<PAGE>
RULE NO. 424(b)(3)
REGISTRATION NO. 33-56377
PROSPECTUS
MARCH 29, 1995
$167,500,000
CALIFORNIA PETROLEUM TRANSPORT CORPORATION
SERIAL FIRST PREFERRED MORTGAGE NOTES
MATURING SERIALLY FROM 1996 TO 2006
CHEVRON Payable from Charterhire Payments by
LOGO CHEVRON TRANSPORT CORPORATION
Whose Charter Obligations are Guaranteed by
CHEVRON CORPORATION
The Serial First Preferred Mortgage Notes designated below in the aggregate
principal amount of $167,500,000 (the "Serial Mortgage Notes") are being issued
as full recourse obligations of California Petroleum Transport Corporation, a
Delaware corporation ("California Petroleum"), by California Petroleum as agent
on behalf of the Owners named below. Interest on the Serial Mortgage Notes will
be payable semi-annually on April 1 and October 1 of each year, commencing on
October 1, 1995, at the rates per annum set forth below. Principal will be
payable on the Serial Mortgage Notes on their respective maturity dates (each,
a "Maturity Date"). Concurrent with this offering, 8.52% First Preferred
Mortgage Notes Due 2015 in an aggregate principal amount of $117,900,000 (the
"Term Mortgage Notes" and, together with the Serial Mortgage Notes, the
"Notes"), are being offered pursuant to a separate prospectus. The consummation
of the sale of the Serial Mortgage Notes is dependent on the consummation of
the sale of the Term Mortgage Notes.
The proceeds from the sale of the Serial Mortgage Notes, together with the
proceeds from the sale of the Term Mortgage Notes, will be loaned by California
Petroleum to CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas
II) Limited, CalPetro Tankers (Bahamas III) Limited and CalPetro Tankers (IOM)
Limited (each, an "Owner") on a non-recourse basis, secured jointly and
severally by the collateral discussed
(continued on next page)
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH
INVESTORS SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN THE SERIAL
MORTGAGE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
INTEREST AGGREGATE PRICE TO DISCOUNTS AND CALIFORNIA
RATE AMOUNT PUBLIC(1) COMMISSIONS(2) PETROLEUM(1)(3)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Serial
Mortgage
Notes 6.71% $ 17,160,000 100.000% 0.150% 99.850%
1997 Serial
Mortgage
Notes 6.98% 18,160,000 100.000% 0.250% 99.750%
1998 Serial
Mortgage
Notes 7.15% 18,160,000 100.000% 0.375% 99.625%
1999 Serial
Mortgage
Notes 7.30% 18,160,000 100.000% 0.450% 99.550%
2000 Serial
Mortgage
Notes 7.35% 18,160,000 100.000% 0.550% 99.450%
2001 Serial
Mortgage
Notes 7.44% 18,160,000 100.000% 0.575% 99.425%
2002 Serial
Mortgage
Notes 7.49% 18,160,000 100.000% 0.625% 99.375%
2003 Serial
Mortgage
Notes 7.55% 18,160,000 100.000% 0.650% 99.350%
2004 Serial
Mortgage
Notes 7.57% 12,950,000 100.000% 0.650% 99.350%
2005 Serial
Mortgage
Notes 7.60% 7,740,000 100.000% 0.675% 99.325%
2006 Serial
Mortgage
Notes 7.62% 2,530,000 100.000% 0.675% 99.325%
------------
Total $167,500,000 $167,500,000 $810,298 $166,689,702
------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) See "Underwriting" for compensation and indemnity arrangements with the
Underwriter.
(3) Before deducting expenses payable from the proceeds of the offering
estimated at $300,000. Expenses payable in connection with the concurrent
offering of the Term Mortgage Notes are estimated at $211,000.
The Serial Mortgage Notes are offered by the Underwriter, when, as and if
delivered to and accepted by the Underwriter, and subject to various prior
conditions, including its right to reject orders in whole or in part. It is
expected that delivery of the Serial Mortgage Notes will be made through the
facilities of The Depository Trust Company upon payment therefor in immediately
available funds in New York, New York on or about April 5, 1995.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>
[insert tanker picture]
2
<PAGE>
(cover page continued)
below, to fund, after paying certain fees and expenses, the acquisition by
each Owner of a recently constructed oil tanker (each, a "Vessel") from
Chevron Transport Corporation ("Chevron Transport"). The Vessels consist of
one double-hulled, 130,000 deadweight tonne oil tanker, two double-hulled,
150,000 deadweight tonne oil tankers and one single-hulled, 150,000 deadweight
tonne oil tanker, each of which was constructed to the specifications of
Chevron Transport. Initially, each Owner will enter into a bareboat charter
(each, an "Initial Charter") with Chevron Transport with a term expiring on
April 1, 2015, subject to earlier termination at the option of Chevron
Transport. The obligations of Chevron Transport under each Initial Charter
will be guaranteed by Chevron Corporation ("Chevron"). Chevron Transport is an
indirect, wholly-owned subsidiary of Chevron. The Serial Mortgage Notes will
not be obligations of, or guaranteed by, Chevron Transport or Chevron,
although California Petroleum and the Owners expect that the amounts payable
by Chevron Transport, and guaranteed by Chevron, under the Initial Charters
(whether or not the termination options are exercised), together with an
allocable amount of anticipated earnings on the Permitted Investments (as
defined herein), will be sufficient to pay in full when due all principal of
and interest on the Serial Mortgage Notes. See "Investment Considerations--
Certain Risks Not Related to Chevron Transport or Chevron." The Serial
Mortgage Notes will be obligations of California Petroleum and will be
secured, equally and ratably with the Term Mortgage Notes, by an assignment of
a first preferred ship mortgage on each Vessel, an assignment of each Initial
Charter, as well as by certain other collateral. Upon payment in full of the
Allocated Principal Amount of Serial Mortgage Notes (as defined herein) with
respect to a Vessel, the collateral relating to such Vessel will be released
from the Lien of the Serial Indenture. California Petroleum has agreed not to
incur any indebtedness other than its obligations under the Notes and the
related Indentures and the Owners have agreed not to incur any indebtedness
other than Permitted Indebtedness so long as any Serial Mortgage Notes are
outstanding. See "Description of the Notes--Certain Covenants" and "The
Mortgages--Certain Covenants" for a discussion of Permitted Indebtedness.
The Serial Mortgage Notes will not be subject to optional redemption prior
to their respective maturity dates. If certain casualty or other events occur
with respect to a Vessel, the Serial Mortgage Notes will be subject to
mandatory redemption in part, equally and ratably with any Term Mortgage Notes
then outstanding, in an aggregate principal amount equal to the Allocated
Principal Amount of Serial Mortgage Notes then outstanding and allocable to
such Vessel. See "Description of the Notes--Redemption." The Term Mortgage
Notes may be redeemed, in whole or in part, at the direction of California
Petroleum on any Payment Date on or after April 1, 2006, the final Maturity
Date for any Serial Mortgage Notes.
The Serial Mortgage Notes will be debt obligations of California Petroleum
secured solely by the Collateral and will not be share capital, debentures or
general obligations of any Owner or the Owners and this Prospectus does not
constitute an offering of any such security of any Owner or the Owners.
Recourse under the Serial Indenture against the incorporators, directors,
officers and stockholders of California Petroleum and its stockholders has
been expressly waived by the Indenture Trustee, on behalf of all Holders of
the Serial Mortgage Notes and, accordingly, the incorporators, directors,
officers and stockholders of California Petroleum and its stockholders will
not be liable for any payments of debt service on the Serial Mortgage Notes.
California Petroleum's capitalization is nominal and it has no source of
income other than payments to it by the Owners.
----------------
No action has been or will be taken in any jurisdiction by California
Petroleum, Chevron Transport, Chevron, any Owner or the Underwriter that would
permit a public offering of the Serial Mortgage Notes or possession or
distribution of this Prospectus in any jurisdiction where action for that
purpose is required, other than the United States of America.
All references in this Prospectus to "$" or "Dollars" shall be to the
currency of the United States of America.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIAL
MORTGAGE NOTES OFFERED HEREBY AND THE TERM MORTGAGE NOTES AT A LEVEL ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY
BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
AVAILABLE INFORMATION
California Petroleum, Chevron Transport, Chevron and the Owners have filed
with the Securities and Exchange Commission (the "Commission") a combined
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to California Petroleum, Chevron Transport, Chevron and the Owners and
the securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed as
a part thereof. All of these documents may be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission located at 7 World Trade Center, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661.
Chevron 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
Commission. All of the reports, proxy statements and other documents filed by
Chevron with the Commission, including the documents incorporated by reference
herein, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following Regional Offices of the Commission: 7 World Trade Center,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all such reports, proxy
statements and other documents can also be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, certain reports, proxy statements and other
information concerning Chevron may be inspected and copied at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10015;
the Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois 60605;
and The Pacific Stock Exchange, Inc., 301 Pine Street, San Francisco,
California 94104 and 618 South Spring Street, Los Angeles, California 90014.
Chevron is not required to, and will not, provide annual reports to Holders of
the Serial Mortgage Notes unless specifically requested to do so by such a
Holder.
Chevron Transport is currently not subject to the informational requirements
of the Exchange Act. Chevron Transport will not file separate periodic reports
under the Exchange Act, as management of Chevron and Chevron Transport have
determined that such separate financial information and other disclosures
concerning Chevron Transport are not material to investors. Summarized
financial information concerning Chevron Transport will be included in the
footnotes to Chevron's consolidated financial statements so long as any Initial
Charter is in effect.
Upon written or oral request, Chevron will provide, without charge, to each
person to whom a copy of this Prospectus has been delivered a copy of any or
all of the documents (without exhibits other than exhibits specifically
incorporated by reference into such documents) incorporated by reference into
this Prospectus. Requests for such copies should be directed to: Chevron
Corporation, 225 Bush Street, San Francisco, California 94104, Attention:
Office of the Comptroller (telephone: (415) 894-7700).
4
<PAGE>
Neither California Petroleum nor any of the Owners is currently subject to
the informational requirements of the Exchange Act. California Petroleum and
each Owner will be subject to such requirements upon effectiveness of the
Registration Statement and will provide copies of reports filed under the
Exchange Act to the Holders of the Serial Mortgage Notes upon request. During
any time that California Petroleum or any Owner is not subject to the reporting
and informational requirements of the Exchange Act, under the terms of the
Serial Indenture and the Mortgages, California Petroleum and the Owners have
agreed that, so long as the Serial Mortgage Notes remain outstanding, they will
file with the Indenture Trustee and the Commission and distribute to Holders of
the Serial Mortgage Notes, upon request, copies of the financial and other
information that would have been contained in such annual reports and periodic
reports that California Petroleum and the Owners would have been required to
file with the Commission pursuant to the Exchange Act.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Chevron with the Commission are incorporated
by reference in this Prospectus:
(1) Chevron's Annual Report on Form 10-K for the year ended December
31, 1993.
(2) Chevron's Quarterly Report on Form 10-Q for the quarter ended March
31, 1994.
(3) Chevron's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994.
(4) Chevron's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
(5) Chevron's Current Report on Form 8-K, dated July 26, 1994.
(6) Chevron's Current Report on Form 8-K, dated August 1, 1994.
(7) Chevron's Current Report on Form 8-K/A, dated August 1, 1994.
(8) Chevron's Current Report on Form 8-K, dated August 3, 1994.
(9) Chevron's Current Report on Form 8-K, dated October 25, 1994.
(10) Chevron's Current Report on Form 8-K, dated October 28, 1994.
(11) Chevron's Current Report on Form 8-K, dated January 24, 1995.
(12) Chevron's Current Report on Form 8-K, dated February 27, 1995.
(13) Chevron's Current Report on Form 8-K, dated March 10, 1995.
(14) Chevron's Current Report on Form 8-K, dated March 10, 1995.
All documents filed by Chevron pursuant to Sections 13, 14 or 15(d) of the
Exchange Act after the date hereof and prior to the termination of the
distribution of the Serial Mortgage Notes shall also be deemed to be
incorporated by reference herein and be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which 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.
5
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
Each of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II)
Limited and CalPetro Tankers (Bahamas III) Limited is a special purpose company
organized under the laws of the Commonwealth of the Bahamas (the "Bahamas").
CalPetro Tankers (IOM) Limited is organized under the laws of the Isle of Man.
A substantial portion of the assets of each Owner is or may be located outside
the United States. As a result, it may be difficult for investors to enforce
outside the United States judgments against each such Owner obtained in the
United States in any actions, including actions predicated on the civil
liability provisions of the federal securities laws of the United States.
Certain directors of each such Owner are residents of jurisdictions other than
the United States, and all or a significant portion of the assets of such
persons are or may be located outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon such persons or to enforce against them in United States courts judgments
predicated upon the civil liability provisions of the federal securities laws
of the United States. There is currently no treaty between the United States
and the Bahamas or between the United States and the Isle of Man providing for
reciprocal recognition and enforcement of judgments in civil and commercial
matters and a final judgment for the payment of money rendered by any federal
or state court in the United States based on civil liability, whether or not
predicated solely upon the federal securities laws, would, therefore, not be
automatically enforceable in the Bahamas or in the Isle of Man. Each Owner has
irrevocably submitted to the jurisdiction of the federal and state courts in
The City of New York for the purpose of any legal suit, action or proceeding
against each such Owner in connection with the offering and sale of the Serial
Mortgage Notes.
The foregoing discussion is based on the advice of McKinney, Bancroft &
Hughes, counsel to CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, and CalPetro Tankers (Bahamas III) Limited with respect
to matters of Bahamian law, and Cains, counsel to CalPetro Tankers (IOM)
Limited with respect to matters of Isle of Man law.
Chevron Transport is organized under the laws of the Republic of Liberia
("Liberia") and a substantial portion of its assets are or may be located
outside the United States. Certain directors of Chevron Transport are residents
of jurisdictions other than the United States, and all or a significant portion
of the assets of these directors of Chevron Transport may be located outside
the United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or to enforce
against them or against Chevron Transport in the United States judgments
predicated upon the civil liability provisions of the federal securities laws
of the United States. There is currently no treaty between the United States
and Liberia providing for reciprocal recognition and enforcement of judgments
in civil and commercial matters, and a final judgment for the payment of money
rendered by any federal or state court in the United States based on civil
liability, whether or not predicted solely upon the federal securities laws,
would, therefore, not be automatically enforceable in Liberia. However, such
judgment would be admissible in evidence and would be enforceable by the courts
of Liberia without re-trial or examination of the merits of the case if the
court which rendered the judgment had jurisdiction over the parties and subject
matter, the judgment was for a fixed or definite sum, the judgment was not a
default judgment and if enforcement of the judgment is not contrary to the
public policy of Liberia. Chevron Transport has irrevocably submitted to the
jurisdiction of the federal and state courts in New York City for the purpose
of any legal suit, action or proceeding against Chevron Transport in connection
with the offering and sale of the Serial Mortgage Notes.
6
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Definitions of certain shipping terms and a
glossary of certain other significant terms used in this Prospectus are
included as Appendix A hereto.
CHEVRON AND CHEVRON TRANSPORT
Chevron Transport Corporation, a Liberian corporation ("Chevron Transport"),
is principally engaged in the marine transportation of oil and refined
petroleum products. As of December 31, 1994, Chevron Transport operated 30
internationally flagged vessels which it owned or bareboat chartered. In
addition, as of the date of this Prospectus, Chevron Transport has an
additional 28 ships on time or single-voyage charters. Chevron Transport's
primary transportation routes are from the Middle East, Indonesia, Mexico, West
Africa and the North Sea to ports in the United States, Europe, the United
Kingdom and Asia. Refined petroleum products are transported worldwide. Chevron
Transport expects to use each Vessel worldwide as permitted under the Initial
Charters.
Chevron Corporation, a Delaware corporation ("Chevron"), a major
international oil company, will guarantee the payment and performance
obligations of Chevron Transport under each Initial Charter. Chevron provides
administrative, financial and management support for, and manages its
investment in, domestic and foreign subsidiaries and affiliates, which engage
in fully integrated petroleum operations, chemical operations, real estate
development and other mineral and energy related activities in the United
States and approximately 100 other countries. Petroleum operations consist of
exploring for, developing and producing crude oil and natural gas; transporting
crude oil, natural gas and petroleum products by pipelines, marine vessels and
motor equipment; refining crude oil into finished petroleum products; and
marketing crude oil, natural gas and the many products derived from petroleum.
Chemical operations include the manufacture and marketing of a wide range of
chemicals primarily for industrial uses. Chevron Transport is an indirect,
wholly-owned subsidiary of Chevron.
Chevron's executive offices are located at 225 Bush Street, San Francisco,
California 94104. Chevron's telephone number is (415) 894-7700. Chevron
Transport's executive offices are located at Chevron House, 11 Church Street,
Hamilton, Bermuda HM11, and its telephone number is (809) 295-1774.
CALIFORNIA PETROLEUM
California Petroleum Transport Corporation, a Delaware corporation
("California Petroleum"), is a special purpose corporation that has been
recently organized solely for the purpose of issuing, as agent on behalf of the
Owners, the Serial Mortgage Notes and the Term Mortgage Notes as full recourse
obligations of California Petroleum and loaning the proceeds of the sale of the
Notes to the Owners to facilitate the funding of the acquisition of the four
Vessels described below from Chevron Transport. Recourse under the Serial
Indenture against the incorporators, directors, officers and stockholders of
California Petroleum and its stockholders has been expressly waived by the
Indenture Trustee, on behalf of all Holders of the Serial Mortgage Notes and,
accordingly, the incorporators, directors, officers and stockholders of
California Petroleum and its stockholders will not be liable for any payments
of debt service on the Serial Mortgage Notes. California Petroleum's
capitalization is nominal and it has no source of income other than payments to
it by the Owners. All the shares of California Petroleum are held by The
California Trust, a Massachusetts charitable lead trust formed by JH Holdings,
a Massachusetts corporation, for the benefit of certain charitable institutions
in Massachusetts.
7
<PAGE>
California Petroleum's executive offices are located at Room 6/9, One
International Place, Boston, Massachusetts 02110-2624, and its telephone number
is (617) 951-7727.
THE OWNERS
Each of CalPetro Tankers (Bahamas I) Limited ("CalPetro Bahamas I"), CalPetro
Tankers (Bahamas II) Limited ("CalPetro Bahamas II") and CalPetro Tankers
(Bahamas III) Limited ("CalPetro Bahamas III"), has been recently organized as
a special purpose company under the laws of the Bahamas for the purpose of
acquiring and chartering one of the Vessels. Similarly, CalPetro Tankers (IOM)
Limited ("CalPetro IOM") has been recently organized as a special purpose
company organized under the laws of the Isle of Man for the purpose of
acquiring and chartering one of the Vessels. Each of the foregoing companies
also is referred to in this Prospectus as an "Owner." Each Owner, either
pursuant to the terms of its Memorandum of Association and/or pursuant to the
terms of the related Mortgage, will engage in no business other than the
ownership and chartering of its Vessel and activities resulting from or
incidental to such ownership and chartering. Each Owner is wholly-owned by
California Tankers Investments Limited, a company organized under the laws of
the Bahamas, which is a wholly-owned subsidiary of CalPetro Holdings Limited,
an Isle of Man company. None of the Owners is owned by or is an affiliate of
California Petroleum and none of California Petroleum or any Owner is owned by
or is an affiliate of Chevron Transport or Chevron.
Each of CalPetro Bahamas I, CalPetro Bahamas II and CalPetro Bahamas III has
executive offices located at Mareva House, 4 George Street, Nassau, Bahamas,
and each such Owner's telephone number is (809) 322-4195.
CalPetro IOM's executive offices are located at United House, 14-16 Nelson
Street, Douglas, Isle of Man, British Isles and its telephone number is 011-44-
624-623422.
THE VESSELS
Each Vessel to be acquired by the respective Owner listed below is a Suezmax
oil tanker, which is currently owned and operated by Chevron Transport.
Suezmax-size tankers are medium-sized vessels ranging from approximately
120,000 to 200,000 deadweight tonnes ("dwt"), and of maximum length, breadth
and draft capable of passing fully loaded through the Suez Canal.
<TABLE>
<CAPTION>
APPROXIMATE
DEADWEIGHT
VESSEL NAME OWNER TONNES CONSTRUCTION DELIVERY DATE
<S> <C> <C> <C> <C>
Samuel Ginn ("S. Ginn") CalPetro Bahamas I 150,000 Double Hull March 1993
Condoleezza Rice ("C. Rice") CalPetro Bahamas II 130,000 Double Hull August 1993
Chevron Mariner ("Chevron Mari-
ner") CalPetro IOM 150,000 Double Hull October 1994
William E. Crain ("W.E. Crain") CalPetro Bahamas III 150,000 Single Hull February 1992
</TABLE>
8
<PAGE>
Each Vessel has been constructed under the supervision of Chevron Transport
and has been designed to Chevron Transport's specifications to enhance safety
and reduce operating and maintenance costs, including such features as high
performance rudders, extra steel (minimal use of high tensile steels),
additional fire safety equipment, redundant power generation equipment, extra
coating and electrolytic corrosion monitoring and protection systems,
additional crew quarters to facilitate added manning and, for three of the
Vessels, a double-hull design patented by one of Chevron's subsidiaries. The
builder of three of the Vessels, C. Rice, Chevron Mariner and W.E. Crain, was
Ishikawajima do Brasil Estaleiros S.A. ("Ishibras"), and the builder of S. Ginn
was Ishikawajima-Harima Heavy Industries Co., Ltd. ("IHI").
<TABLE>
<CAPTION>
VESSEL TECHNICAL INFORMATION
LENGTH BEAM DRAFT
VESSEL BUILDER REGISTRATION (METERS) (METERS) (METERS)
<S> <C> <C> <C> <C> <C>
S. Ginn IHI Bahamas 274.50 50.00 17.205
C. Rice Ishibras Bahamas 258.90 48.30 16.790
Chevron Mariner Ishibras Liberia 274.50 50.00 17.205
W.E. Crain Ishibras Liberia 274.50 50.00 16.790
</TABLE>
9
<PAGE>
THE OFFERING
Securities Offered...... $167,500,000 aggregate principal amount of Serial
First Preferred Mortgage Notes issued under an
indenture (the "Serial Indenture") in the principal
amounts and maturities stated below:
$17,160,000 principal amount of 6.71%
Serial First Preferred Mortgage Notes Due
1996(the "1996 Serial Mortgage Notes").
$18,160,000 principal amount of 6.98%
Serial First Preferred Mortgage Notes Due
1997(the "1997 Serial Mortgage Notes").
$18,160,000 principal amount of 7.15%
Serial First Preferred Mortgage Notes Due
1998(the "1998 Serial Mortgage Notes").
$18,160,000 principal amount of 7.30%
Serial First Preferred Mortgage Notes Due
1999(the "1999 Serial Mortgage Notes").
$18,160,000 principal amount of 7.35%
Serial First Preferred Mortgage Notes Due
2000(the "2000 Serial Mortgage Notes").
$18,160,000 principal amount of 7.44%
Serial First Preferred Mortgage Notes Due
2001(the "2001 Serial Mortgage Notes").
$18,160,000 principal amount of 7.49%
Serial First Preferred Mortgage Notes Due
2002(the "2002 Serial Mortgage Notes").
$18,160,000 principal amount of 7.55%
Serial First Preferred Mortgage Notes Due
2003(the "2003 Serial Mortgage Notes").
$12,950,000 principal amount of 7.57%
Serial First Preferred Mortgage Notes Due
2004(the "2004 Serial Mortgage Notes").
$7,740,000 principal amount of 7.60%
Serial First Preferred Mortgage Notes Due
2005(the "2005 Serial Mortgage Notes").
$2,530,000 principal amount of 7.62%
Serial First Preferred Mortgage Notes Due
2006(the "2006 Serial Mortgage Notes").
The foregoing are collectively referred to in this
Prospectus as the "Serial Mortgage Notes."
Scheduled Principal
Payment Dates.......... The principal amount of each Serial Mortgage Note
will be payable in full on the maturity date for such
Serial Mortgage Note, which will be April 1 of the
respective year of maturity (each, a "Maturity
Date").
Interest Payment Dates.. April 1 and October 1, commencing October 1, 1995.
10
<PAGE>
Denominations........... The Serial Mortgage Notes will be issued in minimum
denominations of $100,000 and multiples of $1,000 in
excess thereof.
Form.................... The Serial Mortgage Notes will be issued in the form
of one or more fully registered global notes (each, a
"Global Note") which will be issued to The Depository
Trust Company ("DTC") and registered in the name of a
nominee of DTC. The Indenture Trustee or an affiliate
thereof will act as custodian of each Global Note for
DTC. Except as otherwise described herein, the Serial
Mortgage Notes will be available for purchase in
book-entry form only and each person owning a
beneficial interest in a Global Note must rely on the
procedures of the institutions having accounts with
DTC to exercise or be entitled to any of the rights
of a registered holder of any Serial Mortgage Notes
(a "Holder").
Concurrent Offering..... Concurrent with the offering of the Serial Mortgage
Notes, California Petroleum is offering for sale to
the public pursuant to a separate prospectus
$117,900,000 aggregate principal amount of 8.52%
First Preferred Mortgage Notes Due 2015 (the "Term
Mortgage Notes") issued under a separate indenture
(the "Term Indenture"). The consummation of the sale
of the Serial Mortgage Notes is dependent on the
consummation of the sale of the Term Mortgage Notes.
Purchase of Vessels..... The Vessels are currently owned by Chevron Transport.
The sale of the Vessels to the respective Owners and
the commencement of the Initial Charters with respect
to the Vessels will occur on the closing date (the
"Closing Date") for the offering of the Notes.
The Initial Charters
and Chevron
Guarantees............. On the Closing Date, the Vessels will be purchased by
their respective Owner and will be chartered to
Chevron Transport. The bareboat charter for each
Vessel (each, an "Initial Charter") will have a term
expiring on April 1, 2015, subject to Chevron
Transport's right to terminate each of the Initial
Charters on specified dates commencing on the date
that the Allocated Principal Amount of Serial
Mortgage Notes relating to such Vessel is scheduled
to have been paid in full. The obligations of Chevron
Transport under each Initial Charter will be
guaranteed by Chevron pursuant to a guarantee (each,
a "Chevron Guarantee"). See "The Initial Charters--
Termination Options."
Security................ The obligations of California Petroleum under the
Serial Mortgage Notes will be secured, equally and
ratably with the Term Mortgage Notes (except as
described under "Description of the Notes--Security--
After First Optional Termination Date"), by the
assignment of a first preferred ship mortgage (each,
a "Mortgage") on each Vessel between the respective
Owner, as mortgagor, and California Petroleum, as
mortgagee, an assignment of each Initial Charter, as
well as certain other collateral, including an
assignment of the related Chevron Guarantee, an
assignment of the earnings and insurance proceeds, an
assignment of the Management Agreements relating to
the Vessels and by a pledge of all of the outstanding
stock of the Owners. The Serial
11
<PAGE>
Mortgage Notes are also secured by an assignment of
the Serial Loan Agreements and certain other Security
Documents (collectively, with the collateral
described in the preceding sentence, at any time, the
"Collateral"). Recourse under the Serial Indenture
against the incorporators, directors, officers and
stockholders of California Petroleum and its
stockholders has been expressly waived by the
Indenture Trustee on behalf of all Holders of the
Serial Mortgage Notes and, accordingly, the
incorporators, directors, officers and stockholders
of California Petroleum and its stockholders will not
be liable for any payments of debt service on the
Serial Mortgage Notes. California Petroleum's
capitalization is nominal and it has no source of
income other than payments to it by the Owners. The
Indenture Trustee, as indenture trustee under the
Term Indenture and the Serial Indenture, California
Petroleum and Chemical Trust Company of California,
as collateral trustee (the "Collateral Trustee"),
will enter into a collateral trust agreement (the
"Collateral Agreement") pursuant to which the
Collateral Trustee will hold the Collateral for the
benefit of the holders of the Term Mortgage Notes and
the Holders of the Serial Mortgage Notes. In
accordance with the Collateral Agreement, the
Collateral Trustee will exercise remedies with
respect to the Collateral, including the sale or
other disposition of the Collateral, upon receipt of
notice of the occurrence of an event of default (an
"Enforcement Notice") under the Term Indenture or the
Serial Indenture, or both, as the case may be. The
right of the Collateral Trustee to enforce the
Mortgages, however, will be subject to the rights of
Chevron Transport under each Initial Charter to the
continued use and operation of the related Vessel
under such Initial Charter, so long as no event of
default has occurred and is continuing under such
Initial Charter and so long as Chevron Transport is
performing its obligations thereunder. If the
Allocated Principal Amount of Serial Mortgage Notes
relating to a Vessel is paid in full, the Collateral
(including the related Initial Charter, if it remains
in effect) relating to such Vessel will be released
from the Lien of the Serial Indenture. See
"Description of the Notes--Security."
Termination Options
Under the Initial
Charters............... Under each Initial Charter, Chevron Transport may
elect to terminate such Initial Charter on any of
four, in the case of the double-hulled Vessels, or
three, in the case of the single-hulled Vessel,
termination dates and make a termination payment (a
"Termination Payment") in connection with such
termination. The earliest such optional termination
date for any Vessel is April 1, 2003. Chevron
Transport is required to pay the Termination Payment
to the Collateral Trustee (by virtue of the
Collateral Trustee's receipt of the assignment of the
Initial Charters) on or prior to the termination
date. Whether or not the termination options are
exercised, California Petroleum and the Owners expect
that the amounts payable by Chevron Transport (other
than the related Termination Payment, if any), and
guaranteed by Chevron, under the Initial Charters,
together with an allocable amount of anticipated
earnings on Permitted Investments (as defined
herein), will be sufficient to pay in full when due
all principal of and interest on the
12
<PAGE>
Serial Mortgage Notes. See "Investment
Considerations--Certain Risks Not Related to Chevron
Transport or Chevron." The Termination Payments, if
any, will not secure the obligations of California
Petroleum under the Serial Indenture.
Redemption.............. If a casualty or certain other events occur with
respect to a Vessel as result of which the Vessel is
a Total Loss, then the Serial Mortgage Notes will be
subject to mandatory redemption in part, equally and
ratably with the Term Mortgage Notes, in an aggregate
principal amount equal to the Allocated Principal
Amount of Notes for such Vessel together with accrued
but unpaid interest thereon and certain other amounts
described herein. The Serial Mortgage Notes are not
subject to optional redemption prior to their
respective Maturity Dates. See "Description of the
Notes--Redemption."
Certain Covenants....... The Indentures will include certain covenants that,
among other things, prohibit California Petroleum
from (i) incurring any indebtedness other than the
Notes, (ii) making any investments, loans or advances
other than the loans to the Owners of the proceeds
from the sale of the Notes or (iii) creating any
Liens other than its obligations under the Notes, the
Collateral Agreement and the related Indentures. The
Mortgages will include certain covenants that, among
other things, limit the type and amount of additional
indebtedness that may be incurred by the Owners and
impose limitations on investments, loans, advances,
the payment of dividends and the making of certain
other payments, the creation of Liens, certain
transactions with affiliates and mergers.
Under each Mortgage, the related Owner is required to
keep its Vessel free and clear of all Liens other
than liens arising under the Indentures and the
Collateral Agreement and liens for crew's wages
accrued for not more than three months, suppliers' or
other similar liens arising in the ordinary course of
its business and accrued for not more than three
months, liens for collision or salvage, or liens for
loss, damage or expense that are fully covered by
insurance or bonded. Notwithstanding the preceding
sentence, during the term of the related Initial
Charter, any Lien permitted under the Initial Charter
will be permitted under the related Mortgage. Under
each Initial Charter, Chevron Transport may not
allow, or permit to be continued, any Lien incurred
by it that might have priority over the title and
interest of the Owner in the related Vessel. See "The
Mortgages--Certain Covenants" and "The Initial
Charters--Covenants."
Restricted Payments..... None of the Owners may (i) declare or pay any
dividend or other distribution on any shares of its
capital stock, (ii) make any loans or advances to any
affiliate of such Owner or (iii) purchase, redeem or
otherwise acquire or retire for value any shares of
its capital stock (each, a "Restricted Payment")
unless, among other things, the Serial Mortgage Notes
shall have been repaid in full. California Petroleum
may not make any Restricted Payments in excess of
$15,000 per annum so long as any Notes are
outstanding.
13
<PAGE>
Certain Liabilities..... Under each Initial Charter, Chevron Transport will be
liable for oil or other pollution damage resulting
from its operation of the related Vessel under such
Initial Charter and will be liable to indemnify and
hold harmless the related Owner against any and all
losses, damages and expenses incurred by such Owner
as a result of any oil or other pollution damage
resulting from Chevron Transport's operation of such
Vessel under such Initial Charter (including, without
limitation, such Owner's liability under the United
States Oil Pollution Act of 1990, as amended ("OPA
90"), or under the laws of any other jurisdiction
relating to oil spills).
Use of Proceeds......... See "Use of Proceeds" for a discussion of the
application of the net proceeds of the offering of
the Serial Mortgage Notes to the cost of acquiring
the Vessels.
Ratings................. The Serial Mortgage Notes have been prospectively
rated Aa2 by Moody's Investors Service, Inc.
("Moody's"), AA by Standard & Poor's Rating Group, a
division of McGraw-Hill, Inc. ("Standard & Poor's")
and AA by Duff & Phelps Credit Rating Co. ("Duff &
Phelps") at their initial issuance. A security rating
is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time.
Investment
Considerations......... Prospective purchasers of the Serial Mortgage Notes
should carefully consider the matters set forth in
this Prospectus under the caption "Investment
Considerations."
14
<PAGE>
SOURCES AND USES OF FUNDS
<TABLE>
<S> <C>
Sources of Funds:
Proceeds from Serial Mortgage Notes........................... $167,500,000
Proceeds from Term Mortgage Notes............................. 117,900,000
------------
Total Sources............................................... 285,400,000
============
Uses of Funds:
Owner's Purchase Price for S. Ginn............................ 80,666,667
Owner's Purchase Price for C. Rice............................ 80,666,667
Owner's Purchase Price for Chevron Mariner.................... 80,666,666
Owner's Purchase Price for W.E. Crain......................... 40,000,000
Underwriting Fees and Commissions............................. 1,989,298
Legal, Printing, Rating and Other Fees........................ 510,702
Coordinator's Fees............................................ 450,000(1)
Broker's Fees................................................. 450,000(1)
------------
Total Uses.................................................. $285,400,000
============
</TABLE>
-------------------
(1) The coordinator's fee is payable to Xenon Shipping AS and Merrimac Shipping
Ltd. and the broker's fee is payable to McQuilling Brokerage Partners, Inc.
15
<PAGE>
INVESTMENT CONSIDERATIONS
Prospective purchasers of the Serial Mortgage Notes should carefully consider
the following investment considerations as well as the other information set
forth in this Prospectus.
CERTAIN RISKS NOT RELATED TO CHEVRON TRANSPORT OR CHEVRON
The Indenture Events of Default specified in the Serial Indenture include, in
addition to a default by Chevron Transport under any Initial Charter or the
termination of the related Chevron Guarantee of any Initial Charter other than
pursuant to its terms, certain other events which do not depend on Chevron
Transport's compliance with the Initial Charters or the effectiveness of the
related Chevron Guarantees. Such Indenture Events of Default include (i) the
occurrence and continuance of a Mortgage Event of Default, (ii) a breach of any
representation, warranty or covenant of California Petroleum in the Serial
Indenture which continues uncured for a specified period, (iii) the occurrence
of specified events of bankruptcy with respect to California Petroleum and (iv)
the termination of any of the Security Documents other than pursuant to their
terms. See "Description of the Notes--Indenture Events of Default." The
activities of California Petroleum and the Owners have been limited as
described under "California Petroleum and the Owners," and California Petroleum
and each Owner will covenant to engage in no activities other than those
permitted. See "Description of the Notes--Certain Covenants" and "The
Mortgages--Certain Covenants" for a description of the applicable covenants.
Any of the Indenture Events of Default discussed above could occur even if
Chevron Transport is in full compliance with the terms of the Initial Charters.
For example, California Petroleum and the Owners will rely entirely on Chevron
Transport's charterhire payments under the Initial Charters and any earnings on
Permitted Investments to pay their expenses and make scheduled payments of
principal and interest on the Serial Mortgage Notes and interest on the Term
Mortgage Notes until the first termination date for each Initial Charter. Such
expenses will include Recurring Fees and Taxes and any other expenses for which
Chevron Transport is not responsible under the Initial Charters. Under each
Initial Charter, Chevron Transport will be responsible for, among other things,
all costs and expenses of operating and maintaining the related Vessel and
under certain circumstances, the costs and expenses of maintaining the
documentation of the related Vessel under the laws of the jurisdiction in which
the related Vessel is or will be registered (the "Registration Jurisdiction")
in excess of a specified amount. See "The Initial Charters--Flag and Name of
Vessel" and "--Indemnity." While the Owners expect that such charterhire
payments and earnings will be sufficient to meet their requirements,
substantial unanticipated expenses or increases in expenses that are not
payable by Chevron Transport under the Initial Charters could result in the
bankruptcy of any Owner, which would result in an Indenture Event of Default
and a corresponding event of default under the Term Indenture. See
"Management's Discussion and Analysis of Financial Condition of California
Petroleum and the Owners--Capital Resources and Liquidity." Upon the occurrence
and continuance of such an Indenture Event of Default and event of default
under the Term Indenture, all principal and accrued interest on the Serial
Mortgage Notes, as well as the Term Mortgage Notes, would become immediately
due and payable. Thereafter, any amounts received by the Collateral Trustee in
the exercise of its remedies, including for example charterhire payments from
Chevron Transport or proceeds from the sale of the Vessels, would be subject to
the claims of the holders of the Serial Mortgage Notes and the Term Mortgage
Notes, equally and ratably, except as described under "Description of the
Notes--Security--After First Optional Termination Date." There can be no
assurance that amounts received by the Collateral Trustee following an
Indenture Event of Default would be sufficient to pay the principal of and
accrued interest on the outstanding Serial Mortgage Notes.
LACK OF PUBLIC MARKET FOR THE SERIAL MORTGAGE NOTES
There has not previously been any public market for the Serial Mortgage
Notes. California Petroleum does not intend to list the Serial Mortgage Notes
on any securities exchange or to seek approval for quotation through any
automated quotation system. There can be no assurance that an active market for
the Serial Mortgage Notes will develop. To the extent that a market for the
Serial Mortgage Notes does develop, the market value of the Serial Mortgage
Notes will depend on prevailing interest rates, the market for similar
16
<PAGE>
securities and other factors, including the financial condition, performance
and prospects of the charterers of the Vessels and the value of the Vessels.
California Petroleum has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Serial Mortgage Notes, as permitted
by applicable laws and regulations. The Underwriter is not obligated, however,
to make a market in the Serial Mortgage Notes, and any such market-making may
be discontinued at any time at the sole discretion of the Underwriter.
Accordingly, no assurance can be given as to the liquidity of, or trading
markets for, the Serial Mortgage Notes.
USE OF PROCEEDS
The proceeds from the sale of the Serial Mortgage Notes, together with the
proceeds from the Term Mortgage Notes, will be loaned to the Owners to fund the
acquisition of the Vessels from Chevron Transport and to pay the underwriting
commissions and the other fees and expenses referred to above under "Prospectus
Summary--Sources and Uses of Funds." The Vessels are currently owned by Chevron
Transport and will be acquired by the related Owners and chartered by Chevron
Transport on the Closing Date. The net proceeds of the sale of the Notes to be
applied by the respective Owners to purchase the Vessels from Chevron Transport
will be approximately $80,666,667 for each double-hulled Vessel and $40,000,000
for the single-hulled Vessel.
17
<PAGE>
CAPITALIZATION OF CHEVRON
The capitalization of Chevron and its consolidated subsidiaries as of
December 31, 1994 is set forth in the following table. This table should be
read in conjunction with the consolidated financial statements of Chevron and
the related notes thereto incorporated by reference herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Short-term debt........................................... $ 4,014
Long-term debt and capital lease obligations:
Long-term debt.......................................... 3,955
Capital lease obligations............................... 173
-------
Total debt............................................ $ 8,142
=======
Stockholders' equity:
Preferred stock--$1.00 par value........................ --
Authorized--100,000,000 shares
Issued--None
Common stock--$1.50 par value........................... $ 1,069
Authorized--1,000,000,000 shares
Issued--712,487,068 shares
Capital in excess of par value.......................... 1,858
Deferred compensation--Employee Stock Ownership Plan.... (900)
Currency translation adjustment and other............... 175
Retained earnings....................................... 14,457
Treasury stock, at cost (60,736,435 shares)............. (2,063)
-------
Total stockholders' equity............................ $14,596
-------
Total debt and stockholders' equity................... $22,738
=======
</TABLE>
18
<PAGE>
SELECTED FINANCIAL DATA OF CHEVRON
The selected financial information presented in the table below should be
read in conjunction with the consolidated financial statements and related
notes contained in Chevron's Current Report on Form 8-K, dated March 10, 1995,
referred to under "Incorporation of Certain Documents by Reference." The
selected financial information for each of the five years in the period ended
December 31, 1994 has been derived from audited financial statements. Chevron
adopted Statements of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and No. 109,
"Accounting for Income Taxes," effective January 1, 1992.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT FOR PER-
SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues.... $35,130 $36,191 $38,212 $38,118 $41,540
Equity in net income of affiliates and
other income......................... 724 891 1,465 825 1,026
Total costs........................... 33,051 34,656 36,214 36,691 38,353
------- ------- ------- ------- -------
Income before income tax expense and
cumulative effect of changes in
accounting principles................ $ 2,803 $ 2,426 $ 3,463 $ 2,252 $ 4,213
Income tax expense.................... 1,110 1,161 1,253 959 2,056
------- ------- ------- ------- -------
Income before cumulative effect of
changes in accounting principles..... $ 1,693 $ 1,265 $ 2,210 $ 1,293 $ 2,157
Cumulative effect of changes in
accounting principles................ -- -- (641) -- --
------- ------- ------- ------- -------
Net income............................ $ 1,693 $ 1,265 $ 1,569 $ 1,293 $ 2,157
======= ======= ======= ======= =======
Per share of common stock(1)
Income before cumulative effect of
changes in accounting principles.... $ 2.60 $ 1.94 $ 3.26 $ 1.85 $ 3.05
Cumulative effect of changes in
accounting principles............... -- -- (.95) -- --
------- ------- ------- ------- -------
Net income per share of common stock. $ 2.60 $ 1.94 $ 2.31 $ 1.85 $ 3.05
======= ======= ======= ======= =======
Cash dividends per share of common
stock............................... $ 1.85 $ 1.75 $ 1.65 $ 1.63 $ 1.48
Ratio of earnings to fixed charges of
Chevron on a total enterprise basis.. 5.31 5.23 6.35 4.34 6.07
</TABLE>
--------------------
(1) All per share amounts reflect a two-for-one stock split in May 1994.
The ratios of earnings to fixed charges set forth in the table above are
computed using amounts for Chevron as a whole, including its majority owned
subsidiaries and its proportionate share of 50 percent owned entities
(primarily the Caltex Group of Companies). For the purpose of determining
earnings in the calculation of the ratios, equity in net income of less than 50
percent owned affiliates is adjusted to the amount of distributions received
(but not undistributed amounts). In addition, consolidated income before
cumulative effect of changes in accounting principles is increased by income
taxes, previously capitalized interest charged to earnings during the period,
the minority interest's share of net income, and fixed charges, excluding
capitalized interest. Fixed charges consist of interest on debt (including
capitalized interest and amortization of debt discount and expense) and a
portion of rentals determined to be representative of interest.
SUMMARIZED FINANCIAL DATA OF CHEVRON TRANSPORT
Summarized financial information for Chevron Transport for each of the three
years ended December 31, 1994 is contained in Chevron's Current Report on Form
8-K, dated March 10, 1995, referred to under "Incorporation of Certain
Documents By Reference."
19
<PAGE>
CAPITALIZATION OF CALIFORNIA PETROLEUM
The following unaudited table sets forth the capitalization and cash of
California Petroleum at December 31, 1994, and as adjusted to give effect to
the sale of the Notes and the application of the estimated net proceeds
therefrom. This table should be read in conjunction with the financial
statements of California Petroleum and the related notes thereto set forth
elsewhere in this Prospectus. See also "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition of California Petroleum and the
Owners."
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------
ACTUAL AS ADJUSTED
<S> <C> <C>
Cash....................................................... $1,000 $ 1,000
====== ============
Long-term Debt:
Serial Mortgage Notes.................................... -- $167,500,000
Term Mortgage Notes...................................... -- 117,900,000
------ ------------
Total Long-term Debt................................... -- 285,400,000
------ ------------
Stockholder's Equity:
Capital Stock............................................ $1,000 1,000
Additional Paid-in Capital............................... 0 0
Retained Earnings........................................ 0 0
------ ------------
Total Stockholder's Equity............................. 1,000 1,000
------ ------------
Total Capitalization................................... $1,000 $285,401,000
====== ============
</TABLE>
20
<PAGE>
SELECTED FINANCIAL AND PRO FORMA DATA OF
CALIFORNIA PETROLEUM
Neither California Petroleum nor any of the Owners has an operating history.
Financial data for comparable accounting periods is not available for any of
them. The financial statements set forth in this Prospectus for California
Petroleum and each of the Owners include their beginning balance sheets. See
"Index to Financial Statements."
The following unaudited pro forma balance sheet of California Petroleum at
December 31, 1994 was prepared as if the sale of the Notes and the application
of the estimated net proceeds therefrom had occurred on such date. The
following unaudited pro forma income statement of California Petroleum for the
year ended December 31, 1994 gives effect to the sale of the Notes and the
application of the estimated net proceeds therefrom as if it had occurred on
January 1, 1994, the beginning of California Petroleum's fiscal year. The
unaudited pro forma financial data are based upon assumptions and adjustments
described in the accompanying notes. The unaudited pro forma income statement
does not purport to represent what California Petroleum's results of operations
actually would have been if the transaction had occurred as of the dates
indicated or what such results will be for any future periods. The unaudited
pro forma financial data are based upon assumptions that California Petroleum
believes are reasonable and should be read in conjunction with the financial
statements, including the Owners' pro forma condensed combined financial data,
and accompanying notes thereto included elsewhere in this Prospectus.
UNAUDITED PRO FORMA BALANCE SHEET
OF CALIFORNIA PETROLEUM
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
---------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
ASSETS
Current assets.........................
Cash................................. $1,000 $ -- $ 1,000
Current portion of Serial loans re-
ceivable............................ -- 17,160,000(c) 17,160,000
------ ------------ ------------
Total current assets............... 1,000 17,160,000 17,160,000
Term loans receivable.................. -- 116,138,200(c) 116,138,200
Serial loans receivable less current
portion............................... -- 148,701,800(c) 148,701,800
Other assets........................... -- 3,400,000(b) 3,400,000
------ ------------ ------------
TOTAL ASSETS........................... $1,000 $285,400,000 $285,401,000
====== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of Serial Mortgage
Notes............................... $ -- $ 17,160,000(a) $ 17,160,000
------ ------------ ------------
Total current liabilities.......... -- 17,160,000 17,160,000
Term Mortgage Notes.................... -- 117,900,000(a) 117,900,000
Serial Mortgage Notes less current por-
tion.................................. -- 150,340,000(a) 150,340,000
------ ------------ ------------
Total liabilities................ -- 285,400,000 285,400,000
Stockholders' equity
Common stock issued.................. 1,000 -- 1,000
------ ------------ ------------
Total stockholders' equity......... 1,000 -- 1,000
------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................. $1,000 $285,400,000 $285,401,000
====== ============ ============
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1994
-------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
UNAUDITED PRO FORMA INCOME STATEMENT
Interest income............................ $ -- $22,500,398(c) $22,500,398
Other income............................... -- 60,000(d) 60,000
----- ----------- -----------
Total income............................. -- 22,560,398 22,560,398
Interest expense........................... -- 22,266,674(a) 22,266,674
General and administrative expenses........ -- 60,000(d) 60,000
Amortization of debt issue costs........... -- 233,724(b) 233,724
----- ----------- -----------
Net income................................. $ -- $ 0 $ 0
===== =========== ===========
</TABLE>
--------------------
Pro forma adjustments are made to reflect:
(a) The issuance of $117,900,000 in Term Mortgage Notes and $167,500,000 in
Serial Mortgage Notes. The Term Mortgage Notes bear interest at a rate of
8.52% per annum. The Serial Mortgage Notes bear interest at rates ranging
from 6.71% to 7.62% through maturity. Principal will be payable on the Term
Mortgage Notes in accordance with a twelve year sinking fund schedule
commencing nine years from the issuance date. Serial Mortgage Notes will
mature over an eleven year period beginning one year from the issuance
date. Interest is payable semi-annually.
(b) Capitalization of debt issue costs. The costs represent commissions, broker
fees and other costs relating to the issuance of the Term Mortgage Notes
and the Serial Mortgage Notes described in (a) above. $3,400,000 of
proceeds derived from the sale of the Term Mortgage Notes and Serial
Mortgage Notes discussed in (a) above are assumed to be used to pay these
costs at the time of issuance. These costs will be amortized over the term
of the Notes to which they relate.
(c) Lending of the proceeds from the issuance of the Term Mortgage Notes and
Serial Mortgage Notes described in (a) above. The principal balances of the
Term Loans totalling $117,900,000 earn interest at a rate of 8.52% per
annum and are to be repaid over a twelve year period beginning nine years
from the issuance date in accordance with the Term Loan Agreements between
California Petroleum and the Owners. The principal balances of the Serial
Loans totalling $167,500,000 earn interest at rates ranging from 6.71% to
7.62% and mature over an eleven year period beginning one year from the
issuance date in accordance with the Serial Loan Agreements between
California Petroleum and the Owners. The Term Loans and Serial Loans are
reported net of the related debt discounts which total $1,761,800 and
$1,638,200, respectively. The discounts will be amortized over the term of
the loans to which they relate. Interest is due semi-annually.
(d) General and administrative expenses comprising trustee fees, legal fees,
agency fees and other costs estimated by management of California Petroleum
to be incurred by California Petroleum during the year ended December 31,
1994. These costs will be billed to the Owners.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OF CALIFORNIA PETROLEUM AND THE OWNERS
As of the date of this Prospectus, neither California Petroleum nor the
Owners had any operating history. On the Closing Date, California Petroleum
will loan the proceeds from the sale of the Notes to the Owners to fund the
acquisition of the Vessels and to pay the underwriting commissions and certain
fees and expenses as discussed under "Use of Proceeds."
CAPITAL RESOURCES AND LIQUIDITY.
California Petroleum expects that all of its expenses will consist of
interest payments due on the Notes issued by it and audit, legal, trustee and
other administrative expenses. So long as all of the Vessels remain subject to
the Initial Charters, the Collateral to be pledged to the Collateral Trustee in
connection with the issuance of the Notes, assuming that the anticipated rate
of return on the Permitted Investments discussed below is realized, has been
structured to provide California Petroleum with sufficient funds to make timely
payments of all such anticipated expenses, plus amounts necessary to pay
principal of and interest on the Notes when due.
The foregoing determination assumes that amounts remaining in the Trust
Accounts on each Payment Date will be invested in Permitted Investments that
will provide a 7.15% annual rate of return for periods prior to the first
termination date for each Initial Charter and a 5.0% annual rate of return for
subsequent periods. The Owners believe that on the Closing Date, guaranteed
investment contracts rated at least "Aa" or "AA" by Moody's, Standard & Poor's
or Duff & Phelps, respectively, will be available with at least the assumed
annual rate of return for such amounts until the first optional termination
date under any Initial Charter. The annual rate of return on Permitted
Investments of amounts remaining in any Trust Account on or after such first
optional termination date is not predictable.
Charterhire payments under each Initial Charter have been structured so that
approximately $100,000 annually will be available to pay anticipated expenses
with respect to the related Vessel which are not directly payable by Chevron
Transport under such Initial Charter and the pro rata expenses of California
Petroleum. For each Vessel such expenses, including Recurring Fees and Taxes,
the related Management Fee and Technical Advisor's Fee, an allocable amount of
the fees and expenses of the Indenture Trustee, Collateral Trustee and the
Designated Representative (as defined below) and a provision for miscellaneous
or unexpected expenses, are estimated to equal approximately $72,500 annually
for the first three years. See "Business--Operations" and "Certain
Relationships and Transactions--The Management Agreements." The Recurring Fees
and Taxes also are subject to change as a result of governmental action,
inflation or unanticipated expenses incurred by the related Owner or California
Petroleum which are not directly payable by Chevron Transport under the related
Initial Charter. If the costs and expenses of maintaining the documentation of
a Vessel under the laws of the Registration Jurisdiction exceed a specified
amount, however, Chevron Transport will either pay such excess amount or
cooperate with the related Owner to change the registry or port of
documentation of such Vessel. See "The Initial Charters--Flag and Name of
Vessel." Neither the Owners nor California Petroleum have, nor will they have
in the future, any source of capital for the payment of expenses which are not
directly payable by Chevron Transport under the Initial Charters other than the
charterhire payments, and any income from the reinvestment thereof. See
"Description of the Notes--Trust Accounts."
California Petroleum's only sources of funds with respect to the Notes will
be payments of interest and principal on the related loans ("Acquisition
Loans") from California Petroleum to each Owner of a portion of the proceeds
from the sale of the Notes. California Petroleum does not have, nor will it
have in the future, any source of capital for payment of the Notes other than
the Acquisition Loans to the Owners.
23
<PAGE>
The Owners expect that substantially all of their expenses will consist of
payments due on their Acquisition Loans, Recurring Fees and Taxes for the
Vessels, Management Fees, Technical Advisor's Fees and an allocable portion of
the fees and expenses of the Indenture Trustee, the Collateral Trustee and the
Designated Representative. The Owners' sources of funds with respect to their
Acquisition Loans will be charterhire payments for the Vessels, any Termination
Payments and any proceeds from the sale of a Vessel and earnings on Permitted
Investments. The Owners do not have, nor will they have in the future, any
other source of capital for payment of the Acquisition Loans.
Under each Initial Charter, Chevron Transport has the right to terminate such
Initial Charter on specified termination dates. The first optional termination
date with respect to each Initial Charter occurs on the payment date on which
the Allocated Principal Amount of Serial First Preferred Mortgage Notes with
respect to the related Vessel is scheduled to be paid in full.
RESULTS OF OPERATIONS.
California Petroleum's results of operations will depend on the amount of
interest paid by the Owners on the Acquisition Loans and the rate at which
payments of principal are made on such Acquisition Loans. Each Owner's results
of operations will depend on the charterhire payments for its Vessel under the
related Initial Charter or, upon any termination of such Initial Charter, any
Termination Payment, charterhire under any subsequent charter or proceeds from
any sale of such Vessel, earnings on Permitted Investments and the level of
operating expenses.
EARNINGS TO FIXED CHARGES.
Because neither California Petroleum nor any of the Owners has an operating
history, no historical or pro forma ratio of earnings to fixed charges for
California Petroleum or the Owners has been included in this Prospectus.
24
<PAGE>
CHEVRON TRANSPORT AND CHEVRON
Chevron Transport, an indirect, wholly-owned subsidiary of Chevron, is
principally engaged in the marine transportation of oil and refined petroleum
products. As of December 31, 1994, Chevron Transport operated 30
internationally flagged vessels which it owned or bareboat chartered. In
addition, as of the date of this Prospectus, Chevron Transport has an
additional 28 ships on time or single-voyage charters. Chevron Transport's
primary transportation routes are from the Middle East, Indonesia, Mexico, West
Africa and the North Sea to ports in the United States, Europe, the United
Kingdom and Asia. Refined petroleum products are transported worldwide. Chevron
Transport expects to use each Vessel worldwide as permitted under the Initial
Charters.
Chevron is a major international oil company. Chevron provides
administrative, financial and management support for, and manages its
investment in, domestic and foreign subsidiaries and affiliates, which engage
in fully integrated petroleum operations, chemical operations, real estate
development and other mineral and energy related activities in the United
States and approximately 100 other countries. Petroleum operations consist of
exploring for, developing and producing crude oil and natural gas; transporting
crude oil, natural gas and petroleum products by pipelines, marine vessels and
motor equipment; refining crude oil into finished petroleum products; and
marketing crude oil, natural gas and the many products derived from petroleum.
Chemical operations include the manufacture and marketing of a wide range of
chemicals primarily for industrial uses.
25
<PAGE>
CALIFORNIA PETROLEUM AND THE OWNERS
CALIFORNIA PETROLEUM
California Petroleum Transport Corporation, a Delaware corporation, is a
special purpose corporation that has been recently organized solely for the
purpose of issuing, as agent on behalf of the Owners, the Serial Mortgage Notes
and the Term Mortgage Notes as full recourse obligations of California
Petroleum in order to facilitate the acquisition of the Vessels by the Owners
and the charter of the Vessels as described herein. Recourse under the Serial
Indenture against the incorporators, directors, officers and stockholders of
California Petroleum and its stockholders has been expressly waived by the
Indenture Trustee, on behalf of all Holders of the Serial Mortgage Notes and,
accordingly, the incorporators, directors, officers and stockholders of
California Petroleum and its stockholders will not be liable for any payments
of debt service on the Serial Mortgage Notes. California Petroleum's actual
capitalization is nominal and it has no source of income other than payments to
it by the Owners. All the shares of California Petroleum are held by The
California Trust, a Massachusetts charitable lead trust formed by JH Holdings
Corporation, a Massachusetts corporation, for the benefit of certain charitable
institutions in Massachusetts. All of the stock of JH Holdings Corporation is
held by The 1960 Trust, a charitable trust, and by The Glendale Company, a
private investment partnership. California Petroleum does not have any
subsidiaries.
THE OWNERS
Each of CalPetro Bahamas I, CalPetro Bahamas II and CalPetro Bahamas III has
been recently organized as a special purpose corporation under the laws of the
Bahamas for the purpose of acquiring and chartering one of the Vessels.
Similarly, CalPetro IOM has been recently organized as a special purpose
company under the laws of the Isle of Man for the purpose of acquiring and
chartering one of the Vessels. Each Owner is wholly-owned by California Tankers
Investments Limited, a company organized under the laws of the Bahamas, which
is a wholly-owned subsidiary of CalPetro Holdings Limited, an Isle of Man
company. None of the Owners has any subsidiaries. None of the Owners is owned
by or is an affiliate of California Petroleum, nor is any Owner owned by or an
affiliate of Chevron Transport or Chevron. See "Business--Operations" and
"Certain Relationships and Transactions--The Management Agreements."
The activities of each of the Owners, either pursuant to the terms of the
related Mortgage or the terms of its Memorandum of Association, shall be
limited to (i) borrowing money from California Petroleum pursuant to the
related loan agreements between California Petroleum and such Owner (each a
"Loan Agreement"), (ii) carrying out any other activity relating to or
contemplated by such Loan Agreements, but not to incur any indebtedness for
borrowed money or create any lien, security interest, charge or other
encumbrance over all or any part of the assets or interests of such Owner other
than as contemplated by and pursuant to the terms of such Mortgage or its
Memorandum of Association and such Loan Agreements, (iii) exercising and
enforcing all rights and powers conferred by, incidental to or arising out of
such Loan Agreements and the transactions contemplated thereby, (iv) entering
into, performing and delivering a purchase agreement with Chevron Transport
with respect to the purchase of its Vessel with a portion of the borrowings
under such Loan Agreements, (v) registering its Vessel under and pursuant to
the laws of the Registration Jurisdiction, (vi) entering into, performing and
delivering its Initial Charter, (vii) entering into any other agreement
contemplated by such Loan Agreements, including the Security Documents, (viii)
entering into other charters, contracts of affreightment or sale agreements
relating to the Vessel upon the termination of the Initial Charter in a form
conforming to the requirements of such Loan Agreements, (ix) carrying out,
entering into, performing and delivering any and all applications, licenses,
agreements and instruments related to and in the furtherance of the foregoing
and (x) engaging in those activities, including the entering into of
agreements, necessary, suitable or convenient to accomplish the foregoing or
incidental thereto or connected therewith.
26
<PAGE>
BUSINESS
THE VESSELS
SUEZMAX-SIZED TANKERS.
All of the Vessels are Suezmax-sized tankers which are capable of calling at
a large number of ports. The main trading patterns of Suezmax tankers are as
follows: from West Africa to the United States, Europe or Northeast Asia, from
the North Sea to the United States, from the Mediterranean to Western Europe
and the United States and from the Arabian Gulf to Europe or Southeast Asia. In
contrast to very large crude carriers ("VLCCs") and ultra-large crude carriers
("ULCCs"), Suezmax tankers are not dependent on the longer-haul routes from the
Arabian Gulf.
VESSEL QUALITY.
All of the Vessels are modern, high-quality tankers, three of which are of
double-hull construction, and all of which have been designed to Chevron
Transport's specifications to enhance safety and reduce operating and
maintenance costs, including such features as high performance rudders, extra
steel (minimal use of high tensile steels), additional fire safety equipment,
redundant power generation equipment, extra coating and electrolytic corrosion
monitoring and protection systems and additional crew quarters to facilitate
added manning. C. Rice, Chevron Mariner and W.E. Crain have been recently
constructed by Ishibras in its Brazilian shipyards. S. Ginn has been recently
constructed by IHI in its Japanese shipyard. Chevron Transport has advised the
Owners that an affiliate of Chevron Transport supervised the construction of
each of the Vessels. Personnel of this affiliate have been present at the
shipyards during the construction periods, monitoring construction to ensure
compliance with Chevron Transport's specifications. The Vessels have been
designed and constructed to increase fuel efficiency, lower operating costs and
meet the stringent operating and safety standards of charterers, including
Chevron Transport, and regulatory agencies.
VESSEL MAINTENANCE.
The Vessels will be maintained during the term of the Initial Charters by
Chevron Transport in accordance with good commercial maintenance practice
commensurate with other vessels in Chevron Transport's fleet of similar size
and trade, as required by the Initial Charters. See "The Initial Charters--
Covenants." Although not required by the Initial Charters, currently Chevron
Transport utilizes the maintenance and repair division within the engineering
department of one of its affiliates. In addition, California Petroleum has been
advised by Chevron Transport that, in an effort to promote high standards of
quality control, Chevron Transport (through its affiliate) currently has
agreements with two shipyards, located in Europe and Asia, to perform all
scheduled maintenance for its fleet, including the Vessels, although such
agreements are not required under the Initial Charters. The Initial Charters
require Chevron Transport to return any Vessel whose Initial Charter has been
terminated to its respective Owner in class under the rules of the American
Bureau of Shipping (or other classification society previously approved by the
Owner). In addition, the Owner has the right to inspect the Vessel and to
require surveys upon redelivery, and Chevron Transport will be responsible for
making or compensating the Owner for certain necessary repairs in connection
with such redelivery.
PREVIOUS OPERATION OF THE VESSELS BY CHEVRON TRANSPORT.
Chevron Transport took delivery, as purchaser, of W.E. Crain in February
1992, of S. Ginn in March 1993, of C. Rice in August 1993 and of Chevron
Mariner in October 1994. Chevron Transport has informed California Petroleum
and the Owners that, since their delivery, W.E. Crain and S. Ginn have been
operating in the Pacific region, primarily carrying Mideast or Indonesian
crudes to Chevron's El Segundo and Richmond refineries in California. Chevron
Mariner's maiden voyage was from West Africa to Taiwan, after which the Vessel
has been operating in the Pacific region in service similar to W.E. Crain and
S. Ginn. C. Rice has traded in the Atlantic region, carrying Mexican crude to
Chevron's U.S. Gulf refinery in
27
<PAGE>
Pascagoula, Mississippi and West African crude to Chevron's Philadelphia
refinery until the sale of that refinery in August 1994. As a result of Chevron
Transport's near-term forecasts of its crude oil transportation requirements,
it began spot chartering C. Rice in September 1994 and expects to enter into a
one-year charter arrangement with a third party in April 1995. Under the
Initial Charters, Chevron Transport will have the right to operate the Vessels
worldwide during the term thereof.
OPERATIONS
CHARTER AND OPERATION OF THE VESSELS.
California Petroleum has been organized for the sole purpose of issuing, as
agent on behalf of the Owners, the Serial Mortgage Notes and the Term Mortgage
Notes as full recourse obligations of California Petroleum, and loaning the
proceeds of the sale of the Notes to the Owners in order to fund the
acquisition of the Vessels by the Owners. Upon the acquisition of a Vessel by
the related Owner and the acceptance of the Vessel under the related Initial
Charter, the Vessel will be operated by Chevron Transport in the business of
marine transportation of oil. See "The Initial Charters" for a discussion of
the terms of the Initial Charters regarding the use and operation of the
Vessels.
MANAGEMENT.
Each Owner will enter into a Management Agreement pursuant to which P.D. Gram
a.s. (the "Manager") will manage the day-to-day business of such Owner and will
provide administrative, management and advisory services to the Owner in return
for a management fee ("Management Fee") equal to the sum of (i) for each
Vessel, $13,625 per annum during the period from the Closing Date to the third
anniversary of the Closing Date plus (ii) $3,000 per annum, during such three-
year period. Thereafter, the Management Fee will be increased each year by an
amount equal to 4%. See "Certain Relationships and Transactions--The Management
Agreements." Each Initial Charter provides that Chevron Transport will operate
the related Vessel, except under certain circumstances, during the term of the
Initial Charter. See "The Initial Charters--Covenants."
Pursuant to the Management Agreements, the Owners have commissioned Barber
Ship Management a.s. ("Barber Ship Management") to provide certain maritime
operational services during the term of the Initial Charters in return for a
technical advisor's fee ("Technical Advisor's Fee"), for each Vessel, equal to
$10,000 per annum during the period from the Closing Date to the third
anniversary of the Closing Date. Thereafter, the Technical Advisor's Fee will
be increased each year by an amount equal to 4%. In addition, the Technical
Adviser shall be entitled to be reimbursed for the fees, costs and expenses of
conducting periodic inspections of the Vessels. If Chevron Transport exercises
its option to terminate the Initial Charter for any Vessel, Barber Ship
Management has agreed to provide, if necessary, certain technical management
services for such Vessel. Either the Manager or Barber Ship Management may
terminate its obligations under the Management Agreement on 30 days' notice to
the Owner. Barber Ship Management, founded in 1987 and headquartered in Oslo,
Norway, is a ship management group with over 200 shore staff and approximately
5,900 sea staff. Barber Ship Management currently provides professional ship
management services to a fleet of 170 vessels. Barber Ship Management has
operational bases in Norway, the Arabian Gulf, Hong Kong, London and the United
States and manning agencies in India, Malaysia, the Philippines and Poland. The
Owners believe that, assuming that Barber Ship Management remains obligated to
provide technical services if the Initial Charter for any of the Vessels is
terminated, the technical services of Barber Ship Management will enable them
to continue to meet the operating and safety standards of charterers and
regulatory agencies.
BUSINESS STRATEGY
The Owners' strategy is to acquire the Vessels and charter them to Chevron
Transport under the Initial Charters which are expected to provide (a)
charterhire payments which California Petroleum and the Owners expect will be
sufficient to pay, so long as the Initial Charters are in effect (i) the
Owners' obligations under the Acquisition Loans, (ii) the Management Fees and
the Technical Advisor's Fees under the Management Agreements, (iii) the
estimated Recurring Fees and Taxes, (iv) the estimated fees payable to the
Indenture Trustee and the Collateral Trustee and the Designated
Representative's Fee, and (v) any other costs and
28
<PAGE>
expenses incidental to the ownership and chartering of the Vessels that are to
be paid by the Owners, (b) Termination Payments sufficient to make sinking fund
and interest payments on the Term Mortgage Notes, to the extent allocable to
the Vessel for which the related Initial Charter has been terminated, for at
least two years following any such termination, during which time the Vessel
may be sold or rechartered and (c) that the Vessels will be maintained in
accordance with the good commercial maintenance practices required by the
Initial Charters; and to arrange for vessel management and remarketing services
to be available in case any Initial Charter is terminated by Chevron Transport
or any Vessel is for any other reason returned to the possession and use of the
Owners. However, there can be no assurance that the Management Agreements will
be in effect at the time any Initial Charter is terminated. See "The Initial
Charters" for a discussion of the terms of the Initial Charters.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS--CALIFORNIA PETROLEUM AND THE OWNERS
<TABLE>
<CAPTION>
DIRECTORS AND EXECUTIVE
OFFICERS OF CALIFORNIA PETROLEUM AGE POSITION
<S> <C> <C>
Nancy D. Smith..................................... 26 President
Louise E. Colby.................................... 46 Secretary and Treasurer
</TABLE>
Nancy D. Smith has been the president of California Petroleum since 1994. She
has been a director since 1994. Her term expires in 1995. She has been the
President of JH Management Corporation, a Massachusetts business corporation
that engages in the management of special purpose corporations for structured
financial transactions, since 1993. From 1987 to 1992, she was a legal
secretary at Ropes & Gray, a law firm in Boston, MA. From 1992 to 1993, she was
a personal assistant at Bob Woolf Associates, Inc.
Louise E. Colby has been the secretary and treasurer of California Petroleum
since 1994. She has been a director since 1994. Her term expires in 1995. She
has been the Director, Secretary and Treasurer of JH Management Corporation
since 1989. She also has served as Trustee of The Cazenove Street Realty Trust
since 1983.
<TABLE>
<CAPTION>
DIRECTOR AND EXECUTIVE OFFICERS
OF CALPETRO BAHAMAS I, CALPETRO BAHAMAS II
AND CALPETRO BAHAMAS III AGE POSITION
<S> <C> <C>
Peter D. Gram....................................... 51 Director and President
Lourey C. Smith..................................... 40 Secretary
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
OF CALPETRO IOM AGE POSITION
<S> <C> <C>
Peter D. Gram....................................... 51 Director
Bernard Z. Galka.................................... 43 Director
John D. Clarke...................................... 48 Secretary
</TABLE>
Peter D. Gram has been the president of CalPetro Bahamas I, Calpetro Bahamas
II and CalPetro Bahamas III since 1994. Mr. Gram has been the sole director of
each of CalPetro Bahamas I, CalPetro Bahamas II and CalPetro Bahamas III since
1994. His term as director of CalPetro Bahamas I, CalPetro Bahamas II and
CalPetro Bahamas III will expire only upon his death, resignation or removal.
Mr. Gram also has been a director of CalPetro IOM since 1994. His term as
director of IOM expires in 1995.
Lourey C. Smith has been the secretary of CalPetro Bahamas I, CalPetro
Bahamas II and CalPetro Bahamas III since 1994. She has been an attorney with
the law firm of McKinney, Bancroft & Hughes since 1986.
Bernard Z. Galka is a Chartered Accountant. He has been a director of
CalPetro IOM since 1994. His term expires in 1995.
John D. Clarke has been the secretary of CalPetro IOM since 1994. He is a
Chartered Accountant.
EXECUTIVE COMPENSATION
The directors and officers of California Petroleum are not compensated.
Each of CalPetro Bahamas I, CalPetro Bahamas II and CalPetro Bahamas III
annually will pay Peter Gram $3,000. Lourey Smith will not be compensated.
CalPetro IOM annually will pay Peter Gram $3,000, Bernard Galka $1,200 and
John Clarke $500.
30
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CALIFORNIA
PETROLEUM
The following table summarizes the beneficial ownership of California
Petroleum as of September 30, 1994:
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE OF CLASS NUMBER OF PERCENT OF
OF BENEFICIAL OWNER OF SECURITIES SHARES CLASS
<S> <C> <C> <C>
The California Trust(1)..................... Common Stock 1,000 100%
c/o JH Holdings Corporation
P.O. Box 4024
Room 6/8
Boston, MA 02101
</TABLE>
--------------------
(1) JH Holdings Corporation serves as Trustee of The California Trust and has
sole voting and investment powers over all securities owned by The
California Trust. Steven M. Loring is the President of JH Holdings
Corporation and may be deemed to control it. The 1960 Trust and The
Glendale Company together own 100% of JH Holdings Corporation. The address
of The Glendale Company is P.O. Box 6339, Lincoln Center, MA 01773-6339.
The 1960 Trust and The Glendale Company disclaim beneficial ownership of
the Common Stock of California Petroleum owned by The California Trust
within the meaning of Rule 13d-3 under the Exchange Act.
31
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
THE MANAGEMENT AGREEMENTS
P.D. Gram & Co. a.s. (the "Manager"), will enter into a Management Agreement
with each Owner and Barber Ship Management. The Manager is a Norwegian
privately-owned firm, established in 1982, which arranges and manages shipping
investments. Peter D. Gram, who is the sole director and an executive officer
of three of the Owners and a director of the fourth Owner, is the managing
director of the Manager. Since 1982, the Manager and its owner have been the
syndicators of approximately 30 vessels, with an investment value of over $300
million. As of January 1, 1995 the Manager and its associated companies had
seven vessels under commercial management. Under each Management Agreement, the
Manager will agree to provide administrative, management and advisory services
to the Owners and Barber Ship Management will agree to provide technical
advisory services to the Owners. In addition, in the event of termination of
the Initial Charters, Barber Ship Management will agree to provide, if
necessary, all technical management services to the Owners. Under each
Management Agreement, the Manager will be entitled to the Management Fee in
consideration of its services and Barber Ship Management shall be entitled to
the Technical Advisor's Fee. The Management Fee equals (i) an annual fee per
Vessel, payable semi-annually in arrears, in an amount equal to $13,625 per
annum during the period from the Closing Date to the third anniversary of the
Closing Date, plus (ii) a fee of $3,000 per annum, payable annually in arrears,
during such three-year period. The Management Fee after the third anniversary
of the Closing Date will increase each year by an amount equal to 4%. The
Technical Advisor's Fee equals $10,000 per annum, for each Vessel, payable
semi-annually in arrears, during such three-year period. In addition, the
Technical Advisor shall be entitled to be reimbursed for the fees, costs and
expenses of conducting periodic inspections of the Vessels. Thereafter, the
Technical Advisor's Fee will increase each year by an amount equal to 4%. The
Owners believe that the fees payable under the Management Agreements are at
rates comparable to market terms for comparable management services.
OTHER RELATIONSHIPS AND TRANSACTIONS
The Underwriter will enter into an agreement with the Manager to perform
certain financial advisory services for any Owner upon the optional termination
of the related Initial Charter or at the end of the term of such Initial
Charter.
Pursuant to a Designated Representative Agreement between California
Petroleum and CalPetro Holdings Limited (the "Designated Representative"),
California Petroleum will appoint the Designated Representative to act on its
behalf with respect to certain administrative matters (e.g., the filing of
certain reports and financial statements with the Commission and the Indenture
Trustee) and certain obligations under the Indentures and the Collateral
Agreement (e.g., providing certain notices and requests). The Designated
Representative is the holding company of the shareholder of the Owners. As
compensation for its services, the Designated Representative will receive a fee
(the "Designated Representative's Fee") during the period from the Closing Date
until the third anniversary of the Closing Date, in an amount equal to $15,000
per annum. Thereafter, the Designated Representative's Fee will increase each
year by an amount equal to 4%.
32
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Serial Mortgage Notes will be issued under an indenture (the "Serial
Indenture") among California Petroleum, Chemical Trust Company of California,
as indenture trustee (the "Indenture Trustee"), and, solely for purposes of the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), Chevron.
The Serial Indenture will be governed by New York law. The form of the Serial
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The statements under this caption are summaries of
certain provisions of the Serial Indenture and do not purport to be complete.
The summaries make use of terms defined in, and are qualified in their entirety
by reference to, all the provisions of the Serial Indenture and the Trust
Indenture Act, including the definitions of certain terms in the Serial
Indenture and those terms made a part of the Serial Indenture by reference to
the Trust Indenture Act.
The Serial Indenture will not contain any covenants specifically designed to
protect the Holders against a reduction in the creditworthiness of California
Petroleum in the event of a highly leveraged transaction. California Petroleum
will be prohibited under its Certificate of Incorporation from incurring, and
will covenant under the Serial Indenture not to incur, any indebtedness other
than the Serial Mortgage Notes and the Term Mortgage Notes so long as any of
the Notes are outstanding. Each Owner will covenant under the related Mortgage
not to incur any indebtedness other than the related Acquisition Loans.
The Serial Indenture will not contain any covenants specifically designed to
protect the Holders against a reduction in the creditworthiness of Chevron in
the event of a highly leveraged transaction. The Serial Indenture will not
limit the amount of additional indebtedness that may be incurred by Chevron
Transport or by Chevron or any of its subsidiaries.
The Serial Mortgage Notes will be originally issued in fully registered book-
entry form and will be represented by one or more global notes (each, a "Global
Note") registered in the name of Cede & Co. ("Cede") as the nominee of The
Depository Trust Company ("DTC") and no person acquiring an interest in a
Serial Mortgage Note (a "Beneficial Owner") will be entitled to receive a
certificated Serial Mortgage Note unless such certificates are issued as
described below. Unless certificated Serial Mortgage Notes are issued, all
references to actions by the Holders shall refer to actions taken by DTC upon
instructions from DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Holders shall
refer, as the case may be, to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the Serial Mortgage Notes, or to DTC
Participants for distribution to Beneficial Owners in accordance with DTC
procedures. See "--Book-Entry System."
THE SERIAL MORTGAGE NOTES.
The Serial Mortgage Notes will be issued as full recourse obligations of
California Petroleum in the aggregate principal amount of $167,500,000, and
will be secured equally and ratably with the Term Mortgage Notes (except as
described under "--Security--After First Optional Termination Date") by the
assignment of a Mortgage on each Vessel, an assignment of any charters for the
Vessel including, so long as the Initial Charter relating to a Vessel has not
reached its first optional termination date, an assignment of such Initial
Charter, as well as by certain other property and contract rights. The
Collateral relating to a Vessel may be released from the Lien of the Serial
Indenture under certain circumstances prior to the final Maturity Date of the
Serial Mortgage Notes if such Vessel is subject to a casualty or certain other
events occur with respect to such Vessel and such Vessel is a Total Loss as
described below under "The Initial Charters--Payment on Total Loss," or if the
Allocated Principal Amount of Serial Mortgage Notes with respect to such Vessel
is paid in full as described under "--Security--After First Optional
Termination Date."
The Serial Mortgage Notes will not be obligations of, or guaranteed by,
Chevron Transport or Chevron, and will not be share capital, debentures or
general obligations of any Owner or the Owners. California Petroleum and the
Owners, however, expect that the amounts payable by Chevron Transport (other
than the
33
<PAGE>
related Termination Payment, if any), and guaranteed by Chevron, under the
Initial Charters (whether or not the termination options are exercised),
together with an allocable amount of anticipated earnings on the Permitted
Investments, will be sufficient to pay in full when due all principal of and
interest on the Serial Mortgage Notes. See "Investment Considerations--Certain
Risks Not Related to Chevron Transport or Chevron." The foregoing determination
assumes that, during the term of the Serial Mortgage Notes, amounts remaining
in the Initial Revenue Account on each Payment Date will be invested in
Permitted Investments that will provide a 7.15% annual rate of return for
periods prior to the first termination date for each Initial Charter and a 5.0%
annual rate of return for subsequent periods. The Owners believe that
guaranteed investment contracts rated at least "Aa" or "AA" by Moody's,
Standard & Poor's or Duff & Phelps will be available with at least the assumed
annual rate of return. See "--Trust Accounts" below for a discussion of the
Initial Revenue Account and Permitted Investments.
Interest on each series of Serial Mortgage Notes will accrue from the date of
issuance thereof at the rate per annum set forth on the cover of this
Prospectus for the respective Maturity Date, and will be payable on the unpaid
principal amount thereof on each April 1 and October 1, commencing on October
1, 1995, to holders of record on the immediately preceding March 15 and
September 15, respectively, until the respective Maturity Date for such series
of Serial Mortgage Notes. Interest on the Serial Mortgage Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Any overdue payment of principal, interest or any other amount payable on any
Serial Mortgage Note will accrue interest from the due date for such amount to
the date such amount is paid in full at a rate per annum equal to 1.50% above
LIBOR (the "Default Rate"). There can be no assurance that, at any time, the
Default Rate will at least equal the rate of interest applicable to the Serial
Mortgage Notes.
Each series of Serial Mortgage Notes will be issued in the aggregate
principal amount set forth below for the respective Maturity Date thereof,
which in each case will be payable in full on the Maturity Date for such series
of Serial Mortgage Notes. Set forth below is the Allocated Principal Amount of
Serial Mortgage Notes payable on each Maturity Date for each Vessel and the
aggregate amount of such Allocated Principal Amount payable on each Maturity
Date.
ALLOCATED PRINCIPAL AMOUNT OF SERIAL MORTGAGE NOTES
<TABLE>
<CAPTION>
AGGREGATE
MATURITY DATE S. GINN C. RICE CHEVRON MARINER W.E. CRAIN PRINCIPAL AMOUNT
<S> <C> <C> <C> <C> <C>
April 1, 1996........... $4,940,000 $4,940,000 $4,940,000 $2,340,000 $17,160,000
April 1, 1997........... 5,210,000 5,210,000 5,210,000 2,530,000 18,160,000
April 1, 1998........... 5,210,000 5,210,000 5,210,000 2,530,000 18,160,000
April 1, 1999........... 5,210,000 5,210,000 5,210,000 2,530,000 18,160,000
April 1, 2000........... 5,210,000 5,210,000 5,210,000 2,530,000 18,160,000
April 1, 2001........... 5,210,000 5,210,000 5,210,000 2,530,000 18,160,000
April 1, 2002........... 5,210,000 5,210,000 5,210,000 2,530,000 18,160,000
April 1, 2003........... 5,210,000 5,210,000 5,210,000 2,530,000 18,160,000
April 1, 2004........... 5,210,000 5,210,000 2,530,000 12,950,000
April 1, 2005........... 5,210,000 2,530,000 7,740,000
April 1, 2006........... 2,530,000 2,530,000
</TABLE>
For each Vessel, Chevron Transport has the option to terminate the Initial
Charter for such Vessel, exercisable on the dates and under the circumstances
described below under "The Initial Charters--Termination Options." The earliest
such termination date for any Initial Charter is April 1, 2003. The first
optional termination date with respect to each Initial Charter occurs on the
payment date on which the Allocated Principal Amount of Serial Mortgage Notes
with respect to the related Vessel is scheduled to be paid in full. Prior to
the respective Maturity Dates of the 2004 Serial Mortgage Notes, the 2005
Serial Mortgage Notes or the 2006 Serial Mortgage Notes, upon payment in full
of the Allocated Principal Amount of Serial Mortgage Notes for a Vessel, the
related Initial Charter, whether or not terminated by Chevron Transport, will
no longer be available as security for payments on the Serial Mortgage Notes.
Even if Chevron
34
<PAGE>
Transport exercises each of the termination options available during the term
of the Serial Mortgage Notes, California Petroleum and the Owners expect that
amounts payable by Chevron Transport, and guaranteed by Chevron, under the
Initial Charters prior to the final Maturity Date for the Serial Mortgage
Notes, together with an allocable amount of anticipated earnings on the
Permitted Investments, will be sufficient to pay in full when due all principal
of and interest on the Serial Mortgage Notes outstanding after any such
termination.
The Serial Mortgage Notes will not be subject to optional redemption prior to
the respective maturity dates thereof. If a casualty or certain other events
occur with respect to a Vessel and such Vessel is a Total Loss, then the Serial
Mortgage Notes will be subject to redemption in part, equally and ratably with
the Term Mortgage Notes, under the circumstances and subject to the conditions
described below under "--Redemption".
The Serial Indenture will not provide for any additional payment by
California Petroleum in the event that California Petroleum is required by any
applicable law to make, with respect to any payment to be made pursuant to the
Serial Mortgage Notes, any deduction or withholding for or on account of any
taxes, assessments or other governmental charges imposed on such payment by any
governmental or taxing authority. See "The Mortgages--Certain Covenants."
THE TERM MORTGAGE NOTES.
The Term Mortgage Notes will be issued under a separate indenture (the "Term
Indenture" and, together with the Serial Indenture, the "Indentures")
concurrently with the issuance of the Serial Mortgage Notes. The Term Mortgage
Notes will be full recourse obligations of California Petroleum in the
aggregate principal amount of $117,900,000. The Term Mortgage Notes will be
secured by the Collateral equally and ratably (except as described below under
"--Security--After First Optional Termination Date") with the Serial Mortgage
Notes. The Term Mortgage Notes will not be obligations of, or guaranteed by,
Chevron Transport or Chevron and will not be share capital, debentures or
general obligations of any Owner or the Owners.
The Term Mortgage Notes are subject to redemption through the operation of
the mandatory sinking fund on April 1 of each year, commencing on April 1, 2004
to and including April 1, 2014 according to the applicable schedule of sinking
fund redemption payments set forth below. The Term Mortgage Notes will mature
on April 1, 2015. Under each Initial Charter, Chevron Transport may elect to
terminate such Initial Charter on any of four, in the case of the double-hulled
Vessels, or three, in the case of the single-hulled Vessel, termination dates
which, for each Vessel, occur at two-year intervals beginning in 2003, 2004,
2005 or 2006, as the case may be. See "The Initial Charters--Termination
Options." The exercise of such termination right under each Initial Charter is
completely within Chevron Transport's discretion.
If an Initial Charter is terminated, the scheduled sinking fund payments on
the Term Mortgage Notes will be revised so that the Allocated Principal Amount
of Term Mortgage Notes for the related Vessel's sinking fund will be redeemed
on the remaining sinking fund redemption dates on a schedule that approximates
level debt service with an additional principal payment on the final maturity
date of $7,000,000 for any of the double-hulled Vessels, or $5,500,000 for the
single-hulled Vessel. The table below provides the scheduled sinking fund
redemption amounts on the Term Mortgage Notes prior to the final Maturity Date
for any Serial Mortgage Notes if none of the Initial Charters is terminated and
if all of the Initial Charters are terminated on the earliest termination
dates.
<TABLE>
<CAPTION>
SINKING FUND REDEMPTION
-------------------------------------
SCHEDULED NO INITIAL ALL INITIAL
PAYMENT DATE CHARTERS TERMINATE CHARTERS TERMINATE
<S> <C> <C>
April 1, 2004............................ $ 3,355,000 $ 1,700,000
April 1, 2005............................ 6,542,000 3,480,000
April 1, 2006............................ 9,526,000 5,320,000
----------- -----------
$19,423,000 $10,500,000
=========== ===========
</TABLE>
35
<PAGE>
Set forth below are tables of the semi-annual charterhire payments under the
Initial Charters, anticipated earnings on Permitted Investments and the
scheduled payments of principal (including, in the case of the Term Mortgage
Notes, mandatory sinking fund payments) and interest on the Term Mortgage Notes
and the Serial Mortgage Notes to the Maturity Date of all series of Serial
Mortgage Notes if (i) none of the Initial Charters is terminated and (ii) all
of the Initial Charters are terminated on the earliest optional termination
dates.
NO INITIAL CHARTER IS TERMINATED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
CHARTERHIRE ANTICIPATED SCHEDULED SCHEDULED
UNDER EARNINGS PAYMENTS ON PAYMENTS ON
PAYMENT INITIAL ON PERMITTED SERIAL MORTGAGE TERM MORTGAGE
DATE CHARTERS INVESTMENTS NOTES NOTES
<S> <C> <C> <C> <C>
October 1, 1995.......... $19.639 $0.000 $ 5.975 $ 4.911
April 1, 1996............ 19.639 0.306 23.271 5.023
October 1, 1996.......... 19.680 0.000 5.535 5.023
April 1, 1997............ 19.680 0.319 23.695 5.023
October 1, 1997.......... 19.047 0.000 4.901 5.023
April 1, 1998............ 19.047 0.319 23.061 5.023
October 1, 1998.......... 18.396 0.000 4.252 5.023
April 1, 1999............ 18.396 0.319 22.412 5.023
October 1, 1999.......... 17.734 0.000 3.589 5.023
April 1, 2000............ 17.734 0.319 21.749 5.023
October 1, 2000.......... 17.068 0.000 2.922 5.023
April 1, 2001............ 17.068 0.319 21.082 5.023
October 1, 2001.......... 16.392 0.000 2.246 5.023
April 1, 2002............ 16.392 0.319 20.406 5.023
October 1, 2002.......... 15.712 0.000 1.566 5.023
April 1, 2003............ 15.712 0.319 19.726 5.023
October 1, 2003.......... 14.122 0.000 0.881 5.023
April 1, 2004............ 14.122 0.269 13.831 8.378
October 1, 2004.......... 12.506 0.000 0.391 4.880
April 1, 2005............ 12.506 0.217 8.131 11.422
October 1, 2005.......... 10.847 0.000 0.096 4.601
April 1, 2006............ 10.847 0.162 2.626 14.127
</TABLE>
36
<PAGE>
ALL INITIAL CHARTERS ARE TERMINATED ON THE EARLIEST
OPTIONAL TERMINATION DATES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SCHEDULED
CHARTERHIRE ANTICIPATED PAYMENTS ON SCHEDULED
UNDER EARNINGS ON SERIAL PAYMENTS ON
PAYMENT INITIAL TERMINATION PERMITTED MORTGAGE TERM MORTGAGE
DATE CHARTERS PAYMENTS INVESTMENTS NOTES NOTES
<S> <C> <C> <C> <C> <C>
October 1, 1995.. $19.639 $ 0.000 $0.000 $ 5.975 $ 4.911
April 1, 1996.... 19.639 0.000 0.306 23.271 5.023
October 1, 1996.. 19.680 0.000 0.000 5.535 5.023
April 1, 1997.... 19.680 0.000 0.319 23.695 5.023
October 1, 1997.. 19.047 0.000 0.000 4.901 5.023
April 1, 1998.... 19.047 0.000 0.319 23.061 5.023
October 1, 1998.. 18.396 0.000 0.000 4.252 5.023
April 1, 1999.... 18.396 0.000 0.319 22.412 5.023
October 1, 1999.. 17.734 0.000 0.000 3.589 5.023
April 1, 2000.... 17.734 0.000 0.319 21.749 5.023
October 1, 2000.. 17.068 0.000 0.000 2.922 5.023
April 1, 2001.... 17.068 0.000 0.319 21.082 5.023
October 1, 2001.. 16.392 0.000 0.000 2.246 5.023
April 1, 2002.... 16.392 0.000 0.319 20.406 5.023
October 1, 2002.. 15.712 0.000 0.000 1.566 5.023
April 1, 2003.... 15.712 13.404 0.319 19.726 5.023
October 1, 2003.. 10.700 0.000 0.335 0.881 5.023
April 1, 2004.... 10.700 12.200 0.527 13.831 6.723
October 1, 2004.. 6.108 0.000 0.525 0.391 4.950
April 1, 2005.... 6.108 10.926 0.593 8.131 8.430
October 1, 2005.. 1.933 0.000 0.574 0.096 4.802
April 1, 2006.... 1.933 5.050 0.523 2.626 10.122
</TABLE>
BOOK-ENTRY SYSTEM
DTC has advised California Petroleum, Chevron Transport and Chevron that DTC
is a limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("DTC Participants") and to facilitate the
clearance and settlement of securities transactions among DTC Participants
through electronic book-entries, thereby eliminating the need for physical
movement of certificates. DTC Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's book-entry system is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant, either directly or
indirectly ("Indirect Participants").
Beneficial Owners that are not DTC Participants but desire to purchase, sell
or otherwise transfer ownership of, or other interests in, Serial Mortgage
Notes may do so only through DTC Participants or Indirect Participants. In
addition, Beneficial Owners will receive all distributions of principal and
interest from the Indenture Trustee or any paying agent through the DTC
Participants. Under the rules, regulations and procedures creating and
affecting DTC and its operation, DTC is required to make book-entry transfers
of the Serial Mortgage Notes among DTC Participants on whose behalf it acts and
to receive and transmit distributions of principal of, and interest on, the
Serial Mortgage Notes. Under the book-entry system,
37
<PAGE>
Beneficial Owners may experience some delay in their receipt of payments, since
such payments will be forwarded by the Indenture Trustee or any paying agent to
Cede, as nominee for DTC, and DTC in turn will forward the payments to the
appropriate DTC Participants. Distributions by DTC Participants to Beneficial
Owners will be the sole responsibility of such DTC Participants and will be
made in accordance with customary industry practices. Accordingly, although
Beneficial Owners will not have possession of the Serial Mortgage Notes, the
rules of DTC provide a mechanism by which DTC Participants will receive
payments and will be able to transfer their interests. Although the DTC
Participants are expected to convey the rights represented by their interests
in any global security to the related Beneficial Owners, because DTC can only
act on behalf of DTC Participants, the ability of Beneficial Owners to pledge
Serial Mortgage Notes to persons or entities that are not DTC Participants, or
to otherwise act with respect to such Serial Mortgage Notes, may be limited due
to the lack of physical certificates for such Serial Mortgage Notes.
Neither California Petroleum, Chevron, Chevron Transport, the Indenture
Trustee nor any other agent of any of them will have any responsibility or
liability for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests in the Serial Mortgage Notes or for
supervising or reviewing any records relating to such beneficial interests.
Since the only "Holder" will be Cede, as nominee of DTC, Beneficial Owners will
not be recognized by the Indenture Trustee as Holders, as such term is used in
the Serial Indenture, and Beneficial Owners will be permitted to exercise the
rights of Holders only indirectly through DTC and DTC Participants.
The Serial Mortgage Notes will be issued in fully registered, certificated
form to Beneficial Owners, or their nominees, rather than to DTC or its
nominee, only if DTC advises the Indenture Trustee in writing that it is no
longer willing or able or qualified to discharge properly its responsibilities
as depository with respect to the Serial Mortgage Notes and California
Petroleum is unable to locate a qualified successor or if California Petroleum,
at its option, elects to terminate the book-entry system through DTC. In such
event, the Indenture Trustee will notify all Beneficial Owners through DTC
Participants of the availability of such certificated Serial Mortgage Notes.
Upon surrender by DTC of the registered global certificates representing the
Serial Mortgage Notes and receipt of instructions for reregistration, the
Indenture Trustee will reissue the Serial Mortgage Notes in certificated form
to Beneficial Owners or their nominees. Such certificated Serial Mortgage Notes
will be freely transferable and exchangeable at the office of the Indenture
Trustee upon compliance with the requirements set forth in the Indenture. No
service charge will be imposed for any registration of transfer or exchange,
but payment of a sum sufficient to cover any tax or other governmental charge
may be required.
SECURITY
At any time, the security described below for the payment and performance of
the obligations of California Petroleum under the Serial Indenture, the Term
Indenture or both, as the case may be, at such time shall be referred to in
this Prospectus as the "Collateral." The Indenture Trustee, as indenture
trustee under the Serial Indenture and the Term Indenture, California Petroleum
and Chemical Trust Company of California, as collateral trustee (the
"Collateral Trustee"), will enter into a collateral trust agreement (the
"Collateral Agreement") pursuant to which the Collateral Trustee will hold the
Collateral for the benefit of the Holders of the Serial Mortgage Notes and the
Indenture Trustee under the Serial Indenture and the holders of the Term
Mortgage Notes and the Indenture Trustee under the Term Indenture, and under
which the Trust Accounts will be established and maintained for the deposit and
application of Trust Funds as described under "--Trust Accounts."
The Vessels are currently owned and operated by Chevron Transport. Upon the
sale of each Vessel to the related Owner and the commencement of the related
Initial Charter on the Closing Date, the Initial Charter and other Collateral
described below under "--Prior to First Optional Termination Date" will be
assigned to California Petroleum as security for the Acquisition Loans and
California Petroleum will assign the Initial Charter and the other Collateral
to the Collateral Trustee as security for the payment of principal of and
interest on the Serial Mortgage Notes and the Term Mortgage Notes, equally and
ratably.
38
<PAGE>
PRIOR TO FIRST OPTIONAL TERMINATION DATE.
On the Closing Date, each Owner will grant or assign and pledge, as the case
may be, to California Petroleum, which will in turn assign and pledge to the
Collateral Trustee, for the benefit of the Holders of the Serial Mortgage Notes
and the holders of the Term Mortgage Notes, equally and ratably, each of the
following assets owned by such Owner on the Closing Date or acquired by such
Owner thereafter: (a) the mortgage of such Owner's Vessel; (b) such Owner's
right, title and interest in the Initial Charter relating to such Vessel,
including the right to receive all monies that become due thereunder or in
respect of such Vessel and all claims for damages arising under such Initial
Charter or relating to such Vessel; (c) the related Chevron Guarantee; (d) the
freights and hires relating to such Vessel; (e) all policies and contracts of
insurance in effect from time to time in respect of such Vessel; (f) such
Owner's right, title and interest in the Management Agreement relating to such
Vessel; (g) such Owner's right, title and interest in the purchase agreement
relating to its Vessel (each, a "Vessel Purchase Agreement"); and (h) all
income, proceeds and products of any of the foregoing. In addition, all of the
capital stock of such Owner will be pledged to California Petroleum which will
in turn pledge it to the Collateral Trustee. In addition, on the Closing Date,
California Petroleum will assign and pledge to the Collateral Trustee, for the
benefit of the Holders of the Serial Mortgage Notes and the holders of the Term
Mortgage Notes, equally and ratably, all cash, securities and other property
held by the Collateral Trustee as Trust Funds from time to time and all income,
proceeds and products of any of the foregoing.
Each Owner will mortgage its Vessel to California Petroleum pursuant to a
Mortgage and California Petroleum will in turn assign such Mortgage to the
Collateral Trustee. The earnings and insurance relating to each Vessel will be
collaterally assigned pursuant to an Assignment of Earnings and Insurances
between the related Owner and California Petroleum, which will in turn assign
such Assignment of Earnings and Insurances to the Collateral Trustee. The
Initial Charter and Chevron Guarantee relating to each Vessel will be
collaterally assigned pursuant to an Assignment of Initial Charter and
Assignment of Initial Charter Guarantee between the related Owner and
California Petroleum, which will in turn assign such Assignment of Initial
Charter and Assignment of Initial Charter Guarantee to the Collateral Trustee.
The Trust Funds will be pledged pursuant to the Collateral Agreement. The
capital stock of each Owner will be pledged pursuant to the Stock Pledge
Agreement.
AFTER FIRST OPTIONAL TERMINATION DATE.
For each Vessel, Chevron Transport has the option to terminate the Initial
Charter, exercisable on the dates and under the circumstances described below
under "The Initial Charters--Termination Options." If the Allocated Principal
Amount of Serial Mortgage Notes relating to a Vessel is paid in full, the
Collateral (including the related Initial Charter, whether or not terminated by
Chevron Transport) relating to such Vessel will no longer secure California
Petroleum's obligations under the Serial Indenture, but will continue to secure
California Petroleum's obligations under the Term Indenture. Although the term
of an Initial Charter with respect to which Chevron Transport exercises its
termination option will be extended for certain periods with respect to Chevron
Transport's obligation to make the related Termination Payment, such extension
would not benefit the Holders of the Serial Mortgage Notes since any such
Termination Payment will not secure the obligations of California Petroleum
under the Serial Indenture. See "Trust Accounts-- Termination Account" below
and "The Initial Charters--Term of the Initial Charters."
So long as any Serial Mortgage Notes are outstanding, if an event of default
under a subsequent charter or Mortgage Event of Default occurs with respect to
a Vessel for which the Allocated Principal Amount of Serial Mortgage Notes has
been paid in full, the Collateral Trustee may not pursue remedies upon receipt
of an Enforcement Notice (as defined herein) under the Term Indenture with
respect to any Initial Charter that has not reached its first optional
termination date and that is not then in default, including amounts paid or
payable thereunder, and the related Security Documents. If any Initial Charter
is terminated and an Acceptable Replacement Charter or other charter for the
related Vessel has been entered into by the related Owner, then such Owner will
assign and pledge its right, title and interest in such Acceptable Replacement
Charter or other charter to California Petroleum, which will in turn assign
such Acceptable Replacement Charter or other charter to the Collateral Trustee
for the benefit of the Indenture Trustee and the holders of the Term Mortgage
Notes.
39
<PAGE>
TRUST ACCOUNTS
GENERAL.
Each Initial Charter provides for semi-annual charterhire payments on each
April 1 and October 1, commencing on October 1, 1995. So long as the Allocated
Principal Amount of Serial Mortgage Notes relating to a Vessel has not been
paid in full, the related Owner will direct Chevron Transport to deposit the
charterhire payments under the related Initial Charter directly into an account
established and maintained for such purpose by the Collateral Trustee (the
"Initial Revenue Account"). Each Owner will direct, as the case may be, (i) the
charterer under any Acceptable Replacement Charter or other charter for such
Owner's Vessel entered into after the payment in full of the Allocated
Principal Amount of Serial Mortgage Notes for such Vessel or (ii) Chevron
Transport, if such Initial Charter continues in effect after all of the
Allocated Principal Amount of the Serial Mortgage Notes for such Vessel has
been paid in full, to deposit the charterhire payments under such Acceptable
Replacement Charter, other charter or Initial Charter, as the case may be,
directly into an account established and maintained for such purpose by the
Collateral Trustee (the "Second Revenue Account"). Each Owner will direct
Chevron Transport to deposit the Termination Payment, if any, payable under the
Initial Charter for such Owner's Vessel directly into an account established
and maintained for such purpose by the Collateral Trustee (the "Termination
Account"). The Collateral Trustee also will deposit into the Termination
Account any net proceeds from the sale, if any, of a Vessel for which the
related Initial Charter has been terminated that are in excess of the amount
necessary to pay all amounts due and payable in connection with the related
mandatory redemption. The Collateral Trustee will establish and maintain an
account into which, on each Payment Date that is not a sinking fund redemption
date or a date on which the final payment of principal on the Term Mortgage
Notes is due, an amount, if any, not to exceed one-half of the aggregate
sinking fund redemption amount or amount of principal due and payable on the
Term Mortgage Notes on the next succeeding Payment Date will be deposited (the
"Sinking Fund Reserve Account") in accordance with the order of payments for
the applicable Payment Date. The Collateral Trustee will establish and maintain
an account into which the Recurring Fees and Taxes, the Management Fee and the
Technical Advisor's Fee relating to each Vessel will be deposited (the
"Operating Account") in accordance with the order of payments for the
applicable Payment Date. The Collateral Trustee will establish and maintain an
account into which the Equity Remainder, if any, for each Vessel will be
deposited (the "Equity Account") in accordance with the order of payments for
each Equity Transfer Date. The Collateral Trustee will establish and maintain
an account into which any insurance proceeds or other payments in connection
with the occurrence of a Total Loss to any Vessel then subject to an Initial
Charter that has not reached its first optional termination date shall be
deposited in accordance with the related Mortgage (the "Casualty Account"). The
Collateral Trustee will establish and maintain an account into which the
Collateral Trustee will deposit (i) any proceeds received upon the exercise of
remedies with respect to the Collateral, (ii) other amounts received with
respect to the Collateral following receipt by the Collateral Trustee of an
Enforcement Notice, subject to the exceptions described in the fourth paragraph
under "--Collateral Agreement Remedies" below and (iii) any other amount
received by the Collateral Trustee pursuant to any of the Security Documents
for which the Collateral Agreement does not specify another Trust Account into
which such amount is to be deposited (the "Collateral Account"). The Initial
Revenue Account, the Second Revenue Account, the Termination Account, the
Operating Account, the Equity Account, the Casualty Account, the Sinking Fund
Reserve Account and the Collateral Account will be maintained by the Collateral
Trustee as collateral agent for the equal and ratable benefit of the holders of
the Term Mortgage Notes and (except for the Second Revenue Account, the
Termination Account and the Sinking Fund Reserve Account) the Holders of the
Serial Mortgage Notes in accordance with the Collateral Agreement, and are from
time to time referred to in this Prospectus as the "Trust Accounts." The funds
deposited in the Trust Accounts are from time to time referred to herein as the
"Trust Funds."
PAYMENT DATES.
On each Payment Date on or prior to April 1, 2003 (the first optional
termination date for any of the Initial Charters), the Collateral Trustee will
withdraw funds first from the Initial Revenue Account and
40
<PAGE>
then from the Equity Account (except for clause (g) below) and make the
payments set forth below in the following order, in each case to the extent
funds are available after the preceding payment has been made in full:
(a) to deposit into the Operating Account the amount of the Recurring
Fees and Taxes then due and payable for each Vessel, or which will become
due and payable prior to the next succeeding Payment Date;
(b) to pay all interest then due and payable on the Serial Mortgage Notes
to the Holders of the Serial Mortgage Notes, ratably in the proportion that
the amount of such payment then due under each such Serial Mortgage Note
bears to the aggregate amount of the payments then due under all such
Serial Mortgage Notes;
(c) if such Payment Date is the Maturity Date for any Serial Mortgage
Notes, to pay the aggregate amount of principal then due and payable on
such Serial Mortgage Notes to the Holders of such Serial Mortgage Notes,
ratably in the proportion that the amount of such principal then due under
each such Serial Mortgage Note bears to the aggregate amount of such
principal then due under all such Serial Mortgage Notes;
(d) to pay all interest then due and payable on the Term Mortgage Notes
to the holders of the Term Mortgage Notes, ratably in the proportion that
the amount of such payment then due under each such Term Mortgage Note
bears to the aggregate amount of the payments then due under all such Term
Mortgage Notes;
(e) to pay to the Indenture Trustee, the Collateral Trustee and the
Designated Representative, respectively, the fees and expenses then due and
payable under the Indentures to the Indenture Trustee and under the
Collateral Agreement to the Collateral Trustee and the Designated
Representative's Fee;
(f) to deposit into the Operating Account the Management Fee and the
Technical Advisor's Fee then due and payable for each Vessel; and
(g) if such Payment Date is an Equity Transfer Date, to the extent funds
are available, to deposit the Equity Remainder for each Vessel into the
Equity Account.
After the foregoing payments have been made, the Collateral Trustee will
invest (and reinvest, as applicable) any balance remaining in the Initial
Revenue Account and the Equity Account in Permitted Investments that will
mature on or before the next succeeding Payment Date.
On each Payment Date that occurs after April 1, 2003 (the first optional
termination date under any of the Initial Charters) and on or before April 1,
2006 (the final Maturity Date for any series of Serial Mortgage Notes), the
Collateral Trustee will withdraw funds from the Initial Revenue Account, the
Second Revenue Account, the Termination Account, the Sinking Fund Reserve
Account, the Equity Account, or the applicable combination of the foregoing
indicated below, as the case may be, and make the payments set forth below in
the following order, in each case to the extent funds are available in the
applicable Trust Accounts after the preceding payment has been made in full:
(a) to deposit into the Operating Account the amount of the Recurring
Fees and Taxes then due and payable, or which will become due and payable
prior to the next succeeding Payment Date for each Vessel then subject to
an Initial Charter through its first optional termination date, first from
the Initial Revenue Account and then from the Equity Account, in each case
to the extent of the funds available therein;
(b) to pay first from the Initial Revenue Account and then from the
Equity Account, in each case to the extent of the funds available therein,
all interest then due and payable on the Serial Mortgage Notes to the
Holders of the Serial Mortgage Notes, ratably in the proportion that the
amount of such payment then due under each such Serial Mortgage Note bears
to the aggregate amount of the payments then due under all such Serial
Mortgage Notes;
(c) if such Payment Date is the Maturity Date for any Serial Mortgage
Notes, to pay first from the Initial Revenue Account and then from the
Equity Account, in each case to the extent of the funds available therein,
the aggregate amount of principal then due and payable on such Serial
Mortgage Notes
41
<PAGE>
to the Holders of such Serial Mortgage Notes, ratably in the proportion
that the amount of such principal then due under each such Serial Mortgage
Note bears to the aggregate amount of such principal then due under all
such Serial Mortgage Notes;
(d) to pay first from the Initial Revenue Account and then from the
Equity Account, in each case to the extent of the funds available therein,
all interest then due and payable on the Allocated Principal Amount of Term
Mortgage Notes for each Vessel subject to an Initial Charter through its
first optional termination date to the holders of the Term Mortgage Notes,
ratably in the proportion that the amount of such payment then due under
each such Term Mortgage Note bears to the aggregate amount of the payments
then due under all such Term Mortgage Notes;
(e) to deposit into the Operating Account the amount of the Recurring
Fees and Taxes then due and payable, or which will become due and payable
prior to the next succeeding Payment Date for each Vessel after the first
optional termination date for the related Initial Charter, first from the
Second Revenue Account, then from the Termination Account and then from the
Equity Account, in each case to the extent of the funds available therein;
(f) to pay first from the Second Revenue Account, then from the
Termination Account and then from the Equity Account, in each case to the
extent of the funds available therein, all interest then due and payable
(A) on the Allocated Principal Amount of the Term Mortgage Notes for each
Vessel subject to an Initial Charter after the first optional termination
date thereof and (B) on the Allocated Principal Amount of the Term Mortgage
Notes for each Vessel not subject to an Initial Charter, to the holders of
the Term Mortgage Notes, ratably in the proportion that the amount of such
payment then due under each such Term Mortgage Note bears to the aggregate
amount of the payments then due under all such Term Mortgage Notes;
(g)(A) if such Payment Date is a sinking fund redemption date or a date
for the payment of principal on the Term Mortgage Notes, to pay first from
the Sinking Fund Reserve Account, then from the Second Revenue Account,
then from the Termination Account and then from the Equity Account, in each
case to the extent of the funds available therein, the aggregate sinking
fund redemption amount or amount of principal then due and payable on the
Term Mortgage Notes, ratably, in the case of payment due on maturity, in
the proportion that the amount of such payments then due under each such
Term Mortgage Note bears to the aggregate amount of the payment then due
under all such Term Mortgage Notes and (B) if such Payment Date is not a
sinking fund redemption date or a date for the payment of principal on the
Term Mortgage Notes, to deposit into the Sinking Fund Reserve Account first
from the Second Revenue Account, then from the Termination Account and then
from the Equity Account, in each case to the extent of the funds available
therein, an amount, if any, equal to one-half of the aggregate sinking fund
redemption amount or amount of principal due and payable on the Term
Mortgage Notes on the next succeeding Payment Date;
(h) to pay first from the Initial Revenue Account and then from the
Equity Account, in each case to the extent of the funds available therein,
to the Indenture Trustee, the Collateral Trustee and the Designated
Representative, respectively, the portion of the aggregate amount of the
fees and expenses then due under the Indentures to the Indenture Trustee
and under the Collateral Agreement to the Collateral Trustee and the
Designated Representative's Fee, calculated by multiplying the aggregate
amount of such fees and expenses by a fraction, the numerator of which is
the number of Vessels then subject to Initial Charters through their
respective first optional termination date and the denominator of which is
the total number of Vessels then subject to a Mortgage;
(i) to pay to the Indenture Trustee, the Collateral Trustee and the
Designated Representative respectively, first from the Second Revenue
Account, then from the Termination Account and then from the Equity
Account, in each case to the extent of the funds therein, the portion of
the aggregate amount of the fees and expenses then due under the Indentures
to the Indenture Trustee and under the Collateral Agreement to the
Collateral Trustee and the Designated Representative's Fee, calculated by
multiplying the aggregate amount of such fees and expenses by a fraction,
the numerator of which is the number of
42
<PAGE>
Vessels after the first optional termination date for the respective
Initial Charters and the denominator of which is the total number of
Vessels then subject to a Mortgage;
(j) to deposit into the Operating Account first from the Initial Revenue
Account and then from the Equity Account, to the extent of the funds
available therein, the Management Fee and the Technical Advisor's Fee then
due and payable for each Vessel then subject to an Initial Charter through
its first optional termination date;
(k) to deposit into the Operating Account first from the Second Revenue
Account, then from the Termination Account and then from the Equity
Account, in each case to the extent of the funds available therein, the
Management Fee and the Technical Advisor's Fee then due and payable for
each Vessel after the first optional termination date for the related
Initial Charter;
(l) if such Payment Date is an Equity Transfer Date, to withdraw from the
Initial Revenue Account, to the extent funds are available, and to deposit
into the Equity Account the Equity Remainder for each Vessel then subject
to an Initial Charter through its first optional termination date; and
(m) if such Payment Date is an Equity Transfer Date, to withdraw first
from the Second Revenue Account and then from the Termination Account, in
each case to the extent of the funds available therein, and to deposit into
the Equity Account the Equity Remainder for each Vessel after the first
optional termination date for which the related Initial Charter has reached
its first optional termination date.
After the foregoing payments have been made, the Collateral Trustee will
invest (and reinvest, as applicable) any balance remaining in each of the
Initial Revenue Account (if such Payment Date is not the date upon which all
series of Serial Mortgage Notes are paid in full), the Second Revenue Account,
the Equity Account, the Termination Account and the Sinking Fund Reserve
Account in Permitted Investments that will mature on or before the next
succeeding Payment Date.
On the final Maturity Date for all series of Serial Mortgage Notes, after all
payments have been made in full to the Holders of the Serial Mortgage Notes,
any balance remaining in the Initial Revenue Account will be transferred to the
Second Revenue Account.
On each Payment Date after April 1, 2006 (the final Maturity Date for all
series of Serial Mortgage Notes), the Collateral Trustee will withdraw funds
first from the Sinking Fund Reserve Account (only in the case of clause (c)
below), then from the Second Revenue Account, then from the Termination Account
and then (except for clause (f) below) from the Equity Account, in each case to
the extent of the funds available therein, and make the payments set forth
below in the following order, in each case to the extent funds are available
after the preceding payment has been made in full:
(a) to deposit into the Operating Account the Recurring Fees and Taxes
then due and payable for each Vessel, or which will become due and payable
prior to the next succeeding Payment Date;
(b) to pay all interest then due and payable on the Term Mortgage Notes
to the holders of the Term Mortgage Notes, ratably in the proportion that
the amount of such payment then due under each Term Mortgage Note bears to
the aggregate amount of the payments then due under all such Term Mortgage
Notes;
(c)(A) if such Payment Date is a sinking fund redemption date or a date
for the payment of principal on the Term Mortgage Notes, to pay the
aggregate sinking fund redemption amount or amount of principal then due
and payable on the Term Mortgage Notes to the holders of the Term Mortgage
Notes, ratably, in the case of payment due on maturity, in the proportion
that the amount of such principal then due under each Term Mortgage Note
bears to the aggregate amount of such principal then due under all the Term
Mortgage Notes; and (B) if such Payment Date is not a sinking fund
redemption date or a date for the payment of principal on the Term Mortgage
Notes, to deposit into the Sinking Fund Reserve Account first from the
Second Revenue Account, then from the Termination Account and then from the
Equity Account, in each case to the extent of the funds available therein,
an
43
<PAGE>
amount, if any, equal to one-half of the aggregate sinking fund redemption
amount or amount of principal due and payable on the Term Mortgage Notes on
the next succeeding Payment Date;
(d) to pay to the Indenture Trustee, the Collateral Trustee and the
Designated Representative respectively, the fees and expenses then due and
payable under the Term Indenture to the Indenture Trustee and under the
Collateral Agreement to the Collateral Trustee and the Designated
Representative's Fee;
(e) to deposit into the Operating Account the Management Fee and the
Technical Advisor's Fee then due and payable for each Vessel; and
(f) if such Payment Date is an Equity Transfer Date, to the extent funds
are available, to deposit the Equity Remainder for each Vessel into the
Equity Account.
After the foregoing payments have been made, the Collateral Trustee will
invest (and reinvest, as applicable) any balance remaining in each of the
Second Revenue Account, the Termination Account, the Sinking Fund Reserve
Account and the Equity Account in Permitted Investments that will mature on or
before the next succeeding Payment Date. If so directed by California Petroleum
and if no Indenture Event of Default has occurred and is continuing, the
Indenture Trustee will purchase Term Mortgage Notes in the open market from
funds, if any, available in the Sinking Fund Reserve Account, provided that (a)
the purchase price of such Term Mortgage Notes is less than 100% of the
principal amount thereof plus accrued and unpaid interest to the date of such
purchase and (b) such Term Mortgage Notes are delivered to the Indenture
Trustee to satisfy California Petroleum's sinking fund obligations on the Term
Mortgage Notes on the next succeeding Payment Date.
If on any Payment Date the Notes are to be redeemed (other than by operation
of the mandatory sinking fund) in whole or in part, such redemption will occur
immediately prior to the payments described above for such Payment Date.
On each Payment Date occurring after the date on which each Vessel either (i)
has been sold, (ii) is subject to an Acceptable Replacement Charter or (iii) is
subject to an Initial Charter for which the last optional termination date has
occurred and the related Initial Charter has not been terminated, the
Collateral Trustee shall if so directed by the Manager disburse excess funds
contained in the Second Revenue Account and Termination Account to the Owners,
pro rata in proportion to the amount of such funds deposited in such Trust
Accounts in respect of such Owner's Vessel. For purposes of the foregoing,
amounts contained in the Second Revenue Account and Termination Account shall
on any date of determination be deemed excess funds to the extent, if any, that
charterhire payments under all Initial Charters and Acceptable Replacement
Charters then in effect during the non-cancellable term of such charters, after
giving effect to (1) any "gross up" of such amounts as a result of any
withholding tax on such charterhire payments, (2) the amounts then held in the
Termination Account, (3) the amounts then held in the Second Revenue Account
and (4) all fees and expenses, if any, incurred but unpaid in connection with
the recharter of the Vessels, provide sufficient funds for the payment in full
when due of (A) sinking fund payments and payments of principal and interest on
the then outstanding Term Mortgage Notes in accordance with the revised
schedule of sinking fund and principal payments that is applicable on such date
of determination, (B) the amount of Recurring Fees and Taxes for all such
Vessels, (C) the amount of Management Fees and Technical Advisor's Fees for all
such Vessels, (D) the amount of fees and expenses of the Indenture Trustee,
Collateral Trustee and Designated Representative's Fees and (E) an amount at
least equal to 30% of the estimated amounts, on a per annum basis, referred to
in clauses (B), (C) and (D) above for miscellaneous or unexpected expenses.
OPERATING ACCOUNT.
Funds deposited into the Operating Account on each Payment Date will be
disbursed by the Collateral Trustee (i) from time to time, to pay the Recurring
Fees and Taxes as such amounts become due and payable
44
<PAGE>
upon presentation of invoices therefor pursuant to the Management Agreements,
(ii) to pay the Management Fee to the Manager and (iii) to pay the Technical
Advisor's Fee to Barber Ship Management, provided that the Management Fee and
the Technical Advisor's Fee shall be payable only to the extent that the funds
remaining in the Operating Account after any such payment would be sufficient
to pay the Recurring Fees and Taxes for the applicable period. Funds remaining
in the Operating Account will be invested by the Collateral Trustee in
Permitted Investments maturing on or before the next succeeding Payment Date.
See "Business--Operations" for a discussion of the services provided under the
Management Agreements.
EQUITY ACCOUNT.
Funds remaining in the Equity Account will be invested by the Collateral
Trustee in Permitted Investments. Any balance remaining in the Equity Account
after payment in full of all amounts on the Notes will be disbursed promptly to
the Owners upon payment in full of all obligations due under the Indentures.
CASUALTY ACCOUNT.
Any insurance proceeds or other payments received by the Collateral Trustee
in connection with the occurrence of a Total Loss to any Vessel then subject to
an Initial Charter that has not reached its first optional termination date
will be deposited pursuant to the provisions of the related Security Documents
into the Casualty Account, and invested in Permitted Investments until such
funds are disbursed by the Collateral Trustee in accordance with the
Indentures. All such amounts paid with respect to a Vessel that has reached its
first optional termination date and any balance remaining in the Casualty
Account upon the release of all Liens of the Serial Indenture will be deposited
into the Termination Account. See "Trust Accounts--Termination Account."
TERMINATION ACCOUNT.
If the Initial Charter for a Vessel is terminated by Chevron Transport, the
Termination Payment payable under such Initial Charter will be deposited into
the Termination Account for the benefit of the Term Indenture Trustee for the
ratable benefit of holders of the Term Mortgage Notes. Any net proceeds from
the sale, if any, of a Vessel for which the related Initial Charter has reached
its first optional termination date, any insurance proceeds or other payments
received by the Collateral Trustee in connection with the occurrence of a Total
Loss to any Vessel that has reached its first optional termination date, and
any funds transferred from the Casualty Account or the Collateral Account upon
the release of all Liens of the Serial Indenture will be deposited into the
Termination Account to be used along with the related Termination Payment (and
any excess amounts referred to in the next succeeding sentence arising from
previous Vessel sales and remaining in the Termination Account) in connection
with the related mandatory redemption, if any, of Term Mortgage Notes pursuant
to the Term Indenture. The excess, if any, relating to such Vessel over the
amount necessary to pay all amounts due and payable in connection with such
related mandatory redemption will be disbursed by the Collateral Trustee, to
the extent necessary on each succeeding Payment Date, to make payments
designated to be made from the Termination Account on such Payment Date.
Any Termination Payment deposited into the Termination Account will be
disbursed by the Collateral Trustee (i) if a notice of mandatory redemption is
delivered by the Owners as a result of such termination, in accordance with the
Term Indenture or (ii) if a notice of mandatory redemption is not delivered by
the Owners as a result of such termination, to the extent necessary on each
succeeding Payment Date, to make payments designated to be made from the
Termination Account on such Payment Date. Funds in the Termination Account will
be invested (and reinvested, as applicable) by the Collateral Trustee in
Permitted Investments prior to being disbursed as described above.
SINKING FUND RESERVE ACCOUNT.
Funds deposited into the Sinking Fund Reserve Account on each applicable
Payment Date (1) if so directed by California Petroleum and if no Indenture
Event of Default has occurred and is continuing, will
45
<PAGE>
be used to purchase Term Mortgage Notes in the open market provided that (a)
the purchase price of such Term Mortgage Notes is less than 100% of the
principal amount thereof plus accrued and unpaid interest to the date of such
purchase and (b) such Term Mortgage Notes are delivered to the Indenture
Trustee to satisfy California Petroleum's sinking fund obligations on the Term
Mortgage Notes on the next succeeding Payment Date and (2) if not so used as
described in clause (1) above, will be used to satisfy, in part, California
Petroleum's sinking fund obligations on the Term Mortgage Notes on such Payment
Date. Funds in the Sinking Fund Reserve Account will be invested (and
reinvested, as applicable) by the Collateral Trustee in Permitted Investments
maturing on or before the next succeeding Payment Date prior to being disbursed
as described above.
COLLATERAL ACCOUNT.
The cash proceeds of any sale of, or other realization upon, all or any part
of the Collateral upon the exercise by the Collateral Trustee of any of the
rights and remedies described below (see "Collateral Agreement Remedies") upon
receipt of an Enforcement Notice, and any other amounts received by the
Collateral Trustee pursuant to any of the Security Documents for which the
Collateral Agreement does not specify another trust account into which such
amount is to be deposited, will be deposited in the Collateral Account. While
an Enforcement Notice is in effect, all moneys which are required by any
Security Document to be delivered to the Collateral Trustee or which are
received by the Collateral Trustee or any agent or nominee of the Collateral
Trustee in respect of the Collateral, whether in connection with the exercise
of the remedies provided in any Security Document or otherwise, shall be
deposited in the Collateral Account and held by the Collateral Trustee and
applied in accordance with the terms of the Collateral Agreement;
notwithstanding the foregoing, any moneys received by the Collateral Trustee
for deposit in any other Trust Account which are received pursuant to any
Initial Charter that is not then in default and that has not reached its first
optional termination date or the related Security Documents shall be deposited
in such other Trust Account and applied in accordance with the provisions
applicable to such other Trust Account; provided, however, that notwithstanding
anything in this paragraph to the contrary, all such moneys relating to
Collateral with respect to which the Lien of the Serial Indenture has been
released shall be deposited in the Termination Account and applied in
accordance with the terms of the Collateral Agreement.
Upon the release of all Liens of the Serial Indenture, any balance remaining
in the Collateral Account shall be transferred to the Termination Account. See
"Trust Accounts--Termination Account."
PERMITTED INVESTMENTS.
Permitted Investments include any of the following:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and
interest by, the United States or any agency or instrumentality thereof,
provided such obligations are backed by the full faith and credit of the
United States, Federal Housing Administration debentures, FHLMC senior debt
obligations or FNMA senior debt obligations, but excluding any of such
securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption;
(b) federal funds, certificates of deposit, time and demand deposits and
banker's acceptances (having original maturities of not more than one year)
of any bank or trust company incorporated under the laws of the United
States or any state thereof, provided that the short-term debt obligations
of such bank or trust company at the date of acquisitions thereof have been
rated at least "A-1" or "P-1" by Standard & Poor's and Moody's,
respectively;
(c) commercial paper (having original maturities of not more than one
year) rated at least "A-1" or "P-1" by Standard & Poor's and Moody's,
respectively; or
(d) guaranteed investment contracts, investment agreements or similar
agreements rated at least "Aa" or "AA" by Moody's, Standard & Poor's or
Duff & Phelps, respectively, that are treated as indebtedness for United
States federal income tax purposes.
46
<PAGE>
For purposes of determining whether a Permitted Investment matures on or
before the next succeeding Payment Date, each payment received under a
Permitted Investment described in clause (d) above will be considered to be the
maturity of such Permitted Investment.
REDEMPTION
If a Total Loss occurs or is declared by Chevron Transport, then the
outstanding Notes will be redeemed in part in an aggregate principal amount
equal to the Allocated Principal Amount of Serial Notes and the Allocated
Principal Amount of Term Notes for such Vessel. Any such redemption shall occur
90 days after the occurrence of the Total Loss and shall be at a redemption
price for each Note equal to the principal amount of such Note to be redeemed,
together with interest on such principal amount of each such Note at the rate
applicable to such Note to the date of payment of such redemption price and all
other amounts then due and payable any holder of Notes under the Indentures.
The Serial Mortgage Notes are not subject to optional redemption. The Term
Mortgage Notes may be redeemed in whole or in part at the direction of
California Petroleum on any Payment Date on or after April 1, 2006, the final
Maturity Date for any Serial Mortgage Notes.
SELECTION AND NOTICE.
In the event that the Serial Mortgage Notes are to be redeemed at any time in
part, the Indenture Trustee shall select Serial Mortgage Notes to be redeemed
ratably from each Holder such that the ratio of the principal amount of each
series of Serial Mortgage Notes to be redeemed from each Holder to the
aggregate principal amount of each series of Serial Mortgage Notes held by such
Holder shall, as nearly as practicable and subject to rounding, equal the ratio
of the aggregate principal amount of Serial Mortgage Notes to be redeemed on
such redemption date to the aggregate principal amount of Serial Mortgage Notes
then outstanding, provided that Serial Mortgage Notes of $1,000 principal
amount or less shall not be redeemed in part. Notice of redemption shall be
mailed by first class mail by the Indenture Trustee at least 30 but not more
than 60 days before the redemption date to each Holder of Serial Mortgage Notes
to be redeemed at its registered address. If any Serial Mortgage Note is to be
redeemed in part only, the notice of redemption that relates to such Serial
Mortgage Note shall state the portion of the principal amount thereof to be
redeemed. On and after the redemption date, interest will cease to accrue on
Serial Mortgage Notes or portions thereof called for redemption.
CERTAIN COVENANTS
The Serial Indenture contains certain covenants pursuant to which California
Petroleum will agree, among other things, that:
(a) California Petroleum will not create, incur, assume or issue,
directly or indirectly, guarantee or in any manner become, directly or
indirectly, liable for or with respect to the payment of any indebtedness,
except for its obligations under the Notes and the Indentures;
(b) California Petroleum will not engage in any business other than the
issuance of the Notes and making the loans to the Owners in accordance with
California Petroleum's charter and by-laws;
(c) California Petroleum will not (i) commence any case, proceeding or
other action under any existing or future bankruptcy, insolvency or similar
law seeking to have an order for relief entered with respect to it, or
seeking reorganization, arrangement, adjustment, winding up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
(ii) seek appointment of a receiver, trustee, custodian or other similar
official for it or any part of its assets, (iii) make a general assignment
for the benefit of creditors or (iv) take any action in furtherance of, or
consenting to or acquiescing in, any of the foregoing;
(d) California Petroleum will not create, incur, assume or suffer to
exist any Lien on any of its assets or properties or on any of the
Collateral, except pursuant to the Collateral Agreement;
47
<PAGE>
(e) California Petroleum will not consolidate with, or merge with or
into, any other Person or convey or transfer to any Person all or any part
of the Collateral except to the Collateral Trustee in accordance with the
Collateral Agreement;
(f) California Petroleum will not (i) declare or pay any dividend or
other distribution on any shares of its capital stock in excess of $15,000
per annum, (ii) make any loans or advances to any affiliate of California
Petroleum or (iii) purchase, redeem or otherwise acquire or retire for
value any shares of its capital stock; and
(g) California Petroleum will not make any capital contributions,
advances or loans to, or investments or purchases of capital stock in, any
Person (as defined in the Serial Indenture), except for its loan to each
Owner.
INDENTURE EVENTS OF DEFAULT
Events of default under the Serial Indenture (each, an "Indenture Event of
Default") include the following events and occurrences:
(a) any Mortgage Event of Default shall have occurred and be continuing
(see "The Mortgages--Mortgage Events of Default");
(b) default in the payment of all or any part of the principal of or
interest on any of the Serial Mortgage Notes as and when such payment
becomes due and payable and the continuance of such default for a period of
two Business Days (as defined in the Serial Indenture);
(c) failure on the part of California Petroleum to observe or perform in
any material respect any of the other agreements or covenants contained in
the Serial Indenture, the Serial Mortgage Notes, the Security Documents or
any document or certificate delivered pursuant thereto, continued for a
period of 30 days after the earlier of (i) actual knowledge by California
Petroleum of such failure and (ii) the date on which written notice
specifying such failure and stating that such notice is a "Notice of
Default" under the Serial Indenture has been given to California Petroleum
by the Indenture Trustee or to California Petroleum and the Indenture
Trustee by the Holders of at least 25% in aggregate principal amount of the
Serial Mortgage Notes then outstanding;
(d) any representation or warranty of California Petroleum made in the
Serial Indenture, any Security Document or any document or certificate
delivered pursuant thereto proves to have been inaccurate in any material
respect when made, remains inaccurate in such material respect for a period
of 30 days after the earlier of (x) actual knowledge by California
Petroleum of such misrepresentation and (y) the date on which written
notice specifying such inaccuracy and stating that such notice is a "Notice
of Default" under the Serial Indenture has been given to California
Petroleum by the Indenture Trustee, or to California Petroleum and the
Indenture Trustee by the Holders of at least 25% in aggregate principal
amount of the Serial Mortgage Notes then outstanding;
(e) the occurrence of specified events of bankruptcy, insolvency,
reorganization, winding up or liquidation with respect to California
Petroleum;
(f) any of the Initial Charters is repudiated or ceases to be in full
force and effect, other than pursuant to the terms thereof;
(g) any of the Security Documents is repudiated or ceases to be in full
force and effect or any of the Security Documents ceases to give the
Collateral Trustee, in any material respect, the Liens, rights, powers and
privileges purported to be created thereby, in each case other than
pursuant to the terms thereof; or
(h) any of the Chevron Guarantees is repudiated or ceases to be in full
force and effect, other than pursuant to the terms thereof.
If an Indenture Event of Default referred to in clause (e) of the preceding
paragraph occurs and is continuing then the entire principal of and interest
accrued on all the Serial Mortgage Notes shall immediately and without further
act become due and payable, without presentment, demand, protest or notice by
the
48
<PAGE>
Indenture Trustee or any Holder. If an Indenture Event of Default (other than
an Indenture Event of Default referred to in clause (e) of the preceding
paragraph) occurs and is continuing, then the Indenture Trustee or the Holders
of at least 25% in aggregate principal amount of the outstanding Serial
Mortgage Notes may, by written notice, declare the entire principal of and
interest accrued on all the Serial Mortgage Notes to be due and payable
immediately, and upon any such declaration such amounts shall become due and
payable immediately.
After a declaration of acceleration and before any judgment or decree for
the payment of money due has been obtained or entered, if California Petroleum
shall pay or deposit with the Indenture Trustee a sum sufficient to pay all
matured installments of interest upon all of the Serial Mortgage Notes and the
principal of all the Serial Mortgage Notes that shall have become due
otherwise than by acceleration (with interest on such principal and, to the
extent permitted by law, on overdue installments of interest, at the same rate
for each Serial Mortgage Note applicable to such Serial Mortgage Note, to the
date of such payment or deposit) and all amounts payable to the Indenture
Trustee under the Serial Indenture, and if any and all Indenture Events of
Default, other than the non-payment of the principal of the Serial Mortgage
Notes that shall have become due by acceleration, shall have been cured,
waived or otherwise remedied, then the Holders of a majority in aggregate
principal amount of outstanding Serial Mortgage Notes may, by written notice,
rescind and annul such declaration of acceleration and its consequences, but
no such rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon. The Holders
of a majority in aggregate principal amount of the outstanding Serial Mortgage
Notes also have the right to waive any past default or Indenture Event of
Default, except a default in the payment of the principal of or interest on
any Serial Mortgage Note, or in respect of a covenant or provision of the
Serial Indenture which cannot be modified or amended without the consent of
the Holder of each affected Serial Mortgage Note.
If an Indenture Event of Default has occurred and is continuing, the
Indenture Trustee may pursue any available remedy by proceeding at law or in
equity to collect the payment of principal of and interest on the Serial
Mortgage Notes or to enforce the performance of any provision of the Serial
Mortgage Notes or the Serial Indenture.
The Serial Indenture contains certain covenants pursuant to which the
Indenture Trustee will agree that, prior to the date which is one year and one
day after the payment in full of all outstanding Notes, it will not institute
against, or join any other person in instituting against, California Petroleum
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding or other similar proceeding under the laws of the United States or
any state of the United States.
No Holder has any right to institute any proceeding with respect to the
Serial Indenture or any remedy thereunder, unless the Holders of at least 25%
in aggregate principal amount of the outstanding Serial Mortgage Notes have
made written request, and offered reasonable indemnity, to the Indenture
Trustee to institute such proceeding as Indenture Trustee, the Indenture
Trustee has failed to institute such proceeding within 60 days after receipt
of such notice and the Indenture Trustee has not within such 60-day period
received directions inconsistent with such written request by the Holders of a
majority in aggregate principal amount of the outstanding Serial Mortgage
Notes. Such limitations do not apply, however, to a suit instituted by a
Holder of a Serial Mortgage Note for the enforcement of the payment of the
principal of or accrued interest on, such Serial Mortgage Note on or after the
respective due dates expressed in such Serial Mortgage Note.
The Holders of a majority in aggregate principal amount of the outstanding
Serial Mortgage Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee,
or exercising any trust, or power conferred on the Indenture Trustee by the
Serial Indenture. The Indenture provides that, subject to the duty of the
Indenture Trustee during a default to act with the required standard of care,
the Indenture Trustee is entitled to reasonable security or indemnity from the
Holders before proceeding to exercise any right or power under the Serial
Indenture at the request of the Holders. The Indenture Trustee may decline to
follow any such direction from the Holders if it determines that the action so
directed would result in liability to the Indenture Trustee, would be unduly
prejudicial to Holders not joining in such direction or would be unlawful.
49
<PAGE>
COLLATERAL AGREEMENT REMEDIES
If an Indenture Event of Default has occurred and is continuing and if such
Indenture Event of Default is actually known by a responsible officer of the
Indenture Trustee charged with the administration of the Serial Indenture, the
Indenture Trustee must mail a notice of such Indenture Event of Default (an
"Enforcement Notice") to the Collateral Trustee and each Holder within 90 days.
Except in the case of a default in the payment of principal of or interest on
any Serial Mortgage Note, the Indenture Trustee will be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or responsible officers of the
Indenture Trustee in good faith determines that the withholding of such notice
is in the interest of the Holders. If the Collateral Trustee and the Indenture
Trustee are the same entity, an Enforcement Notice will be deemed to have been
delivered to the Collateral Trustee and to have become effective with respect
to the Collateral Trustee immediately upon the occurrence of an Indenture Event
of Default described in clause (b) in the first paragraph under "Indenture
Events of Default" above or upon written notice to or actual knowledge by a
responsible officer of the Indenture Trustee that an Indenture Event of Default
has occurred, and will be deemed to have been canceled with respect to the
Collateral Trustee at such time as the Indenture Trustee would have been
required to cancel such Enforcement Notice upon the rescission and annulment or
waiver by the Holders, as described above.
So long as an Enforcement Notice is in effect, the Collateral Trustee (to the
extent directed to do so by the appropriate Holders, as discussed above),
whether in its own right or as assignee of California Petroleum, will proceed
to exercise all the powers, remedies and rights available under the Collateral
Agreement and the Security Documents, including, without limitation, taking
possession of and selling the Collateral thereunder or any portion thereof or
rights or interests therein, at one or more public or private sales called and
conducted in any manner permitted by law and, during the continuance of a
Mortgage Event of Default, exercising any of its remedies under such Mortgage.
Pursuant to the terms of the Initial Charters and the Mortgages, the right of
the Collateral Trustee to enforce each Mortgage is subject to the right of
Chevron Transport to the continued use and operation of the related Vessel
under such Initial Charter so long as no Charter Event of Default shall have
occurred and be continuing under such Initial Charter and so long as Chevron
Transport is performing its obligations thereunder.
If an Enforcement Notice is delivered and becomes effective under the Term
Indenture, but not under the Serial Indenture, the holders of a majority in
aggregate principal amount of the outstanding Term Mortgage Notes (the
"Majority Term Noteholders") will have the right to direct the time, method and
place of conducting any proceeding for any right or remedy available to the
Collateral Trustee, or exercising any trust or power conferred on the
Collateral Trustee, or for the appointment of a receiver, or to direct the
taking or refraining from taking of any action authorized by any Security
Document. If an Enforcement Notice is delivered and becomes effective under the
Serial Indenture, but not under the Term Indenture, the Holders of a majority
in aggregate principal amount of the outstanding Serial Mortgage Notes (the
"Majority Serial Noteholders") will have the right to direct the actions to be
taken or not taken with respect to the Collateral under the Collateral
Agreement and the other Security Documents. If an Enforcement Notice is
delivered and becomes effective under both Indentures, the holders of a
majority in aggregate principal amount of the outstanding Term Mortgage Notes
and Serial Mortgage Notes (the "Majority Noteholders") will have the right to
direct the actions to be taken or not taken with respect to the Collateral
under the Collateral Agreement and the other Security Documents. The Collateral
Trustee is entitled to be indemnified by the holders of the Term Mortgage
Notes, or the Holders of the Serial Mortgage Notes, or all of such holders, as
the case may be, before proceeding to act at their direction under the
Collateral Agreement.
There can be no assurance that the proceeds of the sale of any Vessel in
connection with the Collateral Trustee's exercise of remedies following an
Indenture Event of Default would be sufficient to redeem the Allocated
Principal Amount of Notes for such Vessel or that any buyers would be available
under the circumstances in which such sale would occur. Chevron Transport has
advised California Petroleum that its original tax basis for the Vessels, based
on the aggregate purchase price paid by Chevron Transport for the
50
<PAGE>
Vessels and capitalized interest during construction of such Vessels, was
approximately $285 million. Chevron Transport's original book value for
financial reporting purposes (which amount excludes capitalized interest) was
approximately $274 million. The depreciated tax basis and book basis for
accounting purposes for the Vessels was approximately $262 million and
approximately $260 million, respectively, as of December 31, 1994. Based on
industry data provided by R.S. Platou, Economic Research a.s., the current
market value of an unchartered recently built double-hulled Suezmax tanker is
in the range of $55 to $60 million and the current market value of an
unchartered single-hulled Suezmax tanker similar to W.E. Crain is in the range
of $40 to $45 million. None of the preceding amounts are indicative of the
current or future fair market value of the Vessels and related Initial
Charters. No appraisal of the fair market value of any Vessel has been
commissioned in connection with the purchase of such Vessel by the related
Owner from Chevron Transport. There can be no assurance that the price to be
paid by each Owner for its respective Vessel and the related Initial Charter
will reflect the fair market value of such Vessel and such Initial Charter at
the time such Vessel will be acquired by the related Owner and such Initial
Charter commences, or that the aggregate fair market value of such Vessel and
such Initial Charter will at any time exceed the Allocated Principal Amount of
Notes for such Vessel. The fair market value of oil tankers, including the
Vessels, can be expected to fluctuate, depending upon general economic and
market conditions affecting the tanker industry and competition from other
shipping companies, types and sizes of vessels, and other modes of
transportation. In addition, as vessels grow older, they may be expected to
decline significantly in value.
If the Allocated Principal Amount of Serial Mortgage Notes relating to a
Vessel is paid in full, the Collateral (including the related Initial Charter,
whether or not terminated by Chevron Transport) relating to such Vessel will no
longer secure California Petroleum's obligations under the Serial Indenture. So
long as any Serial Mortgage Notes are outstanding, if an event of default under
a subsequent charter or a Mortgage Event of Default occurs with respect to any
Vessel for which the Allocated Principal Amount of the Serial Mortgage Notes is
paid in full, the Collateral Trustee may not pursue remedies upon receipt of an
Enforcement Notice under the Term Indenture with respect to any Initial Charter
that has not reached its first optional termination date and that is not then
in default, including amounts paid or payable thereunder, and the related
Security Documents. In addition, the right of the Collateral Trustee to enforce
the Mortgages will be subject to the rights of a charterer under its charter to
the continued use and operation of the related Vessel, so long as no event of
default has occurred and is continuing under such charter and so long as the
charterer is performing its obligations thereunder. So long as the same
institution or an affiliate of such institution serves as indenture trustee
under the Serial Indenture and the Term Indenture, an Indenture Event of
Default that is not an event of default under the Serial Indenture, such as
described in the preceding sentence, may result in a conflicting interest for
such institution or affiliate which would require it to seek an exemption under
the Trust Indenture Act or require it to be replaced as trustee under one or
more of the Indentures and the Collateral Agreement.
The Collateral Trust Agreement contains certain covenants pursuant to which
the Collateral Trustee will agree that, prior to the date which is one year and
one day after the payment in full of all outstanding Notes, it will not
institute against, or join any other person in instituting against, California
Petroleum any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding or other similar proceeding under the laws of the United
States or any state of the United States.
MODIFICATIONS OF THE SERIAL INDENTURE
The Serial Indenture provides that California Petroleum, Chevron and the
Indenture Trustee may enter into a supplemental indenture to amend the Serial
Indenture or the Serial Mortgage Notes without the consent of any Holder: (a)
to convey, transfer, assign, mortgage or pledge to the Collateral Trustee as
security for the Serial Mortgage Notes any property or assets; (b) to evidence
the succession of another corporation to Chevron, or successive successions,
and the assumption by the successor corporation of the covenants, agreements
and obligations of Chevron; (c) to cure any ambiguity, defect or inconsistency;
or (d) to comply with the requirements of the Commission in order to maintain
the qualification of the Serial Indenture under the Trust Indenture Act.
51
<PAGE>
The Serial Indenture and the rights and obligations of California Petroleum,
the Indenture Trustee and the Holders may be modified or amended at any time
with the consent of the Holders of not less than a majority in aggregate
principal amount of all outstanding Serial Mortgage Notes; provided that
without the consent of the Holder of each Serial Mortgage Note affected, no
such modification or amendment shall, among other things, change the fixed
maturity or redemption date thereof, reduce the rate of interest thereon,
extend the time of payment of interest, reduce the principal amount thereof,
reduce any amount payable upon the redemption thereof, or impair the right to
institute suit for the enforcement of any such payment, or reduce the
percentage of the Holders of such Serial Mortgage Notes whose consent is
required for any such modification or amendment or modify any provisions of the
Serial Indenture relating to the amendment thereof or the creation of a
supplemental indenture (unless the change increases the rights of the Holders).
Each of the Serial Indenture and the Term Indenture provide that certain
provisions contained therein may not be modified or amended without the consent
of the Collateral Trustee and the requisite Holders of the Serial Mortgage
Notes and holders of the Term Mortgage Notes.
SATISFACTION AND DISCHARGE
The Serial Indenture will be discharged and will cease to be of further
effect (except as to surviving rights or registration of transfer or exchange
of the Serial Mortgage Notes) as to all outstanding Serial Mortgage Notes when
either (a) California Petroleum shall have paid or caused to be paid the
principal of and interest on all the Serial Mortgage Notes outstanding under
the Serial Indenture, as and when the same shall have become due and payable;
(b) California Petroleum shall have delivered to the Indenture Trustee for
cancellation all Serial Mortgage Notes theretofore authenticated (except lost,
stolen or destroyed Serial Mortgage Notes which have been replaced or paid); or
(c) (i) all such Serial Mortgage Notes not theretofore delivered to the
Indenture Trustee for cancellation have become due and payable, or are by their
terms to become due and payable within one year or are to be called for
redemption under arrangements satisfactory to the Indenture Trustee for the
giving of notice of redemption and California Petroleum shall have irrevocably
deposited or caused to be deposited with the Indenture Trustee as trust funds
in trust for the purpose an amount of money sufficient to pay at maturity or
upon redemption all such Serial Mortgage Notes not theretofore delivered to the
Indenture Trustee for cancellation, including principal and interest due or to
become due to such date of maturity as the case may be; and (ii) California
Petroleum has paid all other sums payable by it under the Serial Indenture. In
addition, California Petroleum must deliver an Officers' Certificate and an
Opinion of Counsel (each as defined in the Serial Indenture) stating that all
conditions precedent to satisfaction and discharge have been complied with.
On the earlier of the payment in full of the Allocated Principal Amount of
Serial Mortgage Notes allocated to a Vessel and the discharge of the Serial
Indenture pursuant to the terms thereof, the Collateral for the related Vessel
will be released from the Lien of the Serial Indenture.
THE INDENTURE TRUSTEE; THE COLLATERAL TRUSTEE
Chemical Trust Company of California will serve as Indenture Trustee under
the Serial Indenture and as Collateral Trustee under the Collateral Agreement.
GOVERNING LAW
The Serial Indenture and each of the Security Documents, other than the
Mortgages, provide that they will be governed by the laws of the State of New
York.
CONSENT TO JURISDICTION AND SERVICE
Each Owner will irrevocably appoint CT Corporation System as its agent for
service of process in any suit, action or proceeding with respect to the
Indentures, the Notes or the Security Documents, brought in any federal or
state court located in New York City and will submit to such jurisdiction.
52
<PAGE>
THE MORTGAGES
GENERAL
California Petroleum will loan a portion of the proceeds from the sale of
the Notes to each Owner pursuant to two loan agreements (for each Owner, a
"Term Loan Agreement" and a "Serial Loan Agreement" and, together, the "Loan
Agreements"). See "Use of Proceeds." Under each Term Loan Agreement,
California Petroleum will make a loan (the "Term Loan") to the related Owner
which will accrue interest at the same rate as the Term Mortgage Notes, and
upon which payments of interest will be scheduled to coincide with interest
Payment Dates for the Term Mortgage Notes and principal will be scheduled to
coincide with the Payment Dates for the Term Mortgage Notes. The aggregate
principal amount of Term Mortgage Notes outstanding will equal the aggregate
principal amount outstanding under all Term Loans on any Payment Date on which
a sinking fund payment is made to Holders of Term Mortgage Notes plus the
aggregate principal payments on such Term Loans since the last date on which
payment of principal of the Term Mortgages Notes was made. Under each Serial
Loan Agreement, California Petroleum will make a series of loans (the "Serial
Loans" and, together with the Owner's Term Loan, the "Acquisition Loans") to
the related Owner, each of which will correspond in maturity date and interest
rate with the Serial Mortgage Notes of a specific maturity date, to and
including the date of the first optional termination date for the related
Initial Charter, on which date such Owner's Serial Loans will be scheduled to
be repaid in full. The aggregate principal amount of Serial Mortgage Notes
outstanding will equal the aggregate principal amount outstanding under all
Serial Loans on any date on which a series of Serial Mortgage Notes matures.
Each Owner will grant to California Petroleum a Mortgage on its Vessel to
secure the payment of the Acquisition Loans from California Petroleum to the
Owners. California Petroleum will assign each Mortgage to the Collateral
Trustee to secure the payment of the Notes. The Mortgages will be recorded in
accordance with the provisions of the law of the applicable Registration
Jurisdiction.
CERTAIN COVENANTS
So long as Chevron Transport is the charterer of a Vessel, the related
Mortgage will provide that the provisions of the related Initial Charter,
including, without limitation, provisions regarding the trade, operation,
documentation, registration, use, maintenance and insurance of such Vessel,
will supersede the Owner's covenants with respect to such matters in the
related Mortgage. Certain Initial Charter requirements differ materially from
the Mortgage covenants described below. See "The Initial Charters."
Each Mortgage or the related Security Documents will contain certain
covenants of the Owner of the related Vessel, including the following:
(a) such Owner will not cause or permit its Vessel to be operated in any
manner contrary to law, will not engage in unlawful trade, violate any
applicable law or carry any cargo that would expose the Vessel to penalty,
confiscation, forfeiture, capture or condemnation and will not do, suffer
or permit to be done anything which can or may injuriously affect the
registration or enrollment of its Vessel under the laws and regulations of
the Registration Jurisdiction;
(b) except for the lien of the Mortgage, the Indentures and the
Collateral Agreement and other Permitted Liens, the Owner will not have any
right, power or authority to create, incur or permit to be placed or
imposed or continued any Lien on its Vessel and will keep such Vessel free
from any such Lien;
(c) such Owner will at all times and without cost or expense to the
Collateral Trustee maintain and preserve, or cause to be maintained and
preserved, its Vessel in good running order and repair, so that its Vessel
shall be, insofar as due diligence can make her so, tight, staunch, strong
and well and sufficiently tackled, apparelled, furnished, equipped and in
every respect seaworthy and in good operating condition, as will entitle
her to the highest classification of The American Bureau of Shipping (the
"Classification Society") or such other classification society of like
standing agreeable to California Petroleum and the Collateral Trustee, and
annually will furnish California Petroleum and the Collateral Trustee a
certificate by the Classification Society or such other classification
society that such classification is maintained in
53
<PAGE>
the highest category for ships of the same type as the Owner's Vessel free
of recommendations and notations which have not been complied with in
accordance with their terms and shall furnish the Collateral Trustee, from
time to time and at any time upon demand, with all such information and
copies of all such documents as the Collateral Trustee may require
concerning the classification of the Owner's Vessel;
(d) such Owner will not change the flag or port of documentation of its
Vessel or through any action or inaction cause the registration of its
Vessel under the laws of the Registration Jurisdiction to be void or
voidable or to lapse;
(e) such Owner will not, without the prior written consent of the
Collateral Trustee, charter its Vessel by demise charter or by period, time
or voyage charter for any period other than to Chevron Transport under the
Initial Charter or any other charterer under an Acceptable Replacement
Charter. The Owner will not modify or amend the terms of the related
Initial Charter without the prior written consent of the Collateral
Trustee;
(f) such Owner will not directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with
respect to, or become responsible for the payment of any indebtedness,
except for Permitted Indebtedness;
(g) such Owner will not engage in any business other than the ownership
and operation of its Vessel as described in the related Mortgage and in
accordance with such Owner's charter and by-laws;
(h) such Owner will not (i) commence any case, proceeding or other action
under any existing or future bankruptcy, insolvency or similar law seeking
to have an order for relief entered with respect to it, or seeking
reorganization, arrangement, adjustment, winding up, liquidation,
dissolution, composition or other relief with respect to its debt, (ii)
seek appointment of a receiver, trustee, custodian or other similar
official for it or any part of its assets, (iii) make a general assignment
for the benefit of creditors or (iv) take any action in furtherance of, or
consenting or acquiescing in, any of the foregoing;
(i) such Owner will not (i) declare or pay any dividend or other
distribution on any shares of its respective capital stock, (ii) make any
loans or advances to any affiliate of such Owner or (iii) purchase, redeem
or otherwise acquire or retire for value any shares of its respective
capital stock (a "Restricted Payment") unless: (A) no default under the
Mortgage shall have occurred and be continuing, (B) the Serial Mortgage
Notes shall have been repaid in full and (C) the Vessel shall be on charter
to Chevron Transport or under one or more Acceptable Replacement Charters
to one or more charterers whose unsecured credit ratings from the Rating
Agencies are at least equal to the respective unsecured ratings of Chevron
and the terms of such charters shall be at least sufficient to pay in full
all of the remaining payments of principal and interest on the Term
Mortgage Notes;
(j) such Owner will not make any capital contributions, advances or loans
to, or investments or purchases of capital stock in, any Person, except for
Allowable Investments and Permitted Investments; and
(k) such Owner will take any lawful action to the extent necessary to
prevent or avoid the imposition of any withholding taxes (other than any
withholding tax with respect to charterhire to the extent required to be
paid or reimbursed by any charterer pursuant to a charter) by any taxing
jurisdiction (including the Registration Jurisdiction for such Owner) with
respect to any payments under its Acquisition Loans, including changing its
jurisdiction of incorporation or residence; provided that it shall not be
required to take, or fail to take, any action (i) if in the Opinion of
Counsel (as defined in the related Mortgage) such act or failure to act
would violate applicable law or (ii) if in the reasonable opinion of the
Owner the actions necessary to avoid or prevent imposition of such
withholding taxes would be unduly burdensome. For purposes of clause (ii)
above, a requirement to change the jurisdiction of the Owner's
incorporation or residence shall not be treated as unduly burdensome.
"Permitted Indebtedness" means for each Owner, the obligations under such
Owner's Acquisition Loans. "Permitted Liens" means for each Owner, liens
created under the related Mortgage and Security Documents, the Initial Charter
for the related Vessel and any Acceptable Replacement Charter or other charter
for such Vessel permitted under the Mortgage, liens for crew's wages accrued
for not more than
54
<PAGE>
three months or for collision or salvage, liens in favor of suppliers of
necessaries or other similar liens arising in the ordinary course of business
(accrued for not more than three months) or liens for loss, damage or expense,
which are fully covered by insurance or, in respect of which, a bond or other
security has been posted by the Owner with the appropriate court or other
tribunal to prevent the arrest or secure the release of the Vessel from arrest
on account of such claim or lien; provided that, so long as the related Initial
Charter is in effect, "Permitted Liens" shall mean those liens permitted under
the Initial Charter (i.e., any lien or encumbrance other than a lien or
encumbrance incurred by Chevron Transport or its agents, which might have
priority over the title and interest of the Owner in the Vessel). The Initial
Charter requires that Chevron Transport indemnify and hold the Owners harmless
against any lien of whatsoever nature arising upon the Vessel during the term
of the Initial Charter while the Vessel is under the control of Chevron
Transport, and against any claims against the Owners arising out of or in
relation to the operation of the Vessel by Chevron Transport. Should the Vessel
be arrested by reason of claims or liens arising out of its operation by
Chevron Transport, Chevron Transport shall at its own expense take all
reasonable steps (including, at its own expense, providing bail) to secure the
Vessel's release within a reasonable time. "Allowable Investments" means for
each Owner, its investment in the related Vessel, and in each case, any
Restricted Payment permitted to be made by such Owner and certain obligations
incurred in the ordinary course of the performance of the Management Agreement.
The related Owner may not transfer or assign to any other company all or part
of its rights or obligations under any Initial Charter, except to California
Petroleum (which assignment includes the reassignment by California Petroleum
of such Initial Charter to the Collateral Trustee), unless such transferee or
assignee also assumes the obligations of such Owner under the related Security
Documents and the Collateral Trustee shall have given its prior written consent
to such assignment and assumption, which consent shall not be unreasonably
withheld.
INSURANCE
So long as a Vessel is subject to an Initial Charter or Acceptable
Replacement Charter, the insurance requirements of the related Initial Charter
or Acceptable Replacement Charter will supersede the Owner's covenants
regarding insurance in the related Mortgage. The insurance requirements of the
Initial Charters differ materially from the Owner's Mortgage covenants
described below, and the insurance requirements of any Acceptable Replacement
Charter may also differ materially from such Mortgage covenants. Under the
Initial Charters, Chevron Transport may self-insure against the risks required
to be covered thereunder. Therefore, there can be no assurance that any
insurance for such risks will be carried during the term of any Initial Charter
or, if it is carried, as to the amount of such insurance. See "The Initial
Charters--Insurance."
If a Vessel is no longer subject to the Initial Charter and is not subject to
an Acceptable Replacement Charter, the requirements under the related Mortgage,
which are summarized in this paragraph, would be applicable to insurance
coverage. Each Owner, at its own expense, will maintain hull and machinery
insurance (including coverage for war risks) and will insure its Vessel against
all customary risks arising from the usage and trading of the Vessel. In
addition, each Owner shall also keep its Vessel insured against all customary
protection and indemnity risks. The protection and indemnity insurance shall
include coverage against liabilities to persons who have suffered any loss,
damage or injury whatsoever in connection with anything done or not done by the
Vessel, any charterer or the Owner in connection with the Vessel or the
employment or use thereof (including in connection with any oil or other
substance emanating from the Vessel or any other vessel with which the Vessel
may be involved in collision) and against liability under OPA 90 or any
reenactment or modification thereof under the law of any country into whose
jurisdiction the Vessel is permitted to come under the terms of the related
charter. In addition, such Owner must maintain mortgagee additional perils (oil
pollution) insurance in an amount equal to the aggregate outstanding principal
amount of the Term Loan allocable to such Vessel. Each insurance policy shall
include a provision agreeing that no breach of warranty or condition or want of
due diligence on the part of the Owner or any agent of such Owner shall defeat
recovery of any claim by the Collateral Trustee unless such provision shall
conflict with the available reinsurance arrangements of the issuers of such
policy. Each insurance policy shall
55
<PAGE>
also provide that fourteen days' written notice be given to California
Petroleum and the Collateral Trustee prior to the cancellation or modification
of any insurance. In addition, the insurance coverage required under an
Acceptable Replacement Charter or maintained by the Owner or charterer in
connection with any other charter entered into after the termination of the
related Initial Charter must be sufficient to maintain the credit rating of the
Term Mortgage Notes by Standard & Poor's, Moody's and Duff & Phelps at least at
the rating applicable to the Term Mortgage Notes immediately prior to the
effectiveness of such Acceptable Replacement Charter or other charter.
INSURANCE PROCEEDS
Pursuant to the assignment of each Mortgage to the Collateral Trustee, which
will be acknowledged by the related Owner, the proceeds of any insurance or
entries referred to in the Mortgage will be applied as follows:
Until the occurrence of a Mortgage Event of Default:
(a) any claim under any such insurance (other than in respect of a Total
Loss) whether or not such claim is under the terms of the relevant loss
payable clause payable directly to the Owner, will be applied by the Owner
in making good the loss or damage in respect of which it has been paid to
the Owner in reimbursement of money expended by it for such purpose; and
(b) any claim in respect of protection and indemnity insurance shall be
paid directly to the person, firm or company to which the liability covered
by such insurance was incurred or the Owner in reimbursement of moneys
expended by it in satisfaction of such liability;
provided always that for as long as the Initial Charter in respect of the
Vessel remains in force, all payments other than in respect of a Total Loss
(which will be made to the Collateral Trustee) shall be made to Chevron
Transport.
Upon the occurrence of a Mortgage Event of Default, subject as provided
above, any claim under any such insurance and entry will be paid to the
Collateral Trustee, as assignee of California Petroleum, and will be applied by
the Collateral Trustee pursuant to the terms of the Initial Charter unless
Chevron Transport is in default thereunder, in which event the Collateral
Trustee shall apply such proceeds against payment of the Notes.
Any claim under such insurance and entry in respect of a Total Loss will be
paid to the Collateral Trustee, as assignee of California Petroleum, and will
be applied by the Collateral Trustee, after payment of the costs of collecting
such claim, as follows:
(a) to the payment of all reasonable expenses and charges, including the
expenses of any taking, attorney's fees, court costs and other expenses or
advances made or incurred by the Collateral Trustee or the Indenture
Trustee in the protection of its right or the pursuance of its remedies
under the Collateral Agreement, the Indentures, any Security Document or
the Mortgage;
(b) to the payment of all amounts due to the Collateral Trustee or the
Indenture Trustee in respect of taxes, indemnities, fees, expenses,
premiums, purchase of liens or otherwise under the provisions of the
Mortgage;
(c) to the payment of interest on each Term Mortgage Note and Serial
Mortgage Note, pro rata in an amount equal to interest calculated at the
rate applicable to such Note;
(d) to the payment of principal on each Term Mortgage Note and Serial
Mortgage Note, pro rata in an aggregate amount up to the Allocated
Principal Amount for the related Vessel; and
(e) to the payment of any surplus thereafter remaining to the Owner or
whomsoever may be lawfully entitled thereto.
56
<PAGE>
The Owner will not alter so as to in any way restrict the coverage of any
insurance or entries referred to in the Mortgage except to the extent expressly
permitted by the Collateral Trustee.
MORTGAGE EVENTS OF DEFAULT
The following constitute events of default under each Mortgage ("Mortgage
Events of Default"):
(a) an event of default shall occur under any Serial Loan Agreement or
Term Loan Agreement relating to any Owner;
(b) failure to pay any amount payable under the Mortgage within two
business days after such amount is due;
(c) default by the related Owner in the due observance or performance of
any covenant with respect to merging, maintaining its corporate existence,
maintaining insurance on its Vessel, maintaining the Vessel free of all
Liens other than Permitted Liens, chartering the Vessel, changing the flag
of the Vessel and making Restricted Payments or maintaining the Mortgage as
a First Preferred Ship Mortgage under the laws of the Registration
Jurisdiction;
(d) default in any material respect in the performance, or breach in any
material respect, of any covenant of the Owner (other than those described
above) in the Mortgage or if any representation or warranty of the Owner
made in the Mortgage or in any certificate or other writing delivered
pursuant thereto or in connection therewith with respect to or affecting
the Vessel shall prove to be inaccurate in any material respect as of the
time when the same shall have been made, and, if such breach or default or
inaccuracy is curable, continuance of such default or breach or inaccuracy
for a period of 30 days after the earlier to occur of (a) actual knowledge
of such default, breach or inaccuracy by the Owner or (b) the date on which
there has been given by registered or certified mail to the Owner by the
Collateral Trustee a written notice thereof;
(e) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Owner in any involuntary
case under any applicable bankruptcy, insolvency, or other similar law now
or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) for the
Owner or for any substantial part of its property, or ordering the winding
up or liquidation of its respective affairs, and the continuance of any
such decree or order unstayed and in effect for a period of 60 consecutive
days;
(f) the commencement by the Owner of a voluntary case under any
applicable bankruptcy, insolvency, or other similar law now or hereafter in
effect in any jurisdiction, or the consent by the Owner to the appointment
of or taking possession by a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or other similar official) of the Owner or any
substantial part of its property, or the making by the Owner of any general
assignment for the benefit of creditors, or the failure by the Owner
generally to pay its debts as they become due, or the taking of action by
the Owner in furtherance of any such action;
(g) the Vessel is deemed a Total Loss and the insurance proceeds thereof
have not been received by the Collateral Trustee within 60 days after the
date on which the Vessel was deemed a Total Loss; provided, however, if the
Vessel is under charter to Chevron Transport pursuant to the Initial
Charter, such an event shall be a Mortgage Event of Default if the
Collateral Trustee has not received the amounts payable by Chevron
Transport in the event of a Total Loss pursuant to the Initial Charter
within 5 business days of the date on which such amounts are due pursuant
to the terms of the Initial Charter;
(h) the Owner shall abandon its Vessel;
(i) a default shall have occurred under the Initial Charter; or
(j) the Mortgage or any material provision thereof shall be deemed
invalidated in whole or in part by any present or future law of the
Registration Jurisdiction, or by any decision of any competent court.
57
<PAGE>
REMEDIES
In the event any one or more Mortgage Events of Default shall have occurred
and be continuing then, in each and every such case the Collateral Trustee, as
assignee of California Petroleum, will have the right, subject in all instances
to the rights of Chevron Transport under the related Initial Charter, to:
(a) declare immediately due and payable all of the related Owner's
Acquisition Loans (in which case all of the same shall be immediately due),
and bring suit at law, in equity or in admiralty, as it may be advised, to
recover judgment for the Acquisition Loans and collect the same out of any
and all property of the Owners whether covered by the Mortgage or
otherwise;
(b) exercise all of the rights and remedies in foreclosure and otherwise
given to mortgagees by the provisions of applicable law;
(c) take and enter into possession of the Vessel, at any time, wherever
the same may be, without court decision or other legal process and without
being responsible for loss or damage and the Collateral Trustee may,
without being responsible for loss or damage, hold, lay-up, lease, charter,
operate or otherwise use such Vessel for such time and upon such terms as
it may deem to be for its best advantage, and demand, collect and retain
all hire, freights, earnings, issues, revenues, income, profits, return
premiums, salvage awards or recoveries, recoveries in general average, and
all other sums due or to become due in respect of such Vessel or in respect
of any insurance thereon from any person whomsoever, accounting only for
the net profits, if any, arising from such use of the Vessel and charging
upon all receipts from use of the Vessel or from the sale thereof by court
proceedings or by private sale all costs, expenses, charges, damages or
losses by reason of such use, and if at any time the Collateral Trustee
avails itself of the right given to it to take the Vessel: (i) the
Collateral Trustee will have the right to dock the Vessel for a reasonable
time at any dock, pier or other premises of the Owner without charge, or to
dock her at any other place at the cost and expense of the Owner, and (ii)
the Collateral Trustee will have the right to require the Owner to deliver,
and the Owner will on demand, at its own cost and expense, deliver to the
Collateral Trustee the Vessel as demanded; and the Owner will irrevocably
instruct the master of the Vessel so long as the Mortgage is outstanding to
deliver the Vessel to the Collateral Trustee as demanded; and
(d) sell the Vessel or any share therein with or without the benefit of
any charter party or other engagement by public auction or private contract
without legal process at any place in the world and upon such terms as the
Collateral Trustee in its absolute discretion may determine with power to
postpone any such sale and without being answerable for any loss occasioned
by such sale or resulting from the postponement thereof and at any such
public auction the Collateral Trustee may become the purchaser and shall
have the right to set off the purchase price against the Notes. Any sale of
the Vessel or any shares therein made by the Collateral Trustee in
pursuance of the Mortgage will operate to divest all title, right and
interest of any nature whatsoever of the Owner therein and thereto and
shall bar the Owner, its successors and assigns, and all persons claiming
by, through or under them, provided such sale is by auction. Upon any such
sale, the purchaser will not be bound to see or inquire whether the
Collateral Trustee's power of sale has risen in the manner provided by the
Mortgage and the sale will be within the power of the Collateral Trustee
and the receipt of the Collateral Trustee for the purchase money will
effectively discharge the purchaser who will not be concerned with the
manner of application of the proceeds of sale or be in any way answerable
or otherwise liable therefor.
The Vessels will be registered under the laws of Liberia or the Bahamas, as
the case may be. In addition, in order to perfect the Mortgage granted by
CalPetro IOM thereunder, the Mortgage on Chevron Mariner will also be filed in
the Isle of Man. The Mortgages on the Vessels registered under Liberian law
will be preferred mortgage liens under Liberian maritime law. The Mortgages on
the Vessels registered under Bahamian law will have similar status under
Bahamian law. Liberian and Bahamian law provide that such mortgages may be
enforced by the mortgagee by a proceeding substantially identical to a suit in
rem in admiralty in a proceeding against the vessel covered by the mortgage.
The priority with respect to sale proceeds that such a mortgage would have
vis-a-vis the claims of other lien creditors in an enforcement proceeding is
generally determined by, and will vary in accordance with, the
58
<PAGE>
law of the country where the proceeding is brought. Liberian maritime law
provides that a "preferred mortgage lien" is prior to all claims other than the
following: (i) liens arising prior in time to the recording of the preferred
mortgage; (ii) liens arising out of tort; (iii) liens for tonnage taxes and
annual fees payable under the Liberian Maritime Regulations; (iv) liens for
crew's wages; (v) liens for general average; (vi) liens for salvage; and (vii)
liens for expenses and fees allowed and costs imposed by courts of competent
jurisdiction. Bahamian law provides that a first priority ship mortgage has
priority over all other claims except: (i) costs allowed by the court arising
out of the arrest and sale proceedings; (ii) wages and other sums due to the
master, officers and other members of the vessel's complement in respect of
their employment on the vessel; (iii) port, canal, and other waterway dues and
pilotage dues and any other outstanding fees payable under the Merchant
Shipping Act of the Bahamas in respect of the vessel; (iv) claims against the
owner in respect of loss of life or personal injury occurring, whether on land
or on water, in direct communication with the operation of the vessel; (v)
claims against the owner, based on tort and not capable of being based on
contract, in respect of loss of or damage to property occurring, whether on
land or on water, in direct connection with the operation of the vessel; and
(vi) claims for salvage, wreck removal and contribution in general average.
Liberian and Bahamian ship mortgages may be enforced against a vessel
physically present in the United States, but the claim under the mortgage would
rank behind certain preferred maritime liens as defined under the laws of the
United States, including those for supplies and necessaries provided in the
United States. Since the Vessels will be trading throughout the world, there is
no assurance that, if enforcement proceedings must be commenced against a
Vessel, such Vessel will be located in a jurisdiction having the same
procedures and lien priorities as Liberia, the Bahamas or the United States.
Other jurisdictions may provide no legal remedy at all for the enforcement of
the Mortgages, or a remedy dependent on court proceedings so expensive and time
consuming as to be impractical. Furthermore, certain jurisdictions, unlike
Liberia, the Bahamas or the United States, may not permit a Vessel to be sold
prior to entry of a judgment, entailing a long waiting time that could result
in increased custodial costs, deterioration in the condition of the Vessel and
substantial reduction in her value.
Since the Notes are also secured by a pledge of all of the stock of each
Owner, enforcement of this pledge, including foreclosure, subject to any
concerns that upon such enforcement the Collateral Trustee or the holders of
the Notes may be deemed "owners" or "operators" of the Vessel for liability
purposes, may provide in effect an alternative method to transfer control over
a Vessel.
FRAUDULENT CONVEYANCE STATUTES
The granting of the Mortgages might be subject to review under relevant
fraudulent conveyance statutes and other applicable insolvency laws (the
"Fraudulent Conveyance Laws") in a bankruptcy proceeding involving one or more
of the Owners. Due to the nature of the business of the Owners and uncertainty
as to where a vessel foreclosure or bankruptcy proceeding might be commenced,
it is not possible to predict where any such proceeding or attack might be
brought or made or the law that the court might apply, although applicable law
would likely be the law of the Bahamas or the Isle of Man, as the case may be.
Under Bahamian or the Isle of Man fraudulent conveyance law, if a court were
to find that, with respect to any particular Owner, at the time the Mortgages
were granted as joint and several obligations of the Owners (the "Transfer"),
it (a) made such Transfer with actual intent to hinder, delay or defraud any
present or future creditor or (b) received less than a reasonably equivalent
value or fair consideration for the Transfer and (i) was insolvent at the time
such Transfer was made or was rendered insolvent by virtue of such Transfer,
(ii) was engaged in a business or transaction, or was about to engage in a
business or transaction for which any property remaining with such Owner was an
unreasonably small capital or (iii) intended to incur, or believed that it
would incur, debts beyond its ability to pay as they matured (as the foregoing
terms are defined in or interpreted under the relevant Fraudulent Conveyance
Laws), such court could avoid the Transfer in whole or in part. Generally, for
the purposes of the Fraudulent Conveyance Laws, a company is considered
insolvent at a particular time if the sum of its debts is greater than all of
its property at a fair valuation or if the present fair salable value of its
assets was then less than the amount that would be required to pay its probable
liabilities on its existing debts as they became absolute and matured.
59
<PAGE>
To the extent that a Transfer by any Owner exceeds the consideration received
by it, the determination of whether the Transfer in question is a fraudulent
conveyance depends on (1) whether the Transfer so exceeds the value and benefit
received by such Owner that, at least to the extent of such excess, the Owner
did not receive reasonably equivalent value or fair consideration for the
Transfer; and, if the answer to the foregoing question is "yes," then (2)
whether following the valuation of the assets and liabilities of such Owner it
is determined that such Owner is or has been rendered insolvent. While there
can be no assurance that a court, viewing the transaction with hindsight, would
determine that a particular Owner received fair value for its Transfer, or was
not rendered insolvent by the pertinent Transfer, to the extent it exceeded the
value of the consideration received by that Owner, the Owners believe that each
of the Owners will receive proper consideration for its respective Transfer and
that no such Owner will be rendered insolvent by the contemplated Transfers. No
assurance, however, can be given that a court would concur with such belief.
60
<PAGE>
THE INITIAL CHARTERS
GENERAL
The Vessels are currently owned and operated by Chevron Transport in the
business of maritime transportation of oil. Each Vessel is a Suezmax oil tanker
designed to Chevron Transport's specifications. Under OPA 90, vessel owners,
operators and demise charterers are "responsible parties" with strict liability
on a joint and several basis (subject to certain exceptions and qualifications)
for all oil spill containment and clean-up costs and other damages arising from
actual or threatened oil spills pertaining to these vessels. Although OPA 90
does not by its terms impose liability on lenders or the holders of mortgages
on vessels, there is no specific exclusion for such entities under OPA 90. In
addition, if the Collateral Trustee or any Holder exercises remedies and
becomes an "owner" or "operator" or "demise charterer" of a Vessel following a
Mortgage Event of Default, such entities may be subject to liability as
responsible parties under OPA 90. OPA 90 limits the liability of responsible
parties to the greater of $1,200 per gross ton or $10 million per tanker
(subject to possible adjustment for inflation); however, that limit would not
apply if the incident were proximately caused by violation of applicable United
States federal safety, construction or operating regulations or by the
responsible party's gross negligence or willful misconduct, or if the
responsible party fails or refuses to report the incident or to cooperate and
assist in connection with oil removal activities.
TERM OF THE INITIAL CHARTERS
On the Closing Date, the Owners will each purchase a Vessel from Chevron
Transport, and Chevron Transport will charter each such Vessel from its Owner
under an Initial Charter commencing on such date. Each Initial Charter will
expire on April 1, 2015, subject to Chevron Transport's right to terminate each
Initial Charter as described below. See "--Termination Options." If (a) Chevron
Transport exercises its termination option with respect to an Initial Charter
for any Vessel and makes the related Termination Payment or (b) a Total Loss
occurs with respect to a Vessel and Chevron Transport makes the payments
required under the related Initial Charter, then such Initial Charter will
continue in effect with respect to Chevron Transport's obligation to make such
Termination Payment or payment upon Total Loss, as the case may be, until the
expiration of certain periods specified in the Initial Charter during which
periods such Termination Payment or payment upon Total Loss, as the case may
be, might be a voidable payment under applicable bankruptcy, insolvency,
creditor's rights or similar laws. For any Initial Charter, the period from the
date of commencement of such Initial Charter to the expiration or earlier
termination of such Initial Charter will be referred to in this Prospectus as
the "Initial Charter Period."
USE AND TRADE OF THE VESSEL
Chevron Transport will have full use of each Vessel during the term of the
Initial Charter Period and will have the right to operate the Vessel throughout
the world (within Institute Warranty Limits) in the carriage of suitable lawful
merchandise. As to those trades in which a Vessel is employed, Chevron
Transport shall comply with any and all requirements regarding financial
responsibility or security in respect of oil or other pollution damage as
required by any government, any state or other political subdivision thereof,
or any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government and any other
governmental entity with authority over Chevron Transport or the related Owner,
as the case may be, or ownership, use and operation of such Vessel (whether or
not such requirement has been lawfully imposed or not) to enable such Vessel,
without penalty or charges, lawfully to enter, remain at, or leave any port,
place, territorial or contiguous waters of any country, state or municipality
in performance of the related Initial Charter without delay. Chevron Transport
shall make and maintain all arrangements for a security bond or otherwise as
may be necessary to satisfy such requirements at Chevron Transport's sole
expense and Chevron Transport shall indemnify the related Owner against any and
all losses, damages, claims, expenses or liabilities incurred by reason of
Chevron Transport's failure to comply with the requirements described in this
paragraph. Chevron Transport shall enter and maintain each Vessel under the
TOVALOP Scheme or under any similar compulsory scheme during the term of each
Initial Charter. In no
61
<PAGE>
event will Chevron Transport carry on board a Vessel nuclear fuels or
radioactive products during the term of the related Initial Charter; provided,
however, with the prior written consent of the related Owner, Chevron Transport
may carry on board a Vessel radioisotopes used or intended to be used for any
industrial, agricultural, medical or scientific purposes.
FLAG AND NAME OF VESSEL
Chevron Transport shall, throughout the term of each Initial Charter,
maintain the documentation of the Vessel under the laws of the Registration
Jurisdiction at the related Owner's cost and expense; provided, however, in the
event that the costs and expenses of maintaining such documentation are in
excess of $10,000 per annum, then Chevron Transport shall either (i) pay all
amounts in excess of $10,000 per annum or (ii) cooperate with the Owner to
change the registry or port of documentation of the Vessel. Chevron Transport
will not change the registry or port of documentation of the Vessel without
prior written consent of the related Owner, which consent shall not be
unreasonably withheld, or do or suffer or permit to be done anything which will
injuriously affect the documentation of the Vessel as a vessel documented under
the laws and regulations of the Registration Jurisdiction. If Chevron Transport
changes the registry or port of documentation of the Vessel, it shall, at the
time of redelivery, if the related Owner so requests and at Chevron Transport's
expense, change the registry and port of documentation back to that of the
Registration Jurisdiction.
Chevron Transport shall have the right to re-name each Vessel, to paint each
Vessel in its own colors, install and display its funnel insignia and fly its
own house flag.
COVENANTS
Each Initial Charter will contain certain covenants pursuant to which Chevron
Transport will agree, among other things, that:
(a) Chevron Transport will maintain at its expense the Vessel in a good
state of repair and in efficient operating condition in accordance with
good commercial maintenance practice commensurate with other vessels in
Chevron Transport's fleet of similar size and trade, ordinary wear and tear
excepted;
(b) Chevron Transport will keep the Vessel with unexpired classification
in accordance with the highest classification of the American Bureau of
Shipping (or such other classification society as shall previously have
been approved in writing by the related Owner) and other required
certificates in force and shall make any improvement or structural changes
or acquire equipment necessary to comply with the requirements of such
classification;
(c) Chevron Transport shall not permit the Vessel to proceed to any port
which shall have been the subject of a prohibition by the Registration
Jurisdiction;
(d) in the event of hostilities in any part of the world Chevron
Transport will not employ the Vessel nor suggest her employment in carrying
any goods which are declared contraband nor suffer her to enter to trade to
any zone which is declared a "war zone" by the war risks insurers unless
Chevron Transport has made arrangements with the said insurers for the
payment of such additional premiums as said insurers may require to
maintain the relevant insurances in force or in any zone in respect of
which the war risks insurers have withdrawn coverage for the Vessel;
(e) Chevron Transport will not use the Vessel in any manner or for any
purpose excepted from any insurance policy or policies taken out in
compliance with the Initial Charter or for the purpose of carriage of goods
of any description excepted from such insurance policy or policies and
shall not do or permit to be done anything which could reasonably be
expected to invalidate any of such insurance policy or policies;
(f) Chevron Transport shall man, victual, navigate, operate, supply, fuel
and repair the Vessel whenever required and shall be responsible for all
charges and expenses of every kind and nature whatsoever incidental to its
use and operation of the Vessel under the Initial Charter, including any
foreign, general, municipal, value added or other taxes, except that
Chevron Transport shall not be
62
<PAGE>
responsible for documentation costs (except as otherwise provided for in
the Initial Charters) or for Owner Taxes; and
(g) Chevron Transport shall drydock the Vessel and clean and paint her
underwater parts in accordance with good commercial practice, but not less
than as may be required by the American Bureau of Shipping (or such other
classification society as shall previously have been approved in writing by
the related Owner) in order to maintain the Vessel's highest
classification.
(h) Chevron Transport will not allow, nor permit to be continued, any
Lien incurred by Chevron Transport or its agents, which might have priority
over the title and interest of the Owner in the related Vessel, and will
indemnify and hold the Owner harmless against any Lien arising upon such
Vessel during the Initial Charter Period while the Vessel is under the
control of Chevron Transport and against any claims against the Owner
arising out of or in relation to the operation of the Vessel by Chevron
Transport.
In general, all amounts, excluding certain indemnification payments and
documentation costs for the Owners' account, payable by Chevron Transport
shall be made without deduction for any taxes (including value added,
turnover, sales and use taxes) except as required by law and Chevron Transport
shall, in addition to the sums payable by Chevron Transport under each Initial
Charter, pay such taxes as aforesaid as are required from time to time by law
to be paid by Chevron Transport; provided, Chevron Transport shall not be
liable for documentation costs (except as otherwise provided for in the
Initial Charters). Under each Initial Charter, the related Owner will agree to
take any lawful action to the extent necessary to prevent or avoid the
imposition of any taxes, including any withholding tax with respect to
charterhire, by any taxing jurisdiction (including the Registration
Jurisdiction for such Owner), including changing its jurisdiction of
incorporation or residence; provided that it shall not be required to take, or
fail to take, any action (i) if in the opinion of counsel such act or failure
to act would violate applicable law or (ii) if in the reasonable opinion of
the Owner the actions necessary to avoid or prevent imposition of such taxes
would be unduly burdensome. For purposes of clause (ii) above, a requirement
to change the jurisdiction of the Owner's incorporation or residence shall not
be treated as unduly burdensome.
CHARTERHIRE
During the Initial Charter Period for each Vessel, Chevron Transport shall
pay charterhire for the use and hire of such Vessel on each April 1 and
October 1, commencing on the first such date to occur following the
commencement of the related Initial Charter. During any extension of the
Initial Charter Period, the rate of hire shall be calculated on the basis of
the then current charterhire rate converted to a daily rate using a 365-day
year. If any payment of charterhire under the Initial Charter shall not be
paid when due interest shall accrue thereon at the Default Rate from and
including the due date to the date of actual payment (after as well as before
judgment).
INSURANCE
Each Initial Charter provides that during the Initial Charter Period the
insurance arrangements in effect with respect to Chevron Transport's fleet at
the time of the commencement of such Initial Charter will be applicable to the
related Vessel and will satisfy the insurance requirements of the Initial
Charter, subject to adjustments of such insurance arrangements in light of
changes in market practice and in accepted tanker practice. Currently, Chevron
Transport's hull and machinery insurance includes a deductible of $15 million
per occurrence and its protection and indemnity insurance is subject to a $1
million deductible per occurrence (other than with respect to liabilities
involving pollution, as to which there is a nominal or no deductible). In
addition, each Initial Charter provides that Chevron Transport may self-insure
against the risks required to be covered thereunder. Therefore, there can be
no assurance that any insurance for such risks will be carried during the
Initial Charter Period for any Vessel or, if it is carried, as to the amount
of such insurance.
63
<PAGE>
INSURANCE PROCEEDS
The proceeds of any insurances or entries referred to in the Initial Charters
will be applied as follows:
Until the termination of an Initial Charter, any claim under any such
insurance proceeds in respect of the related Vessel (other than in respect of
Total Loss) shall be paid directly to Chevron Transport. Chevron Transport
shall be liable for any loss of any part of or damage to the Vessel (other than
a Total Loss) during the Initial Charter Period from whatsoever cause such loss
or damage may arise, unless the same shall have been caused by the negligence
or wilful act of the Owners, their servants or agents (except where Chevron
Transport or its servants and agents are acting as agents of the Owners).
Any claim in respect of a Total Loss shall be paid directly to the related
Owner or the Collateral Trustee, as assignee.
PAYMENT ON TOTAL LOSS
The amount payable on the date which is 90 days after the occurrence of a
Total Loss with respect to a Vessel (the "Loss Date") by Chevron Transport
shall be the sum of (i) any deficiency between (A) the Stipulated Loss Value
(which is an amount at least sufficient to redeem the Allocated Principal
Amount of Notes with respect to such Vessel) in relation to the period in
question and (B) all insurance proceeds for damage to or loss of the Vessel and
amounts paid by any governmental authority in connection with any requisition,
seizure or forfeiture actually received in hand by the related Owner or the
Collateral Trustee, as assignee of California Petroleum, prior to or on such
Loss Date; and (ii) all charterhire accrued (on a daily basis) but unpaid under
the Initial Charter to such Loss Date and any other sums due under any
provisions of the Initial Charter, together with interest thereon at the
Default Rate from the date upon which any such charterhire or other sums was
due until the date upon which such calculations are made. In the event of a
Total Loss, the Initial Charter and the obligation of Chevron Transport to pay
charterhire shall continue and be payable until Chevron Transport has paid the
amounts described above. The obligations of Chevron Transport described above
will apply regardless of whether or not any moneys are payable under the
insurances effected in compliance with the Initial Charter in respect of the
Vessel, regardless also of the amount payable thereunder, regardless also of
the cause of the Total Loss and regardless of whether or not any of such
compensation shall be payable.
CHARTER EVENTS OF DEFAULT
The following constitute events of default under each Initial Charter
("Charter Events of Default"):
(a) Chevron Transport shall default for two business days in the payment
of charterhire due under the terms of the Initial Charter;
(b) Chevron Transport shall fail for a period of 30 business days after
written notice to perform and observe any of the covenants, conditions,
agreements or stipulations on the part of Chevron Transport to be performed
or observed contained in the Initial Charter, other than those referred to
in clause (a) or (e) of this paragraph;
(c) Chevron Transport ceases doing business as a going concern or
generally ceases to pay its debts as they become due or any proceedings
under any bankruptcy or insolvency laws are instituted against Chevron
Transport or if a receiver or trustee is appointed for Chevron Transport
for any of its assets or properties, and such proceeding is not dismissed,
vacated or fully stayed within 60 days;
(d) Chevron Transport shall create or suffer to exist any mortgage,
charge, pledge or other like encumbrance over the Vessel or any part
thereof or shall have abandoned the Vessel (not including any notice of
abandonment which Chevron Transport may give to insurers under the
provisions of the Initial Charter regarding insurance in the event of a
Total Loss);
(e) Chevron Transport fails to comply with any of its obligations as to
insurance contained in the Initial Charter; and
64
<PAGE>
(f) Chevron Transport shall within 30 days of any scheduled date of
redelivery under the Initial Charter fail to provide adequate bail or
security when required to do so in respect of any maritime lien, possessory
lien or statutory right in rem which may be acquired over the Vessel in
order to prevent the Vessel being arrested, impounded or seized or if any
such lien, right or claim over the Vessel is exercised by the arrest,
attachment, detention, impounding or seizure of the Vessel under any
distress, execution or other process, or any distress or execution is
levied thereon, and Chevron Transport fails to use its best endeavors to
procure the release of the Vessel therefrom within 30 days of any scheduled
date of redelivery under the Initial Charter.
REMEDIES
If any Charter Event of Default shall have occurred and be continuing, the
Owner under the related Initial Charter may, by written notice to Chevron
Transport, declare such Initial Charter to be in default and enforce any or all
of the remedies under such Initial Charter, including:
(a) requiring Chevron Transport, at its expense, to redeliver the Vessel
to the related Owner with Chevron Transport to have the same obligations in
connection with such redelivery as described below in connection with
redelivery of the Vessel at the termination of the Initial Charter;
(b) retaking the Vessel by the related Owner or its agent, without prior
demand or legal process;
(c) holding Chevron Transport liable for all charterhire payments payable
before, during or after exercise of the foregoing remedies and the remedy
described in paragraph (d) below and for all reasonable costs and expenses
incurred by the related Owner (including legal fees) by reason of the
occurrence of any default or the exercise of remedies by the related Owner;
and
(d) the related Owner or its agent may sell the Vessel at public or
private sale, with or without notice to Chevron Transport, advertisement or
publication, as such Owner may determine, or otherwise may dispose of,
hold, use, operate, charter to others or keep the Vessel idle.
The Collateral Trustee, as assignee of California Petroleum, would have the
right to exercise the rights of an Owner under an Initial Charter upon the
occurrence of a Charter Event of Default.
LIQUIDATED DAMAGES
Whether or not the related Owner shall have exercised, or shall thereafter at
any time exercise, any options, rights or remedies described above, upon or as
a consequence of a breach of contract by Chevron Transport amounting to
repudiation by Chevron Transport of the Initial Charter, the related Owner may
immediately require Chevron Transport to pay to such Owner as liquidated
damages for loss of a bargain and not as a penalty, an amount equal to (i) the
sum of (A) the applicable Stipulated Loss Value, (B) all outstanding accrued
and unpaid charterhire and (C) any other amounts due to such Owner under the
Initial Charter on or prior to the date of payment and (ii) interest thereon
(before and after judgment) at the Default Rate from the date such amounts were
payable to the actual date of payment. Chevron Transport shall not be entitled
to any part of the net proceeds of the Vessel (if any) whether by way of rebate
of charterhire or otherwise.
REDELIVERY
Unless a Vessel is a Total Loss or Chevron Transport purchases such Vessel
pursuant to the terms of the Initial Charter, Chevron Transport shall at the
termination of the Initial Charter redeliver the Vessel to the related Owner at
a safe and ice-free port or a place selected by Chevron Transport within the
Vessel's trading limits (within 10 steaming days from a recognized loading
area) or at such other safe port as shall be agreed between Chevron Transport
and the related Owner.
At or about the time of redelivery if the related Owner so requires, a survey
shall be made to determine the condition and fitness of the Vessel, her
machinery and equipment. In the event that such Vessel has been
65
<PAGE>
dry-docked within 30 months prior to redelivery and Chevron Transport certifies
in writing that, to the best of its knowledge, the Vessel has had no bottom
touching since such dry-docking, such survey may be conducted while the Vessel
is afloat. The related Owner may require a divers' survey of the Vessel.
Chevron Transport shall bear all expenses of any such survey. Chevron Transport
shall at its expense make all such repairs and do all such work so found to be
necessary before redelivery or, at the related Owner's option, shall discharge
its obligations by payment of a sum sufficient to provide, at the prices
current at the time of redelivery, for the work and repairs necessary to place
the Vessel in the required structure, state and condition. The Initial Charter
Period shall be extended until the completion of any such repairs and work
found to be necessary or the payment of the amounts described above. Each
Vessel upon redelivery shall have her survey cycles up to date and class
certificates valid for at least six calendar months and Chevron Transport shall
ensure that Vessel shall have been dry-docked within 30 months prior to
redelivery.
ASSIGNMENT AND SUB-CHARTER
Chevron Transport may not assign all or part of its rights and obligations
under any Initial Charter nor may it charter the related Vessel by demise to
any other entity without the prior written consent of the related Owner, such
consent not to be unreasonably withheld, subject always to the Vessel being
maintained and insured to the same standards as are adopted by Chevron
Transport in respect of the vessels owned by it; provided, however, that
Chevron Transport may assign its rights and obligations under any Initial
Charter to a corporation more than 50% of which is owned directly or indirectly
by Chevron so long as Chevron Transport remains responsible as principal for
the due fulfillment of the Initial Charter. Chevron Transport may otherwise
charter the Vessel without the prior consent of the related Owner provided that
Chevron Transport remains responsible as principal (or appoints another person
to be responsible in its stead) for navigating and managing the Vessel
throughout the period of such charter and for defraying all expenses in
connection with the Vessel throughout such period or substantially all such
expenses other than those directly incidental to a particular voyage or to the
employment of the Vessel during that period.
For each Initial Charter, the related Owner may not transfer or assign to any
other person or entity all or part of its rights or obligations under such
Initial Charter, except to California Petroleum (which assignment includes the
reassignment by California Petroleum of such Initial Charter as Collateral to
the Collateral Trustee), unless such transferee or assignee also assumes the
obligations of such Owner under the related Security Documents and Chevron
Transport shall have given its prior written consent to such assignment and
assumption, which consent shall not be unreasonably withheld.
INDEMNITY
Pursuant to each Initial Charter, Chevron Transport will indemnify the
related Owner against the following:
(a) all costs and expenses of operating and maintaining the related
Vessel and of operating, maintaining and replacing all parts including (but
without prejudice to the generality of the foregoing) all fuel, oil, port
charges, fees, taxes, levies, fines, penalties, charges, insurance
premiums, victualing, crew, navigation, manning, operating and freight
expenses and all other outgoings whatsoever payable by the Owner or Chevron
Transport in respect of the possession or operation of a Vessel or any part
thereof, or the purchase, ownership, delivery, chartering, possession and
operation, import to or export from any country, return, sale or
disposition of such Vessel or any part thereof or upon the hire, receipts
or earnings arising therefrom (other than Owner Taxes or documentation
costs except as otherwise provided for in the Initial Charter);
(b) all liabilities, claims, proceedings (whether civil or criminal),
penalties, fines or other sanctions, judgements, charges, taxes,
impositions, liens, salvage, general average, costs and expenses whatsoever
which may at any time be made or claimed by Chevron Transport or any
employee, servant, agent or sub-contractor, passenger, owner, shipper,
consignee, and receiver of goods or any third party (including
66
<PAGE>
governments or other authorities) or by their respective dependents arising
directly or indirectly in any manner out of the design, construction,
possession, management, repair, certification, manning, provisioning,
supply or servicing of the Vessel (whether at sea or not) or the chartering
thereof under the Initial Charter whether such liability, claims,
proceedings, penalties, fines, sanctions, judgments, charges, taxes,
impositions, liens, salvage, general average, costs or expenses may be
attributable to any defect in such Vessel or the design, construction,
testing or use thereof from any maintenance, service, repair, overhaul or
otherwise and regardless of when or where the same shall arise and whether
or not such Vessel or the relevant part thereof is in the possession or
control of Chevron Transport (other than Owner Taxes or documentation costs
except as otherwise provided for in the Initial Charter); and
(c) any and all losses, damages and expenses which Owner may incur as a
result of any oil or other pollution damage resulting from Chevron
Transport's operation of the Vessel under the Initial Charter, including,
but not limited to, such Owner's liability under OPA 90 or the laws of any
other jurisdiction relating to oil spills.
Chevron Transport's indemnity under each Initial Charter shall extend to
claims of persons (including governments or other bodies whether corporate or
otherwise) who have suffered or allege that they have suffered loss, damage or
injury in connection with any thing done or not done by a Vessel, including in
connection with any oil or other substance emanating or threatening to emanate
from such Vessel, and shall extend to levies, impositions, calls or
contributions on or required to be made by the Owner during or in respect of
the Initial Charter Period.
TERMINATION OPTIONS
Under each Initial Charter, Chevron Transport has the right to terminate such
Initial Charter on any of four, in case of the double-hulled Vessels, or three,
in the case of the single-hulled Vessel, termination dates which, for each
Vessel, occur at two-year intervals beginning in 2003, 2004, 2005 or 2006, as
the case may be. Chevron Transport is required to give the related Owner (i)
non-binding notice of its intent to exercise such option, determined on a good
faith basis, at least 12 months prior to such termination date and (ii)
irrevocable notice of such exercise nine months prior to such termination date,
if such termination date is the first of the termination dates for such Vessel,
or seven months prior to such termination date, if such termination date is
subsequent to the first such termination date. Chevron Transport is required to
pay the Termination Payment to such Owner on or prior to the termination date.
PURCHASE OPTION
On the Term Mortgage Notes Maturity Date, so long as the related Initial
Charter has not been terminated earlier and no Charter Event of Default has
occurred and is continuing and all payments due under such Initial Charter have
been paid in full, Chevron Transport shall have the right to purchase the
related Vessel at a purchase price equal to $1.00. Chevron Transport is
required to give the related Owner at least 90 days' prior written notice of
its election to so purchase the related Vessel.
CHEVRON GUARANTEES
Chevron will fully and unconditionally guarantee the due and faithful
performance by Chevron Transport under each Initial Charter of all of Chevron
Transport's liabilities and responsibilities thereunder and under any
supplement, amendment, change or modification thereof agreed to by Chevron
Transport.
GOVERNING LAW
Each Initial Charter and each Chevron Guarantee shall be governed by and be
construed in accordance with the federal laws of the United States of America
and the laws of the State of New York.
67
<PAGE>
NON-DISTURBANCE
Pursuant to the terms of each Initial Charter, each Owner agrees that the
related Mortgage and any other mortgage thereafter placed on the Vessel by such
Owner will contain a provision to the effect that throughout the term of the
related Initial Charter, so long as no Charter Event of Default shall have
occurred and be continuing and so long as Chevron Transport shall have
performed its obligations thereunder, Chevron Transport shall be entitled to
the quiet enjoyment of the Vessel.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase $167,500,000 aggregate principal amount of
the Serial Mortgage Notes.
The Underwriting Agreement provides that the Underwriter will be obligated to
purchase all of the Serial Mortgage Notes offered hereby if any are purchased.
The Underwriter has advised California Petroleum and Chevron that the
Underwriter proposes to offer the Serial Mortgage Notes to the public initially
at the Price to the Public set forth on the cover page of this Prospectus.
After the initial public offering, the Price to the Public and other selling
terms may be changed by the Underwriter. The Underwriter does not intend to
confirm sales to any account over which they exercise discretionary authority.
In the Underwriting Agreement, the Owners have agreed, jointly and severally,
and Chevron and Chevron Transport have separately agreed, to indemnify the
Underwriter, and the Underwriter has agreed to indemnify each of the foregoing
parties against certain liabilities, including liabilities under the Securities
Act.
Concurrently with the offering of the Serial Mortgage Notes, California
Petroleum is offering for sale to the public pursuant to a separate prospectus
$117,900,000 aggregate principal amount of 8.52% First Preferred Mortgage Notes
Due 2015. The consummation of the sale of the Serial Mortgage Notes is
dependent on the consummation of the sale of the Term Mortgage Notes.
See "Certain Relationships and Transactions" for a discussion of certain
services to be provided by the Underwriter at the end of any Initial Charter
Period.
RATINGS
The Serial Mortgage Notes have been prospectively rated Aa2 by Moody's, AA by
Standard & Poor's and AA by Duff & Phelps at their initial issuance. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
There can be no assurance as to whether any rating agency not requested to
rate the Serial Mortgage Notes will nonetheless issue a rating and, if so, what
such rating would be. A rating assigned to the Serial Mortgage Notes by a
rating agency that has not been requested to do so may be lower than the
ratings assigned by the rating agencies mentioned above.
68
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby will
be passed upon for California Petroleum by Ropes & Gray, Boston, Massachusetts
and Thacher Proffitt & Wood, New York, New York. Certain legal matters will be
passed upon for the Owners by Thacher Proffitt & Wood, New York, New York.
Certain legal matters will be passed upon for CalPetro Bahamas I, CalPetro
Bahamas II and CalPetro Bahamas III by McKinney, Bancroft & Hughes, Nassau,
Bahamas, with respect to Bahamian law. Certain legal matters will be passed
upon for CalPetro IOM by Cains, Douglas, Isle of Man, with respect to Isle of
Man law. Certain legal matters will be passed upon for Chevron and Chevron
Transport by Pillsbury Madison & Sutro, San Francisco, California. Certain
legal matters will be passed upon for the Underwriter by Davis Polk & Wardwell,
New York, New York.
EXPERTS
The financial statements of California Petroleum as of December 31, 1994,
included in this Prospectus, have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting. The financial statements of the
Owners as of December 31, 1994, included in this Prospectus, have been so
included in reliance on the reports of Price Waterhouse, chartered accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Chevron incorporated in this Prospectus by
reference to Chevron's Annual Report on Form 10-K for the year ended December
31, 1993 and by reference to Chevron's Current Report on Form 8-K, dated March
10, 1995 have been audited by Price Waterhouse LLP, independent accountants.
The financial statements of the Caltex Group of Companies incorporated in this
Prospectus by reference to Chevron's Annual Report on Form 10-K for the year
ended December 31, 1993 have been audited by KPMG Peat Marwick LLP, independent
accountants. Such financial statements have been so incorporated in reliance on
the reports of the respective independent accountants given on the authority of
such firms as experts in auditing and accounting.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
California Petroleum Transport Corporation
Report of Independent Accountants........................................ F-2
Balance Sheet at December 31, 1994
Note to the Balance Sheet................................................ F-3
Unaudited Combined Balance Sheet of Owners at December 31, 1994............ F-4
CalPetro Tankers (Bahamas I) Limited
Report of Independent Accountants........................................ F-5
Balance Sheet at December 31, 1994
Note to the Balance Sheet................................................ F-6
CalPetro Tankers (Bahamas II) Limited
Report of Independent Accountants........................................ F-7
Balance Sheet at December 31, 1994
Note to the Balance Sheet................................................ F-8
CalPetro Tankers (IOM) Limited
Report of Independent Accountants........................................ F-9
Balance Sheet at December 31, 1994
Note to the Balance Sheet................................................ F-10
CalPetro Tankers (Bahamas III) Limited
Report of Independent Accountants........................................ F-11
Balance Sheet at December 31, 1994
Note to the Balance Sheet................................................ F-12
The Owners' Pro Forma Condensed Combined Financial Data.................... F-13
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 28, 1995
To the Board of Directors and Shareholders
of California Petroleum Transport Corporation
In our opinion, the accompanying balance sheet presents fairly, in all
materials respects, the financial position of California Petroleum Transport
Corporation at December 31, 1994, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
F-2
<PAGE>
CALIFORNIA PETROLEUM TRANSPORT CORPORATION
BALANCE SHEET AS AT DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash.................................................................. $1,000
------
Total assets........................................................ $1,000
======
STOCKHOLDERS' EQUITY
Common Stock; 1,000 shares authorized, issued and outstanding........... $1,000
------
Stockholders' Equity................................................ $1,000
======
</TABLE>
--------------------
NOTE TO THE BALANCE SHEET:
California Petroleum Transport Corporation (the "Company") was incorporated
as a Delaware company on May 18, 1994, and has had no operations since that
date.
F-3
<PAGE>
THE OWNERS
UNAUDITED COMBINED BALANCE SHEET AS AT 31 DECEMBER 1994
<TABLE>
<S> <C>
ASSETS
Cash.................................................................... $1,300
------
Total assets............................................................ $1,300
======
COMBINED SHAREHOLDERS' EQUITY
TOTAL COMBINED SHAREHOLDERS' EQUITY..................................... $1,300
======
</TABLE>
--------------------
NOTES TO THE COMBINED BALANCE SHEET
The combined balance sheet represents the aggregated assets and shareholders
equity of the following companies (the "Owners"):
Calpetro Tankers (IOM) Limited
Calpetro Tankers (Bahamas I) Limited
Calpetro Tankers (Bahamas II) Limited
Calpetro Tankers (Bahamas III) Limited
The above companies were incorporated as follows:
Calpetro Tankers (IOM) Limited was incorporated as an Isle of Man company
on 13 May 1994 and has had no operations since that date. The company is a
wholly owned subsidiary of California Tankers Investments Limited, a
company incorporated under the laws of the Bahamas.
Calpetro Tankers (Bahamas I) Limited was incorporated as a Bahamian
company on 13 May 1994 and has had no operations since that date. The
company is a wholly owned subsidiary of California Tankers Investments
Limited, a company incorporated under the laws of the Bahamas.
Calpetro Tankers (Bahamas II) Limited was incorporated as a Bahamian
company on 13 May 1994 and has had no operations since that date. The
company is a wholly owned subsidiary of California Tankers Investments
Limited, a company incorporated under the laws of the Bahamas.
Calpetro Tankers (Bahamas III) Limited was incorporated as a Bahamian
company on 13 May 1994 and has had no operations since that date. The
company is a wholly owned subsidiary of California Tankers Investments
Limited, a company incorporated under the laws of the Bahamas.
F-4
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS OF
CALPETRO TANKERS (BAHAMAS I) LIMITED
We have audited the balance sheet and accompanying note of Calpetro Tankers
(Bahamas I) Limited at 31 December 1994 which have been prepared under the
historical cost convention and in accordance with applicable accounting
standards in the United States of America.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
It is the directors' responsibility to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit and loss of the company for that period. In preparing
those financial statements, it is the directors' responsibility to:
. select suitable accounting policies and then apply them consistently;
. make judgments and estimates that are reasonable and prudent;
. prepare the financial statements on the going concern basis;
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
It is our responsibility to form an independent opinion, based on our audit,
on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board in the United Kingdom, which do not differ in any
significant respect from United States generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgments made by the directors in
the preparation of the financial statements, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the balance sheet and
accompanying note are free from material misstatement, whether caused by fraud
or other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the balance sheet and
accompanying note.
OPINION
In our opinion the balance sheet and accompanying note give a true and fair
view of the state of the company's affairs as at 31 December 1994.
/s/ Price Waterhouse
Price Waterhouse 28 February 1995
Chartered Accountants
Douglas
Isle of Man
F-5
<PAGE>
CALPETRO TANKERS (BAHAMAS I) LIMITED
BALANCE SHEET AS AT 31 DECEMBER 1994
<TABLE>
<S> <C>
ASSETS
Cash...................................................................... $100
----
Total assets.......................................................... $100
====
SHAREHOLDERS' EQUITY
Unclassified stock of $1 par value
Authorised--1,000 shares
Issued--100 shares...................................................... $100
====
Total Shareholders' Equity............................................ $100
====
</TABLE>
--------------------
NOTE TO THE BALANCE SHEET
Incorporation of the company
Calpetro Tankers (Bahamas I) Limited was incorporated as a Bahamian company
of 13 May 1994 and has had no operations since that date. The company is a
wholly owned subsidiary of California Tankers Investments Limited, a company
incorporated under the laws of the Bahamas.
/s/ P. D. Gram
_____________________________________
Director
28 February 1995
See accompanying note to the balance sheet
F-6
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS OF
CALPETRO TANKERS (BAHAMAS II) LIMITED
We have audited the balance sheet and accompanying note of Calpetro Tankers
(Bahamas II) Limited at 31 December 1994 which have been prepared under the
historical cost convention and in accordance with applicable accounting
standards in the United States of America.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
It is the directors' responsibility to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit and loss of the company for that period. In preparing
those financial statements, it is the directors' responsibility to:
. select suitable accounting policies and then apply them consistently;
. make judgments and estimates that are reasonable and prudent;
. prepare the financial statements on the going concern basis;
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
It is our responsibility to form an independent opinion, based on our audit,
on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board in the United Kingdom, which do not differ in any
significant respect from United States generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgments made by the directors in
the preparation of the financial statements, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the balance sheet and
accompanying note are free from material misstatement, whether caused by fraud
or other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the balance sheet and
accompanying note.
OPINION
In our opinion the balance sheet and accompanying note give a true and fair
view of the state of the company's affairs as at 31 December 1994.
/s/ Price Waterhouse
Price Waterhouse 28 February 1995
Chartered Accountants
Douglas
Isle of Man
F-7
<PAGE>
CALPETRO TANKERS (BAHAMAS II) LIMITED
BALANCE SHEET AS AT 31 DECEMBER 1994
<TABLE>
<S> <C>
ASSETS
Cash...................................................................... $100
----
Total assets.......................................................... $100
====
SHAREHOLDERS' EQUITY
Unclassified stock of $1 par value
Authorized--1,000 shares
Issued--100 shares...................................................... $100
====
Total Shareholders' Equity............................................ $100
====
</TABLE>
--------------------
NOTE TO THE BALANCE SHEET
Incorporation of the company
Calpetro Tankers (Bahamas II) Limited was incorporated as a Bahamian company
of 13 May 1994 and has had no operations since that date. The company is a
wholly owned subsidiary of California Tankers Investments Limited, a company
incorporated under the laws of the Bahamas.
/s/ P. D. Gram
_____________________________________
Director
28 February 1995
See accompanying note to the balance sheet
F-8
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS OF
CALPETRO TANKERS (IOM) LIMITED
We have audited the balance sheet and accompanying note of Calpetro Tankers
(IOM) Limited at 31 December 1994 which have been prepared under the historical
cost convention and in accordance with applicable accounting standards in the
United States of America.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit and loss of the company for that period. In preparing
those financial statements, the directors are required to:
. select suitable accounting policies and then apply them consistently;
. make judgments and estimates that are reasonable and prudent;
. prepare the financial statements on the going concern basis;
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Isle of Man Companies Acts 1931 to 1993. They are also responsible for
safeguarding the assets of the company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
It is our responsibility to form an independent opinion, based on our audit,
on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board in the United Kingdom, which do not differ in any
significant respect from United States generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgments made by the directors in
the preparation of the financial statements, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the balance sheet and
accompanying note are free from material misstatement, whether caused by fraud
or other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the balance sheet and
accompanying note.
OPINION
In our opinion the balance sheet and accompanying note give a true and fair
view of the state of the company's affairs as at 31 December 1994 and have been
properly prepared in accordance with the Isle of Man Companies Acts 1931 to
1993.
/s/ Price Waterhouse
28 February 1995
Price Waterhouse
Chartered Accountants
Douglas
Isle of Man
F-9
<PAGE>
CALPETRO TANKERS (IOM) LIMITED
BALANCE SHEET AS AT 31 DECEMBER 1994
<TABLE>
<S> <C>
ASSETS
Cash..................................................................... $1,000
------
Total assets......................................................... $1,000
======
SHAREHOLDERS' EQUITY
Unclassified stock of (Pounds)1 (pound sterling)
Authorized--2,000 shares
Issued--2 shares....................................................... $1,000
======
Total Shareholders' Equity........................................... $1,000
======
</TABLE>
--------------------
NOTE TO THE BALANCE SHEET
Incorporation of the company
Calpetro Tankers (IOM) Limited was incorporated as an Isle of Man company on
13 May 1994 and has had no operations since that date. The company is a wholly
owned subsidiary of California Tankers Investments Limited, a company
incorporated under the laws of the Bahamas.
/s/ P.D. Gram
_____________________________________
Director
/s/ Z.B. Galka
_____________________________________
Director
28 February 1995
F-10
<PAGE>
AUDITORS' REPORT TO THE DIRECTORS OF
CALPETRO TANKERS (BAHAMAS III) LIMITED
We have audited the balance sheet and accompanying note of Calpetro Tankers
(Bahamas III) Limited at 31 December 1994 which have been prepared under the
historical cost convention and in accordance with applicable accounting
standards in the United States of America.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
It is the directors' responsibility to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit and loss of the company for that period. In preparing
those financial statements, it is the directors' responsibility to:
. select suitable accounting policies and then apply them consistently;
. make judgments and estimates that are reasonable and prudent;
. prepare the financial statements on the going concern basis;
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
It is our responsibility to form an independent opinion, based on our audit,
on those statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board in the United Kingdom, which do not differ in any
significant respect from United States generally accepted auditing standards.
An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgments made by the directors in
the preparation of the financial statements, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the balance sheet and
accompanying note are free from material misstatement, whether caused by fraud
or other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the balance sheet and
accompanying note.
OPINION
In our opinion the balance sheet and accompanying note give a true and fair
view of the state of the company's affairs as at 31 December 1994.
/s/ Price Waterhouse
Price Waterhouse 28 February 1995
Chartered Accountants
Douglas
Isle of Man
F-11
<PAGE>
CALPETRO TANKERS (BAHAMAS III) LIMITED
BALANCE SHEET AS AT 31 DECEMBER 1994
<TABLE>
<S> <C>
ASSETS
Cash...................................................................... $100
----
Total assets.......................................................... $100
====
SHAREHOLDERS' EQUITY
Unclassified stock of $1 par value
Authorized--1,000 shares
Issued--100 shares....................................................... $100
====
Total Shareholders' Equity............................................ $100
====
</TABLE>
--------------------
NOTE TO THE BALANCE SHEET
Incorporation of the company
Calpetro Tankers (Bahamas III) Limited was incorporated as a Bahamian company
of 13 May 1994 and has had no operations since that date. The company is a
wholly owned subsidiary of California Tankers Investments Limited, a company
incorporated under the laws of the Bahamas.
/s/ P.D. Gram
_____________________________________
Director
28 February 1995
See accompanying note to the balance sheet
F-12
<PAGE>
THE OWNERS
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following pro forma condensed combined financial data presents pro forma
financial data for each of the four vessel owners, CalPetro Tankers (Bahamas I)
Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (IOM) Limited
and CalPetro Tankers (Bahamas III) Limited (the "Owners").
The following unaudited pro forma condensed combined income statement for the
year ended December 31, 1994 gives effect to the transaction as if it had
occurred on January 1, 1994, the beginning of the Company's fiscal year. The
unaudited pro forma financial data are based on the assumptions and adjustments
described in the accompanying notes. The unaudited pro forma condensed combined
income statement does not purport to represent what the Company's results of
operations actually would have been if the transaction had occurred as of the
dates indicated or what such results will be for any future periods. The
following unaudited pro forma condensed combined balance sheet at December 31,
1994 was prepared as if the transaction had occurred on such date. The
unaudited pro forma financial data are based upon assumptions that the Company
believes are reasonable and should be read in conjunction with the Financial
Statements and accompanying notes thereto included elsewhere in this
Prospectus.
F-13
<PAGE>
THE OWNERS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------------------------------------------
COMBINED COMBINED
HISTORICAL BAHAMAS I BAHAMAS II IOM BAHAMAS III PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash................... $1,300 $ $ $ $ $ 1,300
Current portion of net
investment in direct
financing leases...... 11,310,000(A) 11,260,000(A) 11,214,000(A) 5,478,000(A) 39,262,000
------ ----------- ----------- ----------- ----------- ------------
Total current assets... 1,300 11,310,000 11,260,000 11,214,000 5,478,000 39,263,300
Net investment in direct
financing leases....... 70,362,000(A) 70,412,000(A) 70,458,000(A) 34,906,000(A) 246,138,000
------ ----------- ----------- ----------- ----------- ------------
Total assets............ $1,300 $81,672,000 $81,672,000 $81,672,000 $40,384,000 $285,401,300
====== =========== =========== =========== =========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of
serial loans.......... $ $ 4,940,000(B) $ 4,940,000(B) $ 4,940,000(B) $ 2,340,000(B) $ 17,160,000
------ ----------- ----------- ----------- ----------- ------------
Total current
liabilities........... 4,940,000 4,940,000 4,940,000 2,340,000 17,160,000
Term loans.............. 40,262,000(B) 35,052,000(B) 29,842,000(B) 12,744,000(B) 117,900,000
Serial loans............ 36,470,000(B) 41,680,000(B) 46,890,000(B) 25,300,000(B) 150,340,000
------ ----------- ----------- ----------- ----------- ------------
Total liabilities....... 81,672,000 81,672,000 81,672,000 $40,384,000 $285,400,000
Shareholders' equity
Common stock issued.... 1,300 1,300
------ ----------- ----------- ----------- ----------- ------------
Total shareholders'
equity................. 1,300 1,300
------ ----------- ----------- ----------- ----------- ------------
Total liabilities and
shareholders' equity... $1,300 $81,672,000 $81,672,000 $81,672,000 $40,384,000 $285,401,300
====== =========== =========== =========== =========== ============
</TABLE>
F-14
<PAGE>
THE OWNERS
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------------------------------------------------
COMBINED COMBINED
HISTORICAL BAHAMAS I BAHAMAS II IOM BAHAMAS III PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Income from direct
financing leases....... $ -- $ 137,951 (C) $ 119,961 (C) $ 101,599 (C) $ 68,790 (C) $ 428,301
Operating costs and
expenses
Ship expenses......... -- 85,000 (D) 85,000 (D) 85,000 (D) 85,000 (D) 340,000
----- ----------- ----------- ----------- ----------- ------------
Income from operations.. -- 52,951 34,961 16,599 (16,210) 88,301
Interest income......... -- 6,602,710 (E) 6,574,991 (E) 6,546,601 (E) 3,266,070 (E) 22,990,372
Interest expense........ -- (6,501,873)(F) (6,450,460)(F) (6,400,509)(F) (3,147,556)(F) (22,500,398)
----- ----------- ----------- ----------- ----------- ------------
Net income.............. $ -- $ 153,788 $ 159,492 $ 162,691 $ 102,304 $ 578,275
===== =========== =========== =========== =========== ============
</TABLE>
F-15
<PAGE>
THE OWNERS
NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL DATA
Pro forma adjustments are made to reflect:
(A) Represents the net investment value of the direct financing leases.
Proceeds from the borrowings discussed in (B) are used to purchase four oil
tankers, one tanker purchase by each of the four vessel owners. The purchased
tankers are then leased to Chevron Transport Corporation. The leases between
the four vessel owners, CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited and CalPetro
Tankers (IOM) Limited and Chevron Transport Corporation contain bargain
purchase options and as such are recorded as direct financing leases in
accordance with Financial Accounting Standards No. 13.
(B) Represents the borrowings by each of the four vessel owners. The term
loans bear interest at a rate of 8.52% per annum. The serial loans bear
interest at rates ranging from 6.71% to 7.62% through maturity. Principal will
be payable on the term notes in accordance with a twelve year sinking fund
schedule commencing nine years from the issuance date. Serial notes will mature
over an eleven year period beginning one year from the issuance date. Interest
is payable semi-annually.
(C) Represents the amortization of unearned income in accordance with
Financial Accounting Standards No. 13.
(D) Represents management's estimate of ship expenses which include tonnage
taxes, ship registration fees, accounting fees and other general and
administrative expenses including the reimbursement of general and
administrative expenses of California Petroleum Transport Corporation.
(E) Represents the following components of interest income:
<TABLE>
<CAPTION>
BAHAMAS I BAHAMAS II IOM BAHAMAS III
<S> <C> <C> <C> <C>
Interest income relating to the
direct financing leases recorded
in accordance with Financial
Accounting Standard No. 13...... $6,510,474 $6,482,765 $6,454,385 $3,222,365
Interest income computed on the
expected excess cash on hand
during the period............... 92,236 92,226 92,216 43,705
---------- ---------- ---------- ----------
$6,602,710 $6,574,991 $6,546,601 $3,266,070
========== ========== ========== ==========
</TABLE>
(F) Represents the following components of interest expense:
<TABLE>
<CAPTION>
BAHAMAS I BAHAMAS II IOM BAHAMAS III
<S> <C> <C> <C> <C>
Interest on term loans and serial $6,432,442 $6,382,948 $6,335,016 $3,116,268
loans............................
Amortization of discount on loans. 69,431 67,512 65,493 31,288
---------- ---------- ---------- ----------
$6,501,873 $6,450,460 $6,400,509 $3,147,556
========== ========== ========== ==========
</TABLE>
F-16
<PAGE>
APPENDIX A
CERTAIN SHIPPING TERMS
The following shipping terms are used in this Prospectus.
"Bareboat charter" means the contract for hire of a ship for a certain period
of time during which the Charterer is responsible for the operating costs and
voyage costs of the ship. Sometimes called a demise charter.
"Charter" means the hire of a ship for a specified period of time or to carry
a cargo for a fixed fee from a loading port to a discharging port. The contract
for a charter is called a charterparty.
"Classification society" means a private organization which has as its
purpose the supervision of vessels during their construction and afterward, in
respect to their seaworthiness and upkeep, and the placing of vessels in grades
or "classes" according to the society's rules for each particular type of
vessel.
"Double hull" means hull construction technique by which a ship has an inner
and outer hull separated by void space, usually several feet in width.
"dwt (Deadweight tonne)" means a unit of a vessel's capacity, for cargo, fuel
oil, stores and crew, measured in metric tonnes of 1,000 kilograms. A vessel's
dwt or total deadweight is the total weight the vessel can carry when loaded to
a particular load line.
"Freight" means the compensation for carriage of cargo.
"IMO" means International Maritime Organization, a United Nations agency that
issues, inter alia, international trade standards for shipping.
"Lay-up" means mooring a ship at a protected anchorage, shutting down
substantially all of its operating systems and taking measures to protect
against corrosion and other deterioration.
"OPA 90" means the United States Oil Pollution Act of 1990, as amended.
"Protection and indemnity insurance" means the insurance obtained through a
mutual association formed by shipowners to provide protection from financial
loss to one member by contribution towards that loss by all members.
"Registration Jurisdiction" means the Republic of Liberia or the Commonwealth
of the Bahamas as applicable to each Vessel.
"Suezmax tanker" means a vessel of approximately 120,000 to 200,000 dwt, of a
maximum length, breadth and draught capable of passing through the Suez Canal.
"Tanker" means a ship designed for the carriage of liquid cargoes in bulk,
her cargo space consisting of many tanks. Tankers carry a variety of products
including crude oil, refined products, liquid chemicals and liquid gas. Tankers
load their cargo by gravity from the shore or by pumps and discharge using
their own pumps.
"Tonne" means a metric tonne of 1,000 kilograms.
"TOVALOP Scheme" means the Tankers Owners Voluntary Agreement concerning
Liability for Oil Pollution dated January 7, 1969, as amended.
"Voyage charter" means a contract of carriage in which the charterer pays for
the use of a ship's cargo capacity for one, or sometimes more than one, voyage.
Under this type of charter, the shipowner pays all the operating costs of the
ship (including bunkers, canal and port changes, pilotage, towage and ship's
agency) while payment for cargo handling charges are subject of agreement
between the parties. Freight is generally paid per unit of cargo, such as a
tonne, based on an agreed quantity, or as a lump sum irrespective of the
quantity loaded.
Shipping terms supplied by the Dictionary of Shipping Terms and other
sources.
A-1
<PAGE>
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus. The
definitions of terms used in this glossary that are also used in the Serial
Indenture, the Initial Charters or the Mortgages are qualified in their
entirety by reference to the definition of such terms contained therein.
"Acceptable Replacement Charter" means any replacement charter which
satisfies each of the following requirements: (i) the charter is a bareboat
charter and requires that the charterer thereunder "gross up" charterhire
payments to indemnify and hold the holders of the Term Mortgage Notes harmless
from any withholding tax imposed on the charterhire payments or on the payments
of the Term Mortgage Notes, (ii) the charterhire payments payable during the
non-cancellable term of such replacement charter, after giving effect to (1)
any "gross up" of such amounts as a result of any withholding tax on such
charterhire payments, (2) the receipt of the Termination Payment and (3) all
fees and expenses incurred in connection with the recharter of the Vessel,
provide sufficient funds for the payment in full when due of (A) the Allocated
Principal Amount of the Term Mortgage Notes for the related Vessel and interest
thereon in accordance with the revised schedule of sinking fund and principal
payments, that is applicable upon termination of the related Initial Charter,
(B) the amount of Recurring Fees and Taxes for such Vessel, (C) the amount of
Management Fees and Technical Advisor's Fees for such Vessel, (D) the amount of
fees and expenses of the Indenture Trustee and Collateral Trustee and
Designated Representative allocable to such Vessel and (E) an amount at least
equal to 30% of the estimated amounts, on a per annum basis, referred to in
clauses (B), (C) and (D) above for miscellaneous or unexpected expenses and
(iii) the Rating Agencies shall have confirmed in writing to the Indenture
Trustee that the terms and conditions of such proposed charter will not result
in the withdrawal or reduction of the then current ratings of the Term Mortgage
Notes.
"Acquisition Loans" means, for any Owner, the Term Loan and Serial Loans by
California Petroleum to such Owner.
"Allocated Principal Amount of the Serial Mortgage Notes" means, when used
with reference to the Serial Mortgage Notes relating to any Vessel at any time,
an aggregate principal amount of outstanding Serial Mortgage Notes equal to the
aggregate principal amount of Serial Loans of the related Owner then
outstanding.
"Allocated Principal Amount of the Term Mortgage Notes" means, when used with
reference to the Term Mortgage Notes relating to any Vessel at any time, an
aggregate principal amount of outstanding Term Mortgage Notes equal to the
aggregate principal amount of the Term Loans of the related Owner then
outstanding plus any payment of principal, if any, on such Term Loans since the
last date on which payment of principal on the Term Mortgage Notes was made.
"Allowable Investments" means for each Owner, its investment in the related
Vessel, and in each case, any Restricted Payment permitted to be made by such
Owner or California Petroleum and certain obligations incurred in the ordinary
course of the performance of the Management Agreement.
"Beneficial Owner" means a person owning a beneficial interest in Global
Note.
"Casualty Account" means the account established and maintained by the
Collateral Trustee into which any insurance proceeds or other payments in
connection with the occurrence of a Total Loss to any Vessel then subject to an
Initial Charter that has not reached its first optional termination date shall
be deposited in accordance with the related Mortgage.
"Charter Event of Default" means, for each Initial Charter, each of the
events designated as an event of default in such Initial Charter. For a
description of certain events constituting Charter Events of Default, see "The
Initial Charters--Charter Events of Default."
"Charter Period" means the period from the date of commencement of such
Initial Charter to the expiration or earlier termination of such Initial
Charter pursuant to the terms and conditions thereof.
"Chevron" means Chevron Corporation, a Delaware corporation.
"Chevron Transport" means Chevron Transport Corporation, a Liberian
corporation.
A-2
<PAGE>
"Chevron Guarantee" means for each Initial Charter, the guarantee of the
obligations of Chevron Transport thereunder given by Chevron.
"Collateral" shall have the meaning set forth in "Description of the Notes--
Security."
"Collateral Account" means the account established and maintained by the
Collateral Trustee into which the Collateral Trustee will deposit (i) any
proceeds received upon exercise of remedies with respect to the Collateral,
(ii) other amounts, with certain exceptions, received with respect to the
Collateral after receipt of an Enforcement Notice and (iii) any other amount
received by the Collateral Trustee pursuant to any of the Security Documents
for which the Collateral Agreement does not specify another Trust Account into
which such amount is to be deposited.
"Collateral Agreement" means the collateral trust agreement among the
Collateral Trustee, California Petroleum, the Indenture Trustee under the Term
Indenture and the Indenture Trustee under the Serial Indenture, pursuant to
which California Petroleum assigns and pledges to the Collateral Trustee all of
its right, title and interest in the Collateral for the benefit of the holders
of the Term Mortgage Notes and the Holders of the Serial Mortgage Notes.
"Collateral Trustee" means Chemical Trust Company of California, not in its
individual capacity but solely as Collateral Trustee under the Collateral
Agreement.
"Compulsory Acquisition" means requisition for title or other compulsory
acquisition of any Vessel (otherwise than by requisition for hire), capture,
seizure, condemnation, destruction, detention or confiscation of such Vessel by
any government or by persons acting or purporting to act on behalf of any
governmental authority.
"Default Period" means the period commencing on the due date of the
charterhire payment until such payment shall be paid in full.
"Default Rate" means a rate per annum for each day during the Default Period
until such payment shall be paid in full equal to 1.50% above LIBOR at the
commencement of such period.
"DTC" means The Depository Trust Company.
"Enforcement Notice" means a notice of an Indenture Event of Default
delivered to the Collateral Trustee and the Holders pursuant to the Serial
Indenture or the Term Indenture.
"Equity Account" means the account established and maintained by the
Collateral Trustee into which the Equity Remainder, if any, relating to each
Vessel will be deposited in accordance with the order of payments on each
Equity Transfer Date.
"Equity Remainder" means, for any Vessel on the applicable Payment Date for
so long as the Initial Charter with respect to such Vessel remains in effect,
the positive difference, if any, between (a) $100,000 and (b) the sum of (i)
the Management Fee and the Technical Advisor's Fee for such Vessel deposited
into the Operating Account on such Payment Date and the immediately preceding
Payment Date, (ii) the aggregate amount of Recurring Fees and Taxes for such
Vessel deposited into the Operating Account on such Payment Date and the
immediately preceding Payment Date and (iii) the allocable portion of the fees
and expenses of the Indenture Trustee and the Collateral Trustee and the
Designated Representative. On and after the termination of such Initial
Charter, the "Equity Remainder" for such Vessel on the applicable Payment Date
shall be zero.
"Equity Transfer Date" means the Payment Date scheduled to occur on April 1
of each year, commencing April 1, 1996.
"Holder" means the Person in whose name a Serial Mortgage Note is registered
in the securities register maintained by the Indenture Trustee.
A-3
<PAGE>
"Indentures" means the Serial Indenture and the Term Indenture, collectively.
"Indenture Event of Default" means each of the events designated as an event
of default under the Serial Indenture. For a description of certain events
constituting Indenture Events of Default, see "Description of the Notes--
Indenture Events of Default."
"Indenture Trustee" means Chemical Trust Company of California, not in its
individual capacity but solely as Indenture Trustee under the Serial Indenture
or the Term Indenture, or both, as the case may be.
"Initial Charter" means, for each Vessel, the bareboat charter between the
related Owner and Chevron Transport.
"Initial Charter Period" means for any Initial Charter the period from the
date of commencement of such Initial Charter to the expiration or earlier
termination of such Initial Charter pursuant to the terms and conditions
thereof.
"Initial Revenue Account" means, so long as the Serial Mortgage Notes are
outstanding, the account established and maintained by the Collateral Trustee
for deposits of charterhire payments by Chevron Transport under each Initial
Charter until the first optional termination date thereunder.
"LIBOR" means the rate calculated on the basis of the offered rates for
deposits in dollars for a month period which appear on the Reuters Screen LIBO
Page as of 11:00 A.M., London time, on the date that is two London Banking Days
preceding the date of calculation. If at least two such offered rates appear on
the Reuters Screen LIBO Page, LIBOR will be the arithmetic mean of such offered
rates (rounded to the nearest .0001 percentage point). If, at any time of
determination, the Reuters Screen LIBO Page is not available, LIBOR will be
calculated as the average (rounded upward, if necessary, to the next higher
1/16 of 1%) of the respective ratio per annum at which deposits in dollars for
a one month period are offered to each of three reference banks in the London
interbank market at approximately 11:00 A.M., London time, on the date that is
two London Banking Days preceding the date of calculation. Each of Chevron
Transport and the Collateral Trustee (as assignee of the Owner) will select a
reference bank and the third reference bank will be selected by Chevron
Transport and the Collateral Trustee together or, failing agreement, by the
previously selected reference banks together.
"Lien" means any mortgage, pledge, lien (statutory or other), charge,
encumbrance, lease, claim, security interest, hypothecation, assignment for
security, deposit arrangement or preference or other security agreement of any
kind or nature whatsoever.
"London Banking Day" means any day on which dealings in deposits in United
States dollars are carried on in the London interbank market and on which
commercial banks are open for domestic and international business (including
dealings in dollar deposits) in London and New York.
"Majority Noteholders" means the holders of a majority in aggregate principal
amount of the outstanding Notes.
"Majority Serial Noteholders" means the Holders of a majority in aggregate
principal amount of the outstanding Serial Mortgage Notes.
"Majority Term Noteholders" means the holders of a majority in aggregate
principal amount of the outstanding Term Mortgage Notes.
"Management Agreement" means, for each Owner, the management agreement
between such Owner, the Manager and Barber Ship Management.
"Management Fee" means the sum of (i) for each Vessel, an annual fee payable
to the Manager, semi-annually in arrears, which shall be an amount equal to
$13,625 per annum during the period from the Closing
A-4
<PAGE>
Date to the third anniversary of the Closing Date plus (ii) a fee of $3,000 per
annum, payable annually in arrears, during such three-year period. Thereafter,
the Management Fee will be increased each year by an amount equal to 4%.
"Manager" means P.D. Gram & Co. a.s.
"Maturity Date" means, for any Serial Mortgage Notes, April 1 of the
respective year of maturity.
"Mortgage" means, for each Vessel, the first preferred ship mortgage on such
Vessel granted by the related Owner to California Petroleum and assigned by
California Petroleum to the Collateral Trustee.
"Mortgage Event of Default" means, for any Mortgage, each of the events
designated as an event of default in such Mortgage. For a description of
certain events constituting Mortgage Events of Default, see "The Mortgages--
Mortgage Events of Default."
"Notes" means the Serial Mortgage Notes together with the Term Mortgage
Notes.
"Operating Account" means the account established and maintained by the
Collateral Trustee into which the Recurring Fees and Expenses, the Management
Fee and the Technical Advisor's Fee relating to each Vessel will be deposited
in accordance with the order of payments for the applicable Payment Date.
"Owners" means, collectively, CalPetro Tankers (Bahamas I) Limited, CalPetro
Tankers (Bahamas II) Limited, CalPetro Tankers (IOM) Limited and CalPetro
Tankers (Bahamas III) Limited.
"Owner Taxes" means any income, franchise or equivalent tax, imposed upon or
measured by the net income, stated capital or earned surplus of an Owner by any
federal, state, local or other taxing authority of any jurisdiction worldwide,
or any tax imposed pursuant to Section 887 of the United States Internal
Revenue Code of 1986, as amended, or any taxes that result from the willful
misconduct or gross negligence of such Owner or from the inaccuracy or breach
of any representation, warranty or covenant of such Owner contained in certain
clauses of the related Initial Charter or in any document furnished in
connection with such clauses by such Owner, or any taxes that would not have
been imposed but for the failure of such Owner (a) to provide to Chevron
Transport (for filing by Chevron Transport with the taxing jurisdiction
imposing such taxes or retention in Chevron Transport's records) upon Chevron
Transport's timely request such certifications, information, documentation or
reports concerning such Owner's identity, jurisdiction of incorporation or
residency, or in connection with such taxing jurisdiction or (b) to promptly
file upon Chevron Transport's timely request such reports or returns (which
shall be prepared with reasonable care in accordance with Chevron Transport's
written instructions) claiming (or availing itself of) any applicable
extensions or exemptions (to the extent that timely notice thereof is provided
by Chevron Transport); provided that Owner Taxes shall not include any such tax
imposed on any amount that is (i) an indemnity or reimbursement of an Owner,
(ii) an operating or maintenance expense or (iii) a tax for which Chevron
Transport is otherwise liable under the related Initial Charter; and provided
further that Owner Taxes shall not include any such tax imposed by any
government, jurisdiction or taxing authority other than the United States
Federal government solely as a result of the location of the Vessel or the
Vessel's use by Chevron Transport.
"Payment Dates" means each April 1 and October 1, commencing October 1, 1995.
"Permitted Indebtedness" means for each Owner, (i) the obligations under such
Owner's Acquisition Loans, (ii) certain trade payables and expense accruals
incurred in the ordinary course and (iii) other indebtedness contemplated by
the Loan Agreements or any other Security Document.
"Permitted Investments" means any of the following: (a) direct general
obligations of, or obligations fully and unconditionally guaranteed as to the
timely payment of principal and interest by, the United States or any agency or
instrumentality thereof, provided such obligations are backed by the full faith
and credit of the
A-5
<PAGE>
United States, Federal Housing Administration debentures, FHLMC senior debt
obligations or FNMA senior debt obligations, but excluding any of such
securities whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption; (b) federal funds, certificates of deposit,
time and demand deposits and banker's acceptances (having original maturities
of not more than one year) of any bank or trust company incorporated under the
laws of the United States or any state thereof, provided that the short-term
debt obligations of such bank or trust company at the date of acquisitions
thereof have been rated at least "A-1" or "P-1" by Standard & Poor's and
Moody's respectively; (c) commercial paper (having original maturities of not
more than one year) rated at least "A-1" or "P-1" by Standard & Poor's and
Moody's, respectively; or (d) guaranteed investment contracts, investment
agreements or similar agreements rated at least "Aa" or "AA" by Moody's,
Standard & Poor's or Duff & Phelps, respectively, that are treated as
indebtedness for United States federal income tax purposes.
"Permitted Liens" means for each Owner, Liens created under the related
Mortgage and Security Documents, the Initial Charter for the related Vessel and
any Acceptable Replacement Charter or other charter for such Vessel permitted
under the Mortgage, Liens for crew's wages accrued for not more than three
months or for collision or salvage, Liens in favor of suppliers of necessaries
or other similar Liens arising in the ordinary course of its business (accrued
for not more than three months) or Liens for loss, damage or expense, which are
fully covered by insurance, in respect of which, a bond or other security has
been posted by the Owner with the appropriate court or other tribunal to
prevent the arrest or secure the release of any Vessel from arrest on account
of such claim or Lien; provided that, so long as the related Initial Charter is
in effect, "Permitted Liens" shall mean those Liens, claims and encumbrances
permitted under the Initial Charter.
"Rating Agencies" means Moody's Investors Service, Inc., Standard & Poor's
Rating Group and Duff & Phelps Credit Rating Co.
"Recurring Fees and Taxes" means, for any Vessel, any registration fees and
tonnage taxes necessary to maintain the documentation of the Vessel under the
laws of the registry or port of documentation of the Vessel, any periodic fees
necessary to maintain the corporate status of the related Owner, any filing or
other fees necessary to maintain the status of such Owner as a reporting
company under the Exchange Act and to comply with any covenants of such Owner
under the related Mortgage, any fees and expenses (including the cost of
insurance required by the related Mortgage and not maintained by the charterer
under the charter to which such Vessel is then subject) necessary to comply
with any covenants under the related Mortgage, any other fees and expenses
contemplated to be paid pursuant to the Management Agreement which the Manager
certifies to the Collateral Trustee are qualified to be paid thereunder and any
accounting or other professional fees and other expenses, including any fees
and expenses of the Rating Agencies, incurred in connection with the foregoing.
In addition, each Owner's Recurring Fees and Taxes will include a pro rata
portion of the fees and expenses, including any accounting, administrative or
other professional fees, necessary to maintain the registration of the Notes
under the Securities Act, to maintain the corporate status of California
Petroleum and the status of California Petroleum as a reporting company (if
necessary) under the Exchange Act, to pay any facilitation or management fees
and to comply with any covenants under the Indenture or the Collateral
Agreement.
"Restricted Payments" means the restriction imposed on (A) the Owners
prohibiting each Owner from (i) declaring or paying any dividend or other
distribution on any shares of its capital stock, (ii) making any loans or
advances to any affiliate of such Owner or (iii) purchasing, redeeming or
otherwise acquiring or retiring for value any shares of its capital stock
(each, a "Restricted Payment") unless, among other things, the Serial Mortgage
Notes shall have been repaid in full, and (B) California Petroleum prohibiting
it from making any Restricted Payments in excess of $15,000 per annum so long
as any Notes are outstanding.
"Second Revenue Account" means the account established and maintained by the
Collateral Trustee for deposits of charterhire payments under an Acceptable
Replacement Charter, other charter or Initial Charter (if such Initial Charter
continues in effect after the Allocated Principal Amount of the Serial Mortgage
Notes relating to the related Vessel have been paid in full), as the case may
be.
A-6
<PAGE>
"Security Documents" means, for each Vessel and Owner, the Loan Agreements,
the Mortgage, the Assignment of Initial Charter, the Assignment of Earnings and
Insurances, the Assignment of Initial Charter Guarantee, the Assignment of
Management Agreement, the Issue of One Debenture, the Stock Pledge, the
Assignment of Vessel Purchase Agreement, the Collateral Agreement and any
additional security agreement, assignment or mortgage document entered into by
any Owner or its shareholder from time to time in connection with such Owner's
Loan Agreements.
"Serial Indenture" means the indenture among California Petroleum, the
Indenture Trustee and, solely for purposes of the Trust Indenture Act, Chevron,
pursuant to which the Serial Mortgage Notes will be issued.
"Serial Loan Agreement" means, for any Owner, one of two loan agreements
pursuant to which California Petroleum will loan to such Owner a portion of the
proceeds of the sale of the Notes.
"Serial Loans" means, for any Owner, the series of loans, each of which will
correspond in maturity date and interest rate with the Serial Mortgage Notes of
a specific maturity date, to and including the first optional termination date
for the related Initial Charter, made by California Petroleum to such Owner
under the related Serial Loan Agreement.
"Serial Mortgage Notes" means the Serial First Preferred Term Mortgage Notes
which will mature serially from April 1, 1996 to April 1, 2006 issued in the
initial aggregate amount of $167,500,000 concurrently with the offering of the
Term Mortgage Notes.
"Sinking Fund Reserve Account" means the account established and maintained
by the Collateral Trustee for deposits on each Payment Date that is not a
sinking fund redemption date or a date for the payment of principal on the Term
Mortgage Notes of an amount, if any, equal to one-half of the aggregate sinking
fund redemption amount or amount of principal due and payable on the Term
Mortgage Notes on the next succeeding Payment Date.
"Stipulated Loss Value" means, for any Vessel on any date, the amount
specified in the related Initial Charter as the "Stipulated Loss Value" for
such date, which amount will be at least sufficient to redeem in full the
Allocated Principal Amount of Notes for such Vessel.
"Technical Advisor's Fee" means, for each Vessel, an annual fee payable to
Barber Ship Management, semi-annually in arrears, which shall be an amount
equal to $10,000 per annum during the period from the Closing Date to the third
anniversary of the Closing Date. Thereafter, the Technical Advisor's Fee will
be increased each year by an amount equal to 4%.
"Term Indenture" means the indenture between California Petroleum and the
Indenture Trustee pursuant to which the Term Mortgage Notes will be issued.
"Term Loan Agreement" means, for any Owner, one of two loan agreements
pursuant to which California Petroleum will loan to such Owner a portion of the
proceeds of the sale of the Notes.
"Term Loans" means, for any Owner, the loan made by California Petroleum to
such Owner under the related Term Loan Agreement, which will accrue interest at
the same rate as the Term Mortgage Notes, and
A-7
<PAGE>
upon which payments of principal and interest will be scheduled to coincide
with principal Payment Dates for the Term Mortgage Notes.
"Term Mortgage Notes" means 8.52% First Preferred Mortgage Notes Due 2015
issued in the initial aggregate amount of $117,900,000 by California Petroleum
concurrently with the offering of the Serial Mortgage Notes.
"Term Mortgage Notes Maturity Date" means April 1, 2015.
"Termination Account" means the account established and maintained by the
Collateral Trustee for deposits of the Termination Payment payable under the
Initial Charter for such Owner's Vessel by Chevron Transport.
"Termination Payment" means the payment that Chevron Transport is required to
make pursuant to the applicable Initial Charter if Chevron Transport elects to
terminate the Initial Charter for any Vessel on a specified termination date.
"Total Loss" means (a) an actual or constructive or compromised or arranged
total loss of a Vessel, (b) a Compulsory Acquisition of a Vessel or (c) if so
declared by Chevron Transport at any time and in its sole discretion a
requisition for hire of the Vessel for a period in excess of 180 days.
"Trust Accounts" means the Initial Revenue Account, the Second Revenue
Account, the Termination Account, the Operating Account, the Equity Account,
the Casualty Account, the Collateral Account and the Sinking Fund Reserve
Account which will be maintained by the Collateral Trustee as collateral agent
for the benefit of the holders of the Term Mortgage Notes and the Holders of
the Serial Mortgage Notes in accordance with the Collateral Agreement.
"Trust Funds" means the funds deposited in the Trust Accounts.
"Vessels" means, collectively, the Suezmax-size tankers S. Ginn, C. Rice,
Chevron Mariner and W.E. Crain.
A-8
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY CALIFORNIA PETROLEUM, CHEVRON TRANSPORT, CHEVRON, THE OWNERS OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICI-
TATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFERS WOULD BE UNLAW-
FUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..................................................... 4
Incorporation of Certain Documents by Reference........................... 5
Enforceability of Civil Liabilities....................................... 6
Prospectus Summary........................................................ 7
Investment Considerations................................................. 16
Use of Proceeds........................................................... 17
Capitalization of Chevron................................................. 18
Selected Financial Data of Chevron........................................ 19
Summarized Financial Data of Chevron Transport............................ 19
Capitalization of California Petroleum.................................... 20
Selected Financial and Pro Forma Data of California Petroleum............. 21
Management's Discussion and Analysis of Financial Condition of California
Petroleum and the Owners................................................. 23
Chevron Transport and Chevron............................................. 25
California Petroleum and the Owners....................................... 26
Business.................................................................. 27
Management................................................................ 30
Certain Relationships and Transactions.................................... 32
Description of the Notes.................................................. 33
The Mortgages............................................................. 53
The Initial Charters...................................................... 61
Underwriting.............................................................. 68
Ratings................................................................... 68
Legal Matters............................................................. 69
Experts................................................................... 69
Index to Financial Statements............................................. F-1
Appendix A
Definitions of Shipping Terms............................................ A-1
Glossary................................................................. A-2
</TABLE>
---------------
UNTIL JUNE 27, 1995 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING OF THE
SERIAL MORTGAGE NOTES), ALL DEALERS EFFECTING TRANSACTIONS IN THE SERIAL MORT-
GAGE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLI-
GATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
$167,500,000
CALIFORNIA PETROLEUM
TRANSPORT CORPORATION
SERIAL FIRST PREFERRED MORTGAGE NOTES
MATURING SERIALLY FROM 1996 TO 2006
Payable from Charterhire Payments by
CHEVRON TRANSPORT CORPORATION
Whose Charter Obligations are Guaranteed by
CHEVRON CORPORATION
CHEVRON
LOGO
---------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MARCH 29, 1995
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE
--------------------------------------------------------------------------------
2 Photograph of m.t. Chevron Mariner
--------------------------------------------------------------------------------
