAL OF THE MERGER AGREEMENT AT SPECIAL MEETING
The holders of Remington Class A Stock and Remington Class B Stock will
vote, as separate classes, on approval of the Merger Agreement at the Special
Meeting. In order for the Merger Agreement to be approved, holders of a majority
of the outstanding shares of Remington Class A Stock must vote in the
affirmative and holders of a majority of the Remington Class B shares voting in
person or by proxy at the Special Meeting must also vote in the affirmative.
SSHC, which holds 57% of the Remington Class A Stock, has informed the Company
that it intends to vote to approve the Merger Agreement. In addition, Mr.
Simplot and his affiliates, who control approximately 18% of the outstanding
shares of Remington Class B Stock, have informed the Company that they intend to
vote their Remington Class B Stock to approve the Merger Agreement.
7
<PAGE> 17
FORWARD-LOOKING INFORMATION
This Prospectus and Proxy Statement includes forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements other than statements of historical fact included
in this Prospectus and Proxy Statement are forward-looking statements. Although
Remington and SSHC believe that their respective expectations are based upon
reasonable assumptions, no assurance can be given that actual results may not
differ materially from those in the forward-looking statements. Important
factors that could cause actual results to vary materially from the expectations
of Remington and SSHC include, among other things, the prices received or the
demand for oil and gas, the uncertainty of reserve estimates, operating hazards,
competition and the effects of governmental and environmental regulation,
conditions in the capital and equity markets and the ability of Remington to
achieve the goals described in "Remington's Reasons for the Transaction," as
well as other factors discussed or incorporated by reference in this Prospectus
and Proxy Statement.
RISK FACTORS
Any investment in the oil and gas industry inherently involves risks as
production, prices and the estimated amounts of recoverable reserves may vary
dramatically from time to time. The consummation of the Transaction does not
lessen these risks.
THE TRANSACTION INVOLVES RELATED PARTIES
The Transaction is subject to certain conflicts of interest arising out of
the relationships between and among SSHC, affiliates and officers of SSHC,
SSHC's nominees to the Remington Board of Directors, Remington and certain
officers of Remington. Through SSHC's ownership of approximately 57% of the
Remington Class A Stock, SSHC has the power to control the selection or removal
of directors of the Company. David H. Hawk, Chairman of the Remington Board of
Directors, is a nominee of SSHC to the Board of Directors of Remington and is
the sole director and President of SSHC and its subsidiaries as well as an
employee of the J. R. Simplot Company whose founder, Mr. J.R. Simplot, controls
all of the voting stock and equity of SSHC. James A. Lyle is also an SSHC
nominee to the Remington Board of Directors; he participated for over 10 years
with Mr. Simplot and Mr. Hawk as a plaintiff in various lawsuits against the
Company, all of which have now been settled. Don D. Box, a Director and
Executive Vice President of Remington, who, together with his brothers, sold all
of his equity interest in SSHC in August of 1997 to affiliates of Mr. Simplot,
is an officer of SSHC. Remington's Vice President/Finance and principal
financial officer is also an officer of SSHC. The Merger Agreement did not
result from negotiations between unaffiliated third parties.
REMINGTON'S OBLIGATION TO OFFER TO PURCHASE 8 1/4% CONVERTIBLE SUBORDINATED
NOTES
As of August 14, 1998, $38.4 million principal amount of Remington 8 1/4%
Convertible Subordinated Notes due December 1, 2002 (the "Notes") were issued
and outstanding. These notes are governed by an indenture (the "Indenture")
dated December 1, 1992 between Remington and United States Trust Company of New
York as trustee. The Indenture contains change of control provisions which, if
the Merger is consummated, will require Remington to offer to purchase the Notes
at a price equal to 100% of the principal amount plus accrued but unpaid
interest. Under the Indenture, Remington must purchase any tendered notes 40
business days after the effective time of the Merger. Remington may not have
sufficient cash to purchase all of the Notes if tendered. In such event,
Remington may have to explore other means to purchase the tendered notes
including, but not limited to, obtaining bank financing and/or utilizing the
public and private debt and equity markets or the sale or other disposition of
assets to finance the repurchase of the Notes. The Merger Agreement provides
that in the event the Remington Board of Directors concludes that there is
insufficient liquidity to cover probable tenders of Notes, the Remington Board
of Directors may discontinue its obligation to recommend that Remington
stockholders approve the Transaction. No assurances can be made that financing
can be obtained on terms as favorable or more favorable than that obtained in
connection with the Notes or Remington's current bank credit facility. Indeed,
the financing terms could be materially less favorable than those currently in
existence. A failure on the part of Remington to purchase any Notes required
8
<PAGE> 18
to be purchased under the Indenture could constitute an event of default under
the Indenture which could in turn constitute an event of default under the bank
credit facility. Remington is unable to predict the amount of the Notes that
will be tendered.
FIXED MERGER CONSIDERATION
The number of shares of Remington Common Stock receivable by the
stockholder of SSHC in the Merger will not be subject to adjustment in the event
of an increase or a decrease in the market price of Remington Class A Stock or
Remington Class B Stock. The Merger Agreement does not provide that any party to
the Merger Agreement may unilaterally terminate the Merger Agreement based on an
increase or decrease in the market price of Remington Class A Stock or Remington
Class B Stock.
LIMITED AVAILABILITY UNDER BANK CREDIT AGREEMENT
On September 30, 1998, the Company extended and increased its bank
revolving credit facility. The extended credit facility provides for a maximum
of $50 million and has a term of 18 months. The initial borrowing base under the
facility is $15 million with an automatic increase to $20 million in the event
no more than $10 million of the Notes are tendered. See "-- Remington's
Obligation to Offer to Purchase 8 1/4% Convertible Subordinated Notes." The
borrowing base is also subject to amortization of $1.25 million per month ($1.67
million in the case of a $20 million borrowing base) starting in May 1999, if
the Company fails to increase reserves as specified in the credit agreement.
Likewise, the borrowing base is subject to increase as reserves increase in
accordance with the loan agreement. Up to $15 million of the funds available
through the credit facility may be used for general corporate purposes. Amounts
advanced in excess of the $15 million may be used only to acquire producing oil
and gas properties. The Company's oil and gas properties serve as collateral for
the credit facility. In addition to the standard events of default, the credit
agreement provides for an event of default if the Company pays more than an
aggregate of $50 million to purchase Notes or to settle or satisfy the judgment
in the Phillips Petroleum litigation. See "Risk Factors -- Phillips Petroleum
Litigation." As of October 13, 1998, Remington had borrowed $9.7 million, and
issued letters of credit aggregating $250,000 under the facility.
PHILLIPS PETROLEUM LITIGATION
The Company and Phillips Petroleum Company ("Phillips") have been engaged
in litigation concerning the Net Profits interest in South Pass Block 89. In
this litigation, Phillips contends that pursuant to its 33% Net Profits interest
in South Pass Block 89, it was entitled to receive an overriding royalty for
months in which "net profits" were not achieved; that an excessive oil
transportation fee was being charged to the Net Profits account; and that the
entire $69.6 million cash payment that had been received by the Company from the
1990 settlement of certain litigation should have been credited to the Net
Profits account instead of the $5.8 million that was credited. On the latter
claim, Phillips seeks to receive in excess of $21.5 million, while on the first
two claims Phillips alleged aggregate damages of several million dollars. In
addition, Phillips, under the Louisiana Mineral Code, is seeking double damages
and cancellation of the farmout agreement that created the Net Profits interest.
Remington denies Phillips' claims and vigorously defended against them during a
non-jury trial held in April 1997. In addition to contesting the claims of
Phillips, the Company asserted a counterclaim at trial that Phillips had
breached a settlement agreement regarding previous litigation between the
parties and claimed damages in excess of $10.0 million. On August 18, 1998, the
trial court rendered a judgment in which Phillips was awarded $9,276,432 on its
claim relating to the 1990 settlement and $1,581,000 on its overriding royalty
claim. Phillips' claim of an excessive transportation fee was dismissed, as were
its claims for double damages and lease cancellation. The trial court also
dismissed Remington's counterclaim. The trial court has yet to issue a final
judgment. The Company expects that the final trial court judgment will be
approximately $17.3 million including interest. Remington may appeal the
portions of the trial court's judgment adverse to the Company. Once the trial
court enters its final judgment, the Company will have up to 30 days to file its
notice of appeal.
SFAS No. 5 entitled "Accounting for Contingencies" requires the Company to
accrue a loss contingency when it is probable that a liability has been incurred
and the amount of the loss can be reasonably estimated.
9
<PAGE> 19
Therefore, the Company will accrue the liabilities associated with the court
judgment in the third quarter of 1998, when the judgment was issued.
In addition, Remington has filed a declaratory judgment action against
Phillips in federal district court in Dallas, Texas, requesting the court to
declare that none of the $49.8 million from the recent termination of
Remington's gas contract with Texas Eastern Transmission Corporation are owed to
Phillips by virtue of a 33% Net Profits interest in South Pass Block 89.
MINORITY STOCKHOLDER LITIGATION OF SSHC
Upon the Merger, Remington will acquire all of the assets and assume all of
the liabilities of SSHC. One contingent liability is a pending lawsuit brought
by minority stockholders of subsidiaries of SSHC. See Note 10 to S-Sixteen
Holding Company and Subsidiaries Notes to Consolidated Financial Statements for
1997, 1996, and 1995; and Note 4 to S-Sixteen Holding Company and Subsidiaries
Notes to Consolidated Financial Statements for the six months ended June 30,
1998 and 1997. Accordingly, Remington will assume all of the costs to defend
this litigation and the costs of any settlement or adverse judgment.
REMINGTON'S INCREASED EXPOSURE TO VOLATILE OIL AND GAS PRICES
The future financial condition and results of operations of Remington will
depend upon the prices received for oil and natural gas production and the costs
of acquiring, finding, developing and producing reserves. Prices for oil and
natural gas are subject to fluctuations in response to relatively minor changes
in supply, market uncertainty and a variety of other factors that are beyond the
control of Remington. These factors include worldwide political and economic
instability (especially in the Middle East and other oil producing regions), the
foreign supply of oil and natural gas, the price of foreign imports, the level
of consumer product demand, government regulations and taxes, the price and
availability of alternative fuels, and the overall economic environment. A
substantial or extended decline in oil and natural gas prices would have and has
had a material adverse effect on Remington's financial position, results of
operations, quantities of oil and natural gas that may be economically produced,
and access to capital. In addition, the sale of Remington's oil and gas
production will depend upon a number of factors beyond its control, including
the availability and capacity of transportation and processing facilities.
Oil and natural gas prices have historically been volatile and are likely
to continue to be volatile in the future. Such volatility makes it difficult to
estimate the value of producing properties for acquisition and to budget and
project the financial return of exploration and development projects involving
producing properties.
On July 31, 1998, the Company and Texas Eastern Transmission Corporation
("TETCO") agreed to terminate the South Pass Block 89 long-term gas sales
contract effective June 30, 1998 (the "TETCO Contract Termination"). TETCO made
a Termination Payment (as defined in the agreement) to the Company in the amount
of $49.8 million. As part of the termination agreement, TETCO was released from
the gas purchase contract, including gas substitution and indemnification rights
thereunder, as well as related indemnification and other obligations under a
1990 settlement agreement. Remington will sell all gas produced from and after
July 1, 1998 from South Pass Block 89 on the spot market. Thus, in the past,
Remington has been somewhat sheltered from the volatility of the natural gas
market due to its long term gas contract on South Pass Block 89, under which
Remington received prices for that gas which were well above the market price.
Natural gas sales from South Pass Block 89 provided approximately 40% of
Remington's total revenues in 1997 and approximately 32% of total revenues for
the first six months of 1998. Much of the gas produced from South Pass 89 is
attributable to one well. This well has been producing at decreasing rates and
Remington projects that the decrease in production will continue. Large
quantities of natural gas are believed to remain in the reservoir containing
South Pass Block 89, and Remington is currently evaluating several possible
courses of action concerning the maximization of profit from South Pass Block
89.
Remington's decreased reliance on natural gas from South Pass Block 89
leaves Remington more exposed to the volatility of prices for oil and natural
gas. Remington's average oil price for 1997 was $17.79 per barrel compared to
$11.97 for the first six months of 1998. This decline continues to have a
negative impact on Remington's total revenues, net income, and cash flow from
operations.
10
<PAGE> 20
REMINGTON'S SUCCESS DEPENDS UPON INCREASING RESERVES
Remington's future success will depend on its ability to find, develop or
acquire additional economically recoverable oil and gas reserves. The proved
reserves of Remington will generally decline as reserves are depleted, except to
the extent that Remington conducts successful exploration or development
activities, acquires properties containing proved reserves, or both. There can
be no assurance that Remington's planned development and exploration projects
and acquisition activities will result in significant additional reserves or
that Remington will have success drilling productive wells at economic finding
and development costs. Furthermore, while Remington's revenues may increase if
prevailing oil and natural gas prices increase significantly, Remington can make
no assurances that finding costs for additional reserves will not also increase.
REMINGTON'S ACQUISITION OF PIPELINE SUBSIDIARY INCREASES ITS OPERATING HAZARD
AND REGULATORY RISKS
As a result of the Merger, Remington will acquire a 94% interest in CKBP,
which owns an interest in the offshore pipeline through which Remington ships
its oil to shore from the South Pass Complex in the Gulf of Mexico (the
"Pipeline"). The operation of the Pipeline subjects CKBP to the risks discussed
below in "-- Operating Hazards; Limited Insurance Coverage" and "-- Governmental
Regulation." Although a subsidiary of Remington will own the Pipeline interest,
Remington can give no assurances that attempts will not be made to attribute any
liabilities of CKBP to Remington.
OPERATING HAZARDS; LIMITED INSURANCE COVERAGE
Remington's and CKBP's operations are subject to hazards and risks inherent
in the drilling for and production and transportation of oil and gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which can
result in the loss of hydrocarbons, environmental pollution, personal injury
claims and other damage to the properties of Remington, CKBP and others. These
risks could result in substantial losses to Remington and CKBP due to injury and
loss of life, severe environmental damage and suspension of operations.
Moreover, Remington and CKBP's operations are subject to a variety of operating
risks peculiar to the marine environment, such as hurricanes or other adverse
weather conditions, interruption or termination of operations by governmental
authorities based on environmental or other considerations, and more extensive
governmental regulations, including regulations that may, in certain
circumstances, impose strict liability for pollution damage. In addition,
interruption of CKBP's pipeline operations could adversely affect Remington
since Remington transports its oil from the South Pass Complex to onshore
Louisiana through the Pipeline. Such interruption could cause loss of revenue to
Remington if Remington were unable to obtain an alternative source of
transportation.
As protection against operating hazards, Remington and CKBP have maintained
and will continue to maintain insurance coverage against some, but not all,
potential losses. This insurance coverage includes, among other things,
comprehensive general liability, business interruption and limited coverage for
sudden environmental damage. Neither Remington nor CKBP believes that insurance
to cover environmental damages that occur over time or insurance to fully cover
sudden environmental damages is available at a reasonable cost. Accordingly,
each of Remington and CKBP may be subject to liability or may lose substantial
portions of its properties in the event of environmental damages. The occurrence
of an event that is not fully covered by insurance could have a material adverse
impact on Remington's financial condition and results of operations.
GOVERNMENTAL REGULATION
Operations. Remington's operations will be affected from time to time in
varying degrees by political developments and federal and state laws and
regulations. In particular, oil and natural gas production, operations and
economics are or have been affected by price controls, taxes and other laws
relating to the oil and natural gas industry, and by changes in such laws and
changes in administrative regulations. Remington cannot predict how existing
laws and regulations may be interpreted by enforcement agencies or court
rulings,
11
<PAGE> 21
whether additional laws will be adopted, or the effect such changes may have on
its business or financial condition.
Environmental. Remington's operations are subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. Remington's costs associated
with environmental compliance, while not yet a material amount, have increased
over time and Remington expects such costs to rise in the future. Moreover, the
cost of compliance with federal and state legislation, such as the Oil Pollution
Act of 1990, together with their amendments, could have a significant impact on
the financial ability of Remington to carry out its oil and natural gas
operations. Remington's future compliance with the legislation and accompanying
regulations could impose financial responsibility requirements, liability and
operational requirements which could have an adverse impact on Remington's
results of operations.
The laws which require or address environmental remediation apply
retroactively to previous waste disposal practices. In many cases, these laws
apply regardless of fault, legality of the original activities or ownership or
control of sites. Liability under these laws can result in severe fines and
cleanup costs being levied against the liable party. Although Remington has
never been a liable party under these laws or been named a potentially
responsible party for waste disposal at any site, there can be no assurance that
Remington will not become liable in the future.
NO ASSURANCE OF ACTIVE MARKET FOR REMINGTON COMMON STOCK FOLLOWING TRANSACTION
Currently, the shares of Remington Class A Stock and Remington Class B
Stock are traded on the Nasdaq National Market and the Pacific Exchange.
Application has been made to list the shares of Remington Common Stock issued in
exchange for the Remington Class A and Class B Stock on the Nasdaq National
Market and the Pacific Exchange subsequent to the effective time of the
Transaction. Since January 2, 1998, the average daily trading volume in the
Remington Class A shares has been 2,962, while the average daily trading volume
for the Remington Class B shares has been 30,415. Although one of the reasons
underlying Remington's desire for a single class of common stock is increasing
the liquidity and trading efficiency of Remington's common stock, no assurances
can be given that an active market in Remington Common Stock will exist nor that
the liquidity and trading efficiency of Remington's Common Stock will increase.
YEAR 2000 ISSUE
The Year 2000 issue relates to computer programs being written with two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
instead of 2000 or may not recognize the date at all. The inability of programs
to recognize or properly treat the year 2000 may cause a breakdown of both
information technology and non-information technology systems and cause these
systems to process critical financial and operational information incorrectly.
Remington has assessed and continues to assess the year 2000 issue and its
impact on the Company, its partners, suppliers, vendors and customers. The year
2000 issue has a potential impact on the Company in several areas, including,
among others, the ability of the Company to be paid for its oil and natural gas
production, the operations of the producing properties in which the Company
holds interests, the ability of the Company to pay its vendors and suppliers,
and the management of the Company's financial assets including cash and
securities held with financial institutions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity add
Capital Resources."
DEPENDENCE ON KEY PERSONNEL
The loss of the services of James A. Watt as President and Chief Executive
Officer of the Company would have a material adverse effect on the Company.
Remington has entered into an employment agreement with Mr. Watt but does not
maintain key-person insurance for him.
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GENERAL INFORMATION ABOUT THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting of stockholders of Remington (the "Special Meeting")
will be held immediately upon the close of the Annual Meeting on
, November , 1998, at , Dallas, Texas.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Remington Class A Stock and Remington Class B
Stock at the close of business on October , 1998 (the "Special Meeting Record
Date"), are entitled to notice of, and to vote at, the Special Meeting.
At the close of business on the Special Meeting Record Date, there were
holders of record of Remington Class A Stock with shares issued
and outstanding and holders of record of Remington Class B Stock with
shares issued and outstanding. Each share of Remington Class A Stock and
Remington Class B Stock entitles the holder thereof to one vote on each matter
submitted for stockholder approval at the Special Meeting.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon
(i) approval of the Merger Agreement and
(ii) such other matters as may properly be brought before the Special
Meeting.
VOTE REQUIRED
The presence of the holders of a majority of the outstanding shares of
Remington Class A Stock entitled to vote at the Special Meeting, whether present
in person or by proxy, and the presence of the holders of a majority of the
outstanding shares of Remington Class B Stock entitled to vote at the Special
Meeting, whether present in person or by proxy, will constitute a quorum for the
transaction of business. Holders of Remington Class A Stock will vote as a
separate class from the holders of Remington Class B Stock. The approval of each
class is required for adoption of the Merger Agreement. Approval and adoption of
the Merger Agreement requires the affirmative vote of the holders of a majority
of the outstanding shares of Remington Class A Stock and the affirmative vote of
the holders of a majority of the shares of Remington Class B Stock that are
voted at the Special Meeting, in person or by proxy. At the close of business on
the Special Meeting Record Date, the directors and officers of Remington and
their affiliates held shares of Remington Class A Stock and
shares of Remington Class B Stock, representing approximately % and %
of the outstanding shares of each class, respectively. Such persons have
indicated to Remington that they intend to vote their shares in favor of the
Transaction. In addition, as of the Special Meeting Record Date, SSHC and its
affiliates (including David H. Hawk, individually) held 1,840,725 shares of
Remington Class A Stock and 3,141,343 shares of Remington Class B Stock,
representing approximately 57% and 18% of the outstanding shares of each class,
respectively. SSHC and its affiliates have indicated to Remington that they
intend to vote their shares in favor of the Transaction.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Special Meeting with the class of shares that they represent and in accordance
with the instructions contained thereon. If a holder of either Remington Class A
Stock or Remington Class B Stock executes and returns a proxy and does not
specify otherwise, the shares represented by such proxy will be voted FOR
approval and adoption of the Merger Agreement. A holder of Remington Class A
Stock checking the abstention box on the Class A proxy card or failing to return
the proxy card will produce the same effect as voting against the Merger
Agreement. In the case of holders of the Remington Class B Stock, checking the
abstention box on the Class B proxy card or
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failing to return the Class B proxy card will result in such shares not being
counted for purposes of determining the number of shares of Remington Class B
Stock voting at the Special Meeting. A holder of either Remington Class A Stock
or Remington Class B Stock who has executed and returned a proxy may revoke it
at any time before it is voted at the Special Meeting by executing and returning
a proxy bearing a later date, by filing written notice of such revocation with
the Secretary of Remington stating that the proxy is revoked or by attending the
Special Meeting and voting in person.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers and employees,
or their designees, of Remington may solicit proxies from its stockholders by
personal interview, telephone, facsimile or otherwise. Remington will bear the
costs of the solicitation of proxies from its stockholders. Arrangements will
also be made with brokerage firms and other custodians, nominees and fiduciaries
who hold the voting securities of record for the forwarding of solicitation
materials to the beneficial owners thereof. Remington will reimburse such
brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket
expenses incurred by them in connection therewith.
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THE TRANSACTION
GENERAL DESCRIPTION OF THE TRANSACTION
The Merger Agreement provides that, at the effective time, SSHC will merge
with and into Remington, with Remington becoming the surviving corporation, and
the capital stock of Remington will be reclassified into a single class of
voting common stock through the conversion of each outstanding share of
Remington Class A Stock into 1.15 shares of Remington Common Stock and the
conversion of each outstanding share of Remington Class B Stock into 1 share of
Remington Common Stock. In the Transaction, SSHC's sole stockholder will receive
2,785,028 shares of Remington Common Stock in conversion of its 38,505 shares of
SSHC common stock ("SSHC Stock") and will receive the Warrant to purchase
300,000 shares of Remington Common Stock. Stockholders of Remington, other than
SSHC, will receive an aggregate of approximately 18,646,762 shares of Remington
Common Stock in conversion of their shares of Remington Class A Stock and
Remington Class B Stock. Following the Merger, Mr. Simplot and entities
controlled by him will hold 5,631,028 shares, or approximately 27% of the
outstanding shares, of Remington Common Stock, and the Warrant.
As a result of the Merger, Remington will acquire all the assets and assume
all the liabilities of SSHC. The assets of SSHC consist principally of (i)
1,840,525 shares of Remington Class A Stock and 88,668 shares of Remington Class
B Stock, all of which will be cancelled in the Merger, and (ii) 94% ownership
interests in two subsidiaries which own the Pipeline and 205,975 shares of
Remington Class B Stock. The principal liabilities of SSHC consist of (a) a
promissory note to Remington in the amount of $4.9 million, ("SSHC Note") which
will be effectively cancelled, and (b) a promissory note to SSHC's sole
stockholder in the amount of $1.9 million plus accrued interest, which pursuant
to the Merger Agreement will be converted into capital of SSHC without the
issuance of any additional shares of SSHC Stock ("SSHC Stockholder Note").
BACKGROUND OF THE TRANSACTION
As early as 1997, the Board of Directors of Remington recognized the
benefits that could result from converting Remington's two classes of common
stock to a single class of voting stock. The Board of Directors concluded,
however, that so long as the voting control of SSHC (then named Box Brothers
Holding Company) was held by several members of the Box family, converting to a
single class of voting common stock would be very difficult, primarily because
the family members did not appear to agree among themselves on management and
direction of the Company. In August 1997, BBHC Acquisition Co., L.L.C., an
entity controlled by Mr. Simplot, purchased all of the voting stock of SSHC from
the Box family members, thus creating the potential for effecting such a
recapitalization. The Board of Directors of Remington recognized the benefit to
the Company of this change in control and contemporaneously with such purchase
agreed with Mr. Simplot to settle all of Mr. Simplot's litigation with the
Company. The litigation and the terms of the settlement, subsequently
memorialized in a settlement agreement, are described in Note 5 and Note 11 to
the Remington Financial Statements. The Board of Directors agreed to the
settlement with Mr. Simplot in part in reliance on Mr. Simplot's statements in a
Schedule 13D filed to report the purchase of the voting stock of SSHC. Mr.
Simplot provided drafts of the Schedule 13D to Remington's Board of Directors
prior to the purchase, and stated in the Schedule 13D that he would be willing
to assist in recapitalizing the Company's stock to a single class of stock.
Remington's Board of Directors recognized that as the largest single holder of
Remington Class B Stock, with over 2,800,000 shares, the anticipated benefits of
conversion to a single class of stock -- increased liquidity, voting power and
increased shareholder value -- would be particularly beneficial to Mr. Simplot.
Therefore, the Board of Directors believed that he was likely to act in
accordance with his statements even though the conversion would require him to
relinquish the majority voting control inherent in the Company's current
structure.
Following the August 1997 purchase of SSHC by Mr. Simplot, management
retained Salomon Smith Barney Inc. ("Smith Barney") to help provide a mechanism
to achieve management's goal of enhancing stockholder value through
simplification of Remington's capital structure. On October 8, 1997, Smith
Barney made an initial presentation to the Board of Directors. Although all
directors were present for the presentation, David Hawk and James Arthur Lyle
excused themselves from the meeting prior to any discussion. Mr. Hawk
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and Mr. Lyle stated that Mr. Hawk's position with SSHC as the sole director and
an officer as well as his employment with the JR Simplot Company and the long
standing relationships of Messrs. Hawk and Lyle with Mr. Simplot as plaintiffs
in the Griffin litigation created the potential for conflicts of interest and,
for this reason, they would not participate in Board discussion of any
transaction between Remington and Mr. Simplot and his affiliates. See
"-- Potential Conflicts of Interest." Mr. Hawk indicated that Mr. Simplot did
not have a specific proposal to make to the Company but would react to proposals
from the Company and would negotiate in good faith. He also stated that Mr.
Simplot supported conversion to a single class of stock and that Mr. Simplot did
not have a specific price in mind for any transaction. The presentation by Smith
Barney discussed the current ownership structure, an ownership structure
resulting from a merger with SSHC and the resulting potential benefits to the
Company. A structure for such a merger was discussed in general terms, including
a range of any premium to be received by the holders of Remington Class A Stock
and a range of any amount to be received by the stockholder of SSHC in such a
merger. It was noted by Smith Barney that since April 1992, when Remington began
trading with two classes of stock, the Remington Class A Stock traded at an
average premium of approximately 18% to the Remington Class B Stock. It was also
discussed that the amount of any consideration received by the stockholder of
SSHC should be determined in part by the potential values inherent in SSHC, CKBP
and CKBA.
From October 1997 to February 1998 and prior to entering into negotiations
with SSHC, the Company and Smith Barney considered information relevant to any
proposed transaction with Mr. Simplot. Because the quantity of reserves
associated with the Pipeline is the most significant component of any valuation
of CKBP and SSHC, management and Smith Barney delayed establishing a proposed
conversion ratio pending availability of the year-end 1997 reserve report
prepared by Netherland, Sewell & Associates, Inc., an independent engineering
and consulting firm. Based on reserves as of December 31, 1997, Smith Barney and
the Company estimated that the value of CKBP ranged from $5.9 million to $8.5
million. Also at December 31, 1997, SSHC and its subsidiaries owed $6.7 million
in short-term debt, which is expected to decline to $5.2 million by September
1998. In addition, SSHC owed $1.9 million on the SSHC Stockholder Note.
Management and Smith Barney considered cash flows generated by CKBP based on
reserves and expenses and concluded that the Transaction should be structured so
that the cash flow per share and earnings per share that would result from a
merger of SSHC and Remington would be accretive on a pro-forma basis.
As a result of the analysis by Remington and Smith Barney, on March 19,
1998, Remington, through James A. Watt, Remington's President and Chief
Executive Officer, made a proposal to Mr. Simplot pursuant to which SSHC would
merge into Remington, and the capital stock of Remington would be recapitalized
into a single class of stock, with each existing share of Remington Class A
Stock converted into 1.15 shares of Remington Common Stock and each share of
Remington Class B Stock converted into 1 share of Remington Common Stock. In
total, the stockholder of SSHC would receive approximately 2.66 million shares
of the Remington Common Stock. This proposal also provided that, pending the
merger, SSHC would continue to make payments to Remington on the SSHC Note at a
rate in excess of the minimum payments due by applying SSHC's available cash
flow to the SSHC Note and that, upon consummation of the merger, the SSHC Note
would be canceled. In addition, Remington proposed that the intercompany
promissory note of SSHC to its sole Stockholder would be converted to equity
without the issuance of any additional shares of capital stock.
On April 2, 1998, Mr. Simplot agreed to the overall structure of
Remington's proposal but made a counter-proposal with respect to the total share
consideration for the proposed merger. Mr. Simplot proposed that SSHC's
Stockholder receive approximately 2.785 million new shares of Remington Common
Stock and also receive a Warrant to purchase up to 300,000 new shares, divided
into three 100,000 share warrants for terms of one, three and five years,
respectively at exercise prices from $7.00 to $11.00 per share.
As a result of the negotiations, Mr. Simplot and management of Remington
preliminarily agreed to merge SSHC and Remington in a tax-free reorganization
for federal income tax purposes in which the Stockholder of SSHC would receive
72.329 shares of new Remington Common Stock for each of the 38,505 outstanding
shares of SSHC Stock or a total of 2,785,028 shares of Remington Common Stock.
Those shares would reflect the 2,135,168 shares of Remington Class A Stock and
Remington Class B Stock held by SSHC and subsidiaries prior to the Merger, plus
276,079 shares of Remington Common Stock that would
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result from the conversion of the Remington Class A Stock at a ratio of 1.15
shares of Remington Common Stock for each share of Remington Class A Stock, plus
an additional 373,781 shares of Remington Common Stock. The SSHC Note to
Remington would be cancelled and the SSHC Stockholder Note would be converted to
equity. Additionally, SSHC's stockholder would receive a Warrant to purchase up
to 300,000 additional shares, divided into three 100,000 shares warrants for
terms of one, three and five years at exercise prices of $7.00, $9.00, and
$11.00 per share. The other holders of Remington Class A Stock would receive
Remington Common Stock at the 1.15 conversion ratio.
Management presented a progress report to Remington's Board of Directors at
its meeting on April 8, 1998 indicating that the basic framework for the
negotiation of a transaction between Remington and SSHC had been established as
a merger of S-Sixteen into Remington, coupled with a recapitalization of the
Company which involved the conversion from two classes of common stock into one
class of voting common stock. The basic terms of the transaction were discussed
but it was stressed that no definitive agreement had been reached between the
parties. Mr. Hawk and Mr. Lyle again excused themselves during a presentation by
Smith Barney and management concerning the proposed transaction. In view of the
progress of the negotiations, the Board of Directors appointed a Special
Transaction Committee to consider any transaction which could result and to
determine whether the transaction would be fair to the Company and its
shareholders other than SSHC and its affiliates, and directed that definitive
agreements be prepared to document the transaction.
ALTERNATIVES TO THE TRANSACTION
The Board of Directors of Remington considered various alternatives to the
Transaction. However, after careful consideration, the Board concluded that
Remington's objectives were best met by the Transaction.
Remington's objectives in any recapitalization transaction include the
simplification of the capital structure of Remington, providing the right to
vote to all common stockholders, increasing the liquidity and trading efficiency
of the common stock of Remington, improving Remington's access to the capital
markets, providing an efficient instrument for other business combinations that
are in the best interests of Remington and its shareholders, providing for the
issuance of preferred stock in instances that are in the best interests of the
Company and its stockholders, aligning stockholders interests, and acquiring an
interest in the Pipeline. See "-- Remington's Reasons for the Transaction."
Management of Remington initially considered alternatives to the proposed
transaction that focused only on the Pipeline. For example, the parties
discussed various purchase and revenue sharing options with respect to the
Pipeline. The Board also considered merging SSHC into Remington while
maintaining the two classes of common stock. These possibilities were rejected
as too narrowly focused because they did not address the conversion to a single
class of stock.
The Board of Directors considered recapitalizing Remington's two classes of
common stock into a single class of voting common stock without a transaction
that combined the other assets of SSHC. Any such recapitalization, however,
would require the approval of SSHC as the holder of a majority of Remington's
voting stock, and the Board of Directors believed that such approval could not
be obtained unless SSHC or its affiliates retained a significant percentage of
voting stock following the recapitalization. However, because the Company has
outstanding approximately 3 million shares of Remington Class A Stock and 17
million shares of Remington Class B Stock, awarding a number of new voting
shares sufficient to give SSHC a controlling interest after the transaction
would have required either issuing a very large number of new voting shares in
exchange for the Remington Class A Stock or reducing the exchange value of each
share of Remington Class B Stock to a small fraction of one. Either eventuality
would have assigned a premium for the Remington Class A Stock greatly in excess
of the historical trading premium of the Remington Class A Stock over the
Remington Class B Stock.
Consequently, the Board of Directors determined that a transaction needed
to give Mr. Simplot a reasonable stock ownership percentage without unduly
diluting the value of the Remington Class B Stock. The Board of Directors
believed that Mr. Simplot's existing holdings of Remington Class B Stock and his
indirect holding of Remington Class A Stock through SSHC, if converted at
reasonable exchange ratios, when
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combined with the additional shares of new common stock that could be issued in
a merger in reasonable consideration for the Pipeline and the other assets of
SSHC, would result in Mr. Simplot receiving sufficient shares to maintain an
acceptable stock ownership percentage and would therefore likely cause him to
vote SSHC's Remington Class A Stock and his Remington Class B Stock in favor of
the transaction.
POTENTIAL CONFLICTS OF INTEREST
The Transaction is subject to certain conflicts of interest arising out of
the relationships between and among SSHC, affiliates and officers of SSHC,
SSHC's nominees to the Remington Board of Directors, Remington and certain
officers of Remington. Through SSHC's ownership of approximately 57% of the
Remington Class A Stock, SSHC has the power to control the selection or removal
of directors of Remington. David H. Hawk, Chairman of the Remington Board of
Directors, is a nominee of SSHC to the Remington Board and is the sole director
and President of SSHC and its subsidiaries as well as an employee of the J. R.
Simplot Company whose founder, Mr. J.R. Simplot, controls all of the voting
stock and equity of SSHC. James A. Lyle is also an SSHC nominee to the Remington
Board; he participated for over 10 years with Mr. Simplot and Mr. Hawk as a
plaintiff in various lawsuits against the Company, all of which have now been
settled. Don D. Box, a Director and Executive Vice President of Remington, who,
together with his brothers sold all of his equity interest in SSHC in August of
1997 to affiliates of Mr. Simplot, is an officer of SSHC. Remington's Vice
President/Finance and principal financial officer is also an officer of SSHC.
Because of these potential conflicts of interest, Remington took
considerable precautions in the negotiation of the Transaction. Members of
Remington management with no connection to SSHC, principally James A. Watt,
negotiated the Transaction for Remington, and negotiations on behalf of SSHC
were conducted by its outside counsel rather than by SSHC nominees to the
Remington Board of Directors. Remington engaged an outside financial advisor
which has no connection to SSHC and its affiliates. Because the Merger Agreement
was negotiated between management of Remington and the holder of the majority of
Remington's voting stock, Remington's Board of Directors established the STC to
consider whether the Transaction embodied in the Merger Agreement is fair,
financially and otherwise, to Remington and its stockholders other than Mr.
Simplot, SSHC and their affiliates. The STC, composed of non-management
directors unaffiliated with Mr. Simplot, namely, Messrs. Goble, Greenwood,
Preng, Rollins and Shapiro, was empowered to approve or disapprove the Merger
Agreement. In addition, the STC was empowered to discuss the terms of the
Transaction with SSHC and Mr. Simplot without the participation of Remington's
management as well as to suggest changes in the terms of the Transaction and
ultimately to "veto" the proposed Transaction if warranted but not to seek
alternative transactions. The STC retained the services of the investment
banking firm of Howard, Weil, Labouisse, Friedrichs, Inc. of Houston, Texas
("Howard, Weil"), to act as financial advisor to the STC and, if warranted, to
issue an opinion as to the fairness, from a financial point of view, of any
transaction the STC might approve. In addition, the STC retained an outside law
firm, The Bayard Firm, of Wilmington, Delaware, to act as legal counsel to the
STC. Despite these measures, however, the Transaction is not the result of
negotiations between unaffiliated third parties.
PROCEEDINGS OF THE STC
The STC's first meeting after its April 8, 1998 appointment was held by
conference telephone on April 27, 1998. The principal purpose of the meeting was
to select a financial advisor to the STC. After reviewing the credentials of
three candidates, two of which (including the successful candidate) had
submitted written proposals, the STC selected Howard, Weil because of its
acknowledged experience in the oil and gas industry.
During the second and third weeks of May, Mr. David Preng, the chairman of
the STC, interviewed representatives of three Delaware law firms that had been
identified as possible candidates for the position of independent counsel to the
STC. After conducting the interviews and conferring with his STC colleagues, Mr.
Preng notified The Bayard Firm of Wilmington, Delaware, of its preliminary
selection as counsel to the STC ("STC Counsel") and invited representatives of
that firm to attend the next scheduled meeting of the STC at the Company's
headquarters in Dallas, Texas, on May 19.
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The next STC meeting went forward as scheduled on May 19. The first portion
of the meeting was devoted to a preliminary report by two representatives of
Howard, Weil concerning their methodologies, comparable company and comparable
transaction analyses, and stock price comparisons regarding the proposed
Transaction. There was also a preliminary discussion of matters relevant to the
Merger, including the value of the Pipeline.
After the Howard, Weil presentation, management made a presentation to the
STC regarding the background of, and business purposes for, the proposed
Transaction. In particular this presentation covered the sequence of
negotiations with SSHC, the development and basis for the consideration SSHC
would receive in the Merger, the exchange ratios for converting the Remington
Class A Stock and Remington Class B Stock, and other matters. Management advised
the STC that these terms were incorporated into the current draft of the Merger
Agreement, which had been provided to the STC prior to the meeting, and that the
terms were acceptable to Management and to SSHC. See "Terms of the Transaction."
After entertaining questions from the STC, the management representatives
excused themselves.
The STC next considered the selection of counsel. After interviewing
representatives of The Bayard Firm regarding their pertinent experience and the
absence of material conflicts, the STC formally retained The Bayard Firm as STC
Counsel by resolution.
At the May 19 meeting, STC Counsel interviewed Messrs. Preng, Goble,
Shapiro and Greenwood as to their personal and professional backgrounds,
qualifications, and previous connections with Remington and its predecessors,
Box Energy Corporation and OKC Limited Partnership, and with SSHC and its
affiliates. (Mr. Rollins, who was not present at the May 19 meeting, was
interviewed by STC Counsel at a later date by telephone.) The STC asked STC
Counsel to prepare amendments to the pertinent provisions of the draft April 8
Board minutes, the original engagement letter with Howard, Weil (the "Original
Engagement Letter"), and the Merger Agreement in order to reflect accurately the
STC's charge.
Toward the end of the May 19 meeting, the STC decided that three of its
members (Dr. Shapiro, Mr. Preng and Mr. Rollins) would arrange a further meeting
with Howard, Weil in Houston and that STC Counsel would be present.
On May 28, 1998, the three aforementioned members of the STC met in Houston
with STC Counsel and with representatives of Howard, Weil. The Howard, Weil
representatives reported to the STC on the progress of the firm's due diligence.
They guided the STC members through the firm's accretion/dilution, comparable
companies and comparable transactions analyses, and summarized Howard, Weil's
review and consideration of Remington's stock trading history and the
appropriateness of the proposed premium for the Remington Class A Stock in the
Transaction.
The STC members present questioned the Howard, Weil representatives about,
among other matters, the manner of selection of the comparable companies chosen
by Howard, Weil; whether and to what extent the Transaction is accretive for
Remington on a going-forward basis; matters concerning the value of the Pipeline
and Remington's petroleum reserves; the derivation of the exchange ratios; and
the number of shares to be issued to SSHC in the Merger. The STC members asked
Howard, Weil for certain additional information including, among other things, a
chart on trading volume comparisons for the Remington Class A Stock and
Remington Class B Stock; more information on the derivation of average oil and
gas prices reflected in Howard, Weil's calculations; information regarding stock
price movements for the selected comparable transactions on their respective
announcement dates; and certain other matters germane to a valuation of the
Company.
At the conclusion of the May 28 meeting between Howard, Weil and the three
STC representatives, STC Counsel interviewed Howard, Weil with respect to its
qualifications, independence and disinterestedness. In view of its May 19
meeting with the STC, Howard, Weil was requested to amend its Original
Engagement Letter to reflect the actual scope of its assignment, including (a)
the inclusion of the Merger as well as the conversion of stock in the definition
of the Transaction, and (b) the concept that the Howard, Weil fairness opinion
("Fairness Opinion") would be addressed to Remington and its Class A and Class B
stockholders other than SSHC and its affiliates. The Howard, Weil
representatives indicated preliminarily their willingness to make these changes,
subject to advice of their counsel.
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A telephonic meeting of the entire STC was held on Wednesday, June 3. A
representative of Howard, Weil was present on the conference call. At that
meeting, all STC members received additional information that had been requested
by the STC members present in Houston on May 28. The Howard, Weil representative
reviewed this new information with the STC, including a revised "comparable
company" analysis and the new discounted cash flow analysis for the Pipeline.
The STC was told that, from Howard, Weil's perspective, the proposed Transaction
made good business sense for the Company and its stockholders other than SSHC
and its affiliates.
The STC met again by conference telephone on Friday, June 5. During that
meeting, the STC reviewed and approved certain proposed changes to the draft
Merger Agreement that were designed primarily to reflect accurately the role and
charge of the STC and to identify the actual recipients of the Fairness Opinion.
The STC also reviewed an initial draft of the Fairness Opinion and determined to
ask Howard, Weil to add to its opinion that the proposed Transaction was fair to
Remington as well as to the designated Class A and Class B stockholders of
Remington. Parallel changes to the Original Engagement Letter were likewise
requested. At that meeting, the STC raised the possible effect of the proposed
Transaction upon Remington's Notes. Specifically, there was a concern that the
proposed Transaction might constitute a "change of control" that could obligate
the Company to offer to repurchase all of the outstanding Notes (approximately
$38 million principal amount, plus accrued interest). See "Risk
Factors -- 8 1/4% Convertible Subordinated Notes."
On June 10, 1998, the STC held another telephonic meeting. The STC approved
STC Counsel's recommended changes to the draft Fairness Opinion and decided to
communicate same to Howard, Weil and its counsel. The STC also had an extensive
discussion of the possible effect of the Transaction upon the Notes. The STC
decided to seek an additional interview with Remington management regarding
various issues.
On June 11, 1998, the STC and STC Counsel conducted an interview with Mr.
Watt, who represented Remington management. Mr. Watt responded to several
questions regarding the Notes, including matters relating to the likelihood of
tenders and the possible funding thereof. Mr. Watt also reviewed the history of
the negotiations and the consideration SSHC would receive in the Merger and the
exchange ratios for each of the Class A and Class B shares. Mr. Watt also
explained his understanding of the basis for including the Warrant in the
proposed Transaction and the negotiations with respect to it.
On Monday, June 15, the STC and STC Counsel met again by conference
telephone. Two significant issues remained for the STC's consideration: the
scope of the Fairness Opinion and of the Original Engagement Letter, and the
potential effect of the Transaction upon the outstanding Notes. The STC
continued its efforts to negotiate desired changes with Howard, Weil on the two
aforesaid documents and to obtain protections for Remington in the Merger
Agreement with respect to the Notes.
On Tuesday, June 16, the STC met again by teleconference. The STC discussed
adding language to the Merger Agreement relating to the Notes. STC Counsel also
gave a status report on their negotiations with Howard, Weil's attorneys with
respect to the proposed scope of the Fairness Opinion.
On Wednesday, June 17, the STC convened again by telephone and reviewed a
proposed amendment to the Merger Agreement with respect to the Notes. The STC
approved that proposed amendment negotiated among SSHC, Remington management and
the STC. STC Counsel also reported that Howard, Weil was prepared to add
language to the Fairness Opinion regarding the Transaction's fairness to the
Company. The STC expressed the view that, subject to receipt of the revised
Fairness Opinion and advice of STC Counsel, all substantive issues respecting
the Transaction had now been resolved to the STC's satisfaction.
Over the next few days, copies of the amended Howard, Weil engagement
letter (the "Amended Engagement Letter") and the signed Fairness Opinion
(containing the revisions requested by the STC) were delivered to the STC
members and to STC Counsel. On Monday morning, June 22, the STC met again by
conference telephone. The STC voted to approve and adopt the Amended Engagement
Letter and to forward same to the Company for its signature. Likewise, the STC
accepted the Fairness Opinion on its own behalf and directed that a copy be sent
to the full Board for its consideration at a special meeting noticed for later
that day. Finally, the STC declared and resolved that, having completed its
substantive review and analysis of the Transaction (subject to the receipt of
the advice of STC Counsel and to making a few minor changes to
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the Fairness Opinion), the Transaction was fair to Remington and its Class A and
Class B stockholders other than SSHC and its affiliates, and that an appropriate
recommendation of the Transaction should be made to the full Board.
Later on June 22, the STC recommended the Transaction to the full Remington
Board, which (itself having received and reviewed a copy of the Fairness
Opinion) voted to approve the Transaction and to recommend that the stockholders
of Remington approve the Transaction as in the best interests of the Company and
all of its stockholders.
REMINGTON'S REASONS FOR THE TRANSACTION
In order for Remington to achieve its goal of increasing stockholder value
through oil and gas exploration, acquisition and production activities,
management and the Board of Directors believe that Remington must eliminate its
present dual class common stock structure and institute measures designed to
increase cash flow. It is Remington's intent that a simplified structure with a
single class of common stock, each share of which is entitled to one vote, will
increase the appeal of Remington's stock to investors and allow Remington to
broaden its acquisition focus. Remington anticipates that acquisition of the
Pipeline will increase Remington's cash flow. The Pipeline had 1997 revenues of
$3.2 million from transporting Remington's oil.
In approving the Merger Agreement, Remington's Board of Directors
considered, among other things, the following key strategic benefits expected by
Remington under the Merger Agreement:
1. Simplification of the Capital Structure of Remington. Management
and the Board believe the dual classes of common stock negatively impact
the trading and thus the liquidity of both Remington Class A Stock and
Remington Class B Stock. The Remington Class A Stock carries all the voting
power of Remington but represents approximately 16% of its economic
interest, while the Remington Class B Stock represents approximately 84% of
the economic interest but has no voting power. Management believes that
this structure confuses investors. Simplification of Remington's capital
structure may make the Company's stock attractive to potential investors
that would not invest in non-voting securities, particularly securities of
a small company with a single controlling stockholder. While Smith Barney
had noted at the October 8, 1997 Board meeting that the Remington Class A
stock had historically traded at an 18% premium to the Remington Class B
Stock, the Merger Agreement provides a 15% premium to holders of Remington
Class A Stock, which Howard, Weil found to be fair from a financial
standpoint to Remington and its stockholders other than SSHC and its
affiliates. See "-- Opinion of STC Financial Advisor." Management believes
that a single class of common stock, every share of which has one vote,
could potentially broaden the Company's investor base.
2. Providing all Common Equity Owners the Right to Vote. As the result
of the Merger, each share of Remington Common Stock will be entitled to one
vote. Moreover, as a result of the Transaction, ownership of the Company's
voting stock by Mr. Simplot and his affiliates will be reduced to
approximately 27% of the outstanding voting stock of Remington, compared
with his current control of 57% of the voting stock. As the result of the
Transaction no stockholder will have absolute voting control of the
Company.
3. Increasing the Liquidity and Trading Efficiency of the Common Stock
of Remington. Over the last 12 months, Remington Class A Stock has averaged
a daily trading volume of less than 3,000 shares. Despite the relative lack
of liquidity of the Remington Class A Stock, its trading price was
historically higher than that of the Remington Class B Stock. Due to the
low trading volume of the Remington Class A Stock, the management of
Remington believes that investors have been hesitant to invest in that
stock, markedly hurting its liquidity and negatively affecting the stock's
market price. Creating a single class of common stock is intended to
increase such liquidity and thereby enable the common stock to trade up to
its full potential.
4. Control of the Pipeline. As a result of the Merger, Remington will
acquire a 94% interest in the SSHC subsidiary CKBP, whose chief asset is
its interest in the Pipeline. Since 1985, Remington and its predecessors
have shipped their oil production from the South Pass Complex through the
Pipeline. CKBP's 1997 revenue from its interest in the Pipeline was $3.2
million. Control of CKBP will entitle
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Remington to receive the benefits of controlling a common carrier party,
including the potential for transporting third-party production. See "Note
10 of Notes to the Financial Statements of SSHC -- Commitments and
Contingencies -- Minority Stockholders' Litigation" for a description of
litigation brought by minority stockholders of CKBP and CKBA relating to
the plaintiffs' minority interest in CKBP and CKBA.
5. Better Positioning of Remington to Pursue Strategic Mergers and
Access to Capital Markets. Remington believes that the dual class structure
of its common stock hinders its access to both the debt and equity markets
and its ability to undertake transactions that would be in the best
interests of Remington and its stockholders. Management and the Board of
Directors believe that by establishing a single class of common stock with
equal voting rights and increasing the liquidity of Remington's common
shares, Remington will be in a better position to offer its shares in
private and public equity and convertible debt offerings, and to use its
shares as consideration in strategic transactions.
6. Aligning Shareholder Interests. The Board of Directors and
management believe that the Transaction will create the ability for all
stockholders to benefit equally from any future premium offered for control
of the Company. In addition, Remington believes that the removal of
stockholder interests involving affiliated transactions with the Company
will more closely align the interests of all the stockholders.
Management and the Board believe that the Transaction will increase
stockholder value through the simplification of the common stock structure and
establishing uniform voting rights for all of the common stock, which should
increase the liquidity and trading efficiency of Remington Common Stock. This
should, in turn, enhance Remington's access to the capital and strategic
transactions markets. Such increased access and its acquisition of a strategic
pipeline interest should assist Remington in increasing stockholder value
through the Company's oil and gas exploration, acquisition, transportation and
production activities.
In reaching its decision to approve the Merger Agreement, Remington's Board
of Directors also considered the following factors:
1. The historical trading performance of Remington Class A Stock and
Remington Class B Stock;
2. Information relating to Remington's average operational performance
over a five-year period, including finding and development costs from all
sources, reserve replacement, total costs incurred in oil and gas
activities, total costs incurred in oil and gas activities for reserve
acquisition, percentage of total costs incurred in oil and gas activities
for exploration, total costs incurred in oil and gas activities for
development, cash flow net backs from exploration and production
operations, reserve distribution between oil and gas, 1997 year-end
reserves, 1997 production, reserves to production ratios, year-end 1997 SEC
PV-10 value, and Remington's reserve and finding cost ranking within a
selected peer group;
3. Historical stock price premium between Remington Class A Stock and
Remington Class B Stock;
4. The results of an accretion/dilution analysis of the Transaction;
5. Comparable companies analysis;
6. Comparable transactions analysis; and
7. SSHC discounted cash flow analysis.
RECOMMENDATION OF REMINGTON'S BOARD OF DIRECTORS
For the reasons set forth under "-- Background of the Transaction" and
"-- Remington's Reasons for the Transaction," Remington's Board of Directors
believes that the terms of the Merger Agreement are fair to, and in the best
interest of, Remington and Remington's stockholders. REMINGTON'S BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDED THAT THE
HOLDERS OF REMINGTON CLASS A STOCK AND REMINGTON CLASS B STOCK VOTE "FOR"
ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
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OPINION OF FINANCIAL ADVISOR
On June 22, 1998, Howard, Weil delivered its written opinion to the STC
that, as of the date of such opinion and based upon and subject to certain
matters stated in such opinion, the Transaction was fair from a financial point
of view to Remington and its stockholders, other than SSHC and its affiliates.
THE FULL TEXT OF THE WRITTEN OPINION OF HOWARD, WEIL DATED JUNE 22, 1998, WHICH
SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX
II TO THE PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS OF REMINGTON ARE URGED TO, AND SHOULD, READ THIS OPINION IN ITS
ENTIRETY.
In connection with rendering its opinion, Howard, Weil has, among other
things: (i) reviewed the Agreement and the Certificate of Merger, dated June 22,
1998, by and between Remington and SSHC; (ii) reviewed the Warrant Agreement,
dated June 22, 1998, by and between Remington and SSHC; (iii) reviewed
Remington's Form 10-K and related audited financial information for the years
ended December 31, 1997, 1996 and 1995; (iv) reviewed Remington's Form 10-Q and
related unaudited financial information for the quarterly periods ended March
31, 1998, September 30, 1997, June 30, 1997 and March 31, 1997; (v) reviewed
SSHC's audited financial information for the years ended December 31, 1997, 1996
and 1995; (vi) reviewed certain publicly available information relating to the
business of Remington; (vii) reviewed certain oil and gas reserve estimates of
Remington, dated January 1, 1998, prepared by Netherland, Sewell & Associates,
Inc. ("Netherland, Sewell"), independent petroleum engineers, and discussed the
oil and gas reserve estimates with Netherland, Sewell; (viii) reviewed certain
oil and gas reserve estimates prepared by Remington and discussed the oil and
gas reserve estimates with Remington; (ix) reviewed the relative contribution to
Remington by field of estimates of Remington's oil and gas reserves and the
future revenues to be derived from those reserves; (x) conducted discussions
with members of senior management of Remington concerning the historical,
current and estimated financial position and results of operations of its
business and the business of SSHC; (xi) reviewed the historical market prices
and trading volume for Remington Class A Stock and Remington Class B Stock and
compared them with those of certain publicly traded companies which Howard, Weil
deemed to be comparable to Remington; (xii) compared the results of operations
of Remington with such comparable companies; (xiii) reviewed certain publicly
available information concerning the nature and terms of certain selected
comparable transactions involving different companies that was considered
relevant to Howard, Weil's inquiry; (xiv) conducted analyses of discounted
values of possible future cash flows derived from cash flow projections under
(x) certain forecasts of future oil and natural gas prices, (y) certain
estimates of oil and gas reserves, rates of production and costs of production
and (z) various discount rates; and (xv) made such other financial studies,
analyses and examinations, performed such other investigations and took into
account such other matters as Howard, Weil deemed necessary or appropriate.
As set forth in its opinion, and in connection with preparing and rendering
its opinion, Howard, Weil relied, without independent verification, upon the
accuracy and completeness of all the financial information, reserve estimates
and other information made available to Howard, Weil by Remington, discussed
with or reviewed by or for Howard, Weil or publicly available, for purposes of
its opinion. With respect to financial forecast information furnished to Howard,
Weil by Remington, Howard, Weil assumed such information had been reasonably
prepared and reflected the best currently available estimates and judgments of
the management of Remington as to Remington's and SSHC's expected future
financial performance. In rendering its opinion, Howard, Weil did not conduct a
physical inspection of any of the oil and gas properties, facilities or other
assets of Remington or SSHC, nor did Howard, Weil obtain or consider any
independent evaluations or appraisals of such properties or assets other than a
review of the oil and gas reserve information prepared by Remington and the oil
and gas reserve information of Remington prepared by Netherland, Sewell upon
which Howard, Weil relied without further investigation.
For purposes of rendering its opinion, Howard, Weil assumed, in all
respects material to its analyses, that the representations and warranties of
each party to the Merger Agreement and all related documents and instruments
contained therein were true and correct, that each party to such documents would
perform all of the covenants and agreements required to be performed by such
party under such documents and that all the conditions to the consummation of
the Transaction would be satisfied without waiver thereof.
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Howard, Weil's opinion was necessarily based upon the securities markets
and the oil and natural gas markets prevailing as of the date of such opinion
and the conditions and prospects, financial and otherwise, of Remington and SSHC
as they have been represented to Howard, Weil as of the date thereof or as they
were reflected in the materials and discussions described above. Howard, Weil
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals, contractual or otherwise, for the Transaction, no
restrictions, including any divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect on the
Transaction. Howard, Weil's opinion did not imply any conclusion as to the
likely trading range for the Remington Common Stock following the consummation
of the Transaction, which range may vary depending upon, among other factors,
changes in oil and gas prices, market conditions, general economic conditions
and other factors that generally influence the price of securities. Howard,
Weil's opinion did not address the STC's underlying business decision to
recommend the Transaction, and Howard, Weil expressed no view on the effect of
the Transaction on the future business of Remington. Howard, Weil's opinion was
directed only to the fairness, from a financial point of view, of the
Transaction to Remington and its stockholders, other than SSHC and its
affiliates, and does not constitute a recommendation concerning how holders of
Remington Common Stock should vote with respect to the Transaction. The STC did
not impose any limitations on the scope of Howard, Weil's analyses nor was
Howard, Weil asked to seek alternative transactions or parties.
In performing its analyses, Howard, Weil made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond Remington's and
SSHC's control. Any estimates contained in such analyses are not necessarily
indicative of actual values or predictions of future results or values, which
may be significantly more or less favorable than as set forth therein. In
addition, analyses and estimates relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may trade, be acquired or sold. Accordingly,
such analyses and estimates inherently are subject to substantial uncertainty.
In addition, the requirement for the delivery of the opinion was among several
factors taken into consideration by the STC in making its determination to
recommend the Transaction. Consequently, the Howard, Weil analyses described
below should not be viewed as determinative of the decision of the STC or of the
management of Remington with respect to the fairness of the Transaction.
The following is a summary of the financial analyses used by Howard, Weil
in its presentation to the STC and in connection with providing its written
opinion to the STC on June 22, 1998:
Historical Stock Price Analysis. Howard, Weil reviewed the closing stock
prices and trading volumes of Remington's Class A Stock (the "Class A Stock")
and Remington's Class B Stock (the "Class B Stock") from April 16, 1992 until
May 27, 1998, respectively, for each trading day during this period. These data
showed that the closing prices of the Class A Stock and the Class B Stock had
ranged between $5.125 and $26.00 per share and between $5.00 and $18.875 per
share, respectively. Howard, Weil calculated the ratio of the Class A Stock
closing price for each trading day to the Class B Stock closing price for that
same trading day for the period from April 16, 1992 to May 27, 1998. This
analysis implied a premium ranging from a high of 1.0789% of each share of Class
A Stock to each share of Class B Stock to a low of -13.1% for each share of
Class A Stock to each share of Class B Stock, with a median and a mean premium
during the period of 13.2% and 20.6% for each share of Class A Stock for each
share of Class B Stock, respectively.
Howard, Weil also reviewed the closing stock prices and trading volumes of
the Class A Stock and the Class B Stock during one month, three month, six month
and one year periods preceding May 27, 1998 for each trading day during such
periods. These data showed that the closing price of the Class A Stock and Class
B Stock had ranged between $5.125 and $9.25 per share and between $5.00 and
$8.75 per share, respectively. Howard, Weil calculated the premium of the Class
A Stock closing price for each trading day to the Class B Stock closing price
for that same trading day for the one month, three month, six month and one year
periods preceding May 27, 1998. This analysis implied a premium ranging from a
high of 21.6% for each share of Class A Stock to each share of Class B Stock to
a low of -6.5% for each share of Class A Stock to each share of Class B Stock.
Howard, Weil concluded from this analysis that the range of closing stock prices
of the Class A Stock and Class B Stock were within those implied by the premium
contemplated in the Transaction.
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Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Howard, Weil calculated the present value of the after-tax future cash flows
that SSHC could be expected to generate based upon pipeline transportation
volumes from Remington's South Pass Field under four different operating
scenarios: "Scenario I," "Scenario II," "Scenario III" and "Scenario IV."
Production forecasts, production profiles and associated production costs were
supplied by both Remington and by Netherland, Sewell for proved, probable and
possible reserves and supplied by Remington for exploratory reserves. In
Scenario I, Remington's existing total proved reserves only were assumed to be
produced for the life of the South Pass Field. In Scenario II, Remington's
existing proved reserves were assumed to be produced with additional production
volumes resulting from drilling success on exploratory reserves. In Scenario
III, Remington's existing proved reserves were assumed to be produced with
additional production volumes resulting from Remington's South Pass 87 "D"
platform. In Scenario IV, Remington's existing proved reserves were assumed to
be produced, with additional production volumes resulting from drilling success
on exploratory reserves and from Remington's South Pass 87 "D" platform. SSHC's
after-tax cash flows were discounted at rates ranging from 8% to 10% for each of
Scenarios I through IV. Howard, Weil calculated the terminal value of SSHC's
pipeline assets based upon estimates of salvage values ranging from $0.0 to $5.0
million and discounted the range of salvage values at rates ranging from 8% to
10%. A pipeline transportation tariff of $2.75 per barrel was assumed for all
years of production.
Howard, Weil estimated SSHC's equity value by adding (i) the discounted
after-tax cash flows generated by production volumes through SSHC's pipeline for
each of Scenarios I through IV plus (ii) the discounted terminal value of SSHC's
pipeline based upon ranges of salvage value plus (iii) the market value of
shares of Class A Stock and Class B Stock held by SSHC less (iv) SSHC's net debt
and minority interest in SSHC. From this analysis, Howard, Weil arrived at a
range of equity values for SSHC for each of the Scenarios I through IV. Howard,
Weil calculated equity values ranging from (i) $12.9 million to $15.7 million
for Scenario I, (ii) $14.0 million to $16.9 million for Scenario II, (iii) $15.7
million to $18.7 million for Scenario III, and (iv) $16.8 million to $19.9
million for Scenario IV.
Pro Forma Merger Analysis. Howard, Weil analyzed certain pro forma
financial effects that could result from the Transaction on Remington's
estimated 1998, 1999 and 2000 earnings per share ("EPS") and cash flow per share
("CFPS") based upon financial forecasts provided by Remington management and in
association with each of the aforementioned Scenarios I through IV. In
connection with such analyses, Howard, Weil reviewed projections provided by the
management of Remington with respect to the future financial and operating
performance of Remington and SSHC, and after discussing such projections with
the management of Remington, made certain adjustments. Howard, Weil then
developed its own analysis of the pro forma effects of the Transaction. This
analysis indicated that the Transaction would be accretive to Remington's EPS in
1998 by $0.086, $0.090, $0.093 and $0.096 (the percentage accretion is
considered non-meaningful because of an estimated net loss per share in 1998 for
Remington for each of Scenarios I through IV prior to the Transaction) accretive
in 1999 by 4.4%, 14.6%, 5.4% and 9.7% and accretive in 2000 by 2.2%, 9.1%, 3.2%
and 6.7% for each of Scenarios I through IV, respectively. The analysis
indicated that the Transaction would be accretive to Remington's CFPS in 1998 by
6.3% and 5.1%, dilutive in 1999 by 0.1% and 0.1% and dilutive in 2000 by 0.7%
and 1.2% for Scenarios I and II, respectively. The analysis indicated that the
Transaction would be accretive to Remington's CFPS in 1998 by 5.9% and 4.9%,
accretive in 1999 by 0.4% and 0.3% and dilutive in 2000 by 0.3% and 0.8% for
Scenarios III and IV, respectively.
Analyses of Selected Publicly Traded Companies. Howard, Weil reviewed and
compared selected historical stock, operating and financial ratios relating to
Remington to the corresponding data and ratios of the following seven publicly
traded companies in the oil and gas exploration industry: Basin Exploration,
Inc., Bellwether Exploration Company, Callon Petroleum Company, the Houston
Exploration Company, Kelley Oil and Gas Corporation, Petsec Energy Ltd. and
Stone Energy Corporation (collectively the "Comparable Companies"). The
Comparable Companies were chosen because they are publicly traded companies with
financial and operating characteristics which Howard, Weil deemed to be similar
to those of Remington. All multiples were based on closing stock prices as of
May 27, 1998 and were based on publicly available information, including
estimates provided by Howard, Weil research analysts' estimates and First Call
Earnings Estimates. Howard, Weil calculated, among other things, the ratio of
market entity value (defined as
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the sum of the market value of common equity, total debt and the liquidation
value of preferred stock less current available cash), to estimated 1998 and
1999 EBITDA (defined as earnings before interest expenses, taxes, depreciation,
depletion and amortization expenses); the ratio of market entity value to the
present value of estimated future net revenues before income taxes of proved
reserves, discounted at 10%, in accordance with the rules and regulations of the
SEC ("SEC PV-10") at year-end 1997; and, the multiple of the market stock price
to estimated 1998 and 1999 EPS and CFPS.
The total market capitalization for the Comparable Companies ranged in
value from $125.1 million to $526.8 million, with a median value of $298.7
million. For these seven companies, the highest, median and lowest multiples of
market entity value to 1998 estimated EBITDA were 6.6x, 5.5x and 4.2x,
respectively, and to 1999 estimated EBITDA were 5.3x, 4.3x and 3.9x,
respectively. Remington's multiples of market entity value to 1998 estimated
EBITDA and 1999 estimated EBITDA were 4.5x and 4.0x, respectively. The highest,
median and lowest multiples of market stock price to 1998 estimated EPS were
39.2x, 33.3x and 22.4x, respectively, and to 1999 estimated EPS were 46.2x,
22.5x and 15.2x, respectively. Remington's multiples of market stock price to
1998 estimated EPS and 1999 estimated EPS were 19.8x and 16.4x, respectively.
The highest, median and lowest multiples of market stock price to 1998 estimated
CFPS were 6.0x, 5.5x and 4.3x, respectively, and to 1999 estimated CFPS were
5.1x, 3.9x and 2.9x, respectively. Remington's multiples of market stock price
to 1998 estimated CFPS and 1999 estimated CFPS were 4.3x and 3.6x, respectively.
An analysis of the ratios of market entity value to pre-tax SEC PV-10 values
yielded a range of 93% to 433% with a median of 150% for the Comparable
Companies, compared to 148% for Remington. Howard, Weil also reviewed and
compared the stock, operating and financial ratios relating to Remington pro
forma for the Transaction under each of the aforementioned Scenarios I through
IV to the corresponding data and ratios of the Comparable Companies. No company
utilized in the above comparable companies analysis is identical to Remington.
Analyses of Selected Comparable Transactions. Howard, Weil reviewed and
analyzed the financial terms, to the extent publicly available, of four
recapitalization transactions which, in Howard, Weil's judgment, were generally
comparable to the Transaction contemplated by Remington and SSHC. Howard, Weil
considered transactions in which two classes of publicly traded stock were
recapitalized into one class of publicly traded stock, the classes of stock were
equal in all respects except for voting provisions and one or more shareholders
held a majority of the voting class of shares. The companies in the selected
comparable transactions included: Canadian Foremost, Ltd., Base Ten Systems
Inc., Laidlaw Inc. and Forcenergy AB.
Howard, Weil examined for each of these transactions such characteristics
as the control premium offered to shareholders holding voting shares over
shareholders holding non-voting shares, the ownership dilution to non-voting
shareholders, the voting power dilution to voting shareholders, the ownership
dilution to all shareholders and whether there was an affiliated business
involved in the transaction. Such analysis indicated that (i) the median premium
offered to voting shares over non-voting shares was 27.5%, (ii) the median level
of ownership dilution to non-voting shareholders was 2.4%, (iii) the median
level of voting power dilution to voting shareholders was 66.3%, and (iv) the
median level of ownership dilution to all shareholders was 2.3%. Howard, Weil
concluded from this analysis that the premium offered to the shareholders of
Class A Stock and the level of ownership dilution and voting dilution in the
Transaction are within the ranges implied by the selected comparable
transactions.
Howard, Weil was of the view that no transaction reviewed was identical to
the Transaction and that, accordingly, because the reasons for and circumstances
surrounding each of the selected comparable transactions that Howard, Weil
deemed relevant were so diverse, and because of the inherent differences between
the businesses, operations and share structures of Remington and each of the
selected companies involved in such comparable transactions, Howard, Weil
believed that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of the Transaction. Howard, Weil believed
that an appropriate use of a comparable transaction analysis in this instance
would involve qualitative judgments concerning differences between the
characteristics of these transactions and those of the Transaction, which
judgments are reflected in Howard, Weil's opinion.
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The preparation of the opinion involved performing complex analyses and
making numerous determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, such opinion is not readily susceptible to partial
analysis or summary description. In arriving at its fairness opinion, Howard,
Weil did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and the relevance of each analysis and factor. Accordingly, Howard, Weil
believes that its analyses must be considered as a whole and that selecting any
portions of its analyses and of the factors considered, without considering all
analyses and factors, would create an incomplete or misleading view of the
process underlying the opinion.
Howard, Weil, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Howard, Weil, in the normal
course of its business, may actively trade the securities of Remington for its
own account and for the account of its customers, and, accordingly, may hold a
long or short position in such securities at any time.
Howard, Weil was selected on April 27, 1998, to act as the STC financial
advisor in connection with the Transaction on the basis of among other factors
it being an internationally recognized energy investment banking firm with
acknowledged leadership in the energy investment field. Remington paid Howard,
Weil a non-contingent financial advisory fee of $125,000 promptly upon the
execution of its Engagement Letter. Remington also agreed to reimburse Howard,
Weil for its reasonable out-of-pocket expenses, including its reasonable fees
and expenses of legal counsel, and to indemnify Howard, Weil and certain related
persons against certain liabilities, including certain liabilities and expenses
relating to or arising out of the engagement, including certain liabilities
under the U.S. federal securities laws.
ACCOUNTING TREATMENT
The Merger will be accounted for by Remington as a "purchase," as such term
is used under generally accepted accounting principles, of SSHC. Accordingly,
after the Merger, SSHC's consolidated results of operations will be included in
Remington's consolidated results of operations. For purposes of preparing
Remington's consolidated financial statements, Remington will establish a new
accounting basis for SSHC's assets and liabilities based upon the fair values
thereof and purchase price. A final determination of required purchase price and
related accounting adjustments and of the fair value of the assets and
liabilities of SSHC has not yet been made. Accordingly, the purchase accounting
adjustments made in connection with the development of the unaudited pro forma
financial information appearing elsewhere in this Prospectus and Proxy Statement
are preliminary and have been made solely for purposes of developing such pro
forma financial information to comply with disclosure requirements of the
Commission. Although the final aggregate purchase price and purchase allocation
are likely to differ, the pro forma financial information reflects management's
best estimate based upon currently available information. See "Pro Forma
Financial Information."
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Remington has received the opinion, included in the Registration Statement
as Exhibit 8.1, of Arthur Andersen LLP, special tax advisor to Remington.
It is the opinion of Arthur Andersen LLP that:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code. The Recapitalization will constitute a
reorganization with the meaning of Section 368(a)(1)(E) of the Code.
2. No gain or loss will be recognized by Remington or SSHC in the
Merger and the Recapitalization (Sections 1032 and 361 of the Code).
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3. No gain or loss will be recognized by the stockholders of Remington
upon the exchange of their shares of Class A or Class B Remington shares,
as the case may be, solely for shares of Remington Common Stock in
connection with the Recapitalization, except with respect to cash, if any,
in lieu of fractional shares of Remington Common Stock (Sections 354 and
356 of the Code).
4. The aggregate tax basis of the shares of Remington Common Stock
received solely in exchange for shares of Class A or Class B Remington
shares, as the case may be, in connection with the Recapitalization
(including fractional shares of Remington Common Stock for which cash is
received) will be the same as the aggregate tax basis of the shares of
Class A or Class B Remington stock, as the case may be, exchanged therefor
(Section 358 of the Code).
5. The holding period for shares of Remington Common Stock received in
exchange for shares of Class A or Class B Remington shares, as the case may
be, in connection with the Recapitalization will include the holding period
of the Class A or Class B Remington shares exchanged therefor, provided
such shares were held as capital assets by the Remington stockholder at the
effective time of the Recapitalization (Section 1223(1) of the Code).
6. The payment of cash in lieu of fractional share interests in
Remington Common Stock in the Recapitalization will be treated for federal
income tax purposes as if the fractional share interests were issued as
part of the Recapitalization and were subsequently redeemed by Remington.
Subject to the limitations discussed in this paragraph, the cash payments
will be treated as having been received as distributions in full payment in
exchange for the fractional share interests received as provided in Section
302(a) of the Code (Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41,
1977-2 C.B. 574). Gain or loss will be recognized on such exchange
(determined under Section 1001 of the Code and subject to the limitations
of Section 267 of the Code) and, if the fractional share interest is a
capital asset in the hands of the exchanging holder, will constitute
capital gain or loss to such holder subject to the provisions and
limitations of Subchapter P and Chapter 1 of the Code. However, if a
Remington shareholder does not experience a sufficient reduction in
proportionate interest in Remington, such Remington shareholder may
recognize dividend income equal to all or a portion of the cash received in
lieu of fractional share interests, instead of recognizing capital gain or
loss (Sections 302(d) and 301). The determination as to whether there has
been a sufficient reduction in proportionate interest must be made by each
individual shareholder based on his, her or its specific factual situation.
In rendering its opinion, Arthur Andersen LLP relied upon the accuracy and
completeness of the facts and representations (without regard to any limitation
based on knowledge or belief):
(i) set forth in the opinion
(ii) contained in the documents listed in Exhibit A to the opinion,
and
(iii) set forth or referenced in the representation letters, dated
October 13, 1998, signed by appropriate officers of Remington, SSHC and Mr.
J. R. Simplot.
Remington, SSHC and Mr. J. R. Simplot have represented that such facts and
representations are true, correct and complete. However, Arthur Andersen LLP has
not independently audited or otherwise verified any of these facts and
representations. A misstatement or omission of any fact or a change or amendment
in any of the facts or representations Arthur Andersen LLP relied upon may
require a modification of all or a part of this opinion. In addition, Arthur
Andersen LLP opinion is based on such facts and representations as represented
to Arthur Andersen LLP as of the date of this letter. Any change in the facts or
representations upon which we have relied between the date of this letter and
the actual closing of the Transaction may require a modification of all or part
of this opinion. Arthur Andersen LLP's opinion assumes that the Transactions
will be executed in accordance with the terms of the documents set forth in
Exhibit A to the opinion. Arthur Andersen LLP has no responsibility to update
this opinion for events, transactions, circumstances or changes in any of the
facts or representations occurring after this date.
Arthur Andersen LLP's opinion is expressed only with respect to those
federal income tax issues called for by Section 7.2(d) of the Merger Agreement
and as to factual matters based upon representations received
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from SSHC and Remington. The opinion expressed is based upon Arthur Andersen
LLP's interpretation of the Internal Revenue Code of 1986, as amended (the
"Code"), income tax regulations thereunder, court decisions, rulings and
procedures issued by the Internal Revenue Service ("The Service"), and other
authorities that Arthur Andersen LLP deemed relevant, in each case as of the
date of this opinion.
U.S. federal income tax laws and regulations, and the interpretations
thereof, are subject to change, which changes could adversely affect this
opinion. Should there be any change, including any change which has retroactive
effect, in the Code, the regulations thereunder, and the administrative guidance
issued thereunder, or in the prevailing judicial interpretation of the
foregoing, the opinion expressed herein would necessarily have to be reevaluated
in light of such change. Arthur Andersen LLP's opinion is as of the date of
October 13, 1998, and Arthur Andersen LLP has no responsibility to update this
opinion for changes in applicable law or authorities occurring after the date of
this opinion.
Arthur Andersen LLP's opinion is limited to the specific U.S. federal
income tax consequences set forth below. Under the Merger Agreement, SSHC and
the shareholder of SSHC are responsible for evaluating all tax consequences to
them of the Merger. Accordingly, except to the extent set forth below, Arthur
Andersen LLP's opinion does not address the tax consequences to them of the
Transactions, including any shareholder of Remington acting in a capacity as a
shareholder of SSHC.
Arthur Andersen LLP has not considered any non-income tax consequences
arising from the Transaction (including (without limitation) corporate law or
securities law matters), or any state, local, foreign, or other income tax
(other than federal income tax) consequences, and therefore we express no
opinion regarding the treatment that would be accorded the Transaction for such
purposes. The opinion does not address the tax consequences of the Transaction
to a stockholder of Remington other than United States individual shareholders
who hold Remington Class A and/or Class B stock as a capital asset. The opinion
does not address the tax consequences of the Transaction to a stockholder of
Remington Class A and/or Class B stock that has a special status, including
insurance companies; tax-exempt entities; financial institutions or broker-
dealers; foreign corporations; estates and trusts not subject to U.S. federal
income tax on their income regardless of source; persons who are not citizens or
residents of the United States; and persons who acquired their Remington stock
as a result of the exercise of an employee stock option, pursuant to an employee
stock purchase plan, or otherwise as compensation.
The opinion addresses federal income tax consequences of the Transaction
solely with respect to the stockholders of Remington Class A and/or Class B
stock in their capacity as shareholders of Remington. No opinion is expressed
about the federal income tax consequences of the Transaction to persons acting
in any other capacity (e.g., as an employee of Remington).
This opinion is not binding on the Service, and there can be no assurance
that the Service will not take positions contrary to the conclusions expressed
in the opinion. However, should the Service challenge the U.S. federal income
tax treatment of the matters discussed below, the opinion reflects the probable
outcome of litigation related to such matters.
RESALE RESTRICTIONS
All shares of Remington Common Stock received by the sole stockholder of
SSHC in the Merger may be resold by the sole stockholder only in transactions
permitted by the resale provisions of Rule 145 promulgated under the Securities
Act (or Rule 144 in the case of such person who becomes an "affiliate" (as such
term is defined under the Securities Act) of the Company) or as otherwise
permitted under the Securities Act. The sole stockholder of SSHC has been
granted certain registration rights relating to the shares of Remington Common
Stock received as a result of the Transaction. Shares of Common Stock received
in the Merger by holders of Remington Class A Stock and Remington Class B Stock
(other than SSHC), except for shares owned by "affiliates" of the Company, will
be freely transferable after the Merger.
NO APPRAISAL RIGHTS
The General Corporation Law of the State of Delaware does not provide
Remington stockholders appraisal rights in connection with the Merger Agreement
or the Transaction.
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CONSEQUENCES IF THE MERGER AGREEMENT IS NOT APPROVED
If the Merger Agreement is not approved, the Transaction will not occur,
and Remington intends to continue to conduct its business under its present
capital structure as it is currently being conducted, with SSHC continuing to
hold approximately 57% of the voting stock of the Company. In the event the
Merger Agreement is not approved, Remington's Board of Directors may consider
other courses of action, if any are available, to achieve the benefits the Board
believes will exist if the Transaction is consummated.
TERMS OF THE TRANSACTION
The detailed terms and conditions to the consummation of the Transaction
and Merger Agreement are contained in the Merger Agreement, which is attached as
Appendix I to this Prospectus and Proxy Statement and incorporated herein by
reference. The following discussion sets forth a description of the material
terms and conditions of the Merger Agreement. The description in this Prospectus
and Proxy Statement of the terms and conditions of the Merger Agreement is
qualified by, and made subject to, the more complete information set forth in
the Merger Agreement.
CONSIDERATION FOR THE MERGER
In the Transaction, the sole stockholder of SSHC will receive:
1. 2,785,028 shares of Remington Common Stock; and
2. The Warrant, which grants the right to purchase 300,000 shares of
Remington Common Stock. The Warrant has the duration and is exercisable
during the periods and at the prices as follows:
-- For a period of 12 months after the effective time of the
Merger, 100,000 shares at the market price of the Remington Common Stock
on the effective date of the Merger, but not less than $7.00 per share
and not more than $8.00 per share.
-- For a period of 36 months after the effective time of the
Merger, 100,000 shares at an exercise price of $9.00 per share.
-- For a period of 60 months after the effective time of the
Merger, 100,000 shares at an exercise price of $11.00 per share.
The Warrant contains certain restrictions on transferability, provides
adjustment of the exercise prices upon the occurrence of certain customary
events, and provides the holder of the Warrant the right, subject to certain
conditions, to demand that the Company register under the Securities Act the
shares obtained upon exercise of the Warrant.
By operation of law, Remington will succeed to all of the assets and
liabilities of SSHC. SSHC's principal liability is the SSHC Note, which had a
principal balance at June 30, 1998 of $5.3 million. Because the SSHC Note is
owed to the Company, the Merger will effectively cancel the SSHC Note. The
Company also assumes the liability for certain minority stockholder litigation
of SSHC. See "Risk Factors -- Minority Stockholder Litigation of SSHC."
SSHC incurred the $1.9 million of indebtedness under the SSHC Stockholder
Note in October 1997 in order to fund the redemption of stock held by minority
stockholders of SSHC. The Merger Agreement provides that unpaid principal of and
accrued and unpaid interest on the SSHC Stockholder Note after March 19, 1998
will be converted into a contribution of capital to SSHC without the issuance of
any additional shares of SSHC common stock.
CONVERSION OF CAPITAL STOCK OF REMINGTON AND SSHC
1. SSHC Stock. Each issued and outstanding share of the capital stock of
SSHC Stock, not including treasury stock which will be canceled, will be
converted into the right to receive 72.329 shares of Remington Common Stock.
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2. Remington Class A Stock. Each issued and outstanding share of Remington
Class A Stock, other than shares held directly by SSHC, will be converted into
the right to receive 1.15 shares of Remington Common Stock.
3. Remington Class B Stock. Each issued and outstanding share of Remington
Class B Stock, other than shares held directly by SSHC, will be converted into
the right to receive one share of Remington Common Stock.
4. Remington Stock Owned by SSHC. All shares of Remington Class A Stock and
Remington Class B Stock owned directly by SSHC will be canceled and will cease
to exist, and no shares of Remington Common Stock will be exchanged therefor.
5. Issuance of Shares. All shares of SSHC Stock, Remington Class A Stock
and Remington Class B Stock converted into Remington Common Stock will no longer
be outstanding and will automatically be canceled and will cease to exist as of
the Effective Time (as hereinafter defined). Each SSHC Stock certificate,
Remington Class A Stock certificate or Remington Class B Stock certificate,
previously representing any such shares of SSHC Stock, Remington Class A Stock
or Remington Class B Stock, as the case may be, will thereafter represent the
right to receive (i) a certificate representing the number of whole shares of
Remington Common Stock and (ii) the cash in lieu of fractional shares into which
the shares of SSHC Stock, Remington Class A Stock and Remington Class B Stock
represented by such certificates, as the case may be, have been converted.
Certificates previously representing shares of SSHC Stock, Remington Class A
Stock and Remington Class B Stock, as the case may be, will be exchanged for
Remington Common Stock certificates representing the whole shares of Remington
Common Stock, and for cash in lieu of fractional shares issued in consideration
therefor, upon the surrender of such Certificates in accordance with the Merger
Agreement.
6. Remington Option Plans. Each outstanding option to purchase shares of
Remington Class B Stock will cease to represent a right to acquire shares of
Remington Class B Stock, and will be converted automatically into an option to
purchase the same number of shares of Remington Common Stock at the same price
per share.
THE CERTIFICATE OF INCORPORATION
In the Transaction, Remington's Certificate of Incorporation will be
amended and restated to provide for the reclassification of the capital stock
and to add other provisions regarding corporate governance. See "Remington's
Restated Certificate of Incorporation" for the text and explanation of such
provisions.
EFFECTIVE TIME OF THE TRANSACTION
The Merger Agreement and the Transaction provided for therein will become
effective on the date and time of the filing of the Certificate of Merger with
the Delaware Secretary of State (the "Effective Time"). It is anticipated that,
if the Merger Agreement is approved at the Special Meeting and all other
conditions in the Merger Agreement have been satisfied or waived, the Effective
Time will occur on the date of the Special Meeting or as soon as practicable
thereafter.
EXCHANGE OF CERTIFICATES
1. Shares to be Made Available. At or prior to the Effective Time,
Remington will deposit, or cause to be deposited, with American Stock Transfer
and Trust Company (the "Exchange Agent") Remington Common Stock certificates
representing the Remington Common Stock and an estimated amount of cash in lieu
of any fractional shares to be issued in exchange for outstanding shares of SSHC
Stock, Remington Class A Stock and Remington Class B Stock, as the case may be,
in accordance with the Merger Agreement.
2. Letter of Transmittal. No later than 10 business days after the
Effective Time, the Exchange Agent will mail to each holder of SSHC Stock,
Remington Class A Stock or Remington Class B Stock, as the case may be, a letter
of transmittal and instructions for use in surrendering certificates
representing, as the case may be, SSHC Stock, Remington Class A Stock and
Remington Class B Stock in exchange for certificates
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representing whole shares of Common Stock and cash, if any, in lieu of
fractional shares, as converted pursuant to the Merger Agreement. No interest
will be paid or accrued on the cash, if any, in lieu of fractional shares
payable to holders of certificates. Until exchanged pursuant to these
instructions, the certificates for the Remington Class A Stock and the Remington
Class B Stock shall be deemed to represent interests in the Remington Common
Stock.
3. Lost, Stolen or Destroyed Certificates. In the event any certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such certificate to be lost, stolen or
destroyed and, if required by Remington, the posting by such person of a bond
determined by Remington to be reasonable, the Exchange Agent will issue in
exchange for such lost, stolen, or destroyed certificate the shares of Remington
Common Stock and cash, if any, in lieu of fractional shares deliverable in
respect thereof pursuant to the Merger Agreement.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of Remington and SSHC to consummate the Merger Agreement
are conditioned upon, among other things, (i) approval and adoption by holders
of the Remington Class A Stock and Remington Class B Stock, voting as separate
classes, at the Special Meeting (the sole stockholder of SSHC has previously
approved and adopted the Merger Agreement and SSHC and Mr. Simplot have advised
the Company that they intend to vote their Remington shares in favor of the
Transaction), (ii) the Registration Statement of which this Prospectus and Proxy
Statement forms a part, having been declared effective by the Commission and not
being subject to any stop order or proceeding seeking the same, (iii) receipt of
all necessary state securities or "Blue Sky" permits and authorizations, (iv)
the shares of Remington Common Stock having been accepted for quotation on the
Nasdaq National Market, (v) all material consents, approvals and authorizations
required to be obtained having been obtained and remaining in effect at the
Effective Time, (vi) the absence of any pending injunction, order or decree of
any governmental authority restraining the Transaction, (vii) no Burdensome
Condition (as defined in the Merger Agreement) having been imposed upon the
surviving corporation or its subsidiaries which could be reasonably be expected
to either (x) have a material adverse effect after the Effective Time on the
present or prospective consolidated financial condition, business or operating
results of the surviving corporation, or (y) prevent the parties from realizing
the major portion of the economic benefits of the Transaction that they
currently contemplate receiving therefrom, (viii) no material breach of a
representation, warranty, covenant or agreement unless waived, and (ix) the
delivery of all closing certificates and all tax, legal and other opinions.
Remington and SSHC have entered into an amendment to the Merger Agreement which
provides that consummation of the Transaction requires the delivery of the tax
opinion of Arthur Andersen LLP and that such condition may not be waived. This
amendment is included in the Prospectus and Proxy Statement as Appendix I(a) and
as Exhibit 2.1.1 to the Registration Statement. At any time prior to the
Effective Time, the parties to the Merger Agreement, may, by action of their
Boards of Directors, waive compliance with any of the agreements and conditions
contained in the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, Remington and SSHC each make representations and
warranties to the other regarding the following: (i) the due organization of
such entity and its subsidiaries and the qualification of each such entity in
every state where such qualification is necessary, (ii) the capitalization of
such entity and its subsidiaries, including the authorized and outstanding
shares of capital stock, contractual obligations regarding capital stock, and
debt obligations of each such entity, (iii) the authority of such entity to
enter into and perform its obligations under the Merger Agreement, (iv) the
granting of all approvals and consents necessary for such entity to enter into
and perform its obligations under the Merger Agreement, (v) the delivery and
accuracy of all audited financial statements and the timely filing and accuracy
of all reports required to be filed by such entity with the SEC (including proxy
statements delivered to stockholders), (vi) the proper filing of all tax returns
and the timely payment or withholding for payment of all taxes and (vii) the
lack of any material pending or threatened actions, suits, arbitrations, orders,
investigations or proceedings.
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COVENANTS
Remington and SSHC have agreed that, except as contemplated by the Merger
Agreement and until the Effective Time, each of Remington and SSHC and their
respective subsidiaries will conduct its business in the ordinary course and
will not (i) adjust, split or declare or pay any dividend or other distribution
with respect to its capital stock, or redeem or purchase any shares of its
capital stock, (ii) subject to certain exceptions, issue any shares of its
capital stock, or securities convertible or exchangeable therefor, (iii) sell,
transfer, mortgage, encumber or otherwise dispose of any of its material
properties or assets except in the ordinary course of business, (iv) make any
material acquisition of or investment in any property or assets of any other
entity, (v) enter into any contract or agreement, or amend any existing contract
or agreement, except in the ordinary course of business, (vi) make any material
changes in any of its employment, compensation, severance or benefit
arrangements except in the ordinary course of business, (vii) settle any
material litigation or (viii) take any action that would prevent the merger of
Remington and SSHC from qualifying as a tax-free reorganization.
ADDITIONAL AGREEMENTS
Remington and SSHC have entered into additional agreements that (i) provide
for the continuation of past practices relating to net income from the Pipeline,
(ii) provide for the disposition and extension of two promissory notes of SSHC,
(iii) require each party to afford to the other party and its representatives
access to its properties, books and records, (iv) require each party to keep all
non-public information received from the other party confidential, (v) provide
that, subject to certain exceptions, each party will pay its own expenses
incurred in connection with the Merger, (vi) require each party to take such
actions and grant such approvals that are reasonably necessary to consummate the
transactions contemplated under the Merger Agreement, (vii) require the parties
to cooperate with each other in preparing, executing and filing all documents
regarding any taxes that become payable as a result of the transactions
contemplated under the Merger Agreement, and (viii) require each party to advise
the other party of any change or event that could have a material adverse effect
on such party or that could cause or constitute a material breach of any
representation, warranty or covenant in the Merger Agreement.
TERMINATION OF THE MERGER AGREEMENT
At any time prior to the Effective Time, the Merger Agreement and the
Transaction may be terminated whether before or after approval of the matters
presented in connection with the Transaction by the stockholders of Remington or
SSHC in the following manner and for the following reasons: (i) by mutual
consent of Remington and SSHC if the Board of Directors of each so determines,
(ii) by either the Board of Directors of Remington or SSHC if (x) any required
governmental approval is not obtained or (y) any governmental authority obtains
a final nonappealable order enjoining or otherwise prohibiting the consummation
of the Transaction, (iii) by the Board of Directors of Remington or SSHC if the
Transaction shall not have been consummated on or before December 31, 1998,
unless the failure of the closing to occur shall be due to the failure of the
party seeking to terminate the Merger Agreement to perform under the terms of
the Merger Agreement, (iv) by the Board of Directors of either Remington or SSHC
if the other party shall have breached any covenants, representations or
warranties and such breach shall not have been cured in the manner provided in
the Merger Agreement, (v) by the Board of Directors of Remington if Remington
stockholder approval, as contemplated in the Merger Agreement, shall have not
been obtained by reason of the failure to obtain the requisite vote of the
Remington stockholders or if the Remington Board of Directors determines that
consummation of the Transaction would result in a breach of the Board's
fiduciary duty to Remington, (vi) by the Board of Directors of Remington or
SSHC, if such Board shall determine that any requisite governmental approval
would impose a Burdensome Condition (as defined in the Merger Agreement), and
(vii) by either the Board of Directors of Remington or SSHC if the Board of
Directors of the other party shall have withdrawn, modified or changed in a
manner adverse to the terminating party its approval or recommendation of the
Transaction.
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AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended by action of the Board of Directors of
Remington and SSHC at any time before or after approval of the Merger Agreement
by the stockholders of Remington and SSHC; provided however, that after any
approval by Remington's and/or SSHC's stockholders of the Merger Agreement,
there may not be, without further approval of the affected stockholders, any
amendment which reduces the amount or changes the form of the consideration to
be delivered to such stockholders under the Merger Agreement. Any amendment to
the Merger Agreement must be in writing and signed by all parties thereto.
EXPENSES RELATED TO THE TRANSACTION
The Merger Agreement provides that each of Remington and SSHC will each pay
its own expenses relating to the Transaction except as otherwise specified in
the Warrant Agreement.
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REMINGTON'S RESTATED CERTIFICATE OF INCORPORATION
The Merger Agreement and Certificate of Merger include certain amendments
to Remington's Certificate of Incorporation. APPROVAL OF THE MERGER AGREEMENT AT
THE SPECIAL MEETING WILL CONSTITUTE APPROVAL OF THE AMENDMENTS TO REMINGTON'S
CERTIFICATE OF INCORPORATION, WHICH WILL BE EFFECTED BY THE MERGER AS PERMITTED
BY DELAWARE LAW. The Restated Certificate of Incorporation of Remington, which
contains the amendments, is set forth in its entirety in Schedule I to the
Certificate of Merger, included as Exhibit A to the Merger Agreement, which is
attached to this Prospectus and Proxy Statement as Appendix I.
AMENDMENT OF ARTICLE IV
TEXT OF THE PROPOSED AMENDMENT
The text of the proposed Article IV to Remington's Restated Certificate of
Incorporation is as follows:
A. Classes of Stock. The aggregate number of shares which the corporation
shall have the authority to issue is 125,000,000, divided into 100,000,000
shares of common stock of the par value of $.01 per share, and 25,000,000 shares
of preferred stock of the par value of $.01 per share.
B. Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article IV, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of shares of
each such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
1. The number of shares constituting that series and the distinctive
designation of that series;
2. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
3. Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
4. Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
5. Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
6. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
7. The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of that
series;
8. Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to the same
dividend period.
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If upon any voluntary or involuntary liquidation, dissolution or winding up
of the corporation, the assets available for distribution to holders of shares
of Preferred Stock of all series shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
C. Common Stock.
All preferences, voting powers, relative, participating, optional or other
special rights and privileges, and qualifications, limitations or restrictions
of the Common Stock are expressly made subject and subordinate to those that may
be fixed with respect to any shares of the Preferred Stock.
Except as otherwise required by law or this Restated Certificate of
Incorporation, each holder of Common Stock shall have one vote in respect to
each share of Common Stock held by such holder of record on the books of the
corporation for election of directors and on all matters submitted to a vote of
stockholders of the corporation.
Subject to the preferential rights of the Preferred Stock, the holders of
shares of Common Stock shall be entitled to receive, when and if declared by the
Board of Directors, out of the assets of the corporation which are by law
available therefor, dividends payable either in cash, in property or in shares
of capital stock.
In the event of any dissolution, liquidation or winding up of the affairs
of the corporation, after distribution in full of the preferential amounts, if
any, to be distributed to the holders of shares of the Preferred Stock, holders
of Common Stock shall be entitled, unless otherwise provided by law or this
Restated Certificate of Incorporation, to receive all of the remaining assets of
the corporation of whatever kind available for distribution to stockholders
ratably in proportion to the number of shares of Common Stock held by them
respectively.
REASON FOR PROPOSED AMENDMENT
Remington's Certificate of Amendment currently provides for authorized
common stock of 30,000,000 shares of Remington Class B Stock and 15,000,000
shares of Remington Class A stock with no provision for preferred stock.
Approximately, 28,000,000 shares are either issued and outstanding or required
under various stock option plans, the Indenture or other agreements. The Board
of Directors of Remington believes that this leaves an insufficient amount of
authorized, unissued and unreserved common stock to provide Remington with the
flexibility needed to accomplish its financial and operational goals. On this
basis, the proposed amendment seeks to increase the amount of authorized
Remington Common Stock to 100,000,000 shares. Further, the Board of Directors
may seek to increase this amount in the future if it determines that such an
increase is in the best interest of Remington and its stockholders.
In order to provide additional flexibility, the amendment to Remington's
Certificate of Incorporation also provides for 25,000,000 authorized shares of
"blank check" preferred stock. The proposed amendment gives the Board of
Directors great latitude in establishing the terms under which the preferred
stock may be issued, such as the voting and dividend rights of the issue. The
authorized preferred stock may be issued in one or multiple series, with each
series holding the same or differing rights.
AMENDMENT TO ARTICLE V
TEXT OF ARTICLE V:
The text of the proposed Article V of Remington's Restated Certificate of
Incorporation is as follows:
No action required or permitted to be taken at any annual or special
meeting of the stockholders may be taken without a meeting and the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied. Special meetings of the stockholders of the
corporation may be called only by the Chairman of the Board or the President of
the corporation or by a resolution adopted by the affirmative vote of a majority
of the Board of Directors.
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<PAGE> 46
REASON FOR AMENDMENT
Remington's current Certificate of Incorporation allows for stockholder
action to be taken without a meeting. The proposed amendment to Article V
precludes stockholder action without a meeting and requires that any stockholder
action occur at an annual or special meeting. Moreover, the proposed amendment
restricts how an annual or special meeting is called by stating that only
Remington's Chairman of the Board, Remington's President or a majority of
Remington's Board of Directors can call an annual or special meeting. The
proposed amendment thus restricts the ability of a stockholder to initiate
stockholder action outside of an annual or special meeting, the calling of which
is controlled by the Company's Chairman, President or a majority of its Board of
Directors. The amendment is being sought so that the stockholders, as a whole,
are provided an orderly process relating to their proposals. Any stockholder
seeking to make a proposal must do so by following the requirements set forth in
Remington's By-Laws for the making of stockholder proposals at annual or special
meetings. Any proposals submitted will be given due consideration as to whether
they will be placed before the meeting. Remington's Board believes that this
Amendment will aid in corporate governance and make the Company less susceptible
to entities which are not interested in building value for all of the Company's
stockholders. An amendment to Remington's By-Laws is also being proposed to set
forth the required procedure. See "Amendments to Remington's By-Laws." The
proposed amendment to Article V of Remington's Certificate of Incorporation may
have the effect of limiting a stockholder's ability to take any action not
supported by Remington management and its Board of Directors.
AMENDMENT OF ARTICLE VI
TEXT OF AMENDMENT:
The text of proposed Article VI of Remington's Restated Certificate of
Incorporation is as follows:
The number of directors which shall constitute the whole Board of Directors
of this corporation shall be specified in the By-Laws of this corporation,
subject to the provisions of this Article VI. Each director shall serve until
the next annual meeting of stockholders and until his successor is duly elected
and qualified, or until his death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director. Newly created directorships resulting from an
increase in the number of directors and any vacancies of the Board of Directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled by the affirmative vote of a majority of the remaining directors
then in office (and not by the stockholders), even though less than a quorum of
the Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office until the next annual meeting of stockholders and
until such director's successor shall have been duly elected and qualified.
Election of directors need not be by written ballot unless the By-Laws of
the corporation shall so provide.
REASON FOR AMENDMENT
This proposed amendment to Article VI of Remington's Certificate of
Incorporation simply restates By-Law provisions concerning director's terms,
replacement, filling director vacancies and other procedures concerning
directors. The amendment retains the ability of directors to be removed with or
without cause. The provision concerning the election of directors with or
without written ballot is retained from Remington's current Certificate of
Incorporation.
AMENDMENT OF ARTICLE VII
TEXT OF AMENDMENT:
The text of proposed Article VII to Remington's Restated Certificate of
Incorporation is as follows:
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation and its stockholders; (ii) for acts or
omissions not in good faith or
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<PAGE> 47
which involve intentional misconduct or knowing violations of law; (iii) under
section 174 of the Delaware General Corporation Law; or (iv) for any transaction
from which the director derived an improper personal benefit.
Each person who is or was a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in the second
paragraph hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the corporation any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this section or otherwise. The corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
REASON FOR PROPOSED AMENDMENT
The proposed amendment of Article VII of Remington's Certificate of
Incorporation provides for indemnification of directors and other persons to the
full extent allowed under the General Corporation Law of the State of Delaware.
The amendment is being proposed to clear up any ambiguity which may have
resulted from different language in the Company's current Certificate of
Incorporation and the Company's current By-Laws. The By-Law relating to
indemnification is also proposed to be amended in order to conform with the
indemnification language set forth above.
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<PAGE> 48
AMENDMENT OF ARTICLE VIII
TEXT OF AMENDMENT:
The text of proposed Article VIII to Remington's Restated Certificate of
Incorporation is as follows:
The Board of Directors is expressly empowered to adopt, amend or repeal
By-Laws of the corporation, provided, however, that any adoption, amendment or
repeal of By-Laws of the corporation by the Board of Directors shall require the
approval of at least sixty-six and two-thirds percent (66 2/3%) of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board). The stockholders shall
also have power to adopt, amend or repeal By-Laws of the corporation, provided,
however, that in addition to any vote of the holders of any class or series of
stock of this corporation required by law or by this Restated Certificate of
Incorporation the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the then outstanding
shares of the stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required for
such adoption, amendment or repeal by the stockholders of any provisions of the
By-Laws of the corporation.
REASON FOR AMENDMENT
The proposed Article VIII creates a super-majority voting requirement to
amend, adopt or repeal a By-Law, thus making it more difficult to make changes
to Remington's By-Laws. The current By-Law only requires a majority of directors
or stockholders to achieve any changes. Remington's Board believes that this
Amendment will aid in corporate governance and make the Company less susceptible
to entities which are not interested in building value for all of the Company's
stockholders. This proposed amendment may act as an impediment to changes in the
By-Laws not supported by Remington management or its Board of Directors.
AMENDMENT OF ARTICLE IX
TEXT OF AMENDMENT:
The text of proposed Article IX to Remington's Restated Certificate of
Incorporation is as follows:
Notwithstanding any other provision of this Restated Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the then outstanding
shares of the stock of the corporation entitled to vote generally in the
election of Directors voting together as a single class, shall be required to
amend in any respect or repeal this Article IX or Articles V, VI, VII, and VIII.
REASON FOR AMENDMENT
The proposed amendment to Article IX imposes a super-majority voting
requirement on changes to either Article IX or Articles V, VI, VII, and VIII,
the articles amended through Remington's Restated Certificate of Incorporation.
Remington's Board believes that this Amendment will aid in corporate governance
and make the Company less susceptible to entities which are not interested in
building value for all of the Company's stockholders. This amendment may act as
an impediment to any stockholder action relating to Remington's Restated
Certificate of Incorporation with which Remington management or its Board of
Directors do not agree.
POSSIBLE ANTI-TAKEOVER EFFECTS
Certain of these amendments contain provisions that could discourage
potential takeover attempts or delay a change of control or a change in
management of the Company. Under certain circumstances, the Company could use
the additional shares of capital stock authorized in Article IV to impede
persons seeking to effect a takeover or otherwise gain control of the Company by
implementing a shareholder rights plan or privately placing such shares with
purchasers who might side with the Board in opposing a hostile takeover bid. The
Board of Directors has no present intention of issuing rights or stock for any
such purpose. Article V, by eliminating stockholder action by written consent
and by allowing only the Chairman, President or members of the Board to call a
special meeting, could delay the ability of dissident stockholders to take quick
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<PAGE> 49
action to remove existing directors and otherwise assert control of the Company.
Article VI permits any vacancy of the Board of Directors to be filled only by
incumbent directors and not by stockholder action. Under Article IX, future
amendments to Articles V, VI, VII, or VIII of the Certificate of Incorporation
will require the vote of stockholders representing 66 2/3% of all outstanding
shares entitled to vote. Accordingly, future efforts to remove or modify any of
the foregoing provisions (other than Article IV) will require more than a simple
majority vote of stockholders.
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<PAGE> 50
AMENDMENTS TO REMINGTON'S BY-LAWS
The following amendments are proposed to be made to Remington's By-Laws.
The text of each By-Law as amended is set forth in its entirety. APPROVAL OF THE
MERGER AGREEMENT SHALL CONSTITUTE APPROVAL OF THE AMENDMENTS TO REMINGTON'S
BY-LAWS.
SECTION 1.2 Special Meetings
Special meetings of the stockholders may be called at any time only by the
Chairman of the Board or the President of the Corporation or by resolution
adopted by the affirmative vote of a majority of the Board of Directors, to be
held at such date, time and place either within or without the State of Delaware
as may be stated in the notice of meeting.
SECTION 2.1 Notice of Stockholder Business and Nominations
(A) Annual Meeting of Stockholders
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting delivered pursuant to Section 1.3 of
Article I of these By-Laws, (b) by or at the direction of the Chairman of
the Board of Directors, or (c) by any stockholder who is entitled to vote
at the meeting, who has complied with the notice procedures set forth in
clauses (2) and (3) of this subsection (A) and this By-Law and who was a
stockholder of record at the time such notice is delivered to the Secretary
of the Corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of the foregoing
subsection (A)(1) of this bylaw, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not less than seventy (70)
days nor more than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than twenty (20) days or
delayed by more than seventy (70) days from such anniversary date, notice
by the stockholder to be timely must be so delivered not earlier than the
ninetieth (90th) day prior to such annual meeting and not later than the
close of business on the later of the seventieth (70th) day prior to such
annual meeting or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person who the stockholder proposes
to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitations
of proxies for election of directors, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), including such person's written consent to
being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (i) the
name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner, and (ii) the class and number of
shares of the capital stock of the Corporation which are owned beneficially
and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of subsection
(A)(2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees
for director or specifying the size of the increased Board of Directors
made by the Corporation at least eighty (80) days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this By-Law shall also be considered timely, but only with
respect to nominees for any new positions
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<PAGE> 51
created by such increase, if it shall be delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following the day on
which such public announcement is first made by the Corporation.
(4) Only persons who are nominated in accordance with the procedures
set forth in this By-Law shall be eligible to serve as directors and only
such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth
in this By-Law. Except as otherwise provided by law, the Restated
Certificate of Incorporation of the Corporation, as amended, or these
By-Laws, the chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set forth in
this By-Law and, if any proposed nomination or business is not in
compliance with this By-Law, to declare that such defective proposal or
nomination shall be disregarded.
(5) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14, or 15 (d) of the Exchange Act.
(6) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this bylaw. Nothing in this By-Law shall be deemed to
affect any right of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
SECTION 2.2 Nomination; Election; Term of Office; Resignation; Removal;
Vacancies
Directors shall be nominated for election by a Nominations Committee
consisting of the Chairman of the Board, the President, and such other members
as may be provided by resolution of the Board. Each director shall hold office
until his or her successor is elected and qualified or until his or her earlier
resignation or removal. Any director may resign at any time upon written notice
to the Board of Directors or to the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. Any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. Unless otherwise
provided in the Restated Certificate of Incorporation or these By-Laws,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors elected by all of the stockholders having the
right to vote as a single class or from any other cause may be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director.
SECTION 6.4 Indemnification of Directors, Officers, Employees and Agents
Each person who is or was a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "Proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such Proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection
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therewith, and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in the second paragraph hereof, the corporation shall indemnify any
such person seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if such Proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this section shall be a contract right and shall
include the right to be paid by the corporation any expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a Proceeding, shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this section or otherwise. The
corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the corporation with the same scope and effect as the
foregoing indemnification of directors and officers. The right to
indemnification and the payment of expenses incurred in defending a Proceeding
in advance of its final disposition conferred in this section shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Restated Certificate of Incorporation,
By-law, agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 6.7 Amendment of By-Laws
The Board of Directors is expressly empowered to adopt, amend or repeal
By-Laws of the corporation, provided, however, that any adoption, amendment or
repeal of By-Laws of the corporation by the Board of Directors shall require the
approval of at least sixty-six and two-thirds percent (66 2/3%) of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board). The stockholders shall
also have power to adopt, amend or repeal By-Laws of the corporation, provided,
however, that in addition to any vote of the holders of any class or series of
stock of this corporation required by law or by this Restated Certificate of
Incorporation the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the then outstanding
shares of the stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required for
such adoption, amendment or repeal by the stockholders of any provisions of the
By-Laws of the corporation.
REASON FOR AMENDMENTS
The proposed amendment to Section 1.2 restates the restriction contained in
the Restated Certificate of Incorporation that only Remington's Chairman of the
Board, its President or a majority of its Board of Directors may call a special
meeting. Section 2.1 sets forth the procedure to be followed by stockholders who
wish to present proposals, including but not limited to, nominations for
director. Remington's current By-Laws do not provide a procedure for stockholder
nominations for director being made at an annual meeting. Under the current
By-Laws, a stockholder may make a nomination for director from the floor. The
proposed amendment to Section 2.1 would remove that ability where the
stockholder has not first followed the procedure specified in the proposed
amendment. This proposed amendment does not materially affect a stockholder's
ability to put forth shareholder proposals other than director nominees as the
procedure required for introducing such proposals, as set forth in the proposed
amendment, is materially the same as required under federal proxy rules and
regulations.
Proposed Section 2.2 establishes a nominations committee for officers and
directors of Remington. The nominations committee is to be composed of
Remington's Chairman of the Board, its President, and other members as
determined by the Board. In the past, Remington's majority stockholder
determined nominations for the Board of Directors. Because, as a result of the
Transaction, no single stockholder will control a majority of the shares, use of
a nominations committee was determined to be the best method for the Board of
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<PAGE> 53
Directors to put forth its nominations for director. The remainder of proposed
Section 2.2 restates the principles contained in Article VI of Remington's
Restated Certificate of Incorporation concerning directors.
The proposed Sections 6.4 and 6.7 to the By-Laws merely restate the
principles of Articles VII and VIII of Remington's Restated Certificate of
Incorporation, respectively.
DESCRIPTION OF REMINGTON CAPITAL STOCK
Upon the consummation of the Merger, the authorized capital stock of the
Company will consist of 100,000,000 shares of Remington Common Stock, par value
$.01 per share, and 25,000,000 shares of Preferred Stock, par value $.01 per
share.
COMMON STOCK
Each outstanding share of Remington Common Stock will entitle its holder to
one vote on all matters voted upon by stockholders of the Company. Holders will
not be entitled to any cumulative voting rights. Unless otherwise specified by
law, the approval of proposals submitted to stockholders at a meeting requires
the affirmative vote of a majority of the shares represented at the meeting.
Subject to the rights of any holders of Preferred Stock, all outstanding shares
of Remington Common Stock are entitled to share equally in such dividends as the
Board of Directors, in its discretion, may validly declare from funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, each outstanding share of Remington Common Stock will entitle its
holder to participate pro rata in the assets remaining after payment of debts,
expenses and amounts due to any holders of Preferred Stock. Stockholders will
have no preemptive or other rights to subscribe for or to purchase additional
shares of any class of stock or any other securities of the Company.
PREFERRED STOCK
The Company's Board of Directors may, without further action by the
Company's stockholders, from time to time direct the issuance of Preferred Stock
in series and may, at the time of issuance, determine the rights, preferences
and limitations of each series. The Board of Directors, without stockholders'
approval, can issue Preferred Stock with voting and conversion rights that could
adversely affect holders of Remington Common Stock. Satisfaction of any dividend
preferences of outstanding Preferred Stock would reduce the amount of funds
available for the payment of dividends on Remington Common Stock. Also, holders
of Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of Remington Common Stock. In addition, under
certain circumstances the issuance of Preferred Stock may render more difficult
or tend to discourage a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Remington Common Stock is
currently American Stock Transfer and Trust Company.
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MARKET FOR REMINGTON'S COMMON STOCK AND DIVIDEND POLICY
The Company has two classes of stock: Remington Class A Stock and Remington
Class B Stock. Both classes trade on the Nasdaq National Market, under the
trading symbols ROILA and ROILB, respectively. The Remington Class A Stock and
Remington Class B Stock also trade on the Pacific Exchange under the symbols
REMA.P and REMB.P, respectively. The following table sets forth, for the periods
indicated, the high and low closing sales price per share for the Remington
Class A Stock and the Remington Class B Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
REMINGTON REMINGTON
CLASS A STOCK CLASS B STOCK
-------------- --------------
HIGH LOW HIGH LOW
------ ----- ------ -----
<S> <C> <C> <C> <C>
1998
Fourth Quarter through October 9, 1998............. 5.000 3.750 4.125 3.625
Third Quarter...................................... 6.750 3.750 5.875 3.375
Second Quarter..................................... 7.250 5.500 6.750 5.375
First Quarter...................................... 6.250 5.125 6.375 5.000
1997
Fourth Quarter..................................... 8.875 5.125 8.125 5.063
Third Quarter...................................... 9.250 6.500 8.750 6.250
Second Quarter..................................... 8.750 6.375 7.500 5.813
First Quarter...................................... 10.500 7.000 9.313 6.625
1996
Fourth Quarter..................................... 11.000 8.000 10.375 8.000
Third Quarter...................................... 10.750 8.000 9.750 8.000
Second Quarter..................................... 11.625 9.000 11.125 8.750
First Quarter...................................... 13.000 8.625 11.375 7.750
</TABLE>
On October 9, 1998, the last reported sales prices of Remington Class A
Stock and Remington Class B Stock were $4.000 and $3.750 per share,
respectively. On such date, there were stockholders of record of
Remington Class A Stock and stockholders of record of Remington Class
B Stock. The Company has not declared or paid any cash dividends since its
commencement of operations in 1992. There are no contractual restrictions on the
amount of dividends that may be paid. However, if dividends in excess of 2% of
the then market price per share of Remington Class B Stock are paid in a
calendar quarter, the conversion price of the 8 1/4% Convertible Subordinated
Notes will be adjusted proportionately. The determination of future cash
dividends, if any, will depend upon, among other things, the Company's financial
condition, cash flow from operating activities, the level of its capital and
exploration expenditure needs and its future business prospects.
45
<PAGE> 55
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of July 20, 1998, the following persons held shares of Remington Class A
Stock in amounts totaling more than 5% of the total shares of such class
outstanding. This information was furnished to the Company by such persons or in
statements filed with the Commission.
<TABLE>
<CAPTION>
PRE-TRANSACTION POST-TRANSACTION
--------------------------------- ---------------------------------
SHARES OF PERCENT OF SHARES OF
REMINGTON REMINGTON REMINGTON PERCENT OF
NAME AND ADDRESS OF CLASS A STOCK CLASS A COMMON STOCK REMINGTON
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK BENEFICIALLY OWNED COMMON STOCK
------------------- ------------------ ------------ ------------------ ------------
<S> <C> <C> <C> <C>
S-Sixteen Holding Company......... 1,840,525(1) 57% 5,631,028(2) 27%
1105 North Market, Suite
Wilmington, Delaware 19801
Estate of Basil Georges........... 442,500 14% 508,875(3) 2.3%
200 Crescent Court, Suite 1800
Dallas, Texas 75201
Pat Rutherford, Jr. .............. 292,500 9% 336,375(3) 1.6%
1550 Two Shell Plaza
Houston, Texas 77002
</TABLE>
- ---------------
(1) SSHC is wholly owned by BBHC Acquisition Co., L.L.C., a Delaware limited
liability company (the "LLC"). S-Sixteen Limited Partnership ("SSLP"), an
Idaho limited partnership, is the sole member of the LLC. The sole general
partner of SSLP is the J.R. Simplot Self Declaration of Revocable Trust
dated December 21, 1989, an inter vivos revocable trust of which Mr. J.R.
Simplot is the trustee and beneficiary.
(2) Because SSHC will cease to exist upon consummation of the Transaction and
the shares of Remington Class A Stock and Remington Class B Stock that it
directly holds will be cancelled, this figure represents all shares of
Remington Common Stock beneficially owned by the LLC, Mr. Simplot and his
affiliates. This figure does not include shares beneficially owned by Mr.
Hawk or Mr. Lyle and also does not include 300,000 shares purchasable under
the Warrant.
(3) This figure is based upon the number of shares of Remington Class A Stock
beneficially owned Pre-Transaction. The number of shares of Remington Class
B Stock beneficially owned, if any, has not been reported to the Company.
PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited, pro forma condensed consolidated financial
statements of Remington give effect to the conversion of Remington Class A Stock
and Remington Class B Stock into Remington Common Stock and the Merger.
The pro forma balance sheet was prepared as if the transaction occurred on
June 30, 1998. The pro forma income statements for the year ended December 31,
1997 and the six months ended June 30, 1998 were prepared as if the Transaction
occurred January 1, 1997.
The pro forma condensed consolidated financial statements are not
necessarily indicative of the consolidated financial position or results of
operations as they might have been had the Transaction actually occurred on the
dates indicated. The pro forma condensed consolidated financial statements
should be read in conjunction with the financial statements of Remington and
SSHC contained elsewhere in this Prospectus and Proxy Statement beginning on
page F-1.
46
<PAGE> 56
REMINGTON OIL AND GAS CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------------------------
REMINGTON SSHC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
(UNAUDITED, AND IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents............... $ 4,613 $ 234 $ (935)(a) $ 3,912
Accounts and notes receivable........... 10,058 488 (5,633)(b) 4,913
Prepaid expenses and other current
assets............................... 1,852 49 (250)(a) 1,651
--------- ------- -------- ---------
Total current assets............ 16,523 771 (6,818) 10,476
--------- ------- -------- ---------
Oil and gas properties, pipeline and
other properties..................... 237,464 5,840 1,554(a) 244,858
Accumulated depreciation, depletion,
amortization and dismantlement....... (155,422) (3,323) 3,323(a) (155,422)
Marketable securities
(available-for-sale)................. -- 13,087 (11,896)(a) --
(1,191)(b)
Other deferred assets................... 911 189 1,100
--------- ------- -------- ---------
Total assets.................... $ 99,476 $16,564 $(15,028) $ 101,012
========= ======= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts and short-term notes payable... $ 19,561 $ 5,947 $ (64)(a) $ 19,811
(5,633)(b)
Long-term debt and notes payable........ 38,371 1,895 (1,895)(a) 38,371
Minority interest in subsidiaries....... -- 113 190(a) 303
--------- ------- -------- ---------
Total liabilities............... 57,932 7,955 (7,402) 58,485
--------- ------- -------- ---------
Commitments and contingencies
Stockholders' equity
Preferred Stock 25,000,000 authorized... -- -- --
Common Stock $0.01 par value 100,000,000
authorized; 21,876,816 issued........ -- -- 214(a) 212
(2)(b)
Class A (Voting) Common Stock........... 3,250 -- (3,250)(a) --
Class B (Non-Voting) Common Stock....... 17,572 1 (17,573)(a) --
Additional paid in capital.............. 25,283 1,944 17,677(a) 43,715
(1,189)(b)
Treasury stock, at cost................. (3,161) (2,057) 5,218(a) --
Retained earnings (deficit)............. (1,400) 12,476 (12,476)(a) (1,400)
Unrealized (loss) on marketable
securities........................... (3,755) 3,755(a) --
--------- ------- -------- ---------
Total stockholders' equity...... 41,544 8,609 (7,626) 42,527
--------- ------- -------- ---------
Total liabilities and
stockholders' equity.......... $ 99,476 $16,564 $(15,028) $ 101,012
========= ======= ======== =========
</TABLE>
See accompanying Notes to the Pro Forma Condensed Consolidated Financial
Statements.
47
<PAGE> 57
REMINGTON OIL AND GAS CORPORATION
PRO FORMA CONDENSED INCOME STATEMENT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------
REMINGTON SSHC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
(AUDITED) (UNAUDITED)
----------------------------- ---------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue
Oil and Gas Sales........................ $ 57,304 $ 66 $ 57,370
Pipeline revenue......................... -- 3,216 (2,680)(a) 536
Other income............................. 3,749 53 (437)(a) 3,365
-------- ------- ------- --------
Total revenues................... 61,053 3,335 (3,117) 61,271
-------- ------- ------- --------
Costs and expenses
Operating costs.......................... 6,866 120 (2,680)(a) 4,306
Net profits expense...................... 8,341 -- 8,341
Exploration expense...................... 8,554 -- 8,554
Depreciation, depletion, amortization and
dismantlement......................... 24,298 315 412(b) 25,025
Impairment of oil and gas properties..... 3,953 -- 3,953
General and administrative expenses...... 8,853 1,691 10,544
Reorganization expense................... 7,072 122 7,194
Interest and financing costs............. 5,283 661 (437)(a) 5,507
-------- ------- ------- --------
Total costs and expenses......... 73,220 2,909 (2,705) 73,424
-------- ------- ------- --------
Income (loss) before income taxes and
minority interests....................... (12,167) 426 (412) (12,153)
Income taxes............................. 14,623 1,063 15,686
-------- ------- ------- --------
Income (loss) before minority interests.... (26,790) (637) (412) (27,839)
-------- ------- ------- --------
Minority interests....................... -- (73) (16)(b) (89)
-------- ------- ------- --------
Net income (loss)................ $(26,790) $ (564) (396) $(27,750)
======== ======= ======= ========
Basic and diluted income (loss) per
share.................................... $ (1.31) $(13.42) $ (1.29)
======== ======= ========
Weighted average shares common stock
outstanding.............................. 20,524 42 21,589
======== ======= ========
</TABLE>
See accompanying Notes to the Pro Forma Condensed Consolidated Financial
Statements.
48
<PAGE> 58
REMINGTON OIL AND GAS CORPORATION
PRO FORMA CONDENSED INCOME STATEMENT
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------------
REMINGTON SSHC PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) ADJUSTMENTS CONSOLIDATED
------------- ------------- ----------- ------------
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues
Oil and Gas Sales........................ $23,063 $ 21 $23,084
Pipeline revenue......................... -- 1,706 (1,422)(a) 284
Other income............................. 1,500 -- (283)(a) 1,217
------- ------ ------ -------
Total revenues................... 24,563 1,727 (1,705) 24,585
------- ------ ------ -------
Costs and expenses
Operating costs.......................... 4.494 67 (1,422)(a) 3,139
Net profits expense...................... 3,043 -- 3,043
Exploration expense...................... 3,631 -- 3,631
Depreciation, depletion, amortization and
dismantlement......................... 11,934 152 210(b) 12,296
General and administrative expenses...... 2,552 169 2,721
Interest and financing costs............. 2,061 390 (283)(a) 2,168
------- ------ ------ -------
Total costs and expenses......... 27,715 778 (1,495) 26,998
------- ------ -------
Income (loss) before income taxes and
minority interest........................ (3,152) 949 (210) (2,413)
Income taxes............................. -- 9 9
------- ------ ------ -------
Income (loss) before minority interest..... (3,152) 940 (210) (2,422)
------- ------ -------
Minority interest........................ -- 54 (8)(b) 46
------- ------ ------ -------
Net income (loss).......................... $(3,152) $ 886 $ (202) $(2,468)
======= ====== ====== =======
Basic and diluted income (loss) per
share.................................... $ (0.15) 22.72 $ (0.12)
======= ====== =======
Weighted average shares common stock
outstanding.............................. 20,370 39 21,210
======= ====== =======
</TABLE>
See accompanying Notes to the Pro Forma Condensed Consolidated Financial
Statements.
49
<PAGE> 59
REMINGTON OIL AND GAS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Remington currently has two classes of common stock outstanding, Remington
Class A Stock and Remington Class B Stock. SSHC directly owns 1,840,525 shares
of Remington Class A Stock and 88,668 shares of Remington Class B Stock.
Remington will issue 1.15 shares of Remington Common Stock for each outstanding
share of Remington Class A Stock not directly owned by SSHC, 1 share of
Remington Common Stock for each outstanding share of Remington Class B Stock not
directly owned by SSHC, and 72.329 shares of Remington Common Stock for each
outstanding share of SSHC Stock. In addition, SSHC's stockholder will receive
the Warrant to purchase up to 300,000 shares of Remington Common Stock. The
shares of Remington Class A Stock and Remington Class B Stock directly owned by
SSHC will be canceled as will the treasury stock held by Remington. In addition,
the SSHC Note payable to Remington from SSHC will be canceled and the SSHC
Stockholder Note payable to the stockholder of SSHC will be contributed to the
capital of SSHC.
The Merger between Remington and SSHC will be accounted for as a purchase
transaction. Remington has estimated the adjustments necessary to allocate the
aggregate purchase price to the assets acquired from SSHC. Such allocations are
subject to final appraisals and other evaluations of fair value as of the date
of the transaction. The final purchase price and allocation depends on the
balances at closing of the SSHC Note, the margin debt assumed from CKBA, and the
minority interest in subsidiaries. The Company will not know the precise
balances until a few days after the Transaction date.
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The weighted average closing market price of Remington Class B Stock from
June 18, 1998 to June 24, 1998 was used to determine the value of the shares
issued in exchange for SSHC Stock and the fair value of such stock owned by SSHC
which is offset against the Remington Common Stock issued to the stockholder of
SSHC. The value of the Warrant to be issued is determined using the
Black-Scholes option pricing model. After the Remington Common Stock is issued
in exchange for the SSHC Stock, the Remington Class A Stock and the Remington
Class B Stock owned directly by SSHC will be canceled. The following table
reflects the aggregate purchase price of SSHC.
<TABLE>
<CAPTION>
AGGREGATE PURCHASE PRICE
------------------------
(IN THOUSANDS)
<S> <C>
Remington Common Stock issued in exchange for SSHC common
stock; 2,785,028 shares @ $5.782 per share................ $ 16,103
Remington Common Stock Warrants issued; 300,000 warrants.... 423
Less fair value of 2,205,272 shares of stock after exchange
@ $5.782 per share........................................ (12,751)
Note receivable from SSHC to Remington canceled (estimated
balance on transaction date).............................. 4,893
Accounts payable and other current liabilities.............. 97
Minority interest in subsidiaries........................... 303
Margin debt of CKBA assumed................................. 477
--------
Total aggregate purchase price.............................. $ 9,545
========
</TABLE>
50
<PAGE> 60
REMINGTON OIL AND GAS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
The following table allocates the aggregate purchase price to the
individual categories of assets acquired:
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 234
Accounts and notes receivable............................... 488
Prepaid expenses and other current assets................... 49
Oil and gas properties, pipeline and other property......... 7,394
Remington Common Stock held by CKBA......................... 1,191
Other assets................................................ 189
------
$9,545
======
</TABLE>
Adjustments to the Pro Forma Condensed Consolidated Balance Sheet were made
to:
a) Record the issuance of 21,431,791 shares of Remington Common Stock
and the Warrant in exchange for Remington Class A Stock, Remington Class B
Stock and SSHC Stock. Record the allocation shown in the table above.
Record the cancellation of stock held in treasury by Remington.
As required by the Merger Agreement, SSHC will continue to make
payments on the SSHC Note. Remington estimated that it would receive
$415,000 for principal payments on the SSHC Note between the financial
statement date of June 30, 1998 and the closing of the Transaction. In
addition, Remington will incur an estimated $1.6 million in issuance costs
for the exchange of common stock. The estimated issuance costs include
$250,000 that was paid prior to June 30, 1998 and $1.35 million to be paid
between June 30, 1998, and the Transaction date. The net pro forma
adjustment to record the above estimates decreased cash by $935,000 and
prepaid expenses by $250,000.
In accordance with the Merger Agreement, the $1.9 million SSHC
Stockholder Note and the related accrued interest will be contributed to
additional paid-in capital of SSHC. The pro forma adjustment to record this
contribution of capital thereby decreases accounts payable by $64,000 for
the accrued interest and decreases long-term debt and notes payable by $1.9
million.
The following table reconciles the entry to the stockholders equity
accounts to record the Transaction.
<TABLE>
<CAPTION>
CLASS A CLASS B REMINGTON
COMMON COMMON COMMON UNREALIZED
STOCK STOCK STOCK ADDITIONAL (LOSS) ON
$1.00 PAR $1.00 PAR $0.01 PAR PAID IN TREASURY RETAINED MARKETABLE
VALUE VALUE VALUE CAPITAL STOCK EARNINGS SECURITIES
--------- --------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issue Remington Common Stock in
exchange for and cancellation of
the Class A Stock and Class B
Stock........................... $(3,250) $(17,572) $208 $ 17,454 $3,161 $(16,802) $ 4,822
Issue Remington Common Stock and
Warrant for Merger.............. 6 3,768
Contribute SSHC Stockholder Note
and accrued interest to
additional paid in capital...... 1,959
Record assets and liabilities at
fair value...................... 2,063 (1,067)
Estimated principal reductions in
the SSHC Note between June 30,
1998, and the closing of the
Transaction..................... 415
Cancel SSHC Treasury Stock........ (1) (2,056) 2,057
Issuance costs.................... (1,600)
Eliminate remaining balance of
SSHC retained earnings.......... (1,848) 1,848
------- -------- ---- -------- ------ -------- -------
Pro forma adjustment to Combined
Stockholders Equity to record
the Transaction................. $(3,250) $(17,573) $214 $ 17,677 $5,218 $(12,476) $ 3,755
======= ======== ==== ======== ====== ======== =======
</TABLE>
51
<PAGE> 61
REMINGTON OIL AND GAS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
b) Eliminate the accounts receivable and accounts payable between
Remington and SSHC and eliminate 205,975 shares of Remington Common Stock
held by CKBA.
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
Adjustments to the condensed consolidated income statements for the year
ending December 31,1997 were made to:
a) Record elimination adjustments for transportation expense paid by
Remington to CKBP and the interest expense paid to Remington by SSHC.
b) Record additional depreciation, depletion and amortization expense
on the allocated fair value of the depreciable assets in excess of the
original cost of the assets.
Adjustments to the condensed consolidated income statement for the six
months ended June 30, 1998 were made to:
a) Record elimination adjustments for transportation expense paid by
Remington to CKBP and the interest expense paid to Remington by SSHC.
b) Record additional depreciation, depletion and amortization expense
on the allocated fair value of the depreciable assets in excess of the
original cost of the assets.
52
<PAGE> 62
INFORMATION CONCERNING REMINGTON
THE COMPANY
Remington is an independent oil and gas exploration and production company
with activity and properties in the Gulf of Mexico, Mississippi, Alabama, Texas
and New Mexico. Remington is incorporated in Delaware with its executive offices
located at 8201 Preston Road, Suite 600, Dallas, Texas 75225-6211 (telephone
number 214/210-2650). The Company employed 20 people on June 30, 1998.
Originally organized in 1981 as OKC Limited Partnership (the "Partnership"), the
Company converted to a corporation named Box Energy Corporation on April 15,
1992 (the "Corporate Conversion"). The Corporate Conversion involved the
exchange of the Company's common stock for the assets and liabilities of the
Partnership. The Partnership distributed the common stock to its partners and
other unitholders on a one-for-one basis and then dissolved. Box Energy
Corporation changed its name to Remington Oil and Gas Corporation in December
1997.
The Company has two classes of stock, Remington Class A Stock and Remington
Class B Stock. Remington Class A Stock carries voting rights while no voting
rights are carried by the Remington Class B Stock, unless otherwise required by
Delaware law. However, both classes are entitled to equal participation in
earnings, dividends and liquidation proceeds. Unless otherwise required by the
context, the term "Company" or "Remington" includes Remington Oil and Gas
Corporation, Box Energy Corporation and the Partnership.
SSHC, formerly known as Box Brothers Holding Company ("BBHC"), owns 1.8
million shares or approximately 57% of the outstanding Remington Class A Stock.
In August 1997, entities controlled by Mr. J. R. Simplot purchased all of the
voting stock of BBHC (the "Simplot Transaction").
LONG-TERM BUSINESS STRATEGY
The Company is primarily engaged in one industry segment and one line of
business, which is finding, developing, and producing oil and natural gas
reserves. The Company's strategy for 1997 was to focus on stopping a decline in
oil and natural gas reserves. The Company accomplished this objective by
increasing oil and natural gas reserves at December 31, 1997 by approximately
seven percent on a barrel of oil equivalent ("BOE") basis over oil and natural
gas reserves at December 31, 1996. The long-term strategy for the future will
continue to focus on increasing reserves by sustaining an acceptable annual
growth rate for reserves with finding and development costs in line with
industry peers. Capital expenditures, financed primarily by operating cash flow,
will entail a balanced exploration, development and acquisition program.
Prior to July 1, 1998, natural gas production from one of the Company's
producing properties, South Pass Block 89, was subject to a gas sales contract
containing prices substantially higher than current spot market prices. On July
31, 1998, the Company and Texas Eastern Transmission Corporation ("TETCO")
agreed to terminate the South Pass Block 89 long-term gas sales contract
effective June 30, 1998 (the "TETCO Contract Termination"). TETCO made a
Termination Payment (as defined in the agreement) to the Company in the amount
of $49.8 million. As part of the termination agreement, TETCO was released from
the gas purchase contract, including gas substitution and indemnification rights
thereunder, as well as related indemnification and other obligations under a
1990 settlement agreement. Remington will sell on the spot market all gas
produced after June 30, 1998 from South Pass Block 89. Under the gas contract,
which was to expire in July 2002, the Company was receiving $12.38 per Mcf for
gas produced from the southern portion of South Pass Block 89 and $6.83 per Mcf
for gas produced from the northern portion of the block, with the gas price
escalating 10% per year. Gas sales revenue received under the long-term contract
in excess of the average non-contract spot market price for this block was $5.8
million for the first six months of 1998 and was estimated to have been $4.3
million for the last six months of 1998 but for the TETCO Contract Termination.
The Company employs operational, technical and support staff that conduct
independent evaluations of the acquisition, exploration and development
activities in three core areas: Gulf of Mexico, Mississippi/ Alabama and onshore
Gulf Coast area. Remington owns three 3-D workstations and utilizes current
technology to generate oil and gas prospects in its core areas and to review
outside-generated oil and gas prospects which are available for acquisition,
farm-in or working interest participation.
53
<PAGE> 63
COMPETITION
The Company faces competition from large integrated oil and gas companies,
independent exploration and production companies, private individuals and
sponsored drilling programs. The Company competes for operational, technical and
support staff, options and/or leases on prospective oil and natural gas
properties and sales of products from developed properties. Many of the
Company's competitors have significantly more financial, personnel,
technological and other resources available. In addition, some of the larger
integrated companies may be better able to respond to industry changes including
price fluctuations, oil and gas demands and governmental regulations.
MARKETS
The Company sells its oil production based upon a market price for crude
oil as posted from day to day by major purchasers. The applicable posted price
is modified for crude oil quality, refined product yields, geographical
proximity to refineries and availability of transportation facilities. In
certain areas, because of the volume produced, the Company negotiates a premium
over the posted prices. Oil prices fluctuate significantly over time because of
changes in supply and demand, changes in refinery utilization, levels of
economic activity throughout the country and political developments throughout
the world.
Prior to July 1, 1998, the Company sold its natural gas production from
South Pass Block 89 under a sales contract with TETCO which was to expire on
July 15, 2002. Due to the TETCO Contract Termination, Remington will sell all
gas produced from and after July 1, 1998 from South Pass Block 89 on the spot
market at spot market prices or a derivation thereof as it has done with its
non-contract natural gas. Late in 1997, the Company began to use a third party
to market a significant portion of its non-contract natural gas production.
Natural gas spot market prices fluctuate significantly because of changes in
supply and demand, resulting from seasonal or extraordinary weather patterns and
levels of economic activity throughout the country.
MAJOR CUSTOMERS
Purchases by BayOil (USA), Inc. during 1997 and 1996 represented 31% and
18%, respectively, of the Company's total oil and natural gas revenues. Marathon
Oil Company's purchases during 1995 accounted for 25% of the total oil and
natural gas revenues for that year. Purchases by TETCO during 1997, 1996 and
1995 represented 42%, 51%, and 70%, respectively, of the total oil and natural
gas revenues.
RISK OF COMPANY OPERATIONS
Exploration, development and production operations involve a high degree of
risk. Unprofitable efforts may result not only from dry holes but also from
marginally productive wells that do not produce oil or gas in sufficient
quantities to return a profit on the amounts expended. The Company is dependent
upon production from wells in the South Pass area. The loss of one well could
cause a material decline in revenues, cash flow and profitability. Prior to the
TETCO Contract Termination, Remington was also dependent upon the continued
performance of TETCO under the long-term gas sales contract covering South Pass
Block 89. The failure of TETCO to perform under the contract could have caused a
material decline in revenues, cash flow and profitability. Approximately
one-half of the value of the TETCO contract, as evaluated by the Company's
independent reservoir engineers, was associated with an undrilled well location
in the U/1/1 reservoir in South Pass Block 89. Engineering and geological data
supported the classification of this undrilled location as proved undeveloped
reserves. However, the Company felt that the risks of drilling the well were not
appropriate for a company of Remington's size to undertake. Remington believed
that it was in the best interest of the Company and its stockholders to
negotiate the TETCO Contract Termination and to monetize the contract rather
than drill the undeveloped location. The utilization of 3-D seismic data or
other technology to identify and define the parameters of drilling prospects may
be unprofitable in situations where the interpretation of the data determines
that a prospect should not be drilled or indicates that a prospect should be
drilled which later proves to be unproductive. The success of the Company's
operations depends, in part, upon the ability and continued employment of its
management and technical personnel. Accordingly, there is no assurance that the
Company's oil and gas drilling or acquisition activities will be successful,
that significant additional production
54
<PAGE> 64
will be obtained, that any such production, if obtained, will be profitable or
that the Company's management and technical personnel will make correct
decisions or continue to be employed.
The Company's operations are subject to all of the operating hazards and
risks normally incident to drilling for and producing oil and gas, such as title
risks, exploration risks, geophysical interpretation risks and risks of
encountering unusual or unexpected formations and pressures, blowouts,
environmental pollution and personal injury. The Company maintains general
liability insurance and insurance against blowouts, redrilling expenses and
certain other operating hazards, including certain pollution risks, at levels
that are customary for the industry. If the Company sustains an uninsured loss
or liability, or if the amount of loss exceeds the limits of its insurance, its
financial condition may be materially adversely affected.
GOVERNMENTAL REGULATION
Oil and Gas Operations
As an oil and gas company, Remington is subject to numerous federal and
state regulations as it pursues its domestic exploration, production and oil and
natural gas sales activities. Current regulations are constantly reviewed at the
same time that new regulations are being considered and implemented. This
regulatory burden upon the oil and gas industry increases its cost of doing
business and consequently affects its profitability. These burdens are increased
because the Company holds federal leases which, as government contracts, require
the Company to comply with numerous regulations not focused simply on the oil
and gas industry but on government contractors as a whole. These regulations
increase the Company's general and administrative costs.
State regulatory agencies further exert a regulatory burden on the Company.
State regulations relate to virtually all aspects of the oil and gas business
including drilling permits, bonds and operation reports. In addition, many
states have regulations relating to or pooling of oil and gas properties,
maximum rates of production, and the spacing, plugging and abandonment of wells.
Environmental
Remington's oil and gas operations are subject to stringent federal, state
and local laws and regulations relating to improving or maintaining the quality
of the environment. The Company's costs associated with environmental
compliance, while not yet of a material amount, have increased over time and the
Company expects such costs to rise in the future. Moreover, the cost of
compliance with federal and state legislation, such as the Oil Pollution Act of
1990 and the Clean Water Act together with their amendments, could have a
significant impact on the financial ability of the Company to carry out its oil
and gas operations. The Company's future compliance with the legislation and
accompanying regulations could impose financial responsibility requirements,
liability and operational requirements which could have an adverse impact on the
Company's results of operations.
The laws, which require or address environmental remediation, apply
retroactively to previous waste disposal practices. In many cases, these laws
apply regardless of fault, legality of the original activities or ownership or
control of sites. Liability under these laws can result in severe fines and
cleanup costs being levied against the liable party. Although the Company has
never been a liable party under these laws or been named a potentially
responsible party for waste disposal at any site, there can be no assurance that
the Company will not become liable in the future.
OTHER BUSINESS CONDITIONS
Except for its oil and gas leases with third parties, the Company has no
material patents, licenses, franchises or concessions which it considers
significant to its oil and gas operations. The nature of the Company's business
is such that it does not maintain or require a "backlog" of products, customer
orders or inventory. The Company has not been a party to any bankruptcy,
reorganization, adjustment or similar proceeding. Generally, the Company's
business activities are not seasonal in nature. However, weather
55
<PAGE> 65
conditions affect the demand for natural gas and can hinder drilling activities.
Demand for natural gas is typically higher during winter months.
OIL AND GAS PROPERTIES
The following table presents the Company's gross and net acreage at
December 31, 1997.
<TABLE>
<CAPTION>
UNDEVELOPED DEVELOPED
---------------- ---------------
GROSS NET GROSS NET
------- ------ ------ ------
<S> <C> <C> <C> <C>
Offshore Gulf of Mexico........................... 75,646 36,672 23,534 6,094
Onshore Gulf Coast................................ 39,339 6,200 16,500 3,316
Mississippi/Alabama............................... 31,096 13,644 860 607
Other............................................. 4,951 2,746 754 189
------- ------ ------ ------
Total................................... 151,032 59,262 41,648 10,206
======= ====== ====== ======
</TABLE>
Estimates of oil and gas reserves were prepared by the independent
engineering and consulting firm of Netherland, Sewell & Associates, Inc. for
1996 and 1995, and by Netherland, Sewell & Associates, Inc. and Miller and
Lents, Ltd for 1997. Proved reserves are the estimated quantities that geologic
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are the quantities expected to be
recovered thorough existing wells with existing equipment and operating methods.
Proved undeveloped reserves are reserves that are expected to be recovered from
new wells on undrilled acreage or from existing wells where a relatively major
expenditure is required for recompletion. The determination of these reserves is
a complex and interpretive process that is subject to continued revision as
additional information becomes available. In most cases, a relatively accurate
determination of reserves may not be possible for several years due to the time
necessary for development drilling, testing and studies of the reservoirs.
The quantities of proved oil and gas reserves presented include only those
amounts which the Company reasonably expects to recover in the future from known
oil and gas reservoirs under existing economic and operating conditions. Proved
reserves are limited to those quantities which are recoverable commercially at
current prices and costs under existing regulatory practices and technology.
Therefore, any changes in future prices, costs, regulations, technology and
unforeseen factors could significantly increase or decrease proved reserve
estimates.
The following table presents the Company's net proved oil and natural gas
reserves by area at December 31, 1997 as evaluated by Netherland, Sewell &
Associates, Inc. and Miller and Lents, Ltd. Netherland, Sewell & Associates,
Inc. has evaluated all of the Company's reserves except for the Onshore Gulf
Coast where the properties they have evaluated resulted in estimated gross
reserves of 43 MBO (5 MBO net) and 1,288 MMcf (233 MMcf net) at December 31,
1997.
<TABLE>
<CAPTION>
OIL (MBO) GAS (MMCF)
-------------- ----------------
GROSS NET GROSS NET
------ ----- ------- ------
<S> <C> <C> <C> <C>
Offshore Gulf of Mexico............................ 10,043 2,211 141,457 30,234
Onshore Gulf Coast................................. 4,971 944 41,173 6,273
Mississippi, Alabama............................... 2,136 1,271 0 0
Other.............................................. 110 25 164 36
------ ----- ------- ------
Total.................................... 17,260 4,451 182,794 36,543
====== ===== ======= ======
</TABLE>
Offshore Gulf of Mexico
Oil and natural gas reserves totaling 2.2 million barrels of oil ("MMBO")
and 30.2 billion cubic feet of gas ("Bcf") in the Gulf of Mexico, represent
approximately 50% and 83% of Remington's total net oil and natural gas reserves,
respectively. The Company has and continues to diversify its offshore portfolio
away from the South Pass area through new lease purchases, evaluation of
proposals of outside parties and evaluation of
56
<PAGE> 66
acquisition opportunities. The Company owns three 3-D workstations for
evaluating offshore prospects and has purchased an extensive database of both
2-D and 3-D seismic for reviewing exploration and development opportunities. The
Company owns interests in several undeveloped offshore blocks that, depending on
rig availability and partner approvals, will be drilled in 1998 or beyond. The
following table presents the proved oil and natural gas reserves for major
properties in the Gulf of Mexico at December 31, 1997.
<TABLE>
<CAPTION>
OIL (MBO) GAS (MMCF)
-------------- ----------------
GROSS NET GROSS NET
------ ----- ------- ------
<S> <C> <C> <C> <C>
South Pass 89...................................... 4,516 943 48,660 10,140
South Pass 87...................................... 2,920 709 42,314 10,993
South Pass 86...................................... 953 199 16,804 3,501
Eugene Island 135.................................. 942 118 27,165 3,396
West Cameron 170................................... 712 242 6,400 2,172
Main Pass 262...................................... 0 0 114 32
------ ----- ------- ------
Total.................................... 10,043 2,211 141,457 30,234
====== ===== ======= ======
</TABLE>
South Pass Block 89
The Company acquired South Pass Block 89 through a farmout from Aminoil
USA, now Phillips Petroleum Company ("Phillips") in 1977. The Company has a 25%
working interest burdened with a 33% Net Profits Interest ("NPI") to Phillips
pursuant to the original farmout. Remington and Phillips are currently involved
in litigation concerning the calculation of the NPI. Marathon Oil Company
("Marathon") is operator of the block. Prior to June 30, 1998, the Company's
natural gas production was subject to a gas sales contract through July 15, 2002
with TETCO. Because of the TETCO Contract Termination, Remington will sell all
gas produced from and after July 1, 1998 from South Pass Block 89 on the spot
market.
Platform B was installed in South Pass Block 89 in 1991 and has produced
48.7 MMBO (10.2 MMBO net) and 174.6 Bcf (36.4 Bcf net). The U-sand is the
primary reservoir on the block with the beds orientated almost vertically
adjacent to a sub-surface salt dome. At December 31, 1997, one well was
producing from this reservoir and 11 wells were producing from shallower
reservoirs. The Company's reserve report reflects the necessity of an additional
well to produce all the reserves defined.
The Company is producing two wells from Platform C, into the northern
portion of South Pass Block 89. The platform is physically located on South Pass
Block 86, immediately to the north of South Pass Block 89. The two wells in
South Pass Block 89 are completed in the U-sand reservoir, but in an isolated
fault block separated from the U-sand production from Platform B. The U-sand
reservoir in this location is not as structurally complex as at Platform B.
Cumulative production from the Platform C wells completed in South Pass Block 89
as of December 31, 1997 was 5.2 MMBO (1.08 MMBO net) and 28.5 Bcf (5.9 Bcf net).
The platform was installed in 1992 and Marathon is the operator.
South Pass Block 87, West Delta Block 128
Platform D, located on South Pass Block 87 to the northwest of South Pass
Block 89 was installed in 1995 with Marathon as operator. There are five wells
producing from South Pass Block 87 and West Delta Block 128. The Company has a
33% working interest in the four wells in South Pass Block 87 and a 20% working
interest in one well in West Delta Block 128. Cumulative production from
Platform D, all of which has been from the U-sand, through December 1997 was 5.0
MMBO (1.0 MMBO net) and 24.9 Bcf (5.2 Bcf net). Additional drilling is
anticipated on this block in 1998.
South Pass Block 86
The Company completed five wells from Platform C in the southern portion of
South Pass Block 86. The Company has a 25% working interest in the block and
Marathon is the operator. The primary reservoir is the U-sand. Cumulative
production from 1992 to December 31, 1997 was 3.6 MMBO (748 MBO net) and 16.6
Bcf (3.5 Bcf net).
57
<PAGE> 67
Eugene Island Block 135
The Company acquired a 15% working interest in the block in 1995, drilled,
and successfully tested the #1 well in 1996. In 1997, a platform was installed,
the A-1 well completed, the A-2 well drilled and completed and the A-3 well
partially drilled. Enron Oil and Gas Company is operator of the block. The A-3
well was completed in 1998 and additional drilling may be proposed. Production
from Eugene Island Block 135 commenced in the last quarter of 1997 with
cumulative production of 83 MBO (10 MBO net) and 600 MMcf (76 MMcf net). The
Company acquired a 20% working interest in Eugene Island Blocks 153 and 154
immediately to the south of Eugene Island Block 135 in 1997.
West Cameron Block 170
The Company acquired a 42% working interest in this block in 1997. CXY
Energy Offshore, Inc. ("CXY") is the operator and the block has a production
platform in place. Drilling commenced on the #2 well in 1997 and the well logged
sufficient pay to book proved oil and natural gas reserves in the shallow
portion of the hole before year-end. Deeper pays have been drilled in the well
and it is anticipated to be completed in 1998. The deeper pays are not included
in the December 31, 1997 proved oil and natural gas reserves. The Company
anticipates additional drilling on this block before the end of 1998.
Main Pass Block 262
The Company completed three wells from the platform on this block in 1996
and 1997. The Company has a 33% working interest in the block and CXY is the
operator. These wells did not perform as anticipated and the undepreciated cost
of the wells was impaired in the fourth quarter of 1997. The Company anticipates
drilling a deeper exploratory test well from the platform in 1998.
Mississippi/Alabama
In the onshore Mississippi/Alabama area, the Company's proved oil reserves
are 1.3 MMBO, representing approximately 29% of Remington's net proved oil
reserves at December 31, 1997. Currently, the Company has an interest in two
developed fields and one developing field. Using local contractors, the Company
has developed several prospects for drilling in 1998 and beyond. These local
contractors not only develop prospects but act as operator for the drilling and
production efforts. This program is anticipated to continue, using a database of
2-D data coupled with specific 3-D data on field discoveries. The following
table presents the proved oil reserves attributable to Mississippi/Alabama at
December 31, 1997.
<TABLE>
<CAPTION>
OIL (MBO)
-------------
GROSS NET
----- -----
<S> <C> <C>
East Melvin................................................. 103 43
Indian Wells................................................ 355 261
Parker Creek................................................ 1,678 967
----- -----
Total............................................. 2,136 1,271
===== =====
</TABLE>
East Melvin Field
The East Melvin field, located in Choctaw County, Alabama, is a two-well
field that produces from the Smackover formation. The Company has a 52% working
interest in the field. The second well in the field was drilled in 1997 and is
anticipated to be completed in 1998. The Company does not expect any further
development of this field.
Indian Wells Field
The Indian Wells field is located in Jasper County, Mississippi and
produces from the Rodessa formation. The Company has a 92% working interest in
the field. Two wells are completed in the field and no additional development is
anticipated.
58
<PAGE> 68
Parker Creek Field (formerly Moselle Dome Prospect)
The Parker Creek field is on the flank of a salt dome located in Jones
County, Mississippi. The first well drilled in 1996 and completed in 1997
encountered pays from the shallow Eutaw and Tuscaloosa interval above 8000 feet
and the Hosston interval below 14,000 feet. The Company completed this first
deep well in the Hosston interval in the first quarter of 1997. The Company
completed a second well, the first shallow well completion, in the Tuscaloosa
interval during the third quarter of 1997. The shallow Eutaw and Tuscaloosa are
heavy oils. In the fourth quarter of 1997, the Company began drilling both a
second deep well and a second shallow well. Both wells were completed and
producing in 1998. A newly acquired 3-D seismic survey is scheduled to be
completed in the summer of 1998. Additional drilling is anticipated in the field
after interpretation of the 3-D seismic survey is completed. During the partial
year of 1997, the field produced 162 MBO (98 MBO net).
Onshore Gulf Coast
The Company's net proved oil and natural gas reserves in the onshore Gulf
Coast area are 944 MBO and 6.2 Bcf, representing approximately 21% and 17% of
the net proved oil and natural gas respectively. The Company initiated an active
acquisition program in this area in 1997 along with participating in an active
exploration program conducted by Suemaur Exploration, Inc. This exploration
program has resulted in 3-D surveys defining several prospects that are
anticipated to be drilled in 1998 and beyond. The acquisition program resulted
in one acquisition of interests in six separate fields in 1997. The Company
anticipates using the knowledge gained from participating in the various 3-D
surveys not only to develop new prospects but to better define the upside
opportunities within the fields acquired. The following table presents the
proved oil and natural gas reserves from the major properties in the Onshore
Gulf Coast area at December 31, 1997.
<TABLE>
<CAPTION>
OIL (MBO) GAS (MMCF)
------------ ---------------
GROSS NET GROSS NET
----- --- ------ -----
<S> <C> <C> <C> <C>
W. Buna.......................................... 4,324 874 19,919 3,628
Other............................................ 647 70 21,254 2,645
----- --- ------ -----
Total.................................. 4,971 944 41,173 6,273
===== === ====== =====
</TABLE>
West Buna Field
This field, located in Jasper and Hardin counties, Texas, is the largest
field of the six-well group of fields acquired in 1997. The field currently has
23 wells producing from the Wilcox formation. Additional drilling and workover
operations are anticipated in 1998. The Company has approximately a 30% working
interest in the field.
Producing Wells
The following table presents a summary of the gross and net producing wells
by core area for the years ended December 31, 1997, 1996 and 1995. Productive
wells are producing wells and wells capable of production but do not include
wells awaiting completion or the installation of a platform. Gross wells refer
to
59
<PAGE> 69
the total producing wells in which the Company owns an interest. Net wells
represent the gross wells multiplied by the Company's working interest
percentage.
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- -------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Oil Wells
Gulf of Mexico.................... 17 4.37 18 4.61 25 6.28
Mississippi and Alabama........... 6 4.38 5 3.53 2 1.00
Onshore Gulf Coast................ 3 .28 2 0.21 -- --
Other............................. 3 .81 3 0.81 1 0.31
-- ----- -- ---- -- ----
Total................... 29 9.84 28 9.16 28 7.59
== ===== == ==== == ====
Gas Wells
Gulf of Mexico.................... 10 2.46 9 2.57 4 1.16
Mississippi and Alabama........... -- -- -- -- -- --
Onshore Gulf Coast................ 78 18.24 3 0.53 -- --
Other............................. -- -- -- -- -- --
-- ----- -- ---- -- ----
Total................... 88 20.70 12 3.10 4 1.16
== ===== == ==== == ====
</TABLE>
Drilling Activities
The following is a summary of the Company's exploration and development
drilling activities by core area:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- --------------------------
GROSS NET GROSS NET GROSS NET
------------ ------------ ----------- ------------- ----------- ------------
PROD. DRY PROD. DRY PROD. DRY PROD. DRY PROD. DRY PROD. DRY
----- ---- ----- ---- ----- --- ----- ----- ----- --- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory
Gulf of Mexico..................... 2 2 .30 .42 4 4 1.15 1.15 1 1 .25 .33
Mississippi and Alabama............ 1 2 .80 1.84 2 8 1.65 5.81 1 1 .52 .25
Onshore Gulf Coast................. -- 2 -- .32 4 5 .60 1.87 1 4 .47 1.56
Other.............................. -- 1 -- .40 2 4 .50 1.72 1 1 .30 .35
-- -- ---- ---- -- -- ---- ----- -- -- ---- ----
Total...................... 3 7 1.10 2.98 12 21 3.90 10.55 4 7 1.54 2.49
== == ==== ==== == == ==== ===== == == ==== ====
Development
Gulf of Mexico..................... 1 -- .25 -- -- -- -- -- 1 -- .33 --
Mississippi and Alabama............ 1 3 .76 2.42 1 2 .94 1.87 2 -- .89 --
Onshore Gulf Coast................. 3 -- .82 -- -- -- -- -- -- -- -- --
Other.............................. -- 1 -- .35 -- -- -- -- -- -- -- --
-- -- ---- ---- -- -- ---- ----- -- -- ---- ----
Total...................... 5 4 1.83 2.77 1 2 .94 1.87 3 -- 1.22 --
== == ==== ==== == == ==== ===== == == ==== ====
</TABLE>
At December 31, 1997, the Company had an interest in six (1.77 net) wells
in progress.
Operating Agreements
The Company typically owns its interests in oil and gas properties subject
to joint operating agreements naming another company as operator of the
property. Many of the agreements grant the operator a lien on the Company's
interests to secure payment of the Company's share of expenses. Being a
non-operator is advantageous to the Company by not requiring the Company to
employ an operational staff, but is disadvantageous in that the Company foregoes
certain control over the property as a non-operator. The Company may become an
operator of certain properties in 1998.
Title to Properties
The Company's oil and gas properties are subject to customary royalty
interests, liens incident to operating agreements and liens for other burdens,
including other mineral encumbrances and restrictions.
60
<PAGE> 70
Such burdens, encumbrances or other restrictions do not materially interfere
with the normal operations of such properties. After a thorough examination of
title to its properties, the Company believes that it is vested with
satisfactory title to such properties. The Company does a preliminary
investigation of titles on all undeveloped properties and obtains a full title
opinion before commencement of drilling operations.
Non-Oil and Gas Properties
The Company owns approximately 7,800 surface acres in several
non-contiguous tracts of land in Southern Louisiana and Southern Mississippi.
Outside parties lease several of the tracts for farming, grazing, timber, sand
and gravel, camping, hunting and other purposes. Gross operating revenues from
these real estate properties in 1997 totaled $224,000.
Office Lease
The Company leases office space in Dallas, Texas covering approximately
33,000 square feet. In January 1998, the Company amended the current lease
effective April 1998. The amended lease extends the term an additional 10 years
and reduces the leased office space to approximately 17,000 square feet.
61
<PAGE> 71
SELECTED FINANCIAL DATA
REMINGTON OIL AND GAS CORPORATION
The selected financial data should be read in conjunction with Remington's
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Remington" included
elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ --------------------------------------------------------
1998(1) 1997 1997 1996 1995 1994 1993
------- -------- -------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
UNAUDITED
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial
Total revenue........................ $24,563 $ 34,194 $ 61,053 $ 70,210 $ 59,493 $ 59,244 $ 37,102
Net income (loss).................... $(3,152) $ 1,345 $(26,790) $ (7,662) $ 5,392 $ 9,157 $ 2,161
Basic and diluted income (loss)
per share.......................... $ (0.15) $ 0.06 $ (1.31) $ (0.37) $ 0.26 $ 0.44 $ 0.10
Total assets......................... $99,476 $134,835 $ 98,515 $136,599 $145,491 $135,041 $128,882
8 1/4% convertible subordinated
notes.............................. $38,371 $ 55,077 $ 38,371 $ 55,077 $ 55,077 $ 55,077 $ 55,077
Other indebtedness................... $ 9,700 -- $ 6,000 -- -- -- $ 1,970
Cash dividends per share............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Stockholders' equity................. $41,544 $ 72,635 $ 44,287 $ 74,356 $ 82,047 $ 75,513 $ 67,655
Shares outstanding
Class A Common Stock............... 3,222 3,219 3,219 3,250 3,250 3,250 3,245
Class B Common Stock............... 17,147 17,137 17,087 17,553 17,553 17,553 17,558
Net cash flow provided by
operations......................... $11,497 $ 17,953 $ 27,546 $ 28,955 $ 24,047 $ 27,644 $ 11,006
</TABLE>
- ---------------
(1) In 1997, the Company recorded a $14.6 million deferred income tax expense
when the net deferred tax asset that was recorded by the Company in 1992 was
written down to a carrying value of zero.
62
<PAGE> 72
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF REMINGTON
The purpose of the following discussion is to assist in the understanding
of the Company's financial position and results of operations. The information
below should be read in conjunction with the financial statements of Remington,
the related notes to financial statements and the Company's Form 10-K for the
year ended December 31, 1997. The financial statements (including the notes to
financial statements) for the years ended December 31, 1997, 1996 and 1995 are
presented elsewhere in this Prospectus and Proxy Statement beginning on page F-2
and the financial statements (including the notes to financial statements) for
the three and six months ended June 30, 1998 and 1997 are presented elsewhere in
this Prospectus and Proxy Statement beginning on page F-23.
This discussion contains historical information and certain forward-looking
statements that involve risks and uncertainties about the business, long-term
strategy, financial condition and future of the Company. Statements concerning
results of future exploration, exploitation, development and acquisition
expenditures and expense and reserve levels are forward-looking statements. In
addition, statements concerning the Merger of S-Sixteen Holding Company, a
Delaware corporation ("SSHC"), are forward-looking statements and are based upon
the assumption by management that the Merger will occur. These statements are
based on assumptions concerning commodity prices, drilling results and
production, and administrative and interest costs that management believes are
reasonable based on currently available information of known facts and trends.
However, management's assumptions and the Company's future performance are both
subject to a wide range of business risks and there is no assurance that these
goals and projections can or will be met.
Remington Oil and Gas Corporation (the "Company" or "Remington") is an
independent oil and gas exploration and production company. The activities and
properties of the Company are located in the offshore Gulf of Mexico, onshore
Gulf Coast and Mississippi/Alabama. The Company's long-term strategy is to
economically increase reserves, production, and cash flow on an annual basis,
resulting in increased shareholder value. Capital expenditures financed
primarily by operating cash flow and bank debt will entail a balanced
exploration, development and acquisition program.
The Company acquired all of the assets and liabilities of OKC Limited
Partnership (the "Partnership") on April 15, 1992, in exchange for the common
stock of the Company (the "Corporate Conversion"). The Partnership then
distributed, as part of its liquidation and dissolution, 3,245,110 shares of
Remington Class A Stock and 17,558,110 shares of Remington Class B Stock to the
former general partners, limited partners and unitholders of the Predecessor
Partnership. After the Corporate Conversion, Cloyce K. Box, one of the former
general partners, owned approximately 57% of the outstanding Remington Class A
Stock.
At the time of the Corporate Conversion, Mr. J. R. Simplot, Mr. James
Arthur Lyle and others had pending litigation against the Partnership concerning
voting issues and the purchase of an oil pipeline by a privately controlled
affiliate of Cloyce K. Box (the "Griffin Case"). See Notes to the Financial
Statements -- Note 11. Contingencies -- Griffin Case. After Cloyce Box's death
in October 1993, the Remington Class A Stock was foreclosed upon by Box Brothers
Holding Company ("BBHC"). At the time of the foreclosure, BBHC was primarily
owned and controlled by the four sons of Cloyce K. Box. A number of disputes and
lawsuits concerning the control of BBHC arose among the four brothers.
In March 1997, the Company appointed James A. Watt as President and Chief
Operating Officer. Subsequently, in February 1998, the Board of Directors named
Mr. Watt Chief Executive Officer. Mr. Watt, who has significant oil and gas
experience, is the first executive from outside the controlling interest of the
Company to head the Company. In August 1997, an entity controlled by Mr. Simplot
purchased the controlling interest in BBHC (the "Simplot Transaction"). Shortly
thereafter, BBHC changed its name to S-Sixteen Holding Company. In connection
with this purchase, Mr. Simplot and the four Box brothers agreed to settle all
lawsuits among them and the Company.
SSHC owns 1,840,525 shares (approximately 57%) of the Remington Class A
Stock and 294,643 shares of the Remington Class B Stock. SSHC is owned by an
entity controlled by Mr. J.R. Simplot of Boise, Idaho. On June 22, 1998,
Remington and SSHC executed an Agreement and Plan of Merger under which SSHC
63
<PAGE> 73
will merge into Remington, with Remington being the surviving corporation (the
"Merger"). In addition, in connection with the Merger, Remington will convert
its two classes of common stock into a single class (the "Conversion of Stock").
The Merger and the Conversion of Stock are hereinafter referred to as the
"Transaction."
Upon the consummation of the Transaction, the Company will exchange 1.15
shares of new voting common stock ("Remington Common Stock") for each share of
outstanding Remington Class A Stock not directly owned by SSHC, 1 share of
Remington Common Stock for each share of outstanding Remington Class B Stock not
directly owned by SSHC and 72.329 shares of Remington Common Stock for each
share of outstanding common stock in SSHC. After the Conversion of Stock, the
sole stockholder of SSHC will own 2,785,028 shares of Remington Common Stock. In
addition, SSHC's sole stockholder will receive a Warrant to purchase up to
300,000 shares of Remington Common Stock at various prices, and the note payable
to Remington by SSHC will be canceled. The 1,840,525 shares of Remington Class A
Stock and 88,668 shares of Remington Class B Stock owned directly by SSHC will
be canceled, as will the Remington Class A Stock and Remington Class B Stock
held as treasury stock by Remington. A Special Meeting of Stockholders of the
Company is planned for late summer or early fall to consider and vote upon the
proposal to approve and adopt the Merger Agreement.
In addition, Mr. Simplot, who controls SSHC's sole stockholder,
beneficially owns 2,846,000 shares of Remington Class B Stock, which will be
converted into a like number of shares of Remington Common Stock pursuant to the
Transaction. Thus, upon the consummation of the Transaction, Mr. Simplot and his
affiliates (other than Mr. Hawk and Mr. Lyle who are SSHC's nominees to
Remington's Board of Directors) will beneficially own 5,631,028 shares of
Remington Common Stock, representing approximately 27% of the outstanding shares
of that class.
One of the subsidiaries of SSHC that would be acquired by Remington as part
of the Merger is CKB Petroleum, Inc. ("CKBP"), which currently transports all of
the Company's oil production from the South Pass Area blocks in the Gulf of
Mexico, to Venice, Louisiana.
On July 31, 1998, the Company and Texas Eastern Transmission Corporation
("TETCO") agreed to terminate the South Pass Block 89 long-term gas sales
contract effective June 30, 1998. TETCO made a Termination Payment (as defined
in the agreement) to the Company in the amount of $49.8 million (the "TETCO
Contract Termination"). As part of the termination agreement, TETCO was released
from the gas purchase contract, including gas substitution and indemnification
rights thereunder, as well as related indemnification and other obligations
under a 1990 settlement agreement. After June 30, 1998, Remington will sell all
gas produced from South Pass Block 89 on the spot market. Under the gas
contract, which was to expire in July 2002, the Company was receiving $12.38 per
Mcf for gas produced from the southern portion of South Pass Block 89 and $6.83
per Mcf for gas produced from the northern portion of the block, with the gas
price escalating 10% per year. Gas sales revenue received under the long-term
contract in excess of the average non-contract spot market price for this block
was $5.8 million for the first six months of 1998 and was estimated to have been
$4.3 million for the last six months of 1998 had the contract not been
terminated.
Prior to June 30, 1998, a significant portion of the Company's total
revenues and cash flow provided by operations was dependent upon natural gas
sales from South Pass Block 89. In 1997, natural gas sales from South Pass Block
89 were approximately 40% of total revenues. For the first six months of 1998,
gas sales revenue from this block accounted for approximately 32% of the
Company's total revenue. However, the Company has observed a steady decline in
production from Well B-20S. Production from Well B-20S, which is in the U-1/1
reservoir, accounts for a significant portion of the total gas production from
this block. It is currently estimated that the well will be fully depleted
during the first or second quarter of 1999. In the past, the long-term gas sales
contract provided some protection against significant decreases in market prices
for gas production. However, after the TETCO Contract Termination, the Company's
revenues, net income and cash flow provided by operations will be fully affected
by the market fluctuations in oil and gas prices.
Approximately one-half of the value of the contract, as evaluated by the
Company's independent reservoir engineers at January 1, 1998 was associated with
a high-risk and undrilled well location in the Company's U-1/1 reservoir.
Reserves for this location were 78,000 barrels of oil and 3,141 MMcf of gas at
64
<PAGE> 74
January 1, 1998. Engineering and geological data supported the classification of
this undrilled location as proved undeveloped reserves. However, the Company
felt that the risks of drilling the well were not appropriate for a company of
Remington's size to undertake. Due to the reduction in price received for
natural gas production, the Company will incur an impairment charge on the South
Pass Block 89 property. An accurate measure of the impairment could not be
reasonably determined immediately after the TETCO Contract Termination because a
large portion of the oil and gas reserves associated with this property were
attributed to one well, which had out performed the original projections as of
January 1, 1998. As a result of a reevaluation of the oil and gas reserves, the
Company will record a $2.5 million impairment charge in the third quarter of
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet liquidity decreased significantly during 1997
and the first six months of 1998. At December 31, 1996, current assets exceeded
current liabilities by $39.0 million, and the current ratio was approximately
6.4 to 1. At December 31, 1997, current assets exceeded current liabilities by
$3.0 million and the current ratio was approximately 1.2 to 1. At June 30, 1998,
the Company's current liabilities exceeded current assets by $3.0 million, and
the current ratio was 0.84 to 1. The decline in liquidity resulted from the sale
of marketable securities in October 1997, and the use of the proceeds to
repurchase $16.7 million of the 8 1/4% Convertible Subordinated Notes (the
"Notes"). The Simplot Transaction caused a "change in control" as defined in the
Indenture for the Notes (the "Indenture") that required the Company to make an
offer to purchase the Notes at 100% of the face amount. In addition, during 1997
and the first quarter of 1998, the Company used some of its liquid assets and
borrowed $8.5 million to purchase $3.5 million of treasury stock, fund the
excess of capital expenditures over net cash flow from operations and pay
reorganization costs in 1997. The Company's liquidity increased significantly on
July 31, after receiving $49.8 million from the TETCO Contract Termination.
Cash flow from operations for the first six months of 1998 decreased $6.4
million, or 35%, compared to the first six months of 1997, primarily because of
a 21% decrease in oil sales revenue and a 31% decrease in gas sales revenue.
Although total oil production increased 25% or 138,000 barrels, average oil
prices for the first six months of 1998 were $11.97 per barrel compared to
$18.93 per barrel during the first six months of 1997. In addition, gas sales
revenue from South Pass Blocks 86 and 89 platforms B and C decreased $7.9
million during the first six months of 1998 compared to the same period in the
prior year. The decrease resulted from lower gas production from these platforms
of 879,000 Mcf.
Cash flow from operations for the year ended December 31, 1997 was $27.5
million compared to $29.0 million for the prior year. In addition to lower
natural gas revenues of $10.7 million, cash payments totaling $7.1 million for
reorganization costs had a detrimental effect on the cash flow from operations
for 1997. The lower natural gas revenues resulted primarily from a decrease in
natural gas production from South Pass Block 89. Natural gas production from
this offshore Gulf of Mexico Block was sold under a gas sales contract that
included prices substantially above spot market prices. Therefore, a reduction
in production from this block had a significant effect on natural gas revenues,
total revenues, net income and cash flow from operations. Reorganization costs
paid during 1997 included employee severance expense, litigation settlement
amounts and other costs related to the Simplot Transaction. See Notes to
Financial Statements -- Note 5. Reorganization Costs.
The decline in oil prices has a negative impact on total revenues and
therefore net income and cash flow from operations. The Company's average oil
price for 1997 was $17.79 per barrel but has averaged under $13.00 per barrel
since December 1997.
Throughout the year, the Company has financed capital expenditures through
cash flow from operations and bank debt. Although management decreased its
capital and exploration budget by 20% for 1998 due to the lower oil prices and
the resulting lower net cash flow from operations, the Company was committed to
significant capital expenditures for the first six months of 1998. Drilling and
completion costs incurred during the first six months of 1998 for West Cameron
Block 170, Eugene Island Block 135 and Parker Creek totaled $10.3 million, or
62% of the total capital expenditures. Other capital expenditures included $2.7
million in the
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onshore Gulf Coast area, $1.7 million on Main Pass Block 262, $1.2 million in
the Mississippi/Alabama area and $524,000 for unproved property acquisitions.
Capital expenditures in the Gulf Coast area included a $1.6 million acquisition
in Lavaca County, Texas. The Company expects to complete the exploratory well
drilled on Main Pass Block 262, but has yet to fully evaluate the results of
drilling operations. Other capital expenditures in the Mississippi/Alabama area
included drilling costs totaling $866,000 for a non-commercial well in Wayne
County, Mississippi. Capital and exploration expenditures for oil and natural
gas properties during 1997 totaled $42.1 million compared to $42.7 million in
1996. The primary capital expenditures for 1997 included drilling, completion
and platform construction costs for Eugene Island Block 135, drilling costs for
a well on West Cameron 170, drilling and completion costs on the Parker Creek
field and a purchase of several South Texas properties. Expected development
costs for 1998 include one or two new wells in South Pass Block 87, a new well
or a side-track well in South Pass Block 89, additional development of West
Cameron Block 170 and Eugene Island Block 135, and four to six onshore wells,
including three to four wells in the Parker Creek field.
The Company budgeted $10.0 million for acquisition, land and leasehold
costs. The Company plans to use these budgeted amounts to purchase oil and
natural gas reserves at attractive prices and to maintain and develop an
inventory of exploration development projects. In March 1998, the Company
completed an acquisition for $1.6 million and submitted the high bid on one
offshore block in the MMS lease sales. The MMS awarded the block to the Company
effective in July 1998, at a cost of $229,000. Budgeted exploration costs
include three planned wells in the Gulf of Mexico, at least two wells in
Mississippi, and several wells in the onshore gulf coast region. In addition,
the Company plans for approximately $4.0 million of exploration expenses
primarily to purchase 2-D and 3-D seismic data. The capital and exploration
budget for 1998 is flexible, and the Company can delay many of the planned
expenditures if better opportunities arise or if capital is not available.
Sources of cash other than from operations include scheduled payments on
the note receivable from SSHC through August 1998. If the Transaction is
approved, CKBP will become a subsidiary of the Company and the cash paid for
transportation will remain in the consolidated group. The Company's existing
line of credit with a current borrowing base of $10.0 million expires in
September 1998. The Company anticipates renewing this line again in 1998. The
Company has borrowed $9.7 million and has issued letters of credit totaling
$250,000 against this line of credit. On June 30, 1998, a violation of a
negative covenant concerning the current ratio existed. The violation did not
become an "Event of Default" as defined in the note agreement because it is not
continuing.
The Transaction will constitute a "change in control" as defined in the
Indenture to the Notes ("Indenture"). In the event a "change in control" occurs,
the Company is required to make an offer to purchase on the 40th business day
following the date on which such "change in control" occurs, any and all of the
then outstanding Notes at a purchase price equal to 100% of the principal amount
of the Notes, plus accrued but unpaid interest on the Notes. Remington may not
have sufficient cash to purchase all of the Notes tendered. In such event, the
Company would have to explore other avenues for the means to purchase the
tendered Notes including, but not limited to, obtaining bank financing and/or
utilizing the public and private debt and equity markets. The Company
anticipates that until the Phillips litigation in Louisiana state court is fully
resolved, the case will continue to impede the Company's access to credit and
capital markets, and the Company may also consider the sale or other disposition
of assets. The Merger Agreement provides that in the event the Remington Board
of Directors concludes that there is insufficient liquidity to cover probable
tenders of Notes, the Remington Board of Directors may discontinue its
obligation to recommend that Remington stockholders approve the Transaction.
The Company and Phillips Petroleum Company ("Phillips") have been engaged
in litigation concerning the Net Profits interest in South Pass Block 89. In
this litigation, Phillips contends that pursuant to its 33% Net Profits interest
in South Pass Block 89, it was entitled to receive an overriding royalty for
months in which "net profits" were not achieved; that an excessive oil
transportation fee was being charged to the Net Profits account; and that the
entire $69.6 million cash payment that had been received by the Company from the
1990 settlement of certain litigation should have been credited to the Net
Profits account instead of the $5.8 million that was credited. On the latter
claim, Phillips seeks to receive in excess of $21.5 million, while on
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the first two claims Phillips alleged aggregate damages of several million
dollars. In addition, Phillips, under the Louisiana Mineral Code, is seeking
double damages and cancellation of the farmout agreement that created the Net
Profits interest. Remington denies Phillips' claims and vigorously defended
against them during a non-jury trial held in April 1997. In addition to
contesting the claims of Phillips, the Company asserted a counterclaim at trial
that Phillips had breached a settlement agreement regarding previous litigation
between the parties and claimed damages in excess of $10.0 million. On August
18, 1998, the trial court rendered a judgment in which Phillips was awarded
$9,276,432 on its claim relating to the 1990 settlement and $1,581,000 on its
overriding royalty claim. Phillips' claim of an excessive transportation fee was
dismissed, as were its claims for double damages and lease cancellation. The
trial court also dismissed Remington's counterclaim. The trial court has yet to
issue a final judgment. The Company expects that the final trial court judgment
will be approximately $17.3 million including interest. Remington may appeal the
portions of the trial court's judgment adverse to the Company. Once the trial
court enters its final judgment, the Company will have up to 30 days to file its
notice of appeal.
Statement of Financial Accounting Standards ("SFAS") No. 5 entitled
"Accounting for Contingencies" requires the Company to accrue a loss contingency
when it is probable that a liability has been incurred and the amount of the
loss can be reasonably estimated. Therefore, the Company will accrue the
liabilities associated with the court judgment in the third quarter of 1998,
when the judgment was issued. The Company currently has the liquidity to pay the
judgment.
In addition, Remington has filed a declaratory judgment action against
Phillips in federal district court in Dallas, Texas, requesting the court to
declare that none of the $49.8 million received by Remington from the recent
termination of Remington's gas contract with Texas Eastern Transmission
Corporation is owed to Phillips by virtue of a 33% Net Profits interest in South
Pass Block 89.
The Company adopted SFAS No. 128, entitled "Earnings per Share" in 1997.
SFAS No. 128 simplifies the standards for computing earnings per share
previously governed by Accounting Principles Board ("APB") Opinion No. 15. Basic
income per share and diluted income per share have replaced primary income per
share and fully diluted income per share, respectively. Basic income per share
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted income per share
reflects the potential dilution from the exercise or conversion of securities or
other contracts to issue common stock and other events that result in the
issuance of common stock that shares in the net income of the Company. Diluted
income per share is computed similarly to fully diluted income per share
pursuant to APB Opinion 15. The Company's presentations of basic income per
share and diluted income per share are the same as the previously presented
primary income per share and fully diluted income per share. Basic income per
share and diluted income per share are the same because the effects of the
potential dilutive securities are anti-dilutive. See Notes to Financial
Statements -- Note 1. Significant Accounting Policies.
The Company adopted SFAS No. 130 entitled "Reporting Comprehensive Income"
in 1998. The statement requires the Company to report "comprehensive income" and
its components in the financial statements. Comprehensive income represents
changes in the stockholders' equity accounts, other than for items required by
accounting standards to be reported as direct adjustments to paid-in capital,
retained earnings or other non-income equity accounts during the reporting
period. Such changes include net income as well as other charges and credits to
stockholders' equity accounts that are excluded from net income.
The Company will adopt SFAS No. 131 entitled "Disclosures about Segments of
an Enterprise and Related Information" for its fiscal year ending December 31,
1998. This statement establishes standards for reporting information about
operating segments and related disclosures about products and services,
geographic areas, and major customers. This statement is not anticipated to have
a material impact on the Company's financial disclosures.
The year 2000 issue relates to computer programs being written with two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
instead of 2000 or not at all. This inability to recognize or properly treat the
year 2000 may cause a breakdown of both information technology and
non-information technology systems and cause these systems to process critical
financial and operational information incorrectly. Remington has assessed and
continues to
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assess the year 2000 issue and its impact on the Company, its partners,
suppliers, vendors and customers. The year 2000 issue has a potential impact on
the Company in several areas, including, among others, the ability of the
Company to be paid for its oil and natural gas production, the operations of the
producing properties in which the Company holds interests, the ability of the
Company to pay its vendors and suppliers, and the management of the Company's
financial assets including cash and securities held with financial institutions.
The Company currently receives payment for the majority of its oil and
natural gas production from two sources. While these two sources are currently
studying the year 2000 issue in order to develop systems to prevent problems in
payment processing, they have informed the Company that manual back-up systems
exist so that even in the event that the computer software fails, such a failure
would not result in a material delay in receiving payment for its oil and
natural gas production.
At the present time, Remington does not operate any of the properties in
which it owns oil and natural gas interests. On this basis, Remington has not
developed contingency plans relating to the year 2000 issue in connection with
the operations of these properties. The operators of these properties are,
however, studying the year 2000 issue in connection with both the information
technology and non-information technology aspects of operating oil and natural
gas producing properties. These operators have informed the Company that they
will develop systems sufficient to address any problems that may arise. In
addition, the operators have informed the Company that manual back-up systems
exist in the event the computer software fails to adequately address any
problems. If Remington does, in the future, act as an operator of any oil and
natural gas properties, it anticipates that it will provide for adequate systems
to address any year 2000 issues.
Remington has assessed its current oil and gas accounting system and
network operating software and has determined that they are year 2000-compliant.
In the event that the network operating software fails due to a year 2000
problem, Remington's accounting system can operate on a stand-alone basis.
Remington does not believe, therefore, that any year 2000 problems will
materially affect the Company's ability to pay its vendors and suppliers or
track its assets in the custody of financial institutions.
RESULTS OF OPERATIONS
The following table discloses the net oil and natural gas sales volumes and
average sales prices for the quarters ended June 30, 1998 and 1997 and the years
ended December 31, 1997, 1996, and 1995. The following table is an integral part
of the following discussion of results of operations.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------- ------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales volumes:
Oil (MBO)............................... 694 556 1,197 933 839
Natural gas (MMcf)...................... 3,768 3,938 7,116 8,219 5,867
Average sales price:
Oil (per Bbl)........................... $11.97 $18.93 $17.79 $20.21 $16.64
Natural gas (per Mcf)................... $ 3.92 $ 5.44 $ 5.06 $ 5.69 $ 6.89
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
The Company recorded a net loss for the six months ended June 30, 1998, of
$3.2 million compared to net income for the six months ended June 30, 1997, of
$1.3 million. Lower average oil prices and lower gas production from South Pass
Block 89 combined to reduce total revenues by $9.6 million, or 28%. Lower total
revenues were offset by a reduction in total costs and expenses of $4.4 million,
or 14%, for the six-month period.
The lower average oil prices caused oil revenues to decrease $4.4 million
for the six months ended June 30, 1998, compared to the six months ended June
30, 1997. Additional oil sales revenue from the increase in oil production
offset the lower oil sales revenue caused by lower prices by $2.1 million for
the six months ended June 30, 1998, compared to the same period in 1997. Oil
production increased by approximately 25% for the six months ended June 30,
1998, compared to the same period in the prior year. Oil production
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from the Gulf of Mexico increased as a result of production from the three wells
on Eugene Island Block 135 and a net increase from the four South Pass area
blocks. Production from Eugene Island Block 135 began in the third quarter of
1997 from a single well. Oil production from the Parker Creek field in the
Mississippi/ Alabama area increased by 33,000 barrels for the six months ended
June 30, 1998, compared to the same period in 1997. Oil production in the
onshore Gulf Coast area increased as a result of the third and fourth quarter
acquisitions of oil and gas properties in South Texas.
Gas sales revenues decreased $6.7 million for the six months ended June 30,
1998, compared to the six months ended June 30, 1997. The decrease is the result
primarily of lower natural gas production from South Pass Block 89 and Main Pass
Block 262, partially offset by an increase in natural gas production from South
Pass Block 87, Eugene Island Block 135 and the Gulf Coast area.
Prior to the TETCO Contract Termination, gas production from South Pass
Block 89 was sold under a long-term gas sales contract. The total volume of gas
sold under the long-term contract was 891,000 Mcf for the six months ended June
30, 1998, compared to 1.6 Bcf for the six months ended June 30, 1997. The
decrease is primarily related to the depletion of Well B-20S that is producing
in the U-sand reservoir. Gas sales revenue related to the long-term contract
decreased $7.5 million for the six months ended June 30, 1998, compared to the
same period in the prior year.
Gas sales revenue from the non-contract gas increased $848,000 for the six
months ended June 30, 1998, compared to the same period in the prior year.
Excluding the gas production sold from South Pass Block 89, gas production for
the six months ended June 30, 1998, increased 25% compared to the prior year.
This increase in non-contract gas production increased gas sales revenue by $1.5
million for the six months ended June 30, 1998, compared to the same period in
the prior year. Although the overall average price decreased for the six months
ended June 30, 1998, compared to the prior year, the reduction is caused by the
lower gas production from South Pass Block 89 as a percentage of the total
volume of gas sold. For the six months ended June 30, 1998, compared to the six
months ended June 30, 1997, the average spot gas price decreased by $0.24 per
Mcf, which partially offset the increase from non-contract gas production by
$690,000.
Other income decreased 33% for the six months ended June 30, 1998 compared
to the same period in 1997, because of the lower amount of interest income
received during 1998. Interest income decreased because of the lower cash, cash
equivalents and marketable securities in 1998 compared to the first six months
of 1997.
Operating costs increased 44% for the first six months of 1998 compared to
the same period in the prior year. The operating expenses increased because of
new producing properties and rig stack charges incurred on South Pass Block 89
Platform B. Net Profits expense decreased by $1.7 million, or 35%, for the six
months ended June 30, 1998, compared to the same period in the prior year
because of the lower oil and gas revenue on South Pass Block 89.
Depreciation, depletion and amortization decreased 2% during the six months
ended June 30, 1998 compared to the six months ended June 30, 1997, as a result
of upward revisions to proved developed producing oil and gas reserves at June
30, 1998 for South Pass Block 89 platform B and Eugene Island Block 135. The
upward revision decreased the current depreciation, depletion and amortization
rate, which is calculated using the units-of-production method. The Company
increased its estimate of net proved producing oil and gas reserves for South
Pass Block 89 because Well B-20S had overproduced the original estimated proved
producing oil reserves at January 1, 1998. In addition, the Company added proved
developed oil and gas reserves associated with Well A-3 on Eugene Island Block
135. Also included in the first six months of 1998 are impairment charges for
unproved leasehold costs totaling $440,000.
General and administrative expenses decreased 50% for the six months ended
June 30, 1998, compared to the same period in the prior year. The decrease
results from lower legal costs, primarily the Phillips Petroleum litigation, and
lower employee costs. Reorganization expense incurred during the first six
months of 1997 includes the payment of severance benefits to employees that
either resigned or were terminated during those periods.
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Interest expense decreased $390,000, or 16%, for the six months ended June
30, 1998, compared to the same period in the prior year, because of the
repurchase by the Company of $16.7 million of the outstanding Notes in October
1997. The lower interest expense that resulted from the lower amount of Notes
outstanding was partially offset by increased interest expense on the increased
bank line of credit balance outstanding for the first half of 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company incurred a net loss for 1997 of $26.8 million or $1.31 per
share compared to the prior year loss of $7.6 million or $0.37 per share. The
net loss for 1997 included non-cash charges totaling $18.9 million or $0.94 per
share. The charges included deferred income tax expense of $14.6 million or
$0.73 per share, impairment charges from marginal oil and gas properties of $3.9
million or $0.19 per share, and accelerated amortization of debt-issue costs of
$416,000 or $0.02 per share, caused by the early retirement of some of the
Company's Notes. In addition, during 1997, the Company incurred reorganization
costs totaling $7.1 million, or $0.34 per share, and legal costs and expenses
totaling $2.5 million, or $0.12 per share.
Total revenues were $ 61.1 million for the year ended December 31, 1997
compared to $70.2 million for the year ended December 31, 1996. Natural gas
sales revenue decreased $10.7 million, or 23%, for 1997 compared to 1996. Lower
natural gas production caused the decrease but was partially offset by higher
average prices of 6% for spot gas sales and 10% for natural gas sales under the
South Pass gas sales contract. The increase in average prices added $1.3 million
to natural gas sales revenue. Natural gas production from South Pass Block 89
Platform B decreased 1.4 Bcf during 1997 as production from Well B-20
experienced anticipated declines. The decrease in natural gas production from
Platform B caused natural gas revenues to decrease by $14.2 million. Natural gas
production from the Company's South Texas properties increased 379,000 Mcf
during 1997 but was more than offset by lower net natural gas production from
other offshore properties.
An increase in oil production, partially offset by lower oil prices,
resulted in a net increase in oil sales revenue of $2.4 million, or 13%, for the
year ended December 31, 1997 as compared to the prior year. Oil production
increased by 264,000 barrels, which increased oil sales revenue by $4.8 million.
However, a decrease of $2.44 in average oil prices caused oil sales revenue to
be $2.4 million lower. A net increase in oil production came from all areas of
operation, primarily the Parker Creek field in Mississippi and South Pass 86 and
87 in the Gulf of Mexico.
Interest income was lower in 1997 because of the sale of the marketable
securities in October. Most of the proceeds of the sale were used to purchase
$16.7 million of the Company's outstanding Notes. Other income was lower because
of lower oil trading income and losses on the sale of assets, primarily artwork.
Operating and transportation expenses increased as a result of new
operating properties and an increase in oil production from the South Pass area.
Net Profits expense decreased as a result of the lower natural gas sales
revenues from South Pass Block 89. In addition, exploration expenses decreased
significantly because of lower dry hole costs. In 1996, the Company drilled
three dry exploration wells totaling $10.6 million in the Gulf of Mexico.
Depreciation, depletion and amortization expenses increased because of new
properties becoming productive. Marginal production as well as lower oil prices
caused the Company to record impairment charges against some of the oil and
natural gas properties. A large decrease in production during the last quarter
of 1997 from Main Pass Block 262, located in the Gulf of Mexico, caused the
Company to record a $1.9 million impairment charge to write down 100% of the
remaining well costs. The Company will use the platform on Main Pass Block 262
to drill a new unrelated prospect in 1998. Another $1.2 million charge was
recorded on the Hub property located in Mississippi. This property was drilled
in 1996 but never performed up to expectations. The remaining impairment charge
related primarily to lower oil prices that reduced the amount of commercially
recoverable oil reserves.
General and administrative expenses decreased by 18% during 1997 when
compared to 1996. Salaries and other employment-related expenses during 1997
decreased $706,000 as the number of employees decreased
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from 41 at December 31, 1996 to 15 at December 31, 1997. Other areas of
significant savings were professional fees and investor relations expenses.
Legal fees decreased by $1.1 million as the Company settled the Griffin
litigation including all of the surrounding litigation, ended the family
litigation, and concluded the trial proceedings in the Phillips litigation.
Reorganization expense for the year includes payments to employees under
the employee severance agreements and legal fees or other charges that relate to
or were paid because of the Simplot Transaction. Reorganization costs accrued or
paid are as follows: employee severance payments $3.6 million, Thomas D. Box
severance, legal claims and fees $1.2 million, Mr. Simplot and Mr. Lyle $2.0
million, and other associated expenses $300,000. See Notes to the Financial
Statements -- Note 5. Reorganization Costs.
Interest and financing expenses increased during 1997 when compared to 1996
as a result of interest costs from a $6.0 million balance on the line of credit
and a non-cash charge for deferred offering costs in October 1997, partially
offset by lower interest costs from a reduced outstanding balance on the Notes.
The Company used the line of credit to provide a portion of the funds to
purchase some onshore Gulf Coast properties. In addition, under the terms of the
Indenture, the Company purchased $16.7 million of the Notes. The Simplot
Transaction triggered the offer to purchase requirement in the Indenture.
Although the Company expects to realize the benefits of the deferred income
tax asset, it adopted a more conservative view of the accounting and reporting
policies and increased the valuation allowance in 1997 to reserve the full
amount of the deferred income tax asset. The Company believes that this approach
is consistent with other small-cap exploration and production companies,
particularly those companies that are attempting to grow their oil and natural
gas reserves. The Company is required to analyze its ability to realize the
deferred income tax asset based on proved reserves and a "more likely than not"
scenario for future projections. The analysis excludes probable and possible oil
and natural gas reserves and does not include results from future drilling
activities. The Company concluded that based on the future growth plans of the
Company, prior actual results, and the "more likely than not" criteria, it was
more desirable to reserve the entire deferred income tax asset. The Company will
realize a benefit from these tax attributes if income is generated in the
future.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company incurred a net loss for 1996 totaling $7.7 million, or $0.37
per share. This loss resulted primarily from a $15.9 million, or 323%, increase
in exploration expenses; a $7.8 million, or 52%, increase in depreciation,
depletion and amortization expense on the oil and natural gas properties, and a
$4.0 million, or 43%, increase in general and administrative and reorganization
expenses. Exploration expenses increased because of higher dry hole costs which
resulted from the increased drilling activity. The most significant dry holes
drilled during the year included the following offshore Gulf of Mexico blocks:
Ship Shoal Block 352 at $7.9 million, High Island Block 576 at $1.8 million and
West Cameron Block 365 at $923,000. Depreciation, depletion and amortization
expense increased as a result of new properties being depleted, an increase in
the depreciable basis of offshore platforms and a decrease in net oil and
natural gas reserves.
General and administrative expenses and reorganization costs were higher
because of an increase in legal fees primarily related to the reimbursement of
legal fees to the Estate of Cloyce K. Box for the Griffin litigation and the
"change in control" which occurred when BBHC replaced the existing Board of
Directors by a written consent effective July 30, 1996. The "change in control"
triggered the applicability of severance agreements which then resulted in the
payment of severance benefits in certain situations. Resignations and
terminations decreased the total number of employees from 55 prior to July 30,
1996, to 41 at December 31, 1996.
Natural gas revenue increased $6.3 million primarily as a result of higher
average natural gas prices. Although the average sales price shown on the table
above reflects a decrease, such decrease in prices is a result of the lower
percentage of total volume from South Pass Block 89 sold at above-market prices
compared to a higher percentage of total volume from other areas which were sold
at spot market prices during 1996 as compared to the prior year. The 10% per
annum increase in the gas price for South Pass Block 89 production, in
accordance with the gas sales contract, resulted in an additional $3.3 million
in natural gas sales revenue.
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Average spot market prices for natural gas increased from $1.88 in 1995 to $2.45
for 1996, which added another $2.4 million to natural gas sales revenue. In
addition, production from Platform D located in South Pass Block 87, Main Pass
Block 262, and other properties increased by 3.0 Bcf, or 222%, when compared to
1995, resulting in an additional $6.7 million in natural gas sales revenue.
However, the above increases were partially offset by a 624,000 Mcf decrease in
natural gas production from South Pass Block 89 which, when combined with the
high contract price received for production from this block, lowered natural gas
sales revenue by $5.5 million. Natural gas production from South Pass Block 89
decreased because the B-11 Well experienced mechanical difficulties in March
1996, and attempts to drill a replacement well in 1996 were not successful. Net
natural gas production from South Pass Block 86 decreased 296,000 Mcf, resulting
in a decrease in natural gas sales revenue totaling $550,000.
Oil sales increased $4.9 million, or 35%, because of an increase of $3.57
in the average oil price from $16.64 to $20.21 and an increase in total oil
production of 94,000 barrels. The increase in price caused oil sales revenue to
increase $3.3 million, and the increase in production caused oil sales revenue
to increase $1.6 million. Oil production increased as a result of a full year of
production from Platform D producing from South Pass Block 87 and West Delta
Block 128, and new production from the Indian Wells field in Mississippi and
other onshore oil properties. Platform D production increased 233,000 barrels
and new production from the Indian Wells Field totaled 39,000 barrels in 1996.
Oil production from South Pass Blocks 86 and 89 decreased primarily as a result
of natural depletion of the reservoirs.
In 1995, the Company sold real estate properties in Mississippi and
Louisiana for a total gain of $1.0 million as part of a reorganization plan
adopted in early 1995. In 1996, the gain from the sales of real estate in
Mississippi and Louisiana was $93,000. The decrease was partially offset by a
$661,000 increase in net oil trading income.
Operating expenses were $889,000, or 16%, higher in 1996 because of the
increase in the number of operating properties, a full year of operating cost
from Platform D in South Pass Block 87, and a partial year of operating costs
from Main Pass Block 262. Net Profits expense decreased approximately 8%, or
$1.0 million primarily, because of a net decrease in natural gas revenues from
South Pass Block 89 as described above.
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<PAGE> 82
INFORMATION CONCERNING SSHC
BUSINESS AND PROPERTIES
SSHC, formerly known as Box Brothers Holding Company, is primarily engaged
in crude oil transportation services through its 94%-owned subsidiary CKBP. In
addition, SSHC owns 94% of CKBA and 100% of Box Brothers Realty Investments
Company, CB Farms, Inc. and Box Resources Inc. SSHC also owns approximately 57%
of the Remington Class A Stock.
CKBP owns an interest in only one pipeline and has only one major customer,
Remington. The pipeline is operated by Marathon Pipe Line Company.
Operating risks include but are not limited to leaks or ruptures of the
pipeline. CKBP maintains general liability insurance as well as specific
insurance against leaks or ruptures including certain pollution risks. In
addition, the continued profitable operations of SSHC depend upon the continued
production and transportation of oil by its major customer. Currently the oil
reserves available for transportation are limited to those contained on
Remington's South Pass Complex offshore in the Gulf of Mexico.
CKBP's operations are subject to regulation by the Federal Energy
Regulatory Commission ("FERC") and federal, state and local laws and regulations
relating to improving or maintaining the quality of the environment. Costs
associated with environmental compliance, while not yet material, have increased
over time and are expected to rise in the future. Moreover the cost of
compliance with federal and state legislation, such as the Oil Pollution Act of
1990 and the Clean Water Act together with their amendments could have a
significant impact on the financial ability of SSHC to carry out its operations.
The laws which require or address environmental remediation, apply
retroactively to previous waste disposal practices. In many cases, these laws
apply regardless of fault, legality of the original activities, or ownership or
control of sites. Liability under these laws can result in severe fines and
cleanup costs being levied against the liable party. Although SSHC has never
been a liable party under these laws or been named a potentially responsible
party for waste disposal at any site, there can be no assurance that SSHC or its
subsidiaries will not become liable in the future.
MARKET PRICE AND DIVIDENDS OF SSHC AND SUBSIDIARIES
SSHC is a privately held corporation and no market for its equity
securities exists. On August 29, 1997, Mr. Simplot purchased all of the Class A
(Voting) Common Stock of SSHC and approximately 90% of the Class B (Non-Voting)
Common Stock of SSHC for $21.8 million, a sum which included the settlement of
claims among SSHC (then named Box Brothers Holding Company), its subsidiaries,
the sons of Cloyce K. Box, and trusts controlled by the sons of Cloyce K. Box.
On October 14, 1997, SSHC redeemed 4,403 shares of its own Class B (Non-Voting)
Common Stock for $467.34 per share. There is one holder of record as of August
12, 1998.
SSHC paid dividends totaling $215,000 (including $78,000 paid to the
minority interest stockholders by CKBP) in 1997. No dividends were paid in 1996.
Dividends paid by CKBP to the minority interest stockholders during the first
six months of 1998 were $93,000. Since May 1997, CKBP has paid dividends
monthly, although there is no assurance that it will continue paying dividends.
There are currently no restrictions on the payment of dividends.
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<PAGE> 83
SELECTED CONSOLIDATED FINANCIAL DATA
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
The selected consolidated financial data should be read in conjunction with
SSHC's consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
SSHC" included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- ---------------------------
1998 1997 1997(1) 1996 1995(2)
------- ------- ------- ------- -------
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total revenue................................ $ 1,727 $ 1,665 $ 3,335 $ 3,189 $ 5,679
Net income (loss)............................ $ 886 $ (53) $ (564) $ (44) $ 1,019
Basic and diluted income (loss) per share.... $ 22.72 $ (1.23) $(13.42) $ (1.02) $ 23.70
Total assets................................. $16,563 $19,104 $14,716 $24,007 $30,123
Short-term notes payable..................... $ 5,803 $ 7,407 $ 6,690 $ 1,020 $ 124
Long-term notes payable...................... $ 1,895 $ -- $ 1,899 $ 6,471 $10,472
Minority interest............................ $ 113 $ 251 $ 154 $ 257 $ 192
Cash dividends per share..................... N/M N/M N/M N/M N/M
Stockholders' equity......................... $ 8,609 $11,219 $ 5,826 $16,129 $17,947
Net cash flow provided by (used in)
operations................................. $ 1,117 $ 131 $ 1,116 $ 27 $ (425)
</TABLE>
- ---------------
(1) On August 29, 1997, entities controlled by Mr. J.R. Simplot purchased all 33
shares of the Class A (Voting) Common Stock and 38,472 (89.7%) of the Class
B (Non-Voting) Common Stock of BBHC from Don D. Box, Gary D. Box, Thomas D.
Box and Douglas D. Box (the "Box Brothers") and settled all litigation
existing between and among Mr. Simplot and the Box Brothers. On October 14,
1997, SSHC acquired the remaining 4,403 shares (10.3%) of the Class B
(Non-Voting) Common Stock of BBHC as treasury stock. The treasury stock was
subsequently canceled.
(2) Total revenues in 1995 include a net gain on sale of securities totaling
$2.6 million.
N/M -- Not Meaningful
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<PAGE> 84
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SSHC
The purpose of the discussion that follows is to assist the reader in the
understanding of the financial position and results of operations of SSHC. The
information below should be read in conjunction with the financial statements
and the related notes to financial statements for the years ended December 31,
1997, 1996 and 1995 and the six months ended June 30, 1998 and 1997 which are
presented elsewhere in this prospectus beginning on page F-30.
This discussion contains historical information and forward-looking
statements that involve risks and uncertainties about the business, long-term
strategy, financial condition and future of SSHC. Statements concerning the
proposed Merger with Remington or future sources of pipeline revenues are
forward-looking statements. These statements are based on assumptions that
management believes are reasonable based on currently available information of
known facts and trends. Specifically, management has assumed that the Merger
with Remington will be approved by the shareholders of Remington. However,
management's assumptions and SSHC's future performance are both subject to a
wide range of business risks and there is no assurance that these goals and
projections can or will be met.
The primary business of SSHC is to transport oil for Remington from a group
of offshore Gulf of Mexico properties to onshore Louisiana through its
subsidiary CKBP. In addition, the Company owns 1,840,525 shares (approximately
57%) of Remington Class A Stock and 294,643 shares of Remington Class B Stock.
On June 22, 1998, SSHC agreed to merge with Remington. Under the terms of the
Merger Agreement, Remington will exchange 72.329 shares of the new Remington
Common Stock for each of the 38,505 outstanding shares of SSHC, resulting in the
issuance in the aggregate of 2,785,028 shares of the new Remington Common Stock,
and Remington will issue the Warrant. At the same time, the 1,840,525 shares of
Remington Class A Stock, 88,668 shares of Remington Class B Stock owned directly
by SSHC and the SSHC Note will be canceled. After the Merger, SSHC will cease to
exist and all of its subsidiaries will be subsidiaries of Remington.
LIQUIDITY AND CAPITAL RESOURCES
Total current liabilities exceeded current assets by $5.2 million at June
30, 1998, by $6.2 million at December 31, 1997 and by $107,000 at December 31,
1996. The decrease in the current liquidity resulted from the replacement of
long-term debt existing at December 31, 1996 with a short-term note payable to
Remington in April 1997. At December 31, 1996, SSHC had a revolving line of
credit from a bank, with a balance of $991,000, that expired April 30, 1997 and
a $6.5 million note payable to Trammel Crow and Crow Cement Company L. P. due
May 27, 2000 (the "Crow Note"). The bank had a first lien on the Remington Class
A Stock and Trammel Crow and Crow Cement L. P. had a second lien on the
Remington Class A Stock. At March 31, 1997 the market value of the Remington
Class A Stock was approximately $16.1 million. Because of a technical default on
the Crow Note, SSHC perceived a threat of foreclosure on the Remington Class A
Stock once the bank line of credit was fully paid. In April 1997, SSHC borrowed
$7.25 million from Remington under the SSHC Note to pay off the bank line of
credit and the Crow Note. After principal payments totaling $300,000, the SSHC
Note was replaced and was subsequently extended to November 29, 1998. The SSHC
Note will be canceled as part of the Merger. The terms of the SSHC Note require
SSHC to make monthly payments of principal and interest totaling $100,000.
However, SSHC has made payments in excess of the required amounts for several
months and, under the Merger Agreement SSHC is obligated to continue to make
additional payments on the SSHC Note from its available cash flow pending
consummation of the Merger. The Remington Class A Stock and other assets are
pledged as collateral for the SSHC Note.
SSHC also borrowed $1.9 million from its majority stockholder in October
1997 under the SSHC Stockholder Note. The proceeds along with other
consideration were used to redeem the SSHC Class B Stock not owned by the Box
brothers. The SSHC Stockholder Note will be contributed to capital as part of
the Merger.
Net cash flow provided by operations increased $957,000 or 598% for the six
months ended June 30, 1998, compared to the six months ended June 30, 1997. Net
cash flow provided by operations for the year
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<PAGE> 85
ended December 31, 1997, was $1.1 million compared to $27,000 for the year ended
December 31, 1996 and net cash used by operations of $425,000 for the year ended
December 31, 1995. The increases in net cash from operations are related to the
reduction of general and administrative expenses and litigation expenses that
occurred after Mr. Simplot's purchase of control. Neither SSHC nor its
subsidiaries have any paid employees and all of the litigation between and among
Mr. Simplot and the Box Brothers was settled. Cash flow from operations is
provided primarily from the pipeline operations owned by CKBP. Although the oil
production to be transported through the pipeline is currently limited to
Remington's production from the South Pass area blocks, the Company believes
that there is the possibility of transporting third party oil production in the
future.
SSHC adopted Statement of Financial Accounting Standards ("SFAS") No. 128,
entitled "Earnings per Share," in 1997. SFAS No. 128 simplifies the standards
for computing earnings per share previously found in Accounting Principles Board
("APB") Opinion No. 15. Basic income per share and diluted income per share have
replaced primary income per share and fully diluted income per share,
respectively. The adoption by SSHC of SFAS No. 128 had no effect on the
presentation of basic income per share because SSHC has no dilutive securities
issued.
SSHC adopted SFAS No. 130 entitled "Reporting Comprehensive Income" in
1998. The statement requires SSHC to report "comprehensive income" and its
components in the financial statements. Comprehensive income represents changes
in the stockholders' equity accounts other than for items required by accounting
standards to be reported as direct adjustments to paid-in-capital, retained
earnings or other non-income equity accounts during the reporting period. Such
changes include net income as well as other charges and credits to stockholders'
equity accounts that are excluded from net income. During the first six months
of 1998, comprehensive income for SSHC was $2.8 million compared to a
comprehensive loss of $4.8 million for the first six months of 1997.
SFAS No. 131 entitled "Disclosures about Segments of an Enterprise and
Related Information" is effective for the fiscal year ending December 31, 1998.
This statement establishes standards for reporting information about operating
segments and related disclosures about products and services, geographic areas,
and major customers. Because of the merger this statement is not anticipated to
have a material impact on SSHC's financial disclosures.
SSHC has assessed the impact of the "year 2000" issue on its reporting
systems and operations. The "year 2000" issue exists because many computer
systems and applications currently use two-digit date fields to designate a
year. As the century date occurs, date sensitive systems will recognize the year
2000 as 1900 or not at all. This inability to recognize or properly treat the
year 2000 may cause systems to process critical financial and operational
information incorrectly. SSHC's system is a PC-based network, and all
application software is purchased from outside third parties that have a
significant presence in general application software. The Company projects all
computer systems and software will be year 2000-compliant during 1998.
Management does not estimate future expenditures related to the year 2000
exposure to be significant.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net income for the first six months of 1998 was $939,000 higher than the
first six months of 1997. The increase resulted primarily from a reduction in
general and administrative expenses and legal expenses as well as a slight
increase in total revenues. Pipeline revenue increased 6% because of an increase
in oil production transported through the Pipeline. Total barrels shipped during
the first six months of 1998 were 833,000 compared to 667,000 during the first
six months of 1997. Oil and gas sales and other income decreased in 1998 because
of additional oil sales revenue from an upward revision of prior years' oil
production and a net gain from the sale of assets that were recorded in the
first six months of 1997.
Pipeline operating expenses increased during the first six months of 1998
compared to the same six months in 1997 because of expenses for an inspection of
a portion of the Pipeline during the first quarter of 1998. General and
administrative expenses and legal expenses decreased after Mr. Simplot purchased
control
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<PAGE> 86
of SSHC because SSHC no longer had any paid employees and all of the litigation
was settled. Interest expense increased as a result of the higher interest rate
on the SSHC Note as compared to the Crow Note.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The net loss for 1997 was $564,000 compared to the net loss of $44,000 for
1996. The increase in the net loss resulted primarily from an increase in the
deferred income tax valuation allowance during 1997, partially offset by a 5%
increase in total revenues. Pipeline revenues increased $374,000, or 13%, for
the year ended December 31, 1997 compared to the prior year. The increase
resulted from a 136,000 barrel increase in oil transported through the Pipeline
during 1997. Other income decreased $177,000 because of gains from sales of
assets recorded during 1996.
Pipeline operating expenses decreased 25% because of repair work on the
Pipeline in 1996. In 1996, SSHC recorded a one-time $97,000 impairment charge
for land held for sale. In 1997, a one-time reorganization expense totaling
$122,000 was recorded when certain assets were transferred to some of the sons
of Cloyce K. Box in connection with the litigation settlement. Interest expense
increased as a result of the higher interest rate on the note payable to
Remington as compared to the Crow Note. Income tax expense increased $772,000
because of an increase in the valuation allowance recorded against the deferred
income tax asset. In prior years, the deferred tax assets were more than offset
by a deferred tax liability created by the excess of the market price of the
marketable securities over their historical cost. In 1996 and 1997, the market
value of the marketable securities decreased to the level that SSHC had a net
deferred tax asset. SSHC recorded an expense when the deferred tax asset was
fully reserved in 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
SSHC recorded a net loss for the year ended December 31, 1996 of $44,000
compared to net income for the year ended December 31, 1995 of $1.0 million.
Total revenues decreased $2.5 million primarily because of a net gain on sale of
marketable securities of $2.6 million recorded in 1995 compared to no gain from
sale of securities recorded in 1996. Pipeline revenues, however, increased
$119,000 or 4% in 1996 because total barrels of oil transported increased by
43,000 barrels. Oil and gas sales decreased $134,000 because SSHC received an
adjustment of accumulated revenues totaling $163,000 from prior years in 1995.
Other income increased $161,000 because of the sale of assets in 1996.
Pipeline operating expenses increased 10% because of repair work on the
pipeline in 1996. In 1996, SSHC recorded a one-time $97,000 impairment charge
for land held for sale. General and administrative expenses increased $273,000,
or 35%, primarily as a result of increased salaries expense. Legal expense
decreased $1.4 million, or 69%, because of lower legal fees incurred in 1996 as
compared to legal fees incurred during the bankruptcy period in 1995. Income
taxes decreased $310,000 because of the lower income before taxes.
INFORMATION ABOUT THE ANNUAL MEETING
DATE, TIME AND PLACE OF THE ANNUAL MEETING
The Annual Meeting of Stockholders of Remington (the "Annual Meeting") will
be held at the , Dallas, Texas on , 1998, starting at a.m.
RECORD DATE AND OUTSTANDING SHARES
Only holders of Remington Class A Stock at the close of business on October
, 1998 (the "Annual Meeting Record Date"), are entitled to notice of , and to
vote at, the Annual Meeting.
At the close of business on the Annual Meeting Record Date, there were
holders of record of the shares of Remington Class A Stock
issued and outstanding. Each share of Remington Class A Stock entitles the
holder thereof to one vote on each matter submitted for stockholder approval at
the Annual Meeting.
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<PAGE> 87
PURPOSE OF THE ANNUAL MEETING
The purpose of the Annual Meeting is to consider and vote upon
(i) the election of nine directors;
(ii) ratification of the appointment of Arthur Andersen, LLP as
Remington's auditors for fiscal year 1998; and
(iii) such other matters as may properly be brought before the Annual
Meeting.
VOTE REQUIRED
At the Annual Meeting, the presence of the holders of a majority of the
outstanding shares of Remington Class A Stock entitled to vote at the Annual
Meeting, whether present in person or by proxy, will constitute a quorum for the
transaction of business. Directors will be elected by the holders of a plurality
of the shares of Remington Class A Stock present in person or represented by
proxy and entitled to vote. All other matters to be voted on at the Annual
Meeting require the affirmative vote of holders of a majority of the shares of
Remington Class A stock present in person or represented by proxy and entitled
to vote. At the close of business on the Annual Meeting Record Date, the
directors and officers of Remington and their affiliates held
shares of Remington Class A Stock, representing approximately % of the
outstanding shares of the Remington Class A Stock. Such persons have indicated
to Remington that they intend to vote their shares FOR the nominees for director
presented at the Annual Meeting and for the ratification of the appointment of
Arthur Andersen LLP as auditors. In addition, as of the Annual Meeting Record
Date, SSHC and its affiliates (including David H. Hawk, individually) held
1,840,725 shares of Remington Class A Stock, representing approximately 57% of
the outstanding shares of the Remington Class A Stock. SSHC and its affiliates
have indicated to Remington that they intend to vote their shares FOR the
nominees for director presented at the Annual Meeting and for the ratification
of Arthur Andersen, LLP as auditors.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked in the manner specified
will be voted at the Annual Meeting in accordance with the instructions
contained thereon. If an executed proxy card is returned but does not specify
otherwise, it will be voted "FOR" the proposals presented at the Annual Meeting.
Abstentions are not counted as voting in favor of a proposal and, therefore,
will have the same effect as a vote "AGAINST" the matter. A holder of Remington
Class A Stock who has executed and returned a proxy may revoke it at any time
before it is voted at the Annual Meeting by executing and returning a proxy
bearing a later date, by filing written notice of such revocation with the
Secretary of Remington stating that the proxy is revoked, or by attending the
Annual Meeting and voting in person. Broker non-votes are neither counted as
voting for nor against a matter and, therefore, as to that matter will not be
treated as shares present and will be disregarded. Abstentions will have the
effect of voting against the matters presented at the Annual Meeting.
OTHER MATTERS
Management of Remington knows of no other matters to be presented for
action at the Annual Meeting other than the election of directors and
ratification of the appointment of auditors. Should any other matter properly
come before the Annual Meeting, proxies will be voted upon these matters in
accordance with the best judgment of the persons voting such proxies.
ELECTION OF DIRECTORS
Nine directors of the Company are to be elected at the Annual Meeting to
serve until the next Annual Meeting and until their respective successors shall
have been elected and qualified. Unless authority to vote for one or more
directors is withheld, proxies will be voted for the election of the persons
listed below or, if any such person shall unexpectedly become unable or
unwilling to accept nomination or election, for the election of such other
person as the Board of Directors may recommend. The persons listed below are
directors of Remington now in office and are nominees for re-election. In the
event the Merger Agreement is approved at
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<PAGE> 88
the Special Meeting and the nominees for directors set forth below are elected,
these persons will constitute the Board of Directors of Remington following
consummation of the Transaction. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE NOMINEES.
Certain information concerning each director is set forth below:
Don D. Box has served as a director of Remington since March 1991, and as
Executive Vice President of Remington since October 1997. He served as Chairman
of the Board of Directors from January 1994 to October 1997, as Chief Executive
Officer from August 1996 to October 1997, and as President from August 1996 to
March 1997. From March 1994 to January 1995, he served as Remington's Director
of Corporate Development. He has served as Vice President of SSHC, CKBA and CKBP
since September 1997. For more than five years prior to September 1997, he
served as a director and executive officer of Box Brothers Holding Company
("BBHC"), CKBA, CKBP and certain other affiliates of BBHC. BBHC is the prior
name of SSHC, which is the parent corporation of CKBA and CKBP. Mr. Box is a
director of Toucan Mining Company. He is a co-executor of the Estate of Cloyce
K. Box and is 48 years of age.
John E. Goble, Jr. has served as a director since April 1997. Mr. Goble is
a Certified Public Accountant and certified financial planner, and from 1986 to
the present he has served as an investment and financial advisor to Byrd
Investments. Mr. Goble is a director of the Miracle of Pentecost Foundation. He
is 51 years of age.
William E. Greenwood has served as a director since April 1997. From 1995
through the present, Mr. Greenwood has served as a consultant. He served as a
director and Chief Operating Officer of Burlington Northern Railroad Corporation
from 1990 until 1994. Mr. Greenwood is a director of AmeriTruck Distribution
Corporation, Mark VII, Inc. and Transport Dynamics Inc. Mr. Greenwood is also
president of the Mendota Museum and Historical Society. He is 60 years of age.
David H. Hawk has served as a director since September 1997 and as Chairman
of the Board since October 1997. Since 1984, he has served as Director, Energy
and Natural Resources for the J.R. Simplot Company in Boise, Idaho, which was
founded by J.R. Simplot, who together with members of his family controls
approximately 57% of the Remington Class A Stock outstanding. Mr. Hawk is 53
years of age.
James Arthur Lyle has been a director since September 1997. Since 1976, he
has been the owner of James Arthur Lyle and Associates, a commercial, industrial
and investment real estate firm in El Paso, Texas. Since 1984, Mr. Lyle has
served as a director, Chief Operating Officer, and Vice President of Hueco
Mountain Estates, Inc., a 10,500 acre multi-use real estate development in El
Paso County, Texas. Mr. Lyle is 52 years of age.
David E. Preng has served as a director since April 1997. From 1980 through
the present, Mr. Preng has been Chief Executive Officer and President of Preng &
Associates, Inc., an international executive search firm. He is a director of
Citizens National Bank of Texas and is a Fellow of the Institute of Directors in
London. He is 51 years of age.
Thomas W. Rollins has served as a director since July 1996. Since 1992, Mr.
Rollins has been Chief Executive Officer of Rollins Resources, a natural gas and
oil consulting firm. From March 1991 until 1992, Mr. Rollins was President and
Chief Executive Officer of Park Avenue Exploration Corporation, an oil and gas
exploration company, which is a subsidiary of USF&G Corporation. He is a
director of Pheasant Ridge Winery, The Teaching Company and The Nature
Conservancy of Texas. He is 67 years of age.
Alan C. Shapiro has served as a director since May 1994. From 1993 to June
1997, Professor Shapiro served as Chairman of the Department of Finance and
Business Economics in the Marshall School of Business of the University of
Southern California. Since 1984, he has been a Professor of Finance and Business
Economics in the Marshall School. From 1991 to the present, Professor Shapiro
has been the Ivadelle and Theodore Johnson Professor of Banking and Finance at
the School. In addition, Professor Shapiro has also taught at the Wharton School
of the University of Pennsylvania and at Carnegie Mellon University. His
visiting teaching appointments include Yale University and the University of
California at Los Angeles. He is 53 years of age.
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<PAGE> 89
James A. Watt has served as a director since September 1997 and as
President and Chief Operating Officer from March 1997 to February 1998. He was
appointed Chief Executive Officer on February 4, 1998. Mr. Watt was Vice
President/Exploration of Seagull Energy E&P, Inc. from 1993 to 1997. He was Vice
President/Exploration & Exploitation of Nerco Oil & Gas, Inc. from 1991 to 1993.
He is 48 years of age.
RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as Remington's
independent public accountants for the fiscal year ending December 31, 1998.
Arthur Andersen LLP, an international firm of certified public accountants, has
been retained by Remington since September 1996. A representative of Arthur
Andersen is expected to be present at the Annual Meeting to answer appropriate
questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE TO RATIFY THE
APPOINTMENT OF ARTHUR ANDERSEN AS REMINGTON'S AUDITORS.
DIRECTORS AND EXECUTIVE OFFICERS OF REMINGTON AND EXECUTIVE COMPENSATION
Information with respect to Directors and Executive Officers of the
Registrant and Executive Compensation is incorporated herein by reference to
Item 10 (Directors and Executive Officers of the Registrant), Item 11 (Executive
Compensation) and "Ownership of Certain Beneficial Owners" in Item 12 (Security
Ownership of Certain Beneficial Owners and Management) contained in Remington's
Annual Report on Form 10-K for the year ended December 31, 1997.
STOCK OWNERSHIP OF MANAGEMENT
The numbers of shares of the Company's Class A (Voting) Common Stock and
Class B (Non-Voting) Stock beneficially owned as of October 13, 1998 by
Directors of the Company, each Named Executive Officer (excluding Dennis A.
Francis, who, at the time of his resignation in October 1997, owned no shares of
either Remington Class A or Remington Class B Stock) and as a group comprised of
all Directors and executive officers, are set forth in the following table. This
information was furnished to the Company by such persons.
<TABLE>
<CAPTION>
PERCENT OF
SHARES OF PERCENT OF SHARES OF CLASS B CLASS B
CLASS A CLASS A (NON-VOTING) (NON-VOTING)
(VOTING) (VOTING) COMMON COMMON
NAME COMMON STOCK COMMON STOCK STOCK(1) STOCK(1)
---- ------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C>
J. Burke Asher...................... 1,500 * 676 *
Don D. Box.......................... 0 0 7,207 *
Steven J. Craig..................... 600 * 1,200 *
John E. Goble, Jr. ................. 0 0 26,564 *
William E. Greenwood................ 0 0 25,000 *
David H. Hawk....................... 200 * 700 *
James Arthur Lyle................... 2,500 * 2,714 *
David E. Preng...................... 6,750 * 38,891 *
Thomas W. Rollins................... 0 0 36,814 *
Alan C. Shapiro..................... 0 0 38,098 *
James A. Watt....................... 0 0 41,000 *
All Directors and executive officers
as a group (20 persons)........... 15,450 * 253,791 1.5%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of this class.
(1) Included in the table above are shares of Class B Stock issuable within 60
days of October 13, 1998, upon the exercise of stock options pursuant to the
Company's Stock Option Plans to John E. Goble, Jr., (25,000 shares), William
E. Greenwood (25,000 shares), David E. Preng (25,000 shares), Thomas W.
Rollins (25,000 shares), Alan C. Shapiro (25,000 shares), James A. Watt
(20,000 shares), and Directors and executive officers as a group (155,000
shares) as well as shares of Class B Stock issued pursuant to the Directors
Stock Purchase Plan to John E. Goble (1,564 shares), James Arthur Lyle
(2,607 shares), David E. Preng (5,891 shares), Thomas W. Rollins (2,607
shares), Alan C. Shapiro (5,891 shares) but
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<PAGE> 90
does not include shares of Class B Stock issued pursuant to the Directors
Stock Purchase Plan issuable as of September 30, 1998, but not included in
the number of shares covered by this Registration Statement to John E. Goble
(1,043 shares), James Arthur Lyle (1,739 shares), David E. Preng (1,739
shares), Thomas W. Rollins (1,739 shares) and Alan C. Shapiro (1,739
shares).
Arrangements Relating to Potential Change of Control
On June 3, 1997, the Company extended a $6.95 million loan to SSHC that
matures November, 1998, and requires monthly installment payments of $100,000.
SSHC pledged as collateral for the promissory note the 1,840,525 shares of
Remington Class A Stock owned by SSHC. The pledge agreement provides that in the
event that SSHC defaults on the note, the Company, upon five days' notice to
SSHC, has the right to foreclose upon and sell the collateral stock and to bid
for and buy the stock (except at private sale). The pledge agreement also
provides that upon the occurrence and during the continuance of an event of
default, the Company may direct the vote of such stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SSHC owns approximately 57% of outstanding shares of the Remington Class A
Stock and 94% of the outstanding shares of both CKBP and CKBA. A resolution
adopted in 1992 by the Board of Directors of the Company authorizes the Company
to enter into a transaction with an affiliate of the Company so long as the
Board of Directors determines that such a transaction is fair and reasonable to
the Company and is on terms no less favorable to the Company than can be
obtained from an unaffiliated party in an arms' length transaction.
The Company pays oil transportation charges to CKBP for transporting crude
oil from its South Pass blocks. Since March 1985, CKBP has owned a minority
interest in the pipeline transporting oil from the wells in the South Pass
blocks to Venice, Louisiana. The tariff for the pipeline at $2.75 per barrel was
published and filed with the Federal Energy Regulatory Commission, which
regulates such rates. The rate has been uniform since 1982 among all owners of
the pipeline from South Pass Block 89 Field and is consistent with the rate
charged by an unaffiliated party to the Partnership prior to the acquisition of
the pipeline interest by CKBP. CKBP billed the Company $3.2 million, $2.8
million and $2.7 million for oil transportation charges in 1997, 1996, and 1995,
respectively.
The Company bills CKBP and other related parties, including SSHC and CKBA,
for the estimated fair value of usage of an allocated portion of subleased
office space, certain payroll costs and benefits, and other overhead costs. The
amounts billed are considered to be the fair value of such usage by, or
allocations for the benefit of, the related parties. The Company billed related
parties $40,000, $81,000 and $134,000 in 1997, 1996, and 1995, respectively, for
items such as rent, payroll and overhead costs.
Under the Partnership Agreement of the Partnership, the general partners
were entitled to advancement of litigation expenses in the event they were named
parties to litigation in their capacity as general partners. In order to receive
such advancements, each general partner was required, in writing, to request
advancement of litigation expenses and undertake to repay any advancements in
the event it was determined, in accordance with applicable law, that the general
partners were not entitled to indemnification for litigation expenses. Each
general partner executed such an undertaking agreement in relation to the
Griffin Case. Accordingly, the Partnership and later the Company, advanced
litigation expenses to CKBA and Cloyce K. Box (and his estate following his
death) in connection with such litigation. In addition, the Company advanced
litigation expenses on behalf of certain directors and officers of the Company
for one lawsuit related to the Griffin litigation and other lawsuits related to
the shareholder litigation and Thomas D. Box Cases. See Notes to Financial
Statements -- Note 11. Contingencies. In accordance with the By-Laws of the
Company, the defendants have executed written undertakings to repay the Company
for any related expenses advanced on their behalf if it is later found that such
costs were not subject to indemnification by the Company. No judicial
determination has been made that any of the general partners, directors or
officers are not entitled to indemnification for litigation expenses incurred.
The total legal costs incurred related to these cases were $351,000, $1.5
million and $583,000, for 1997, 1996 and 1995, respectively.
81
<PAGE> 91
In December 1997, the Company paid $1.9 million to Mr. Simplot and $100,000
to Mr. Lyle for attorneys' fees in connection with the settlement of the Griffin
Cases.
On April 29, 1997, the Company lent SSHC $7.25 million to retire existing
secured debt of SSHC. The note to the Company was payable on May 29, 1997, but
was extended to June 3, 1997. After partial repayment by SSHC of the note, the
Company extended a new note in the amount of $6.95 million at an interest rate
of 9.5% that matures November, 1998, and requires monthly installment payments
of $100,000. SSHC pledged as collateral for the promissory note the 1,840,525
shares of Remington Class A Stock owned by SSHC. The pledge agreement provides
that in the event that SSHC defaults on the note, the Company, upon five days'
notice to SSHC, has the right to foreclose upon and sell the collateral stock
and to bid for and buy the stock (except at a private sale). The pledge
agreement also provides that upon the occurrence and during the continuance of
an event of default, the Company may direct the vote of such stock. SSHC has
made payments in excess of the required amounts, and as of December 31, 1997,
the outstanding principal amount of the note had been reduced to $6,192,000.
The Company paid $194,000 to Preng & Associates, Inc., which is
majority-owned by David E. Preng, a Director of the Company, for executive
search services provided to the Company from July 1996 through the end of 1997.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals for inclusion in the proxy materials and
consideration at the Company's 1999 annual meeting must be received by the
Company before December 1, 1998, in order to be considered for inclusion in the
proxy material of the Company for that meeting. Any such proposal must comply in
all respects with the rules and regulations of the Securities and Exchange
Commission.
ANNUAL REPORT
The Company's Annual Report to Stockholders has previously been sent to
stockholders.
LEGAL MATTERS
Prickett, Jones, Elliott, Kristol & Schnee (a professional corporation),
1310 King Street, Wilmington, Delaware 19801, will render its opinion as to the
validity, under Delaware law, of the shares of Remington Common Stock to be
issued in the Merger, as well as certain other matters of Delaware law with
respect to the Merger. Kelly, Hart & Hallman (a professional corporation), 201
Main Street, Suite 2500, Ft. Worth, Texas 76102, will also render an opinion
under the Merger Agreement with respect to certain legal issues with respect to
the Merger.
EXPERTS
Remington's financial statements as of December 31, 1997 and 1996 included
in this Prospectus and Proxy Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in auditing and accounting in giving said report.
Remington's financial statements for the year ended December 31, 1995
included in this Prospectus and Proxy Statement have been audited by
PricewaterhouseCoopers LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm, as experts in auditing and accounting in giving said
report.
SSHC's consolidated financial statements for December 31, 1997, 1996, and
1995 included in this Prospectus and Proxy Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in auditing and accounting in giving said report.
References to the tax opinion of Arthur Andersen LLP, referenced in this
Prospectus and Proxy Statement under "Summary" and "Tax Consequences of the
Merger Agreement," have been included herein in reliance upon the authority of
such firm as experts in federal income tax matters.
82
<PAGE> 92
The estimates of oil and gas reserves included in this Prospectus and Proxy
Statement were prepared by the independent engineering and consulting firm of
Netherland, Sewell & Associates, Inc. for 1996 and 1995, and by Netherland,
Sewell & Associates, Inc. and Miller and Lents, Ltd. for 1997, and have been
included herein in reliance upon the authority of such firms as experts in
petroleum engineering.
83
<PAGE> 93
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REMINGTON OIL AND GAS CORPORATION
Annual Financial Information
Reports of Independent Accountants..................... F-2
Balance Sheets as of December 31, 1997 and 1996........ F-3
Statements of Income for 1997, 1996 and 1995........... F-4
Statements of Stockholders' Equity for 1997, 1996 and
1995.................................................. F-5
Statements of Cash Flow for 1997, 1996 and 1995........ F-6
Notes to Financial Statements for 1997, 1996 and
1995.................................................. F-7
Interim Financial Information
Condensed Balance Sheets as of June 30, 1998 and
December 31, 1997..................................... F-23
Condensed Statements of Income for the six months ended
June 30, 1998 and 1997................................ F-24
Condensed Statements of Cash Flow for the six months
ended June 30, 1998 and 1997.......................... F-25
Notes to Financial Statements for the six months ended
June 30, 1998 and 1997................................ F-26
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
Annual Financial Information
Report of Independent Accountants...................... F-30
Consolidated Balance Sheets as of December 31, 1997 and
1996.................................................. F-31
Consolidated Statements of Income for 1997, 1996 and
1995.................................................. F-32
Consolidated Statements of Stockholders' Equity for
1997, 1996 and 1995................................... F-33
Consolidated Statements of Cash Flow for 1997, 1996 and
1995.................................................. F-34
Notes to Consolidated Financial Statements for 1997,
1996 and 1995......................................... F-35
Interim Financial Information
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997..................................... F-44
Consolidated Statements of Income for the six months
ended June 30, 1998 and 1997.......................... F-45
Consolidated Statements of Cash Flow for the six months
ended June 30, 1998 and 1997.......................... F-46
Notes to Consolidated Financial Statements for the six
months ended June 30, 1998
and 1997............................................. F-47
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
To The Stockholders and Board of Directors of
Remington Oil and Gas Corporation
We have audited the accompanying balance sheets of Remington Oil and Gas
Corporation ("the Company") as of December 31, 1997 and 1996 and the related
statements of income, stockholders' equity and cash flows for each of the two
years in the period ending December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Remington Oil and Gas
Corporation as of December 31, 1997 and 1996 and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 20, 1998
To The Stockholders and Board of Directors of
Remington Oil and Gas Corporation
We have audited the accompanying statements of income, stockholders' equity
and cash flows of Remington Oil and Gas Corporation (formerly Box Energy
Corporation) for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Remington
Oil and Gas Corporation for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 5, 1996, except for the thirteenth
paragraph of Note 1 as to which the
date is March 27, 1998
F-2
<PAGE> 95
REMINGTON OIL AND GAS CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FOR YEARS ENDED
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 4,552 $ 2,997
Marketable securities -- available for sale............... -- 32,678
Accounts receivable -- oil and natural gas................ 5,725 7,093
Accounts receivable -- other.............................. 268 1,456
Note receivable -- S-Sixteen Holding Company.............. 6,192 --
Prepaid expenses and other current assets................. 2,118 1,961
--------- ---------
Total current assets.............................. 18,855 46,185
--------- ---------
Properties
Unproved oil and gas properties........................... 8,755 6,504
Oil and natural gas properties (successful-efforts
method)................................................ 211,726 180,747
Other properties.......................................... 2,800 3,226
Accumulated depreciation, depletion and amortization...... (144,548) (116,371)
--------- ---------
Total properties.................................. 78,733 74,106
--------- ---------
Other assets
Deferred income taxes (net of valuation allowance)........ -- 14,723
Deferred charges (net of accumulated amortization)........ 927 1,585
--------- ---------
Total other assets................................ 927 16,308
--------- ---------
Total assets...................................... $ 98,515 $ 136,599
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 8,694 $ 5,043
Accrued interest payable.................................. 264 379
Accrued transportation payable -- related party........... 305 263
Net Profits expense payable............................... 594 1,481
Short-term notes payable.................................. 6,000 --
--------- ---------
Total current liabilities......................... 15,857 7,166
--------- ---------
Convertible subordinated notes payable...................... 38,371 55,077
--------- ---------
Total Liabilities................................. 54,228 62,243
--------- ---------
Commitments and Contingencies (Note 11)
Stockholders' equity
Common Stock, $1.00 par value
Class A (Voting) -- 15,000,000 shares authorized;
3,250,110 shares issued............................... 3,250 3,250
Class B (Non-Voting) -- 30,000,000 shares authorized;
17,553,010 shares issued.............................. 17,553 17,553
Additional paid-in capital................................ 25,197 25,197
Treasury stock, at cost, 31,100 shares Class A, and
465,600 shares Class B................................. (3,465) --
Retained earnings......................................... 1,752 28,542
Valuation allowance for marketable securities............. -- (186)
--------- ---------
Total stockholders' equity........................ 44,287 74,356
--------- ---------
Total liabilities and stockholders' equity........ $ 98,515 $ 136,599
========= =========
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE> 96
REMINGTON OIL AND GAS CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues
Oil sales................................................. $ 21,292 $18,849 $13,966
Gas sales................................................. 36,012 46,757 40,440
Interest income........................................... 1,998 2,273 2,123
Gain (loss) investment.................................... (125) (73) --
Other income.............................................. 1,876 2,404 2,964
-------- ------- -------
Total revenues.................................... 61,053 70,210 59,493
-------- ------- -------
Costs and expenses
Operating costs and expenses.............................. 4,015 3,825 3,142
Transportation expense.................................... 2,851 2,491 2,285
Net Profits Interest expense.............................. 8,341 11,479 12,500
Exploration expenses...................................... 8,554 20,805 4,924
Depreciation, depletion and amortization.................. 24,298 22,349 14,401
Impairment of oil and natural gas properties.............. 3,953 451 566
General and administrative................................ 6,344 7,731 7,073
Legal expense............................................. 2,509 3,657 1,452
Reorganization expense.................................... 7,072 1,959 800
Interest and financing expense............................ 5,283 4,895 4,836
-------- ------- -------
Total costs and expense........................... 73,220 79,642 51,979
-------- ------- -------
Income (loss) before taxes................................ (12,167) (9,432) 7,514
-------- ------- -------
Income tax expense (benefit).............................. 14,623 (1,770) 2,122
-------- ------- -------
Net income (loss)................................. $(26,790) $(7,662) $ 5,392
======== ======= =======
Basic and diluted income (loss) per share................... $ (1.31) $ (0.37) $ 0.26
======== ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE> 97
REMINGTON OIL AND GAS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------
CLASS A STOCK CLASS B STOCK VALUATION
--------------- ---------------- ADDITIONAL ALLOWANCE
PAR PAR PAID IN RETAINED TREASURY MARKETABLE
SHARES VALUE SHARES VALUE CAPITAL EARNINGS STOCK SECURITIES
------ ------ ------ ------- ---------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994.......... 3,250 $3,250 17,553 $17,553 $25,197 $ 30,812 $ -- $(1,299)
Net income....................... 5,392
Unrealized gain (net of income
taxes)........................ 1,142
----- ------ ------ ------- ------- -------- ------- -------
Balance December 31, 1995.......... 3,250 3,250 17,553 17,553 25,197 36,204 -- (157)
Net income (loss)................ (7,662)
Unrealized loss (net of income
taxes)........................ (29)
----- ------ ------ ------- ------- -------- ------- -------
Balance December 31, 1996.......... 3,250 3,250 17,553 17,553 25,197 28,542 -- (186)
Net income (loss)................ (26,790)
Purchase of Treasury Stock....... (3,465)
Unrealized gain (net of income
taxes)........................ 186
----- ------ ------ ------- ------- -------- ------- -------
Balance December 31, 1997.......... 3,250 $3,250 17,553 $17,553 $25,197 $ 1,752 $(3,465) $ --
===== ====== ====== ======= ======= ======== ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE> 98
REMINGTON OIL AND GAS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flow provided by operations
Net income (loss)........................................ $(26,790) $ (7,662) $ 5,392
Depreciation, depletion and amortization.............. 24,298 22,349 14,401
Impairment of oil and natural gas properties.......... 3,953 451 566
Amortization of deferred charges...................... 658 262 254
Amortization of premium on marketable securities...... 27 27 15
Deferred income tax (benefit) expense................. 14,623 (1,696) 1,995
Dry hole costs........................................ 5,319 17,638 2,223
Decrease in accounts receivable....................... 2,556 105 (3,492)
(Increase) in prepaid expenses and other current
assets.............................................. (157) (1,298) (127)
Increase (decrease) in accounts payable and accrued
expenses............................................ 2,692 (1,201) 3,900
Loss (gain) on sale of properties..................... 367 (20) (1,080)
-------- -------- --------
Net cash flow provided by operations............. 27,546 28,955 24,047
-------- -------- --------
Cash from investing activities
Payments for capital expenditures........................ (39,144) (39,798) (21,274)
Proceeds from property sales............................. 702 260 1,375
-------- -------- --------
Net cash used in investing activities............ (38,442) (39,538) (19,899)
-------- -------- --------
Cash from financing activities
Proceeds from notes payable.............................. 7,000 -- --
Payments on notes payable................................ (1,000) -- --
Sales and maturities of marketable securities............ 33,411 19,127 --
Investment in marketable securities...................... (597) (27,191) --
Notes receivable -- S-Sixteen Holding Company............ (7,250) -- --
Principal repayments -- S-Sixteen Holding Company........ 1,058 -- --
Repurchase common stock.................................. (3,465) -- --
Principal payments on Convertible Subordinated Notes..... (16,706) -- --
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... 12,451 (8,064) --
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 1,555 (18,647) 4,148
Cash and cash equivalents at beginning of period........... 2,997 21,644 17,496
-------- -------- --------
Cash and cash equivalents at end of period................. $ 4,552 $ 2,997 $ 21,644
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE> 99
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Remington Oil and Gas Corporation, formerly Box Energy Corporation, (the
"Company" or "Remington") is an independent oil and gas exploration and
production company with activity and properties in three core areas: offshore
Gulf of Mexico, Mississippi/Alabama and onshore Gulf Coast. Originally organized
in 1981 as OKC Limited Partnership (the "Partnership"), the Company converted to
a corporation on April 15, 1992 (the "Corporate Conversion"). The Corporate
Conversion involved the exchange of common stock for the assets and liabilities
of the Partnership. Management prepares the financial statements in conformity
with generally accepted accounting principles. This requires estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from those
estimates. The Company makes certain reclassifications to prior year financial
statements in order to conform to the current year presentation.
S-Sixteen Holding Company ("SSHC") (formerly known as Box Brothers Holding
Company ("BBHC")) owns 1.8 million shares or approximately 57% of the Company's
outstanding Class A (Voting) Common Stock ("Class A Stock"). On August 29, 1997,
entities controlled by Mr. J. R. Simplot purchased BBHC (the "Simplot
Transaction").
Cash and Cash Equivalents
Cash equivalents consist of liquid investments with maturities of three
months or less when purchased, including investment grade commercial paper and
money market funds invested in United States government securities. Cash and
cash equivalents are stated at cost that approximates market value.
Marketable Securities
Marketable securities, classified as available-for-sale, are recorded on
the balance sheet at their market value on the balance sheet date. Unrealized
holding gains and losses for securities classified as available-for-sale are
excluded from earnings and recorded, net of tax, as a separate component of
stockholders' equity.
Oil and Natural Gas Properties
The Company uses the successful-efforts accounting method for oil and gas
exploration and development expenditures. Capitalized costs include leasehold
acquisition costs, development costs, including costs of tangible equipment,
intangible drilling costs and certain interest costs. Costs classified and
charged to exploration expense include geological, geophysical and other
prospecting costs. The Company capitalizes drilling costs for exploratory wells
pending a determination of commercial oil and natural gas reserves. The costs of
exploratory wells that do not ultimately find commercial oil and natural gas
reserves are charged to exploration expense as a dry hole cost. The Company
amortizes capitalized costs using the units-of-production method based on total
proved reserves for leasehold acquisition costs and total proved developed oil
and natural gas reserves for all other capitalized costs. The Company
capitalizes interest costs incurred for construction of major facilities such as
offshore platforms. No interest was capitalized in 1997 or 1996, and $69,000 was
capitalized in 1995.
Periodically the Company records an impairment expense for oil and natural
gas properties when the net book value of a particular property is greater than
the undiscounted future net cash flows before income taxes from that same
property. Certain events such as drilling a dry hole, a large decrease in oil
and natural gas reserves or production and significantly lower oil and natural
gas prices cause the Company review the
F-7
<PAGE> 100
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
property to determine if an impairment charge is proper. The impairment loss is
equal to the difference between the net book value and the fair value of the
asset. Undiscounted future net cash flow includes estimated proved and risk
adjusted probable and possible oil and natural gas reserves. The Company uses
the present value of the future net cash flows from proved oil and natural gas
reserves discounted at an appropriate rate to estimate the fair value of the
asset.
Impairment losses totaling $3.9 million, $451,000, and $566,000 were
recognized during 1997, 1996, and 1995, respectively. In 1997, the Company's
impairment losses included interests in Main Pass Block 262, located in the Gulf
of Mexico, the Hub Prospect and East Melvin properties located in Mississippi
and the Bronco S.W. and Whopper II properties located in Texas and New Mexico,
respectively. In 1996, the impairment losses included the Company's interests in
East Melvin and Raleigh properties located in Mississippi. In 1995, the Company
recorded an impairment of the Traxler property located in Mississippi.
Future dismantlement, restoration and abandonment ("DR&A") costs include
the estimated costs to dismantle, restore and abandon the Company's offshore
platforms, flowlines, wells and related structures. The total estimated future
DR&A liability is $4.2 million. The liability is accrued over the life of the
property using the units-of-production method and recorded as a component of
depreciation, depletion and amortization expense. The accrued liability at
December 31, 1997 and 1996 was $3.1 million and $2.5 million, respectively, and
is recorded as part of the accumulated depreciation, depletion and amortization
of oil and natural gas properties. See Note 12. Supplemental Disclosures -- Oil
and Natural Gas Properties.
Other Properties
Other properties include leasehold improvements, furnishings and equipment
for office space leased by the Company and are depreciated on a straight-line
method over their estimated useful lives ranging from 3 to 12 years.
Deferred Charges
Deferred charges are the costs incurred in 1992 with respect to the
Company's offering of the Notes, as defined in Note 5 below. The deferred
charges are amortized to interest and financing costs on a straight-line basis
over the 10-year term of the Notes. In October 1997, the Company purchased $16.7
million of the outstanding Notes. The retirement of these Notes resulted in the
accelerated amortization of the deferred offering costs totaling $416,000. See
Note 7. Notes Payable.
Oil and Gas Revenues
The Company recognizes oil and natural gas sales as revenue in the month of
production. The Company's actual sales are not materially different from its
entitled share of production. There are no significant natural gas imbalances
for the years ended December 31, 1997, 1996, and 1995.
Income Taxes
Income tax expense or benefit includes the current income taxes and
deferred income taxes. Current income tax expense or benefit is the amount
calculated on the current year income tax return. Deferred income tax expense or
benefit is calculated as the change in the net deferred income tax asset or
liability at the beginning of the year compared to the end of the year. The
amount of the deferred income tax asset or liability is determined by
multiplying the enacted tax rate by the temporary differences, net operating or
capital loss carry-forwards plus any tax credit carry-forwards. The tax rate
used is the effective rate applicable for the year in which the temporary
differences or carry-forwards expect to be reversed or utilized. A valuation
allowance offsets deferred income tax assets, which are not expected to reverse
in future years using a "more likely than
F-8
<PAGE> 101
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
not" scenario that excludes probable and possible oil and natural gas reserves.
See Note 6. Deferred Income Tax Asset and Income Taxes.
Income per Common Share
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, entitled "Earnings per Share" in 1997. SFAS simplifies the standards
for computing earnings per share previously found in Accounting Principles Board
("APB") Opinion No. 15. Primary income per share has been replaced by basic
income per share. Basic income per share excludes dilution and is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted income per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shares in the net income of the Company. Diluted income per
share is computed similarly to fully diluted income per share pursuant to APB
Opinion 15. As a result of the adoption of SFAS No. 128 income per share has
been restated to conform with the provisions of the statement. The amounts
restated equal the amounts as reported in the prior years. The following table
presents the Company's calculation of basic and diluted income per share.
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss) available for basic income per share...... $(26,790) $(7,662) $ 5,392
Interest expense on the Notes (net of tax)(1)............. -- -- --
-------- ------- -------
Net income (loss) available for diluted income per
share........................................... $(26,790) $(7,662) $ 5,392
======== ======= =======
Basic income (loss) per share............................... $ (1.31) $ (0.37) $ 0.26
======== ======= =======
Diluted income (loss) per share............................. $ (1.31) $ (0.37) $ 0.26
======== ======= =======
Weighted average
Class A Stock............................................. 3,233 3,250 3,250
Class B Stock............................................. 17,291 17,553 17,553
-------- ------- -------
Total Common shares for basic income (loss) per
share........................................... 20,524 20,803 20,803
-------- ------- -------
Dilutive stock options outstanding (treasury stock
method)(1)............................................. -- -- --
Shares assumed issued by conversion of the Notes(1)....... -- -- --
-------- ------- -------
Total common share for diluted income (loss) per
share........................................... 20,524 20,803 20,803
======== ======= =======
</TABLE>
- ---------------
(1) Non dilutive.
<TABLE>
<S> <C> <C> <C>
Potential increase to net income for diluted income per
share
Interest expense on Notes (net of tax).................... $ 2,835 $ 2,954 $ 2,954
Potential issues of common stock for diluted income per
share
Weighted average stock options granted.................... 99 302 312
Weighted average shares issued assuming conversion of
Notes.................................................. 4,741 5,007 5,007
</TABLE>
F-9
<PAGE> 102
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. MARKETABLE SECURITIES
The following table presents the amortized costs of all marketable
securities, the range of maturities and the gross unrealized holding gains and
losses.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Amortized cost of marketable securities:
Maturities within one year
United States government and agency debt securities.... -- $ 1,240
Corporate debt securities.............................. -- 1,491
Maturities between one and five years
United States government and agency debt securities.... -- 21,001
Corporate debt securities.............................. -- 7,679
Foreign government debt securities..................... -- 1,553
------- -------
Total amortized cost of marketable securities..... -- 32,964
Gross unrealized holding gains.............................. -- 47
Gross unrealized holding losses............................. -- (333)
------- -------
Net carrying value at year end.................... -- $32,678
======= =======
</TABLE>
Realized gains and losses are computed based on specific identification of
the securities sold. The proceeds from the sale of available-for-sale securities
and the gross realized gains and losses and change in net unrealized holding
gains and losses included as a separate component of shareholders' equity were
as follows:
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales Proceeds............................................ $33,411 $8,127 --
Gross realized gains...................................... $ 46 $ 7 --
Gross realized (losses)................................... $ (169) $ (80) --
Change in net unrealized holding gains and losses......... $ 186 $ (29) $1,142
</TABLE>
NOTE 3. NOTE RECEIVABLE S-SIXTEEN HOLDING COMPANY
On April 29, 1997, the Company lent SSHC $7.25 million. The original May
29, 1997 due date was extended to June 3, 1997, at which time the note
receivable was replaced by a new $6.95 million note receivable dated June 3,
1997. The new note receivable matures May 29, 1998, and requires monthly
installment payments of principal and interest totaling $100,000 commencing June
29, 1997. The interest rate is equal to the prime rate of Texas Commerce Bank
National Association plus 1% until the sixth month when the rate escalates
monthly by 0.1% over the previous month's rate. Pledged as collateral under a
related Amended and Restated Pledge Agreement (the "Pledge Agreement") are the
1.8 million shares of the Company's Class A Stock, 800,000 shares of CKB
Petroleum, Inc. ("CKBP") common stock and 800,000 shares of CKB & Associates,
Inc. ("CKBA") common stock owned by SSHC. The pledged stock represents
approximately 57%, 94% and 94% of the outstanding shares of the classes stock,
respectively. The fair market value of the collateral is required to be $2.00
for each $1.00 of unpaid principal debt. Failure to pay the monthly installment
within 10 days and failure to maintain fair market value of collateral are two,
among several, actions which constitute events of default under the Pledge
Agreement. In the event of default, as defined in the Pledge Agreement, the
Company, upon five days' notice to SSHC, has the right to foreclose upon and
sell the collateral stock. The Pledge Agreement also provides that upon the
occurrence and during
F-10
<PAGE> 103
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the continuance of an event of default, if the collateral has not been
foreclosed upon, the Company may direct the vote of the collateral stock.
NOTE 4. NET PROFITS EXPENSE
The Company pays a Net Profits expense to Phillips Petroleum
Company("Phillips") pursuant to a farmout agreement regarding the Company's
working interest in the oil and gas lease covering South Pass Block 89. Net
Profits expense is calculated as 33% of the Company's "net profits" from the
subject lease, as defined in the farmout agreement. Phillips and the Company are
involved in litigation concerning the calculation and inclusion of certain
revenues or expenses in the "net profits account." See Note 11. Commitments and
Contingencies -- Phillips Petroleum Case. The following table summarizes the Net
Profits expense calculation:
<TABLE>
<CAPTION>
FOR YEARS ENDING DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
South Pass Block 89
Oil and natural gas revenue (net of transportation)... $30,567 $42,063 $45,354
Operating, overhead and capital expenditures.......... (5,292) (7,279) (7,475)
------- ------- -------
"Net Profits" from South Pass Block 89.................. $25,275 $34,784 $37,879
------- ------- -------
Net Profits expense (at 33%)............................ $ 8,341 $11,479 $12,500
======= ======= =======
</TABLE>
NOTE 5. REORGANIZATION EXPENSE
Reorganization expense includes employee severance expense, litigation
settlement amounts and other costs. The litigation settlement amounts and
certain other costs were connected with the Simplot Transaction. The expense
accrued and recorded through December 31, 1997, 1996, and 1995 was $7.1 million,
$2.0 million, and $800,000, respectively, of which $9.6 million has been paid as
of December 31, 1997. The remaining accrued reorganization liability on December
31, 1997 is $361,000.
Employee Severance
The Company's prior management entered into severance agreements with its
employees in December 1995. The severance agreements provided between 6 and 18
months' pay plus certain benefits to employees terminated by the Company without
cause (as defined in the severance agreements) or who resign for good reason.
Good reason (as defined in the severance agreements) includes, among other
things, any change in benefits or job status that an employee believes is
adverse to that employee. On July 30, 1996, certain of the Company's Directors
were replaced by written consent of the holders of more than a majority of the
Company's Class A stock. The replacement of the directors caused a change in
control as defined in the severance agreements and the agreements became
exercisable.
During 1997, 31 employees were dismissed, resigned or notified the Company
of their resignation. The 31 employees included three executive officers (Senior
Vice President/Operations, Vice President/Marketing and Supply, and Treasurer),
ten employees from the operations technical staff (eight geologists and
geophysicists, one engineer and one landman), and 18 other professional or
clerical personnel. The total employee severance expense during 1997 was $3.6
million. In 1996, under the same severance agreements, 15 employees were
dismissed, resigned or notified the Company of their resignation. The employees
included the Chief Executive Officer, Executive Vice President, Chief Financial
Officer, General Counsel, and Chief Accounting Officer. The reorganization
expense for 1996 was $2.0 million which included severance pay, related legal
fees and other related costs. During 1995, the Company adopted a reorganization
plan which eliminated eight positions within the Company, including personnel
involved with corporate development and
F-11
<PAGE> 104
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the management of the Company's real estate properties in Mississippi and
Louisiana. Total reorganization costs included primarily severance pay and
benefits to terminated employees, but also included rent expense on closed
offices.
Thomas D. Box Settlement
In the third quarter of 1997, in connection with the Simplot Transaction,
the Company agreed to pay Thomas D. Box $1.2 million to settle his severance
claims and lawsuits against the Company. See Note 11. Contingencies -- Thomas D.
Box Cases. Mr. Box was the Chief Executive Officer and President of the Company
before his termination by the Company's Board of Directors in August 1996.
Additionally, Mr. Box was granted options to purchase 50,000 shares of Class B
Stock at $9.00 per share, office furniture, computer equipment and a 3-D seismic
workstation.
Simplot Settlement
Further, in connection with the Simplot Transaction, the Company and the
plaintiffs in the Griffin Case executed a letter of intent to settle all the
litigation brought by the plaintiffs. See Note 11. Contingencies -- Griffin
Case. Under the terms of the subsequently-executed settlement agreement, the
Company paid Mr. Simplot $1.9 million for attorneys' fees and Mr. James Arthur
Lyle (one of the plaintiffs in the Griffin Case) $100,000 for attorneys' fees.
The amounts were accrued in the third quarter of 1997 and paid during the fourth
quarter of 1997.
NOTE 6. DEFERRED INCOME TAX ASSET AND INCOME TAXES
The significant components of the Company's deferred tax asset are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Excess of tax basis over book basis for oil and natural gas
properties................................................ $ 11,012 $ 7,461
Excess of tax basis over book basis for other properties.... 192 133
Excess of tax basis over book basis for marketable
securities................................................ -- 100
Excess of accrued book liabilities over tax liabilities..... 1,204 862
Federal income tax operating loss carry-forward............. 9,549 9,072
Federal long-term capital loss carry-forward................ 197 197
Alternative minimum tax credit carry-forward................ 262 262
-------- -------
Total deferred tax asset.......................... 22,416 18,087
Valuation allowance......................................... (22,416) (3,364)
-------- -------
Net deferred tax asset............................ $ -- $14,723
======== =======
</TABLE>
The Company carried over the tax basis in the oil and gas properties from
the Partnership. The tax basis for the Partnership consisted primarily of the
sum of each partner's tax basis in the oil and gas properties, which exceeded
the Company's book basis as accounted for under generally accepted accounting
principles. The unused federal income tax operating loss carry-forward of $27.3
million will expire during the years 2007 through 2012 if not previously
utilized, and the long-term capital loss carry-forward of $563,000 will expire
in 1999. Although the Company expects to realize the benefits of the deferred
income tax asset, it adopted a more conservative view of the accounting and
reporting policies and increased the valuation allowance in 1997, to reserve the
full amount of the deferred income tax asset. The Company believes that this
approach is consistent with other small-cap exploration and production companies
particularly those companies that are attempting to grow their oil and natural
gas reserves. The Company is required to analyze its ability to realize
F-12
<PAGE> 105
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the deferred income tax asset based on proved reserves and a "more likely than
not" scenario for future projections. The analysis excludes probable and
possible oil and natural gas reserves and does not include results from future
drilling activities. The Company concluded that based on the future growth plans
of the Company, prior actual results, and the "more likely than not" criteria it
was more desirable to reserve the entire deferred income tax asset. The
following table provides a reconciliation of the Company's income tax expense or
(benefit):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
"Expected" tax expense (benefit) (computed at 35% of
income before taxes)................................ $(4,258) $(3,301) $ 2,630
Expense (benefit) from change in book and tax basis
differences......................................... 230 932 (2,397)
(Benefit) from alternative minimum tax credit......... -- -- (127)
(Benefit) from long-term capital loss carry-forward... -- -- (197)
Utilization (benefit) of net operating loss........... (401) (363) 2,608
------- ------- -------
Total deferred income tax expense
(benefit)................................. (4,429) (2,732) 2,517
Valuation allowance................................... 19,052 1,036 (522)
------- ------- -------
Net deferred income tax expense (benefit)... 14,623 (1,696) 1,995
Current income tax expense (benefit).................. -- (74) 127
------- ------- -------
Total income tax expense (benefit).......... $14,623 $(1,770) $ 2,122
======= ======= =======
</TABLE>
NOTE 7. NOTES PAYABLE
In December 1992, the Company issued $55.1 million of 8 1/4% Convertible
Subordinated Notes ("Notes"). The Notes mature December 1, 2002 and are
convertible into shares of Class B (Non-Voting) Common Stock ("Class B Stock")
at the election of the holder any time before maturity, unless previously
redeemed. Interest accrued at 8 1/4% per annum is payable semiannually on each
June 1 and December 1. The Company may redeem all or a portion of the Notes any
time after December 1, 1995, at 105.775% of the face amount. This percentage
decreases .825% each subsequent December 1. The Notes are unsecured and
subordinate in right of payment to all existing and future senior indebtedness.
The Simplot Transaction caused a "change in control" as defined in the
Indenture for the Notes (the "Indenture"). On September 22, 1997, in accordance
with the Indenture, the Company made an offer to purchase the Notes at 100% of
the face amount, plus accrued interest. In October 1997, the Company repurchased
$16.7 million of the Notes outstanding, as a result of the offer to purchase
required by the Indenture.
During the second quarter of 1994, the Company established a one-year line
of credit with a bank. The line of credit with a borrowing base of $10.0 million
expires in June 1998. The Company renewed the line in 1995, 1996 and 1997. The
line of credit is collateralized by the Company's South Pass oil and natural gas
properties. The interest rate for the line of credit is the lender's floating
base rate plus 0.5%. The Company has borrowed $6.0 million and has issued
letters of credit totaling $250,000 against this line of credit. The Company is
currently negotiating an increase in the borrowing base. The credit facility
will expire in June 1998, unless renewed.
The estimated fair value of the Company's long-term indebtedness, including
the current maturities of such obligations, was approximately $43.0 million and
$55.8 million at December 31, 1997 and 1996, respectively. The fair value was
based on the quoted market bid price for the Company's Notes and on current
rates available to the Company for its other indebtedness with the same
remaining maturities.
F-13
<PAGE> 106
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. COMMON STOCK AND DIVIDENDS ON COMMON STOCK
The holders of Class A Stock and Class B Stock of the Company participate
equally in earnings, dividends and other characteristics. The only difference
between the two classes of stock is that Class A Stock has voting rights while
the Class B Stock has no voting rights, unless otherwise required by Delaware
law. Twenty eight thousand five hundred shares of authorized but unissued Class
B Stock have been reserved for the two 1992 stock option plans, and 2.8 million
shares have been reserved for the 1997 Stock Option Plan. See Note 9. Employee
and Director Benefit Plans.
The Company has not paid a dividend since 1992. Currently, dividends are
not contractually restricted. However, in the event that the Company pays
dividends in excess of 2% of the market price of Class B Stock in a calendar
quarter, the conversion price for Class B Stock under the Notes will be adjusted
proportionally.
NOTE 9. EMPLOYEE AND DIRECTOR BENEFIT PLANS
Stock option plans
SFAS No. 123, entitled "Accounting for Stock-Based Compensation,"
encourages but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. During 1996, the Company
adopted the disclosure provisions of SFAS No. 123. The Company continues to
apply the accounting provisions of Accounting Principles Board Opinion 25,
entitled "Accounting for Stock Issued to Employees," and related interpretations
to account for stock-based compensation. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
The Company has two stock option plans: the 1992 Incentive Stock Option
Plan and the 1997 Stock Option Plan. A third plan, the 1992 Non-Qualified Stock
Option Plan was discontinued in 1997. The Company no longer uses the 1992
Incentive Stock Option Plan however, 28,500 options remain outstanding. Under
the 1992 Incentive Stock Option Plan 50% of the options are exercisable no
sooner than three years from the date of the grant, and the remaining 50% may be
exercised only after five years from the date of the grant and the options
expire ten years from the date of grant.
The 1997 Stock Option Plan is intended to benefit the Company by providing
Directors and key employees of the Company with additional incentives and giving
them a greater interest as stockholders in the success of the Company. The 1997
Stock Option Plan provides for the issuance of options to purchase Class B
Stock. A committee that includes at least two or more outside Non-Employee
Directors administers the plan. The committee has the discretion to determine
the participants to be granted options, the number of shares granted to each
person, the purchase price of the Class B Stock covered by each option and other
terms of the option. Options granted under the plan may be either incentive
stock options or non-qualified stock options. The Company may issue up to 2.8
million shares of Class B Stock upon the exercise of the options but no
individual may be issued more than 275,000 shares.
F-14
<PAGE> 107
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option plans as of December 31, 1997,
1996, and 1995 and changes during the years ending on those dates is presented
below:
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995
------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 312,500 $ 9.52 622,000 $10.08 334,000 $11.71
Granted........................... 426,500 $ 6.73 41,000 $ 8.85 353,800 $ 8.87
Exercised......................... -- -- --
Forfeited......................... (284,000) $ 9.51 (350,500) $10.43 (65,800) $11.88
-------- ------ -------- ------ ------- ------
Outstanding at end of year........ 455,000 $ 6.92 312,500 $ 9.52 622,000 $10.08
======== ====== ======== ====== ======= ======
Options exercisable at year-end... 8,000 $11.88 38,600 $11.88 116,600 $11.98
Weighted-average fair value of
options Granted during the
year............................ $ 4.65 $ 6.15 $ 6.00
</TABLE>
The options outstanding at December 31, 1997 have a weighted-average
remaining contractual life of 9 years and an exercise price ranging from $6 5/8
to $11 7/8 per share.
The following is a pro forma disclosure of the effect on net income or loss
if compensation cost for the Company's stock option compensation plans had been
determined consistent with SFAS No. 123.
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss).................................. As reported $(26,790) $(7,662) $5,392
Pro forma.. $(27,062) $(7,774) $4,987
Basic and diluted income (loss) per share.......... As reported $ (1.31) $ (0.37) $ 0.26
Pro forma $ (1.32) $ (0.37) $ 0.24
</TABLE>
The fair value of each option grant for the years ended December 31, 1997,
1996, and 1995 is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Expected life (years)....................................... 10 10 10
Interest rate............................................... 6.19% 6.85% 5.97%
Volatility.................................................. 49.50% 48.21% 47.96%
Dividend yield.............................................. 0 0 0
</TABLE>
Non-Employee Director Stock Purchase Plan
The Company approved the Non-Employee Director Stock Purchase Plan in
December 1997. The plan provides a means for the Non-Employee Directors to
receive their directors' fees in shares of Class B Stock. Each non-employee
Director of the Company may elect once each year to receive all or a portion of
the fees he receives as a director in restricted shares of Class B Stock in lieu
of cash. The number of shares received will be the number of shares that equal
150% of the cash fees divided by the closing market price of the Class B Stock
on the day that the cash fees would otherwise be paid. The Class B Stock is
restricted from transfer until one year after issuance or the termination of a
Director resulting from death, disability, removal
F-15
<PAGE> 108
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
or failure to be nominated for an additional term. The Director will have the
right to vote the shares of restricted stock and to receive any dividend paid in
cash or other property.
Pension Plan
The Company's Pension Plan is a noncontributory defined benefit pension
plan covering substantially all employees. The retirement benefits available are
generally based on years of service and average earnings. The Company funds the
plan with annual contributions at least equal to the minimum funding provisions
of the Employee Retirement Income Security Act of 1974, as amended, but no more
than the maximum tax deductible contribution allowed. Plan assets consist
primarily of equity and fixed income securities. The following table sets forth
the plan's funded status and amounts recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Vested benefit obligation................................... $ 2,801 $ 2,657
Non-vested benefit obligation............................... 82 208
------- -------
Total accumulated benefit obligation........................ 2,883 2,865
Additional liability due to projected salary increases...... 55 167
------- -------
Projected benefit obligation................................ 2,938 3,032
Fair value of plan assets................................... (3,160) (3,500)
------- -------
Fair value of plan assets in excess of projected benefit
obligation................................................ (222) (468)
Unrecognized transition obligation.......................... -- (147)
Unrecognized net gain....................................... -- 350
------- -------
Prepaid pension liability......................... $ (222) $ (265)
======= =======
</TABLE>
The net periodic pension cost in the Company's statements of income
included the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 116 $ 140 $ 126
Interest cost on projected benefit obligation............... 222 214 215
Actual return on plan assets................................ (281) (324) (420)
Net amortization and deferrals.............................. 21 114 221
----- ----- -----
Net periodic pension cost................................... 78 144 142
Special recognition due to curtailment and lump sum
settlements............................................... (36) -- --
----- ----- -----
Net periodic pension cost......................... $ 42 $ 144 $ 142
===== ===== =====
</TABLE>
The determination of the actuarial present value of the projected benefit
obligation assumed a weighted average discount rate of 7.0% for 1997 and 7.5%
for 1996 and 1995, and a 3% increase in future compensation levels for all three
years. The weighted average expected long-term rate of return on plan assets was
8%.
Postretirement benefits and post employment benefits
SFAS No. 106 entitled "Employers' Accounting for Postretirement Benefits
Other than Pensions" and SFAS No. 112 entitled "Employers Accounting for
Postemployment Benefits" require the recognition and disclosure of the estimated
future costs of postretirement and postemployment benefits to which the Company
is obligated. The Company has no history of paying postretirement benefits other
than pensions and is not
F-16
<PAGE> 109
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
obligated to pay such benefits in the future. Future obligations for
postemployment benefits are immaterial. Therefore, no liability for either has
been recognized in the financial statements.
Employee Severance Plan
The Company adopted a severance plan in November 1997. The plan provides
severance benefits ranging from 2 months to 18 months of the employee's base
salary if the employee is terminated involuntarily. The plan incorporates the
provisions and terms of any individual contract or agreement that an employee
may have with the Company. The Company had previously entered into individual
severance agreements with its employees in December 1995. Only five of the
severance agreements still exist. Three of the five have been voluntarily
amended to remove certain portions that allow the employee to exercise the
agreement except for a reduction in base salary, involuntary termination by the
Company without cause and relocation greater than 50 miles. In addition, certain
of the executive officers have individual employment contracts with the Company.
NOTE 10. RELATED PARTY TRANSACTIONS
SSHC owns approximately 57% of the outstanding Class A Stock of the Company
and 94% of the outstanding shares of both CKBP and CKBA. Under both applicable
law and Board of Directors' resolution, transactions with affiliates must be
approved by the Board of Directors, be fair and reasonable to the Company, and
be on terms no less favorable to the Company than can be obtained from an
unaffiliated party in an arm's-length transaction.
CKBP owns a minority interest in the pipeline that transports oil from
South Pass Area (offshore Louisiana) to Venice, Louisiana. The pipeline tariff
is $2.75 per barrel and is published with the Federal Energy Regulatory
Commission. The rate is consistent with all other rates from the South Pass Area
to Venice. Transportation incurred and payable to CKBP was $3.2 million, $2.8
million and $2.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Under the Partnership Agreement of the Partnership, the general partners
were entitled to advancement of litigation expenses in the event they were named
parties to litigation in their capacity as general partners. In order to receive
such advancements, each general partner was required to request, in writing,
advancement of litigation expenses and undertake to repay any advancements in
the event it was determined, in accordance with applicable law, that the general
partners were not entitled to indemnification for litigation expenses. Each
general partner executed such an undertaking agreement in relation to the
Griffin Case. Accordingly, the Partnership, and later the Company, advanced
litigation expenses to CKBA and Cloyce K. Box (and his estate following his
death) in connection with such litigation. In addition, the Company advanced
litigation expenses on behalf of certain directors and officers of the Company
for one lawsuit related to the Griffin litigation and other lawsuits related to
the Devere and Nealon Case and Thomas D. Box Cases. See Note
11. Contingencies. In accordance with the By-Laws of the Company, the defendants
have executed written undertakings to repay the Company for any related expenses
advanced on their behalf if it is later found that such costs were not subject
to indemnification by the Company. No judicial determination has been made that
any of the general partners, directors or officers are not entitled to
indemnification for litigation expenses incurred. The total legal costs incurred
related to these cases were $351,000, $1.5 million and $583,000, for 1997, 1996,
and 1995, respectively.
The Company has a $6.95 million note receivable from SSHC. The balance of
the note receivable at December 31, 1997, was $6.2 million. See Note 3. Note
Receivable S-Sixteen Holding Company.
In December 1997, the Company paid $1.9 million to Mr. Simplot and $100,000
to Mr. Lyle for attorneys' fees in connection with the settlement of the Griffin
Cases. See Note 5. Reorganization Costs.
F-17
<PAGE> 110
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the Company paid executive search fees totaling $141,000 to
Preng and Associates Inc., which is a company controlled by a member of the
Board of Directors.
The Company bills CKBP and other related parties for an allocated portion
of office space that is subleased to CKBP, payroll including the related costs
and benefits, and other overhead costs. The amounts billed are considered to be
the fair value of such usage or allocations. The Company billed expenses
totaling $40,000, $81,000 and $134,000 for the three years ending December 31,
1997, 1996 and 1995, respectively.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space in Dallas, Texas covering approximately
33,000 square feet. The lease is a non-cancelable operating lease that expires
April 1, 1998. In January 1998, the Company amended the current lease effective
April 1, 1998. The amended lease extends the term an additional 10 years and
reduces the leased office space to approximately 17,000 square feet. Future
minimum rental payments for $474,000, $407,000, $407,000, $433,000 and $441,000
are due in the next five years, respectively, and future commitments are $2.5
million for the remaining 6 years. Total rent expense was $716,000, $717,000 and
$688,000 in 1997, 1996, and 1995, respectively.
Litigation Contingencies
Griffin Case
Griffin et al. v. Box et al. was filed in November 1987, in the United
States District Court in Dallas, Texas by unitholders, including Mr. Simplot, of
the Predecessor Partnership, against the general partners of the Predecessor
Partnership and certain of their affiliates. While the plaintiffs brought
individual claims, all of which were dismissed before or during the trial, the
core of the action was founded upon derivative claims brought on behalf of the
Predecessor Partnership and the Company. Chief among these derivative claims was
the allegation that the general partners breached the partnership agreement,
their fiduciary duties and implied duties in relation to their affiliate's
acquisition of an oil pipeline that transports oil from the Gulf of Mexico to
Venice, Louisiana. See Note 10. Related Party Transactions.
Following a jury verdict adverse to the general partners, the court entered
judgment, on behalf of the Company, against the general partners for
approximately $20.0 million in actual damages and approximately $2.2 million in
punitive damages against the individual general partner, Cloyce K. Box. In
addition, the court imposed a constructive trust on the pipeline revenue of
CKBP. On appeal, this judgment was reversed because of inconsistent jury
findings on which the judgment was based, and the case was remanded for a new
trial on the pipeline derivative claims. Further, the appeals court held that
Mr. Lyle had standing to bring the derivative action but remanded for further
fact findings regarding the stock ownership status of two of the original
plaintiffs, who held a small number of units of the Predecessor Partnership. In
June 1997, the district court dismissed, without prejudice, the case for lack of
federal jurisdiction. On July 22, 1997, Mr. Lyle filed a Notice of Appeal to the
Fifth Circuit challenging the District Court's dismissal. This appeal was
subsequently dismissed. Plaintiffs refiled the action in Texas state court, and
on November 4, 1997 the state action was dismissed.
The Company and Mr. Simplot executed a letter of intent concerning
settlement of this litigation. The Company executed the letter in order to avoid
continuing litigation. Under the terms of the subsequently executed settlement
agreement, Mr. Simplot received $1.9 million for attorneys' fees and Mr. Lyle
received $100,000 for attorneys' fees from the Company. In addition, Mr. Lyle
has the right to convert 2,500 of his shares of the Company's Class B Stock into
a like number of shares of shares of Class A Stock.
F-18
<PAGE> 111
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Phillips Petroleum Case
This litigation was filed against the Predecessor Partnership in August
1990 by Phillips Petroleum Company ("Phillips") and is currently pending in
Orleans Parish, Louisiana. A non-jury trial was held in April 1997. At this
trial, Phillips claimed that pursuant to its 33% Net Profits interest in South
Pass Block 89, it was entitled to receive an overriding royalty for months in
which "net profits" were not achieved; that an excessive oil transportation fee
was being charged to the Net Profits account; and that the entire $69.6 million
lump sum cash payment received by the Predecessor Partnership should have been
credited to the Net Profits account instead of the $5.8 million that was
credited. On the latter claim, Phillips alleged damages in excess of $21.5
million, while on the first two claims Phillips alleged aggregate damages of
several million dollars. Phillips further contended that it was entitled to
double damages and cancellation of the farmout agreement that created the Net
Profits interest. In addition to contesting the claims of Phillips, the Company
asserted a counterclaim at trial that Phillips had breached a settlement
agreement regarding previous litigation between the parties and claimed damages
in excess of $10.0 million. The parties presented oral arguments to the court on
September 3, 1997.
Shareholder Litigation
The Company, several former directors and two current directors were named
defendants in a consolidated class action suit filed in 1995 in Delaware
Chancery Court in Wilmington. Plaintiffs, holders of the Company's Class B
Stock, alleged that the Company did not properly respond to what the Company
considered informal overtures and not offers from two outside entities. The
Plaintiffs sought to compel the Company to put itself up for sale and also
sought unspecified damages and attorneys' fees. The case was dismissed on March
10, 1998.
Thomas D. Box Cases
In August 1996, Thomas D. Box filed suit in state district court in Dallas,
purportedly both on his own behalf and on behalf of the Company, against all of
his brothers, SSHC (then BBHC) and CKBP. He alleged breaches of fiduciary duties
and waste of corporate assets. As remedies, he claimed unspecified monetary
damage, attorneys' fees, an accounting and appointment of a receiver for SSHC.
He later amended his lawsuit to add the Company and several of its then
directors as defendants. In accordance with Delaware law, the Company's Board of
Directors appointed a special committee to review the litigation and take any
actions the committee, on the advice of independent counsel, deemed necessary.
All of Thomas D. Box's claims against the Company were settled in connection
with the Simplot Transaction. See Note 5. Reorganization Expense -- Thomas D.
Box Settlement.
Other Contingencies
The Company is not a party to any material pending legal proceedings other
than the foregoing. If the Company is not successful in the foregoing suits, it
is the opinion of the Company that any adverse judgments, other than certain
possible results of the Phillips Litigation, would not have a material adverse
effect on the Company.
F-19
<PAGE> 112
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. SUPPLEMENTAL DISCLOSURES
Oil and Natural Gas Properties
Investments in oil and natural gas properties (all of which are in the
United States), including onshore fee lands, were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
PROVED UNPROVED TOTAL PROVED UNPROVED TOTAL
--------- -------- --------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Onshore...................... $ 26,401 $5,194 $ 31,595 $ 8,924 $3,502 $ 12,426
Offshore..................... 185,325 3,561 188,886 171,823 3,002 174,825
--------- ------ --------- --------- ------ ---------
Total.............. 211,726 8,755 220,481 180,747 6,504 187,251
Accumulated depreciation,
depletion and
amortization............... (139,781) -- (139,781) (112,648) -- (112,648)
--------- ------ --------- --------- ------ ---------
Net oil and natural
gas properties... $ 71,945 $8,755 $ 80,700 $ 68,099 $6,504 $ 74,603
========= ====== ========= ========= ====== =========
</TABLE>
Expenditures for acquisition, exploration, development and production for
oil and gas properties incurred by the Company are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Acquisition costs....................................... $12,545 -- --
Leasehold acquisition costs............................. $ 5,793 $ 5,548 $ 3,215
Exploration costs....................................... $13,767 $27,811 $ 8,902
Development costs....................................... $ 9,975 $ 9,359 $11,597
Production costs........................................ $ 4,015 $ 3,825 $ 3,142
</TABLE>
The Company's net ownership interest in proved oil and gas reserves was as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1997 1996 1995
------------------ --------------- ---------------
NATURAL NATURAL NATURAL
OIL GAS OIL GAS OIL GAS
MBBLS(1) MMCF MBBLS MMCF MBBLS MMCF
-------- ------- ----- ------- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Beginning of period....................... 3,299 39,332 2,938 51,373 3,298 50,334
Revisions of previous estimates......... 330 (6,004) 709 (8,162) 7 1,040
Extensions, discoveries and other....... 1,046 4,115 585 4,340 472 5,866
Purchased reserves...................... 973 6,216 -- -- -- --
Production.............................. (1,197) (7,116) (933) (8,219) (839) (5,867)
------ ------ ----- ------ ----- ------
End of period............................. 4,451 36,543 3,299 39,332 2,938 51,373
====== ====== ===== ====== ===== ======
Proved developed reserves
Beginning of period..................... 2,541 28,323 2,282 33,521 1,941 23,488
End of period........................... 3,208 27,259 2,541 28,323 2,282 33,521
</TABLE>
- ---------------
(1) Includes Natural Gas Liquids
F-20
<PAGE> 113
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The proved developed and undeveloped reserves and standardized measure of
discounted future net cash flows associated with South Pass Block 89 are
burdened by a 33% Net Profits expense. The reserves included herein for South
Pass Block 89 are stated before deduction of Net Profits expense, which is
treated as an operating expense rather than a reduction in proved reserves. At
December 31, 1997 proved reserves from South Pass Block 89 represented
approximately 21% and 28% of the total proved oil and natural gas reserves,
respectively.
Estimates of oil and gas reserves were prepared by the independent
engineering and consulting firm of Netherland, Sewell & Associates, Inc. for
1996 and 1995, and by Netherland, Sewell & Associates, Inc. and Miller and
Lents, Ltd. for 1997. The determination of these reserves is a complex and
interpretative process that is subject to continued revision as additional
information becomes available. In most cases, a relatively accurate
determination of reserves may not be possible for several years due to the time
necessary for development drilling, testing and studies of the reservoirs.
The quantities of proved oil and gas reserves presented include only those
amounts which the Company reasonably expects to recover in the future from known
oil and gas reservoirs under existing economic and operating conditions. Proved
reserves are limited to those quantities which are recoverable commercially at
current prices and costs, under existing regulatory practices and technology.
Therefore, any changes in future prices, costs, regulations, technology and
unforeseen factors could significantly increase or decrease proved reserve
estimates.
The following tables include amounts determined in accordance with the
requirements of the SFAS No. 69 entitled "Disclosures About Oil and Gas
Producing Activities" with respect to estimated future net cash flows from oil
and gas reserves and the present worth of those estimated future net cash flows
discounted at 10% per annum.
In accordance with SFAS No. 69 methodology, specific assumptions were
applied in the computation of the reserve evaluation estimates. Under this
methodology, future net cash flows are determined by reducing estimated future
gross cash flows from oil and gas sales by the estimated costs to develop and
produce the underlying reserves, including the Net Profits expense on South Pass
Block 89.
Future cash inflows were based on year end prices of proved oil and gas
reserves as adjusted by known contractual pricing information assuming that the
Company will sell its future gas production from South Pass Block 89 at the
prices set forth in its existing long-term gas purchase contract for such gas.
Future production costs were based on costs as of the estimated date to produce
the proved oil and gas reserves. A significant portion of the proved reserves
are undeveloped and future development costs were calculated based on a
continuation of present economic conditions. Future net cash flows were then
discounted at 10% per annum to arrive at the standard measure of discounted
future net cash flows.
Due to the imprecise nature of the oil and gas reserves and the uncertainty
of future economic conditions, the Company makes no representation regarding
what interpretations may be made or what degree of reliance may be placed on
this method of evaluating proved oil and gas reserves. The following table
presents the
F-21
<PAGE> 114
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
standardized measures of discounted future estimated net cash flows and changes
therein relating to proved oil and gas reserves:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Oil and natural gas revenues......................... $226,262 $326,498 $335,199
Production costs..................................... (31,702) (26,971) (26,269)
Net Profits expense.................................. (28,933) (53,955) (64,988)
Development costs.................................... (23,954) (17,756) (20,046)
Income tax expense................................... (16,845) (50,638) (50,027)
-------- -------- --------
Net cash flow........................................ 124,828 177,178 173,869
10% annual discount.................................. (30,990) (31,165) (39,887)
-------- -------- --------
Standardized measure of discounted future net cash
flow............................................... $ 93,838 $146,013 $133,982
======== ======== ========
</TABLE>
Following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure of discounted cash flows at
beginning of year.................................. $146,013 $133,982 $124,490
Sales and transfers of oil and natural gas produced,
net of production costs and Net Profits expense.... (42,097) (47,810) (36,479)
Net changes in prices and production costs........... (61,134) 37,764 12,300
Net changes in estimated development costs........... (5,130) (1,332) (3,229)
Net changes in estimated Net Profits expense......... 14,029 1,750 (8,990)
Net changes in income tax expense.................... 28,283 (3,736) (6,175)
Extensions, discoveries and improved recovery less
related costs...................................... 9,171 16,060 25,042
Purchases of proved oil and natural gas reserves..... 13,865 -- --
Development costs incurred during the year........... 9,975 9,359 11,597
Revisions of previous quantity estimates............. (21,306) (10,747) 15,048
Other changes........................................ (12,432) (2,675) (12,071)
Accretion of discount................................ 14,601 13,398 12,449
-------- -------- --------
Standardized measure of discounted future net cash
flows end of year.................................. $ 93,838 $146,013 $133,982
======== ======== ========
</TABLE>
NOTE 13. INDUSTRY SEGMENT INFORMATION
The Company is engaged in only one industry segment -- crude oil and
natural gas exploration, development and production. The Company generally does
not operate oil and gas properties but owns interests in such properties as a
working interest owner.
Purchases by BayOil (USA), Inc. during 1997 and 1996 represented 31% and
18% of the Company's total oil and natural gas revenues, respectively. Marathon
Oil Company's purchases during 1995 accounted for 25% of the total oil and
natural gas revenues for that year. Purchases by Texas Eastern during 1997, 1996
and 1995 represented 42%, 51%, and 70%, of the total oil and natural gas
revenues, respectively.
F-22
<PAGE> 115
REMINGTON OIL AND GAS CORPORATION
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 4,613 $ 4,552
Accounts receivable -- oil and natural gas................ 4,445 5,725
Accounts receivable -- other.............................. 304 268
Note receivable -- S-Sixteen Holding Company.............. 5,309 6,192
Prepaid expenses and other current assets................. 1,852 2,118
--------- ---------
Total current assets.............................. 16,523 18,855
--------- ---------
Properties
Oil and natural gas properties (successful-efforts
method)................................................ 235,223 220,481
Other properties.......................................... 2,241 2,800
Accumulated depreciation, depletion and amortization...... (155,422) (144,548)
--------- ---------
Total properties.................................. 82,042 78,733
--------- ---------
Other assets
Deferred charges (net of accumulated amortization)........ 911 927
--------- ---------
Total other assets................................ 911 927
--------- ---------
Total assets...................................... $ 99,476 $ 98,515
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities
Accounts payable....................................... $ 8,391 $ 8,694
Accrued interest payable............................... 264 264
Accrued transportation payable -- related party........ 274 305
Net Profits expense payable............................ 932 594
Short-term notes payable............................... 9,700 6,000
--------- ---------
Total current liabilities......................... 19,561 15,857
--------- ---------
Convertible subordinated notes payable.................... 38,371 38,371
--------- ---------
Total Liabilities................................. 57,932 54,228
--------- ---------
Commitments and contingencies (Note 7)
Stockholders' equity
Common stock, $1.00 par value
Class A (Voting) -- 15,000,000 shares authorized,
3,250,110 shares issued............................... 3,250 3,250
Class B (Non-Voting) -- 30,000,000 shares authorized,
17,571,570 shares issued.............................. 17,572 17,553
Additional paid-in capital................................ 25,283 25,197
Treasury stock, at cost, 28,600 shares Class A, and
424,272 shares Class B................................. (3,161) (3,465)
Retained earnings......................................... (1,400) 1,752
--------- ---------
Total stockholders' equity........................ 41,544 44,287
--------- ---------
Total liabilities and stockholders' equity........ $ 99,476 $ 98,515
========= =========
</TABLE>
See accompanying Notes to Financial Statements.
F-23
<PAGE> 116
REMINGTON OIL AND GAS CORPORATION
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -------------------
1998 1997 1998 1997
--------- --------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues
Oil sales............................................ $ 3,981 $ 5,270 $ 8,308 $10,533
Gas sales............................................ 7,427 10,635 14,755 21,406
Other income......................................... 648 1,062 1,500 2,255
------- ------- ------- -------
Total revenues............................... 12,056 16,967 24,563 34,194
------- ------- ------- -------
Costs and expenses
Operating costs and expenses......................... 2,124 1,700 4,494 3,127
Net Profits interest expense......................... 1,411 2,236 3,043 4,705
Exploration expenses................................. 1,758 2,507 3,631 3,906
Depreciation, depletion and amortization............. 5,573 6,928 11,934 12,154
General and administrative........................... 1,281 2,645 2,552 5,143
Reorganization expense............................... -- 435 -- 638
Interest and financing expense....................... 1,066 1,226 2,061 2,451
------- ------- ------- -------
Total costs and expenses..................... 13,213 17,677 27,715 32,124
------- ------- ------- -------
Income (loss) before taxes............................. (1,157) (710) (3,152) 2,070
------- ------- ------- -------
Income tax expense (benefit)......................... -- (248) -- 725
------- ------- ------- -------
Net income (loss)............................ $(1,157) $ (462) $(3,152) $ 1,345
======= ======= ======= =======
Basic and diluted income per share..................... $ (0.06) $ (0.02) $ (0.15) $ 0.06
======= ======= ======= =======
Weighted average shares outstanding.................... 20,387 20,668 20,370 20,735
======= ======= ======= =======
</TABLE>
See accompanying Notes to Financial Statements.
F-24
<PAGE> 117
REMINGTON OIL AND GAS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash flow provided by operations
Net income (loss)......................................... $ (3,152) $ 1,345
Depreciation, depletion and amortization............... 11,934 12,154
Amortization of deferred charges....................... 120 130
Amortization of premium on marketable securities....... -- 31
Deferred income tax expense (benefit).................. -- 725
Dry hole and impaired property costs................... 1,255 1,981
Decrease in accounts receivable........................ 1,244 1,817
Decrease (increase) in prepaid expenses and other
current assets........................................ 266 (243)
(Increase) in deferred charges......................... (104) --
Increase (decrease) in accounts payable and accrued
expenses.............................................. 4 (43)
(Gain) loss on sale of properties...................... (70) 56
-------- --------
Net cash flow provided by operations.............. 11,497 17,953
-------- --------
Cash from investing activities
Payments for capital expenditures......................... (16,540) (11,677)
Proceeds from property sales.............................. 112 288
-------- --------
Net cash used in investing activities............. (16,428) (11,389)
-------- --------
Cash from financing activities
Proceeds from notes payable............................... 3,800 --
Payments on notes payable................................. (100) --
Sales and maturities of marketable securities............. -- 2,730
Investment in marketable securities....................... -- (597)
Notes receivable - S-Sixteen Holding Company.............. -- (7,250)
Principal repayments - S-Sixteen Holding Company.......... 883 351
Common stock issued....................................... 409 --
Repurchase common stock................................... -- (3,120)
-------- --------
Net cash provided by financing activities......... 4,992 (7,886)
-------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 61 (1,322)
Cash and cash equivalents at beginning of period............ 4,552 2,997
-------- --------
Cash and cash equivalents at end of period.................. $ 4,613 $ 1,675
======== ========
</TABLE>
See accompanying Notes to Financial Statements.
F-25
<PAGE> 118
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Remington Oil and Gas Corporation, a Delaware corporation (the "Company" or
"Remington"), is an independent oil and gas exploration and production company.
The Company's activities and properties are located in three core areas,
offshore Gulf of Mexico, Mississippi/Alabama and onshore Gulf Coast.
The financial statements are prepared according to the instructions to Form
10-Q and may not include all disclosures required for financial statements
prepared in conformity with generally accepted accounting principles. The
results of operations and financial position for the interim periods presented
include all transactions and adjustments which management believes are necessary
for fair presentation. All adjustments are of a normal recurring nature. The
results of operations for the three and six months ended June 30, 1998, are not
necessarily indicative of the results for the full year. The financial
statements and related notes to the financial statements presented in this Form
10-Q should be read together with the audited financial statements of the
Company for the year ended December 31, 1997. There were no material changes in
the significant accounting policies, details of accounts or notes to the
financial statements during the interim periods except as presented below.
NOTE 2. PROPOSED MERGER
S-Sixteen Holding Company, a Delaware corporation ("SSHC"), owns 1,840,525
shares (approximately 57%) of the Class A (Voting) Common Stock ("Remington
Class A Stock") of Remington and 294,643 shares of the Class B (Non-Voting)
Common Stock ("Remington Class B Stock"). SSHC is owned by an entity controlled
by Mr. J. R. Simplot of Boise, Idaho. On June 22, 1998, Remington and SSHC
executed an Agreement and Plan of Merger under which SSHC will merge into
Remington with Remington being the surviving corporation (the "Merger"). In
addition, in connection with the Merger, Remington will convert its two classes
of common stock into a single class (the "Conversion of Stock"). The Merger and
the Conversion of Stock are hereinafter referred to as the "Transaction."
Upon the consummation of the Transaction, the Company will exchange 1.15
shares of new voting common stock ("Remington Common Stock") for each share of
outstanding Remington Class A Stock not directly owned by SSHC, 1 share of
Remington Common Stock for each share of outstanding Remington Class B Stock not
directly owned by SSHC and 72.329 shares of Remington Common Stock for each
share of outstanding common stock in SSHC (the "Conversion of Stock"). After the
Conversion of Stock, the sole stockholder of SSHC will own 2,785,028 shares of
Remington Common Stock. In addition, SSHC's sole stockholder will receive a
stock warrant to purchase up to 300,000 shares of Remington Common Stock at
various prices, and the note payable to Remington by SSHC will be canceled. See
Note 4. Note Receivable S-Sixteen Holding Company. The 1,840,525 shares of
Remington Class A Stock and 88,668 shares of Remington Class B Stock owned
directly by SSHC will be canceled as will the Remington Class A Stock and
Remington Class B Stock held as treasury stock by Remington. A Special Meeting
of Stockholders of the Company is planned for late summer or early fall to
consider and vote upon the proposal to approve and adopt the Agreement and Plan
of Merger.
In addition, Mr. Simplot, who controls SSHC's sole stockholder,
beneficially owns 2,845,000 shares of Remington Class B Stock, which will be
converted into a like number of shares of Remington Common Stock pursuant to the
Transaction. Thus, upon the consummation of the Transaction, Mr. Simplot and his
affiliates (not including shares beneficially held by Mr. David H. Hawk and Mr.
James Arthur Lyle, SSHC's nominees to Remington's Board of Directors) will
beneficially own 5,630,028 shares of Remington Common Stock, representing
approximately 27% of the outstanding class.
One of the subsidiaries of SSHC that would be acquired by Remington as part
of the Merger is CKB Petroleum, Inc. ("CKBP"), which currently transports all of
the Company's oil production from the South Pass Area blocks in the Gulf of
Mexico, to Venice, Louisiana. See Note 6. Related Party Transactions.
F-26
<PAGE> 119
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. SUBSEQUENT EVENT
On July 31, 1998, the Company and Texas Eastern Transmission Corporation
("TETCO") agreed to terminate the South Pass Block 89 long-term gas sales
contract effective June 30, 1998 (the "TETCO Contract Termination"). TETCO made
a Termination Payment (as defined in the agreement) to the Company in the amount
of $49.8 million. As part of the termination agreement, TETCO was released from
the gas purchase contract, including gas substitution and indemnification rights
thereunder, as well as related indemnification and other obligations under a
1990 settlement agreement. Remington will sell all gas produced on and after
July 1, 1998 from South Pass Block 89 on the spot market. Under the gas
contract, which was to expire in July 2002, the Company was receiving $12.38 per
Mcf for gas produced from the southern portion of South Pass Block 89 and $6.83
per Mcf for gas produced from the northern portion of the block, with the gas
price escalating 10% per year. Gas sales revenue received under the long-term
contract in excess of the average non contract spot market price for this block
was $5.8 million for the first six months of 1998 and was estimated to be $4.3
million for the last six months of 1998. Approximately one-half of the value of
the contract, as evaluated by the Company's independent reservoir engineers at
January 1, 1998 was associated with a high risk and undrilled well location in
the Company's U-1/1 reservoir. Reserves for this location were 78 MBbls and
3,141 MMcf at January 1, 1998. At June 30, 1998 the net capitalized cost
remaining for South Pass Block 89 platform B was $7.4 million. The Company may
incur an impairment charge because of the reduction in the price received for
natural gas production from this block but the amount, if any, has not yet been
determined. In the third quarter the Company will reassess the block in order to
comply with Statement of Financial Accounting Standard ("SFAS") No. 121 entitled
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of."
The Company filed a declaratory judgment action against Phillips in federal
district court in Dallas, Texas requesting the court to declare that none of the
proceeds received from the TETCO Contract Termination are owed to Phillips by
virtue of a 33% Net Profits interest in South Pass Block 89.
NOTE 4. NOTE RECEIVABLE S-SIXTEEN HOLDING COMPANY
The Company extended the maturity date of the $6.95 million note receivable
from SSHC, dated June 3, 1997, from May 29, 1998 to November 29, 1998. The
balance on June 30, 1998 was $5.3 million. The note receivable will be canceled
at the effective time of the Transaction. However, in accordance with the
Agreement and Plan of Merger, SSHC will continue to make payments until such
effective time. See Note 2. Proposed Merger.
NOTE 5. NOTES PAYABLE
Remington has $38.4 million of 8 1/4% Convertible Subordinated Notes
("Notes") outstanding on June 30, 1998. The Indenture for the Notes (the
"Indenture") provides that if a "change in control" occurs, the Company shall,
pursuant to the Indenture, offer to purchase on the 40th Business Day following
the date on which such "change in control" occurs, any and all of the then
outstanding Notes at a purchase price equal to 100% of the principal amount of
the Notes, plus accrued but unpaid interest on the Notes. If the Merger takes
place, a "change in control" will occur since the holders of a majority of the
Remington Class A Stock immediately prior to the Transaction will not receive at
least a majority of the voting common stock of the continuing or surviving
corporation. See Note 2. Proposed Merger.
Remington may not have sufficient cash to purchase all of the Notes
tendered. In such event, the Company would have to explore other avenues for the
means to purchase the tendered Notes including, but not limited to, obtaining
bank financing and/or utilizing the public and private debt and equity markets.
The Company anticipates that until the Phillips litigation in Louisiana state
court is resolved, the case will continue to impede the Company's access to
credit and capital markets, and the Company may also consider the sale or other
disposition of assets. In addition, Remington's Board of Directors has the
ability to withdraw the
F-27
<PAGE> 120
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company from the Transaction up until the effective time of the Transaction if
the Board determines that the impact of the Transaction on the Company's
liquidity is unacceptable to the Board.
The due date of the Company's line of credit with a borrowing base of $10.0
million has been extended to September 1998. The line of credit was renewed in
1995, 1996 and 1997 and the Company expects to renew or replace this line of
credit in September. The line of credit is collateralized by the Company's oil
and gas properties. The balance on June 30, 1998 was $9.7 million, and letters
of credit totaling $250,000 have been issued against this line of credit. On
June 30, 1998, a violation of a negative covenant concerning the current ratio
existed. The violation did not become an "Event of Default' as defined in the
loan agreement because it is not continuing.
NOTE 6. RELATED PARTY TRANSACTIONS
SSHC controls approximately 57% of the outstanding Class A Stock of the
Company and 94% of the outstanding shares of CKBP. Under both applicable law and
Board of Directors' resolution, transactions with affiliates must be approved by
the Board of Directors, be fair and reasonable to the Company and be on terms no
less favorable to the Company than can be obtained from an unaffiliated party in
an arm's-length transaction.
CKBP owns a minority interest in the pipeline that transports oil from
South Pass Area blocks in the Gulf of Mexico, to Venice, Louisiana. The pipeline
tariff is $2.75 per barrel and is published with the Federal Energy Regulatory
Commission. The rate is consistent with rates offered by unrelated parties from
the South Pass Area to Venice. Transportation expense incurred and payable to
CKBP was $863,000 and $825,000 for the three months ended June 30, 1998 and
1997, respectively and $1.7 million and $1.6 million for the six months ended
June 30, 1998 and 1997, respectively.
In April 1992, the Company acquired all of the assets and assumed all of
the liabilities of OKC Limited Partnership (the "Partnership"). Under the
Partnership Agreement, the general partners were entitled to advancement of
litigation expenses if they were named parties to litigation in their capacity
as general partners. Accordingly, the Company was obligated to advance
litigation expenses to the general partners. In addition, the Company advanced
litigation expenses on behalf of certain directors and officers of the Company
in applicable situations. The litigation for which advancements were made has
been either settled or dismissed. However, during the three and six months
ending June 30, 1997, the Company advanced $57,000 and $73,000, respectively, on
behalf of the above parties.
Interest income accrued on the note receivable from SSHC was $139,000 and
$283,000 for the three and six months ended June 30, 1998, respectively and
$114,000 for the three months ended June 30, 1997. Principal payments received
from SSHC during the same periods totaled $336,000, $883,000 and $351,000,
respectively. The balance of the note receivable on June 30, 1998, was $5.3
million. See Note 4. Note Receivable -- S-Sixteen Holding Company.
During the three and six months ended June 30, 1998, the Company incurred
executive search fees totaling $33,000 and $40,000, respectively, to Preng and
Associates, Inc., an entity controlled by a member of the Board of Directors.
Executive search fees paid to Preng and Associates, Inc. during the six months
ended June 30, 1997 were $76,000.
NOTE 7. CONTINGENCIES
Phillips Petroleum Case
The Company and Phillips Petroleum Company are engaged in a dispute
concerning the Net Profits interest in South Pass Block 89. In this litigation,
Phillips contends that pursuant to its 33% Net Profits interest in South Pass
Block 89, it was entitled to receive an overriding royalty for months in which
F-28
<PAGE> 121
REMINGTON OIL AND GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
"net profits" were not achieved; that an excessive oil transportation fee was
being charged to the Net Profits account; and that the entire $69.6 million cash
payment that had been received by the Partnership from the 1990 settlement of
previous litigation should have been credited to the Net Profits account instead
of the $5.8 million that was credited. On the latter claim, Phillips seeks to
receive in excess of $21.5 million, while on the first two claims Phillips
alleged aggregate damages of several million dollars. In addition, Phillips,
under Louisiana Mineral Code, is seeking double damages and cancellation of the
farmout agreement that created the Net Profits interest. Remington denies
Phillips' claims and vigorously defended against them during a non-jury trial
held in April 1997. In addition to contesting the claims of Phillips, the
Company asserted a counterclaim at trial that Phillips had breached a settlement
agreement regarding previous litigation between the parties and claimed damages
in excess of $10.0 million. The parties presented oral arguments to the court on
September 3, 1997 and are awaiting a ruling by the trial judge. Certain possible
results of the Phillips Petroleum Case could have a material adverse effect on
the Company. Statement of Financial Accounting Standards No. 5 entitled
"Accounting for Contingencies" ("SFAS 5"), in pertinent part requires that a
loss contingency be accrued if it is probable that a liability has been incurred
and that the amount thereof can be reasonably estimated. The complexities of the
Phillips case are such that the Company is unable to determine whether the
probability exists that a liability has been incurred. Further, the Company
cannot reasonably estimate the amount of any possible adverse outcome.
Accordingly, no loss contingency accrual can be made at this time in accordance
with SFAS 5.
Other Contingencies
The Company is not a party to any material pending legal proceedings other
than the foregoing.
NOTE 8. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 entitled "Reporting Comprehensive Income."
The statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
For the three and six months ended June 30, 1998 and 1997, comprehensive income
includes net income (loss) and unrealized gains on marketable securities. The
impact of adopting SFAS No. 130 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
-------- ------ ------- ------
<S> <C> <C> <C> <C>
Net income (loss)............................... $(1,157) $(710) $(3,152) $1,345
Unrealized gain on marketable securities........ -- 196 -- 54
------- ----- ------- ------
Net comprehensive income (loss)................. $(1,157) $(514) $(3,152) $1,399
======= ===== ======= ======
</TABLE>
F-29
<PAGE> 122
REPORT OF INDEPENDENT ACCOUNTANTS
To The Stockholders and Board of Directors of
S-Sixteen Holding Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of S-Sixteen
Holding Company and Subsidiaries ("the Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years ending December 31, 1997, 1996, and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of S-Sixteen
Holding Company and Subsidiaries as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years ended
December 31, 1997, 1996, and 1995 in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas
June 4, 1998
F-30
<PAGE> 123
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 102 $ 117
Accounts receivable -- trade.............................. 6 9
Accounts receivable -- related party...................... 518 680
Prepaid and other current assets.......................... 42 237
------- -------
Total current assets.............................. 668 1,043
------- -------
Properties
Oil and gas properties.................................... 35 35
Petroleum pipeline and equipment.......................... 5,570 5,570
Other properties and equipment............................ 21 52
Accumulated depreciation, depletion, amortization and
dismantlement.......................................... (3,171) (2,876)
------- -------
Total properties.................................. 2,455 2,781
------- -------
Other assets
Land -- held for sale..................................... 214 219
Marketable securities..................................... 11,191 19,704
Long-term accounts receivable -- related party............ 188 205
Other assets.............................................. -- 55
------- -------
Total other assets................................ 11,593 20,183
------- -------
Total assets...................................... $14,716 $24,007
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities
Accounts payable....................................... $ 62 $ 94
Accounts payable -- related party...................... 19 --
Accrued and other current liabilities.................. 66 36
Short-term notes payable............................... 6,671 1,020
Current portion of long-term notes payable............. 19 --
------- -------
Total current liabilities......................... 6,837 1,150
------- -------
Other liabilities
Long-term notes payable................................ 1,899 6,471
Minority interest in subsidiaries...................... 154 257
------- -------
Total other liabilities........................... 2,053 6,728
------- -------
Total liabilities................................. 8,890 7,878
------- -------
Commitments and contingencies (Note 10)
Stockholders' equity
Common Stock, $0.01 par value
Class A Common Stock -- 25,000 shares authorized; 33
shares issued and outstanding......................... -- --
Class B Common Stock -- 475,000 shares authorized;
42,875 shares issued.................................. 1 1
Additional paid in capital................................ 1,944 1,944
Treasury stock, at cost, 4,403 shares Class B in 1997..... (2,057) --
Retained earnings......................................... 11,590 12,369
Unrealized gain (loss) on marketable securities........... (5,652) 1,815
------- -------
Total stockholders' equity........................ 5,826 16,129
------- -------
Total liabilities and stockholders' equity........ $14,716 $24,007
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-31
<PAGE> 124
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues
Pipeline revenue.......................................... $ 3,216 $2,842 $2,723
Oil and gas sales......................................... 66 64 198
Interest income........................................... 15 68 129
Gain (loss) on sale of marketable securities.............. -- -- 2,575
Other income.............................................. 38 215 54
------- ------ ------
Total revenues.................................... 3,335 3,189 5,679
------- ------ ------
Costs and expenses
Pipeline operations....................................... 120 161 146
Depreciation, depletion, amortization and dismantlement... 315 305 331
Impairment of land held for sale.......................... -- 97 --
General and administrative................................ 1,037 1,046 773
Legal..................................................... 654 633 2,014
Reorganization expense.................................... 122 -- --
Interest expense.......................................... 661 639 726
------- ------ ------
Total costs and expenses.......................... 2,909 2,881 3,990
------- ------ ------
Income (loss) before taxes and minority interest............ 426 308 1,689
------- ------ ------
Income tax expense........................................ 1,063 291 601
------- ------ ------
Income (loss) before minority interest...................... (637) 17 1,088
------- ------ ------
Minority interest in (income) loss of subsidiaries........ 73 (61) (69)
------- ------ ------
Net income (loss)................................. $ (564) $ (44) $1,019
======= ====== ======
Basic and diluted income (loss) per share................... $(13.42) $(1.02) $23.70
======= ====== ======
Weighted average common shares outstanding.................. 42 43 43
======= ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-32
<PAGE> 125
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
CLASS A CLASS B UNREALIZED
(VOTING) (NON-VOTING) GAIN MINIMUM
-------- ------------ ADDITIONAL (LOSS) ON PENSION
PAR PAR PAID-IN TREASURY RETAINED MARKETABLE LIABILITY
VALUE VALUE CAPITAL STOCK EARNINGS SECURITIES ADJUSTMENT
-------- ------------ ---------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994......... $-- $1 $1,938 $ -- $11,394 $10,239 $ --
Net income (loss).................. 1,019
Unrealized (loss) on marketable
Securities (net of income tax)... (6,572)
Minimum pension liability
adjustment....................... (71)
--- -- ------ ------- ------- ------- ----
Balance at December 31, 1995......... -- 1 1,938 -- 12,413 3,667 (71)
--- -- ------ ------- ------- ------- ----
Issuance of 33 shares of Class A
Common Stock..................... -- 6
Net income (loss).................. (44)
Unrealized (loss) on marketable
Securities (net of income tax)... (1,852)
Minimum pension liability
adjustment....................... 71
--- -- ------ ------- ------- ------- ----
Balance at December 31, 1996......... -- 1 1,944 -- 12,369 1,815 --
--- -- ------ ------- ------- ------- ----
Net income (loss).................. (564)
Unrealized (loss) on marketable
Securities (net of income tax)... (7,467)
Purchase 4,403 shares of treasury
stock............................ (2,057)
Dividends paid..................... (215)
--- -- ------ ------- ------- ------- ----
Balance at December 31, 1997......... $-- $1 $1,944 $(2,057) $11,590 $(5,652) $ --
=== == ====== ======= ======= ======= ====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-33
<PAGE> 126
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss)........................................... $ (564) $ (44) $ 1,019
Minority interest......................................... (73) 61 69
Depreciation, depletion, amortization and dismantlement
expense................................................ 315 305 331
Impairment of land held for sale.......................... -- 97 --
Deferred income tax expense............................... 1,016 281 596
Reorganization expense.................................... 122 -- --
Increase in allowance for doubtful accounts............... 67 51 12
(Gain) on sale of assets.................................. (35) (198) (2,612)
Decrease (increase) in accounts receivable................ 56 (6) (11)
Decrease (increase) in prepaid and other current assets... 195 (10) 170
Increase (decrease) in accounts payable and accrued
liabilities............................................ 17 (510) 1
------- ------- -------
Net cash flow provided by (used in) operations.... 1,116 27 (425)
------- ------- -------
Cash flow from investing activities
Payments for capital expenditures......................... -- (5) (438)
Proceeds from sale of assets.............................. 43 393 5,062
Collection of account receivable from sale of assets...... -- -- 1,978
------- ------- -------
Net cash provided by investing activities......... 43 388 6,602
------- ------- -------
Cash flow from financing activities
Proceeds from the sale of common stock.................... 7
Dividends paid............................................ (215)
Purchase of treasury stock................................ (2,057)
Proceeds from notes payable............................... 9,347 1,016 55
Principal payments on notes payable....................... (8,249) (4,000) (5,005)
------- ------- -------
Net cash used in financing activities............. (1,174) (2,977) (4,950)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (15) (2,562) 1,227
Beginning cash and cash equivalents......................... 117 2,679 1,452
------- ------- -------
Ending cash and cash equivalents.................. $ 102 $ 117 $ 2,679
======= ======= =======
Cash paid for interest and financing costs.................. $ 599 $ 639 $ 726
======= ======= =======
Cash paid for income taxes.................................. $ 47 $ 10 $ 5
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-34
<PAGE> 127
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Business
S-Sixteen Holding Company, a Delaware Corporation, formerly Box Brothers
Holding Company ("BBHC"), and subsidiaries ("SSHC" or the "Company") is
primarily engaged in crude oil transportation services through its 94%-owned
subsidiary CKBP. In addition, SSHC owns 94% of CKBA and 100% of Box Brothers
Realty Investments Company, CB Farms, Inc. and Box Resources Inc. SSHC also owns
approximately 57% of the voting shares of Remington. CKBP owns an interest in a
pipeline that transports oil from Remington's South Pass field to Venice,
Louisiana.
In August 1994, BBHC filed a petition for business reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware. Following the filing for Chapter 11 bankruptcy protection,
BBHC acted as Debtor in Possession during its reorganization process. BBHC's
plan of reorganization was confirmed by the Bankruptcy Court on April 13, 1995.
The assets and liabilities of BBHC before and after the reorganization were
maintained at historical cost and no accounting policies were changed. See Note
12. Litigation and Bankruptcy.
Change in Ownership
On August 29, 1997, entities controlled by Mr. J.R. Simplot purchased all
of the Class A (Voting) Common Stock and 90% of the Class B (Non-Voting) Common
Stock of BBHC from Don D. Box, Gary D. Box, Thomas D. Box and Douglas D. Box
(the "Box Brothers") and settled all litigation existing between and among Mr.
Simplot and the Box Brothers (the "Simplot Transaction"). The remaining 10% of
the Class B (Non-Voting) Common Stock of the Company was subsequently acquired
by the Company as treasury stock.
Basis of Presentation
Management prepares the financial statements in conformity with generally
accepted accounting principles. This requires estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of SSHC and its
majority owned subsidiaries. Minority interest represents the minority
shareholders' proportionate share in the net income and equity of CKBP and CKBA.
All significant intercompany balances and transactions are eliminated. The
Company owns less than 11% of the total outstanding common stock of Remington
but approximately 57% of the Class A (Voting) common stock of Remington. The
control of Remington, however, is temporary because of a pending merger between
SSHC and Remington. The proposed merger, which is subject to approval by holders
of both the Class A (Voting) common stock and the Class B (Non-Voting) common
stock of Remington, would replace Remington's two classes of common stock with
one class of voting stock. In addition, as a result of the proposed merger SSHC
will cease to exist, and no individual or entity would own a majority of the
common stock of Remington outstanding at the completion of the merger
transaction. Therefore, the Company does not include Remington as part of the
consolidated group. The Company accounts for the Remington shares owned as
marketable securities available-for-sale. See Note 2. Marketable Securities.
F-35
<PAGE> 128
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
Cash equivalents consist of liquid investments with an average maturity of
three months or less when purchased, including money market funds principally
invested in United States government securities. Cash and cash equivalents are
stated at cost plus accrued interest, which approximates market value.
Marketable Securities
Marketable securities, classified as available-for-sale, are recorded on
the balance sheet at their market value on the balance sheet date. Unrealized
holding gains and losses for securities classified as available-for-sale are
excluded from earnings and recorded, net of tax and minority interest, as a
separate component of stockholders' equity.
Property and Equipment
Capitalized property and equipment includes the original purchase,
betterment and renewal of significant assets. The Company depreciates
capitalized property using the straight-line method over the estimated useful
lives of three to twenty-two years. Maintenance, ordinary repairs and minor
replacements are charged to expense when incurred. Upon sale or retirement of
property and equipment, the Company eliminates the costs and related accumulated
depreciation from the respective accounts. The gain or loss from the sale of an
asset is included in the income statements. Future dismantlement, restoration
and abandonment costs include the estimated costs to dismantle, restore and
abandon the Company's pipeline. The current estimate for dismantlement,
restoration and abandonment is $227,000. The liability is accrued using a
straight line method over sixteen years ending in the year 2005.
Income Taxes
Income tax expense or benefit includes current income taxes and deferred
income taxes. Current income tax expense or benefit is the amount calculated on
the income tax return for that year. Deferred income tax expense or benefit is
calculated as the change in the net deferred income tax asset or liability at
the beginning of the year compared to the end of the year. The amount of the
deferred income tax asset or liability is determined by multiplying the enacted
tax rate by the temporary differences, net operating and capital loss
carry-forwards plus any tax credit carry-forwards. The tax rate used is the
effective rate applicable for the year in which the temporary differences or
carry-forwards expect to be reversed or utilized. A valuation allowance offsets
deferred income tax assets, which are not expected to reverse in future years
using a "more likely than not" scenario. See Note 4. Deferred Income Tax Asset
and Income Taxes.
Income per Common Share
Income per common share equals net income divided by the weighted average
number of common shares outstanding for the period. The Company has no dilutive
securities.
NOTE 2. MARKETABLE SECURITIES
Marketable securities held by the Company at December 31, 1997 and 1996
consists of 1,840,525 shares of Remington Class A (Voting) common stock and
294,643 shares of Remington Class B (Non-Voting)
F-36
<PAGE> 129
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock. The Remington stock is traded on the NASDAQ National Market
System. The following table presents the closing prices, cost and holding gains
or losses at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Closing price
Remington Class A (Voting) common stock..................... $ 5.250 $ 9.250
Remington Class B (Non-Voting) common stock................. $ 5.188 $ 9.125
Total cost of marketable securities......................... $16,802 $16,802
Gross unrealized holding gains.............................. 1,181 2,902
Gross unrealized holding losses............................. (6,792) --
------- -------
Net carrying value at end of period............... $11,191 $19,704
======= =======
</TABLE>
On June 3, 1998, the closing price of Remington Class A (Voting) common
stock was $5.938 and the price of Remington Class B (Non-Voting) common stock
was $5.938. Total market value of the securities on that date was $12.7 million.
The Company computes realized gains and losses on specific identification
of the securities sold. The Company did not sell any of the available-for-sale
securities during 1997 and 1996. In 1995 the Company sold 510,632 shares of
Remington's Class B (Non-Voting) Common Stock for $5.0 million at a gross
realized gain of $2.6 million. The Company's Remington Class A (Voting) common
stock is pledged as collateral on the note payable to Remington. See Note 5.
Notes Payable.
NOTE 3. REORGANIZATION EXPENSE
In 1997, as part of the Simplot Transaction, the Company transferred a
country club membership and an automobile to one of the Box Brothers and a split
dollar life insurance policy to another one of the Box Brothers. The net book
value of the assets was $122,000 and was charged to reorganization expense.
NOTE 4. DEFERRED INCOME TAXES
The significant components of the Company's deferred income taxes are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Federal income tax net operating loss carryforward.......... $ 935 $ 1,172
Excess of accrued book liabilities over tax liabilities..... -- (16)
Excess of book basis over tax basis for depreciable
assets.................................................... (549) (610)
Excess of tax basis over book basis for accounts
receivable................................................ 652 628
Excess of book basis over tax basis for marketable
securities................................................ 1,964 (1,016)
------- -------
Total deferred tax asset (liability)........................ 3,002 158
------- -------
Valuation allowance......................................... (3,002) (158)
------- -------
Net deferred tax asset (liability)................ $ -- $ --
======= =======
</TABLE>
The Company's unused net operating loss carryforward of $2.7 million for
federal income tax purposes will expire during the years 2009 and 2010. In 1997,
the increase in the valuation allowance was charged to deferred federal income
tax expense for $883,000 and to unrealized loss on marketable securities for
$2.0 million.
F-37
<PAGE> 130
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the Company's income tax expense (benefit) calculated
at the Federal statutory rate to the Company's actual income tax provision for
the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
FOR YEARS ENDED
DECEMBER 31,
----------------------
1997 1996 1995
------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal Statutory rate calculation.......................... $ 133 $118 $589
Permanent differences....................................... 0 5 7
Increase in valuation allowance............................. 883 158 --
------ ---- ----
Net deferred federal income tax expense..................... 1,016 281 596
Current state income taxes.................................. 47 10 5
------ ---- ----
Total income tax expense.......................... $1,063 $291 $601
====== ==== ====
</TABLE>
NOTE 5. NOTES PAYABLE
The following table summarizes the notes payable of the Company at December
31, 1997 and 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Comerica Bank due April 30, 1997
Interest at prime plus 1%................................. $ -- $ 991
Trammel Crow and Crow Cement Company L.P. due May 27, 2000,
Interest at 6%............................................ -- 6,500
Remington Oil and Gas Corporation due November 29, 1998,
Interest at various rates (see below)..................... 6,192 --
Margin debt on marketable securities
Interest rate 8.5% since inception........................ 479 --
Note payable to stockholder, due October 14, 2027,
Interest at 8%............................................ 1,918 --
------- -------
Total notes payable............................... 8,589 7,491
------- -------
Less current portion........................................ (6,690) (1,020)
------- -------
Net long-term notes payable....................... $ 1,899 $ 6,471
======= =======
</TABLE>
The Company paid off the Comerica Bank revolving line of credit and the
note payable to Trammel Crow and Crow Cement Company in April 1997 with the
proceeds of the note payable to Remington. SSHC did not renew the line of credit
with Comerica Bank. The Company borrowed $7.25 million on a short-term note
payable from Remington on April 29, 1997. The original May 29, 1997 due date was
extended to June 3, 1997, at which time the note payable was replaced by a new
$6.95 million note payable dated June 3, 1997. The note requires monthly
installment payments of principal and interest totaling $100,000 commencing June
29, 1997. The interest rate is equal to the prime rate of Chase Bank of Texas,
National Association (formerly known as Texas Commerce Bank National
Association) plus 1% until the sixth month when the rate escalates monthly by
0.1% over the previous month's rate. Effective May 29, 1998, the note was
renewed under the present terms, including the 0.1% per month interest rate
escalation, and the due date of May 29, 1998 was extended to November 29, 1998.
Pledged as collateral under a related Amended and Restated Pledge Agreement
(the "Pledge Agreement") are the 1.8 million shares of Remington's Class A
(Voting) common stock, 800,000 shares of CKBP
F-38
<PAGE> 131
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock and 800,000 shares of CKBA common stock owned by SSHC. The pledged
stock represents approximately 57%, 94% and 94% of the outstanding shares of the
classes of stock, respectively. The fair market value of the collateral is
required to be $2.00 for each $1.00 of unpaid principal debt. Failure to pay the
monthly installment within 10 days and failure to maintain fair market value of
collateral are two, among several, actions which constitute events of default
under the Pledge Agreement. In the event of default, as defined in the Pledge
Agreement, Remington, upon five days' notice to the Company, has the right to
foreclose upon and sell the collateral stock. The Pledge Agreement also provides
that upon the occurrence and during the continuance of an event of default, if
the collateral has not been foreclosed upon, Remington may direct the vote of
the collateral stock.
CKBA owns 205,975 shares of the Class B (Non-Voting) Common Stock of
Remington which are pledged as collateral against the margin debt. The interest
rate has been 8.5% since the inception of the margin debt.
The Company borrowed $1.9 million from the primary stockholder during
October 1997. The proceeds were used to fund a portion of the purchase of 4,403
shares of the Company's Common Stock. The note payable is due October 14, 2027.
Note payments are amortized over 30 years at an interest rate of 8%. Scheduled
installment payments of principal and interest are approximately $14,000 per
month. Principal payments due on long-term debt for the years ending December
31, 1998, 1999, 2000, 2001 and 2002 are $19,000, $18,000, $19,000, $21,000 and
$22,000, respectively.
NOTE 6. MINORITY INTERESTS
The minority interest included in the Company's financial statements
represent the ownership by two stockholders of approximately 5.9% of both CKBP
and CKBA. Each year the minority interest liability is increased or decreased by
the minority stockholders' percentage of net income or loss, unrealized gain or
loss on marketable securities, and dividends paid during the current year.
NOTE 7. COMMON STOCK AND DIVIDENDS ON COMMON STOCK
The holders of Class A (Voting) Common Stock and Class B (Non-Voting)
Common Stock of the Company participate equally in the earnings, dividends and
other characteristics. The only difference between the two classes of stock is
that Class A Stock has voting rights while the Class B Stock has no voting
rights, unless otherwise required by Delaware law. The Company paid dividends
totaling $215,000 (including dividends of $78,000 paid to the minority interest
stockholders by CKBP) in 1997. Currently, dividends are not contractually
restricted. The Company uses the cost method for accounting for treasury stock.
NOTE 8. EMPLOYEE BENEFIT PLANS
The pension plan adopted by CKBP is a noncontributory defined benefit
pension plan covering substantially all employees. The benefits available under
the plan are generally based on years of service and average earnings. CKBP
funds the plan with annual contributions at least equal to the minimum funding
provisions of the Employment Retirement Income Security Act, as amended, but no
more than the maximum tax deductible contribution allowed. Plan assets consist
primarily of equity and fixed income securities. The
F-39
<PAGE> 132
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
following table sets forth the plan's funded status and amounts recognized in
the Company's balance sheets as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Vested benefit obligation................................... $(567) $(545)
Non-vested benefit obligation............................... -- (29)
Additional liability due to projected salary increases...... -- (17)
----- -----
Projected benefit obligation................................ (567) (591)
----- -----
Fair value of plan assets................................... 595 607
----- -----
Fair value of plan assets in excess of projected benefit
obligation................................................ 28 16
----- -----
Unamortized transition amount............................... -- 8
Unrecognized gain (loss).................................... (25) (55)
----- -----
Prepaid pension cost/(Pension liability).................... $ 3 $ (31)
===== =====
</TABLE>
The net periodic pension cost of the plan for 1997, 1996 and 1995 included
the following components:
<TABLE>
<CAPTION>
FOR YEARS ENDED
DECEMBER 31,
------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 13 $ 24 $ 14
Interest cost on projected benefit obligation............... 43 36 28
Actual return on plan assets................................ (53) (48) (62)
Net amortizations and deferrals............................. 6 21 31
---- ---- ----
Net periodic pension costs.................................. 9 33 11
---- ---- ----
Special recognition due to curtailment and lump sum
settlements............................................... (2) -- --
---- ---- ----
Net periodic pension costs........................ $ 7 $ 33 $ 11
==== ==== ====
</TABLE>
The determination of the actuarial present value of the projected benefit
obligation as of December 31, 1997, 1996 and 1995 assumed a discount rate of
7.25% and a 3% rate of increase in future compensation levels. The assumed
weighted average long-term rate of return on plan assets was 8% for 1997, 1996
and 1995.
SFAS No. 106 entitled "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and SFAS No. 112 entitled "Employers' Accounting for
Postemployment Benefits" require the recognition and disclosure of the estimated
future costs of postretirement and postemployment benefits to which the Company
is obligated. The Company has no history of paying postretirements benefits
other than pensions and is not obligated to pay such benefits in the future.
Future obligations for postemployment benefits are immaterial. Therefore, no
liability for either SFAS No. 106 and SFAS No. 112 has been recognized in the
financial statements.
F-40
<PAGE> 133
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. RELATED PARTY TRANSACTIONS
Net accounts and notes receivable from stockholders and other related
parties at December 31, 1997 and 1996 are presented in the following table.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Account receivable -- Estate of Cloyce K. Box............... $ 2,101 $ 2,101
Allowance for doubtful accounts -- Estate of Cloyce K.
Box....................................................... (1,891) (1,824)
------- -------
Net account receivable -- Estate of Cloyce K. Box........... 210 277
Account receivable -- Remington Oil and Gas Corporation..... 308 276
Note and accrued interest receivable -- J. Bradford......... -- 24
Note and accrued interest receivable -- C. Johnson.......... -- 37
Other accounts receivable from officers..................... -- 66
------- -------
Total current accounts receivable -- related party.......... 518 680
------- -------
Long-term accounts receivable -- related party.............. 188 205
------- -------
Total net related party accounts receivable....... $ 706 $ 885
======= =======
</TABLE>
The receivable from the Estate of Cloyce K. Box was primarily the result of
the plan of reorganization under Chapter 11 of the Bankruptcy Code. See Note 12.
Litigation and Bankruptcy. Cloyce K. Box was the former controlling stockholder
of the Company before his death. Two of the Box Brothers are co-executors of the
Estate and were officers and owners of the Company before the Simplot
Transaction.
CKBP owns a minority interest in a pipeline that transports oil from the
South Pass Area (offshore Louisiana) to Venice, Louisiana. CKBP receives $2.75
per barrel for oil transported by Remington. For the years ended December 31,
1997, 1996 and 1995 CKBP billed Remington $3.2 million, $2.8 million and $2.7
million, respectively, for pipeline transportation. Also, Remington bills the
Company for an allocated portion of office space that is subleased to CKBP,
certain payroll costs and benefits, and other overhead costs. The amounts billed
are considered to be fair value of such usage by, or allocations. Remington
billed the Company $40,000, $81,000 and $134,000 for the three years ended
December 31, 1997, 1996 and 1995, respectively. The above table reflects net
amounts outstanding at December 31, 1997 and 1996.
J. Bradford and C. Johnson were minority stockholders in SSHC until the
Company redeemed their shares of Class B (Non-Voting) Common Stock. As part of
the purchase price the Company tendered the notes receivable and accrued
interest back to the individuals. The remainder of the purchase price was paid
in cash. In addition, during 1997, SSHC made loans to two other minority
stockholders Bernay Box and Blake Box in the amount of $50,000 and $25,000,
respectively. The notes receivable plus accrued interest were tendered back to
them as part of the purchase price of their Class B (Non-Voting) common stock.
J. Bradford, C. Johnson, Bernay Box and Blake Box are all first cousins of the
Box Brothers.
The long-term accounts receivable -- related party reflects the Company's
claim under a Collateral Assignment Split Dollar Insurance Agreement between the
Company and the Box Brothers. If the policy is terminated the Company will
receive the lesser of the total premiums advanced or the cash value of the life
insurance policy. In case of the death of the insured, the Company will receive
the total premiums advanced for the life insurance policies. The carrying value
of the long-term accounts receivable -- related party is the net cash value of
the life insurance policies since the current cash value is less than the total
premiums advanced and termination of the policy is controlled by the Box
Brothers.
In 1997, as part of the Simplot Transaction, the Company transferred a
country club membership and an automobile to one of the Box Brothers and a split
dollar life insurance policy to another one of the
F-41
<PAGE> 134
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Box Brothers. The net book value of the assets was $122,000 and was charged to
reorganization expense. See Note 3. Reorganization Expense. The other accounts
receivable from officers include amounts advanced to the some of the Box
Brothers for various expenditures that were subsequently determined by current
management to have been proper expenses of the Company and were therefore
charged to expense in 1997.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Minority Shareholders' Litigation
The Company and two of its subsidiaries are named as defendants in a case
styled D. James Fajack and Otto J. Buis v. Box Brothers Holding Company, CKB
Petroleum Inc., and CKB & Associates, Inc., filed in the 162nd Judicial District
Court for Dallas County, Texas. Messrs. Buis and Fajack, each minority
shareholders of CKBP and CKBA, originally filed suit on August 28, 1997 against
SSHC in Buis' and Fajack's individual capacities and on behalf of CKBP and CKBA.
The third amended petition names SSHC, CKBP and CKBA as defendants. The
plaintiffs allege breach of fiduciary duty, corporate waste, fraud and
misappropriation. Buis and Fajack seek an accounting as well as unspecified
monetary damages. Further, they seek a court ordered buy-out of their interests
in CKBP and CKBA. SSHC has filed an answer. The time for CKBP and CKBA to file
an answer has not yet expired.
The Company has filed a motion to disqualify counsel for Fajack and Buis
because of Counsel's representation of Special Litigation Committees of SSHC and
CKBP in related litigation. SSHC has also filed a motion for a protective order
requesting a stay of discovery while the motion to disqualify is pending. SSHC
has expressed its intent to vigorously defend against this suit. If the Company
is not successful in this suit, it is the opinion of the Company that any
adverse judgments would not have a material adverse effect on the Company.
Other Contingencies
The Company is not a party to any other material pending legal proceedings.
NOTE 11. INDUSTRY SEGMENT AND CONCENTRATION OF BUSINESS
The Company is engaged primarily in only one business, oil transportation,
and owns only one oil pipeline. The Company has only one major customer,
Remington, which accounted for 96%, 89% and 48% of the total revenues in 1997,
1996 and 1995, respectively. The Company also has a large investment in
marketable equity securities of Remington Oil and Gas Corporation. See Note 2.
Marketable Securities.
Oil and gas operations are not material to the Company and therefore the
Company does not disclose information about oil and gas reserves or standardized
measures of discounted future net cash flow from oil and gas properties.
F-42
<PAGE> 135
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. LITIGATION AND BANKRUPTCY
BBHC and the Estate of Cloyce K. Box were defendants in litigation relating
to indemnification of a business associate in connection with the construction
and financing of a cement plant. The trial court entered a $14.7 million
judgment against BBHC and the Estate of Cloyce K. Box. In August 1994, BBHC
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code and perfected an appeal of the trial court's judgment. On April
13, 1995, the Bankruptcy Court confirmed BBHC's Plan of Reorganization. Pursuant
to the plan, BBHC agreed to deliver to the plaintiffs 563,380 shares of
Remington Class B (Non-Voting) common stock valued at $5.0 million, a promissory
note in the amount of $6.5 million, a security agreement, and a Release and
Covenant Not to Sue. In the Release and Covenant Not to Sue, all parties agreed
to a comprehensive settlement and compromise of all litigation whether pending
or not, and further agreed to the Plan of Reorganization that was confirmed by
the Bankruptcy Court. In executing the Release and Covenant Not to Sue, the
parties denied any liability to the other parties. In addition, the parties
agreed to dismiss both the original litigation and the appeal of the trial
court's judgment. Although the $11.5 million settlement liability was divided
equally between BBHC and the Estate of Cloyce K. Box, BBHC recorded the entire
$11.5 million as a liability in 1994, and at the same time, reduced to zero a
$3.3 million note payable to the Estate of Cloyce K. Box and recorded a $2.4
million account receivable from the Estate of Cloyce K. Box. See Note 9. Related
Party Transactions.
F-43
<PAGE> 136
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 234 $ 102
Accounts receivable -- trade.............................. 4 6
Accounts receivable -- related party...................... 484 518
Prepaid expenses and other current assets................. 49 42
------- -------
Total current assets.............................. 771 668
------- -------
Properties
Oil and gas properties.................................... 35 35
Petroleum pipeline and equipment.......................... 5,570 5,570
Other properties and equipment............................ 21 21
Accumulated depreciation, depletion, amortization and
dismantlement.......................................... (3,323) (3,171)
------- -------
Total properties.................................. 2,303 2,455
------- -------
Other assets
Land -- held for sale..................................... 214 214
Marketable securities..................................... 13,087 11,191
Long-term accounts receivable -- related party............ 189 188
------- -------
Total other assets................................ 13,490 11,593
------- -------
Total assets...................................... $16,564 $14,716
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities
Accounts payable....................................... $ 40 $ 62
Accounts payable -- related party...................... 52 19
Accrued and other current liabilities.................. 52 66
Short-term notes payable............................... 5,786 6,671
Current portion of long-term notes payable............. 17 19
------- -------
Total current liabilities......................... 5,947 6,837
------- -------
Other liabilities
Long-term notes payable................................ 1,895 1,899
Minority interest in subsidiaries...................... 113 154
------- -------
Total other liabilities........................... 2,008 2,053
------- -------
Total Liabilities................................. 7,955 8,890
------- -------
Commitments and contingencies (Note 4)
Stockholders' equity
Common stock, $0.01 par value
Class A Common Stock -- 25,000 shares authorized; 33
shares issued and outstanding......................... -- --
Class B Common Stock -- 475,000 shares authorized;
42,875 shares issued.................................. 1 1
Additional paid-in capital................................ 1,944 1,944
Treasury stock, at cost, 4,403 shares Class B............. (2,057) (2,057)
Retained earnings......................................... 12,476 11,590
Unrealized (loss) on marketable securities................ (3,755) (5,652)
------- -------
Total stockholders' equity........................ 8,609 5,826
------- -------
Total liabilities and stockholders' equity........ $16,564 $14,716
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-44
<PAGE> 137
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1997 1998 1997
------- ------- ------ ------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Revenues
Pipeline revenue....................................... $ 863 $ 825 $1,706 $1,606
Oil and gas sales...................................... 7 11 21 40
Other income........................................... -- 4 -- 19
------ ------ ------ ------
Total revenues................................. 870 840 1,727 1,665
------ ------ ------ ------
Costs and expenses
Pipeline operations.................................... 23 22 67 54
Depreciation, depletion, amortization and
dismantlement....................................... 77 80 152 159
General and administrative expenses.................... 38 361 93 712
Legal expenses......................................... 62 293 76 461
Interest and financing costs........................... 197 159 390 275
------ ------ ------ ------
Total costs and expenses....................... 397 915 778 1,661
------ ------ ------ ------
Income before taxes and minority interest................ 473 (75) 949 4
Income tax expense..................................... 3 28 9 28
------ ------ ------ ------
Income before minority interest.......................... 470 (103) 940 (24)
------ ------ ------ ------
Minority interest in income of subsidiaries............ 28 15 54 29
------ ------ ------ ------
Net income............................................... $ 442 $ (118) $ 886 $ (53)
====== ====== ====== ======
Basic and diluted income per share....................... $11.33 $(2.74) $22.72 $(1.23)
====== ====== ====== ======
Weighted average common shares outstanding............... 39 43 39 43
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-45
<PAGE> 138
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1998 1997
------ -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash flow provided by operations
Net income................................................ $ 886 $ (53)
Minority interest...................................... 54 29
Depreciation, depletion, amortization and
dismantlement......................................... 152 159
(Gain) on sale of properties........................... -- (16)
Decrease (increase) in accounts receivable............. 36 (69)
(Increase) in prepaid expenses and other current
assets................................................ (7) (16)
Increase in accounts payable and accrued expenses...... (4) 97
------ -------
Net cash flow provided by operations.............. 1,117 131
------ -------
Cash from investing activities
Proceeds from property sales.............................. -- 21
------ -------
Net cash provided by investing activities......... -- 21
------ -------
Cash from financing activities
Dividends paid............................................ (94) (153)
Proceeds from notes payable............................... -- 7,758
Principal repayments notes payable........................ (891) (7,842)
------ -------
Net cash used in financing activities............. (985) (237)
------ -------
Net (decrease) in cash and cash equivalents....... 132 (85)
Cash and cash equivalents at beginning of period............ 102 117
------ -------
Cash and cash equivalents at end of period.................. $ 234 $ 32
====== =======
Cash Paid for interest and financing costs.................. $ 353 $ 256
====== =======
Cash Paid for income taxes.................................. $ 9 $ 28
====== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-46
<PAGE> 139
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE 1. ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Business
S-Sixteen Holding Company, a Delaware Corporation, formerly Box Brothers
Holding Company ("BBHC"), and subsidiaries ("SSHC" or the "Company") is
primarily engaged in crude oil transportation services through its 94%-owned
subsidiary CKB Petroleum, Inc. ("CKBP"). In addition, SSHC owns 94% of CKB &
Associates, Inc. ("CKBA") and 100% of Box Brothers Realty Investments Company,
CB Farms, Inc. and Box Resources Inc. SSHC also owns approximately 57% of the
voting shares of Remington Oil and Gas Corporation ("Remington"), a public
company. CKBP owns an interest in a pipeline that transports oil from
Remington's South Pass field to Venice, Louisiana.
Change in Ownership
On August 29, 1997, entities controlled by Mr. J.R. Simplot purchased all
of the Class A (Voting) Common Stock and 90% of the Class B (Non-Voting) Common
Stock of BBHC from Don D. Box, Gary D. Box, Thomas D. Box and Douglas D. Box
(the "Box Brothers") and settled all litigation existing between and among Mr.
Simplot and the Box Brothers (the "Simplot Transaction"). The remaining 10% of
the Class B (Non-Voting) Common Stock of the Company was subsequently acquired
by the Company as treasury stock.
The financial statements are prepared according to the regulations of the
Securities and Exchange Commission and may not include all disclosures required
for financial statements prepared in conformity with generally accepted
accounting principles. The results of operations and financial position for the
interim periods presented include all transactions and adjustments which
management believes are necessary for fair presentation. All adjustments are of
a normal recurring nature. The financial statements presented in this Prospectus
and Proxy Statement should be read together with the audited financial
statements of the Company for the year ended December 31, 1997. The results of
operations for the six months ended June 30, 1998, are not necessarily
indicative of the results for the full year. There were no material changes in
the significant accounting policies or details of accounts during the interim
periods except as stated below.
NOTE 2. MARKETABLE SECURITIES
Marketable securities held by the Company at June 30, 1998 and December 31,
1997 consists of 1,840,525 shares of Remington Class A (Voting) common stock and
294,643 shares of Remington Class B (Non-Voting) common stock. The Remington
stock is traded on the NASDAQ National Market System. The following table
presents the closing prices, cost and holding gains or losses at June 30, 1998
and December 31, 1997.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1998 1997
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Closing price
Remington Class A (Voting) common stock................... $ 6.250 $ 5.250
Remington Class B (Non-Voting) common stock............... $ 5.375 $ 5.188
Total cost of marketable securities....................... $16,802 $16,802
Gross unrealized holding gains............................ 1,235 1,181
Gross unrealized holding losses........................... (4,950) (6,792)
------- -------
Net carrying value at end of period............. $13,087 $11,191
======= =======
</TABLE>
F-47
<PAGE> 140
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On August 5, 1998, the closing price of Remington Class A (Voting) Common
Stock was $5.063 and the price of Remington Class B (Non-Voting) Common Stock
was $4.75. Total market value of the securities on that date was $10.7 million.
The Company computes realized gains and losses on specific identification
of the securities sold. The Company did not sell any of the available-for-sale
securities during the six month periods ended June 30, 1998 and 1997. The
Company's Remington Class A (Voting) Common Stock is pledged as collateral on
the note payable to Remington.
NOTE 3. RELATED PARTY TRANSACTIONS
Net accounts and notes receivable from stockholders and other related
parties at June 30, 1998 and December 31, 1997 are presented in the following
table.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1998 1997
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Account receivable -- Estate of Cloyce K. Box.............. $ 2,101 $ 2,101
Allowance for doubtful accounts -- Estate of Cloyce K.
Box...................................................... (1,891) (1,891)
------- -------
Net account receivable -- Estate of Cloyce K. Box.......... 210 210
Account receivable -- Remington Oil and Gas Corporation.... 274 308
------- -------
Total current accounts receivable -- related party......... 484 518
------- -------
Long-term accounts receivable -- related party............. 189 188
------- -------
Total net related party accounts receivable................ $ 673 $ 706
======= =======
</TABLE>
The receivable from the Estate of Cloyce K. Box was primarily the result of
the plan of reorganization under Chapter 11 of the Bankruptcy Code. Cloyce K.
Box was the former controlling stockholder of the Company before his death. Two
of the Box Brothers are co-executors of the Estate of Cloyce K. Box and were
officers and owners of the Company before the Simplot transaction.
CKBP owns a minority interest in a pipeline that transports oil from the
South Pass Area (offshore Louisiana) to Venice, Louisiana. CKBP receives $2.75
per barrel for oil transported by Remington. For the three and six months ended
June 30, 1998 and 1997 CKBP billed Remington $863,000, $1.7 million, $825,000
and $1.6 million, respectively, for pipeline transportation. The Company paid
interest expense of $283,000 and principal of $883,000 on the note payable to
Remington during the first six months of 1998.
The long-term accounts receivable -- related party reflects the Company's
claim under a Collateral Assignment Split Dollar Insurance Agreement between the
Company and the Box Brothers. If the policy is terminated the Company will
receive the lesser of the total premiums advanced or the cash value of the life
insurance policy. In case of the death of the insured, the Company will receive
the total premiums advanced for the life insurance policies. The carrying value
of the long-term accounts receivable -- related party is the net cash value of
the life insurance policies since the current cash value is less than the total
premiums advanced and termination of the policy is controlled by the Box
Brothers.
NOTE 4. COMMITMENTS AND CONTINGENCIES
Minority Shareholders' Litigation
The Company and two of its subsidiaries are named as defendants in a case
styled D. James Fajack and Otto J. Buis v. Box Brothers Holding Company, CKB
Petroleum Inc., and CKB & Associates, Inc., filed in the 162(nd) Judicial
District Court for Dallas County, Texas. Messrs. Buis and Fajack, each minority
shareholders of CKBP and CKBA, originally filed suit on August 28, 1997 against
SSHC in Buis' and Fajack's individual
F-48
<PAGE> 141
S-SIXTEEN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
capacities and on behalf of CKBP and CKBA. The third amended petition names
SSHC, CKBP and CKBA as defendants. The plaintiffs allege breach of fiduciary
duty, corporate waste, fraud and misappropriation. Buis and Fajack seek an
accounting as well as unspecified monetary damages. Further, they seek a court
ordered buy-out of their interests in CKBP and CKBA. SSHC has filed an answer.
The time for CKBP and CKBA to file an answer has not yet expired.
The Company has filed a motion to disqualify counsel for Fajack and Buis
because of Counsel's representation of Special Litigation Committees of SSHC and
CKBP in related litigation. SSHC has also filed a motion for a protective order
requesting a stay of discovery while the motion to disqualify is pending. SSHC
has expressed its intent to vigorously defend against this suit. If the Company
is not successful in this suit, it is the opinion of the Company that any
adverse judgments would not have a material adverse effect on the Company.
The Company is not party to any other material legal proceedings.
NOTE 5. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 entitled "Reporting Comprehensive Income".
The statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
For the three and six months ended June 30, 1998 and 1997, comprehensive income
includes net income and unrealized gains or losses for marketable securities.
The impact of adopting SFAS No. 130 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDING JUNE 30, ENDING JUNE 30,
---------------- ----------------
1998 1997 1998 1997
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net income (loss)................................ $ 442 $ (118) $ 886 $ (53)
Unrealized gain (loss) on marketable
securities..................................... (230) (3,163) 1,898 (4,720)
------ ------- ------ -------
Net comprehensive income (loss)........ $ 212 $(3,281) $2,784 $(4,773)
====== ======= ====== =======
</TABLE>
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APPENDIX I
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
REMINGTON OIL AND GAS CORPORATION
AND
S-SIXTEEN HOLDING COMPANY
DATED AS OF JUNE 22, 1998
<PAGE> 143
TABLE OF CONTENTS
<TABLE>
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ARTICLE I THE MERGER................................................................. 1
SECTION 1.1 The Merger.................................................. 1
SECTION 1.2 Effective Time.............................................. 1
SECTION 1.3 Closing..................................................... 2
SECTION 1.4 Effects of Merger........................................... 2
SECTION 1.5 Certificate of Incorporation................................ 2
SECTION 1.6 Bylaws...................................................... 2
SECTION 1.7 Officers and Directors...................................... 2
SECTION 1.8 Tax Consequences............................................ 2
SECTION 1.9 Further Assurances.......................................... 2
ARTICLE II RECAPITALIZATION AND CONVERSION AND
EXCHANGE OF SHARES.................................................................. 3
SECTION 2.1 Conversion of Capital Stock of Remington and SSHC........... 3
(a) SSHC Stock.................................................. 3
(b) Remington Class A Stock..................................... 3
(c) Remington Class B Stock..................................... 3
(d) Treasury Stock, Etc. of SSHC................................ 3
(e) Remington Stock Owned by SSHC............................... 3
(f) Issuance of Certificates.................................... 3
(g) Remington Option Plans...................................... 4
SECTION 2.2 Remington to Make Shares Available.......................... 4
SECTION 2.3 Exchange of Shares.......................................... 4
(a) Letter of Transmittal....................................... 4
(b) Dividends and Distributions................................. 4
(c) Issuance of Certificates in Different Name.................. 5
(d) Stock Transfers............................................. 5
(i) Remington............................................... 5
(ii) SSHC................................................... 5
(e) No Fractional Shares........................................ 5
(f) Unclaimed Exchange Fund..................................... 5
(g) Certificates Lost, Destroyed Etc. .......................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SSHC................................... 6
SECTION 3.1 Organization and Qualification.............................. 6
(a) Organization and Qualification.............................. 6
(b) Subsidiaries................................................ 6
SECTION 3.2 Capitalization.............................................. 6
(a) Capital Stock of SSHC....................................... 6
(b) Subsidiaries................................................ 7
(c) Contractual Obligations..................................... 7
SECTION 3.3 Authority Relative to this Agreement........................ 7
SECTION 3.4 Non-Contravention; Approvals and Consents................... 7
(a) Non-Contravention........................................... 7
(b) Consents and Approvals...................................... 8
SECTION 3.5 Financial Statements........................................ 8
SECTION 3.6 Tax Matters................................................. 8
(a) Tax Returns................................................. 8
(b) Definition of Taxes......................................... 9
SECTION 3.7 Legal Proceedings........................................... 9
SECTION 3.8 Information Supplied........................................ 9
</TABLE>
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF REMINGTON............................... 9
SECTION 4.1 Organization and Qualification.............................. 9
(a) Organization and Qualification.............................. 9
(b) Subsidiaries................................................ 9
SECTION 4.2 Capitalization.............................................. 10
(a) Capital Stock of Remington.................................. 10
(b) Subsidiaries................................................ 10
(c) Contractual Obligations..................................... 10
(d) Subordinated Notes.......................................... 10
SECTION 4.3 Authority Relative to this Agreement........................ 10
SECTION 4.4 Non-Contravention; Approvals and Consents................... 11
(a) Non-Contravention........................................... 11
(b) Consents and Approvals...................................... 11
SECTION 4.5 Remington SEC Reports and Financial Statements.............. 12
SECTION 4.6 Tax Matters................................................. 12
SECTION 4.7 Legal Proceedings........................................... 12
SECTION 4.8 Information Supplied........................................ 13
ARTICLE V COVENANTS.................................................................. 13
SECTION 5.1 Conduct of Businesses Prior to the Effective Time........... 13
SECTION 5.2 Forbearances................................................ 13
(a) Changes in Stock; Dividends; Etc............................ 13
(b) Sale of Assets; Etc......................................... 13
(c) Acquisitions and Investments................................ 14
(d) Contracts and Leases........................................ 14
(e) Compensation and Benefit Plans.............................. 14
(f) Settlements................................................. 14
(g) Tax-Free Reorganization..................................... 14
(h) Governing Documents......................................... 14
(i) Representations and Warranties.............................. 14
(j) Other Actions............................................... 14
ARTICLE VI ADDITIONAL AGREEMENTS..................................................... 15
SECTION 6.1 Additional Agreements....................................... 15
(a) SSHC Revenues............................................... 15
(b) LLC Note.................................................... 15
(c) Intercompany Note........................................... 15
Preparation of Registration Statement, and the Proxy
SECTION 6.2 Statement................................................... 15
SECTION 6.3 Access to Information; Confidentiality...................... 15
(a) Access to Information....................................... 15
(b) Confidentiality............................................. 15
SECTION 6.4 Stockholder Approvals....................................... 16
(a) Remington................................................... 16
(b) Remington Stock Held by SSHC................................ 16
(c) SSHC Approval............................................... 16
SECTION 6.5 Legal Conditions to Merger.................................. 16
(a) Regulatory and Other Approvals.............................. 16
(b) Removal of Injunctions, Etc................................. 16
SECTION 6.6 NASDAQ Listing.............................................. 17
SECTION 6.7 Expenses.................................................... 17
SECTION 6.8 Brokers or Finders.......................................... 17
</TABLE>
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SECTION 6.9 Takeover Statutes........................................... 17
SECTION 6.10 Conveyance Taxes............................................ 17
SECTION 6.11 Advice of Changes........................................... 17
ARTICLE VII CONDITIONS PRECEDENT..................................................... 17
Conditions to Each Party's Obligation to Effect the
SECTION 7.1 Merger...................................................... 17
(a) Stockholder Approval........................................ 17
(b) Registration Statement; State Securities Laws............... 18
(c) NASDAQ Listing.............................................. 18
(d) Regulatory Approvals........................................ 18
(e) No Injunctions or Restraints................................ 18
(f) Burdensome Condition........................................ 18
SECTION 7.2 Conditions to Obligations of Remington...................... 18
(a) Representations and Warranties.............................. 18
(b) Performance of Obligations.................................. 19
(c) Proceedings................................................. 19
(d) Tax Opinion................................................. 19
(e) Opinion of Financial Advisor................................ 19
(f) Opinion of Counsel.......................................... 20
SECTION 7.3 Conditions to Obligations of SSHC........................... 20
(a) Representations and Warranties.............................. 20
(b) Performance of Obligations.................................. 20
(c) Proceedings................................................. 20
(d) Tax Opinion................................................. 20
(e) Opinion of Counsel.......................................... 21
ARTICLE VIII TERMINATION AND AMENDMENT............................................... 21
SECTION 8.1 Termination................................................. 21
SECTION 8.2 Effect of Termination....................................... 22
SECTION 8.3 Amendment................................................... 22
SECTION 8.4 Extension; Waiver........................................... 22
ARTICLE IX GENERAL PROVISIONS........................................................ 22
SECTION 9.1 Nonsurvival of Representations, Warranties and Agreements... 22
SECTION 9.2 Notices..................................................... 22
SECTION 9.3 Interpretation.............................................. 23
SECTION 9.4 Entire Agreement; No Third Party Beneficiaries.............. 23
SECTION 9.5 Governing Law............................................... 23
SECTION 9.6 Public Announcements........................................ 23
SECTION 9.7 Severability................................................ 23
SECTION 9.8 No Assignment; Binding Effect............................... 23
SECTION 9.9 Enforcement of the Agreement................................ 23
SECTION 9.10 Certain Definitions......................................... 24
(a) Affiliate................................................... 24
(b) Beneficial Ownership........................................ 24
(c) Business Day................................................ 24
(d) Knowledge................................................... 24
(e) Material Adverse Effect..................................... 24
(f) Person...................................................... 24
(g) Representatives............................................. 24
(h) Subsidiary.................................................. 24
SECTION 9.11 Counterparts................................................ 24
SECTION 9.12 Time of Essence............................................. 24
</TABLE>
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<TABLE>
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EXHIBITS
Exhibit A Certificate of Merger
Schedule I Restated Certificate of Incorporation
Exhibit B Warrant Agreement
Exhibit C Opinion of Counsel to SSHC
Exhibit D-1 Opinion of Counsel to Remington (Delaware)
Exhibit D-2 Opinion of Counsel to Remington (Texas)
</TABLE>
iv
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("AGREEMENT") dated as of June 22, 1998,
by and between REMINGTON OIL AND GAS CORPORATION, a Delaware corporation
("REMINGTON"), and S-SIXTEEN HOLDING COMPANY, a Delaware corporation ("SSHC").
WHEREAS, the Special Transactions Committee (the "STC") of the Board of
Directors of Remington has determined that the business combination provided for
herein in which SSHC would merge with and into Remington (the "MERGER"), such
that Remington would be the surviving corporation -- which combination includes
the other transactions contemplated hereby and explained more fully below -- is
fair to Remington and its stockholders other than SSHC and its affiliates, and
on that basis has approved and has recommended that the Board of Directors of
Remington approve the Merger and the other transactions contemplated hereby;
WHEREAS, the Board of Directors of Remington and SSHC have identified valid
business purposes for the Merger with respect to each of Remington and SSHC
(sometimes referred to herein as the "Constituent Corporations"), including but
not limited to the simplification of the capital structure of the Constituent
Corporations, providing all equity owners of Remington the opportunity to vote,
increasing the liquidity and trading efficiency of the equity stock of
Remington, improving Remington's access to the capital markets, providing an
efficient instrument for other business combinations that are in the best
interests of Remington and maximizing value for the stockholders of the
Constituent Corporations.
WHEREAS, Boards of Directors of Remington and SSHC have approved, and deem
it advisable and in the best interests of their respective stockholders to
consummate the Merger;
WHEREAS, in connection with the Merger, and as a condition thereof, the
Board of Directors of Remington has approved, and deems it advisable and in the
best interests of its stockholders to accomplish, an exchange and
reclassification of its capital stock to be effected by the Merger, in
accordance with Section 251(b)(3) of the Delaware General Corporation Law (the
"DGCL"), pursuant to which all issued and outstanding shares of Remington
capital stock shall be converted into, reclassified as and exchanged for, a
single class of voting common stock, par value $0.01 per share, of Remington
(the "REMINGTON COMMON STOCK"), pursuant to the terms and conditions of this
Agreement and Remington's Restated Certificate of Incorporation (the "RESTATED
CERTIFICATE OF AMENDMENT") contained in the Certificate of Merger (the
"CERTIFICATE OF MERGER") in the Form of Exhibit A hereto;
WHEREAS, as a condition and inducement to SSHC's willingness to enter into
this Agreement, Remington will grant to the sole shareholder of SSHC at Closing
(as herein defined) a warrant to purchase shares of Remington capital stock, in
the form of Exhibit B hereto (the "WARRANT AGREEMENT");
WHEREAS, Remington and SSHC desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the SSHC Warrant, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement, in accordance with the DGCL, at the Effective Time (as defined in
Section 1.2), (i) SSHC shall merge with and into Remington and the separate
corporate existence of SSHC shall terminate, (ii) Remington shall be the
surviving corporation (hereinafter sometimes called the "SURVIVING CORPORATION")
in the Merger, and shall continue its corporate existence under the laws of the
State of Delaware, and (iii) the name of the Surviving Corporation shall be
"Remington Oil and Gas Corporation."
SECTION 1.2 Effective Time. The Merger shall become effective as set forth
in the Certificate of Merger. Remington shall file the Certificate of Merger
with the Secretary of State of the State of Delaware
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(the "DELAWARE SECRETARY"), in accordance with Section 251(c) of the DGCL, on
the Closing Date (as defined in Section 1.3). The term "EFFECTIVE TIME" shall be
the date and time when the Merger becomes effective, as set forth in the
Certificate of Merger.
SECTION 1.3 Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, the closing of the Merger (the "CLOSING") will take place at 10:00
a.m., local time, on a date to be specified by the parties, which shall be not
more than two (2) business days after satisfaction or waiver (subject to
applicable law) of the conditions (excluding conditions that, by their terms,
cannot be satisfied until the Closing Date) set forth in Article VII hereof (the
"CLOSING DATE"), unless another time or date is agreed to in writing by the
parties. The Closing shall be held at such location in the City of Dallas,
Texas, as is agreed to in writing by the parties. At Closing, there shall be
delivered to Remington and SSHC, as applicable, the certificates, agreements and
other documents and instruments required to be delivered under Article VII.
SECTION 1.4 Effects of Merger. At and after the Effective Time, the Merger
shall have the effects set forth in the DGCL.
SECTION 1.5 Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of Remington (as amended by the Restated
Certificate of Incorporation contained in the Certificate of Merger) shall be
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with such Certificate of Incorporation, the Bylaws of
Remington and applicable law. The Restated Certificate of Incorporation
authorizes and provides for (i) 100,000,000 authorized shares of Remington
Common Stock, (ii) the reclassification and exchange of Class A (Voting) Common
Stock, par value $1.00 per share, of Remington ("REMINGTON CLASS A STOCK") and
Class B (Nonvoting) Common Stock, par value $1.00 per share, of Remington
("REMINGTON CLASS B STOCK"), into shares of Remington Common Stock in accordance
with the Certificate of Merger and as provided in Section 2.1 below, and (iii)
25,000,000 authorized shares of "blank check" Preferred Stock, par value $0.01
per share, of Remington.
SECTION 1.6 Bylaws. At the Effective Time, the Bylaws of Remington shall
be the Bylaws of the Surviving Corporation until thereafter amended in
accordance with such Bylaws and applicable law.
SECTION 1.7 Officers and Directors. At the Effective Time, the officers
and directors of Remington immediately prior to the Effective Time shall, from
and after the Effective Time, be the officers and directors, respectively, of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified, or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
Bylaws.
SECTION 1.8 Tax Consequences. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE"), and that this Agreement shall
constitute a "plan of reorganization" for purposes of the Code.
SECTION 1.9 Further Assurances. Each party hereto will, either prior to or
after the Effective Time, execute such further documents, instruments, deeds,
bills of sale, assignments and assurances and take such further actions as may
be requested by the other party to consummate the Merger, to vest the Surviving
Corporation with full title to all assets, properties, privileges, rights,
approvals, immunities and franchises of either of the Constituent Corporations
or to effect the other purposes of this Agreement.
2
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ARTICLE II
RECAPITALIZATION AND
CONVERSION AND EXCHANGE OF SHARES
SECTION 2.1 Conversion of Capital Stock of Remington and SSHC.
(a) SSHC Stock. At the Effective Time and by virtue of the Merger, each
share of the Class A (Voting) Common Stock, par value $0.01 per share, of SSHC,
and each share of the Class B (NonVoting) Stock, par value $0.01 per share, of
SSHC (collectively, the "SSHC STOCK") issued and outstanding immediately prior
to the Effective Time (other than shares of SSHC Stock held in SSHC's treasury)
shall be converted into the right to receive 72.329 shares of Remington Common
Stock (the "SSHC STOCK EXCHANGE RATIO"); provided, that such conversion shall be
effected in accordance with the provisions of this Article II upon the surrender
of the certificates representing such SSHC Stock (each, an "SSHC STOCK
CERTIFICATE").
(b) Remington Class A Stock. At the Effective Time and by virtue of this
Agreement and the Certificate of Merger, each share of Remington Class A Stock
issued and outstanding immediately prior to the Effective Time (other than
shares of Remington Class A Common Stock held in Remington's treasury), shall be
converted into the right to receive 1.15 shares of Remington Common Stock (the
"REMINGTON CLASS A EXCHANGE RATIO"); provided, that such conversion shall be
effected in accordance with the provisions of this Article II upon the surrender
of the certificates representing such Remington Class A Stock (each, a
"REMINGTON CLASS A CERTIFICATE").
(c) Remington Class B Stock. At the Effective Time and by virtue of this
Agreement and the Certificate of Merger, each share of Remington Class B Stock
issued and outstanding immediately prior to the Effective Time (other than
shares of Remington Class B Common Stock held in Remington's treasury), shall be
converted into the right to receive 1.0 shares of Remington Common Stock (the
"REMINGTON CLASS B EXCHANGE RATIO"); provided, that such conversion shall be
effected in accordance with the provisions of this Article II upon the surrender
of the certificates representing such Remington Class B Stock (each, a
"REMINGTON CLASS B CERTIFICATE").
(d) Treasury Stock, Etc. of SSHC. At the Effective Time, all shares of SSHC
Stock, if any, that are owned by SSHC as treasury stock and all shares of SSHC
Stock that are owned directly or indirectly by Remington or SSHC or by any of
their respective Subsidiaries shall be cancelled and shall cease to exist and no
stock of Remington or other consideration shall be issued or delivered in
exchange therefor.
(e) Remington Stock Owned by SSHC. At the Effective Time, all shares of
Remington Class A Stock and Remington Class B Stock owned directly by SSHC shall
be cancelled and shall cease to exist and no shares of Remington Common Stock or
other consideration shall be issued or delivered in exchange therefor, it being
the purpose and intent of this Section 2.1 that the consideration SSHC shall
receive in the Merger shall consist solely of the shares of Remington Common
Stock set forth in Section 2.1(a).
(f) Issuance of Certificates. All of the shares of SSHC Stock, Remington
Class A Stock and Remington Class B Stock converted into Remington Common Stock
pursuant to this Article II and the Certificate of Merger shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist as of
the Effective Time, and each SSHC Stock Certificate, Remington Class A
Certificate or Remington Class B Certificate previously representing any such
shares of SSHC Stock, Remington Class A Stock or Remington Class B Stock, as the
case may be (such SSHC Stock Certificates, Remington Class A Certificates and
Remington Class B Certificates are sometimes collectively referred to herein as
the "CERTIFICATES") shall thereafter represent the right to receive (i) a
certificate representing the number of whole shares of Remington Common Stock
(each, a "REMINGTON COMMON STOCK CERTIFICATE") and (ii) the cash in lieu of
fractional shares into which the shares of SSHC Stock, Remington Class A Stock
and Remington Class B Stock represented by such Certificates, as the case may
be, have been converted pursuant to this Section 2.1 and Section 2.3(e) hereof
and the Certificate of Merger. Certificates previously representing shares of
SSHC Stock, Remington Class A Stock and Remington Class B Stock, as the case may
be, shall be exchanged for Remington Common Stock Certificates representing
whole shares of
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Remington Common Stock and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such Certificates in accordance
with Section 2.3, without any interest thereon. If, prior to the Effective Time,
the outstanding shares of Remington Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities as a result of a reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, or other similar change in
Remington's capitalization (other than as provided in the Certificate of
Merger), then an appropriate and proportionate adjustment shall be made to the
SSHC Stock Exchange Ratio, the Remington Class A Exchange Ratio and Remington
Class B Exchange Ratio, as applicable.
(g) Remington Option Plans. At the Effective Time, each option to purchase
shares of Remington Class B Stock which is outstanding and unexercised
immediately prior thereto shall cease to represent a right to acquire shares of
Remington Class B Stock, and shall be converted automatically into an option to
purchase the same number of shares of Remington Common Stock at the same price
per share.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner which is consistent with Section 424(a)
of the Code and, to the extent it is not so consistent, such Section 424(a)
shall override anything to the contrary contained herein. The duration and other
terms of the new option shall be the same as the original option, except that
all references to Remington Class B Stock shall be deemed to be references to
Remington Common Stock.
SECTION 2.2 Remington to Make Shares Available. At or prior to the
Effective Time, Remington shall deposit, or shall cause to be deposited, with a
bank or trust company selected by Remington (the "EXCHANGE AGENT"), for the
benefit of holders of Certificates, for exchange in accordance with this Article
II and the Certificate of Merger, Remington Common Stock Certificates
representing the Remington Common Stock and an estimated amount of cash in lieu
of any fractional shares (the cash payable in lieu of fractional shares and the
Remington Common Stock Certificates, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"EXCHANGE FUND") to be issued pursuant to Section 2.1 and the Certificate of
Merger, and paid pursuant to Section 2.3(a) in exchange for outstanding shares
of SSHC Stock, Remington Class A Stock and Remington Class B Stock, as the case
may be.
SECTION 2.3 Exchange of Shares.
(a) Letter of Transmittal. As soon as practicable after the Effective Time,
and in no event later than ten (10) business days thereafter, the Exchange Agent
shall mail to each holder of record of Certificates a form letter of transmittal
(the "LETTER OF TRANSMITTAL") (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of such Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the Certificates representing, as the case may be,
SSHC Stock, Remington Class A Stock and Remington Class B Stock, and the cash in
lieu of fractional shares, if any, into which the shares of SSHC Stock,
Remington Class A Stock and Remington Class B Stock represented by such
Certificates, as the case may be, shall have been converted pursuant to this
Agreement and the Certificate of Merger. Upon proper surrender of a Certificate
for exchange and cancellation to the Exchange Agent, together with such properly
completed Letter of Transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor, as applicable, (i) a
Remington Common Stock Certificate representing that number of shares of
Remington Common Stock to which such holder of SSHC Stock, Remington Class A
Stock and Remington Class B Stock, as the case may be, shall have become
entitled pursuant to the provisions of Section 2.1 and the Certificate of
Merger, and (ii) a check representing the amount of cash in lieu of fractional
shares, if any, which such holder has the right to receive in respect of the
Certificate surrendered pursuant to the provisions of this Article II, and the
Certificate so surrendered shall be cancelled. No interest will be paid or
accrued on the cash in lieu of fractional shares and unpaid dividends and
distributions, if any, payable to holders of Certificates.
(b) Dividends and Distributions. No dividends or other distributions with a
record date after the Effective Time with respect to Remington Common Stock
shall be paid to the holder of any unsurrendered Certificate until the holder
thereof shall surrender such Certificates in accordance with this Article II.
After the surrender of a Certificate in accordance with this Article II, the
record holder thereof shall be entitled to
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receive any such dividends or distributions, without interest thereon, which
theretofore had become payable with respect to shares of Remington Common Stock
represented by such Certificate.
(c) Issuance of Certificates in Different Name. If any Remington Common
Stock Certificate is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered shall be
properly endorsed (or accompanied by an appropriate instrument of transfer) and
otherwise in proper form for transfer, and that the person requesting such
exchange shall pay to the Exchange Agent, in advance, any transfer or other
taxes required by reason of the issuance of a Remington Common Stock Certificate
in any name other than that of the registered holder of the Certificate
surrendered, or required for any other reason, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) Stock Transfers.
(i) Remington. At or after the Effective Time, there shall be no
transfers on the stock transfer books of Remington of the shares of
Remington Class A Stock or Remington Class B Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Remington Class A Certificates and/or Remington Class B
Certificates are presented for transfer to the Exchange Agent, they shall
be cancelled and exchanged for certificates representing shares of
Remington Common Stock as provided in this Article II.
(ii) SSHC. At or after the Effective Time, there shall be no transfers
on the stock transfer books of SSHC of the shares of SSHC Stock which were
issued and outstanding immediately prior to the Effective Time. If, after
the Effective Time, SSHC Stock Certificates are presented for transfer to
the Exchange Agent, they shall be cancelled and exchanged for certificates
representing shares of Remington Common Stock as provided in this Article
II.
(e) No Fractional Shares. Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional shares of
Remington Common Stock shall be issued upon surrender for exchange of
Certificates, no dividend or distribution with respect to Remington Common Stock
shall be payable on or with respect to any fractional share, and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a stockholder of Remington. In lieu of the issuance of any such
fractional share, Remington shall pay to each former holder of SSHC Stock,
Remington Class A Stock and Remington Class B Stock, as the case may be, who
otherwise would be entitled to receive such fractional share an amount in cash
determined as follows: (i) in the case of SSHC Class A Stock (as herein defined)
and Remington Class A Stock, by multiplying (A) the average of the closing sale
prices of Remington Class A Stock on the Nasdaq National Market System
("NASDAQ") as reported by The Wall Street Journal for the five (5) trading days
immediately preceding the date on which the Effective Time occurs by (B) the
fraction of a share of Remington Common Stock to which such holder would
otherwise be entitled to receive pursuant to Section 2.1 hereof and the
Certificate of Merger, and (ii) in the case of SSHC Class B Stock (as herein
defined) and Remington Class B Stock, by multiplying (A) the average of the
closing sale prices of Remington Class B Stock on NASDAQ as reported by The Wall
Street Journal for the five (5) trading days immediately preceding the date on
which the Effective Time occurs by (B) the fraction of a share of Remington
Common Stock to which such holder would otherwise be entitled to receive
pursuant to Section 2.1 hereof and the Certificate of Merger.
(f) Unclaimed Exchange Fund. Any portion of the Exchange Fund which remains
unclaimed by the stockholders of SSHC and/or Remington for twelve (12) months
after the Effective Time shall be paid to Remington. Any stockholders of SSHC
and/or Remington who have not theretofore complied with this Article II shall
thereafter look only to Remington for payment of the shares of Remington Common
Stock, cash in lieu of any fractional shares and unpaid dividends and
distributions on the Remington Common Stock deliverable in respect of each share
of SSHC Stock, Remington Class A Stock or Remington Class B Stock such
stockholder holds, as the case may be, as determined pursuant to this Agreement
and the Certificate of Merger, in each case, without any interest thereon.
Notwithstanding anything to the contrary contained herein, none of Remington,
SSHC, the Exchange Agent or any other person shall be liable to any former
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holder of shares of SSHC Stock, Remington Class A Stock or Remington Class B
Stock, as the case may be, for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(g) Certificates Lost, Destroyed Etc. In the event any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed
and, if required by Remington, the posting by such person of a bond in such
amount as Remington may determine is reasonably necessary as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Remington Common Stock and cash in lieu of fractional
shares deliverable in respect thereof pursuant to this Agreement and the
Certificate of Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SSHC
SSHC hereby represents and warrants to Remington as follows:
SECTION 3.1 Organization and Qualification.
(a) Organization and Qualification. Each of SSHC and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full corporate power and authority
to conduct its business as and to the extent now conducted and to own, use and
lease its assets and properties, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have nor reasonably be expected to have a
Material Adverse Effect (as herein defined) on SSHC and its Subsidiaries.
(b) Subsidiaries. Section 3.1 of the letter dated the date hereof and
delivered to Remington by SSHC concurrently with the execution and delivery of
this Agreement (the "SSHC DISCLOSURE LETTER") sets forth (i) the name and
jurisdiction of incorporation of each Subsidiary of SSHC, (ii) its authorized
capital stock, (iii) the number of issued and outstanding shares of capital
stock and (iv) the record and beneficial owners of such shares. Except as
disclosed in Section 3.1 of the SSHC Disclosure Letter, (i) SSHC owns all of the
issued and outstanding shares of capital stock of each of the Subsidiaries, and
(ii) SSHC does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity (other than non-controlling investments in the
ordinary course of business).
SECTION 3.2 Capitalization.
(a) Capital Stock of SSHC. The authorized capital stock of SSHC consists of
(i) 25,000 shares of Class A (Voting) Common Stock, par value $0.01 per share
("SSHC CLASS A STOCK"), and 475,000 shares of Class B (Nonvoting) Common Stock,
par value $0.01 per share ("SSHC CLASS B STOCK"). As of March 31, 1998, 33
shares of SSHC Class A Stock and 38,472 shares of SSHC Class B Stock were issued
and outstanding, and no shares of SSHC Class A Stock or SSHC Class B Stock were
held in the treasury of SSHC. All of the issued and outstanding shares of SSHC
Stock are duly authorized, validly issued, fully paid and nonassessable. Since
such date, except as set forth in Section 3.2 of the SSHC Disclosure Letter,
there has been no change in the number of issued and outstanding shares of SSHC
Stock or shares of SSHC Stock held in treasury or reserved for issuance. Other
than as set forth in this Section 3.2, or as contemplated by this Agreement,
there are no outstanding subscriptions, options, warrants, rights (including
"phantom" stock rights), preemptive rights, convertible debt instruments or
other contracts, commitments, understandings or arrangements, including any
right of conversion or exchange under any outstanding security, instrument or
agreement (together, "SSHC OPTIONS"), obligating SSHC or any of its Subsidiaries
to issue or sell any shares of capital stock of SSHC or to grant, extend or
enter into any SSHC Option with respect thereto.
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(b) Subsidiaries. Except as disclosed in Section 3.2 of the SSHC Disclosure
Letter, all of the outstanding shares of capital stock of each Subsidiary of
SSHC are duly authorized, validly issued, fully paid and nonassessable and are
owned, by the persons identified in Section 3.1 of the SSHC Disclosure Letter
and, in the case of shares owned by SSHC, free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interests, equities and charges of
any kind (each a "LIEN"). Except as disclosed in Section 3.2 of the SSHC
Disclosure Letter, there are no (i) outstanding SSHC Options obligating SSHC or
any of its Subsidiaries to issue or sell any shares of capital stock of any
Subsidiary of SSHC or to grant, extend or enter into any such SSHC Option or
(ii) voting trusts, proxies or other commitments, understandings, restrictions
or arrangements in favor of any person other than SSHC or a Subsidiary
wholly-owned, directly or indirectly, by SSHC with respect to the voting of or
the right to participate in dividends or other earnings on any capital stock of
any Subsidiary of SSHC.
(c) Contractual Obligations. Except as disclosed in Section 3.2 of the SSHC
Disclosure Letter, there are no outstanding contractual obligations of SSHC or
any Subsidiary of SSHC to repurchase, redeem or otherwise acquire any shares of
SSHC Stock or any capital stock of any Subsidiary of SSHC or to provide funds
to, or make any investment (in the form of a loan, capital contribution or
otherwise) in, any Subsidiary of SSHC or any other person.
SECTION 3.3 Authority Relative to this Agreement. SSHC has full corporate
power and authority to enter into this Agreement and to perform its obligations
hereunder (subject to, in the case of consummation of the Merger, obtaining the
SSHC Stockholders' Approval) and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by SSHC and
the consummation by SSHC of the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of SSHC; the Board of Directors
of SSHC has recommended adoption and approval of this Agreement by the
stockholders of SSHC and directed that this Agreement be submitted to the
stockholders of SSHC for their consideration; and no other corporate proceedings
on the part of SSHC or its stockholders are necessary to authorize the
execution, delivery and performance of this Agreement by SSHC and the
consummation of the transactions contemplated hereby, other than obtaining the
SSHC Stockholders' Approval. This Agreement has been duly and validly executed
and delivered by SSHC and constitutes the legal, valid and binding obligation of
SSHC enforceable against SSHC in accordance with its terms (subject to, in the
case of consummation of the Merger, obtaining the SSHC Stockholders' Approval),
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 3.4 Non-Contravention; Approvals and Consents.
(a) Non-Contravention. The execution and delivery of this Agreement by SSHC
do not, and the performance by SSHC of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) a default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any of
the assets or properties of SSHC or any of its Subsidiaries under, any of the
terms, conditions or provisions of (i) the certificates or articles of
incorporation or bylaws (or other comparable charter documents) of SSHC or any
of its Subsidiaries, or (ii) (x) subject to the obtaining of the SSHC
Stockholders' Approval and the taking of the actions described in subparagraph
(b) of this Section 3.4, any statute, law, rule, regulation or ordinance
(together, "LAWS"), or any judgment, decree, order, writ, permit or license
(together "ORDERS"), of any court, tribunal, arbitrator, authority, agency,
commission, official or other instrumentality of the United States, any foreign
country, or any domestic or foreign state, county, city or other political
subdivision (a "GOVERNMENTAL OR REGULATORY AUTHORITY") applicable to SSHC or any
of its Subsidiaries or any of their respective assets or properties, or (y) any
note, bond, mortgage, security agreement, indenture, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind (together, "CONTRACTS") to which SSHC or any of its Subsidiaries is a party
or by which SSHC or any of its Subsidiaries or any of their respective assets or
properties is bound, excluding from the foregoing clauses (x) and (y) conflicts,
violations, breaches, defaults,
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terminations, modifications, accelerations and creations of Liens which,
individually or in the aggregate, are not reasonably expected to have a Material
Adverse Effect on SSHC and its Subsidiaries.
(b) Consents and Approvals. Except (i) for the filing of the Certificate of
Merger and other appropriate merger documents required by the DGCL with the
Delaware Secretary and appropriate documents with the relevant authorities of
other states in which the Constituent Corporations are qualified to do business
and (ii) as disclosed in Section 3.4 of the SSHC Disclosure Letter, no consent,
approval or action of, filing with or notice to any Governmental or Regulatory
Authority or other public or private third party is necessary or required under
any of the terms, conditions or provisions of any Law or Order of any
Governmental or Regulatory Authority or any Contract to which SSHC or any of its
Subsidiaries is a party or by which SSHC or any of its Subsidiaries or any of
their respective assets or properties is bound, for the execution and delivery
of this Agreement by SSHC, the performance by SSHC of its obligations hereunder
or the consummation of the transactions contemplated hereby, other than such
consents, approvals, actions, filings and notices which the failure to make or
obtain, as the case may be, individually or in the aggregate, are not reasonably
expected to have a Material Adverse Effect on SSHC and its Subsidiaries.
SECTION 3.5 Financial Statements. SSHC has delivered to Remington: (a) an
audited consolidated balance sheet of SSHC and its Subsidiaries as at December
31, 1997, and the related audited consolidated statement of income, changes in
stockholders' equity, and cash flow for the fiscal year then ended, together
with the report thereon of SSHC's independent certified public accountants (the
"SSHC FINANCIAL STATEMENTS"). Such SSHC Financial Statements and notes fairly
present the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of SSHC and its Subsidiaries as at the date
of and for the period referred to in such SSHC Financial Statements, all in
accordance with generally accepted accounting principles, consistently applied
(except as may be indicated therein or in the notes thereto).
SECTION 3.6 Tax Matters. Except as disclosed in Section 3.6 of the SSHC
Disclosure Letter:
(a) Tax Returns. There have been filed or will be filed, within the times
and in the manner prescribed by law, all Tax returns, statements, forms and
reports ("RETURNS") which are required to be filed by or with respect to SSHC or
its Subsidiaries with respect to any Taxable period ending on or before the
Closing, and such Returns accurately reflect all liability for Taxes for the
periods covered thereby, except for where the failure to file such Returns would
not have nor reasonably be expected to have a Material Adverse Effect on SSHC
and its Subsidiaries. All Taxes payable by or due from or with respect to SSHC
or its Subsidiaries for any Taxable period ending on or before Closing have been
fully paid or adequately disclosed and fully provided for in the books and
records of SSHC and the SSHC Financial Statements. All Taxes required to be
withheld by SSHC or its Subsidiaries and the portion of any such Taxes to be
paid by SSHC or its Subsidiaries to any Governmental or Regulatory Authority are
set aside in accounts for such purpose or approved, reserved against and entered
upon the books of SSHC and its Subsidiaries, as the case may be, except for
where the failure to pay such Taxes would not have nor reasonably be expected to
have a Material Adverse Effect on SSHC and its Subsidiaries. Neither SSHC nor
its Subsidiaries is delinquent in the payment of any Tax and there is no Tax
deficiency or delinquency asserted against SSHC or its Subsidiaries or any
unpaid assessment, proposal for additional Taxes, deficiency or delinquency in
the payment of any of the Taxes of SSHC or its Subsidiaries that could be
asserted by any Governmental or Regulatory Authority except for where the
failure to pay such Taxes or where such deficiencies would not have nor
reasonably be expected to have a Material Adverse Effect on SSHC and its
Subsidiaries. No request has been made for an extension of time within which to
file a return of, or with respect to, SSHC or its Subsidiaries which extension
has expired without the appropriate return being filed. Neither SSHC nor its
Subsidiaries is, or ever has been, a party to, or bound by, any tax-sharing,
tax-allocation or similar agreement involving an obligation to indemnify any
other person or entity with respect to Taxes. No examination of any Return of,
or with respect to, SSHC or its Subsidiaries is currently in progress or
pending. There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to the assessment or collection of any Tax of,
or with respect to, SSHC or its Subsidiaries.
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(b) Definition of Taxes. For purposes of this Agreement, "TAX" (and, with
correlative meaning, "Taxes," "Taxing" and "Taxable") means (i) any tax or items
referred as a tax of any kind whatsoever, together with any interest, penalty,
addition to tax, or additional amount imposed with respect to such tax, by a
Governmental or Regulatory Body responsible for the imposition of any such tax,
whether such tax is a direct result of the tax payor's activities, or as a
result of the tax payor's being (or having been) a member of an affiliated,
consolidated, combined or unitary group, including, but not limited to, net
income, gross income, alternative or add-on minimum, profits, gross receipts,
franchise, sales, use, occupancy, excise, property, ad valorem, withholding,
social security, employment, unemployment, payroll, premium, severance, stamp,
occupation, environmental or windfall profit taxes, and any other similar or
related levies, assessments, impost, duties, customs, license fees, registration
fees or other fees or charges; (ii) liability for the payment of any amounts of
the type described in (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period ending on or before the
Closing; and (iii) liability for the payment of any amounts of the type
described in (i) as a result of any express or implied tax-sharing,
tax-allocation or tax-indemnity agreement.
SECTION 3.7 Legal Proceedings. Except as disclosed in Section 3.7 of the
SSHC Disclosure Letter, (i) there are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of SSHC, threatened against, relating
to or affecting, nor to the knowledge of SSHC are there any Governmental or
Regulatory Authority investigations or audits pending or threatened against,
relating to or affecting, SSHC or any of its Subsidiaries or any of their
respective assets and properties which, individually or in the aggregate, are
reasonably expected to have a Material Adverse Effect on SSHC and its
Subsidiaries, and (ii) neither SSHC nor any of its Subsidiaries is subject to
any order of any Governmental or Regulatory Authority which, individually or in
the aggregate, is having or is reasonably expected to have a Material Adverse
Effect on SSHC and its Subsidiaries.
SECTION 3.8 Information Supplied. The information supplied by SSHC to
Remington for inclusion in Proxy Statement (as defined in Section 4.8 hereof)
and the other documents filed with the United States Securities and Exchange
Commission ("SEC") will not, on the date of its filing, or in the case of the
Proxy Statement, at the date the Proxy Statement is mailed to stockholders of
Remington and at the time of the Remington Stockholders' Meeting, 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 therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by SSHC with respect to any other information
contained in the Proxy Statement or such other documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF REMINGTON
Remington hereby represents and warrants to SSHC as follows:
SECTION 4.1 Organization and Qualification.
(a) Organization and Qualification. Each of Remington and its Subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has full corporate power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its assets and properties, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have nor reasonably be expected to have a
Material Adverse Effect on Remington and its Subsidiaries.
(b) Subsidiaries. Section 4.1 of the letter dated the date hereof and
delivered to SSHC by Remington concurrently with the execution and delivery of
this Agreement (the "REMINGTON DISCLOSURE LETTER") sets forth (i) the name and
jurisdiction of incorporation of each Subsidiary of Remington, (ii) its
authorized capital stock, (iii) the number of issued and outstanding shares of
capital stock and (iv) the record and beneficial owners of such shares. Except
as disclosed in Section 4.1 of the Remington Disclosure Letter,
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(i) Remington owns all of the issued and outstanding shares of capital stock of
each of the Subsidiaries, and (ii) Remington does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity
(other than non-controlling investments in the ordinary course of business).
SECTION 4.2 Capitalization.
(a) Capital Stock of Remington. The authorized capital stock of Remington
consists of (i) 15,000,000 shares of Remington Class A Stock, and 30,000,000
shares of Remington Class B Stock. As of March 31, 1998, (i) 3,221,510 shares of
Remington Class A Stock and 17,128,738 shares of Remington Class B Stock were
issued and outstanding, (ii) 28,600 shares of Remington Class A Stock and
424,272 shares of Remington Class B Stock were held in the treasury of
Remington, and (iii) 3,078,500 shares of Remington Class B Stock were held in
reserve for issuance upon exercise of options pursuant to the 1997 Stock Option
Plan, the Remington Non-Employee Director Stock Purchase Plan and all other
stock option or incentive plans or stock option agreements of Remington
described in the Remington SEC Reports (as defined in Section 4.5 below). Since
such date, except as set forth in Section 4.2 of the Remington Disclosure
Letter, there has been no change in the number of issued and outstanding shares
of Remington Class A Stock or Remington Class B Stock or shares of Remington
Class A or Remington B Stock held in treasury or reserved for issuance. All of
the issued and outstanding shares of Remington Class A Stock and Remington Class
B Stock are, and all shares reserved for issuance will be, upon issuance in
accordance with the terms specified in the instruments or agreements pursuant to
which they are issuable, duly authorized, validly issued, fully paid and
nonassessable. Except pursuant to this Agreement (including the SSHC Warrant),
and except as set forth in Section 4.2 of the Remington Disclosure Letter or as
described in paragraph (d) below, there are no outstanding subscriptions,
options, warrants, rights (including "phantom" stock rights), preemptive rights,
convertible debt instruments or other contracts, commitments, understanding or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (collectively, "REMINGTON
OPTIONS"), obligating Remington or any of its Subsidiaries to issue or sell any
shares of capital stock of Remington or to grant, extend or enter into any
Remington Option with respect thereto.
(b) Subsidiaries. Except as disclosed in Section 4.2 of the Remington
Disclosure Letter, all of the outstanding shares of capital stock of each
Subsidiary of Remington are duly authorized, validly issued, fully paid and
nonassessable and are owned by the persons identified in Section 4.1 of the
Remington Disclosure Letter, free and clear of any Liens. Except as disclosed in
Section 4.2 of the Remington Disclosure Letter or as described in paragraph (d)
below, there are no (i) outstanding Remington Options obligating Remington or
any of its Subsidiaries to issue or sell any shares of capital stock of any
Subsidiary of Remington or to grant, extend or enter into any such Remington
Option or (ii) voting trusts, proxies or other commitments, understandings,
restrictions or arrangements in favor of any person other than Remington or a
Subsidiary wholly-owned, directly or indirectly, by Remington with respect to
the voting of or the right to participate in dividends or other earnings on any
capital stock of any Subsidiary of Remington.
(c) Contractual Obligations. Except as disclosed in Section 4.2 of the
Remington Disclosure Letter, there are no outstanding contractual obligations of
Remington or any Subsidiary of Remington to repurchase, redeem or otherwise
acquire any shares of Remington capital stock or any capital stock of any
Subsidiary of Remington or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any Subsidiary of
Remington or, except in the ordinary course of business, any other person.
(d) Subordinated Notes. As of April 30, 1998, (i) $38,371,000 in principal
balance of Remington 8 1/4% Convertible Subordinated Notes ("NOTES") were issued
and outstanding, and (ii) there were 3,488,273 shares of Remington Class B Stock
reserved for issuance upon conversion of the Notes. Since such date, except as
set forth in Section 4.2 of the Remington Disclosure Letter, there has been no
change in the outstanding aggregate principal balance of the Notes or the number
of shares of Remington Class B Stock reserved for issuance upon conversion
thereof.
SECTION 4.3 Authority Relative to this Agreement. Remington has full
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder (subject to, in the case of consummation
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of the Merger and adoption of the Certificate of Merger, obtaining the Remington
Stockholders' Approval) and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Remington and the
consummation by Remington of the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of Remington, upon an appropriate
recommendation of the STC; the full Board of Directors of Remington has
recommended adoption and approval of this Agreement and the Certificate of
Merger by the stockholders of Remington and directed that this Agreement and the
Certificate of Merger be submitted to the stockholders of Remington for their
consideration; and no other corporate proceedings on the part of Remington or
its stockholders are necessary to authorize the execution, delivery and
performance of this Agreement by Remington and the consummation of the
transactions contemplated hereby, other than obtaining the Remington
Stockholders' Approval). This Agreement has been duly and validly executed and
delivered by Remington and constitutes the legal, valid and binding obligation
of Remington enforceable against Remington in accordance with its terms (subject
to, in the case of consummation of the Merger and adoption of the Certificate of
Merger, obtaining the Remington Stockholders' Approval), except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 4.4 Non-Contravention; Approvals and Consents.
(a) Non-Contravention. The execution and delivery of this Agreement by
Remington do not, and the performance by Remington of its obligations hereunder
and the consummation of the transactions contemplated hereby will not, conflict
with, result in a violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, result in or give to any person any
right of payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any of
the assets or properties of Remington or any of its Subsidiaries under, any of
the terms, conditions or provisions of (i) the certificates or articles of
incorporation or bylaws (or other comparable charter documents) of Remington or
any of its Subsidiaries, or (ii) (x) subject to the obtaining of the Remington
Stockholders' Approval and the taking of the actions described in subparagraph
(b) of this Section 4.4, any Law or Order of any Governmental or Regulatory
Authority applicable to Remington or any of its Subsidiaries or any of their
respective assets or properties, or (y) any Contract to which Remington or any
of its Subsidiaries is a party or by which Remington or any of its Subsidiaries
or any of their respective assets or properties is bound, excluding from the
foregoing clauses (x) and (y) conflicts, violations, breaches, defaults,
terminations, modifications, accelerations and creations of Liens which,
individually or in the aggregate, are not reasonably expected to have a Material
Adverse Effect on Remington and its Subsidiaries.
(b) Consents and Approvals. Except (i) for the filing of the Proxy
Statement and the Registration Statement with the Securities and Exchange
Commission (the "SEC") pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "EXCHANGE ACT"), and the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "SECURITIES ACT"), the declaration of the effectiveness of the Registration
Statement by the SEC and filings with various state securities authorities that
are required in connection with the transactions contemplated by this Agreement,
(ii) for the filing of the Certificate of Merger and other appropriate merger
documents required by the DGCL and the Certificate of Merger with the Delaware
Secretary and appropriate documents with the relevant authorities of other
states in which the Constituent Corporations are qualified to do business and
(iii) as disclosed in Section 4.4 of the Remington Disclosure Letter, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any Contract to which Remington or
any of its Subsidiaries is a party or by which Remington or any of its
Subsidiaries or any of their respective assets or properties is bound, for the
execution and delivery of this Agreement by Remington, the performance by
Remington of its obligations hereunder or the consummation of the transactions
contemplated hereby, other than such consents, approvals, actions, filings and
notices which the failure to make or obtain, as the case may be, individually or
in the aggregate, are not reasonably expected to have a Material Adverse Effect
on Remington and its Subsidiaries.
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SECTION 4.5 Remington SEC Reports and Financial Statements. Remington has
delivered to SSHC prior to the execution of this Agreement a true and complete
copy of each form, report, schedule, registration statement, definitive proxy
statement and other document (together with all amendments thereof and
supplements thereto) filed by Remington or any of its Subsidiaries with the SEC
since December 31, 1996 (as such documents have since the time of their filing
been amended or supplemented, the "REMINGTON SEC REPORTS"), which are all
documents (other than preliminary material) that Remington and its Subsidiaries
were required to file or did file with the SEC since such date. As of their
respective dates, the Remington SEC reports (i) complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and (ii) did not 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 therein, in light of the circumstances
under which they were made, not misleading. The audited consolidated financial
statements and unaudited interim consolidated financial statements (including,
in each case, the notes, if any, thereto) included in the Remington SEC Reports
(the "REMINGTON FINANCIAL STATEMENTS") complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of unaudited interim financial statements, to normal,
recurring year-end audit adjustments (which are not expected to be, individually
or in the aggregate, materially adverse to Remington and its Subsidiaries taken
as a whole)) the consolidated financial position of Remington and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended.
SECTION 4.6 Tax Matters. Except as disclosed in Section 4.6 of the
Remington Disclosure Letter, (a) there have been filed or will be filed, within
the times and in the manner prescribed by law, all Returns which are required to
be filed by or with respect to Remington or its Subsidiaries with respect to any
Taxable period ending on or before the Closing, and such Returns accurately
reflect all liability for Taxes for the periods covered thereby, except for
where the failure to file such Returns would not have nor reasonably be expected
to have a Material Adverse Effect on Remington and its Subsidiaries; (b) all
Taxes payable by or due from or with respect to Remington or its Subsidiaries
for any Taxable period ending on or before Closing have been fully paid or
adequately disclosed and fully provided for in the books and financial
statements contained in the Remington SEC Reports; (c) all Taxes required to be
withheld by Remington or its Subsidiaries and the portion of any such Taxes to
be paid by Remington or its Subsidiaries to any Governmental or Regulatory
Authority are set aside in accounts for such purpose or approved, reserved
against and entered upon the books of Remington and its Subsidiaries, as the
case may be, except for where the failure to pay such Taxes would not have nor
reasonably be expected to have a Material Adverse Effect on Remington and its
Subsidiaries; (d) neither Remington nor its Subsidiaries is delinquent in the
payment of any Tax and there is no Tax deficiency or delinquency asserted
against Remington or its Subsidiaries or any unpaid assessment, proposal for
additional Taxes, deficiency or delinquency in the payment of any of the Taxes
of Remington or its Subsidiaries that could be asserted by any Governmental or
Regulatory Authority, except for where the failure to pay such Taxes or where
such deficiencies would not have nor reasonably be expected to have a Material
Adverse Effect on Remington and its Subsidiaries; (e) no request has been made
for an extension of time within which to file a return of, or with respect to,
Remington or its Subsidiaries which extension has expired without the
appropriate return being filed; (f) neither Remington nor its Subsidiaries is,
or ever has been, a party to, or bound by, any tax-sharing, tax-allocation or
similar agreement involving an obligation to indemnify any other person or
entity with respect to Taxes; (g) no examination of any Return of, or with
respect to, Remington or its Subsidiaries is currently in progress or pending;
and (h) there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to the assessment or collection of any Tax of,
or with respect to, Remington or its Subsidiaries.
SECTION 4.7 Legal Proceedings. Except as disclosed in the most recent
Remington SEC Report filed prior to the date of this Agreement or in Section 4.7
of the Remington Disclosure Letter, (i) there are no actions, suits,
arbitrations or proceedings pending or, to the knowledge of Remington,
threatened against, relating to or affecting, nor to the knowledge of Remington
are there any Governmental or Regulatory
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Authority investigations or audits pending or threatened against, relating to or
affecting, Remington or any of its Subsidiaries or any of their respective
assets and properties which, individually or in the aggregate, are reasonably
expected to have a Material Adverse Effect on Remington and its Subsidiaries,
and (ii) neither Remington nor any of its Subsidiaries is subject to any order
of any Governmental or Regulatory Authority which, individually or in the
aggregate, is having or is reasonably expected to have a Material Adverse Effect
on Remington and its Subsidiaries.
SECTION 4.8 Information Supplied. The proxy statement related to the
Remington Stockholders' Meeting, as amended or supplemented from time to time
(as so amended and supplemented, the "PROXY STATEMENT"), and any other documents
to be filed by Remington with the SEC or any other Governmental or Regulatory
Authority in connection with the Merger and the Certificate of Merger and the
other transactions contemplated hereby will (in the case of the Proxy Statement
and any such other documents filed with the SEC under the Exchange Act or the
Securities Act) comply as to form in all material respects with the requirements
of the Exchange Act and the Securities Act, respectively, and will not, on the
date of its filing, or in the case of the Proxy Statement, at the date it is
mailed to stockholders of Remington and at the time of the Remington
Stockholders' Meeting, 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 therein, in light of the circumstances under which they
are made, not misleading, except that no representation is made by Remington
with respect to information supplied in writing by or on behalf of SSHC
expressly for inclusion therein.
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Businesses Prior to the Effective Time. Except as
expressly contemplated or permitted by this Agreement, or as required by
applicable law, rule or regulation, during the period from the date of this
Agreement to the Effective Time, each of Remington and SSHC shall, and shall
cause each of their respective Subsidiaries to, (i) conduct its business in the
usual, regular and ordinary course consistent with past practice, (ii) use
reasonable best efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees, and (iii) take no action which would
reasonably be expected to adversely affect or delay the ability of either
Remington or SSHC to obtain any approvals of any Governmental or Regulatory
Agency required to consummate the transactions contemplated hereby or to perform
its covenants and agreements hereunder.
SECTION 5.2 Forbearances. Except as expressly contemplated or permitted by
this Agreement, or as required by applicable law, rule or regulation, during the
period from the date of this Agreement to the Effective Time, neither Remington
nor SSHC shall, and neither Remington nor SSHC shall permit any of their
respective Subsidiaries to, without the prior written consent of the other:
(a) Changes in Stock; Dividends; Etc. Adjust, split, continue or reclassify
any capital stock; make, declare or pay any dividend or make any other
distribution on, directly or indirectly redeem, purchase or otherwise acquire,
any shares of its capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock, or grant any stock
appreciation rights or grant any individual, corporation or other entity any
right to acquire any shares of its capital stock (except for regularly declared
dividends, if any, on Remington capital stock at a rate equal to the rate, if
any, recently paid by Remington, as such rate may be increased by Remington in
the ordinary course of business consistent with past practice, and except for
the issuance of employee stock options and restricted stock under outstanding
plans consistent with past practices); or issue any additional shares of capital
stock except pursuant to (A) the exercise of stock options outstanding as of the
date hereof or issued after the date hereof in a manner consistent with past
practice, and (B) acquisitions and investments permitted by paragraph (c)
hereof;
(b) Sale of Assets; Etc. Sell, transfer, mortgage, encumber or otherwise
dispose of any of its properties or assets to any individual, corporation or
other entity other than a direct or indirect wholly-owned Subsidiary, or cancel,
release or assign any indebtedness to any such person or claims held by any such
person, in each
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case that is material to such party, except (i) in the ordinary course of
business consistent with past practice, (ii) pursuant to contracts or agreements
in force at the date of this Agreement, or (iii) pursuant to plans disclosed in
writing to the other party prior to the execution of this Agreement;
(c) Acquisitions and Investments. Except for (i) transactions in the
ordinary course of business consistent with past practice, or (ii) acquisitions
of an entity or business having assets not exceeding 10% of the consolidated
assets of SSHC or Remington, as applicable, on a pro forma basis giving effect
to such transaction, make any material acquisition or investment either by
purchase of stock or securities, merger or consolidation, contributions to
capital, property transfers, or purchases of any property or assets of any other
individual corporation or other entity other than a wholly-owned Subsidiary
thereof;
(d) Contracts and Leases. Except for transactions in the ordinary course of
business consistent with past practice, enter into or terminate any contract or
agreement, or make any change in any of its leases or contracts, in each case
that is material to such party, other than renewals of contracts and leases
without materially adverse changes of the terms thereof;
(e) Compensation and Benefit Plans. Other than in the ordinary course of
business consistent with past practice, increase in any material respect the
compensation or fringe benefits of any of its employees or pay any pension or
retirement allowance not required by any existing plan or agreement to any such
employees or become a party to, amend or commit itself to any material pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee or accelerate the vesting of
any stock options or other stock-based compensation;
(f) Settlements. Settle any claim, action or proceeding involving money
damages which is material to Remington or SSHC, as applicable, except in the
ordinary course of business consistent with past practice;
(g) Tax-Free Reorganization. Take any action that would prevent or impede
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code;
(h) Governing Documents. Amend its certificate of incorporation, bylaws or
similar governing documents in a manner that would materially and adversely
affect either party's ability to consummate the Merger or the economic benefits
of the Merger to either party, except as contemplated by, and provided in,
Sections 1.5 and 2.1 of this Agreement;
(i) Representations and Warranties. Take any action that is intended or may
reasonably be expected to result in any of its representations and warranties
set forth in this Agreement being or becoming untrue in any material respect at
any time prior to the Effective Time, or in any of the conditions to the Merger
set forth in Article VII not being satisfied or in a violation of any provision
of this Agreement, except, in every case, as may be required by applicable law;
or
(j) Other Actions. Agree to, or make any commitment to, take any of the
actions prohibited by this Section 5.2.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Additional Agreements.
(a) SSHC Revenues. SSHC covenants and agrees that, until the Closing, SSHC
will cause CKB Petroleum, Inc., a subsidiary of SSHC ("PETROLEUM"), to declare
monthly dividends consistent with its past practice as of the date hereof, which
such practice provides for dividending to all the stockholders of Petroleum
substantially all of Petroleum's cash flow after payment of expenses and
retaining a bank balance as a reserve not exceeding $50,000. SSHC further
covenants and agrees to use all Distributable Cash to make payments of principal
and interest on that certain Amended and Restated Promissory Note, dated as of
June 3, 1997, in the principal amount of $6.95 million, issued by SSHC to
Remington (the "INTERCOMPANY NOTE"). For purposes of this Agreement,
"DISTRIBUTABLE CASH" shall mean all monies received by SSHC from Petroleum
dividends, less expenses of SSHC and a carryover bank deposit balance consistent
with past practice.
(b) LLC Note. On or before the Closing, SSHC will cause the holder of that
certain Promissory Note, dated as of October 14, 1997, in the original principal
amount of $1,917,843 issued by SSHC to BBHC Acquisition Co., L.L.C. (the "LLC
NOTE"), to convert the principal balance of the LLC Note at March 19, 1998,
which equals $1,910,920.66, and all interest on the LLC Note accrued and unpaid
after March 19, 1998 into a contribution to the capital of SSHC, and thereupon
the LLC Note will no longer be outstanding. The LLC Note shall be contributed as
an additional capital contribution to SSHC and no additional shares of SSHC
Stock shall be issued or issuable upon contribution of the LLC Note.
(c) Intercompany Note. Remington shall extend the maturity date of the
Intercompany Note from May 29, 1998 to May 29, 1999, with interest accruing
during such 12-month extension period at the rate of 9 1/8% per annum. The
parties agree that except as so amended, the other terms and conditions of the
Intercompany Note, including, without limitation, the collateral securing the
repayment thereof, shall remain in full force and effect, and such amendment
shall not operate as a novation of such Intercompany Note.
SECTION 6.2 Preparation of Registration Statement, and the Proxy
Statement. Remington shall, with the cooperation of SSHC, promptly prepare and
file with the SEC, the Proxy Statement and a Registration Statement on Form S-4
(the "REGISTRATION STATEMENT"), in which the Proxy Statement will be included as
a prospectus. Remington shall use all reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. Remington shall also take any action (other
than qualifying to do business in any jurisdiction in which it is now not so
qualified) required to be taken under any applicable state securities laws in
connection with the issuance of Remington Common Stock in the Merger, and SSHC
shall furnish all information concerning SSHC and the holders of SSHC Stock as
may be reasonably requested in connection with any such action.
SECTION 6.3 Access to Information; Confidentiality.
(a) Access to Information. Upon reasonable notice, Remington and SSHC shall
each (and shall cause each of their respective Subsidiaries to) afford to the
Representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Remington and SSHC
shall (and shall cause each of their respective Subsidiaries to) make available
to the other (a) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to the
requirements of Federal securities laws (other than reports or documents which
such party is not permitted to disclose under applicable law), and (b) all other
information concerning its business, properties and personnel as such other
party may reasonably request.
(b) Confidentiality. All information furnished pursuant to Section 6.3(a)
or otherwise by Remington or its Representatives to SSHC or its Representatives
or by SSHC or its Representatives to Remington or its Representatives, as the
case may be, shall be treated as the sole property of the party furnishing such
information and, if the Merger shall not occur, Remington and SSHC and their
respective representatives
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shall return to the other party all of such written information and destroy all
documents, notes, summaries or other materials containing, reflecting or
referring to, or derived from, such information. Each of Remington and SSHC
shall, and shall use its best efforts to cause its Representatives to, keep
confidential all such information, and shall not directly or indirectly use such
information for any competitive or other commercial purpose. The obligation to
keep such information confidential shall continue for five (5) years from the
date the proposed Merger is abandoned and shall not apply to (i) any information
which (x) was already in the receiving party's possession prior to the
disclosure thereof by the other party; (y) was then generally known to the
public; or (z) was disclosed to the receiving party by a third party not bound
by an obligation of confidentiality or (ii) disclosures made as required by law.
It is further agreed that, if in the absence of a protective order or the
receipt of a waiver hereunder the receiving party is nonetheless, in the opinion
of its counsel, compelled to disclose information concerning the other party to
any tribunal or governmental body or agency, the receiving party may disclose
such information to such tribunal or governmental body or agency without
liability hereunder.
SECTION 6.4 Stockholder Approvals.
(a) Remington. Remington shall, through its Board of Directors, duly call,
give notice of, convene and hold a meeting of its stockholders (the "REMINGTON
STOCKHOLDERS' MEETING") for the purpose of voting on the adoption of this
Agreement and approval of the Certificate of Merger, as soon as practicable
after the date hereof. Subject to the exercise of fiduciary obligations under
applicable law as advised in writing by outside counsel, Remington shall,
through its Board of Directors, include in the Proxy Statement the
recommendation of the Board of Directors of Remington that the stockholders of
Remington adopt this Agreement and approve the Certificate of Merger, and shall
use its best efforts to obtain such adoption and approval. SSHC and Remington
acknowledge that the exercise by the Remington Board of Directors of its
business judgment with respect to available liquidity to purchase the Notes if
tendered as a result of the consummation of the Merger is included in the right
of the Remington Board of Directors, granted in the preceding sentence, to
discontinue its recommendation of the Merger in accordance with the terms of the
preceding sentence if its fiduciary obligations so warrant.
(b) Remington Stock Held by SSHC. At the Remington Stockholders' meeting,
SSHC shall, and shall cause its Subsidiaries to, cause all shares of Remington
Class A Stock and Remington Class B Stock then owned by SSHC or any such
Subsidiary to be voted in favor of the adoption of this Agreement and approval
of the Certificate of Merger.
(c) SSHC Approval. SSHC shall, through its Board of Directors, duly call,
give notice of, convene and hold a meeting of its stockholders (the "SSHC
STOCKHOLDERS' MEETING") for the purpose of voting on the adoption of this
Agreement; provided, however, that in lieu of an SSHC Stockholders' Meeting,
SSHC may obtain the unanimous written consent of its stockholders without a
meeting in accordance with the provisions of the DGCL. SSHC shall obtain
approval of the Merger by its stockholders promptly after the execution of this
Merger Agreement and in any event prior to the filing of the Registration
Statement.
SECTION 6.5 Legal Conditions to Merger.
(a) Regulatory and Other Approvals. Subject to the terms and conditions of
this Agreement and without limiting the provisions of Sections 6.2 and 6.4, each
of Remington and SSHC will proceed diligently and in good faith to, as promptly
as practicable, (a) obtain all consents, approvals or actions of, make all
filings with and give all notices to Governmental or Regulatory Authorities or
any other public or private third parties required of Remington, SSHC or any of
their Subsidiaries to consummate the Merger and the other matters contemplated
hereby, and (b) provide such other information and communications to such
Governmental or Regulatory Authorities or other public or private third parties
as the other party or such Governmental or Regulatory Authorities or other
public or private third parties may reasonably request in connection therewith.
(b) Removal of Injunctions, Etc. Subject to the terms and conditions of
this Agreement, each of Remington and SSHC agrees to use reasonable best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective, as soon
as practicable after the date of this Agreement, the transactions contemplated
hereby, including, without
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limitation, using reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby and using reasonable efforts
to defend any litigation seeking to enjoin, prevent or delay the consummation of
the transactions contemplated hereby or seeking material damages.
SECTION 6.6 NASDAQ Listing. Remington shall use its best efforts to cause
the shares of Remington Common Stock to be issued in the Merger and pursuant to
the reclassification and exchange provided by the Certificate of Merger to be
approved for trading on NASDAQ, subject to official notice of issuance, prior to
the Effective Time.
SECTION 6.7 Expenses. Except as provided in Section 8.2 and in the SSHC
Warrant Agreement, whether or not the Merger is consummated, all costs and
expenses incurred by either party to this Agreement, the SSHC Warrant Agreement
and the transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses, provided that for this purpose Remington shall be
deemed to incur the expenses incurred in connection with the filing, printing
and mailing of the Proxy Statement and any SEC filings.
SECTION 6.8 Brokers or Finders. Each of Remington and SSHC represents, as
to itself and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except Smith Barney, Inc. and
Howard, Weil, Labouisse, Friedricks Incorporated, whose fees and expenses will
be paid by Remington in accordance with Remington's agreements with such firms.
Each of Remington and SSHC shall indemnify and hold the other harmless from and
against any and all claims, liabilities or obligations with respect to any such
fee or commission or expenses related thereto asserted by any person on the
basis of any act or statement alleged to have been made by such party or its
affiliate.
SECTION 6.9 Takeover Statutes. If any "fair price," "moratorium," "control
share acquisition" or other form of antitakeover statute or regulation shall be
applicable to the transactions contemplated hereby, Remington and SSHC, and the
Boards of Directors of Remington and SSHC, shall grant such approvals and take
such actions as are reasonably necessary so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and otherwise act to eliminate or minimize the effects of such statute or
regulation on the Merger and the other transactions contemplated hereby.
SECTION 6.10 Conveyance Taxes. Remington and SSHC shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
SECTION 6.11 Advice of Changes. Remington and SSHC shall promptly advise
the other party of any change or event which, individually or in the aggregate
with other such changes or events, has a Material Adverse Effect on it or which
it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of SSHC Class A Stock or the unanimous written consent of the holders of
all outstanding shares of SSHC Class A Stock, in accordance with the provisions
of the DGCL (the "SSHC STOCKHOLDERS' APPROVAL"), and this Agreement and the
Certificate of
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Merger shall have been approved and adopted by the affirmative vote of (i) the
holders of a majority of the outstanding shares of Remington Class A Stock, and
(ii) the holders of a majority of the Remington Class B Stock who vote thereon
at the Remington Stockholders' Meeting (the "REMINGTON STOCKHOLDERS' APPROVAL").
For purposes of the Remington Stockholders' Approval, abstentions in person or
by proxy shall not be counted for purposes of determining a majority of the
holders of Remington Class B Stock voting at the Remington Stockholders'
Meeting. A signed proxy that fails to vote or otherwise mark a proxy shall be
deemed a vote for the Agreement at the Remington Stockholders' Meeting, and will
be counted for purposes of determining a majority of the holders of Remington
Class B Stock voting at such meeting.
(b) Registration Statement; State Securities Laws. The Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order suspending such effectiveness shall have been
issued and remain in effect and no proceeding seeking such an order shall be
pending or threatened. Remington shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue the Remington
Common Stock pursuant to this Agreement.
(c) NASDAQ Listing. The shares of Remington Common Stock issuable to the
stockholders of Remington and SSHC in accordance with this Agreement shall have
been authorized for trading on NASDAQ, upon official notice of issuance.
(d) Regulatory Approvals. All consents, authorizations, approvals, orders
and actions of, filing with and notices to any Governmental or Regulatory
Authority or any other public or private third parties required of Remington,
SSHC or any of their Subsidiaries to consummate the Merger and the other
transactions and matters contemplated hereby, the failure of which to be
obtained or taken (i) is reasonably expected to have a material adverse effect
on the consummation of the Merger or on the Surviving Corporation or (ii) will
result in a violation of any criminal laws, shall have been filed, have occurred
or been obtained, all in form and substance reasonably satisfactory to Remington
and SSHC (all such consents, authorizations, approvals, orders, actions and
filings being referred to as the "REQUISITE REGULATORY APPROVALS") and all such
Requisite Regulatory Approvals shall be in full force and effect.
(e) No Injunctions or Restraints. No court of competent jurisdiction or
other competent Governmental or Regulatory Authority shall have enacted, issued,
promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
illegal or otherwise restricting, preventing or prohibiting consummation of the
Merger and/or the other transactions contemplated by this Agreement.
(f) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation, order or decree enacted, enforced or deemed
applicable to the Merger or the other transactions contemplated hereby by any
Governmental or Regulatory Authority which, in connection with the grant of a
Requisite Regulatory Approval or otherwise, imposes any condition or restriction
(a "BURDENSOME CONDITION") upon the Surviving Corporation or its Subsidiaries
which would reasonably be expected to either (i) have a Material Adverse Effect
after the Effective Time on the present or prospective consolidated financial
condition, business or operating results of the Surviving Corporation, or (ii)
prevent the parties from realizing the major portion of the economic benefits of
the Merger and the other transactions contemplated hereby that they currently
anticipate obtaining therefrom.
SECTION 7.2 Conditions to Obligations of Remington. The obligation of
Remington to effect the Merger and the other transactions contemplated hereby is
subject to the satisfaction or waiver by Remington at or prior to Closing of the
following conditions:
(a) Representations and Warranties. The representations and warranties made
by SSHC in this Agreement shall be true and correct as of the Closing Date as
though made on and as of the Closing Date or, in the case of representations and
warranties made as of a specified date earlier than the Closing Date, on and as
of such earlier date, except as affected by the transactions contemplated by
this Agreement and except for such failures of representations or warranties to
be true and correct (without regard to any materiality qualifiers contained
therein) which, individually or in the aggregate, are not having and are not
reasonably expected to have a Material Adverse Effect on SSHC and its
Subsidiaries taken as a whole, and SSHC shall
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have delivered to Remington a certificate, dated the Closing Date and executed
in the name and on behalf of SSHC by its President to such effect.
(b) Performance of Obligations. SSHC shall have performed and complied
with, in all material respects, each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by SSHC at or prior to the
Closing, and SSHC shall have delivered to Remington a certificate, dated the
Closing Date and executed in the name and on behalf of SSHC by its President to
such effect.
(c) Proceedings. All proceedings to be taken on the part of SSHC in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Remington, and Remington shall have received copies of all such
documents and other evidences as Remington may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(d) Tax Opinion. Remington shall have received the opinion based upon
appropriate representations of Remington and SSHC, of Arthur Andersen LLP,
special tax advisor to Remington, dated on or about the date on which the
Registration Statement (or the last amendment thereto) shall have become
effective, which opinion shall have been confirmed in writing on and as of the
Closing Date, to the effect that:
(i) The Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and Remington and SSHC will each be a party
to such reorganization within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Remington or SSHC as a
result of the Merger or the other transactions contemplated hereby;
(iii) No gain or loss will be recognized by the stockholders of
Remington upon the exchange of their shares of Remington Class A Stock
and/or Remington Class B Stock, as applicable, solely for shares of
Remington Common Stock pursuant to the Merger and this Agreement, except
with respect to cash, if any, received in lieu of fractional shares of
Remington Common Stock;
(iv) The aggregate tax basis of the shares of Remington Common Stock
received solely in exchange for shares of Remington Class A Stock and
Remington Class B Stock, as applicable, in connection with the Merger and
the other transactions contemplated by this Agreement (including fractional
shares of Remington Common Stock for which cash is received) will be the
same as the aggregate tax basis of the shares of Remington Class A Stock
and Remington Class B Stock, as the case may be, exchanged therefor;
(v) The holding period for shares of Remington Common Stock received
in exchange for shares of Remington Class A Stock or Remington Class B
Stock, as applicable, pursuant to the Merger and the other transactions
contemplated hereby, will include the holding period of the shares of
Remington Class A Stock or Remington Class B Stock exchanged therefor,
provided such shares were held as capital assets by the stockholder at the
Effective Time; and
(vi) A stockholder of Remington who receives cash in lieu of a
fractional share of Remington Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's tax basis in
such fractional share (as described in clause (iv) above) and the amount of
cash received.
In rendering such opinion, Arthur Andersen LLP may receive and rely upon
covenants, agreements, representations and warranties contained in a certificate
of Remington (the "REMINGTON TAX CERTIFICATE"), a certificate of SSHC (the "SSHC
TAX CERTIFICATE"), and other appropriate certificates and opinions of Remington,
SSHC and others.
(e) Opinion of Financial Advisor. The STC shall have received the written
opinion of Howard, Weil, Labouisse, Friedricks Incorporated to the effect that,
from a financial point of view, the consideration to be paid by Remington in the
Merger, and the reclassification and exchange of shares provided for in the
Certificate of Merger, are fair to Remington and are fair to stockholders of
Remington other than SSHC and its affiliates.
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(f) Opinion of Counsel. Remington shall have received an opinion of Hawley
Troxell Ennis & Hawley LLP, SSHC's counsel, covering those matters set forth in
Exhibit C hereto.
SECTION 7.3 Conditions to Obligations of SSHC. The obligation of SSHC to
effect the Merger and the other transactions contemplated hereby is subject to
the satisfaction or waiver by SSHC at or prior to Closing of the following
conditions:
(a) Representations and Warranties. The representations and warranties made
by Remington in this Agreement shall be true and correct as of the Closing Date
as though made on and as of the Closing Date or, in the case of representations
and warranties made as of a specified date earlier than the Closing Date, on and
as of such earlier date, except as affected by the transactions contemplated by
this Agreement and except for such failures of representations or warranties to
be true and correct (without regard to any materiality qualifiers contained
therein) which, individually or in the aggregate, are not having and are not
reasonably expected to have a Material Adverse Effect on Remington and its
Subsidiaries taken as a whole, and Remington shall have delivered to SSHC a
certificate, dated the Closing Date and executed in the name and on behalf of
Remington by its Chief Executive Officer, President or any Executive or Senior
Vice President, to such effect.
(b) Performance of Obligations. Remington shall have performed and complied
with, in all material respects, each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by Remington at or prior
to the Closing, and Remington shall have delivered to SSHC a certificate, dated
the Closing Date and executed in the name and on behalf of Remington by its
Chief Executive Officer, President or any Executive or Senior Vice President, to
such effect.
(c) Proceedings. All proceedings to be taken on the part of Remington in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to SSHC, and SSHC shall have received copies of all such documents and
other evidences as SSHC may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
(d) Tax Opinion. SSHC shall have received the opinion, based upon
appropriate representations of Remington and SSHC, of Hawley Troxell Ennis &
Hawley LLP, special counsel to SSHC, dated on or about the date on which the
Registration Statement (or the last amendment thereto) shall have become
effective, which opinion shall have been confirmed in writing on and as of the
Closing Date, to the effect that:
(i) The Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code, and Remington and SSHC will each be a party
to such reorganization within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Remington or SSHC as a
result of the Merger or the other transactions contemplated hereby;
(iii) No gain or loss will be recognized by the stockholders of SSHC
upon the exchange of their shares of SSHC Stock solely for shares of
Remington Common Stock pursuant to the Merger and this Agreement, or with
respect to receipt of the Warrant Agreement, except with respect to cash,
if any, received in lieu of fractional shares of Remington Common Stock;
(iv) The aggregate tax basis of the shares of Remington Common Stock
received solely in exchange for shares of SSHC Stock in connection with the
Merger and the other transactions contemplated by this Agreement (including
fractional shares of Remington Common Stock for which cash is received)
will be the same as the aggregate tax basis of the shares of SSHC Common
Stock exchanged therefor;
(v) The holding period for shares of Remington Common Stock received
in exchange for shares of SSHC Stock pursuant to the Merger and the other
transactions contemplated hereby, will include the holding period of the
shares of SSHC Stock exchanged therefor, provided such shares were held as
capital assets by the stockholder at the Effective Time; and
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(vi) A stockholder of SSHC who receives cash in lieu of a fractional
share of Remington Common Stock will recognize gain or loss equal to the
difference, if any, between such stockholder's tax basis in such fractional
share (as described in clause (iv) above) and the amount of cash received.
In rendering such opinion, Hawley Troxell Ennis & Hawley LLP may receive and
rely upon covenants, agreements, representations and warranties contained in the
Remington Tax Certificate, the SSHC Tax Certificate, and other appropriate
certificates and opinions of Remington, SSHC and others.
(e) Opinion of Counsel. SSHC shall have received an opinion of Prickett,
Jones, Elliott, Kristol & Schnee, Remington's Delaware counsel covering those
matters set forth in Exhibit D-1 hereto, and the opinion of Kelly, Hart &
Hallman, P.C., Remington's Texas counsel, covering those matters set forth in
Exhibit D-2 hereto.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby abandoned, at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Remington or SSHC:
(a) by mutual consent of Remington and SSHC in a written instrument,
if the Board of Directors of each so determines;
(b) by either the Board of Directors of Remington or SSHC if (i) any
Governmental or Regulatory Authority which must grant a Requisite
Regulatory Approval has denied approval of the Merger and such denial has
become final and nonappealable or (ii) any Governmental or Regulatory
Authority of competent jurisdiction shall have issued a final nonappealable
order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement;
(c) by either the Board of Directors of Remington or SSHC if the
Merger and the other transactions contemplated hereby shall not have been
consummated on or before December 31, 1998, unless the failure of the
Closing to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein;
(d) by either the Board of Directors of Remington or the Board of
Directors of SSHC (provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other
agreement contained herein) if the other party shall have breached (i) any
of the covenants or agreements made by such other party herein or (ii) any
of the representations or warranties made by such other party herein, and
in either case, such breach (x) is not cured within thirty (30) days
following written notice to the party committing the breach, or which
breach, by its nature, cannot be cured prior to the Closing and (y) would
entitle the non-breaching party not to consummate the transactions
contemplated hereby under Article VII hereof;
(e) by the Board of Directors of Remington if the Remington
Stockholders' Approval contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held Remington Stockholders' Meeting or at any adjournments or
postponements thereof;
(f) by either the Board of Directors of Remington or the Board of
Directors of SSHC, if such Board shall have reasonably determined in good
faith that any of the Requisite Regulatory Approvals imposes a Burdensome
Condition; or
(g) by either the Board of Directors of Remington or the Board of
Directors of SSHC, if the Board of Directors of the other party shall have
withdrawn, modified or changed in a manner adverse to the terminating party
its approval or recommendation of this Agreement and the transactions
contemplated hereby.
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SECTION 8.2 Effect of Termination. In the event of termination of this
Agreement by either Remington or SSHC as provided in Section 8.1, this Agreement
shall forthwith become void and have no effect, and none of Remington, SSHC, any
of their respective Subsidiaries or any of the officers or directors of any of
them shall have any liability of any nature whatsoever hereunder, or in
connection with the transactions contemplated hereby, except that (i) Sections
6.3(b), 8.2 and 9.2 shall survive any termination of this Agreement and (ii)
notwithstanding anything to the contrary contained in this Agreement, neither
Remington nor SSHC shall be relieved or released from any liabilities or damages
arising out of its willful breach of any provision of this Agreement.
SECTION 8.3 Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of
Remington and SSHC; provided, however, that after any approval of the
transactions contemplated by this Agreement by the stockholders of Remington
and/or SSHC, there may not be, without further approval of the affected
stockholders, any amendment which reduces the amount or changes the form of
consideration to be delivered to such stockholders hereunder other than as
contemplated by this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties, covenants and agreements in
this Agreement or in any instrument delivered pursuant to this Agreement (other
than the SSHC Warrant Agreement, which shall terminate in accordance with its
terms), including any rights arising out of any breach of such representations,
warranties, covenants and agreements, shall survive the Effective Time, except
for those covenants and agreements contained herein and therein that by their
terms apply or are to be performed in whole or in part after the Effective Time.
SECTION 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery, if
delivered personally, or by telecopy or facsimile, upon confirmation of receipt,
(b) on the first business day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the fifth business day following
the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices shall be delivered as set forth below,
or pursuant to such other instructions as may be designated in writing by the
party to receive such notice.
(a) If to Remington, to:
Remington Oil and Gas Corporation
Preston Sherry Plaza
8201 Preston Road, Suite 600
Dallas, Texas 75225
Attention: James A. Watt, President
(214) 890-8060
Facsimile No.: (214) 890-8064
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(b) If to SSHC, to:
S-Sixteen Holding Company
999 Main Street, 11th Floor
Boise, Idaho 83702
Attention: David H. Hawk, President
(208) 388-7306
Facsimile No.: (208) 389-7333
SECTION 9.3 Interpretation. When a reference is made in this Agreement to
Articles, Sections or Exhibits, such reference shall be to an Article, Section
or Exhibit to this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". The phrases "the date of this Agreement, "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the day and year first written above.
SECTION 9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein, including the
SSHC Warrant Agreement) (a) 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 and (b) except as provided in Section
2.1(f) (the provisions of which are intended to be for the benefit of the
person(s) entitled to therein, and may be enforced by any of such persons), is
not intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
SECTION 9.5 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law provisions thereof.
SECTION 9.6 Public Announcements. Except as otherwise required by law or
the rules of any applicable securities exchange or national market system, so
long as this Agreement is in effect, Remington and SSHC will not, and will not
permit any of their respective Representatives to, issue or cause the
publication of any press release or make any other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld. Remington
and SSHC will cooperate with each other in the development and distribution of
all press releases and other public announcements with respect to this Agreement
and the transactions contemplated hereby, and will furnish the other with drafts
of any such releases and announcements as far in advance as practicable.
SECTION 9.7 Severability. Except to the extent that application of this
Section 9.7 would have a Material Adverse Effect on either party or the
Surviving Corporation, any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
SECTION 9.8 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder, other than as contained in the SSHC
Warrant Agreement, may be assigned by any party hereto without the prior written
consent of the other party hereto and any attempt to do so will be void. Subject
to the preceding sentence, this Agreement is binding upon, inures to the benefit
of and is enforceable by the parties hereto and their respective successors and
assigns.
SECTION 9.9 Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and
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provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 9.10 Certain Definitions. As used in this Agreement:
(a) Affiliate. The term "AFFILIATE," as applied to any person, shall mean
any other person directly or indirectly controlling, controlled by, or under
common control with that person; for purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise.
(b) Beneficial Ownership. A person will be deemed to "BENEFICIALLY" own
securities if such person would be the beneficial owner of such securities under
Rule 13d-3 under the Exchange Act, including securities which such person has
the right to acquire (whether such right is exercisable immediately or only
after the passage of time).
(c) Business Day. The term "BUSINESS DAY" means a day other than Saturday,
Sunday or any day on which banks located in the States of Texas and Idaho are
authorized or obligated to close.
(d) Knowledge. The term "KNOWLEDGE" or any similar formulation of
"knowledge" shall mean, with respect to Remington, the knowledge of Remington's
senior executive officers, and with respect to SSHC, the knowledge of SSHC's
senior executive officers.
(e) Material Adverse Effect. Any reference to any event, change or effect
being "MATERIAL" or "MATERIALLY ADVERSE" or having a "MATERIAL ADVERSE EFFECT"
on or with respect to an entity (or group of entities taken as a whole) means
(i) such event, change or effect is material or materially adverse, as the case
may be, to (A) the business, properties, assets, liabilities, financial
condition or results of operations of such entity (or of such group of entities)
taken as a whole, (B) the validity or enforceability of this Agreement, or (C)
the ability of Remington, SSHC or any of their Subsidiaries to consummate the
transactions contemplated by this Agreement and (ii) any breach (other than an
insignificant breach) of the representation contained in the second sentence of
Section 3.2, or Section 4.2, as applicable.
(f) Person. The term "PERSON" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act).
(g) Representatives. The "REPRESENTATIVES" of any entity means such
entity's directors, officers, employees, legal, investment banking and financial
advisors, accountants and any other agents and representatives.
(h) Subsidiary. The term "SUBSIDIARY" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which more than fifty percent (50%) of either the equity interests in, or the
voting control of, such corporation or other organization is, directly or
indirectly through Subsidiaries or otherwise, beneficially owned by such party.
SECTION 9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
SECTION 9.12 Time of Essence. Time is of the essence with respect to each
and every provision of this Agreement.
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its respective officers thereunto duly authorized as of the date
first above written.
REMINGTON OIL AND GAS CORPORATION
By:
------------------------------------
Name: James A. Watt
Title: President
S-SIXTEEN HOLDING COMPANY
By:
------------------------------------
Name: David H. Hawk
Title: President
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EXHIBIT A
CERTIFICATE OF MERGER
OF
REMINGTON OIL AND GAS CORPORATION
Remington Oil and Gas Corporation, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the constituent
corporations ("Constituent Corporations") is: Remington Oil and Gas Corporation,
a Delaware corporation, and S-Sixteen Holding Company, a Delaware corporation;
SECOND: That an Agreement and Plan of Merger ("Merger Agreement") has been
approved, adopted, certified, executed, and acknowledged by each of the
Constituent Corporations in accordance with the provisions of Section 251 of the
Delaware General Corporation Law ("DGCL"), pursuant to which S-Sixteen Holding
Company will be merged with and into the Corporation (the "Merger"), with the
Corporation being the surviving corporation ("Surviving Corporation") in the
Merger;
THIRD: That the name of the Surviving Corporation is Remington Oil And Gas
Corporation.
FOURTH: That the Merger effectuates amendments to the Certificate of
Incorporation of the Surviving Corporation, as set forth in the Restated
Certificate of Incorporation attached hereto as Schedule I, which shall become
effective upon filing of this Certificate of Merger;
FIFTH: That the Certificate of Incorporation of Remington, as set forth in
the Restated Certificate of Incorporation contained in this Certificate of
Merger, shall be the Certificate of Incorporation of the Surviving Corporation;
SIXTH: That an executed Merger Agreement is on file at the principal place
of business of the Surviving Corporation, the address of which is Preston Sherry
Plaza, 8201 Preston Road, Suite 600, Dallas, Texas 75225;
SEVENTH: That a copy of the Merger Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of either
of the Constituent Corporations;
EIGHTH: That the effective date of the merger shall be 12:01 a.m., Delaware
time, on the date of filing of this Certificate of Merger.
IN WITNESS WHEREOF, said Remington Oil and Gas Corporation has caused this
Certificate to be signed by James A. Watt, its President, this day of
, 1998.
REMINGTON OIL AND GAS CORPORATION
a Delaware Corporation
By
--------------------------------------
James A. Watt, President
ATTEST:
By:
- -------------------------------------------------
Burke Asher, Secretary
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SCHEDULE I TO EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
REMINGTON OIL AND GAS CORPORATION
Remington Oil and Gas Corporation, a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation as stated in its original Certificate of
Incorporation was Box Energy Corporation which was changed by a Certificate of
Amendment filed December 5, 1997 to the present name of the corporation,
Remington Oil and Gas Corporation.
SECOND: The date of filing of the corporation's original Certificate of
Incorporation with the Secretary of State of Delaware was February 20, 1991.
THIRD: This Restated Certificate of Incorporation was duly adopted by the
Directors and adopted by the shareholders of Remington Oil and Gas Corporation
in accordance with sections 245 and 251(b)(3) of the General Corporation Law of
the State of Delaware and restates and further amends the provisions of the
Certificate of Incorporation of Remington Oil and Gas Corporation.
FOURTH: The Restated Certificate of Incorporation of Remington Oil and Gas
Corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Remington Oil and Gas Corporation.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 32 Loockerman Square, Suite L-100, City of Dover 19901, County of Kent. The
name of its registered agent at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "Delaware General Corporation Law").
ARTICLE IV
A. Classes of Stock. The aggregate number of shares which the corporation
shall have the authority to issue is 125,000,000, divided into 100,000,000
shares of common stock of the par value of $.01 per share, and 25,000,000 shares
of preferred stock of the par value of $.01 per share.
B. Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of the Article IV, to provide
for the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of shares of
each such series and the qualifications, limitations or restrictions thereof.
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The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
1. The number of shares constituting that series and the distinctive
designation of that series;
2. The dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
3. Whether that series shall have voting rights in addition to the
voting rights provided by law and, if so, the terms of such voting rights;
4. Whether that series shall have conversion privileges and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
5. Whether or not the shares of that series shall be redeemable and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
6. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amounts of such
sinking fund;
7. The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of that
series;
8. Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to the same
dividend period.
If, upon any voluntary or involuntary liquidation, dissolution or winding
up of the corporation, the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
C. Common Stock. All preferences, voting powers, relative, participating,
optional or other special rights and privileges, and qualifications, limitations
or restrictions of the Common Stock are expressly made subject and subordinate
to those that may be fixed with respect to any shares of the Preferred Stock.
Except as otherwise required by law or this Restated Certificate of
Incorporation, each holder of Common Stock shall have one vote in respect to
each share of Common Stock held by such holder of record on the books of the
corporation for election of directors and on all matters submitted to a vote of
stockholders of the corporation.
Subject to the preferential rights of the Preferred Stock, the holders of
shares of Common Stock shall be entitled to receive, when and if declared by the
Board of Directors, out of the assets of the corporation which are by law
available therefor, dividends payable either in cash, in property or in shares
of capital stock.
In the event of any dissolution, liquidation or winding up of the affairs
of the corporation, after distribution in full of the preferential amounts, if
any, to be distributed to the holders of shares of the Preferred Stock, holders
of Common Stock shall be entitled, unless otherwise provided by law or this
Restated Certificate of Incorporation, to receive all of the remaining assets of
the corporation of whatever kind available for distribution to stockholders
ratably in proportion to the number of shares of Common Stock held by them
respectively.
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ARTICLE V
No action required or permitted to be taken at any annual or special
meeting of the stockholders may be taken without a meeting and the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied. Special meetings of the stockholders of the
corporation may be called only by the chairman of the Board or the President of
the corporation or by a resolution adopted by the affirmative vote of a majority
of the Board of Directors.
ARTICLE VI
The number of directors which shall constitute the whole Board of Directors
of this corporation shall be specified in the Bylaws of this corporation,
subject to the provisions of this Article VI. Each director shall serve until
the next annual meeting of stockholders and his successor is duly elected and
qualified, or his death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director. Newly created directorships resulting from an increase in
the number of directors and any vacancies of the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office (and not by the stockholders), even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office until the next annual meeting of stockholders and
until such director's successor shall have been duly elected and qualified.
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation and its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violations of law; (iii) under section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the director derived an improper
personal benefit.
Each person who is or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgment, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall incur to the benefit of his or her heirs, executors and
administrators; provided, however, that except as provided in the second
paragraph hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred in
this section shall be a contract right and shall include the right to be paid by
the corporation any expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Delaware
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in
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which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this section or
otherwise. The corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
ARTICLE VIII
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the corporation provided, however, that any adoption, amendment or
repeal of Bylaws of the corporation by the Board of Directors shall require the
approval of at least sixty-six and two-thirds percent (66 2/3%) of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board). The stockholders shall
also have power to adopt, amend or repeal Bylaws of the corporation, provided,
however, that in addition to any vote of the holders of any class or series of
stock of this corporation required by law or by this Restated Certificate of
Incorporation the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the then outstanding
shares of the stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required for
such adoption, amendment or repeal by the stockholders of any provisions of the
Bylaws of the corporation.
ARTICLE IX
Notwithstanding any other provision of this Restated Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the then outstanding
shares of the stock of the corporation entitled to vote generally in the
election of Directors voting together as a single class, shall be required to
amend in any respect or repeal this Article IX or Articles V, VI, VII and VIII.
FIFTH: This Restated Certificate of Incorporation was duly adopted by the
Board of Directors of this Corporation.
SIXTH: This Restated Certificate of Incorporation was approved by the
holders of the necessary number of outstanding shares of the corporation
entitled to vote, as required by the General Corporation Law of the State of
Delaware.
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IN WITNESS WHEREOF, said Remington Oil and Gas Corporation has caused its
corporate seal to be hereunto affixed and the certificate to be signed by its
President, James A. Watt, and its Secretary, J. Burke Asher, this
day of , 1998.
REMINGTON OIL AND GAS
CORPORATION
By
-----------------------------------
James A. Watt, President
ATTEST:
By
----------------------------------------------------
J. Burke Asher, Secretary
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EXHIBIT B
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of June 22, 1998 (this "WARRANT"), by and
between REMINGTON OIL AND GAS CORPORATION, a Delaware corporation (the
"COMPANY"), and BBHC ACQUISITION CO., L.L.C., a Delaware limited liability
company, its successors and assigns ("HOLDER").
WITNESSETH:
WHEREAS, the Company and Holder's wholly-owned subsidiary, S-Sixteen
Holding Company, a Delaware corporation ("SSHC"), have entered into an Agreement
and Plan of Merger dated as of June 22, 1998 (the "MERGER AGREEMENT";
capitalized terms not defined herein shall have the meanings set forth in the
Merger Agreement), providing for, among other things, the merger of SSHC with
and into the Company, with the Company as the surviving corporation in the
merger; and
WHEREAS, as a condition and inducement to Holder's willingness to cause
SSHC to enter into the Merger Agreement, Holder has requested that the Company
agree, and the Company has agreed, to grant to Holder this Warrant;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, the Company and Holder agree as follows:
SECTION 1. Warrant Rights. Subject to the terms and conditions set forth
herein, the Holder is hereby entitled to purchase up to 300,000 validly issued
and nonassessable shares of the Class B (Non Voting) Common Stock, $1.00 par
value per share, of the Company ("COMMON STOCK"). The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be paid
for each share of Common Stock may be adjusted from time to time as hereinafter
set forth. The shares of Common Stock or other securities deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as the "WARRANT SHARES"). The rights represented by this Warrant shall be
exercised at the price, subject to adjustment in accordance with Section 7
hereof, and during the exercise periods described below, as follows:
(a) During the 12-month period commencing on the effective date (the
"EFFECTIVE DATE") of the Merger (the "12-MONTH PERIOD"), the Holder shall have
the option to purchase up to 100,000 Warrant Shares at an exercise price equal
to the Market Price for the Common Stock on the date prior to the Effective
Date, but in no event (i) less than $7.00 per Warrant Share or (ii) greater than
$8.00 per Warrant Share (the "12-MONTH PERIOD EXERCISE PRICE"), subject to
adjustment in accordance with Section 7 hereof. For purposes of the preceding
sentence, Market Price shall mean the average of the high and low prices of the
publicly traded shares of the Common Stock on the composite tape for the date of
such valuation, as quoted in the Wall Street Journal or successor generally
recognized business journal or, if such business journal does not list the
published market quotation, then on the NASDAQ reporting system or successor
reporting system. If no trading occurs in the Common Stock on the date of such
valuation, fair market value shall mean the average of the high and low sales
prices on the immediately preceding trading day. After the expiration of the
12-Month Period, the Holder shall have no right to purchase any Warrant Shares
at the 12-month Period Exercise Price.
(b) During the 36-month period commencing on the Effective Date of the
Merger (the "36-MONTH PERIOD"), the Holder shall have the option to purchase up
to 100,000 Warrant Shares at an exercise price of $9.00 per Warrant Share (the
"36-MONTH PERIOD EXERCISE PRICE"), subject to adjustment in accordance with
Section 7 hereof. After the expiration of the 36-Month Period, the Holder shall
have no right to purchase any Warrant Shares at the 36-month Period Exercise
Price.
(c) During the 60-month period commencing on the Effective Date of the
Merger (the "60-MONTH PERIOD"), the Holder shall have the option to purchase up
to 100,000 Warrant Shares at an exercise price of
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$11.00 per Warrant Share (the "60-MONTH PERIOD EXERCISE PRICE"), subject to
adjustment in accordance with Section 7 hereof. After the expiration of the
36-Month Period, the Holder shall have no right to purchase any Warrant Shares
of the Company.
The 12-Month Period Exercise Price, the 36-Month Period Exercise Price and
the 60-Month Period Exercise Price are sometimes referred to individually herein
as the "EXERCISE PRICE," and collectively, as the "EXERCISE PRICES."
SECTION 2. Exercise of Warrant. The rights represented by this Warrant may
be exercised at any time within the periods above specified, in whole or in
part, by (i) the surrender of this Warrant (with the purchase form at the end
hereof properly executed) at the principal executive office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the Exercise Price then in effect for
the number of Warrant Shares specified in the above-mentioned purchase form
together with applicable stock transfer taxes, if any; and (iii) delivery to the
Company of a duly executed agreement signed by the person(s) designated in the
purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of Section 3, subparagraphs (b) and (d) of Section 8 and
subparagraphs (b), (c) and (d) of Section 9 hereof. This Warrant shall be deemed
to have been exercised, in whole or in part to the extent specified, immediately
prior to the close of business on the date this Warrant is surrendered and
payment is made in accordance with the foregoing provisions of this Section 2,
and the person or persons in whose name or names the certificates for Warrant
Shares shall be issuable upon such exercise shall become the holder or holders
of record of such Warrant Shares at that time and date. Certificates
representing the Warrant Shares so purchased shall be delivered to the Holder
within a reasonable time, not exceeding ten (10) days, after the rights
represented by this Warrant shall have been so exercised. If this Warrant should
be exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder hereof to purchase the balance of the Warrant Shares purchasable
thereunder.
SECTION 3. Exchange, Transfer, Assignment or Loss of Warrant.
(a) This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company or at the office
of its stock transfer agent, if any, for other Warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. The term "Warrant" as
used herein includes any Warrants into which this Warrant may be divided or
exchanged.
(b) This Warrant shall not be transferred, sold, assigned or hypothecated
(other than by will or pursuant to the laws of descent and distribution), except
that it may be assigned in whole or in part at any time to any person who is a
member, manager or officer of the Holder (each, a "PERMITTED TRANSFEREE").
Further, if this Warrant is transferred, sold, assigned or hypothecated other
than to and among the Permitted Transferees, it shall expire ten (10) days after
such sale, assignment or hypothecation unless it is exercised by such
transferee. Any transfer of this Warrant shall be effected by the Holder (or
subsequent assignee) by (i) executing the form of assignment at the end hereof
and (ii) surrendering this Warrant for cancellation at the office or agency of
the Company referred to in Section 2 hereof, accompanied by a certificate
(signed by an officer or person serving in a similar capacity if Holder is a
corporation, partnership or other entity) stating that each transferee is a
Permitted Transferee under this Section 3; whereupon the Company shall issue, in
the name or names specified by the Holder (including the Holder) a new Warrant
or Warrants of like tenor and representing in the aggregate rights to purchase
the same number of Warrant Shares as are purchasable hereunder.
(c) Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not the Warrant so lost, stolen, destroyed
or mutilated, shall be at any time enforceable by anyone.
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(d) The Holder of this Warrant, by its acceptance thereof, represents and
warrants that this Warrant and the Warrant Shares issuable upon exercise of
Warrants shall be acquired as an investment and not with a view to the
distribution thereof, and understands and acknowledges that this Warrant and
each certificate representing Warrant Shares shall bear a restrictive legend
substantially as set forth below:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES) or (iii) AN OPINION OF COUNSEL, IF SUCH OPINION
SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."
SECTION 4. Reservation of Shares. The Company covenants and agrees that all
shares of Common Stock which may be purchased hereunder will, upon issuance
against payment of the Exercise Price therefor, be duly and validly issued,
fully paid and nonassessable, and no personal liability will attach to the
holder thereof. The Company further covenants and agrees that, during the
periods within which this Warrant may be exercised, the Company will at all
times have authorized and reserved for issuance a sufficient number of shares of
its Common Stock to provide for the exercise of this Warrant.
SECTION 5. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share of Common Stock, determined as
follows:
(a) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ National Market System ("NASDAQ"), the current market value shall
be the last reported sale price of the Common Stock on such exchange or system
on the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices for such
day on such exchange or system;
(b) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than the book value thereof as at the end of
the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 6. Rights of Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
SECTION 7. Anti-Dilution Provisions. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a distribution
on its outstanding shares of Common Stock in shares of Common Stock, or (ii)
subdivide or reclassify its outstanding shares of Common Stock into a greater
number of shares, or (iii) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, or (iv) the outstanding shares of
Common Stock of the Company are at any time changed into or exchanged for a
different number or kind of shares or other security of the Company or of
another corporation through reorganization, merger, consolidation, liquidation
or recapitalization, then appropriate adjustments in the number and kind of such
securities subject to this Warrant shall be made and
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the Exercise Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination,
reclassification, reorganization, merger, consolidation, liquidation or
recapitalization shall be proportionately adjusted so that the Holder of this
Warrant, if exercised after such date, shall be entitled to receive the
aggregate number and kind of securities which, if this Warrant had been
exercised by such Holder immediately prior to such date, such Holder would have
owned upon such exercise and been entitled to receive upon such dividend,
distribution, subdivision, combination, reclassification, reorganization,
merger, consolidation, liquidation or recapitalization. By way of example and
not of limitation, (i) if the Company converts its Common Stock into a single
class of voting common stock ("VOTING COMMON"), at a conversion ratio of
1.0:1.0, this Warrant would represent the right to purchase a number of shares
of Voting Common equal to the Warrant Shares issuable upon exercise hereof, at
the equivalent Exercise Prices set forth herein, or (ii) if the Company declares
a 2 for 1 stock distribution and the Exercise Price immediately prior to such
event was $9.00 per Warrant Share and the number of Warrant Shares purchasable
upon exercise of this Warrant at that price was 100,000, the adjusted Exercise
Price immediately after such event would be $4.50 per Warrant Share, and the
adjusted number of Warrant Shares purchasable at such Exercise Price upon
exercise of this Warrant would be 200,000. Such adjustments shall be made
successively whenever any event listed above shall occur.
(b) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in the Exercise Price; provided, however, that any adjustments which by reason
of this subparagraph (b) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 7 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything in
this Section 7 to the contrary notwithstanding, the Company shall make such
changes in the Exercise Price, in addition to those required by this Section 7,
as it shall determine, in its sole discretion, to be advisable in order that any
dividend or distribution in shares of Common Stock, or any subdivision,
reclassification or combination thereof, thereafter made by the Company shall
not result in any federal income tax liability to the holders of Common Stock or
securities convertible into Common Stock.
(c) Whenever the Exercise Prices are adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Prices
and adjusted number of Shares of Common Stock or other securities purchasable
upon exercise of this Warrant to be mailed to the Holder, at the address listed
on the books of the Company, and shall cause a certified copy thereof to be
mailed to the Company's transfer agent, if any. The Company may retain a firm of
independent certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any computation
required by this Section 7, and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(d) In the event that at any time, as a result of an adjustment pursuant to
the provisions of this Section 7, the Holder of this Warrant thereafter shall
become entitled to receive any securities of the Company other than Common
Stock, thereafter the exercise price and number of such other securities so
receivable upon exercise of this Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 7.
SECTION 8. Registration Rights.
(a) (i) For a period of seven (7) years from the Effective Date (the
"COMPANY OBLIGATION PERIOD"), the Company shall advise the Holder or its
Permitted Transferees, whether the Holder holds this Warrant or has exercised
this Warrant and holds shares of Common Stock, by written notice at least two
weeks prior to the filing of any registration statement or post-effective
amendment thereto under the Securities Act of 1933, as amended (the "SECURITIES
ACT") covering any securities of the Company, for its own account or for the
account of others, except for any registration statement filed on Form S-4 or
S-8 (including a Form S-3 related to a Form S-8) and will, upon the request of
the Holder, and subject to subparagraph (a)(ii) below, include in any such
registration statement such information as may be required to permit a public
offering of the Common Stock or other securities issuable upon exercise of this
Warrant (the
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"REGISTRABLE SECURITIES"). The Company shall supply prospectuses and such other
documents as the Holder may reasonably request in order to facilitate the public
sale or other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as the Holder designates and do any and all other acts and things which may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registrable Securities, all at no expense to the
Holder, and furnish indemnification in the manner provided in Section 9 hereof.
The Holder shall furnish information and indemnification as set forth in Section
9.
(ii) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to Section
8(a)(i). If the managing underwriter determines that a limitation of the number
of shares to be underwritten is required, the underwriter may exclude some or
all Registrable Securities from such registration (the "EXCLUDABLE REGISTRABLE
SECURITIES"); provided, however, that no other security holder of the Company
may include any such securities in such registration statement if any of the
Registrable Securities are excluded from such registration; and, provided,
further, that the Company will file a new registration statement covering the
Excluded Registrable Securities, at the Company's expense, within six months
after the completion of such underwritten offering.
(b) If any 50% Holder (as defined below) shall give notice to the Company
at any time during the Company Obligation Period to the effect that such Holder
desires to register under the Securities Act any or all of the Registrable
Securities under such circumstances that a public distribution (within the
meaning of the Securities Act) of any such securities will be involved, then the
Company will promptly, but no later than four weeks after receipt of such
notice, file a registration statement pursuant to the Securities Act, so that
such designated Registrable Securities may be publicly sold under the Securities
Act as promptly as practicable thereafter, and the Company will use its best
efforts to cause such registration statement to become and remain effective
(including the taking of such steps as are necessary to obtain the removal of
any stop order) within 90 days after the receipt of such notice; provided, that
such Holder shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request in writing. The 50% Holder may,
at its option, request the filing of a registration statement under the
Securities Act on two (2) occasions during the Company Obligation Period. The
Holder (or, in the case of this Section 8(b), the 50% Holder) may, at its
option, request the registration of Registrable Securities in a registration
statement made by the Company as contemplated by Section 8(a) or in connection
with a request made pursuant to this Section 8(b) prior to acquisition of the
Warrant Shares issuable upon exercise of this Warrant. Within ten days after
receiving any such notice pursuant to this Section 8(b), the Company shall give
notice to any other Holder of Warrants, advising that the Company is proceeding
with such registration statement, and offering to include therein the securities
underlying such Warrants held by the other Holder(s), provided that they shall
furnish the Company with such appropriate information (relating to the
intentions of such Holder(s)) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of the registration
statements shall be borne by the Company, except that the Holder(s) shall bear
the fees of their own counsel and any underwriting discounts or commissions
applicable to any of the securities sold by them. The Company will maintain such
registration statement or post-effective amendment current under the Securities
Act for a period of at least six (6) months (and up to an additional thirty (30)
days if requested by the Holder(s)) from the effective date thereof. The Company
shall provide prospectuses, and such other documents as the Holder(s) may
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder(s) designate and
furnish indemnification in the manner provided in Section 9 hereof.
(c) The term "50% HOLDER" as used in this Section 8 shall mean the
Holder(s) of at least 50% of the Common Stock underlying this Warrant and/or
issued upon exercise thereof and shall include any owner or combination of
owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares then issuable upon exercise of this Warrant.
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(d) If at any time prior to the effectiveness of the registration statement
filed in connection with an offering pursuant to this Section 8, the 50% Holder
shall determine not to proceed with the registration, upon notice to the Company
and the payment to the Company by the 50% Holder of the Company's expenses, if
any, theretofore incurred in connection with the registration statement, the 50%
Holder may terminate its participation in the offering, and the registration
statement previously filed shall not be counted against the number of demand
registrations permitted under Section 8(b). The 50% Holder need not pay to the
Company its expenses incurred in connection with the registration statement,
however, if such 50% Holder shall have determined not to proceed because of
material adverse developments on the part of the Company of which such 50%
Holder obtained knowledge subsequent to the giving to the Company of the written
request to register Registrable Securities pursuant to this Section 8.
(e) Notwithstanding the foregoing, if the Company shall furnish to such 50%
Holder a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its stockholders for a registration statement to be filed in
the near future containing the disclosure of material information required to be
included therein by reason of the federal securities laws, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period during which such disclosure would be seriously
detrimental; provided, (i) that this period will not exceed 60 days, (ii) the
Company shall not defer its obligation in this manner more than once in any 12
month period, and (iii) the Company Obligation Period shall be extended by the
cumulative number of days resulting from any extensions pursuant to this
subparagraph (e).
(f) The right of a Holder of this Warrant and/or Warrant Shares to request
inclusion of Registrable Securities within the coverage of a registration
statement pursuant to clause (a) or (b) this Section 8 shall expire at the
earlier of (i) expiration of the Company Obligation Period, or (ii) at such time
as such Holder shall have received from counsel to the Company an unqualified
opinion of such counsel that such Holder has the right, pursuant to the
provisions of Rule 144 under the Securities Act, to sell within any three-month
period (which period shall be at the time the opinion is rendered) all Warrant
Shares then held and purchasable upon the exercise of this Warrant by such
Holder.
(g) The rights to cause the Company to register Registrable Securities
pursuant to this Section 8 may be assigned by a Holder to any Permitted
Transferee; provided, however, (i) the transferor shall, within ten (10) days
after such transfer, furnish to the Company written notice of the name and
address of such transferee or assignee and the securities to which such
registration rights are being assigned, and (ii) such transferee shall agree to
be subject to all restrictions set forth in this Warrant. No other transfer or
assignment of the registration rights provided in this Warrant shall be
permitted without the prior written consent of the Company.
SECTION 9. Indemnification.
(a) Whenever pursuant to Section 8 a registration statement relating to any
Registrable Securities is filed under the Securities Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
securities covered by such registration statement, amendment or supplement (each
such Holder being hereinafter called the "DISTRIBUTING HOLDER"), and each
officer, director, partner, employee, affiliate or person who controls (within
the meaning of the Securities Act) the Distributing Holder, and each underwriter
(within the meaning of the Securities Act), and each person who controls any
such underwriter (collectively, the "HOLDER INDEMNITEES"), from and against any
losses, claims, damages or liabilities (joint or several) to which they may
become subject under the Securities Act, the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively, a "VIOLATION") by the Company: (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or any documents filed under
state securities or Blue Sky laws in connection therewith, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities
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Act, the Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities
law in connection with the offering covered by such registration statement; and
the Company will reimburse the Holder Indemnitees for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any Holder Indemnitees.
(b) To the extent permitted by law, each Distributing Holder will, if
Registrable Securities held by such Distributing Holder are included in the
securities as to which such registration, qualifications or compliance is being
effected, indemnify and hold harmless the Company, each of its directors, its
officers, affiliates, and legal counsel, and each person, if any, who controls
the Company (within the meaning of the Securities Act), any underwriter, and any
other Distributing Holders selling securities under such registration statement
or any of such other Distributing Holder's partners, directors or officers or
any person who controls such Distributing Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other Distributing Holder,
or partner, director, officer or controlling person of such other Distributing
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Distributing Holder under an instrument duly executed by such Distributing
Holder and stated to be specifically for use in connection with such
registration; and each such Distributing Holder will reimburse any legal or
other expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Distributing Holder, or partner,
officer, director or controlling person of such other Distributing Holder in
connection with investigating or defending any such loss, claim, damage
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 9(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Distributing Holder, which consent shall not be unreasonably
withheld; provided, further, that in no event shall any indemnity under this
Section 9(b) exceed the proceeds from the offering received by such Distributing
Holder.
(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 9, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.
(d) If the indemnification provided for in this Section 9 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the
B-7
<PAGE> 185
indemnifying party on the one hand and of the indemnified party on the other in
connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Distributing Holder
hereunder exceed the proceeds from the offering received by such Distributing
Holder.
(e) The obligations of the Company and Distributing Holders under this
Section 9 shall survive completion of any offering of Registrable Securities in
a registration statement. No indemnifying party, in the defense of any such
claim or litigation shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation.
SECTION 10. Certain Covenants and Agreements.
(a) The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or bylaws, any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times and in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate to protect the rights of the
Holder against impairment. Without limiting the generality of the foregoing, the
Company will (a) take all such action as may be necessary or appropriate in
order that the Company may validly issue fully paid and nonassessable Warrant
Shares upon exercise of this Warrant, and (b) obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
(b) If the Company shall list any of its Common Stock on any securities
exchange or automated quotation system, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all of its Common Stock
issued to, or to the extent permissible under the applicable securities exchange
or quotation system rules, issuable upon the exercise of this Warrant so long as
any of its Common Stock shall be so listed.
(c) From and after the date of this Warrant, the Company shall not, without
the prior written consent of the Holders of two-thirds (66 2/3%) of the
Registrable Securities then outstanding or issuable upon exercise of this
Warrant, enter into any agreement with any holder or prospective holder of
securities of the Company which would grant such holder registration rights
senior to those granted to the Holder hereunder.
(d) With a view to making available to the Holder the benefits of certain
rules and regulations of the Securities and Exchange Commission ("SEC") which
may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(i) At all times hereafter, make and keep public information
available, as those terms are understood and defined in SEC Rule 144 or any
similar or analogous rule promulgated under the Securities Act;
(ii) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(iii) So long as any Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act and of the Exchange Act; a copy of the most recent
annual or quarterly report of the Company; and such other reports and
documents as a Holder may reasonably request in availing itself of any rule
or regulation of the SEC allowing it to sell any such securities without
registration.
B-8
<PAGE> 186
SECTION 11. Representations and Warranties. The Company hereby represents
and warrants to Holder as follows:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has full power and
lawful authority to carry on its business.
(b) The Company has full corporate power to execute, deliver and issue this
Warrant and to carry out its obligations hereunder. The execution, delivery and
issuance of this Warrant, and delivery and issuance of the Warrant Shares upon
exercise of this Warrant, have been duly and validly authorized by the Board of
Directors of the Company; no other corporate acts or proceedings on the part of
the Company are necessary to authorize this Warrant or the Warrant Shares; and
this Warrant constitutes a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms.
(c) The Warrant Shares will, when issued pursuant to this Warrant, be duly
authorized and validly issued, fully paid and nonassessable, and not subject to
preemptive rights.
(d) No consent or approval by, or filing with, any governmental authority
is required in connection with the execution, delivery and issuance by the
Company of this Warrant, or the delivery and issuance of the Warrant Shares,
other than such as have been obtained or made (or as may be required in the
future under applicable securities laws in connection with the transfer or
exercise of this Warrant or the resale of the Warrant Shares).
(e) The execution, delivery and issuance of this Warrant and the delivery
and issuance of the Warrant Shares will not result in the violation of any term
or provision of the charter or bylaws of the Company or any loan agreement,
indenture, note or other instrument or decree, order, statute, rule or
regulation applicable to the Company (subject, however, to compliance with
applicable securities laws in connection with the transfer or exercise of this
Warrant or the resale of the Warrant Shares).
SECTION 12. Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally-recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent (a) to
the Company, at Remington Oil and Gas Corporation 8201 Preston Road, Suite 600,
Dallas, Texas 75225 Attention: James A. Watt, President, and (b) to the Holder,
at S-Sixteen Holding Company, 999 Main Street, 11th Floor, Boise, Idaho 83702
Attention: David H. Hawk, President. Either party may from time to time change
the address to which notices to it are to be delivered or mailed under this
Warrant by notice to the other party.
SECTION 13. General Provisions.
(a) Any provision of this Warrant may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Holders of 66 2/3% of the Registrable Securities then outstanding or
issuable upon exercise of this Warrant.
(b) This Warrant shall be governed by and construed under the laws of the
State of Delaware without regard to conflicts of laws principles.
(c) All the covenants and provisions of this Warrant by or for the benefit
of the Company or the Holder shall bind and inure to the benefit of their
respective permitted successors and assigns.
(d) The captions of the Sections and subsections of this Warrant have been
inserted for convenience only and shall have no substantive effect.
B-9
<PAGE> 187
IN WITNESS WHEREOF, REMINGTON OIL AND GAS CORPORATION has caused this
Warrant Agreement to be signed by its duly authorized officers, and this Warrant
to be dated as of the date first above written.
REMINGTON OIL AND GAS CORPORATION
By:
----------------------------------
James A. Watt, President
ATTEST:
- ------------------------------------------------------
Burke Asher, Secretary
AGREED AND ACCEPTED, as of , 1998.
BBHC ACQUISITION CO., L.L.C.
By:
-----------------------------------------------------
David H. Hawk, Manager
B-10
<PAGE> 188
PURCHASE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, holder of the foregoing Warrant, hereby irrevocably elects
to exercise the purchase rights represented by such Warrant for, and to purchase
thereunder, shares of Common Stock of REMINGTON OIL AND GAS CORPORATION,
and herewith makes payment of $ in payment of the actual exercise price
thereof, and requests that the certificate(s) for shares of Common Stock be
issued in the name(s) of, and delivered to, the following:
- --------------------------------------------------------------------------------
(Please Print Name and Social Security or Tax ID No.)
- --------------------------------------------------------------------------------
(Street Address)
- --------------------------------------------------------------------------------
(City, State and Zip Code)
Dated
- ----------------------
Name of Warrantholder or Assignee:
------------------------------------
(Please Print)
------------------------------------
Signature:
Print Name:
Print Title:
------------------------------------
Address:
------------------------------------
B-11
<PAGE> 189
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON ASSIGNMENT OF WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
(Please Print Name of Assignee)
- --------------------------------------------------------------------------------
(Street Address)
- --------------------------------------------------------------------------------
(City, State and Zip Code)
the within Warrant, to purchase Warrant Shares of Remington Oil
and Gas Corporation issuable upon exercise thereof, and hereby appoints
, Attorney, to transfer such Warrant on the books of the Company,
with full power of substitution in the premises.
DATED:
- ---------------
------------------------------------
Print Name of Registered Holder
------------------------------------
Signature
Print Name:
Print Title:
B-12
<PAGE> 190
APPENDIX I(a)
AMENDMENT TO
AGREEMENT AND PLAN
OF MERGER
<PAGE> 191
APPENDIX I(a)
October 12, 1998
David H. Hawk, President
S-Sixteen Holding Company
999 Main Street
11th Floor
Boise, ID 83702
Re: Agreement and Plan of Merger
Dear Mr. Hawk:
As you are aware, the September 21, 1998, letter to James Watt of Remington
Oil & Gas Corporation ("Remington") from H. Roger Schwall, Assistant Director of
the Corporation Finance Division of the Securities and Exchange Commission,
points out an ambiguity in the Agreement and Plan of Merger (the "Merger
Agreement") dated June 22, 1998, between Remington and S-Sixteen Holding Company
("SSHC"). The ambiguity relates to Remington's ability to waive the condition,
set forth in Section 7.2(d) of the Merger Agreement, that Remington receive an
opinion from its special tax advisor, Arthur Andersen, LLP, that the transaction
contemplated by the Merger Agreement will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code.
As you recall, and as recounted in the draft Form S-4 under The
Transaction -- Background of the Transaction, the ability to structure the
merger transaction as a tax-free reorganization was an important factor in the
negotiation of the Merger Agreement. It is our clear understanding that the
Merger Agreement contemplates a tax-free reorganization and it will only go
forward on that basis.
Therefore, we propose that the Merger Agreement be amended to clarify our
shared understanding as follows:
Section 7.2(d) shall be amended by the insertion of the following
language at the end of the current section:
Notwithstanding the foregoing, the condition set forth in subsection
7.2(d) shall not be waivable by Remington.
Please indicate your agreement with the proposed amendment by signing this
letter where set forth below and returning it to me.
Thank you for your cooperation.
Sincerely,
REMINGTON OIL & GAS CORPORATION
By /s/ JAMES WATT
-----------------------------------
James Watt, Chief Executive Officer
Accepted and Agreed to:
S-SIXTEEN HOLDING COMPANY
By /s/ DAVID H. HAWK
---------------------------------
David H. Hawk, President
<PAGE> 192
APPENDIX II
OPINION OF SPECIAL TRANSACTION
COMMITTEE FINANCIAL ADVISOR
<PAGE> 193
June 22, 1998
Remington Oil and Gas Corporation
8201 Preston Road
Suite 600
Dallas, TX 75225-6211
Attention: Special Transaction Committee of the
Board of Directors (the "Committee")
Gentlemen:
The Committee has asked Howard, Weil, Labouisse, Friedrichs Incorporated
("Howard, Weil") to advise it with respect to the fairness, from a financial
point of view, of a proposed transaction (the "Transaction") involving both (i)
the proposed merger (the "Merger") of S-Sixteen Holding Company ("S-Sixteen")
with and into Remington Oil and Gas Corporation ("Remington") and (ii) the
attendant exchange and reclassification (the "Recapitalization") of Remington's
Class A (Voting) Common Stock, par value $1.00 per share (the "Remington Class A
Stock"), and Remington's Class B (Nonvoting) Common Stock, par value $1.00 per
share (the "Remington Class B Stock"), into one single class of voting common
stock (the "Remington Common Stock"), to Remington and to the holders of
Remington Class A Stock and Remington Class B Stock, other than S-Sixteen and
its affiliates, pursuant to the terms and subject to the conditions set forth in
that certain Agreement and Plan of Merger (together with the exhibits thereto,
the "Agreement") between Remington and S-Sixteen and pursuant to Remington's
Certificate of Merger (the "Certificate of Merger").
The proposed Merger of S-Sixteen with and into Remington provides for,
among other things, Remington to be the surviving corporation. The authorized
capital stock of S-Sixteen consists of 25,000 shares of Class A (Voting) Stock,
par value $0.01 per share (the "S-Sixteen Class A Stock"), and 475,000 shares of
Class B (Nonvoting) Stock, par value $0.01 per share (the "S-Sixteen Class B
Stock"). As of the date of this opinion, S-Sixteen had outstanding 33 shares of
S-Sixteen Class A Stock and 38,472 shares of S-Sixteen Class B Stock. Pursuant
to the Merger, each share of the S-Sixteen Class A Stock and each share of the
S-Sixteen Class B Stock issued and outstanding (other than shares of S-Sixteen
held in S-Sixteen's Treasury) is converted into the right to receive 72.329
shares (the "S-Sixteen Exchange Ratio") of Remington Common Stock. The S-Sixteen
Exchange Ratio was independently derived and based upon arms-length negotiations
between the managements of Remington and S-Sixteen. Howard, Weil had no
involvement in the establishment of the S-Sixteen Exchange Ratio nor did Howard,
Weil have any involvement in the negotiations or setting of the terms of the
Merger. S-Sixteen currently owns 57.1% of the outstanding Remington Class A
Stock and 1.7% of the outstanding Remington Class B Stock, together representing
10.5% of the total outstanding Remington Class A Stock and Remington Class B
Stock. Pursuant to the Transaction, S-Sixteen will be entitled to receive a
total of 2,785,028 shares of Remington Common Stock in exchange for its shares,
representing 13.1% of the total outstanding Remington Common Stock.
The Recapitalization provides for, among other things, each share of
Remington Class A Stock issued and outstanding (other than shares of Class A
Stock held in Remington's treasury) to be converted into the right to receive
1.15 shares of Remington Common Stock (the "Remington Class A Exchange Ratio")
and for each share of Remington Class B Stock issued and outstanding (other than
shares of Class B Stock held in Remington's treasury) to be converted into the
right to receive 1.0 shares of Remington Common Stock (the "Remington Class B
Exchange Ratio"). The Remington Class A Exchange Ratio and the Remington Class B
Exchange Ratio were independently derived and based upon arms-length
negotiations between the managements of Remington and S-Sixteen. Howard, Weil
had no involvement in the establishment of the Remington Class A Exchange Ratio
or the Remington Class B Exchange Ratio in the Recapitalization. The authorized
capital stock of Remington consists of 15,000,000 shares of Remington Class A
Stock and 30,000,000 shares of Remington Class B Stock. As of the date of this
opinion, (i) 3,221,510 shares of Remington Class A Stock and 17,128,738 shares
of Remington Class B Stock were issued and outstanding, (ii) 28,600 shares of
Remington Class A Stock and 424,272 shares of Remington Class B Stock were held
in the treasury of
<PAGE> 194
Howard, Weil, Labouisse, Friedrichs June 22, 1998
Incorporated Page 2
Remington, and (iii) 3,078,500 shares of Remington Class B Stock were held in
reserve for issuance upon exercise of options pursuant to Remington's 1997 Stock
Option Plan, the Remington Non-Employee Director Stock Purchase Plan and all
other stock option or incentive plans or stock option agreements of Remington.
The current beneficial ownership of the shareholders of Remington Class A Stock,
excluding the Remington Class A Stock owned by S-Sixteen and its affiliates,
represents 42.9% of such outstanding stock, and the current beneficial ownership
of the shareholders of Remington Class B Stock, excluding the Remington Class B
Stock owned by S-Sixteen and its affiliates, represents 98.3% of such
outstanding stock, together representing 89.5% of the total outstanding
Remington Class A Stock and Remington Class B Stock. Pursuant to the
Recapitalization, the shareholders of Remington Class A Stock and Remington
Class B Stock, excluding the Remington Class A Stock and Remington Class B Stock
owned by S-Sixteen, will be entitled to receive a total of 18,428,651 shares of
Remington Common Stock in exchange for their shares, representing 86.9% of the
total outstanding Remington Common Stock.
In connection with rendering our opinion, we have among other things: (i)
reviewed the Agreement and the Certificate of Merger, dated June 22, 1998, by
and between Remington and S-Sixteen; (ii) reviewed the Warrant Agreement, dated
June 22, 1998, by and between Remington and S-Sixteen; (iii) reviewed
Remington's Form 10-K and related audited financial information for the years
ended December 31, 1997, December 31, 1996 and December 31, 1995; (iv) reviewed
Remington's Form 10-Q and related unaudited financial information for the
quarterly periods ended March 31, 1998, September 30, 1997, June 30, 1997 and
March 31, 1997; (v) reviewed S-Sixteen's audited financial information for the
years ended December 31, 1997, December 31, 1996 and December 31, 1995; (vi)
reviewed certain publicly available information relating to the business of
Remington; (vii) reviewed certain oil and gas reserve estimates of Remington,
dated January 1, 1998, prepared by Netherland, Sewell & Associates, Inc.
("Netherland, Sewell"), independent petroleum engineers, and discussed the oil
and gas reserve estimates with Netherland, Sewell; (viii) reviewed certain oil
and gas reserve estimates prepared by Remington and discussed the oil and gas
reserve estimates with Remington; (ix) conducted discussions with members of
senior management of Remington concerning the historical, current and estimated
financial position and results of operations of its business and the business of
S-Sixteen; (x) reviewed the historical market prices and trading volume for
Remington Class A Stock and Remington Class B Stock and compared them with those
of certain publicly traded companies which Howard, Weil deemed to be comparable
to Remington; (xi) compared the results of operations of Remington with such
comparable companies; (xii) reviewed certain publicly available information
concerning the nature and terms of certain selected comparable transactions
involving different companies that we considered relevant to our inquiry; (xiii)
conducted analyses of discounted values of possible future cash flows derived
from cash flow projections under (x) certain forecasts of future oil and natural
gas prices, (y) certain estimates of oil and gas reserves, rates of production
and costs of production and (z) various discount rates; and (xiv) made such
other financial studies, analyses and examinations, performed such other
investigations and took into account such other matters as Howard, Weil deemed
necessary or appropriate.
Because the reasons for and circumstances surrounding each of the selected
comparable transactions that Howard, Weil deemed relevant were so diverse, and
because of the inherent differences between the businesses, operations and share
structures of Remington and each of the selected companies involved in such
comparable transactions, Howard, Weil believes that a purely quantitative
comparable transaction analysis would not be particularly meaningful in the
context of the Transaction. Howard, Weil believes that an appropriate use of a
comparable transaction analysis in this instance would involve qualitative
judgments concerning differences between the characteristics of these
transactions and those of the Transaction, which judgments are reflected in
Howard, Weil's opinion.
In our review and analysis and in arriving at our opinion, we assumed and
relied upon the accuracy and completeness of all of the financial information,
oil and gas reserve estimates, and other information provided to us or publicly
available and did not attempt independently to verify any of such information.
We did not conduct a physical inspection of any of the oil and gas properties or
other assets of Remington or S-Sixteen,
<PAGE> 195
Howard, Weil, Labouisse, Friedrichs June 22, 1998
Incorporated Page 3
nor did we obtain or consider any independent evaluations or appraisals of such
properties or assets other than a review of the oil and gas reserve information
prepared by Remington and the oil and gas reserve information of Remington
prepared by Netherland, Sewell upon which we relied without further
investigation.
Our opinion is necessarily based upon conditions in the securities markets
and the oil and natural gas markets prevailing as of the date hereof and the
conditions and prospects, financial and otherwise, of Remington and S-Sixteen as
they have been represented to us as of the date hereof or as they were reflected
in the materials and discussions described above.
Based upon and subject to the foregoing, we are of the opinion that the
Transaction is fair, from a financial point of view, to Remington and to the
shareholders of Remington Class A Stock and Remington Class B Stock, other than
S-Sixteen and its affiliates.
We received a fee, plus reasonable out-of-pocket expenses, from Remington
at the direction of the Committee for our services in connection with rendering
this opinion. The fee was negotiated by the parties at arms'-length and was not
contingent upon the consummation of the Transaction. In addition, in the
ordinary course of our business, we may actively trade the securities of
Remington for our own account and for the accounts of our customers.
Accordingly, at any time, we may hold a long or short position in such
securities.
Howard, Weil is an investment banking firm specializing in the valuation of
energy-related businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for corporate and other
purposes. The Committee retained Howard, Weil to act as its financial advisor on
the basis of, among other factors, Howard, Weil's expertise in the oil and gas
industry.
This opinion is for the information of and the benefit of the Committee
only in considering the terms of the proposed Transaction and may not be relied
upon, quoted or referred to in whole or in part by any other person, except that
in the event of reproduction of the opinion in any proxy statement or
registration statement prepared in connection with the proposed Transaction,
Remington may also include references to the opinion and to Howard, Weil and its
relationships with Remington (in each case in such form as Howard, Weil
reasonably shall approve) in such documents. Remington also may refer to the
opinion in other public disclosures concerning the Transaction; provided that,
to the extent reference is made to Howard, Weil's opinion, such form of
disclosure shall be first approved by Howard, Weil unless such disclosure only
references the existence of a fairness opinion without naming Howard, Weil or
the matters expressly contained in such fairness opinion. Other than as
contemplated above, neither the opinion, nor any other opinion or advice
(written or oral) of Howard, Weil shall be used, reproduced, disseminated,
quoted or referred to at any time, in any manner or for any purpose, nor shall
public reference be made to Howard, Weil, except with Howard, Weil's prior
written consent.
Very truly yours,
Howard, Weil, Labouisse, Friedrichs
Incorporated
By:
------------------------------------
James A. Hansen
Managing Director
<PAGE> 196
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides that a corporation has the power to indemnify a director, officer,
employee or agent of the corporation and certain other persons serving at the
request of the corporation in related capacities against amounts paid and
expenses incurred in connection with an action or proceeding to which he is or
is threatened to be made a party by reason of such position, if such person
shall have acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful; provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter as
to which such person shall have been judged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances. The Registrant's Restated
Certificate of Incorporation and the Registrant's By-Laws contain provisions for
the indemnification by the Registrant of current and former directors, officers,
employees and agents of the Registrant on terms that have been derived from
Section 145 of the General Corporation Law of the State of Delaware.
Registrant's Certificate of Incorporation contains provisions which
eliminate the personal liability of Registrant's directors for monetary damages
resulting from breaches of their fiduciary duty other than liability for
breaches of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, violations
under Section 174 of the General Corporation Law of the State of Delaware or any
transaction from which the director derived an improper personal benefit.
The Registrant has obtained directors' and officers' liability insurance
that covers certain liabilities and expenses of the Registrant's directors and
officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1** -- Agreement and Plan of Merger, dated June 22, 1998, by and
between Remington Oil and Gas Corporation and S-Sixteen
Holding Company, attached as Appendix I to the Prospectus
and Proxy Statement contained herein.
2.1.1 -- Amendment to Agreement and Plan of Merger.
5.1* -- Opinion of Prickett, Jones, Elliott, Kristol & Schnee re
legality of shares.
8.1 -- Opinion of Arthur Andersen LLP re tax matters.
23.1* -- Consent of Prickett, Jones, Elliott, Kristol & Schnee
(contained in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP (contained in Exhibit
8.1).
23.3 -- Consent of Arthur Andersen LLP re Remington Oil and Gas
Corporation.
23.4 -- Consent of Arthur Andersen LLP re S-Sixteen Holding
Company.
23.5 -- Consent of PricewaterhouseCoopers LLP.
23.6 -- Consent of Howard, Weil, Labouisse, Friedrichs,
Incorporated.
23.7** -- Consent of Netherland, Sewell & Associates, Inc.
23.8** -- Consent of Miller and Lents, Ltd.
24.1** -- Power of Attorney (included on the signature page of
Registration Statement).
</TABLE>
- ---------------
* To be filed by Amendment.
** Previously filed.
II-1
<PAGE> 197
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by Registrant of
expenses incurred or paid by a director, officer, controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) Prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed to be underwriters, in addition to the information called for by
the other Items of the applicable form; and
(2) Every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933, and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for the purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-2
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this amendment to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Dallas, State of Texas, on October 14, 1998.
REMINGTON OIL AND GAS
CORPORATION
By: /s/ JAMES A. WATT
----------------------------------
James A. Watt
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to Registration Statement has been signed by the following persons in the
capacities indicated on October 14, 1998.
<TABLE>
<CAPTION>
SIGNATURE
---------
<C> <S> <C>
Chairman of the Board of Directors
- -----------------------------------------------------
David H. Hawk
/s/ JAMES A. WATT Director, President and Chief
- ----------------------------------------------------- Executive Officer
James A. Watt
/s/ J. BURKE ASHER Vice President/Finance; principal
- ----------------------------------------------------- financial officer
J. Burke Asher
/s/ EDWARD V. HOWARD Vice President/Controller
- -----------------------------------------------------
Edward V. Howard
DON D. BOX* Director
- -----------------------------------------------------
Don D. Box
JOHN E. GOBLE, JR.* Director
- -----------------------------------------------------
John E. Goble, Jr.
WILLIAM E. GREENWOOD* Director
- -----------------------------------------------------
William E. Greenwood
JAMES ARTHUR LYLE* Director
- -----------------------------------------------------
James Arthur Lyle
Director
- -----------------------------------------------------
David E. Preng
THOMAS W. ROLLINS* Director
- -----------------------------------------------------
Thomas W. Rollins
ALAN C. SHAPIRO* Director
- -----------------------------------------------------
Alan C. Shapiro
</TABLE>
*By /s/ JAMES A. WATT
--------------------------------
James A. Watt
Attorney-in-Fact
II-3
<PAGE> 199
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1** -- Agreement and Plan of Merger, dated June 22, 1998, by and
between Remington Oil and Gas Corporation and S-Sixteen
Holding Company, attached as Appendix I to the Prospectus
and Proxy Statement contained herein.
2.1.1 -- Amendment to Agreement and Plan of Merger.
5.1* -- Opinion of Prickett, Jones, Elliott, Kristol & Schnee re
legality of shares.
8.1 -- Opinion of Arthur Andersen LLP re tax matters.
23.1* -- Consent of Prickett, Jones, Elliott, Kristol & Schnee
(contained in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP (contained in Exhibit
8.1).
23.3 -- Consent of Arthur Andersen LLP re Remington Oil and Gas
Corporation.
23.4 -- Consent of Arthur Andersen LLP re S-Sixteen Holding
Company.
23.5 -- Consent of PricewaterhouseCoopers LLP.
23.6 -- Consent of Howard, Weil, Labouisse, Friedrichs,
Incorporated.
23.7** -- Consent of Netherland, Sewell & Associates, Inc.
23.8** -- Consent of Miller and Lents, Ltd.
24.1** -- Power of Attorney (included on the signature page of
Registration Statement).
</TABLE>
- ---------------
* To be filed by Amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 2.1.1
October 12, 1998
David H. Hawk, President
S-Sixteen Holding Company
999 Main Street
11th Floor
Boise, ID 83702
Re: Agreement and Plan of Merger
Dear Mr. Hawk:
As you are aware, the September 21, 1998, letter to James Watt of Remington
Oil & Gas Corporation ('Remington') from H. Roger Schwall, Assistant Director of
the Corporation Finance Division of the Securities and Exchange Commission,
points out an ambiguity in the Agreement and Plan of Merger (the 'Merger
Agreement') dated June 22, 1998, between Remington and S-Sixteen Holding Company
('SSHC'). The ambiguity relates to Remington's ability to waive the condition,
set forth in Section 7.2(d) of the Merger Agreement, that Remington receive an
opinion from its special tax advisor, Arthur Andersen, LLP, that the transaction
contemplated by the Merger Agreement will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code.
As you recall, and as recounted in the draft Form S-4 under The
Transaction -- Background of the Transaction, the ability to structure the
merger transaction as a tax-free reorganization was an important factor in the
negotiation of the Merger Agreement. It is our clear understanding that the
Merger Agreement contemplates a tax-free reorganization and it will only go
forward on that basis.
Therefore, we propose that the Merger Agreement be amended to clarify our
shared understanding as follows:
Section 7.2(d) shall be amended by the insertion of the following
language at the end of the current section:
Notwithstanding the foregoing, the condition set forth in
subsection 7.2(d) shall not be waivable by Remington.
Please indicate your agreement with the proposed amendment by signing this
letter where set forth below and returning it to me.
Thank you for your cooperation.
Sincerely,
REMINGTON OIL & GAS CORPORATION
By /s/ JAMES WATT
----------------------------------
James Watt, Chief Executive
Officer
Accepted and Agreed to:
S-SIXTEEN HOLDING COMPANY
By /s/ DAVID H. HAWK
--------------------------------
David H. Hawk, President
<PAGE> 1
EXHIBIT 8.1
October 13, 1998
Board of Directors
Remington Oil and Gas Corporation
8201 Preston Road, Suite 600
Dallas, Texas 75225-6211
Re: Merger of S-Sixteen Holding Company (formerly Box Brothers Holding Company)
and Remington Oil and Gas Corporation (formerly Box Energy Corporation).
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of (1) the proposed merger (the "Merger") of S-Sixteen Holding
Company ("SSHC") with Remington Oil and Gas Corporation ("ROIL"), and (2) the
exchange by stockholders of ROIL of their shares of ROIL class A and/or class B
stock, as applicable, for shares of ROIL common stock (the "Recapitalization")
as set forth in the Agreement and Plan of Merger dated June 22, 1998, (the
"Merger Agreement"), attached as Appendix I to the Proxy Statement/Prospectus
(the "Proxy Statement/Prospectus") filed with the Security and Exchange
Commission as part of the Form S-4 Registration Statement (Registration No.
333-61513) dated August 14, 1998, and any amendments thereto (the "Registration
Statement"). The Merger and the Recapitalization are referred to collectively as
the "Transactions."
RELIANCE ON CERTAIN FACTS AND REPRESENTATIONS
In rendering our opinion, we have relied upon the accuracy and completeness
of the facts and representations (without regard to any limitation based on
knowledge or belief):
(i) set forth in this opinion
(ii) contained in the documents listed in Exhibit A to this opinion,
and
(iii) set forth or referenced in the representation letters, dated
October 13, 1998, signed by appropriate officers of ROIL, SSHC and Mr. J.R.
Simplot attached as Exhibit B to this opinion.
ROIL, SSHC and Mr. J.R. Simplot have represented that such facts and
representations are true, correct and complete. However, we have not
independently audited or otherwise verified any of these facts and
representations. A misstatement or omission of any fact or a change or amendment
in any of the facts or representations we have relied upon may require a
modification of all or a part of this opinion. In addition, our opinion is based
on such facts and representations as represented to us as of the date of this
letter. Any changes in the facts or representations upon which we have relied
between the date of this letter and the actual closing of the Transactions may
require a modification of all or part of this opinion. Our opinion assumes that
the Transactions will be executed in accordance with the terms of the documents
set forth in Exhibit A. We have no responsibility to update this opinion for
events, transactions, circumstances or changes in any of the facts or
representations occurring after this date.
PREMISE OF OPINION
Our opinion is expressed only with respect to those federal income tax
issues called for by Section 7.2(d) of the Merger Agreement and as to factual
matters based upon representations received from SSHC and ROIL. The opinion
expressed is based upon our interpretation of the Internal Revenue Code of 1986,
as amended ("the Code"), income tax regulations thereunder, court decisions,
rulings and procedures issued by the Internal Revenue Service ("the Service"),
and other authorities that we deemed relevant, in each case as of the date of
this opinion.
<PAGE> 2
U.S. federal income tax laws and regulations, and the interpretations
thereof, are subject to change, which changes could adversely affect this
opinion. Should there be any change, including any change which has retroactive
effect, in the Code, the regulations thereunder, and the administrative guidance
issued thereunder, or in the prevailing judicial interpretation of the
foregoing, the opinion expressed herein would necessarily have to be reevaluated
in light of such change. Our opinion is as of the date of this letter, and we
have no responsibility to update this opinion for changes in applicable law or
authorities occurring after the date of this opinion.
Our opinion is limited to the specific U.S. federal income tax consequences
set forth below. Under the Merger Agreement, SSHC and the shareholder of SSHC
are responsible for evaluating all tax consequences to them of the Merger.
Accordingly, except to the extent set forth below, our opinion does not address
the tax consequences to them of the Transactions, including any shareholder of
ROIL acting in a capacity as a shareholder of SSHC.
We have not considered any non-income tax consequences arising from the
Transactions (including (without limitation) corporate law or securities law
matters), or any state, local, foreign, or other income tax (other than federal
income tax) consequences, and therefore we express no opinion regarding the
treatment that would be accorded the Transactions for such purposes. The opinion
does not address the tax consequences of the Transactions to a stockholder of
ROIL other than United States individual shareholders who hold ROIL class A
and/or class B stock as a capital asset. The opinion does not address the tax
consequences of the Transactions to a stockholder of ROIL class A and/or class B
stock that has a special status, including insurance companies; tax-exempt
entities; financial institutions or broker-dealers; foreign corporations;
estates and trusts not subject to U.S. federal income tax on their income
regardless of source; persons who are not citizens or residents of the United
States; and persons who acquired their ROIL common stock as a result of the
exercise of an employee stock option, pursuant to an employee stock purchase
plan, or otherwise as compensation.
The opinion addresses federal income tax consequences of the Transactions
solely with respect to the stockholders of ROIL class A and/or class B stock in
their capacity as shareholders of ROIL. No opinion is expressed about the
federal income tax consequences of the Transactions to persons acting in any
other capacity (e.g., as an employee of ROIL).
This opinion is not binding on the Service, and there can be no assurance
that the Service will not take positions contrary to the conclusions expressed
in our opinion. However, should the Service challenge the U.S. federal income
tax treatment of the matters discussed below, our assessment reflects the
probable outcome of litigation related to such matters.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND THE RECAPITALIZATION
In our opinion:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code. The Recapitalization will constitute a
reorganization with the meaning of Section 368(a)(1)(E) of the Code.
2. No gain or loss will be recognized by ROIL or SSHC in the Merger
and the Recapitalization (Sections 1032 and 361 of the Code).
3. No gain or loss will be recognized by the stockholders of ROIL upon
the exchange of their shares of class A or class B ROIL shares, as the case
may be, solely for shares of ROIL common stock in connection with the
Recapitalization, except with respect to cash, if any, in lieu of
fractional shares of ROIL common stock (Sections 354 and 356 of the Code).
4. The aggregate tax basis of the shares of ROIL common stock received
solely in exchange for shares of class A or class B ROIL shares, as the
case may be, in connection with the Recapitalization (including fractional
shares of ROIL common stock for which cash is received) will be the same as
the
2
<PAGE> 3
aggregate tax basis of the shares of class A or class B ROIL stock, as the
case may be, exchanged therefor (Section 358 of the Code).
5. The holding period for shares of ROIL common stock received in
exchange for shares of class A or class B ROIL shares, as the case may be,
in connection with the Recapitalization will include the holding period of
the class A or class B ROIL shares exchanged therefor, provided such shares
were held as capital assets by the ROIL stockholder at the effective time
of the Recapitalization (Section 1223(1) of the Code).
6. The payment of cash in lieu of fractional share interests in ROIL
common stock in the Recapitalization will be treated for federal income tax
purposes as if the fractional share interests were issued as part of the
Recapitalization and were subsequently redeemed by ROIL. Subject to the
limitations discussed in this paragraph, the cash payments will be treated
as having been received as distributions in full payment in exchange for
the fractional share interests received as provided in Section 302(a) of
the Code (Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2
C.B. 574). Gain or loss will be recognized on such exchange (determined
under Section 1001 of the Code and subject to the limitations of Section
267 of the Code) and, if the fractional share interest is a capital asset
in the hands of the exchanging holder, will constitute capital gain or loss
to such holder subject to the provisions and limitations of Subchapter P
and Chapter 1 of the Code. However, if a ROIL shareholder does not
experience a sufficient reduction in proportionate interest in ROIL, such
ROIL shareholder may recognize dividend income equal to all or a portion of
the cash received in lieu of fractional share interests, instead of
recognizing capital gain or loss (Sections 302(d) and 301). The
determination as to whether there has been a sufficient reduction in
proportionate interest must be made by each individual shareholder based on
his, her or its specific factual situation.
This opinion is solely for the benefit of ROIL, SSHC, and the shareholders
of ROIL in their capacity as such and is not intended to be relied upon by any
other party. Except to the extent expressly permitted hereby, and without the
prior written consent of this firm, this letter may not be quoted in whole or in
part, or otherwise referred to in any documents or delivered to any person or
entity. Any such authorized other party receiving a copy of this letter must
consult and rely upon the advice of their own counsel, accountant, or other
advisor.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in such document.
Very truly yours,
ARTHUR ANDERSEN LLP
Attachments
3
<PAGE> 4
EXHIBIT A
LISTING OF DOCUMENTS
1. Agreement and Plan of Merger, among S-Sixteen Holding Company and
Remington Oil and Gas Corporation dated June 22, 1998.
2. Form S-4 Registration Statement/Proxy Statement (Registration No.
33-61513), dated August 14, 1998, including any exhibits and amendments
thereto.
<PAGE> 1
EXHIBIT 23.3
As independent public accountants, we hereby consent to the use of our
report dated March 20, 1998, included or made a part of this Registration
Statement of Remington Oil and Gas Corporation (formerly Box Energy
Corporation), on Form S-4, and to all references to our firm included in this
document.
ARTHUR ANDERSEN LLP
Dallas, Texas
October 14, 1998
2
<PAGE> 1
EXHIBIT 23.4
As independent public accountants, we hereby consent to the use of our
report dated June 4, 1998, on the financial statements of S-Sixteen Holding
Company and Subsidiaries, included or made a part of this Registration Statement
of Remington Oil and Gas Corporation (formerly Box Energy Corporation), on Form
S-4, and to all references to our firm included in this document.
ARTHUR ANDERSEN LLP
Dallas, Texas
October 14, 1998
3
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-4 of
Remington Oil and Gas Corporation (formerly Box Energy Corporation) of our
report dated March 5, 1996, except for the thirteenth paragraph of Note 1 as to
which the date is March 27, 1998, on our audit of the financial statements of
Remington Oil and Gas Corporation for the year ended December 31, 1995. We also
consent to the reference to our firm under the caption "Experts."
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
October 14, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF FINANCIAL ADVISOR
TO
SPECIAL TRANSACTION COMMITTEE
We consent to the inclusion in this Registration Statement on Form S-4, and
all amendments thereto, of Remington Oil & Gas Corporation of our opinion dated
June 22, 1998 included within the Registration Statement as Attachment II to the
Prospectus and Proxy Statement therein (the "Opinion"), and to the references to
our firm and to the Opinion under the captions "Summary -- The Special
Transaction Committee and Opinion of Outside Financial Advisor," "The
Transaction -- Potential Conflicts of Interests," "The
Transaction -- Proceedings of the STC," and "Opinion of STC Financial Advisor"
in said Prospectus and Proxy Statement.
HOWARD, WEIL, LABOUISSE,
FRIEDRICHS, INCORPORATED
Houston, Texas
October 14, 1998
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the references to our firm under the captions
"Information about the Registrant -- Oil and Gas Properties", "Oil and Natural
Gas Properties" in Note 12 to the Financial Statements of Remington Oil and Gas
Corporation and "Experts", and to the use of the summary of our report setting
forth the oil and gas reserves of Remington Oil and Gas Corporation (the
"Company"), as of December 31, 1998, in its Form S-4, and all amendments thereto
and in the related Prospectus and Proxy Statement, as may be amended from time
to time, of the Company.
NETHERLAND, SEWELL & ASSOCIATES, INC.
Dallas, Texas
August 13, 1998
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the references to our firm under the captions
"Information about the Registrant -- Oil and Gas Properties", "Oil and Natural
Gas Properties" in Note 12 to the Financial Statements of Remington Oil and Gas
Corporation and "Experts", and to the use of the summary of our report setting
forth the oil and gas reserves of Remington Oil and Gas Corporation (the
"Company"), as of December 31, 1998, in its Form S-4, and all amendments thereto
and in the related Prospectus and Proxy Statement, as may be amended from time
to time, of the Company.
MILLER AND LENTS, LTD.
Dallas, Texas
August 13, 1998
