<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHEVRON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2911 94-0890210
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
575 MARKET STREET, SAN FRANCISCO, CALIFORNIA 94105 (415) 894-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICERS)
LYDIA I. BEEBE
CORPORATE SECRETARY
CHEVRON CORPORATION
575 MARKET STREET
SAN FRANCISCO, CALIFORNIA 94105
TELEPHONE: (415) 894-7700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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TERRY MICHAEL KEE, ESQ. DAVID F. CHAVENSON JEFFREY W. TINDELL, ESQ.
KAREN A. DEMPSEY, ESQ. VICE PRESIDENT, CHIEF FINANCIAL KEITH E. GOTTFRIED, ESQ.
DAVID M. KOENINGER, ESQ. OFFICER AND CORPORATE SECRETARY SKADDEN, ARPS, SLATE,
PILLSBURY MADISON & SUTRO LLP RUTHERFORD-MORAN OIL CORPORATION MEAGHER & FLOM LLP
235 MONTGOMERY STREET 5 GREENWAY PLAZA, SUITE 220 919 THIRD AVENUE
SAN FRANCISCO, CALIFORNIA 94104 HOUSTON, TEXAS 77046 NEW YORK, NEW YORK 10022
TELEPHONE: (415) 983-1000 TELEPHONE: (713) 622-5555 TELEPHONE: (212) 735-3000
FACSIMILE: (415) 983-1200 FACSIMILE: (713) 621-7072 FACSIMILE: (212) 735-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and the
effective time of the merger (the "Merger") of Chevron Thailand Inc., a Delaware
corporation and a wholly-owned subsidiary of the Registrant ("Chevron
Thailand"), with and into Rutherford-Moran Oil Corporation, a Delaware
corporation ("Rutherford-Moran"), pursuant to an Agreement and Plan of Merger,
dated as of December 23, 1998 (the "Merger Agreement"), by and among the
Registrant, Chevron Thailand and Rutherford-Moran and as more particularly
described in the proxy statement/prospectus included within this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED(1) PRICE(2) FEE(3)
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Common stock, par value $1.50 per share..................... $74,193,258 $20,626
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Rights to purchase preferred stock of Chevron............... N/A N/A
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</TABLE>
(1) This Registration Statement relates to an indeterminate number of (a) shares
of common stock, par value $1.50 per share, of the Registrant issuable to
holders of common stock, par value $0.01 per share, of Rutherford-Moran
pursuant to the Merger Agreement and (b) Chevron Preferred Stock Purchase
Rights that will be attached to, and represented by the certificates issued
for, the Chevron common stock (which Preferred Stock Purchase Rights have no
market value independent of the Chevron common stock to which they are
attached).
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c) of the Securities Act of 1933, as
amended (the "Securities Act"), based on the average of the high and low
prices of Rutherford-Moran common stock on February 8, 1999 on Nasdaq, which
was $2.828125.
(3) A fee of $14,183 has previously been paid in connection with the filing of
Rutherford-Moran's preliminary proxy statement on February 3, 1999, pursuant
to Section 14(a) of the Securities Exchange Act of 1934, as amended.
Therefore, the fee accompanying this filing is $6,443.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
[RUTHERFORD-MORAN LETTERHEAD]
February 12, 1999
To Our Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Rutherford-Moran Oil Corporation to be held on Wednesday, March 17, 1999 at the
Luxury Collection Hotel, 1919 Briar Oaks Lane, Houston, Texas at 9:30 a.m.,
local time.
At the meeting, you will be asked to approve and adopt a merger agreement
among Rutherford-Moran, Chevron Corporation and Chevron Thailand Inc., a
newly-formed, wholly owned subsidiary of Chevron. Pursuant to the merger
agreement, Chevron Thailand would merge with and into Rutherford-Moran and
Rutherford-Moran would become a wholly owned subsidiary of Chevron. In this
merger you will receive approximately $3.50 worth of Chevron common stock for
each share of Rutherford-Moran common stock you own. The $3.50 is based on the
number of shares of Rutherford-Moran common stock expected to be outstanding
immediately prior to the effective time of the merger and is subject to
adjustment as described in the accompanying proxy statement/prospectus.
After careful consideration, your Board of Directors has determined that
the merger agreement and the transactions associated with it are fair to and in
the best interests of Rutherford-Moran and its stockholders. Your board has
approved the merger agreement and recommends that you vote in favor of the
approval and adoption of the merger agreement. Your board received the opinion
of Bear, Stearns & Co. Inc. to the effect that the per share consideration to be
received in the merger is fair from a financial point of view to the
non-affiliated public stockholders of Rutherford-Moran.
Only stockholders of record at the close of business on February 10, 1999,
the record date, will be entitled to notice of, and to vote at, the meeting and
at any adjournments or postponements of that meeting. A complete list of
stockholders entitled to vote at the meeting will be open for examination during
ordinary business hours, at Rutherford-Moran's corporate headquarters for ten
days prior to the meeting, by any Rutherford-Moran stockholder for any relevant
purpose. The list of stockholders will also be available for inspection during
the meeting.
In connection with the merger agreement, the founders of Rutherford-Moran,
Patrick R. Rutherford and John A. Moran, and their respective affiliates,
entered into an option and voting agreement. Pursuant to that agreement, Chevron
has an option to acquire their shares of Rutherford-Moran common stock for the
same consideration as would be paid to the other stockholders pursuant to the
merger agreement. Additionally, they have agreed to vote all of their shares for
the approval and adoption of the merger agreement and against any alternative
proposal. As these stockholders own approximately 75.1% of the outstanding
shares of Rutherford-Moran common stock, approval and adoption of the merger
agreement at the meeting is assured.
You should refer to the accompanying proxy statement/prospectus for a more
complete description of the merger agreement and the transactions associated
with it. A copy of the merger agreement is attached to the accompanying proxy
statement/prospectus as Annex A.
If your shares are not registered in your own name and you plan to attend
the meeting and vote your shares in person, you will need to ask the broker,
trust company, bank or other custodian that holds your shares to provide you
with evidence of your share ownership on February 10, 1999 and bring that
evidence to the meeting.
We urge you to cause your shares of Rutherford-Moran common stock to be
represented at the meeting, regardless of the number of shares you hold. Please
mark, sign, date and return the enclosed proxy card in the enclosed business
reply envelope as soon as possible. No additional postage is required if mailed
within the United States. If you decide to attend the special meeting in person,
you can withdraw your proxy and vote at that time.
By order of the Board of Directors,
David F. Chavenson
Vice President, Chief Financial Officer
and
Corporate Secretary
<PAGE> 3
PROXY STATEMENT OF
RUTHERFORD-MORAN OIL CORPORATION
------------------------
PROSPECTUS OF CHEVRON CORPORATION
------------------------
The Board of Directors of Rutherford-Moran Oil Corporation has approved a
merger agreement pursuant to which a subsidiary of Chevron Corporation would be
merged with and into Rutherford-Moran and Rutherford-Moran would become a wholly
owned subsidiary of Chevron.
Upon completion of the merger, Rutherford-Moran stockholders will receive
approximately $3.50 worth of Chevron common stock for each share of
Rutherford-Moran common stock that they own. The exchange of Rutherford-Moran
common stock for Chevron common stock (other than cash paid for fractional
shares) is intended to be tax-free to Rutherford-Moran stockholders for U.S.
federal income tax purposes.
This proxy statement/prospectus is also the prospectus of Chevron with
respect to the Chevron common stock to be issued to Rutherford-Moran
stockholders.
The merger cannot be completed unless the stockholders of Rutherford-Moran
vote to approve and adopt the merger agreement. Rutherford-Moran has scheduled a
special meeting of its stockholders to take the necessary vote.
Rutherford-Moran's Board of Directors has determined that the merger agreement
and the transactions associated with it are fair to and in the best interests of
Rutherford-Moran and its stockholders and recommends that you vote to approve
and adopt the merger agreement.
Stockholders owning approximately 75.1% of the outstanding shares have
granted Chevron an option to acquire their shares for the same consideration as
is to be provided in the merger, and have agreed to vote their shares for the
approval and adoption of the merger agreement against any alternative proposal.
As a result, the approval and adoption of the merger agreement is assured.
Only stockholders who held their shares of Rutherford-Moran common stock at
the close of business on February 10, 1999, the record date, will be entitled to
notice of, and to vote at, the special meeting of Rutherford-Moran's
stockholders and any adjournments or postponements of the special meeting.
Chevron common stock is listed and traded on the New York Stock Exchange as
well as the Chicago, Pacific, London and Swiss stock exchanges and
Rutherford-Moran common stock is listed and quoted on the Nasdaq National
Market. The Chevron ticker symbol on the New York Stock Exchange is "CHV." The
Rutherford-Moran ticker symbol on the Nasdaq National Market is "RMOC."
This proxy statement/prospectus provides you with detailed information
about the merger agreement and the transactions associated with it. Please see
"Where You Can Find More Information" on page 72 for additional information
about Rutherford-Moran and Chevron, including information filed with the
Securities and Exchange Commission. We encourage you to read this entire
document carefully.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE CHEVRON COMMON STOCK TO BE ISSUED
IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated February 12, 1999 and is first
being mailed to stockholders on or about February 16, 1999.
<PAGE> 4
REFERENCES FOR ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Chevron that is not included in or delivered with this document. You may
obtain copies of documents that are filed with the SEC and/or incorporated by
reference in this document without charge by requesting them in writing or by
telephone from the appropriate party at the following address:
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FOR CHEVRON DOCUMENTS: FOR RUTHERFORD-MORAN DOCUMENTS:
Chevron Corporation Rutherford-Moran Oil Corporation
575 Market Street 5 Greenway Plaza, Suite 220
San Francisco, California 94105 Houston, Texas 77046
Attention: Corporate Secretary Attention: David F. Chavenson
Telephone: (415) 894-7700 Vice President, Chief Financial
Officer and Corporate Secretary
Telephone: (713) 622-5555
Facsimile: (713) 621-7072
</TABLE>
If you would like to request documents from either company, please do so by
March 9, 1999 in order to receive them before the special meeting. See "Where
You Can Find More Information" (page 72).
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE
MERGER.............................. 1
SUMMARY............................... 2
THE SPECIAL MEETING................... 8
General; Time and Place............. 8
Purpose of Special Meeting.......... 8
Voting Rights; Votes Required for
Approval......................... 8
Beneficial Ownership by Officers and
Directors........................ 9
Solicitation of Proxies; Expenses... 9
THE MERGER............................ 10
General............................. 10
Background of the Merger............ 10
Reasons for Rutherford-Moran
Engaging in the Merger;
Recommendation of the
Rutherford-Moran Board........... 21
Opinion of Rutherford-Moran's
Financial Advisor................ 24
Anticipated Accounting Treatment.... 28
Regulatory Approvals................ 28
Interests of Certain Persons in the
Merger........................... 29
Dissenters' Rights.................. 31
Stock Exchange Listing.............. 31
Delisting and Deregistration of
Rutherford-Moran Common Stock.... 32
Treatment of Stock Certificates..... 32
Rutherford-Moran Liquidity.......... 32
CERTAIN PROVISIONS OF THE MERGER
AGREEMENT........................... 32
The Merger.......................... 32
Consideration for the Merger........ 33
Surrender and Payment............... 33
Representations and Warranties...... 33
Certain Covenants................... 34
Mutual Best Efforts................. 35
No Solicitation..................... 35
Interim Financing................... 35
Certain Employee Matters............ 36
Conditions to Consummation of the
Merger........................... 36
Effect of Option Exercise........... 37
Termination......................... 37
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CERTAIN PROVISIONS OF THE OPTION AND
VOTING AGREEMENT.................... 38
Voting Agreement.................... 38
Transfer Restrictions............... 38
Grant of Options.................... 38
Grant of Irrevocable Proxy.......... 39
Release from and Assignment of All
Known and Unknown Claims......... 39
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER...... 40
DESCRIPTION OF CHEVRON CAPITAL
STOCK............................... 41
COMPARISON OF STOCKHOLDER RIGHTS...... 42
MARKET PRICE AND DIVIDEND
INFORMATION......................... 44
RUTHERFORD-MORAN...................... 46
Business............................ 46
Management's Discussion and Analysis
of Financial Condition and
Results of Operations............ 59
Beneficial Ownership of Rutherford-
Moran Common Stock............... 70
LEGAL MATTERS......................... 71
EXPERTS............................... 71
STOCKHOLDER PROPOSALS................. 71
FORWARD-LOOKING STATEMENTS MAY PROVE
INACCURATE.......................... 71
WHERE YOU CAN FIND MORE INFORMATION... 72
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 72
INDEX TO RUTHERFORD-MORAN FINANCIAL
STATEMENTS.......................... F-1
Annex A -- Agreement and Plan of
Merger, dated as of
December 23, 1998
Annex B -- Option and Voting
Agreement, dated as of
December 23, 1998
Annex C -- Opinion of Bear, Stearns &
Co. Inc., dated as of
December 23, 1998
</TABLE>
i
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS RUTHERFORD-MORAN BEING ACQUIRED BY CHEVRON?
A: Rutherford-Moran has determined that a merger with Chevron represents the
company's most attractive strategic alternative. Rutherford-Moran believes
that successful commercial exploitation of its sole asset, an interest in an
oil and gas concession in the Gulf of Thailand, will require significant
technical and financial resources. Given the company's currently available
resources, Rutherford-Moran needed either to find a merger partner or pursue
a recapitalization plan.
Q: HOW MUCH WILL I RECEIVE FOR MY SHARES OF RUTHERFORD-MORAN COMMON STOCK?
A: You will receive approximately $3.50 worth of Chevron common stock for each
share of Rutherford-Moran common stock you own. In the aggregate,
Rutherford-Moran stockholders will receive $91 million worth of Chevron
common stock. The actual amount you will receive for each share of
Rutherford-Moran common stock you own will depend on the number of shares
that are outstanding immediately prior to the effective time of the merger.
Q: DOES CHEVRON PAY DIVIDENDS?
A: Yes. Currently, Chevron pays a regular quarterly dividend of $0.61 per share
of Chevron common stock. Chevron's board of directors may change that policy
at any time.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: April 1999. However, no assurances can be made that we will complete the
merger by then.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: The approval and adoption of the merger agreement. The affirmative vote of
the holders of a majority of the issued and outstanding shares of
Rutherford-Moran common stock is required to approve and adopt the merger
agreement.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS
THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Q: WHAT DO I NEED TO DO NOW?
A: Read this document carefully and then mail your signed and completed proxy
card in the enclosed business reply envelope as soon as possible, so that
your shares will be represented at the special meeting of Rutherford-Moran
stockholders.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares of Rutherford-Moran common stock only if
you provide instructions on how to vote your shares. Your shares will not be
voted if you do not provide instructions. Shares that are not voted because
you did not instruct your broker will effectively be counted as votes against
the approval and adoption of the merger agreement.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
A: You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in three ways: (1) you can send
Rutherford-Moran's Corporate Secretary a written statement that you would
like to revoke your proxy, (2) you can send Rutherford-Moran's Corporate
Secretary a new proxy card or (3) you can attend the special meeting and vote
in person. However, your attendance at the special meeting alone will not
revoke your proxy. If you instructed a broker, bank or other custodian to
vote your shares, you must follow the custodian's directions for changing
those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written instructions for
exchanging your Rutherford-Moran stock certificates for Chevron stock
certificates.
1
<PAGE> 7
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
proposed merger fully and for a more complete description of the terms of the
proposed merger, you should carefully read this entire document and the other
documents we have referred you to. See "Where You Can Find More Information"
(page 72). The merger agreement is attached as Annex A to this document. We
encourage you to read the merger agreement. It is the legal document that
governs the proposed merger.
THE COMPANIES
CHEVRON CORPORATION
CHEVRON THAILAND INC.
575 MARKET STREET
SAN FRANCISCO, CALIFORNIA 94105
(415) 894-7700
Chevron Corporation, a Delaware corporation, provides administrative,
financial and management support for, and manages its investments in, United
States and foreign subsidiaries and affiliates, which engage in fully integrated
petroleum operations, chemical operations and coal mining. Chevron operates in
the United States and approximately 90 other countries.
Chevron Thailand Inc. is a wholly owned subsidiary of Chevron, incorporated
in Delaware on December 23, 1998 for the sole purpose of effecting the
transactions contemplated by the merger agreement.
RUTHERFORD-MORAN OIL CORPORATION
5 GREENWAY PLAZA, SUITE 220
HOUSTON, TEXAS 77046
(713) 622-5555
Rutherford-Moran is an independent energy company engaged in the
acquisition, exploration, development and production of oil and gas properties
in Southeast Asia. Currently, Rutherford-Moran's exploration and development
activities are concentrated entirely in the Gulf of Thailand and are conducted
through its subsidiary, Thai Romo Limited and its affiliate B8/32 Partners,
Ltd., each a company existing under the laws of the Kingdom of Thailand. Thai
Romo is one of three original concessionaires in the concession, currently
covering approximately 734,300 acres in the central portion of the Gulf of
Thailand. Pogo Producing Company and Palang Sophon Limited are
Rutherford-Moran's joint venture partners in the concession. Additional
information regarding Rutherford-Moran can be found on page 46.
RECORD DATE; VOTING POWER
You are entitled to vote at the special meeting if you owned shares of
Rutherford-Moran common stock as of the close of business on February 10, 1999,
the record date. On the record date, there were 25,598,000 shares of Rutherford-
Moran common stock outstanding held by 52 holders of record. At the special
meeting, Rutherford-Moran stockholders will have one vote for each share of
Rutherford-Moran common stock owned on the record date.
Since Rutherford-Moran's founders, Patrick R. Rutherford and John A. Moran,
who, together with their respective affiliates, own approximately 75.1% of the
outstanding shares, have agreed to vote their shares in favor of the merger
agreement, the approval and adoption of the merger agreement is assured.
STATUS OF RUTHERFORD-MORAN FOLLOWING THE MERGER
If the merger is approved, Chevron Thailand will merge with and into
Rutherford-Moran and Rutherford-Moran will become a wholly owned subsidiary of
Chevron.
MERGER CONDITIONS
The merger is conditioned on, among other things, (1) Rutherford-Moran
executing a new joint operating agreement with Pogo and Palang Sophon,
Rutherford-Moran's joint venture partners in the concession; (2) Pogo agreeing
to transfer operatorship in the concession to Chevron; and (3) Chevron reaching
an agreement with Palang Sophon to acquire at least a five percent interest in
the concession from it. Chote Sophonpanich, a director of Rutherford-Moran, is a
controlling stockholder of Palang Sophon. While Chevron is presently in
discussions with Pogo and Palang Sophon, no assurances can be given that these
conditions will be satisfied. Additionally, Chevron has not indicated any
willingness to waive any of
2
<PAGE> 8
these conditions at this time. If these conditions are not satisfied on or prior
to June 1, 1999, Rutherford-Moran and Chevron each have the ability to terminate
the merger agreement and abandon the merger.
ALTERNATIVE TRANSACTIONS
Rutherford-Moran agreed not to initiate or engage in discussions with a
third party regarding a business combination with any other third party prior to
January 28, 1999.
However, Rutherford-Moran may now initiate and engage in discussions with
third parties regarding a business combination and is permitted, after notice to
Chevron, to terminate this agreement if it signs an agreement with a third party
providing for an alternative transaction. If such a notice is provided, Chevron
then has a limited time to exercise its options and defeat the alternative
transaction, or else forfeit its options.
OTHER GROUNDS FOR TERMINATION
Either Rutherford-Moran or Chevron can terminate the merger agreement if
the merger is not completed on or before June 1, 1999, except that Chevron
cannot terminate the merger agreement if it has exercised its options to acquire
shares of Rutherford-Moran common stock from certain stockholders pursuant to
the option and voting agreement. Additionally, both Rutherford-Moran and Chevron
have the right to terminate the merger agreement if the other fails to perform
in any material respect any of its material obligations under the merger
agreement.
OPTION AND VOTING AGREEMENT
In connection with the merger, the founders of Rutherford-Moran, Patrick R.
Rutherford and John A. Moran, and their respective affiliates who, together, own
approximately 75.1% of the issued and outstanding shares of Rutherford-Moran
common stock, have agreed to vote their shares in favor of the approval and
adoption of the merger agreement and have also granted Chevron an option to
acquire their shares at the same price as would be received by the other
stockholders of Rutherford-Moran pursuant to the merger agreement. Accordingly,
assuming that Messrs. Rutherford and Moran comply with their obligations under
the option and voting agreement, the approval and adoption of the merger
agreement is assured without the vote of any other stockholder.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering your Board's recommendation that you vote to approve and
adopt the merger agreement, you should note that certain of the directors and
officers of Rutherford-Moran may have interests in the merger that are different
from, or in addition to, yours. As a result, these directors and officers may be
more likely to vote to approve the merger agreement than stockholders of
Rutherford-Moran generally. Chote Sophonpanich, a director of Rutherford-Moran,
is the controlling stockholder in Palang Sophon. Chevron's obligation to
consummate the merger is conditioned on it reaching agreement with Palang Sophon
to acquire at least a five percent interest in the concession from Palang
Sophon. In addition, The Chase Manhattan Bank is the company's sole lender, and
its affiliate Chase Securities Inc. has served as a financial advisor to the
company in the merger. Chase Manhattan, together with an affiliate, is the
beneficial owner of approximately 14.7% of Rutherford-Moran common stock,
including all shares subject to exercisable warrants. This percentage decreases
to 5.6% upon consummation of the merger after taking into account Chase
Manhattan's agreement that, upon completion of the merger, it will return
certain warrants to purchase shares of Rutherford-Moran common stock. Additional
information regarding the interests of these persons and entities can be found
on page 29.
ANTICIPATED ACCOUNTING TREATMENT
Chevron intends that the merger will be accounted for in accordance with
the purchase method of accounting.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES
The exchange of Rutherford-Moran common stock for Chevron common stock
(other than cash paid for fractional shares) is intended to be tax-free to
Rutherford-Moran stockholders for U.S. federal income tax purposes. However, the
tax free treatment of the exchange is based on certain facts, assumptions and
representations. If any of these facts, assumptions or representations are
incorrect or change prior to the merger, the
3
<PAGE> 9
exchange could be taxable to Rutherford-Moran stockholders. The merger is not
conditioned upon the receipt of a ruling from the Internal Revenue Service or an
opinion from Rutherford-Moran's tax counsel.
Tax matters are complicated and the tax consequences of the merger to you
will depend on your own circumstances. You should consult your tax advisor for a
full understanding of the tax consequences to you. Additional information
concerning the tax consequences of the merger can be found on page 40.
APPRAISAL RIGHTS
Under Delaware law, you do not have any right to dissent from the merger
and receive the appraised value of their shares.
OPINION OF RUTHERFORD-MORAN'S FINANCIAL ADVISOR
In deciding to approve the merger, your Board considered the opinion of
Bear, Stearns & Co. Inc. as to the fairness of the consideration to be received
by the nonaffiliated public stockholders of Rutherford-Moran pursuant to the
merger agreement. Bear Stearns' opinion, which sets forth the assumptions made,
matters considered and the qualifications and limitations on the review
undertaken, is attached as Annex C to this proxy statement/prospectus. We
encourage you to read this opinion. Additional information concerning the Bear
Stearns opinion can be found on page 24.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Shares of Chevron common stock are listed on the New York Stock Exchange,
the Chicago Stock Exchange, the London Stock Exchange, the Swiss Exchange and
the Pacific Exchange. Shares of Rutherford-Moran are quoted on the Nasdaq
National Market. On December 23, 1998, the last full trading day before the
public announcement that Chevron and Rutherford-Moran had entered into the
merger agreement, Rutherford-Moran common stock closed at $2.00 per share and
Chevron common stock closed at $85.00 per share. On February 10, 1999, the most
recent practicable trading day prior to the printing of this proxy
statement/prospectus, Rutherford-Moran common stock closed at $2.906 per share
and Chevron common stock closed at $78.375 per share.
COMPARISON OF STOCKHOLDERS RIGHTS
Your rights as a stockholder of Rutherford-Moran are currently governed by
Delaware law and the certificate of incorporation and by-laws of
Rutherford-Moran. If the merger is completed, your rights as a Chevron
stockholder will be determined by Chevron's restated certificate of
incorporation and restated by-laws, which differ in certain respects from
Rutherford-Moran's certificate of incorporation and by-laws. Additional
information on these differences can be found on page 42.
4
<PAGE> 10
SELECTED FINANCIAL DATA OF CHEVRON CORPORATION
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 Quarterly Report on Form 10-Q for the period ended
September 30, 1998 and in Chevron's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 referred to herein under "Incorporation of Certain
Documents by Reference." The selected financial information for the nine month
periods ended September 30, 1998 and 1997 have been derived from unaudited
financial statements. In the opinion of Chevron's management, the data for the
nine month periods ended September 30, 1998 and 1997 and at September 30, 1998
and 1997 include all adjustments, consisting only of normal recurring
adjustments, except for the special items described in Note 2 of the Notes to
Consolidated Financial Statements contained in the Quarterly Reports on Form
10-Q for the periods ended September 30, 1998 and 1997. The selected financial
information for each of the five years in the period ended December 31, 1997
have been derived from audited financial statements.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Sales and other operating
revenues...................... $22,779 $30,871 $40,583 $42,782 $36,310 $35,130 $36,191
Income from equity affiliates
and other income.............. 521 824 1,367 1,111 772 724 891
Total costs and other
deductions.................... 20,875 27,591 36,448 39,153 35,293 33,051 34,656
------- ------- ------- ------- ------- ------- -------
Income before income tax
expense....................... 2,425 4,104 5,502 4,740 1,789 2,803 2,426
Income tax expense.............. 887 1,723 2,246 2,133 859 1,110 1,161
------- ------- ------- ------- ------- ------- -------
Net income...................... $ 1,538 $ 2,381 $ 3,256 $ 2,607 $ 930 $ 1,693 $ 1,265
======= ======= ======= ======= ======= ======= =======
Net income per share of common
stock:
Basic......................... $ 2.35 $ 3.64 $ 4.97 $ 3.99 $ 1.43 $ 2.60 $ 1.94
Diluted....................... $ 2.34 $ 3.62 $ 4.95 $ 3.98 $ 1.43 $ 2.59 $ 1.94
Cash dividends declared per
share......................... $ 1.83 $ 1.70 $ 2.28 $ 2.08 $ 1.925 $ 1.85 $ 1.75
Stockholders' equity per
share......................... $ 26.96 $ 25.97 $ 26.64 $ 23.92 $ 22.01 $ 22.40 $ 21.49
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................... $36,570 $35,473 $34,854 $34,330 $34,407 $34,736
Total liabilities............... 18,980 18,001 19,231 19,975 19,811 20,739
Stockholders' equity............ 17,590 17,472 15,623 14,355 14,596 13,997
Short-term debt................. 4,787 3,447 3,612 4,833 5,059 4,594
Long-term debt, including
current maturities............ 1,807 2,021 2,434 2,791 2,604 2,521
Long-term capital lease
obligations, including current
maturities.................... 582 600 648 703 479 423
------------- ------- ------- ------- ------- -------
Total debt...................... $ 7,176 $ 6,068 $ 6,694 $ 8,327 $ 8,142 $ 7,538
------------- ------- ------- ------- ------- -------
------------- ------- ------- ------- ------- -------
Other long-term obligations..... $ 7,007 $ 6,624 $ 6,336 $ 6,009 $ 6,291 $ 6,051
</TABLE>
5
<PAGE> 11
SELECTED FINANCIAL DATA OF RUTHERFORD-MORAN
The financial data of Rutherford-Moran as of and for the years ended
December 31, 1993 through 1997 were derived from audited consolidated financial
statements of Rutherford-Moran and its predecessor. The data for the nine months
ended September 30, 1998 and 1997 have been derived from the unaudited financial
statements of Rutherford-Moran. In the opinion of Rutherford-Moran's management,
the data for the nine month periods ended September 30, 1998 and 1997 include
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the information set forth therein and are not necessarily
indicative of results for an entire year. The data set forth in this table
should be read in connection with "Rutherford-Moran -- Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the more
detailed financial statements and related notes included elsewhere in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ------------------------------------------------
1998 1997 1997 1996(A) 1995(A) 1994(A) 1993(A)
-------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and gas revenues......... $ 27,567 $ 25,784 $ 35,034 $ -- $ -- $ -- $ --
Loss before income tax
benefit and loss on early
extinguishment of debt..... (28,667) (12,709) (33,174) (5,958) (2,037) (1,739) (2,853)
Income tax benefit........... 6,593 4,029 10,523 3,521 -- -- --
-------- -------- -------- ------- ------- ------- -------
Loss before loss on early
extinguishment of debt..... (22,074) (8,680) (22,651) (2,437) (2,037) (1,739) (2,853)
Loss on early extinguishment
of debt.................... (7,452) -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- -------
Net loss..................... $(29,526) $ (8,680) $(22,651) $(2,437) $(2,037) $(1,739) $(2,853)
======== ======== ======== ======= ======= ======= =======
Net loss per share of common
stock...................... $ (1.15) $ (.34) $ (.88) $ (.10) $ (.10) $ (.08) $ (.14)
======== ======== ======== ======= ======= ======= =======
Weighted average shares
outstanding(b)............. 25,607 25,612 25,612 23,358 21,000 21,000 21,000
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, ------------------------------------------------
1998 1997 1996 1995 1994 1993
---------------- -------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF
PERIOD):
Property and equipment, net....... $255,683 $220,649 $113,643 $49,210 $13,721 $7,015
Total assets...................... $327,403 $282,737 $123,379 $60,877 $14,160 $7,113
Long-term debt, including current
maturities...................... $267,000 $189,000 $ 22,842 $34,385 $ 1,400 --
Stockholders' equity(b)........... $ 46,240 $ 73,380 $ 95,720 $16,477 $10,217 $4,768
</TABLE>
- ---------------
(a) Restated for a change to the successful efforts method of accounting for oil
and gas properties.
(b) Rutherford-Moran became a public company in June 1996. See Notes to
Rutherford-Moran Consolidated Financial Statements.
6
<PAGE> 12
COMPARATIVE PER SHARE INFORMATION
We have summarized below historical per share information for our
respective companies. We have not included pro forma combined information or
information on a per share equivalents basis as we do not believe that such
information would be meaningful given the relative size of Chevron and
Rutherford-Moran.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
HISTORICAL -- CHEVRON
Income from continuing operations per common share:
Basic.................................................. $ 2.35 $ 4.97
Diluted................................................ $ 2.34 $ 4.95
Cash dividends declared per common share.................. $ 1.83 $ 2.28
Book value per share(1)................................... $26.96 $26.64
HISTORICAL -- RUTHERFORD-MORAN
Loss from continuing operations per common share.......... $(1.15) $(0.88)
Cash dividends declared per common share.................. -- --
Book value per share(1)................................... $ 1.81 $ 2.86
</TABLE>
- ---------------
(1) Historical book value per share is computed by dividing total stockholders'
equity by the number of shares of common stock outstanding at the end of the
period.
PRELIMINARY YEAR-END RESULTS FOR CHEVRON
On January 25, 1999, Chevron announced preliminary unaudited 1998 net
income of $1.976 billion ($3.01 per share -- diluted), down 39 percent from 1997
net income of $3.256 billion ($4.95 per share -- diluted). Net income from 1998
and 1997 included net benefits of $31 million and $76 million, respectively,
from special items. Foreign currency losses were $57 million in 1998, compared
with gains of $246 million in 1997.
7
<PAGE> 13
THE SPECIAL MEETING
GENERAL; TIME AND PLACE
The special meeting of Rutherford-Moran stockholders will be held at 9:30
a.m., local time, on Wednesday, March 17, 1999, at the Luxury Collection Hotel,
1919 Briar Oaks Lane, Houston, Texas. This proxy statement/prospectus is being
furnished in connection with the solicitation by the Board of Directors of
Rutherford-Moran of proxies to be used at the special meeting and at any and all
adjournments or postponements of the special meeting.
PURPOSE OF SPECIAL MEETING
The purpose of the special meeting is to consider and vote on the proposal
to approve and adopt the merger agreement pursuant to which Chevron Thailand
would be merged with and into Rutherford-Moran with Rutherford-Moran continuing
as the surviving corporation.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
At the close of business on February 10, 1999, the record date, there were
25,598,000 shares of Rutherford-Moran common stock issued and outstanding and
entitled to vote at the special meeting and 52 holders of record. On the record
date, there were no shares of Rutherford-Moran preferred stock issued and
outstanding. Only holders of record of Rutherford-Moran common stock on the
record date will be entitled to notice of, and to vote at, the special meeting.
Each share of Rutherford-Moran common stock issued and outstanding on the
record date entitles the stockholder of record thereof to one vote at the
special meeting with respect to the approval and adoption of the merger
agreement. The presence, in person or by proxy, at the special meeting of the
holders of a majority of the shares of Rutherford-Moran common stock issued and
outstanding and entitled to vote on the record date is necessary to constitute a
quorum for the transaction of business at the special meeting. Abstentions will
be counted for the purpose of determining the existence of a quorum. The
affirmative vote of the holders of a majority of the issued and outstanding
shares of Rutherford-Moran common stock is required in order to approve and
adopt the merger agreement. Abstention from voting by a stockholder with respect
to the merger agreement has the same effect as a vote "against" the merger
agreement, and broker "non-votes" will not be counted for purposes of
determining whether the merger agreement has been approved.
Rutherford-Moran's founder and principal stockholders, Patrick R.
Rutherford and John A. Moran, and their respective affiliates, who, together,
owned approximately 75.1% of the outstanding shares of Rutherford-Moran common
stock on the record date, have entered into an option and voting agreement with
Chevron pursuant to which Chevron has the option to acquire the Rutherford-Moran
common stock owned by such stockholders for the same per share consideration as
will be paid to the other Rutherford-Moran stockholders pursuant to the merger
agreement. These stockholders have also agreed to vote their shares of
Rutherford-Moran common stock for the approval and adoption of the merger
agreement. As a result, assuming that the terms of the option and voting
agreement are complied with, the approval and adoption of the merger agreement
is assured and will not require the affirmative vote of any other stockholder.
8
<PAGE> 14
BENEFICIAL OWNERSHIP BY OFFICERS AND DIRECTORS
On the record date, the directors and executive officers of
Rutherford-Moran and their affiliates, including the founders, Patrick R.
Rutherford and John A. Moran, as a group beneficially owned 19,277,928 shares of
Rutherford-Moran common stock, excluding shares subject to options, or
approximately 75.1% of the total number of votes entitled to be cast at the
special meeting.
SOLICITATION OF PROXIES; EXPENSES
All shares of Rutherford-Moran common stock represented by properly
executed proxies received prior to or at the special meeting, and not duly and
timely revoked, will be voted in accordance with the instructions indicated on
such proxies. If no instructions are indicated on a properly executed and timely
returned proxy, such proxy will be voted at the special meeting FOR the approval
and adoption of the merger agreement.
Any proxy given pursuant to this solicitation may be revoked at any time
before the proxy is voted at the special meeting by (1) notifying in writing the
Corporate Secretary of Rutherford-Moran at 5 Greenway Plaza, Suite 220, Houston,
Texas 77046, (2) completing a later dated proxy and returning it to the
Corporate Secretary of Rutherford-Moran, or (3) appearing in person and voting
at the special meeting. Additional proxy cards are available from
Rutherford-Moran's Corporate Secretary. Attendance at the special meeting will
not in and of itself constitute a revocation of a proxy.
In addition to the use of the mail, arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxy
material to the beneficial owners of Rutherford-Moran common stock held by such
persons as of the record date, and Rutherford-Moran will, upon request,
reimburse them for their reasonable expenses in so doing. Rutherford-Moran will
bear its costs of soliciting proxies, and the costs and expenses incurred in
connection with the filing, printing and mailing of this proxy
statement/prospectus will be borne equally by Rutherford-Moran and Chevron. To
the extent necessary in order to ensure sufficient representation at the special
meeting, Rutherford-Moran may request, pursuant to interviews by telephone,
facsimile, other electronic means or otherwise, the return of proxy cards. The
extent to which this will be necessary depends entirely upon how promptly proxy
cards are returned. Stockholders are urged to send in their proxies without
delay, using the enclosed business reply envelope. No additional postage is
necessary if such envelope is mailed from within the United States.
RUTHERFORD-MORAN STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS. A TRANSMITTAL FORM WITH RELATED INSTRUCTIONS FOR
EXCHANGING RUTHERFORD-MORAN COMMON STOCK CERTIFICATES FOR CHEVRON COMMON STOCK
CERTIFICATES WILL BE MAILED TO RUTHERFORD-MORAN STOCKHOLDERS AS SOON AS
PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
9
<PAGE> 15
THE MERGER
GENERAL
At the Effective Time (as hereinafter defined) of the merger, Chevron
Thailand will be merged with and into Rutherford-Moran, with Rutherford-Moran
continuing as the surviving corporation and a wholly owned subsidiary of
Chevron. In the merger, each share of Rutherford-Moran common stock issued and
outstanding immediately prior to the Effective Time will be converted into and
represent the right to receive that number of fully paid and nonassessable
shares of Chevron common stock equal to the Exchange Ratio (as hereinafter
defined) divided by the Average Closing Price (as hereinafter defined). The
"Exchange Ratio" equals the result obtained by dividing (1) a numerator equal to
the sum of (a) $91 million, (b) the amount of cash, if any, received by
Rutherford-Moran in consideration of the issuance of its equity securities after
December 23, 1998, and (c) an amount equal to the value, if any, as agreed by
Rutherford-Moran and Chevron, of any non-cash consideration received by
Rutherford-Moran in consideration of its equity securities after December 23,
1998, by (2) a denominator equal to the number of shares of Rutherford-Moran
common stock (including those shares issued on the exercise of all outstanding
options, warrants, or other rights to purchase or acquire shares of
Rutherford-Moran common stock) issued and outstanding at the Effective Time.
"Average Closing Price" equals the arithmetic average of the closing prices of
Chevron common stock as reported on the New York Stock Exchange Composite
Transactions Tape for the twenty consecutive trading days ending on the second
trading day prior to the Closing Date (or if the Options (as hereinafter
defined) are exercised by Chevron, the second trading day prior to the exercise
of the Options).
The actual amount you will receive for each share of Rutherford-Moran
common stock you own will depend on the number of shares that are outstanding
immediately prior to the effective time. Rutherford-Moran anticipates that there
will be 26,010,280 shares of Rutherford-Moran common stock outstanding
immediately prior to the effective time. This number is based on the 25,598,000
shares of Rutherford-Moran common stock outstanding today plus the 412,280
shares of Rutherford-Moran common stock issuable to Chase Manhattan upon the
exercise of certain warrants. Chase Manhattan currently holds warrants to
purchase 2,728,066 shares of Rutherford-Moran common stock. However, in
connection with the merger, Chase Manhattan agreed to return to Rutherford-Moran
warrants to purchase 2,149,120 shares of Rutherford-Moran common stock. In
addition, 200,000 warrants previously issued to lenders, which have an exercise
price of $10.50 per share, are not expected to be exercised and therefore are
not included in the number of shares outstanding immediately prior to the
effective time.
Each share of Chevron common stock issued to holders of Rutherford-Moran
common stock in the merger will be issued together with an associated preferred
stock purchase right (a "Chevron Right") issued pursuant to the Rights
Agreement, dated as of November 23, 1998, by and between Chevron and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (the "Chevron Rights Agreement").
See "Comparison of Stockholder Rights -- Stockholder Rights Plan" for a
description of the Chevron Rights. Cash will be paid in lieu of fractional
shares of Chevron common stock. At the Effective Time, each outstanding and
unexercised stock option or warrant to purchase shares of Rutherford-Moran
common stock will terminate.
The merger will become effective when a certificate of merger (the
"Certificate of Merger") has been filed with the Secretary of State of the State
of Delaware or at such later time as may be agreed upon by Chevron and
Rutherford-Moran and specified in the Certificate of Merger (the "Effective
Time").
BACKGROUND OF THE MERGER
In the second half of 1997, Rutherford-Moran began to explore strategies to
enhance stockholder value. One such strategy was to explore a possible sale of
the company. In this regard, the company received the assistance of Morgan
Stanley & Co. Incorporated.
The company recognized that it had limited financial and technical
resources, but that it was nonetheless embarking on a large, complex, and
lengthy oil and gas development program in the Gulf of
10
<PAGE> 16
Thailand. Additional capital would likely be necessary to complete the
development. Management believed that at that time the capital markets would
have permitted the company to raise additional equity capital, but that a sale
of the company, if at a significant premium to then current stock price, was a
superior strategy. A sale of the company might permit stockholders to realize
virtually all the potential long-term value of the Thai development program
without bearing the risks inherent in the company attempting to achieve them on
its own. However, if the company was not sold or additional financing was not
obtained, the availability of capital in the future would be subject to market
risk, energy industry risk and additional risks specific to the absence of
diversification in Rutherford-Moran's asset base.
On October 6, 1997, at a regular meeting of the Rutherford-Moran board,
Morgan Stanley made a presentation in which it advised the board that, subject
to a number of factors, including the quality of the information, analyses and
presentation on the prospectivity of the concession as well as the prevailing
environment for the acquisition, exploration, development and production of oil
and gas properties in Southeast Asia, it believed that Rutherford-Moran could be
sold at a premium to its then per share market price ($29.625 per share).
Following the presentation, the Rutherford-Moran board authorized Morgan Stanley
to investigate potential third party interest level for the acquisition of the
company and to report their findings to the board. Based upon these preliminary
contacts, Morgan Stanley determined that there was significant interest in
Rutherford-Moran and recommended that the company conduct an auction for the
sale of the company.
In this regard, Rutherford-Moran formally engaged Morgan Stanley in
November 1997 as its financial advisor. In January 1998, Rutherford-Moran
verbally engaged Chase Securities Inc. as its co-financial advisor, with Morgan
Stanley acting as the primary advisor. At such time, Rutherford-Moran and Chase
Securities were aware of the multiple interests that Chase Securities would have
with respect to a possible transaction involving Rutherford-Moran, both as a
financial advisor and as an affiliate of The Chase Manhattan Bank,
Rutherford-Moran's primary bank lender and, together with another affiliate of
Chase Securities, a significant stockholder of Rutherford-Moran. See
"-- Interests of Certain Persons in the Merger."
In December 1997, Rutherford-Moran entered into the Restated Credit
Agreement with Chase Manhattan and another lender. The Restated Credit Agreement
increased the amount of the borrowing base available under Rutherford-Moran's
credit facility from $60 million to $150 million and provided for the issuance
to the lenders of warrants to purchase 200,000 shares of Rutherford-Moran common
stock at an exercise price of $21.00 per share if Rutherford-Moran failed to
attain certain levels of principal reduction under the facility. In connection
with the Restated Credit Agreement, Chase Manhattan and the other lender
refinanced existing indebtedness held by a group of twelve lenders and Chase
Manhattan increased its commitment under the Restated Credit Agreement from $15
million to $125 million.
On January 8, 1998, at a regular meeting of the Rutherford-Moran board,
Morgan Stanley provided the board with an update on its efforts to solicit
potential acquirors, including a presentation on the process to be used and an
outlook for the environment regarding such a transaction. At this time, Morgan
Stanley reaffirmed its October 1997 view on potential valuation.
On January 16, 1998, Rutherford-Moran entered into an agreement with Palang
Sophon, one of Rutherford-Moran's joint venture partners, intended to link the
sale of the two companies. See "-- Interests of Certain Persons in the Merger."
On January 22, 1998, Rutherford-Moran publicly announced that it had
decided to explore various strategic alternatives, including the possible merger
or sale of the company, and that it had retained Morgan Stanley and Chase
Securities as its financial advisors to assist it in evaluating such strategic
alternatives.
In early 1998, Rutherford-Moran's management, after consulting with its
financial advisors, identified and reviewed a list of candidates in the oil and
gas industry that might be expected to have an interest in potentially acquiring
the company. A total of 39 companies were contacted, and 14 of such companies,
including Chevron, signed confidentiality agreements and were provided with a
confidential information
11
<PAGE> 17
memorandum and a letter which described the sale process which Morgan Stanley
intended to conduct on behalf of Rutherford-Moran. Chevron returned a signed
confidentiality agreement to Morgan Stanley on March 24, 1998. Of the 14
companies that received the confidential information memorandum, 10 companies,
including Chevron, advised Rutherford-Moran that they were interested in
conducting additional due diligence with respect to Rutherford-Moran and desired
to visit Rutherford-Moran's data room located near its corporate headquarters in
Houston, Texas.
Beginning at the end of February 1998 and continuing through the middle of
April 1998, the 10 interested companies visited Rutherford-Moran's data room and
were provided with management presentations. During these weeks, Chevron sent a
number of requests for further information to Rutherford-Moran through Morgan
Stanley, and Chevron personnel visited Rutherford-Moran's data room on March 30
and 31, 1998. On March 30, 1998, Morgan Stanley provided Rutherford-Moran with a
status report with respect to the auction process, which included the
preliminary feedback of a number of the prospective purchasers. Morgan Stanley
indicated that some potential purchasers were favorably impressed with
Rutherford-Moran's assets, but others had expressed concerns about the company's
reserves and the concession's economics. Thereafter, Morgan Stanley continued to
provide updates to Rutherford-Moran with respect to the concerns of potential
purchasers, which concerns included the deteriorating economic environment in
Thailand.
On April 1, 1998, Morgan Stanley circulated an update to the confidential
information memorandum which addressed a number of the concerns previously
raised by potential purchasers and provided additional information on recent
developments in the concession.
In April 1998, Morgan Stanley requested that interested parties submit firm
offers to acquire Rutherford-Moran no later than May 4, 1998, and sent
interested parties a form of a merger agreement which contemplated the
acquisition of all outstanding shares of the company's common stock in exchange
for stock of the acquiring corporation. No offers were received by the deadline;
however, Chevron had indicated that it was preparing a bid, and Morgan Stanley
believed, based on conversations with interested parties, that offers would be
forthcoming.
On May 6, 1998, Chevron sent a letter to Morgan Stanley, indicating
Chevron's interest in acquiring all of the outstanding Rutherford-Moran common
stock, and inviting Rutherford-Moran to enter into discussions as to the terms
of a potential agreement (the "May Letter"). The terms set forth in the May
Letter described a transaction in which, subject to a number of conditions,
Rutherford-Moran's stockholders would have had the choice of receiving either
$20.50 in cash, or shares of Chevron common stock having a value of $17.50, for
each Rutherford-Moran share. On May 6, 1998, Rutherford-Moran common stock
closed at $24.25 per share.
Under the terms outlined in the May Letter, in order to preserve a tax-free
exchange for those holders of Rutherford-Moran common stock electing to receive
Chevron common stock, not more than 40% of Rutherford-Moran's outstanding shares
would be permitted to be converted into the right to receive cash. The founders
of Rutherford-Moran, Patrick R. Rutherford and John A. Moran, would have been
required to commit to receive only Chevron stock or agree that any cash election
submitted by them would be conditional, so that all other holders of
Rutherford-Moran would be able to receive all cash if they so elected. The May
Letter conditioned any possible combination of Chevron and Rutherford-Moran upon
Chevron and Rutherford-Moran reaching a definitive merger agreement and
contained a number of significant other conditions, including (1) ensuring that
Chevron would have the ability to control key operating decisions with respect
to the concession and the right to assume operatorship in the concession if and
when Chevron deemed it appropriate; (2) the acknowledgment that Chevron would
not have any obligation to involve the other concessionaires in any Chevron
operations, investments or discoveries outside of the concession; (3) a waiver
of any preferential rights that might arise under the joint operating
agreements; (4) the conducting of additional due diligence; (5) the simultaneous
execution of an agreement with Messrs. Rutherford and Moran in which they would
agree unconditionally to vote their shares in favor of the merger agreement with
Chevron; and (6) the approval of the transaction by the Chevron Board of
Directors which had not yet reviewed the proposed transaction. The May Letter
12
<PAGE> 18
specifically stated that it was conditioned on no disclosure being made of its
terms or of Chevron's interest in Rutherford-Moran and that any unauthorized
disclosure would automatically result in the withdrawal of the May Letter. The
May Letter also stated that any merger agreement based on its terms could not
contain any termination right or "fiduciary out" as a result of the presentation
of a "superior offer." By its terms, the May Letter's invitation to negotiate
expired on May 20, 1998.
The May Letter was carefully reviewed by Rutherford-Moran and its financial
advisors. On May 7, 1998, Morgan Stanley discussed with Chevron a number of the
conditions contained in the May Letter and also attempted to negotiate a higher
per share price. In particular, Morgan Stanley expressed to Chevron the
disappointment of Rutherford-Moran and its board that the per-share
consideration proposed in the May Letter was less than the then current market
price of Rutherford-Moran common stock, that the proposal would not be well
received by the public nonaffiliated stockholders of Rutherford-Moran and that
the proposal was conditioned on Chevron reaching agreements with third parties.
On May 7, 1998, at a regular meeting of the Rutherford-Moran board,
representatives of Morgan Stanley updated the board on the status of the sale
process. Morgan Stanley provided Rutherford-Moran and its board with written
materials that indicated that the potential value of the company which may be
realized in a sale was now significantly less than Morgan Stanley had estimated
in October 1997. Morgan Stanley attributed this decrease in estimated value to
(1) a negative revision in proved reserves at the Tantawan Field, (2) the
weakening of oil and gas prices, (3) the continued uncertainty of the Thailand
economy and the rate of growth in demand for gas in Thailand, (4) the
availability of other oil and gas properties for sale in Thailand, (5) higher
than anticipated operating expenses at the Tantawan Field, and (6) the
increasing debt level of the company.
In a letter dated May 12, 1998 to Morgan Stanley, Chevron indicated that it
was unwilling to agree at that time to any change in the terms proposed in the
May Letter. At Morgan Stanley's request, Chevron granted Rutherford-Moran two
extensions of the May Letter's original expiration date of May 20, 1998.
However, based on conversations with interested parties, Morgan Stanley believed
that other parties were still interested in submitting offers to acquire
Rutherford-Moran. Given the conditions contained in the May Letter relating to
future negotiations with third parties over which Rutherford-Moran would have no
control, Morgan Stanley recommended that, prior to any further negotiations with
Chevron on price, the company allow Chevron to meet with Pogo in order to
resolve its conditions relating to operatorship and preferential rights. Such
contacts were prohibited by the terms of the confidentiality agreement between
Rutherford-Moran and Chevron. On May 29, 1998, Chevron sent a letter to
Rutherford-Moran confirming the expiration of the May Letter.
On June 4, 1998, Morgan Stanley offered to arrange a meeting between
Chevron and Pogo to discuss operatorship in the concession. Chevron accepted,
and on June 8, 1998, Morgan Stanley sent Chevron a letter authorizing Chevron to
communicate directly with Pogo about the joint venture, notwithstanding the
existing confidentiality agreement between Chevron and Rutherford-Moran. Shortly
thereafter, on June 10, 1998, Chevron representatives met with Pogo
representatives to discuss, among other things, the terms under which Chevron
might assume operatorship of the joint venture, should Chevron acquire
Rutherford-Moran or its interest in the concession. A second meeting was held
the following week. While no commitments were made by Pogo, Chevron believed
that Pogo was amenable to discussing a transfer of the operatorship and Chevron
remained interested in a potential transaction with Rutherford-Moran. However,
Chevron did not revive its original proposal.
While informal discussions continued with a number of parties, no offers to
acquire Rutherford-Moran were made by any of them. Rutherford-Moran was advised
by its financial advisors that their efforts to seek offers were significantly
and adversely affected by several factors, including that (1) Rutherford-Moran
was not in a position to deliver operatorship of the concession to an acquiror,
(2) spending levels were indicative of insufficient economic returns, (3) the
concession had a large amount of non-proven acreage, the value of which was
difficult to assess, (4) cash flow from the Tantawan Field was lower than
anticipated, (5) the recession then being experienced in Thailand had reduced
the growth rate in demand
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<PAGE> 19
for electricity in Thailand, thus potentially reducing the growth in demand for
natural gas and calling into question the value of non-proven acreage in the
concession, and (6) the price of crude oil had declined.
Because the sale process was taking longer than had been anticipated and
cash flows from the Tantawan Field were lower than expected, it became more
urgent for Rutherford-Moran to obtain additional funding. Rutherford-Moran
approached Morgan Stanley on several occasions concerning the possibility of
Morgan Stanley providing a portion of Rutherford-Moran's financing needs. Morgan
Stanley declined to provide any such financing. Pursuant to the terms of a
letter agreement, dated July 29, 1998, Rutherford-Moran terminated Morgan
Stanley's engagement and agreed to reimburse Morgan Stanley for expenses
incurred in connection with its engagement and Morgan Stanley agreed to release
any rights or claims against Rutherford-Moran for fees in connection with any
transactions involving the sale of the company.
Efforts to secure commitments for additional funding were unsuccessful
until the company agreed to engage as its exclusive financial advisor an
investment bank acceptable to Chase Manhattan, which was a condition to Chase
Manhattan offering to provide additional financing under the Restated Credit
Agreement. Thereafter, Chase Securities became Rutherford-Moran's exclusive
financial advisor and Chase Manhattan increased its funding commitment under the
Restated Credit Agreement by $50 million.
In response to a telephone call made by Rutherford-Moran, Chevron notified
Rutherford-Moran on July 29, 1998 that it was no longer interested in pursuing a
transaction in accordance with the basic terms outlined in the May Letter.
Chevron indicated that it remained interested in discussing a transaction with
Rutherford-Moran, but only a purchase of the assets of Rutherford-Moran, not of
the entire company. Rutherford-Moran responded by offering to meet with Chevron.
On August 6, 1998, representatives of Rutherford-Moran and Chase Securities met
with representatives of Chevron. At this meeting, the parties discussed various
issues relating to the terms of a possible combination of Rutherford-Moran and
Chevron.
On August 7, 1998, representatives of Rutherford-Moran and Chase Securities
met with representatives of another interested party (the "First Other Party"),
as well as its financial advisors. At this meeting, the parties discussed
various issues relating to the terms of a possible combination of Rutherford-
Moran and the First Other Party, including the First Other Party's assessment of
the company's value, the economies of scale and other potential synergies of the
combination, the First Other Party's strategy for developing the concession, and
other opportunities for reducing the concession's operating and capital costs.
During the meeting, the First Other Party indicated to Rutherford-Moran that the
critical issues for it with respect to any acquisition of Rutherford-Moran were
(1) appointment of the First Other Party as operator in the concession, (2) the
preferential rights that might be triggered by an acquisition of
Rutherford-Moran, (3) the ability of the concessionaires to obtain additional
gas sales contracts and (4) the ability of the concessionaires to buy out their
bareboat charter agreement. The First Other Party also indicated a desire to
discuss a stock-for-stock merger with Rutherford-Moran which would provide a
modest premium to Rutherford-Moran's then current stock price ($12.50 per
share). Subsequent to this meeting, Rutherford-Moran and the First Other Party
exchanged valuation models, reserve estimates and other data. Discussions with
the First Other Party continued throughout August. However, after several
conference calls involving various representatives of Rutherford-Moran and the
First Other Party, the First Other Party decided to terminate discussions
pending a further review of the value of the company.
During August 1998, Rutherford-Moran's data room was visited by four new
companies and one which had previously visited the data room.
On August 21, 1998, Chevron representatives met with Rutherford-Moran in
Houston to discuss a potential transaction involving a purchase of certain of
Rutherford-Moran's assets.
On August 27, 1998, at a regular meeting of the Rutherford-Moran board,
Chase Securities advised the board that the environment for buying and selling
oil and gas properties had changed and that there now existed a market which
favored buyers over sellers. While Chase Securities felt that there were three
companies still interested in acquiring Rutherford-Moran, they also were of the
view that the price at which Rutherford-Moran could be sold was significantly
lower than
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<PAGE> 20
the value indicated in Chevron's May Letter. Chase Securities also noted that
the other companies contacted during the initial solicitation phase of
Rutherford-Moran's sales process had been contacted again to determine if their
interest levels had changed, due to Rutherford-Moran's lower stock price.
On September 10, 1998, Chevron submitted a letter indicating its
willingness to discuss a purchase of Rutherford-Moran's entire interest in the
concession through an asset purchase agreement (the "September Letter"). The
September Letter described a transaction based on a substantially lower
valuation of Rutherford-Moran than the valuation contemplated by the May Letter.
(During the period between the May Letter and the September Letter, the market
price of Rutherford-Moran common stock decreased from $24.25 to $9.50 per
share.) The September Letter contemplated a transaction involving the
acquisition of substantially all of Rutherford-Moran's assets at a purchase
price consisting of four separate payments to Rutherford-Moran: (1) an initial
cash payment of $225 million following the execution of a definitive asset
purchase agreement between Rutherford-Moran and Chevron and a definitive
agreement between Pogo and Chevron regarding the transfer of operatorship in the
concession from Pogo to Chevron; (2) a payment of $50 million upon execution of
a mutually acceptable joint operating agreement with Pogo and Palang Sophon; (3)
a payment of $100 million upon production in the concession reaching a rate of
400 MMcfd with a gas price acceptable to Chevron; and (4) a payment of $100
million upon production in the concession reaching a rate of 700 MMcfd with a
gas price acceptable to Chevron. The transaction described in the September
Letter was to be conditioned upon (a) Chevron being able to acquire at least a
5.32% interest in the concession from Palang Sophon; (b) Pogo and Palang Sophon
agreeing to waive any preferential rights triggered by any acquisition of
Rutherford-Moran's assets; and (c) Pogo and Palang Sophon terminating any area
of mutual interest rights in the joint operating agreement. The September Letter
did not contemplate any assumption by Chevron of Rutherford-Moran's debt or
other liabilities. While Chevron was willing to consider a stock-for-stock
merger, it indicated that the purchase price would have to be commensurately
reduced to reflect Chevron's assumption of debt and other liabilities of
Rutherford-Moran as a result of a stock-for-stock merger. At the time of the
September Letter, Rutherford-Moran's debt exceeded $225 million. Consequently,
none of the $225 million initial cash payment would have gone to
Rutherford-Moran's stockholders since the entire amount would have been required
for debt repayment. After a meeting on September 17, 1998 among Chevron,
Rutherford-Moran and Chase Securities, and a subsequent counter-proposal by
Rutherford-Moran on September 23, 1998, proposing the issuance of Chevron
preferred stock in exchange for all of the outstanding shares of
Rutherford-Moran common stock, which Chevron rejected, Rutherford-Moran
indicated it would not pursue the transaction described in the September Letter
since Rutherford-Moran's stockholders would not have received any payment for
their shares.
During August and September 1998, Rutherford-Moran and Chase Securities
also held discussions with two additional interested parties, the "Second Other
Party" and the "Third Other Party." On September 21, 1998 representatives of
Rutherford-Moran and Chase Securities met with representatives of the Second
Other Party and its financial advisors. At this meeting, the parties discussed
various issues relating to the terms of a possible combination of
Rutherford-Moran and the Second Other Party, including a stock-for-stock merger
at the market price of both companies. Several days later, however, the Second
Other Party informed Chase Securities that it no longer wished to consider such
a merger, primarily because of excessive capital and operating costs being
incurred in the concession.
On September 28, 1998, Rutherford-Moran entered into the Second Restated
Credit Agreement with Chase Manhattan to amend and increase the amount of the
borrowing base available under the Restated Credit Agreement from $150 million
to $200 million, an amount estimated to be sufficient to fund Rutherford-Moran
through the end of the year. In connection with the execution of the Second
Restated Credit Agreement, Chase Manhattan became the sole lender under the
Second Restated Credit Agreement, increasing its commitment to $200 million, and
Rutherford-Moran agreed to reduce the exercise price of the warrants to purchase
200,000 shares of Rutherford-Moran common stock, which were previously issued to
Chase Manhattan and another lender on July 10, 1998, from $21.00 per share to
its then current market price of $10.50 per share. In addition, pursuant to the
Second Restated Credit
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<PAGE> 21
Agreement, Rutherford-Moran issued Chase Manhattan warrants to purchase 256,140
shares of Rutherford-Moran common stock at $0.01 per share as part of the
closing fees and agreed to issue Chase Manhattan additional warrants to purchase
256,140 shares of Rutherford-Moran common stock at an exercise price of $0.01
per share if a purchase and sale agreement with respect to the sale of at least
65% of the issued and outstanding shares of Rutherford-Moran common stock was
not signed by October 31, 1998 or the sale did not close by December 31, 1998.
Additional warrants to purchase 768,420 and 1,280,700 shares of Rutherford-Moran
common stock at an exercise price of $0.01 per share would vest in favor of
Chase Manhattan if Rutherford-Moran did not execute a purchase and sale
agreement with respect to at least 65% of the issued and outstanding shares of
Rutherford-Moran common stock by November 30 and December 31, 1998,
respectively, and the closing of such agreement did not occur on or before
December 31, 1998.
On October 7, 1998, the Rutherford-Moran board held a special telephonic
meeting, during which Chase Securities and Rutherford-Moran's management updated
the board on the status of negotiations with Chevron and Rutherford-Moran's
discussions with the other interested parties. Due to the board's view as to the
potential conflicts of interest of Chase Securities and its affiliates the board
discussed the need for an independent financial advisor.
Also during the October 7, 1998 board meeting, Mr. Sophonpanich informed
the Rutherford-Moran board that Palang Sophon was expected to become insolvent
by December 1998 and that, if Rutherford-Moran failed to arrange for a
transaction that included Palang Sophon, Mr. Sophonpanich would have no
alternative but to offer Palang Sophon's interest in the concession to Pogo. If
that were to occur, Rutherford-Moran would have less control over activities in
the concession thus potentially decreasing the value of Rutherford-Moran.
Throughout October 1998, Chase Securities was in frequent contact with a
number of companies, as well as with Chevron, the First Other Party and the
Third Other Party, in an effort to generate additional interest in
Rutherford-Moran. Chase Securities informed interested parties that
Rutherford-Moran would be amenable to proposals contemplating the receipt of
future contingent consideration which would be dependent on the concession
achieving certain production thresholds.
On October 12, 1998, the financial advisor of the First Other Party
informed Chase Securities that it was uncertain whether it would make a proposal
to acquire Rutherford-Moran.
On October 20, 1998, representatives of Chase Securities met with
representatives of Chevron to discuss various issues regarding a potential
combination of Rutherford-Moran and Chevron. Between October 20 and October 23,
1998, Chase Securities distributed letters to the remaining interested parties,
requesting the submission of a definitive proposal to acquire all of the
outstanding shares of Rutherford-Moran on or before October 26, 1998. Attached
to each of the letters was a proposed term sheet. The proposed term sheet
outlined Rutherford-Moran's preferred transaction structure, which was a
stock-for-stock merger, but left for the bidders to propose the amount of fixed
and/or contingent consideration. The proposed term sheet indicated that the
transaction was expected to be tax-free to Rutherford-Moran's stockholders. It
also indicated that proposals which contemplated a tax-free stock-for-stock
transaction without any contingent payments would receive preference.
On October 26, 1998, Chase Securities, on behalf of Rutherford-Moran,
received a letter from the Third Other Party whereby it indicated that, while it
remained interested in continuing discussions with Rutherford-Moran, any offer
which it would make would be at a substantial discount to Rutherford-Moran's
then per share market value ($8.50 per share). The Third Other Party noted that
its lower valuation was driven by its view of the future demand for gas in
Thailand. At around this time, the First Other Party indicated that it would not
be submitting an offer.
On October 27, 1998, the Rutherford-Moran board held a special telephonic
meeting at which Chase Securities updated the board on the status of the sale
process. The board was informed by Chase Securities that no definitive proposals
to acquire Rutherford-Moran had been received by Rutherford-Moran's deadline of
October 26, 1998. However, Chase Securities advised the board that there had
been
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<PAGE> 22
extensive discussions with two interested parties, including Chevron, and that
Chevron was expected to submit a written proposal later that day. Chase
Securities also advised the board that Rutherford-Moran's inability to deliver
the operatorship in the concession, the concession's cost structure, including
the relatively high level of drilling costs, the uncertainties surrounding
Thailand's demand for natural gas and the reduced capital budgets of a number of
oil and gas companies had dissuaded potential bidders. The board was also
advised that all potential purchasers had indicated that any purchase would be
conditioned on replacing Pogo as the operator of the concession. Later, during
the meeting, the board discussed with Chase Securities whether a
recapitalization plan should be pursued. While no decision was reached by the
board with respect to any recapitalization alternative, it was the consensus of
the board that Rutherford-Moran's management should investigate options by which
the company could be recapitalized and then report back to the board.
Later on October 27, 1998, Chevron submitted a letter indicating the terms
under which it would consider an acquisition of Rutherford-Moran (the "October
Letter"). The transaction outlined in the October Letter provided for an initial
cash payment of $225 million to repay Rutherford-Moran's debt, an initial
payment of $26 million in the form of Chevron common stock, and future
contingent consideration in Chevron common stock if the concession achieved
certain production thresholds within specified periods (i.e., within seven and
ten years). The contingent consideration would consist of (1) a payment of $50
million in shares of Chevron common stock if production in the concession
reached a rate of 400 MMcfd with a gas price acceptable to Chevron and (2) a
payment of $100 million in shares of Chevron common stock if production in the
concession reached a rate of 700 MMcfd with a gas price acceptable to Chevron.
The transaction outlined in the October Letter did not specify how the shares of
Chevron common stock would be valued, nor did it discuss a means of providing
this value directly to Rutherford-Moran stockholders. The October Letter also
referenced conditions to the consummation of a transaction similar to those
outlined in the September Letter.
On October 29, 1998, representatives of Rutherford-Moran and Chase
Securities met with representatives of Chevron in Washington, D.C. to discuss
the October Letter. Also on that date, Chase Securities received a proposal from
the Third Other Party to purchase Rutherford-Moran. The proposal, which was
never confirmed in writing, contemplated a stock-for-stock merger pursuant to
which Rutherford-Moran's stockholders would receive, for each share of
Rutherford-Moran common stock, $1.00 worth of stock of the Third Other Party.
This proposal was rejected by Rutherford-Moran as inferior to the terms outlined
in Chevron's October Letter.
On November 3, 1998, at Rutherford-Moran's direction, Chase Securities
provided Chevron with a draft term sheet outlining the potential structure of a
transaction based upon the October Letter. Representatives of Rutherford-Moran,
together with representatives from Chase Securities, negotiated the terms of the
October Letter with representatives from Chevron throughout the first two weeks
of November 1998. The major focus of these discussions was the production
thresholds that would have to be achieved by the concession for
Rutherford-Moran's stockholders to receive the contingent issuances of Chevron
common stock and the value of such contingent consideration. These discussions
led to the execution of a preliminary term sheet for discussion purposes on
November 10, 1998 (the "Initial Term Sheet"), which provided for the acquisition
of Rutherford-Moran by Chevron in a stock-for-stock merger. In the merger,
holders of Rutherford-Moran common stock would have received, for each share of
Rutherford-Moran common stock, $1.00 worth of Chevron common stock when the
merger occurred and additional shares of Chevron stock would be placed in escrow
and would be released and delivered to Rutherford-Moran stockholders in the
future if the gas production thresholds set forth in the Initial Term Sheet were
met by the concession within either seven or ten years (as applicable), and if
the gas produced was subject to an acceptable gas sales contract. In such case,
Rutherford-Moran's stockholders would receive additional consideration
consisting of (1) a payment of $50 million in shares of Chevron common stock
when production in the concession reached a rate of 400 MMcfd; (2) a payment of
$50 million in shares of Chevron common stock when production in the concession
reached a rate of 600 MMcfd; and (3) a payment of $75 million in shares of
Chevron common stock when production in the concession reached a rate of 700
MMcfd. The Initial Term Sheet also provided that the parties would have to reach
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<PAGE> 23
mutually satisfactory arrangements with respect to the operatorship in the
concession prior to the signing of definitive agreements. Rutherford-Moran also
agreed not to initiate any discussions with other potential purchasers regarding
a possible acquisition of Rutherford-Moran or an interest in the concession
until after December 15, 1998. However, the Initial Term Sheet did not prohibit
Rutherford-Moran from engaging in discussions and negotiations with respect to
the financing of its ongoing operations and, in the event that the
Rutherford-Moran board concluded in good faith that its failure to engage in
discussions with potential buyers would violate its fiduciary duties to
Rutherford-Moran's stockholders under applicable law, Rutherford-Moran could
engage in discussions and negotiations with potential buyers. Moreover, the
Initial Term Sheet allowed Chevron to enter into simultaneous discussions with
Pogo regarding the joint venture, and Chevron personnel to conduct a due
diligence review at Rutherford-Moran's offices in Houston. Although the
transaction contemplated by the Initial Term Sheet provided for the
consideration to be paid entirely in Chevron common stock, Rutherford-Moran was
advised by its tax counsel that the future issuance of Chevron common stock
would not have met the guidelines for qualification as a tax-free
reorganization.
On November 6, 1998, the Rutherford-Moran board held a special telephonic
meeting, during which Rutherford-Moran's financial and legal advisors updated
the board on the status of the discussions with Chevron, and Rutherford-Moran
management discussed the company's liquidity position. Chase Securities also
updated the board on the status of Rutherford-Moran's discussions with the other
remaining interested parties. It was the consensus of the Rutherford-Moran board
that Rutherford-Moran should continue its discussions with Chevron. During this
meeting, the board also discussed the need for a contingency plan to ensure
adequate financing for the company.
Following the execution of the Initial Term Sheet on November 10, 1998 and
continuing through the week of November 16, 1998, Chevron and its legal counsel
conducted due diligence at Rutherford-Moran's corporate headquarters in Houston.
Chevron also conducted due diligence at Rutherford-Moran's offices in Bangkok
during the week of November 15, 1998. On November 12, 1998, Rutherford-Moran
publicly announced that it was then in discussions with one party on an
exclusive basis with respect to the possible acquisition of Rutherford-Moran.
Rutherford-Moran noted in its press release that if a definitive agreement was
reached, it might result in a per share value to Rutherford-Moran's stockholders
which was less than Rutherford-Moran's then per share market price which, prior
to the publication of such press release, was $4.125 per share. Rutherford-Moran
also reported in that press release that it expected to exhaust its cash
reserves and available bank credit before February 1, 1999 and that Chase
Manhattan, Rutherford-Moran's sole lender, had indicated its unwillingness to
increase the funds available to Rutherford-Moran under the Second Restated
Credit Agreement.
In response to the Rutherford-Moran board's concern regarding the need to
obtain an independent financial advisor, Rutherford-Moran retained Bear, Stearns
on November 17, 1998 to advise the company on the fairness of any transaction
pursuant to which the company would be acquired. Bear Stearns was also asked to
consider the feasibility of potential recapitalization plans in lieu of a sale.
Rutherford-Moran reviewed with Bear Stearns its efforts to date (which had taken
place over the previous six months) to secure additional funding. Subsequently,
Bear Stearns made a number of inquiries on the company's behalf with respect to
financing alternatives, both with some of those parties previously contacted as
well as some new potential funding sources. The sources that were contacted
either were not interested or could not make a commitment consistent with the
company's anticipated cash needs. Additionally, the company continued to hold
discussions with a multi-lateral funding source which had been identified in
June 1998. While both Bear Stearns and the company felt that this source would
likely commit funding to the company, they also felt that such funding would be
contingent on finding another source to match the multi-lateral infusion, as
well as the documentation of the arrangements, and that such efforts could take
an extended period of time to complete.
During the period between the execution of the Initial Term Sheet and
continuing through the end of November 1998, Rutherford-Moran and Chevron
continued to discuss the terms of the Initial Term Sheet and both
Rutherford-Moran and Chevron proposed various revisions to the terms contained
therein.
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<PAGE> 24
During the week of November 23, 1998, Chevron and Rutherford-Moran met at
Chevron's offices in San Francisco. Chevron had suggested a revision to the
Initial Term Sheet which would have provided (1) Rutherford-Moran's
stockholders, with the exception of Messrs. Rutherford and Moran and an
affiliate of Chase Manhattan, with $4.25 in cash for each share of
Rutherford-Moran common stock and (2) Messrs. Rutherford and Moran and an
affiliate of Chase Manhattan with shares of Chevron common stock with a value of
approximately $0.16 for each share of Rutherford-Moran common stock. Chevron's
proposal also contemplated that Messrs. Rutherford and Moran and the Chase
Manhattan affiliate would receive in the future additional shares of Chevron
common stock based upon the achievement by the concession of certain production
thresholds, and the transfer of operatorship in the concession from Pogo to
Chevron at closing or within six months thereafter. Thus, the proposal would
have treated Messrs. Rutherford and Moran and the Chase Manhattan affiliate
differently from the public stockholders. Depending on the view taken of the
likely performance of the concession and of potential future price movements of
Chevron common stock, the principal stockholders could have received
significantly less or significantly more than the nonaffiliated public
stockholders. After a review of this proposal with Chase Securities, and
considering the concern of a principal stockholder that the principal
stockholders could have ultimately received more consideration than the other
stockholders, this proposal was rejected.
On November 25, 1998, in response to Rutherford-Moran's request for a
stock-for-stock merger that would treat all stockholders equally, Chevron
circulated to Rutherford-Moran a draft revised term sheet (the "Revised Term
Sheet") pursuant to which Chevron proposed a transaction whereby it would
acquire Rutherford-Moran in a stock-for-stock merger and all of
Rutherford-Moran's stockholders, including Messrs. Rutherford and Moran and the
Chase Manhattan affiliate, would receive, for each share of Rutherford-Moran
common stock, approximately $3.50 per share. This assumes that Chase Manhattan
would agree to return warrants with respect to 2,149,120 shares of
Rutherford-Moran common stock and that there would then be approximately 26
million shares outstanding immediately prior to the effective time of the
merger. Pursuant to the Revised Term Sheet, all consideration to be paid to
Rutherford-Moran's stockholders would be paid at the closing of the merger and
there would be no contingent payments or contingent share issuances as was
contemplated by Chevron's previous proposals. As a result, the transaction would
qualify to meet the guidelines for a tax-free transaction. The merger
transaction proposed by the Revised Term Sheet would be conditioned upon, among
other things, (1) the transfer of operatorship in the concession from Pogo to
Chevron, (2) Chevron acquiring at least a 5.32% interest in the concession from
Palang Sophon and (3) Rutherford-Moran reaching a revised joint operating
agreement with Pogo. The Revised Term Sheet contemplated that, prior to entering
into a merger agreement, Rutherford-Moran would receive a commitment from Chase
Manhattan to expand Rutherford-Moran's credit facility and to return warrants
with respect to 2,149,120 Rutherford-Moran shares exercisable at $0.01 per share
previously granted to Chase Manhattan. The Revised Term Sheet also contemplated
that, concurrent with the execution of a merger agreement, Messrs. Rutherford
and Moran would grant Chevron an option to purchase their shares of
Rutherford-Moran common stock at the same per share price as Chevron was to pay
to all other stockholders pursuant to the merger agreement. The Revised Term
Sheet also contemplated that Messrs. Rutherford and Moran would agree to vote
their shares in favor of the merger and against any alternative proposal.
Chevron and Rutherford-Moran, and their respective legal counsel,
negotiated the terms of the Revised Term Sheet through November 29, 1998. Among
the issues discussed was the effect on the conditions if Chevron exercised its
option to purchase the shares of Messrs. Rutherford and Moran and their
respective affiliates. The original draft of the Revised Term Sheet did not
address this issue. Following discussions among the parties on November 27,
1998, Chevron agreed that once it exercised its option with respect to the
shares held by Messrs. Rutherford and Moran, most of the conditions to Chevron's
obligation to consummate the merger would be deemed satisfied or waived. On
November 30, 1998, Chevron and, after consultation among members of its board of
directors, Rutherford-Moran executed the Revised Term Sheet.
On December 3, 1998, Chevron delivered to Rutherford-Moran a due diligence
request list and, in response thereto, Rutherford-Moran provided additional
information to Chevron and its legal advisors.
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<PAGE> 25
Numerous telephone calls between representatives of Chevron and Rutherford-Moran
regarding due diligence and requests for information were made between December
3 and December 10, 1998 and, during that period, Chevron continued its review of
Rutherford-Moran.
On December 5, 1998, Chevron's legal counsel distributed to
Rutherford-Moran and its legal advisors initial drafts of the merger agreement
and the option and voting agreement, both of which were based on the Revised
Term Sheet. During the weeks of December 7 and December 14, 1998, Chevron and
Rutherford-Moran, and their respective legal counsel, held various conference
calls to negotiate the terms and conditions of the merger agreement and the
option and voting agreement.
On December 15, 1998, the Rutherford-Moran board held a special meeting to
analyze and review the situation, with the advice and assistance of its legal
counsel, Bear Stearns, and, for a portion of the meeting, Chase Securities. The
board considered, among other things, the status of the negotiations with
Chevron, certain strategic, financial and legal considerations concerning the
proposed transaction with Chevron, the potential impact on Rutherford-Moran's
stockholders of the transaction with Chevron at the price being suggested by
Chevron, the tax free nature of the transaction, the terms and conditions of the
most recent draft of the merger agreement and the option and voting agreement
and the risks to Rutherford-Moran of not entering into the merger agreement
given that Rutherford-Moran was close to exhausting the credit available to it
under its Second Restated Credit Agreement and Chase Manhattan had indicated to
Rutherford-Moran that it was unwilling to increase the amount of funds available
thereunder and that Rutherford-Moran had been unable to obtain financing from
any alternative source. Rutherford-Moran's management and its legal and
financial advisors also reported to the Rutherford-Moran board that since the
company's public announcement on November 12, 1998 that it was engaged in
discussions on an exclusive basis with one party, no other party had made any
acquisition proposal or expressed any significant interest in acquiring
Rutherford-Moran. No decision was reached by the board at the meeting, but it
was the consensus of the directors that Rutherford-Moran's management, as well
as its legal and financial advisors, should continue to hold discussions with
Chevron, as well as other potential financing sources, and report back to the
board once management was prepared to make a recommendation.
During several telephone calls following the meeting of the
Rutherford-Moran board on December 15, 1998, Rutherford-Moran expressed to
Chevron its concerns over the length of time that it might take for Chevron to
reach agreement with Pogo with respect to the transfer of operatorship in the
concession and the lack of financing to fund its operations through the closing
of the merger.
On December 20, 1998, Chevron distributed revised drafts of the merger
agreement and the option and voting agreement. The revised draft of the merger
agreement reflected a number of material changes proposed by Chevron in response
to the concerns of Rutherford-Moran. Among these changes was a provision that
would allow Rutherford-Moran to solicit the submission of proposals from third
parties with respect to an alternative transaction to acquire the company if
certain conditions to Chevron's obligations to consummate the merger relating to
the execution of a new joint operating agreement with Pogo and Palang Sophon
were not satisfied or waived by Chevron on or before January 27, 1999.
Additionally, if such conditions were not satisfied or waived by such time,
Rutherford-Moran would be permitted to terminate the merger agreement if it
executed an agreement after January 27, 1999 with a third party relating to the
sale of Rutherford-Moran and provided Chevron with five business days' notice of
such intended termination, and Chevron did not, prior to such termination,
exercise its option to acquire a majority of the outstanding shares of
Rutherford-Moran. The other material change to the revised draft of the merger
agreement was that, if all of the major conditions to the closing of the merger
were satisfied, including reaching a new joint operating agreement with Pogo and
Palang Sophon, Chevron would lend Rutherford-Moran funds necessary to meet its
operating, general and administrative expenses and capital obligations through
the closing of the merger.
Concurrent with its negotiations with Chevron, Rutherford-Moran was also
negotiating with Chase Manhattan with respect to (1) financing sufficient to
fund Rutherford-Moran's operations through the closing of the merger and (2) the
return of many of the warrants granted to Chase Manhattan with
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respect to Rutherford-Moran common stock. Chase Manhattan continued to inform
Rutherford-Moran that it was unwilling to unilaterally increase the amount of
funds available to Rutherford-Moran under the Second Restated Credit Agreement
and suggested that the principal stockholders of the company, Messrs. Rutherford
and Moran, and/or others advance funds to the company. During the week of
December 21, 1998, negotiations between Rutherford-Moran and Chase Manhattan
continued. Chase Manhattan informed Rutherford-Moran that it would advance
additional funds for interim financing, provided that the principal stockholders
of the company and/or others would also advance funds to the company. Chase
Manhattan subsequently indicated that if a definitive merger agreement were
signed with Chevron, and Chevron or other third parties agreed to lend
Rutherford-Moran such funds and Rutherford-Moran agreed to release Chase
Manhattan and its affiliates from certain liabilities, it would execute a mutual
release and waiver. Pursuant to the proposed mutual release and waiver, Chase
Manhattan would agree to return to Rutherford-Moran warrants with respect to
2,149,120 shares of Rutherford-Moran common stock at the closing of the merger
and release certain claims against Rutherford-Moran and its subsidiaries in
return for Rutherford-Moran releasing Chase Manhattan, Chase Securities and
their respective affiliates from certain claims.
During the morning of December 23, 1998, the Rutherford-Moran board held a
special telephonic meeting to review, with the advice and assistance of
Rutherford-Moran's financial and legal advisors (other than Chase Securities,
which was not present at this meeting), the final proposed terms and conditions
of the proposed merger agreement. At this meeting, Rutherford-Moran's legal
counsel advised the board of the recent material changes made to the merger
agreement, and Bear Stearns provided an oral opinion (which was subsequently
confirmed in writing) that, as of the date of the merger agreement, the
consideration to be received by Rutherford-Moran's non-affiliated public
stockholders pursuant to the merger, was fair to such stockholders from a
financial point of view. Following the board's review of the final terms of the
merger agreement, the board unanimously determined that the merger agreement and
the transactions contemplated thereby, including the option and voting
agreement, were fair to and in the best interests of Rutherford-Moran and its
stockholders, approved the merger agreement, and recommended that
Rutherford-Moran's stockholders approve and adopt the merger agreement. The
board also approved the mutual release and waiver with Chase Manhattan and Chase
Securities.
Later during the afternoon of December 23, 1998, Rutherford-Moran and
Chevron executed and delivered the merger agreement, and Messrs. Rutherford and
Moran, and certain of their affiliates, on the one hand, and Chevron, on the
other hand, executed and delivered the option and voting agreement. Following
the execution and delivery of the merger agreement and the option and voting
agreement, Rutherford-Moran and Chevron issued separate press releases
announcing the execution of the merger agreement. At about the same time,
Rutherford-Moran and certain of its affiliates and Chase Manhattan and Chase
Securities executed and delivered the mutual release and waiver.
REASONS FOR RUTHERFORD-MORAN ENGAGING IN THE MERGER;
RECOMMENDATION OF THE RUTHERFORD-MORAN BOARD
At a meeting held on December 23, 1998, the Rutherford-Moran board
unanimously approved the merger agreement and the transactions contemplated
thereby (including the merger), after determining that such transactions were
fair to and in the best interests of Rutherford-Moran and its stockholders.
Accordingly, the Rutherford-Moran board recommends that the stockholders of the
company vote FOR the approval of and adoption of the merger agreement. In
approving the merger agreement and the transactions contemplated thereby and in
reaching its recommendation, the Rutherford-Moran board consulted with and
relied upon information and reports prepared or presented by Rutherford-Moran's
management and Rutherford-Moran's legal and financial advisors. The board
considered, among other things, the following:
- historical market prices and the recent trading activity of
Rutherford-Moran common stock;
- the financial condition, results of operations and cash flows of
Rutherford-Moran;
- the recent reductions in the price of crude oil and gas;
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- the recession in Thailand, which could reduce the rate of growth in
natural gas demand;
- the trend in the oil and gas industry toward consolidation, in which
large companies, such as Chevron, with significantly greater financial,
technical and human resources, may be better positioned than smaller
companies, such as Rutherford-Moran, to compete, particularly in projects
regarding a long-term investment horizon, such as the company's project
in the Gulf of Thailand;
- projections of Rutherford-Moran's cash flows and capital requirements,
including the continued viability of the company if the merger were not
consummated, given that the company had been unable to secure additional
financing from any source and risked loss of the concession if it
defaulted on its cash payment obligations;
- the per share merger consideration of approximately $3.50 worth of
Chevron common stock (which reflects the return by Chase Manhattan of
certain warrants), a highly liquid security representing a premium of
approximately 75% to the market price of Rutherford-Moran on December 23,
1998 and the parties' intent that the merger qualify as a tax-free
reorganization;
- the absence of any competitive offer from another party notwithstanding
(1) inquiries made by Rutherford-Moran and its financial advisors to over
39 companies, including major companies in the energy industry, and (2)
the company's November 12, 1998 announcement that it might conclude a
transaction for the sale of the company at a price below the then market
price of Rutherford-Moran common stock;
- the interests of certain persons in the merger, including Chote
Sophonpanich, a director of Rutherford-Moran and a controlling
stockholder in Palang Sophon; Chase Manhattan, the company's principal
lender and, together with Chase Capital Partners, Inc., an affiliate of
Chase Manhattan, a significant stockholder; and Chase Securities, a
financial advisor to the company and an affiliate of Chase Manhattan;
- the willingness of Patrick R. Rutherford and John A. Moran and their
respective affiliates, who together hold approximately 75.1% of the
outstanding shares of Rutherford-Moran common stock, to agree to vote in
favor of the merger and to grant Chevron an option to acquire all their
shares for the same price as will be paid to all other stockholders of
Rutherford-Moran pursuant to the merger agreement;
- the opinion of Bear Stearns that the per share consideration to be
received by the non-affiliated public stockholders, pursuant to the
merger agreement, was fair from a financial point of view; and
- the other advice from management and the board's financial and legal
advisors over an extended period, and the discussions of the board,
concerning, the company's sales process and the proposed merger agreement
and the transactions contemplated thereby.
The Rutherford-Moran board recognized, discussed and considered certain
significant risks associated with entering into the merger agreement, in
particular, the following:
1. The Risk of Non-Completion, and the Lack of Alternative Financing in
that Event. Chevron's obligation to consummate the merger under the merger
agreement is conditioned, among other things, upon Rutherford-Moran's execution
of a new joint operating agreement with Pogo and Palang Sophon, Chevron
acquiring at least a 5% interest in the concession from Palang Sophon and Pogo
agreeing to transfer operatorship in the concession to Chevron. Although
discussions among Pogo, Palang Sophon and Chevron had occurred prior to the
signing of the merger agreement, they were preliminary and therefore, the
Rutherford-Moran board was not in a position to assess the likelihood of these
conditions being satisfied, particularly in projects requiring a long-term
investment horizon, such as the company's project. The merger agreement provides
that Chevron will arrange for interim financing to benefit Rutherford-Moran
under certain circumstances which include the satisfaction of these conditions
among others. If interim financing is not provided or if the merger is not
completed, Rutherford-Moran would likely not have sufficient additional
financing in place to fund its operations and to service its debt.
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2. The Risks of Losing a Better Opportunity. The merger agreement
generally did not permit Rutherford-Moran to consider third party offers prior
to January 28, 1999. While merger agreements often provide for so-called
"fiduciary outs" and "break-up fees," the merger agreement did not so provide.
Chevron required as a condition to entering into the merger agreement that
Patrick R. Rutherford and John A. Moran, and their respective affiliates, who
together own approximately 75.1% of the issued and outstanding shares of
Rutherford-Moran common stock, enter into the option and voting agreement which,
in turn, required that Messrs. Rutherford and Moran and their respective
affiliates agree to vote for the approval or adoption of the merger agreement.
The Rutherford-Moran board considered the risk of agreeing to a merger agreement
without a fiduciary exception, but determined that in light of Rutherford-
Moran's ownership and Chevron's demand for the option and voting agreement as a
condition to entering into the merger agreement, the fiduciary exception could
be eliminated. In making this determination, the Rutherford-Moran board took
into account the year long search for a buyer and the fact that no other
interested buyer had made a proposal after Rutherford-Moran's announcement on
November 12, 1998 that it might conclude a transaction at a price below its
then-current market price ($4.25). The Rutherford-Moran board also took into
account its ability to enter into an agreement after January 27, 1999 with a
third party under certain circumstances.
3. Risk of Taxable Transaction. The Rutherford-Moran board believes that
the merger will qualify as a tax-free reorganization and Chevron has provided
Rutherford-Moran with certain customary representations to support the treatment
of the merger as a tax-free reorganization. However, the merger is not
conditioned upon the receipt of a ruling from the Internal Revenue Service or
any opinion from tax counsel. In addition, the tax free treatment of the
exchange is based on certain facts, assumptions and representations. If any of
these facts, assumptions or representations are incorrect or change prior to the
merger, the exchange could be taxable to Rutherford-Moran stockholders.
Furthermore, changes in the tax law or actions taken between signing and closing
could cause the transaction to be taxable. The Rutherford-Moran board took this
into account in making its decision to approve the merger agreement and received
advice from Bear Stearns that its opinion as to the fairness of the
consideration to be received by Rutherford-Moran's non-affiliated public
stockholders pursuant to the merger would not change in the event that the
merger was to be treated as a taxable transaction.
The Rutherford-Moran Board also recognized, discussed and considered
certain significant risks associated with not approving the merger agreement
with Chevron, in particular, the following:
1. Loss of Stockholder Value. The merger would provide Rutherford-Moran
stockholders with a liquid security (Chevron common stock) at a substantial
premium to the then prevailing Rutherford-Moran market price, and this premium
would be enhanced by the return of warrants previously issued to Chase
Manhattan. Chase Manhattan might determine not to return such warrants in an
alternative transaction, and alternative transactions might otherwise result in
stockholders receiving a lower value for their shares or a less liquid security.
In addition, the board considered that the value of the company to another
purchaser would be significantly reduced if Palang Sophon had sold its interest
in the concession to Pogo (giving Pogo not merely operatorship in, but majority
ownership of, the concession), or if an alternative buyer proves less acceptable
to Pogo as operator than Chevron.
2. Lack of Alternatives and Risk of Insolvency. Given the extensive
efforts of Rutherford-Moran and its advisors over the past year to find any
other party interested in engaging in a business combination or other
transaction on terms as favorable as the merger, and the extensive negotiations
with Chevron, the board considered it unlikely that a more favorable transaction
could be negotiated and concluded before Rutherford-Moran exhausted its
available financial resources. Given the company's cash flow and capital
requirements, a major recapitalization or restructuring would have been required
which was likely to result in significant dilution to Rutherford-Moran's
existing stockholders. In the event a restructuring was not accomplished in a
timely manner, the company faced a risk of insolvency which could result in a
forfeiture of its rights in the concession.
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Based on the foregoing factors, and the advice of its legal and financial
advisors, the Rutherford-Moran board believed that the merger negotiated with
Chevron, as reflected in the merger agreement, represented the most attractive
strategic alternative presently available to Rutherford-Moran.
The foregoing discussion of the reasons and factors considered and given
weight by the Rutherford-Moran board is not intended to be exhaustive, but is
believed to include all of the material factors considered by the
Rutherford-Moran board. In view of the variety of factors considered in
connection with its consideration of the merger agreement and the transactions
contemplated thereby, the Rutherford-Moran board did not find it practicable to
and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the Rutherford-Moran board may have given different weight to
different factors.
THE RUTHERFORD-MORAN BOARD UNANIMOUSLY RECOMMENDS THAT RUTHERFORD-MORAN'S
STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
In considering the recommendation of the Rutherford-Moran board with
respect to the merger, Rutherford-Moran's stockholders should be aware that
certain of the directors and officers of Rutherford-Moran have interests
different from or potentially in conflict with the interests of
Rutherford-Moran's stockholders. See "-- Interests of Certain Persons in the
Merger."
OPINION OF RUTHERFORD-MORAN'S FINANCIAL ADVISOR
At the December 23, 1998 meeting of the Rutherford-Moran board, Bear
Stearns delivered its oral opinion, which it subsequently confirmed in writing,
to the effect that the consideration to be received by the stockholders of
Rutherford-Moran in the merger as contemplated by the merger agreement is fair,
from a financial point of view, to the nonaffiliated public stockholders of
Rutherford-Moran.
The full text of the Bear Stearns opinion, which sets forth the assumptions
made, matters considered and qualifications and limitations on the review
undertaken by Bear Stearns, is attached as Annex C to this proxy
statement/prospectus and is incorporated herein by reference. The summary of the
Bear Stearns opinion set forth in this proxy statement/prospectus is qualified
in its entirety by reference to the full text of the opinion. Rutherford-Moran's
stockholders are urged to read carefully the Bear Stearns opinion in its
entirety. The Bear Stearns opinion was provided to the Rutherford-Moran board
for its information and is directed only to the fairness, from a financial point
of view, of the consideration to be received by the nonaffiliated public
stockholders of Rutherford-Moran in the merger as contemplated by the merger
agreement and does not address the merits of the underlying decision by
Rutherford-Moran to engage in the merger or the price or range of prices at
which shares of Rutherford-Moran common stock may trade subsequent to the
announcement of the merger and does not constitute a recommendation to any
Rutherford-Moran stockholder or to the Rutherford-Moran board as to how to vote
on the proposed merger or any matter related to the merger.
Although Bear Stearns evaluated the fairness, from a financial point of
view, of the consideration to be received by the nonaffiliated public
stockholders of Rutherford-Moran in the merger as contemplated by the merger
agreement, the form of the merger consideration was determined by
Rutherford-Moran and Chevron through arm's-length negotiations and was not based
on any recommendation by Bear Stearns. Rutherford-Moran did not provide specific
instructions to, or place any limitations upon, Bear Stearns with respect to the
procedures to be followed or factors to be considered by Bear Stearns in
performing its analyses or rendering its opinion.
In arriving at its opinion, Bear Stearns considered the following
documents, information and agreements relating to Rutherford-Moran's general
financial and operational situation, among other things:
(1) the terms and conditions of the merger agreement and the option
and voting agreement;
(2) Rutherford-Moran's Annual Report to Stockholders and Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997 and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1998, June
30, 1998 and September 30, 1998;
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(3) the operating and financial information, including projections,
provided by Rutherford-Moran's management relating to the company's
business and financial prospects;
(4) the information provided by Rutherford-Moran's management
regarding the operations, historical financial statements and forecasted
monthly cash position for the period from November 30, 1998 through
December 31, 1999;
(5) the estimates of oil and natural gas reserves of Rutherford-Moran
as of December 31, 1997 as prepared by Ryder Scott Company;
(6) the concession agreement for the concession and the joint
operating agreement among the participants in the concession;
(7) the Second Restated Credit Agreement, the warrant agreement
between Rutherford-Moran and Chase Manhattan, and information provided by
Rutherford-Moran's management regarding the status of negotiations with
Chase Manhattan relating to the Second Restated Credit Agreement and the
warrant agreement;
(8) the information provided by Rutherford-Moran's management
regarding the solicitations of interest received by Rutherford-Moran,
Morgan Stanley and Chase Securities from parties interested in acquiring
Rutherford-Moran or making an equity investment in Rutherford-Moran and
negotiations with other potential investors in Rutherford-Moran;
(9) the historical prices and trading volumes of Rutherford-Moran
common stock and Chevron common stock; and
(10) other appropriate studies, analyses, inquiries and
investigations.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to it by Rutherford-Moran's management and the
representations of Rutherford-Moran's management related to such information.
Bear Stearns assumed that Rutherford-Moran's projected capital and cash
requirements and financial results had been reasonably prepared and reflected
the best currently available estimates and judgments of Rutherford-Moran's
management as to its expected future performance. Bear Stearns did not assume
any responsibility for the information or current estimates provided to it and
relied upon the assurances of certain members of Rutherford-Moran's management
that it was unaware of any facts that would make the information provided to
Bear Stearns incomplete or misleading. In arriving at its opinion, Bear Stearns
did not perform or obtain any independent appraisal of the assets or liabilities
of Rutherford-Moran nor was it furnished with any such appraisals. The Bear
Stearns opinion is necessarily based on economic, market and other conditions
and the information made available to it, as of December 23, 1998, the date of
its opinion.
For purposes of rendering its opinion, Bear Stearns assumed, in all
respects material to its analyses, that (a) the representations and warranties
of each party to the merger agreement and all related documents and instruments
contained therein were true and correct; (b) each party to the merger agreement
and the related documents would perform all of the covenants and agreements
required to be performed therein; and (c) all conditions to the consummation of
the merger would be satisfied without being waived. Bear Stearns assumed that in
the course of obtaining the regulatory or other consents or approvals required
for the merger, no restrictions, including any divestiture requirements or
amendments, would be imposed that would have a material adverse effect on either
Rutherford-Moran or Chevron.
In connection with preparing and rendering its opinion, Bear Stearns
performed a variety of valuation and financial analyses. The summary of these
analyses, as set forth below, does not purport to be a complete description of
the analyses underlying the Bear Stearns opinion and is qualified in its
entirety by reference to the full text of the Bear Stearns opinion which is
attached to this proxy statement/prospectus as Annex C. The preparation of a
fairness opinion is a complex process and does not lend itself to summary
description. Bear Stearns believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it without considering all such factors and
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analyses could create an incomplete and misleading view of the processes
underlying its opinion. Bear Stearns did not make any attempt to assign specific
weights to particular analyses in preparing its opinion. Moreover, the estimates
contained in Bear Stearns' analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by Bear Stearns' analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Accordingly, such estimates are inherently
subject to substantial uncertainties.
In performing its analyses, Bear Stearns did not express any opinion as to
the range of prices at which Chevron common stock may trade subsequent to the
consummation of the merger. The prices at which Chevron common stock ultimately
trades in the stock market will be driven by a variety of quantitative and
qualitative factors.
In rendering its opinion, Bear Stearns also considered, among other things,
the following aspects of Rutherford-Moran's current financial position:
(1) the reaction of the stock market to
- Rutherford-Moran's failed efforts to effect a sale, merger,
financing or recapitalization transaction with the numerous parties
that it contacted during the first half of 1998,
- the limited funds expected to be available to Rutherford-Moran
under its bank credit facility during the first quarter of 1999 and
that Rutherford-Moran had been unable to obtain additional
financing from any source, and
- the public announcement by Rutherford-Moran on November 12, 1998
that (a) Rutherford-Moran was engaged in negotiations with one
party on an exclusive basis with respect to the possible
acquisition of Rutherford-Moran; (b) that, if a definitive
agreement was reached, it might result in a per share value to
Rutherford-Moran's stockholders which was less than
Rutherford-Moran's then per share market price; (c) that
Rutherford-Moran expected to exhaust its cash reserves and
available bank credit before February 1, 1999; and (d) that Chase
Manhattan, Rutherford-Moran's principal lender, had indicated its
unwillingness to increase the funds available to Rutherford-Moran
under the Second Restated Credit Agreement;
(2) the amenability of Messrs. Rutherford and Moran, the majority
stockholders, to enter into the option and voting agreement with
Chevron;
(3) Rutherford-Moran's recent financial performance, current financial
condition and future prospects;
(4) in the absence of the merger or another similar extraordinary
transaction,
- the potential negative impact on the price of Rutherford-Moran
common stock and Rutherford-Moran's expected financial performance
for the period from November 30, 1998 through December 31, 1999;
- the possibility that Rutherford-Moran will have to file for
bankruptcy as a result of cash flow from operations and access to
additional capital being insufficient to meet existing capital and
operating requirements; and
- the potential default and the consequences of such a default under
the concession's joint operating agreement if Rutherford-Moran
failed to make its required development expenditures for the
concession;
(5) Rutherford-Moran's failure to effect a sale transaction or similar
extraordinary transaction during the first half of 1998 despite
various discussions with potential investors and strategic buyers
and the completion of an extensive auction process;
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(6) Rutherford-Moran's inability to find other potential equity
investors or strategic buyers willing to invest in Rutherford-Moran
or make an acquisition proposal to Rutherford-Moran since its
November 12, 1998 public announcement;
(7) Rutherford-Moran's prospects for raising capital in the public and
private capital markets; and
(8) the various terms and conditions of the merger agreement.
A summary of the principal financial and valuation analyses performed by
Bear Stearns to arrive at its opinion is provided below. The summary includes an
overview of the following: (a) a review and analysis of Rutherford-Moran's
financial and operating performance and liquidity, (b) a valuation of
Rutherford-Moran common stock absent a transaction, (c) the auction process and
selection of Chevron, and (d) Rutherford-Moran's inability to raise additional
capital. Based on financial and valuation analyses, among other things, Bear
Stearns determined that, as of December 23, 1998, the date of its opinion, the
consideration to be received by the stockholders of Rutherford-Moran pursuant to
the merger, as contemplated by the merger agreement, is fair, from a financial
point of view, to the nonaffiliated public stockholders of Rutherford-Moran.
Review and Analysis of Rutherford-Moran's Financial and Operating
Performance and Liquidity. Bear Stearns reviewed and analyzed certain operating
and financial information, including, but not limited to, the projections
provided by Rutherford-Moran's management relating to Rutherford-Moran's
business and financial prospects for the period from November 30, 1998 through
December 31, 1999.
Bear Stearns noted that Rutherford-Moran's monthly cash flows are
currently, and will continue to be, insufficient to fund cash operating, capital
expenditure and debt service obligations through 1999. Bear Stearns also noted
that Rutherford-Moran expects to reach its bank credit facility limit of $200
million during the first quarter of 1999 and that Rutherford-Moran had been
unable to obtain additional financing from any source. Chase Manhattan has
stated that it will not provide additional funds under Rutherford-Moran's
existing bank credit facility.
Rutherford-Moran's inability to fund cash operating, capital expenditure
and debt service obligations through 1999 could result in certain unfavorable
events including a bankruptcy filing and a default under the concession's joint
operating agreement. If Rutherford-Moran were to become bankrupt or fail to make
the required development expenditures under the joint operating agreement, then
Rutherford-Moran would forfeit its interest in the concession under the terms by
which the concession was granted by the Kingdom of Thailand. The consequences of
such forfeiture by Rutherford-Moran would include the following: (a) the loss of
its interest without the receipt of any payment or other consideration and (b)
the loss of its future revenues from the concession's oil and gas production.
Valuation of Rutherford-Moran Common Stock Absent a Transaction. As part of
its review and analysis, Bear Stearns summarized the historical trading
performance of Rutherford-Moran common stock in light of Rutherford-Moran's
recent financial and operating performance. In particular, Bear Stearns reviewed
the prices of Rutherford-Moran common stock following the November 12, 1998
public announcement and in preparation for its oral presentation to the
Rutherford-Moran board on December 15, 1998. On December 10, 1998, the closing
price of Rutherford-Moran common stock was $2.19. On December 22, 1998, the
closing price of Rutherford-Moran common stock was $2.00. Based on such price, a
value of approximately $3.50 per fully diluted share provides Rutherford-Moran's
stockholders with a premium of approximately 75%.
Auction Process and Selection of Chevron. During the first two quarters of
1998, Rutherford-Moran contacted a broad universe of potential investors and
strategic buyers regarding a sale, merger, financing or other recapitalization
transaction with Rutherford-Moran. The potential investors and strategic buyers
were provided with a confidential information memorandum that contained (a) an
overview of the concession, (b) reserve engineering data, (c) potential reserve
projections, (d) financial projections, and (e) other information deemed
relevant to Rutherford-Moran's financial and operating performance. During
September and October 1998, Chevron, one of the potential strategic buyers,
presented several preliminary
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proposals to Rutherford-Moran. Based upon these preliminary proposals and
ensuing negotiations, Rutherford-Moran selected Chevron and decided to enter
into exclusive negotiations with Chevron which resulted in the execution of the
merger agreement on December 23, 1998.
Rutherford-Moran's Inability to Raise Additional
Capital. Rutherford-Moran's management has indicated to Bear Stearns that, prior
to the transaction proposed by Chevron, Rutherford-Moran had been unable to
obtain additional financing or pursue a recapitalization plan to meet its cash
requirements for 1999. Excluding the potential investors contacted during the
auction process, Rutherford-Moran solicited potential parties to obtain
additional financing or pursue a recapitalization plan. Despite the
dissemination of various types of information to such investors, including but
not limited to financial projections and potential reserve projections, none of
the potential investors contacted expressed any serious interest in a financing
or recapitalization transaction with Rutherford-Moran within a time frame
acceptable to the company.
Rutherford-Moran engaged Bear Stearns as its financial advisor based on
Bear Stearns' experience and expertise. Bear Stearns is an internationally
recognized investment banking firm that has substantial experience in the energy
industry and in transactions similar to the merger. Bear Stearns, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. Pursuant to the terms of Bear Stearns' engagement letter
dated November 17, 1998, Rutherford-Moran (a) agreed to pay Bear Stearns, in
connection with rendering its opinion, an aggregate cash fee of $800,000
(Rutherford-Moran paid Bear Stearns $300,000 of such fee at the time it was
informed that Bear Stearns was prepared to render its opinion and the balance of
$500,000 is required to be paid when its opinion is first published, quoted, or
publicly referred to in any proxy statement or other public document); and (b)
agreed to reimburse Bear Stearns for its out-of-pocket expenses, including the
fees and expenses of its counsel and other outside advisors and consultants
retained with Rutherford-Moran's approval and (c) agreed to indemnify Bear
Stearns and its affiliates against liabilities in connection with its engagement
by Rutherford-Moran, including liabilities under the federal securities laws.
Bear Stearns has previously rendered certain investment banking and
financial advisory services to Rutherford-Moran. In the ordinary course of its
business, Bear Stearns may actively trade the securities of Rutherford-Moran
and/or Chevron for its own account and for the accounts of customers.
Accordingly, Bear Stearns may at any time hold a long or short position in such
securities.
ANTICIPATED ACCOUNTING TREATMENT
Chevron intends to account for the merger under the purchase method of
accounting in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the purchase price will be allocated to
assets acquired and liabilities assumed based on their estimated fair values at
the Effective Time.
REGULATORY APPROVALS
The merger qualifies for an exemption from the premerger notice
requirements of the HSR Act, pursuant to the Premerger Notification Rules
promulgated by the FTC in concurrence with the Antitrust Division of the
Department of Justice. Section 802.3 and 802.4 of the Rules exempt from the HSR
Act the acquisition of certain carbon-based reserves (or rights thereto),
together with associated exploration and production assets when the aggregate
value thereof is less than $500 million.
Notwithstanding the applicability of the exemption, at any time before or
after the Effective Time, the FTC, the Antitrust Division or others could take
action under the antitrust laws, including challenging the applicability of the
exemption or seeking to enjoin the consummation of the merger. If the FTC, the
Antitrust Division, or any other federal or state antitrust authority, were to
challenge the exemption or the merger, the closing of the merger could be
postponed beyond June 1, 1999 in which event either Chevron
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or Rutherford-Moran may terminate the merger agreement, pursuant to its terms.
See "The Merger Agreement -- Conditions" and "-- Termination."
Chevron and Rutherford-Moran do not believe there are any pre-merger
filings required under the laws of the Kingdom of Thailand.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Rutherford-Moran board with
respect to the merger agreement, stockholders should be aware that certain
officers and directors of Rutherford-Moran have interests in the merger that are
in addition to, or different from, the interests of stockholders of
Rutherford-Moran generally. The Rutherford-Moran board was aware of these
interests and considered them along with other matters in recommending that
Rutherford-Moran stockholders vote to approve and adopt the merger agreement.
Acquisition of Interests from Palang Sophon
Chote Sophonpanich, a director of Rutherford-Moran, is a controlling
stockholder of Palang Sophon. On January 16, 1998, Rutherford-Moran entered into
an agreement with Palang Sophon (the "Palang Sophon Agreement") which provides,
among other things, that, if prior to January 16, 1999, Rutherford-Moran enters
into an agreement to sell itself then until such agreement is terminated or the
transactions contemplated thereby are closed, neither Palang Sophon nor any of
its stockholders will sell or otherwise transfer their ownership interests in
Palang Sophon other than to Rutherford-Moran, Palang Sophon or another
stockholder of Palang Sophon. The Palang Sophon Agreement further provides that
in the event of a sale of Rutherford-Moran during this one year period,
Rutherford-Moran will acquire the outstanding shares of Palang Sophon in
exchange for Rutherford-Moran common stock.
During Rutherford-Moran's board meeting on October 7, 1998, Mr.
Sophonpanich informed the board that Palang Sophon was expected to become
insolvent by December 1998 and that, if Rutherford-Moran failed to arrange for a
transaction that included Palang Sophon, Mr. Sophonpanich would have no
alternative but to offer Palang Sophon's interest in the concession to Pogo. If
that were to occur, Rutherford-Moran would have less control over activities in
the concession thus potentially decreasing the value of Rutherford-Moran.
The obligation of Chevron to consummate the merger is conditioned upon
Chevron acquiring at least a five percent interest in the concession from Palang
Sophon. Chevron is currently discussing the terms of a transaction with Palang
Sophon, in which Chevron proposes to acquire a substantial portion of Palang
Sophon's interest in the concession and certain related assets held indirectly
by Palang Sophon. This transaction would be conditioned on the closing of the
merger and will be in lieu of the transaction contemplated by the Palang Sophon
Agreement.
Relationship with Chase Manhattan and its Affiliates
Since January 1998, Chase Securities has served as a financial advisor to
Rutherford-Moran and its board. As a financial advisor to Rutherford-Moran,
Chase Securities assisted Rutherford-Moran in evaluating various strategic
alternatives and in conducting an auction process. Pursuant to Rutherford-
Moran's engagement agreement with Chase Securities, Rutherford-Moran has agreed
to pay to Chase Securities, as compensation for its services to
Rutherford-Moran, a fee equal to 0.425% of the consideration (which includes
debt assumed by the acquiror) received upon the closing of any transaction
entered into with any one of a number of specified parties, including Chevron.
Upon consummation of the merger, and based upon the merger consideration
provided for in the merger agreement and Rutherford-Moran's present debt level,
Rutherford-Moran expects to pay to Chase Securities approximately $1.7 million.
An affiliate of Chase Securities, Chase Manhattan, has been a lender to
Rutherford-Moran or its predecessors since 1994. Chase Manhattan is presently
the sole bank lender to Rutherford-Moran after agreeing, in December 1997 and
September 1998, to refinance existing indebtedness held by other lenders
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which had the effect of increasing its commitment to lend to Rutherford-Moran
from $15 million to $200 million. As of December 23, 1998, the date on which the
merger agreement was executed, Rutherford-Moran owed Chase Manhattan
approximately $180 million. On February 8, 1999, Chase Manhattan advanced the
balance of its commitment under the Second Related Credit Agreement and loaned
Rutherford-Moran an additional $1.5 million. As of February 10, 1999,
Rutherford-Moran owed Chase Manhattan an aggregate of $201.5 million. See
"Rutherford-Moran -- Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." As a lender to
Rutherford-Moran, the interests of Chase Manhattan may differ substantially from
those of Rutherford-Moran and its stockholders, including with respect to the
structure, timing, pricing and other terms and conditions of a transaction. In
the absence of the merger, the ability of Rutherford-Moran to repay Chase
Manhattan the full amount owed thereto in accordance with the terms of the
Second Restated Credit Agreement would not be assured.
In addition to serving as Rutherford-Moran's principal bank lender, Chase
Manhattan and its affiliate, Chase Capital Partners, Inc., together, own
1,034,913 shares of Rutherford-Moran common stock plus an additional 2,728,066
shares issuable to Chase Manhattan upon the exercise of warrants held thereby
(which collectively would represent approximately 14.7% of the total shares of
Rutherford-Moran common stock issued and outstanding). Except for warrants to
purchase 166,666 shares of Rutherford-Moran common stock at an exercise price of
$10.50 per share, all of the warrants have an exercise price of $0.01 per share.
Pursuant to the terms of a mutual release and waiver, dated as of December 23,
1998, by and among Rutherford-Moran and three of its subsidiaries, on the one
hand, and Chase Manhattan and Chase Securities, on the other hand, Chase
Manhattan has agreed to return to Rutherford-Moran warrants with respect to
2,149,120 shares of Rutherford-Moran common stock which have an exercise price
of $0.01 per share (which would result in beneficial ownership by Chase
Manhattan and its affiliate of approximately 5.6% of the total shares of
Rutherford-Moran common stock issued and outstanding). In return for the
surrender of such warrants, Rutherford-Moran and its three subsidiaries have
agreed to waive certain claims it may have against Chase Manhattan, Chase
Securities and any of their respective affiliates, and Chase Manhattan and Chase
Securities have agreed to waive certain claims that Chase Manhattan and Chase
Securities may have against Rutherford-Moran and its subsidiaries. In the event
that prior to June 1, 1999, Rutherford-Moran either (a) terminates the merger
agreement or (b) advises Chase Manhattan or Chase Securities that the closing of
the merger will not occur on or prior to June 1, 1999, Chase Manhattan's
obligations to return the warrants pursuant to the mutual release and waiver
will be of no further force and effect.
In receiving the advice of Chase Securities and in determining whether to
recommend that Rutherford-Moran stockholders vote to approve and adopt the
merger agreement, the Rutherford-Moran board was aware of the potential
conflicts of Chase Securities including Chase Securities' dual role as
Rutherford-Moran's financial advisor and as an affiliate of Chase Manhattan,
Rutherford-Moran's sole bank lender and one of the largest beneficial holders of
Rutherford-Moran's common stock. Accordingly, the Rutherford-Moran board
determined to engage an independent financial advisor to render a fairness
opinion. See "-- Opinion of Rutherford-Moran's Financial Advisor."
Interests of Messrs. Rutherford and Moran
On February 9, 1999, John A. Moran loaned Rutherford-Moran $1.5 million.
Additionally, Patrick R. Rutherford guaranteed the obligations of
Rutherford-Moran to Chase Manhattan with respect to $1.5 million. Both the loan
and the guarantee were made in conjunction with financing Rutherford-Moran's
operations. See "Rutherford-Moran -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Indemnification
Chevron has agreed in the merger agreement that it will honor and fund
Rutherford-Moran's existing obligations to indemnify all present and former
directors, officers and employees of Rutherford-Moran and its subsidiaries to
the fullest extent called for by such indemnification obligations.
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Chevron has also agreed in the merger agreement to maintain or cause to be
maintained for a period of not less than five years after the Effective Time,
the directors' and officers' liability insurance policy currently maintained by
Rutherford-Moran covering those persons who are currently covered by
Rutherford-Moran's directors' and officers' liability insurance policy on terms,
including the amounts of coverage and amounts of deductibles, if any,
substantially comparable to the terms now applicable to such persons or, if not
available, comparable policies or coverage; provided, however, that Chevron will
not be obligated to make annual premium payments for such insurance to the
extent that premiums exceed 175% of the annual premiums paid as of December 23,
1998 by Rutherford-Moran for such insurance (the "Current Premium"), and if such
premiums for such insurance would at any time exceed 175% of the Current
Premium, then Chevron will cause to be maintained policies of insurance which
provide the maximum coverage available at an annual insurance premium equal to
175% of the Current Premium.
Bonus Plans and Severance Agreements
Messrs. Gregory Nelson, David F. Chavenson and Thomas E. Rankin currently
participate in the Rutherford-Moran Incentive Bonus Plan. Pursuant to the terms
of the bonus plan, upon the Effective Time, each plan participant will become
entitled to an award equal at least twice such participant's annualized base
salary and twice the amount of the participant's last annual bonus payment.
Pursuant to the terms of the merger agreement, at the Effective Time, Chevron
will assume and agree to perform all obligations of Rutherford-Moran under the
bonus plan. Upon the Effective Time, Messrs. Nelson, Chavenson and Rankin will
be entitled to an aggregate of $1,162,000 in awards pursuant to the bonus plan.
Rutherford-Moran and Mr. Chavenson are parties to a letter agreement, dated
March 28, 1996, pursuant to which, among other things, Mr. Chavenson will become
entitled to certain benefits upon the termination of his employment with
Rutherford-Moran. These benefits include payment of two years base salary and
bonus, the provision for two years of medical, dental and life insurance
coverage and certain relocation and outplacement benefits. Pursuant to the
merger agreement, Chevron has assumed the obligations of Rutherford-Moran to Mr.
Chavenson under this letter agreement.
Options and Restricted Stock
As of December 31, 1998, the executive officers and directors of
Rutherford-Moran held options to purchase an aggregate of 151,000 shares of
Rutherford-Moran common stock, all of which were issued pursuant to either
Rutherford-Moran's 1996 Key Employee Stock Plan or Rutherford-Moran's 1996 Non-
Employee Director Stock Plan. All of the options held by the executive officers
and directors of Rutherford-Moran have per share exercise prices in excess of
$3.50, which represents the maximum value of the Chevron common stock to be
received, pursuant to the merger agreement, by Rutherford-Moran stockholders for
each share of Rutherford-Moran common stock owned. All such options which are
unexercised will terminate at the closing of the merger. In addition, executive
officers of Rutherford-Moran will receive accelerated vesting with respect to an
aggregate of approximately 14,700 shares of restricted stock as a result of the
merger.
DISSENTERS' RIGHTS
Under Delaware law, dissenters' rights are not available to holders of
Rutherford-Moran common stock. Accordingly, no holder will be entitled to
receive the appraised value of their shares in connection with the merger.
STOCK EXCHANGE LISTING
It is a condition to the merger that, upon consummation of the merger, the
shares of Chevron common stock and the associated Chevron Rights to be issued by
Chevron in connection with the merger be approved for listing on the New York
Stock Exchange, subject to official notice of issuance.
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DELISTING AND DEREGISTRATION OF RUTHERFORD-MORAN COMMON STOCK
If the merger is consummated, Rutherford-Moran common stock will no longer
meet the requirements for continued inclusion on the Nasdaq National Market and
will be deregistered under the Securities Exchange Act of 1934, as amended.
TREATMENT OF STOCK CERTIFICATES
After the Effective Time, each stock certificate previously representing
shares of Rutherford-Moran common stock will automatically, with no further
action by the holder thereof, represent the right to receive that number of
shares of Chevron common stock as calculated pursuant to the merger agreement,
together with the associated Chevron Rights, for each share of Rutherford-Moran
common stock represented by such stock certificate. Promptly after the Effective
Time, the exchange agent for the merger will mail a letter of transmittal with
instructions to each holder of record of Rutherford-Moran common stock
outstanding immediately prior to the Effective Time for use in exchanging, by
book-entry transfer or otherwise, stock certificates formerly representing
shares of Rutherford-Moran common stock for stock certificates representing
shares of Chevron common stock. No stock certificates should be surrendered by
any holder of Rutherford-Moran common stock until he or she has received the
letter of transmittal and instructions from the exchange agent for the merger.
RUTHERFORD-MORAN LIQUIDITY
Rutherford-Moran did not have sufficient cash resources to meet a cash call
invoice due February 8, 1999 with respect to activities in the concession. In
order to meet this invoice and provide for payment of other expenses, Messrs.
Rutherford and Moran agreed to arrange for such funding on the basis of $1.5
million each. Mr. Moran provided his portion as a loan to Rutherford-Moran at
the current rate being paid to Chase Manhattan under the credit facility and Mr.
Rutherford provided a guaranty to Chase Manhattan for his portion based upon an
increase in the commitment under the Second Restated Credit Agreement. See
"Rutherford-Moran -- Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
The payment of the cash call also exhausted the $200 million credit
available from Chase Manhattan under the Second Restated Credit Agreement.
Rutherford-Moran anticipates that additional funding will be required to meet
expenses, debt service and monthly cash call invoices. The merger agreement
provides that Chevron will arrange interim financing for Rutherford-Moran if
most conditions to closing of the merger have been met. See "Certain Provisions
of the Merger Agreement -- Interim Financing." As of the date of this proxy
statement/prospectus, these conditions have not been satisfied, although Chevron
believes that substantial progress has been made in its negotiations with Pogo
and Palang Sophon that could result in satisfaction of two important conditions.
There can be no assurance at this time that the merger will occur or that the
conditions to interim financing will be satisfied. Also, there can be no
assurance that further funding will be available from Messrs. Rutherford and
Moran or any other source. Should such funding not be available,
Rutherford-Moran does not expect to be in a position to meet its ongoing
obligations.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the merger
agreement, a copy of which is attached as Annex A to this proxy
statement/prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the merger agreement.
Stockholders of Rutherford-Moran are urged to read the merger agreement in its
entirety.
THE MERGER
The merger agreement provides that, subject to the approval of the merger
by the stockholders of Rutherford-Moran and satisfaction or waiver of the other
conditions to the merger, Merger Sub will be merged with and into
Rutherford-Moran in accordance with the Delaware General Corporation Law, as
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amended from time to time ("Delaware Law"), whereupon the separate existence of
Merger Sub will cease and Rutherford-Moran will be the surviving corporation of
the merger. The merger will become effective upon the filing of the certificate
of merger with the Secretary of State of the State of Delaware or on such other
date as Chevron and Rutherford-Moran may agree. The filing of the certificate of
merger will be made on the closing date of the merger (the "Closing Date") or on
such other date as Chevron and Rutherford-Moran may agree.
CONSIDERATION FOR THE MERGER
At the Effective Time each share of Rutherford-Moran common stock will be
converted into and represent the right to receive that number of shares of
Chevron common stock equal to the Exchange Ratio divided by the Average Closing
Price. As of the Effective Time, present holders of Rutherford-Moran common
stock will cease to have any rights as holders of such shares, but will have the
rights of holders of Chevron common stock. On the Closing Date, any stock
options which have not been exercised prior to the Closing Date will be
canceled. See "The Merger -- General" for a description of the Exchange Ratio
and the Average Closing Price.
SURRENDER AND PAYMENT
Following the merger, holders of certificates evidencing Rutherford-Moran
common stock ("Rutherford-Moran Stock Certificates") will receive a letter from
the exchange agent instructing them as to how to exchange their Rutherford-Moran
Stock Certificates for certificates evidencing Chevron common stock ("Chevron
Stock Certificates"). Fractional shares of Chevron common stock will not be
issued in connection with the merger. No fractional share interest will entitle
its owner to any rights as a security holder of Chevron. In lieu of any
fractional share, each holder of Rutherford-Moran common stock who would
otherwise have been entitled to a fraction of a share of Chevron common stock
upon surrender of certificates for exchange will be paid cash, without interest,
determined by multiplying such fraction by the Average Closing Price.
On the Closing Date Chevron will deposit with the exchange agent the
Chevron Stock Certificates to be issued in the merger together with cash
sufficient to make all required payments to holders of fractional share
interests.
Holders of unexchanged Rutherford-Moran Stock Certificates will not be
entitled to receive any dividends or other distributions by Chevron with a
record date after the Effective Time, until their certificates are surrendered.
Upon surrender, however, subject to applicable laws, such holders will receive
accumulated dividends and distributions without interest, together with cash in
lieu of fractional shares, and, at the appropriate payment date, the amount of
any dividends or other distributions by Chevron having a payment date subsequent
to surrender of the holder's Rutherford-Moran Stock Certificates.
REPRESENTATIONS AND WARRANTIES
Rutherford-Moran made various representations and warranties in the merger
agreement, relating to, among other things: (a) due organization, good standing
and similar corporate matters; (b) the identity and ownership of all its
subsidiaries; (c) capital structure; (d) the authorization, execution, delivery,
performance and enforceability of the merger agreement; (e) the absence of
conflict between the merger agreement and the company's governing documents,
laws or regulations, court orders and material agreements and licenses; (f)
required consents of third parties and governmental authorities; (g) documents
filed by Rutherford-Moran with the SEC and the accuracy of information contained
therein, the accuracy of financial statements and the company's outstanding
indebtedness; (h) the absence of certain changes or events (including any
material adverse change in Rutherford-Moran); (i) the absence of material
litigation; (j) certain matters relating to employment agreements and employee
benefit plans; (k) certain tax matters; (l) certain environmental matters; (m)
Rutherford-Moran's assets and any encumbrances on those assets; (n) ownership of
intellectual property; (o) corporate records; (p) the absence of brokers or
finders entitled to a commission as a result of the merger other than the
financial advisors of Rutherford-Moran; (q) insurance; (r) material contracts
and licenses; (s) transactions with
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affiliates; (t) the opinion of Rutherford-Moran's financial advisor; (u) the
approval of the merger by the Rutherford-Moran board; (v) the adequacy of
approval of the merger by Rutherford-Moran stockholders; (w) Rutherford-Moran's
ownership interest in the concession and in the joint operating agreement; (x)
the absence of other agreements to sell Rutherford-Moran common stock; (y) year
2000 compliance; and (z) the accuracy of the information furnished to Chevron by
Rutherford-Moran.
Chevron and Merger Sub also made various representations and warranties in
the merger agreement relating to, among other things: (a) due organization, good
standing and similar corporate matters; (b) authorization, execution, delivery,
performance and enforceability of the merger agreement; (c) documents filed by
Chevron with the SEC and the accuracy of information contained therein; (d) the
absence of material litigation; (e) the absence of any prior activities of
Merger Sub; (f) authorization and validity of outstanding shares of Chevron
common stock and the shares of Chevron common stock to be issued pursuant to the
merger agreement; and (g) the absence of any ownership of Rutherford-Moran
common stock by Chevron or its affiliates.
CERTAIN COVENANTS
The merger agreement provides that, prior to the earlier of the Effective
Time or exercise of the Options, each of Rutherford-Moran and its subsidiaries
will conduct its operations in the ordinary course of business consistent with
its practice since January 1, 1998 and will use its reasonable best efforts to
preserve intact its business organizations, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers, advertisers and others having business dealings with it. In addition,
during such period, other than as contemplated by the merger agreement or
disclosed in the disclosure schedule it delivered to Chevron pursuant to the
merger agreement, Rutherford-Moran has agreed not to do any of the following:
(a) declare or pay any dividends or other distribution except between
Rutherford-Moran and its subsidiaries, or effect a stock split, combination or
reclassification, or repurchase or redeem any of its stock; (b) issue or sell
any capital stock other than Rutherford-Moran common stock or a security that is
either convertible into Rutherford-Moran common stock or by its terms expires at
the Effective Time; (c) amend its charter or by-laws; (d) make any acquisitions
of, or investments in, other entities; (e) except pursuant to existing contracts
previously disclosed to Chevron or with the written consent of Chevron, which
consent will not be unreasonably withheld, make any material disposition of
assets or subject any assets to any material liens; (f) except with the consent
of Chevron, which consent will not be unreasonably withheld, incur any
indebtedness other than under the existing credit facility or make any loan or
investment other than to or in a subsidiary; (g) except pursuant to existing
contracts previously disclosed to Chevron or with the written consent of
Chevron, which consent will not be unreasonably withheld, make any voluntary,
material payment under the joint operating agreement, or make any material
capital expenditure; (h) adopt a plan of liquidation, dissolution, merger,
consolidation, restructuring, recapitalization, or reorganization; (i)
voluntarily change any material accounting policy; (j) except with the written
consent of Chevron, which consent shall not be unreasonably withheld, make any
tax election or settle or compromise any Federal, state, local or foreign income
tax liability; (k) except with the written consent of Chevron, which consent
shall not be unreasonably withheld, enter into, terminate or modify any hedging
agreement; (l) except with the written consent of Chevron, which consent shall
not be unreasonably withheld, enter into any material contract; (m) except with
the written consent of Chevron, which consent shall not be unreasonably
withheld, amend or waive any provision of, or terminate certain key agreements
set forth in the merger agreement or release or assign any rights or claims
thereunder; (n) enter into, or engage in, any related party transaction; (o)
except with the written consent of Chevron, which consent shall not be
unreasonably withheld, pay, discharge, satisfy, waive, settle or release any
claim or cause of action which could reasonably be disputed; (p) accelerate any
payment to any vendor of goods or services; or (q) commit or agree to take any
of the foregoing actions.
The foregoing covenants do not prevent Rutherford-Moran from taking any
action if the Rutherford-Moran board determines in good faith that the action is
necessary or advisable to preserve Rutherford-Moran as a going concern. Chevron
may terminate the merger agreement within ten business days of
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notice of any such action by Rutherford-Moran if the action would have been a
material breach of the merger agreement if not for the exception described in
the previous sentence.
MUTUAL BEST EFFORTS
In the merger agreement, each of Rutherford-Moran and Chevron agreed to use
its reasonable best efforts to consummate and make effective, in the most
expeditious manner practicable, the merger and the other transactions
contemplated by the merger agreement. In addition, Rutherford-Moran has agreed
to take all reasonable actions requested by Chevron in connection with Chevron's
efforts to (a) execute an agreement between Rutherford-Moran and Pogo with
respect to the operatorship in the concession on terms acceptable to Chevron;
(b) secure waivers of all preferential rights arising under the joint operating
agreement as a result of the merger; and (c) execute a new joint operating
agreement providing Chevron with control over certain key decisions and
clarifying areas of mutual interest among the parties thereto.
NO SOLICITATION
Prior to January 28, 1999, and at all times thereafter if the conditions in
the merger agreement relating to (1) Rutherford-Moran's execution of a new joint
operating agreement with Pogo and Palang Sophon; (2) Pogo agreeing to transfer
operatorship in the concession to Chevron; and (3) Chevron reaching agreement
with Palang Sophon to acquire at least a five percent in interest in the
concession from Palang Sophon (collectively, the "Third Party Conditions") have
been satisfied or waived by Chevron, Rutherford-Moran will not (and shall not
permit any of its officers, directors, agents, representatives or advisors to)
solicit, initiate, or knowingly encourage the submission of any proposal or
offer from any person relating to any (a) acquisition of a substantial amount of
assets of Rutherford-Moran (other than in the ordinary course of business) or of
more than 15% of all outstanding Rutherford-Moran common stock, or (b) tender
offer or exchange offer that, if consummated, would result in any person
beneficially owning more than 15% of all outstanding Rutherford-Moran common
stock, or (c) merger, consolidation, business combination, sale of substantially
all assets, recapitalization, liquidation or similar transaction involving
Rutherford-Moran, other than the transactions contemplated by the merger
agreement (each an "Alternative Proposal") or agree to or endorse any
Alternative Proposal.
The merger agreement does not prohibit Rutherford-Moran from disclosing an
Alternative Proposal to its stockholders and a position with respect to such
Alternative Proposal to the extent required by applicable law.
Rutherford-Moran will notify Chevron promptly after receipt by
Rutherford-Moran of any Alternative Proposal or any request for non-public
information in connection with an Alternative Proposal or for access to its
properties, books or records by any person that informs Rutherford-Moran that it
is considering making an Alternative Proposal.
In the event that the Third Party Conditions are not satisfied or waived by
Chevron on or prior to January 28, 1999, Rutherford-Moran may initiate or engage
in discussions with any person relating to an Alternative Proposal. If
Rutherford-Moran and any third party reach an executed written agreement as to
any Alternative Transaction, Rutherford-Moran may terminate the merger
agreement; provided that Rutherford-Moran provides Chevron with at least five
business days' advance notice of such intended termination and Chevron, prior to
such termination, does not exercise the Options. See "-- Termination."
INTERIM FINANCING
If all conditions to closing of the merger have been met other than
approval and adoption of the merger agreement by Rutherford-Moran stockholders,
the approval for listing on the New York Stock Exchange of the shares of Chevron
common stock issuable under the merger agreement and the declaration by the SEC
of the effectiveness of the registration statement on Form S-4, Chevron will, at
Rutherford-Moran's request, either exercise the Options or, until the Options
are exercised or the merger is effective, lend Rutherford-Moran funds necessary
to meet its operating expenses, general and administrative expenses, and capital
commitments on terms and conditions substantially similar to those on
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which Chevron lends monies from time to time to its wholly owned subsidiaries,
subordinate to any then existing secured credit facilities.
CERTAIN EMPLOYEE MATTERS
Rutherford-Moran will terminate all of its and its subsidiaries' employees
immediately prior to the Effective Time.
During the period from the date of the merger agreement and the earlier of
the exercise of the Options and the Effective Time, except as contemplated by
the merger agreement or disclosed in disclosure schedules delivered by
Rutherford-Moran pursuant to the merger agreement, Rutherford-Moran may not,
without the prior written consent of Chevron, adopt, amend or terminate any
compensation or benefit arrangement with any new or existing director, officer
or employee, delivered by Rutherford-Moran pursuant to the merger agreement.
From and after the Effective Time, Chevron will provide group health plan
continuation coverage at any employee's sole cost pursuant to section 4980B of
the Code and sections 601 through 609 of ERISA with respect to any individual
who was an employee of Rutherford-Moran prior to the Effective Time and who had
or has a "qualifying event" (within the meaning of section 4980B(f)(3) of the
Code) before, on or after the Effective Time. As of the Effective Time, Chevron
will assume and agree to perform (1) all obligations of Rutherford-Moran
pursuant to the Rutherford-Moran Incentive Bonus Plan, and (2) all obligations
of Rutherford-Moran pursuant to the letter agreement, dated March 28, 1996,
between David F. Chavenson and Rutherford-Moran.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Chevron and Rutherford-Moran to consummate the merger
are subject to the satisfaction of certain conditions, including: (a) the
approval of the merger agreement by the Rutherford-Moran stockholders; (b) the
authorization for listing on the New York Stock Exchange of the Chevron common
stock issuable pursuant to the merger agreement; (c) the absence of any
preliminary or permanent injunction or other order by any government entity,
which prevents the consummation of the merger; and (d) effectiveness of the
registration statement on Form S-4 that includes this proxy statement/prospectus
in accordance with the provisions of the Securities Act with no stop order or
proceedings seeking a stop order with respect thereto threatened or initiated by
the SEC and remaining in effect.
The obligation of Chevron to consummate the merger is also subject to the
satisfaction of the following further conditions, unless waived by Chevron: (1)
the representations and warranties of Rutherford-Moran contained in the merger
agreement will be true in all material respects, as of the Closing Date, and
Chevron will have received a certificate of Rutherford-Moran to such effect
signed by Rutherford-Moran's chief executive officer and its chief financial
officer; (2) Rutherford-Moran will have performed or complied in all material
respects with all material agreements and covenants required by the merger
agreement to be performed or complied with by it on or prior to the Closing
Date, and Chevron will have received a certificate to such effect signed by
Rutherford-Moran's chief executive officer and its chief financial officer; (3)
Chevron will have received satisfactory evidence that Rutherford-Moran has
received such licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities and other third parties as
are necessary with respect to Rutherford-Moran or its subsidiaries in connection
with the transactions contemplated by the merger agreement or to the
preservation of Rutherford-Moran's rights under the joint operating agreement or
the operations conducted thereunder (except those the absence of which would not
have a material adverse effect on Rutherford-Moran or the ability of Chevron or
Merger Sub to effect the merger); (4) Chevron will have received an opinion of
Fulbright & Jaworski LLP, counsel to Rutherford-Moran, dated as of the Closing
Date in form reasonably satisfactory to Chevron; (5) all parties to the joint
operating agreement will have waived any and all preferential rights that may
have arisen as a result of the merger; (6) Rutherford-Moran will have executed a
new joint operating agreement on terms and conditions acceptable to Chevron in
its sole discretion; (7) Pogo will have executed a definitive agreement with
respect to operatorship under the joint
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operating agreement to Chevron on terms and conditions acceptable to Chevron in
its sole discretion; (8) Rutherford-Moran's expenses and costs incurred after
October 1, 1998, and which are related to the transactions contemplated by the
merger agreement will be limited to $8 million; (9) Chevron will have acquired
at least a five percent interest in the concession under the joint operating
agreement from Palang Sophon; and (10) there shall not have been any material
adverse change in Rutherford-Moran.
The obligation of Rutherford-Moran to consummate the merger is also subject
to the satisfaction of the following further conditions, unless waived by
Rutherford-Moran: (1) the representations and warranties of Chevron and Merger
Sub contained in the merger agreement will be true and correct in all material
respects as of the date of the merger agreement and as of the Closing Date, and
Rutherford-Moran will have received a certificate to such effect, signed on
behalf of Chevron and Merger Sub by their respective chief executive officers
and chief financial officers; (2) Chevron and Merger Sub will have performed or
complied in all material respects with all material agreements and covenants
required by the merger agreement to be performed or complied with by them on or
prior to the Closing Date, and Rutherford-Moran will have received a certificate
of Chevron and Merger Sub to such effect signed by their respective chief
executive officers and chief financial officers; (3) Rutherford-Moran will have
received evidence that Chevron has received such licenses, permits, consents,
approvals, authorizations, qualifications, and orders of governmental entities
and other third parties as are necessary with respect to Chevron or Merger Sub
in connection with the merger (except for those which would not have a material
adverse effect on Merger Sub, Chevron or Rutherford-Moran or the ability of
Rutherford-Moran to effect the merger); and (4) Rutherford-Moran will have
received from Chevron a certificate to the effect that Chevron has not taken any
action likely to cause the matters set forth in the Chevron Tax Certificate to
be untrue in any material respect.
EFFECT OF OPTION EXERCISE
The merger agreement provides that, in the event that Chevron exercises the
Options, the conditions to Chevron's obligations to consummate the merger will
be deemed waived or satisfied, except with respect to the conditions requiring
that the registration statement on Form S-4 be declared effective by the SEC and
that there be no injunction, order or judgment of any governmental entity in
effect which has the effect of prohibiting the consummation of the merger.
TERMINATION
The merger agreement may be terminated at any time prior to the Closing
Date, whether before or after any approval by stockholders of Rutherford-Moran
(1) by mutual written consent of Chevron and Rutherford-Moran; (2) by either
Chevron or Rutherford-Moran, if any governmental entity shall have issued a
final, nonappealable order, decree or ruling permanently enjoining or
prohibiting the merger; (3) by either Chevron or Rutherford-Moran, if the merger
has not been consummated on or before June 1, 1999 (other than due to failure of
the party seeking termination to perform in all material respects its
obligations under the merger agreement); provided that the termination right
pursuant to this clause (3) may not be exercised by either party if the Options
have been exercised by Chevron; (4) by Chevron, if (a) any of the
representations or warranties of Rutherford-Moran are not true and correct in
all material respects, and such untruth or incorrectness cannot be or has not
been cured within thirty days after the giving of written notice to
Rutherford-Moran by Chevron, or (b) Rutherford-Moran or Rutherford-Moran's
stockholders have failed to perform in any material respect any material
obligation or to comply in any material respect with any material agreement or
covenant of Rutherford-Moran to be performed or complied with by
Rutherford-Moran or its stockholders under the merger agreement or the option
and voting agreement, and such failure cannot be or has not been cured within
fifteen days after the giving of written notice to Rutherford-Moran or
Rutherford-Moran stockholders by Chevron; (5) by Rutherford-Moran, if (a) any of
the representations or warranties of Chevron are not true and correct in all
material respects, and such untruth or incorrectness cannot be or has not been
cured within thirty days after the giving of written notice to Chevron by
Rutherford-Moran, or (b) Chevron or Merger Sub has failed to perform in any
material respect any material obligation or to comply in any material respect
with any material agreement or covenant of Chevron or Merger Sub to be performed
or complied with by it under
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the merger agreement, and such failure cannot be or has not been cured within
fifteen days after the giving of written notice to Chevron by Rutherford-Moran;
(6) by Rutherford-Moran, if (a) the Third Party Conditions have not been
satisfied or waived by Chevron on or before January 27, 1999, (b)
Rutherford-Moran and a third party have signed an agreement on or after January
28, 1999 pursuant to which the third party is obligated to consummate an
alternative transaction subject only to termination of the merger agreement and
the satisfaction of closing conditions, (c) Rutherford-Moran has complied in all
respects with the non-solicitation provisions of the merger agreement, and (d)
Rutherford-Moran, after the signing of an agreement with respect to an alternate
transaction, has provided Chevron with five business days' advance notice of
such intended termination and Chevron has not exercised the Options prior to
such termination; or (7) by Chevron, if Rutherford-Moran has taken any action
otherwise in violation of the conduct of business covenants contained in the
merger agreement which the Rutherford-Moran board in good faith has reasonably
determined to be necessary or advisable to preserve Rutherford-Moran as a going
concern and the value of the equity interests held by Rutherford-Moran
stockholders.
CERTAIN PROVISIONS OF THE OPTION AND VOTING AGREEMENT
The following summary describes the material provisions of the option and
voting agreement among Messrs. Rutherford and Moran and certain of their
affiliates who collectively hold approximately 75.1% of the outstanding shares
of Rutherford-Moran common stock (the "Principal Stockholders"), on the one
hand, and Chevron, on the other hand, a copy of which is attached as Annex B to
this proxy statement/ prospectus and is incorporated herein by reference. This
summary is qualified in its entirety by reference to the full text of the option
and voting agreement.
VOTING AGREEMENT
Each of the Principal Stockholders has agreed to vote the shares of
Rutherford-Moran common stock beneficially owned by such stockholder (the
"Subject Shares") at any meeting of Rutherford-Moran's stockholders called to
vote upon the merger agreement (or in any other circumstances upon which a vote,
consent or other approval, including a written consent, with respect to the
merger agreement is sought) (a) in favor of the approval and adoption of the
merger agreement, and (b) against (1) any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation or
similar transaction involving Rutherford-Moran, other than the transactions
contemplated by the merger agreement (each an "Other Proposal"), and (2) any
amendment of Rutherford-Moran's certificate of incorporation or by-laws or other
proposal or transaction involving Rutherford-Moran or any of its subsidiaries,
which amendment or other proposal would in any manner impede, frustrate,
prevent, delay or nullify the merger agreement or any of the other transactions
contemplated by the merger agreement or change in any manner the voting rights
of any class of capital stock of Rutherford-Moran.
TRANSFER RESTRICTIONS
Each Principal Stockholder has agreed not to (a) transfer, sell, pledge,
assign or otherwise dispose of (including by gift) any of the Subject Shares to
any person except pursuant to the option and voting agreement, or (b) enter into
any voting arrangement in connection with any Other Proposal.
GRANT OF OPTIONS
Each Principal Stockholder has granted to Chevron an option to purchase
such stockholder's Subject Shares (each an "Option" and, collectively, the
"Options").
The exercise price of the Option for each Subject Share equals that number
of fully paid and nonassessable shares of Chevron common stock equal to the
Option Exchange Ratio (as hereinafter defined) divided by the Average Closing
Price (the "Option Per Share Consideration"). "Option Exchange Ratio" equals the
result obtained by dividing a numerator equal to the sum of (a) $91,000,000, (b)
the amount of cash, if any, received by Rutherford-Moran in consideration of the
issuance of its equity securities after December 23, 1998 and before the date on
which Chevron exercises the Options (the "Option Exercise Date"), (c) an amount
equal to the value, if any, as agreed by Rutherford-Moran
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and Chevron, of any non-cash consideration received by Rutherford-Moran in
consideration of its equity securities after December 23, 1998 and before the
Option Exercise Date, and (d) the cash consideration projected to be received by
Rutherford-Moran in exchange for the expected issuance of equity securities
pursuant to then existing contractual commitments and based on an exercise price
equal to or less than the consideration to be received per share of
Rutherford-Moran common stock pursuant to the merger agreement, by a denominator
equal to the sum of (y) the number of shares of Rutherford-Moran common stock
issued and outstanding on the Option Exercise Date and (z) the number of shares
of Rutherford-Moran common stock issuable upon exercise of all outstanding
warrants or options to acquire Rutherford-Moran common stock which have an
exercise price equal to or less than the consideration to be received per share
of Rutherford-Moran common stock pursuant to the merger agreement, assuming, for
the purpose of this calculation only, that the Effective Time of the merger is
the same date as the Option Exercise Date. Chevron may exercise the options with
respect to all, but not less than all, of the Subject Shares. The Options remain
exercisable until June 1, 1999.
GRANT OF IRREVOCABLE PROXY
Upon Chevron's or Merger Sub's request, each Principal Stockholder has
agreed to irrevocably grant to and to appoint Chevron and Merger Sub, and each
of them, and any person designated by either of them as permitted under
applicable law, the stockholder's proxy and attorney-in-fact to vote the Subject
Shares or grant a consent or approval in respect of the Subject Shares, in favor
of or against, as the case may be, the matters described above in "Voting
Agreement" and to execute and deliver an appropriate instrument irrevocably
granting such proxy. The proxy so granted will terminate upon any termination of
the option and voting agreement in accordance with its terms.
RELEASE FROM AND ASSIGNMENT OF ALL KNOWN AND UNKNOWN CLAIMS
Each Principal Stockholder has agreed to release and forever discharge
Rutherford-Moran and its former and current officers, directors, employees,
agents and representatives from any and all claims, liens, demands, expenses,
causes of action, obligations, damages, liabilities, losses and judgments, known
or unknown, which existed in the past, or which currently exist (collectively,
with any future causes of action, "Claims"). To the maximum extent permitted by
law, each Principal Stockholder has assigned all Claims to Chevron. However, the
releases provided for in the option and voting agreement do not affect the
rights of any Principal Stockholder to (1) indemnification as a director,
officer or employee of Rutherford-Moran, (2) the consideration to be received
pursuant to the option and voting agreement or the merger agreement or (3) any
compensation due as an employee of Rutherford-Moran.
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CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER
The following summary is a discussion of the material United States federal
income tax consequences of the merger to Rutherford-Moran stockholders who hold
shares of Rutherford-Moran common stock as capital assets. The discussion set
forth below is for general information only and may not apply to certain
categories of Rutherford-Moran stockholders subject to special treatment under
the Internal Revenue Code of 1986, as amended (the "Code"), including, but not
limited to, foreign holders, stockholders who transfer their shares of
Rutherford-Moran common stock pursuant to the option and voting agreement,
financial institutions, tax-exempt organizations, dealers in securities or
currencies, holders whose functional currency is not the U.S. dollar, holders
who acquired the Rutherford-Moran common stock as part of a straddle, synthetic
security, conversion transaction or other integrated investment or pursuant to
the exercise of employee stock options or otherwise as compensation. This
summary is based upon laws, regulations, rulings, and decisions currently in
effect, all of which are subject to change, retroactively or prospectively.
There can be no assurance that future legislation, regulations, administrative
rulings or court decisions would not alter the federal income tax consequences
set forth below.
Rutherford-Moran believes that the merger should qualify as a
reorganization pursuant to Section 368(a) of the Code, based upon certain facts
and assumptions, including certain representations by Chevron. There can be no
assurance that such facts and assumptions will not change prior to the merger.
The merger is not conditioned on the receipt of an opinion from tax counsel or a
ruling from the IRS, and no ruling from the IRS concerning the tax consequences
of the merger has been or will be requested. There can be no assurance that the
IRS will not take a position contrary to that described herein or that future
legislation, regulations, administrative rulings, court decisions or subsequent
facts and developments will not alter the discussion set forth herein.
Consequently, Rutherford-Moran stockholders are urged to consult their tax
advisors as to the specific tax consequences to them of the merger. The
following discussion assumes that the merger qualifies as a reorganization
within the meaning of Section 368(a) of the Code.
Based upon the above assumptions and qualifications, Rutherford-Moran
stockholders who exchange their Rutherford-Moran common stock for Chevron common
stock in the merger will not recognize gain or loss for United States federal
income tax purposes, except with respect to cash, if any, they receive in lieu
of fractional shares of Chevron common stock. Each such stockholder's aggregate
tax basis in the Chevron common stock received in the merger will equal his or
her aggregate tax basis in the Rutherford-Moran common stock exchanged thereof,
decreased by the amount of any tax basis allocable to any fractional share
interest for which cash is received. The holding period of Chevron common stock
will include the holding period of Rutherford-Moran common stock surrendered in
exchange therefor. Rutherford-Moran stockholders who receive cash in lieu of
fractional shares of Chevron common stock in the merger generally will be
treated as if the fractional shares of Chevron common stock had been distributed
to them as part of the merger and then redeemed by Chevron in exchange for the
cash actually distributed in lieu of fractional shares, with such redemption
qualifying as an exchange under Section 302 of the Code. Consequently, such
Rutherford-Moran stockholders generally will recognize capital gain or loss with
respect to the cash payments they receive in lieu of fractional shares. Net
capital gain (i.e., generally capital gain in excess of capital loss) recognized
by an individual Rutherford-Moran stockholder on Rutherford-Moran common stock
that has been held for more than one year generally will be subject to tax at a
maximum rate of 20% or, in the case of Rutherford-Moran common stock that has
been held for one year or less, at ordinary income tax rates. The deductibility
of capital losses is subject to limitation for both individuals and
corporations.
ALL RUTHERFORD-MORAN STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING ANY
FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES (INCLUDING ANY TAX RETURN FILING
OR OTHER TAX REPORTING REQUIREMENTS) OF THE MERGER.
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DESCRIPTION OF CHEVRON CAPITAL STOCK
The following description of certain terms of the capital stock of Chevron
does not purport to be complete and is qualified in its entirety by reference to
the Restated Certificate of Incorporation of Chevron (the "Chevron Certificate")
which is incorporated herein by reference. See "Where You Can Find More
Information."
The authorized capital stock of Chevron currently consists of one billion
shares of common stock, par value $1.50 per share, and one hundred million
shares of preferred stock, par value $1.00 per share. Each share of Chevron
common stock trades with Chevron Rights. See "Comparison of Stockholder
Rights -- Stockholder Rights Plan." As of February 10, 1999, there were
outstanding 653,236,634 shares of Chevron common stock, with an additional
59,250,434 issued and held in treasury. There are no shares of Chevron preferred
stock outstanding.
CHEVRON COMMON STOCK
The holders of Chevron common stock are entitled to receive such dividends
or distributions as are lawfully declared on Chevron common stock, to have
notice of any authorized meeting of stockholders, and to one vote for each share
of Chevron common stock on all matters which are properly submitted to a vote of
Chevron stockholders. As a Delaware corporation, Chevron is subject to statutory
limitations on the declaration and payment of dividends. In the event of a
liquidation, dissolution or winding up of Chevron, holders of Chevron common
stock have the right to a ratable portion of assets remaining after satisfaction
in full of the prior rights of creditors, including holders of Chevron's
indebtedness, all liabilities and the aggregate liquidation preferences of any
outstanding shares of Chevron preferred stock. The holders of Chevron common
stock have no conversion, redemption, preemptive or cumulative voting rights.
All outstanding shares of Chevron common stock are, and the shares of Chevron
common stock to be issued in the merger will be, validly issued, fully paid and
non-assessable. As of February 10, 1999, there were 124,887 holders of Chevron
common stock.
CHEVRON PREFERRED STOCK
The Chevron Certificate expressly authorizes the Chevron Board of Directors
to issue preferred stock in one or more series, to establish the number of
shares in any series and to set the designation and preferences of any series
and the powers, rights, qualifications, limitations or restrictions on each
series of preferred stock.
In connection with the adoption of the Chevron Stockholder Rights Plan, the
Chevron board has designated 5,000,000 shares of preferred stock as Series A
Participating Preferred Stock, $1.00 par value per share (the "Chevron
Participating Preferred Stock"). Upon issuance, each share of Chevron
Participating Preferred Stock is entitled to a preferential quarterly dividend
in an amount equal to 1,000 times the dividend declared on each share of Chevron
common stock, but in no event less than $25. In the event of liquidation, the
holders of shares of Chevron Participating Preferred Stock will receive a
preferred liquidation payment equal to the greater of $1000 or 1000 times the
payment made per each share of Chevron common stock.
Each share of Chevron Participating Preferred Stock is entitled to 1,000
votes, voting together with the shares of Chevron common stock. In the event of
any merger, consolidation or other transaction in which shares of Chevron common
stock are exchanged, each share of Chevron Participating Preferred Stock will be
entitled to receive 1,000 times the amount and type of consideration received
per share of Chevron common stock. The rights of the Chevron Participating
Preferred Stock as to dividends, liquidation and voting, and in the event of
mergers and consolidations, are protected by customary anti-dilution provisions.
The Chevron Participating Preferred Stock ranks junior to all other series
of Chevron preferred stock as to the payment of dividends and the distribution
of assets, unless the terms of any such series provide
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otherwise. As of February 10, 1999, there were no shares of Chevron
Participating Preferred Stock outstanding.
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
Chevron and Rutherford-Moran are each incorporated under the laws of the
State of Delaware. As a result of the merger, Rutherford-Moran stockholders will
become stockholders of Chevron and the rights of all such former
Rutherford-Moran stockholders will thereafter be governed by the Chevron
Certificate, the Chevron By-laws, as amended, and Delaware Law. The rights of
Rutherford-Moran stockholders are currently governed by the Rutherford-Moran
Restated Certificate of Incorporation (the "Rutherford-Moran Certificate"), the
Rutherford-Moran Bylaws, and Delaware Law. The following is a summary of the
principal differences between the current rights of Rutherford-Moran
stockholders and Chevron stockholders. This summary is not intended to be
complete and is qualified in its entirety by reference to the full text of each
of such documents and Delaware Law. For information as to how to obtain copies
of such documents, which have been filed with the SEC, see "Where You Can Find
More Information."
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Chevron consists of 1,000,000,000 shares of
common stock, par value $1.50 per share, and 100,000,000 shares of preferred
stock, par value $1.00 per share. The authorized capital stock of
Rutherford-Moran consists of 40,000,000 shares of common stock, par value $0.01
per share and 10,000,000 shares of preferred stock, par value $0.01 per share.
BOARD OF DIRECTORS
The Chevron By-laws provide that the number of directors shall be
determined by resolution of the Chevron board approved by at least a majority of
the directors then in office. Chevron currently has fourteen directors.
The Rutherford-Moran Bylaws provide that the number of directors shall be
determined by resolution of the Rutherford-Moran board. Rutherford-Moran
currently has five directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Chevron Certificate provides that no action which may be taken at an
annual or special meeting and which requires the approval of at least a majority
of (a) the voting power of the securities of Chevron present at such meeting and
entitled to vote on such action or (b) the shares of Chevron common stock
present at such meeting may be effected except at such annual or special meeting
by the vote required for the taking of such action. Nothing in the
Rutherford-Moran Charter or the Rutherford-Moran Bylaws prevents the
stockholders of Rutherford-Moran from taking action by written consent of
stockholders having the requisite votes to authorize such action rather than by
the vote of Rutherford-Moran stockholders at a meeting.
SPECIAL MEETINGS OF STOCKHOLDERS
The Chevron By-laws provide that special meetings of Chevron stockholders
may be called by the Chevron board or the Chairman of the Chevron board and
shall be called by the Chairman of the Chevron board or the Secretary at the
request in writing of at least one-third of the members of the Chevron board.
The Rutherford-Moran Bylaws provide that special meetings of the
Rutherford-Moran stockholders may be called by the Chairman of the
Rutherford-Moran board, the Chief Executive Officer or the Rutherford-Moran
board pursuant to a resolution adopted by two-thirds of the directors then in
office.
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ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The Rutherford-Moran Bylaws provide that any stockholder wishing to
nominate a person to serve as a candidate for election to the Rutherford-Moran
board must submit the name of such candidate in writing to the Corporate
Secretary of Rutherford-Moran at its principal executive offices at least 60 but
not more than 160 days prior to the anniversary of the immediately preceding
annual meeting. The Rutherford-Moran Bylaws provide for a similar advance notice
for any stockholder proposals. The Chevron Certificate and the Chevron By-laws
contain no comparable provision.
FAIRNESS COMMITTEE
Chevron has provided for the establishment of a special fairness committee
of the Chevron board (the "Fairness Committee") if there should ever come a time
when any stockholder owns ten percent or more of Chevron's outstanding voting
securities. The Fairness Committee consists of all directors serving at the time
any such stockholder becomes a ten percent owner, and includes subsequent
directors if acceptable to all the members of the Fairness Committee. The
Fairness Committee is charged with looking into the fairness to Chevron and all
of its stockholders of transactions which the committee finds to be
"extraordinary," that is, not in the ordinary course of Chevron's business.
Among such transactions would be mergers and liquidations, transactions with
major stockholders, and major asset sales or recapitalizations. However, these
transactions are not exhaustively described, and the committee would have
substantial latitude in determining what are extraordinary transactions.
If the committee determines a particular transaction is "extraordinary," it
would then decide whether it would be in the best interests of Chevron and its
stockholders to require the transaction be ratified by a special vote of the
stockholders. If ratification is required by the committee, the transaction must
be approved by the affirmative vote of either two-thirds of the outstanding
Chevron common stock, or a majority of such stock, including a majority of such
stock excluding any shares held by a ten percent stockholder. If the committee
determines that such ratification is not appropriate, such vote is not required.
The Fairness Committee has no power to act unless at least three members of
the committee are in agreement on an action. If the committee is unable to act,
a majority of all present and former members of the committee has the power to
decide who is a ten percent stockholder, what transactions are extraordinary,
and what percentage of the shares not held by any ten percent stockholder have
been voted in favor of ratifying an extraordinary transaction. However, such
persons do not have the authority to decide that an extraordinary transaction
could proceed without special stockholder ratification. The Fairness Committee
may thus provide some reason for persons seeking control of Chevron to negotiate
with the Board of Directors and not oppose the continued service of at least
some of the directors in office at the time the person seeking control attained
ownership of ten percent of the stock.
Rutherford-Moran has no similar committee.
STOCKHOLDER RIGHTS PLAN
As a precaution to ensure that it is able to take appropriate action to
protect the interests of Chevron and its stockholders, the Chevron board has
adopted a stockholder rights plan (the "Chevron Stockholder Rights Plan"). The
Chevron Stockholder Rights Plan is designed to help the Chevron board maximize
stockholder value in the event of a change of control of Chevron, and otherwise
to resist actions that the board considers likely to injure Chevron or its
stockholders. On November 23, 1998, the Chevron board declared a dividend
distribution on each outstanding share of Chevron common stock of one Chevron
Right to purchase Chevron Participating Preferred Stock. The Chevron Rights are
not now exercisable, and it is not known at this time whether they ever will be
exercisable. The Chevron Rights will expire on the earlier of (1) November 23,
2008, or (2) their redemption or exchange as described below. Until a Chevron
Right is exercised, it confers no rights as a stockholder, including, without
limitation, the right to vote or to receive dividends. In general, until the
Chevron Rights are exercisable or are redeemed or
43
<PAGE> 49
exchanged or expire unexercised, each Chevron Right is associated with and
cannot be separated from the underlying share of Chevron common stock on which
the Chevron Right was declared as a dividend.
The Chevron Rights will separate from the Chevron common stock if there is
a "Distribution Date." A Distribution Date would occur upon the earliest to
happen of (1) a public announcement that someone has become an "Acquiring
Person," meaning that such person has acquired or obtained the right to acquire
beneficial ownership of ten percent or more of the outstanding shares of Chevron
common stock or (2) ten days having elapsed following the commencement of or a
public announcement of an intention to make a tender offer that would result in
someone becoming an Acquiring Person. If a Distribution Date occurs, the Chevron
Rights would become exercisable and separately tradable, and Chevron will issue
certificates for the Chevron Rights as soon as possible.
The amount of Chevron Participating Preferred Stock that the holder of a
Chevron Right is entitled to receive upon exercise of the Chevron Right and the
purchase price payable upon exercise of the Chevron Right are both subject to
adjustment. Some limitations apply to the timing of exercise of the Chevron
Rights, and any Chevron Rights belonging to an Acquiring Person are null and
void.
The Chevron Board of Directors may redeem the Chevron Rights in whole, but
not in part, at a redemption price of $0.01 per Chevron Right, at any time
before there is an Acquiring Person. After there is an Acquiring Person, the
Rights may be redeemed only in very limited circumstances. However, the Chevron
board may in some cases also exchange all or part of the then outstanding and
exercisable Chevron Rights for shares of Chevron common stock at a rate of one
share of Chevron common stock per Chevron Right.
The general effect of the Chevron Stockholder Rights Plan is to encourage
any potential acquiror of Chevron to negotiate directly with the Chevron board.
The ten percent threshold for an Acquiring Person may prevent creeping
acquisitions that would result in substantial leverage over Chevron's affairs
without payment of a control premium.
For a description of the Chevron Participating Preferred Stock purchasable
upon exercise of the Chevron Rights, see "Description of Chevron Capital
Stock -- Chevron Preferred Stock."
This description of the Chevron Stockholder Rights Plan does not purport to
be complete and is qualified in its entirety by reference to the terms and
conditions of the Chevron Rights Agreement. See "Where You Can Find More
Information."
Rutherford-Moran does not have a Stockholder Rights Plan.
MARKET PRICE AND DIVIDEND INFORMATION
Chevron common stock is listed and traded on the New York Stock Exchange as
well as the Chicago, Pacific, London and Swiss stock exchanges and
Rutherford-Moran common stock is listed and quoted on the Nasdaq National
Market. The Chevron ticker symbol on the New York Stock Exchange is "CHV." The
Rutherford-Moran ticker symbol on the Nasdaq National Market is "RMOC." The
following table sets forth the interday high and low trading prices per share of
Chevron common stock for the calendar quarters indicated as reported on the New
York Stock Exchange Composite Transactions Tape, the interday high and low
trading prices per share of Rutherford-Moran common stock for the calendar
quarters indicated as reported on the Nasdaq National Market, and the dividends
paid per share of Chevron common stock for such periods by Chevron.
Rutherford-Moran has never declared or paid cash dividends with respect to its
capital stock. The Second Restated Credit Agreement prohibits Rutherford-Moran
from paying any dividends on the Rutherford-Moran common stock. In addition, the
Indenture governing Rutherford-Moran's 10.75% Subordinated Notes Due 2004
contains covenants that, among other
44
<PAGE> 50
things, restrict Rutherford-Moran's ability to pay dividends. The information
set forth below is based on published financial sources generally viewed to be
reliable.
<TABLE>
<CAPTION>
CHEVRON CHEVRON RUTHERFORD-MORAN
COMMON STOCK DIVIDENDS COMMON STOCK
PRICES DECLARED PRICES
------------------ PER COMMON ------------------
HIGH LOW SHARE HIGH LOW
------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
1997
First Quarter................ $72.625 $63.500 $0.54 $30.000 $16.750
Second Quarter............... 77.250 61.750 0.58 24.500 17.125
Third Quarter................ 89.188 73.500 0.58 26.750 19.880
Fourth Quarter............... 88.875 71.500 0.58 30.250 15.875
1998
First Quarter................ $90.188 $67.750 $0.61 $25.000 $16.250
Second Quarter............... 86.813 77.375 0.61 28.875 14.750
Third Quarter................ 89.000 73.000 0.61 20.688 6.000
Fourth Quarter............... 89.438 78.375 0.61 9.313 1.250
1999
First Quarter (through
February 10).............. $84.500 $73.125 $0.61 $3.0625 $ 2.000
</TABLE>
On December 23, 1998, the last full trading day prior to the first public
announcement of the execution of the merger agreement, the reported high and low
sale prices per share and closing price per share of Chevron common stock on the
New York Stock Exchange and the reported high and low sale prices per share and
closing price per share of Rutherford-Moran common stock on the Nasdaq National
Market were as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------- ------- -------
<S> <C> <C> <C>
Chevron............................................... $85.000 $83.313 $85.000
Rutherford-Moran...................................... 2.063 1.688 2.000
</TABLE>
On February 10, 1999, the most recent practicable date prior to the date of
this proxy statement/prospectus, the reported high and low sale prices per share
and closing price per share of Chevron common stock on the New York Stock
Exchange and the reported high and low sale prices per share and closing price
per share of Rutherford-Moran common stock on the Nasdaq National Market were as
follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
------- ------- -------
<S> <C> <C> <C>
Chevron............................................... $80.500 $78.313 $78.375
Rutherford-Moran...................................... 2.938 2.875 2.906
</TABLE>
As of February 10, 1999, the latest practicable date prior to the printing
of this proxy statement/ prospectus, there were 52 holders of Rutherford-Moran
common stock.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR CHEVRON
COMMON STOCK AND RUTHERFORD-MORAN COMMON STOCK PRIOR TO MAKING ANY VOTING
DECISION WITH RESPECT TO THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
45
<PAGE> 51
RUTHERFORD-MORAN
BUSINESS
Rutherford-Moran, a Delaware corporation, is an independent energy company
engaged in the acquisition, exploration, development and production of oil and
gas properties in Southeast Asia. Currently, Rutherford-Moran's exploration and
development activities are concentrated entirely in the Gulf of Thailand and are
conducted through its subsidiary, Thai Romo, and its affiliate, B8/32 Partners.
Rutherford-Moran was a private concern until June 1996, when it completed
an initial public offering. Since April 1996, Rutherford-Moran has been the
parent company of Rutherford-Moran Exploration Company ("RMEC") and Thai Romo
Holdings, Inc. ("TRH"). RMEC and TRH collectively own the outstanding shares of
Thai Romo except for certain nominal interests. During June 1996, Rutherford-
Moran sold 16% of its common stock in the public offering, in conjunction with
the consummation of the exchange of RMEC common stock and Thai Romo interests
for Rutherford-Moran common stock.
Thai Romo is one of three original concessionaires in the concession,
currently covering approximately 734,300 acres in the central portion of the
Gulf of Thailand. Currently, subsidiaries or affiliates of Pogo, Palang Sophon
and B8/32 Partners are the other concessionaires.
As of December 31, 1997, Rutherford-Moran had net proved reserves of
approximately 358 BCFE in the Tantawan and Benchamas Fields and the Maliwan
Area. Oil and gas production from the Tantawan Field commenced in February 1997,
and development is underway at the Benchamas Field. Appraisal wells drilled by
the concessionaires in four areas within the concession (Tantawan, Benchamas,
Pakakrong and Maliwan) have tested at commercial flow rates of hydrocarbons and
established the potential for significant additional reserves in those areas.
The concessionaires have entered into a 30 year gas sales agreement with the
Petroleum Authority of Thailand ("PTT") to sell natural gas from the Tantawan
and Benchamas Fields. Rutherford-Moran sells its oil into the spot market to a
variety of potential purchasers in Thailand and other Asian countries.
Rutherford-Moran's principal executive offices are located at 5 Greenway
Plaza, Suite 220, Houston, Texas 77046 and its telephone number at its executive
offices is (713) 622-5555.
HISTORY OF THE CONCESSION
In August 1991, Thai Romo, Thaipo Limited, a subsidiary of Pogo, and Maersk
Oil (Thailand) Ltd. were awarded the concession. Subsequent to the award, Palang
Sophon became one of the concessionaires by acquiring an interest in the
concession as a co-venturer. Maersk was designated as operator of the concession
pursuant to a joint operating agreement among the concessionaires.
Rutherford-Moran originally owned a 31.67% interest in the concession. On
December 19, 1996, Rutherford-Moran, through Thai Romo, exercised its
preferential right to purchase 46.34% of the outstanding shares of Maersk, a
co-concessionnaire owning a 31.67% interest in the concession outside of the
Tantawan Field (Thai Romo had increased its interest in the Tantawan Field from
31.67% to 46.34% in 1995 through a previous purchase of Maersk's interest in
that field). On March 3, 1997, TRH, as Thai Romo's nominee under a share sales
agreement with Maersk, purchased its proportionate share of the outstanding
shares of Maersk for approximately $28.6 million, which included approximately
$1.6 million in satisfaction of outstanding debt. Following the purchase, Maersk
changed its name to B8/32 Partners. The remaining 53.66% of Maersk stock was
purchased by Thaipo and Palang Sophon. This acquisition increased
Rutherford-Moran's interest in the concession outside of the Tantawan Field from
the original 31.67% to 46.34%, and effectively resulted in a uniform 46.34%
interest throughout the concession. At the
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<PAGE> 52
same time, Thaipo was designated as operator in the remainder of the concession.
Current interests in the Tantawan Field and the remainder of the concession are
as follows:
<TABLE>
<CAPTION>
TANTAWAN FIELD
--------------
<S> <C>
Thaipo...................................................... 46.34%
Thai Romo................................................... 46.34%
Palang Sophon............................................... 7.32%
REMAINDER OF BLOCK B8/32
------
Thaipo...................................................... 31.67%
Thai Romo................................................... 31.67%
B8/32 Partners.............................................. 31.66%
Palang Sophon............................................... 5.00%
</TABLE>
On August 23, 1995, the Thai Petroleum Committee and the Ministry of
Industry designated approximately 68,000 acres as a production license area to
Thaipo, on behalf of the Tantawan concessionaires. Similar production licenses
have since been granted for 101,000 acres in the Benchamas Field/Pakakrong Area
and for 91,000 acres in the Maliwan Area.
In accordance with the Thai Petroleum Act, the concessionaires relinquished
50% of the exploration acreage of the concession on August 1, 1995 and
approximately 50% of the remaining acreage on August 1, 1997. Relinquishment
excluded production licenses in the aforementioned Tantawan,
Benchamas/Pakakrong, and Maliwan areas for which production approvals had been
granted. In May 1997, Thai Romo and its partners received an extension of the
exploration period in the concession until July 31, 2000 from the Department of
Mineral Resources. Most of this remaining acreage can be retained after July
2000 through payment of annual lease rentals.
REGIONAL GEOLOGY
The concession is located on the western side of the Pattani Basin, which
is believed to have developed as a result of the Permo-Triassic collision of the
continents of India and Asia. The collision developed a tectonic regime in
Thailand which formed a conjugate set of major strike-slip faults trending
northwest to southeast and northeast to southwest together with a set of north
to south trending normal faults. The regional strain field accompanying the
shearing had a major component of east-west extension which created the Pattani
Basin and its gas rich structures to the south (e.g., Erawan, Pailin and Satun).
Rutherford-Moran's management believes the Tantawan, Benchamas, and Maliwan
Fields are a northern continuation of the same trend. The eastern boundary of
the concession is located near the axis of the Pattani Basin. The Pattani Basin
extends north-northeast through the eastern one-third of the concession and
extends southward through Unocal Corporation's extensive holdings and is bounded
to the west by the Ko Kra Ridge, a dominant paleo high.
Regional structural dip towards the Pattani Basin center is interrupted by
north-south trending normal faults. These fault zones are related to basement
relief features. Oil and natural gas traps in the concession are typically
related to highly faulted graben systems, structural closure on tilted fault
blocks and anticlinal structures between east-west dipping faults and
stratigraphic traps. The main reservoir sands in the concession are fluvial
channel sands, point bar sands, alluvial fans and deltas associated with
lacustrine depositional environments.
CURRENT FIELDS AND PROSPECTS
From 1992 until December 31, 1997, Rutherford-Moran and its
co-concessionaires drilled 40 gross development wells and 35 exploratory wells
in the concession. Thirty-seven of the development wells and 20 exploratory
wells have been successful. All of the development wells and 31 of the
exploratory wells are successful or are being evaluated.
47
<PAGE> 53
Rutherford-Moran estimates it will invest a total of approximately $155
million during 1999 in connection with its capital expenditure programs. The
actual expenditures on each project in the drilling and development program may
vary from the Rutherford-Moran's estimates as a result of the actual costs
incurred and changes in the drilling and development program, including the
acceleration of the development of certain projects and prospects based on
actual drilling results, as well as the availability of additional capital to
Rutherford-Moran.
PRODUCTION FACILITIES
Under the development plan for the Tantawan Field, two platforms and
production facilities were installed prior to first production in February 1997.
A third production platform was installed during the third quarter of 1997, and
a fourth platform was installed during the fourth quarter of 1997. A fifth
production platform is expected to be installed during the second quarter of
1999. The oil and natural gas are separated on each platform and processed on a
Floating Production, Storage and Offloading vessel ("FPSO") which was delivered
in December 1996. Oil is exported via tankers, and gas is discharged into a
33-mile spur pipeline owned by PTT. Production of oil and gas is currently from
all four platforms.
Platforms. The first two production platforms are four-pile, twelve slot
units designed for drilling with either a jack-up or tender assisted rig.
Wellhead fluids are separated at each production platform into three streams:
high pressure gas, intermediate pressure gas and low pressure oil and water. As
required, natural gas is drawn off the intermediate pressure system, compressed,
and fed back down the wells to provide gas lift to optimize oil recovery.
Hydrocarbons are fed into flowlines which run between each platform and a
pipeline end manifold located at the FPSO. The third and fourth platforms are
similar in design, but are both nine slot units.
FPSO. The FPSO was used to facilitate an accelerated development of the
Tantawan Field and provide present value benefits given the lack of an offshore
oil pipeline infrastructure. The FPSO used for the Tantawan development is under
the management of an affiliate of Single Buoy Moorings Inc. ("SBM"), one of the
largest builders and operators of FPSOs. Another affiliate of SBM owns the
vessel and leases it under a bareboat charter to another affiliate, Tantawan
Production B.V., who in turn leases it under a bareboat charter agreement (the
"FPSO Charter") to Tantawan Services L.L.C., a company currently owned by
Thaipo. All FPSO costs (including the vessel, detailed design engineering and
purchased equipment) were borne directly by SBM. The final cost of the installed
and commissioned FPSO is being recovered by SBM in the bareboat charter day rate
over the term of the FPSO Charter. The initial term of the FPSO Charter is for
ten years, subject to extension, with a commencement date of February 1997. In
addition, Tantawan Services has a purchase option on the FPSO throughout the
term of the FPSO Charter. Tantawan Services has also contracted with another
company, SBM Marine Services Thailand Ltd., to operate the FPSO on a
reimbursable basis throughout the initial term of the FPSO Charter. Performance
of both the bareboat charter agreement and the agreement to operate the FPSO are
non-recourse to Tantawan Services and Rutherford-Moran. However, Tantawan
Services' performance is secured by a lien on any hydrocarbons stored on the
FPSO and is guaranteed severally by each of the Tantawan concessionaires.
Rutherford-Moran's guarantee is limited to its percentage interest in the
Tantawan Field.
The FPSO production facilities include process facilities for separation
and treatment of the produced fluids and compressors for gas. This equipment is
very similar to that utilized on conventional fixed platforms, except for
features that allow the equipment to function while subjected to the roll and
pitch of the FPSO. The production system is capable of processing 150 MMcfd
(expandable to 300 MMcfd) of natural gas, 50 MBPD of crude oil and condensate
and 25 MBPD of produced water. Oil and condensate is processed to an export
quality for storage on the FPSO and then offloaded to shuttle tankers. Natural
gas is dehydrated and compressed for export via a 24 inch 33-mile spur pipeline.
Water is cleaned to below 20 parts per million of oil in water and discharged
overboard.
The FPSO has sufficient storage for optimum offloading of oil to export
tankers, as well as providing spare capacity in the event of unscheduled delays
in tanker arrival. The storage capacity is 1,000 MBbl, of
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<PAGE> 54
which 700 MBbl comprises saleable crude, 200 MBbl is required to store ballast
water to control hull stresses and 100 MBbl will be used to store oily water
which does not meet the discharge concentration criteria. Oil stored on the FPSO
is offloaded periodically to export tankers using the tandem system where the
tankers are moored end to end. Offtake tankers are provided by purchasers.
SBM Marine Services is responsible for the operation and maintenance of the
FPSO. Thaipo provides a limited number of crew members who handle platform and
well operations. The crew members, along with the SBM Marine Services'
personnel, are housed on the FPSO.
Benchamas Production Facilities. The initial plan of development for the
Benchamas Field incorporates the installation of three satellite wellhead
platforms, a central processing facility platform with a daily capacity of 150
MMcf of natural gas, 25 MBbl of oil and condensate and 25 MBbl of water and a
living quarters platform. Full wellstream production will flow through a
gathering system to the processing platform where the natural gas, oil and water
will be separated. Any produced water will be treated to meet minimum
specifications and discharged. Oil will be stored on a Floating, Storage and
Offloading vessel ("FSO"), from which it will be periodically offloaded into
offtake tankers. In 1998, the concessionaries negotiated a bareboat charter
agreement ("FSO Charter") with Tanker Pacific Management (Singapore) Pte. Ltd.,
a well known supplier of FSOs. The initial term of the FSO Charter is ten years,
subject to extension, commencing upon delivery of the FSO to the Benchamas
Field. All FSO costs (including the vessel, detailed design engineering and
purchased equipment) were borne directly by Tanker Pacific. The final cost of
the FSO is being recovered by Tanker Pacific in the bareboat charter day rate
over the term of the FSO Charter.
As the central processing facility is sized to handle additional wellhead
platforms, the concessionaires contemplate that additional production facilities
will be required to fully exploit the field. Currently, the three satellite
wellhead platforms have been installed and development wells are being drilled.
The remaining fabrication and installation projects are currently on schedule in
anticipation of production startup during the third quarter of 1999.
The natural gas will be dehydrated, metered and compressed for delivery
through a 16-inch, 32-mile pipeline which will tie directly into the PTT
pipeline which connects the Tantawan FPSO to the main trunk lines.
MARKETING AND CONTRACTS
Gas Sales Agreement. Under the terms of the concession, the Kingdom of
Thailand has first priority to purchase natural gas produced from the
concession. PTT is currently the sole purchaser of natural gas in Thailand and
buys all gas at the well-head from private producers. PTT also maintains a
monopoly over natural gas transmission and distribution in the country. The gas
sales agreement was signed on November 7, 1995, requiring PTT to take, or pay
for if not taken, a yearly aggregate amount from the Tantawan concessionaires of
at least 75 MMcfd of natural gas ("DCQ") for the first year of production (which
commenced in February 1997) rising to 85 MMcfd from October 1997 to August 1999
and thereafter based upon reserve additions at the Tantawan and Benchamas
Fields. The gas sales agreement terminates on the earlier of (1) termination of
the petroleum production period, (2) the date when there are no field reserves
remaining, or (3) 30 years from the contractual delivery date.
In November 1997, the gas sales agreement was amended to incorporate gas
production from the Benchamas Field. At the time that Benchamas production
commences and the concessionaires complete a 72-hour production test, the DCQ
will be increased from 85 MMcfd to 125 MMcfd. The price for Benchamas Field gas
will be identical to that received for Tantawan Field gas.
The natural gas price is based on formulae which provide adjustments to the
base price for natural gas on each April 1 and October 1. Adjustments will be
made to reflect changes in (1) wholesale prices in Thailand, (2) the U.S.
producer price index for oil field machinery and tools, and (3) medium fuel oil
prices. Adjustment factors for oil field machinery and medium fuel oil prices
are subsequently adjusted for
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<PAGE> 55
Thai Baht/U.S. Dollar fluctuations. Payment is made monthly in Thai Baht. Gas
price realizations for December 1997 were $1.64/MCF, and the average price
realized for the year was $1.86/MCF.
In early July 1997, Rutherford-Moran had its first oil lifting from the
Tantawan Field and sold 278,000 barrels of oil for Thai Baht pursuant to a
memorandum of understanding with PTT. Subsequent to that lifting, the memorandum
of understanding was terminated and the concessionaires received the right to
export their oil on the spot market to any purchaser, provided the price exceeds
that bid by PTT. As of December 31, 1998 Rutherford-Moran had sold eight cargoes
for U.S. Dollars on the spot market, and expects to continue to do so at market
prices.
At the concessionaires' request, PTT reduced its maximum gas nomination
from 115% of the DCQ to 85 MMcf per day from May through September 1998. This
reduction reflected a prudent reservoir management measure. Effective October 1,
1998, PTT increased its nomination to 115% of the DCQ, or approximately 98 MMCF
per day. Because of production declines, the current rate of gas production
cannot meet 115% of the DCQ, nor can it meet the DCQ. In order to maximize
current cash flow, the concessionaires have offset the effects of decreased gas
volumes with increased oil volumes until such time as drilling, workover
maintenance and additional platform installation increase gas production to an
amount equal to or exceeding the DCQ. The gas price penalty incurred due to a
failure to meet the gas nomination is a sum in cash equal to the difference
between the daily quantity and the nominated quantity times 25% of the
prevailing price during such period, incurred due to failure to meet the gas
nomination.
THAI CONCESSION TERMS
Term. The concession agreement provided for an exploration period of six
years ending July 31, 1997, which may be renewed for an additional three-year
term upon agreement between the parties. At the end of the initial exploration
term on July 31, 1997, Thai petroleum law permitted the government to grant,
upon application by the concessionaires, an additional three-year exploration
term on up to 50% of the concession acreage that had not been previously
designated as a production area or relinquished, subject to agreement on certain
terms and conditions. In May 1997, the concessionaires received an extension of
the exploration period, which will now end on July 31, 2000, by agreeing to
undertake a work program composed of a 3-D seismic survey and drilling two
exploration wells. As of December 31, 1998, the concessionaires have completed
all of their obligations under the work program.
Before the expiration of the exploration period, the concessionaires may
pay annual lease rentals to retain any acreage subject to forfeiture. The
Department of Mineral Resources sets the rentals on the date that the
concessionaires submit the application for payment of rentals.
If production does not commence within four years of the designation of the
production area, the production period will expire. The petroleum production
period for producing areas is a 20-year period beginning on the last day of the
exploration period, which 20-year period may be extended for ten years upon
agreement on the terms of the extension.
Production Bonuses. Pursuant to the terms of the concession agreement, the
concessionaires are required to make the following payments, called production
bonuses to the Ministry of Finance: (1) $2.0 million upon the first production
of petroleum from the concession; (2) $3.0 million when petroleum production
from the concession reaches an average of 50,000 barrels of crude oil equivalent
per day in any one calendar month; and (3) $7.5 million when the petroleum
production from the concession area reaches an average of 100,000 barrels of
crude oil equivalent per day in any calendar month. Rutherford-Moran paid to the
Ministry of Finance in January 1997 the sum of $927,000 representing
Rutherford-Moran's 46.34% share of the first production bonus. Rutherford-Moran
estimates that upon completion of Benchamas Field start-up and its infill
drilling progress of Tantawan Field, it will be obligated to pay another
$1,390,200, representing its share of the second production bonus during the
latter part of 1999 or early part of 2000.
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<PAGE> 56
Royalties. The following table summarizes the monthly royalties required to
be paid to the Thai government based on barrels of oil equivalent produced
within the concession (natural gas is converted to an equivalent under the
royalty using a ratio of 10 MMbtu of natural gas to one barrel of oil):
<TABLE>
<CAPTION>
PERCENT OF VALUE
OF PRODUCT SOLD
MONTHLY VOLUME OF PRODUCT (IN EQUIVALENT BARRELS) OR DISPOSED
------------------------------------------------- ----------------
<S> <C>
Not exceeding 60,000........................................ 5.00%
Portion exceeding 60,000 but not exceeding 150,000.......... 6.25
Portion exceeding 150,000 but not exceeding 300,000......... 10.00
Portion exceeding 300,000 but not exceeding 600,000......... 12.50
Portion exceeding 600,000................................... 15.00
</TABLE>
Special Remuneratory Benefit. The concessionaires must also pay a special
remuneratory benefit ("SRB"), which is calculated annually on a concession-wide
basis as a percentage of annual petroleum profit (hydrocarbon revenues net of,
among other things, royalties, production bonuses, capital expenditures and
operating expenses). No SRB is payable if the concession has no annual petroleum
profit after consideration of carryforwards. The SRB varies from zero to 75% of
annual petroleum profit, depending on the level of annual revenue per meter
drilled in the concession. Rutherford-Moran does not anticipate paying any SRBs
for the foreseeable future in light of anticipated drilling activity.
Termination and Revocation. The concession agreement terminates (1) upon
the termination of the petroleum production period; (2) when the effective
concession area ceases to exist by virtue of the provisions of the Petroleum
Income Tax Act B.E. 2514, which governs statutory percentage relinquishment, or
through the voluntary relinquishment made by the concessionaires; (3) upon
revocation of the concession agreement; or (4) upon termination of the
concessionaires' status as a juristic person (i.e., a person subject to the
jurisdiction of Thai courts). Under the Thai Petroleum Act, the Ministry of
Industry may revoke the concession agreement if (a) the concessionaires fail to
pay the production bonuses, the royalties, the SRB or income taxes; (b) any
concessionaire becomes bankrupt; or (c) the concessionaires fail to comply with
good petroleum industry practice or to conduct petroleum operations with due
diligence or violate certain other provisions of the concession agreement or the
Thai Petroleum Act. In addition, all production, storage and transportation
equipment and facilities must be turned over to the Thai government at the end
of the production term.
Joint and Several Liability. Under the terms of the concession agreement,
each of the concessionaires is jointly and severally liable for the obligations
of the concessionaires, including payment of income taxes, under the concession.
Currency Repatriation. The concession agreement allows the concessionaires
an unfettered right to retain and remit money abroad in foreign currency.
JOINT OPERATING AGREEMENTS
Tantawan. As a result of Maersk's decision not to participate in the
development of the Tantawan Field, the Tantawan concessionaires entered into a
separate joint operating agreement effective as of March 3, 1995, with regard to
the operation of the Tantawan Field (the "Tantawan JOA"). Thaipo was designated
as operator. Subject to the supervision of the operating committee, the operator
has the exclusive right and is obligated to conduct all operations relating to
the Tantawan Field, including but not limited to the preparation and
implementation of proposed work programs, budgets and authorizations for
expenditure, obtaining all requisite services and materials and providing to
each of the Tantawan concessionaires reports, data and information concerning
the operation in the Tantawan Field. The operating committee consists of one
representative of each Tantawan concessionaire with the operator as the
chairman. Each party has a percentage vote on the operating committee equal to
its percentage interest. For information on the percentage interest of each
party see "-- History of the Concession." All decisions of the operating
committee require the affirmative vote of two or more non-affiliated parties
having an aggregate percentage interest of not less than 51%. The approval of
the operating committee is
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<PAGE> 57
required with regard to the general outline of all work programs, appraisal and
development operations and the budgets pertaining to operations in the Tantawan
Field.
Remainder of the Concession. Thai Romo, Thaipo, Maersk and Palang Sophon
are also parties to an earlier joint operating agreement dated August 1, 1991
(the "JOA"), under which Maersk was appointed operator for the concession. Terms
and conditions under this joint operating agreement relating to the operator and
the operating committee are substantially similar to those in the Tantawan JOA,
except that all decisions of the operating committee require the affirmative
vote of two or more non-affiliated parties having an aggregate percentage
interest of not less than 60%. In March 1997, Maersk was sold to the
concessionaires. At that time, the concessionaires executed a letter agreement
appointing Thaipo as operator to replace Maersk and agreeing that operations
would be governed by the Tantawan JOA.
The relationship of the parties with respect to the Tantawan Field is
governed by Tantawan JOA and the relationship with respect to the balance of the
concession is governed by the JOA. As a matter of convenience, this proxy
statement/prospectus refers to the Tantawan JOA and the JOA generally as the
joint operating agreement.
BUSINESS CONDITIONS
Since the latter half of 1997, many countries in Southeast Asia, including
Thailand, have experienced significant reductions in economic growth. Natural
gas produced in Thailand by Rutherford-Moran and other producers is primarily
used for electrical power generation. The current recession in Thailand has
reduced the use of electricity thereby slowing the increase and potentially
reducing the consumption of hydrocarbon fuels used to power electric generators.
Prolonged decreased demand for fuel oil and natural gas at a time when sources
of supplies are increasing may impact Rutherford-Moran's long term ability to
market substantial increases in gas production. In the near term
Rutherford-Moran believes that its natural gas will displace either imported
crude oil, lignite or imported natural gas as power generation feedstock,
because domestic natural gas is cheaper to purchase, environmentally preferable
and enables the government to increase its U.S. Dollar reserves during a period
of economic uncertainty.
As Rutherford-Moran has the right to export its crude oil to the highest
bidder for U.S. Dollars, it does not believe that the recent events in Thailand
and other countries in Southeast Asia will impact its ability to market crude
oil.
PRIMARY CUSTOMERS
All natural gas produced from the Tantawan Field is being sold to PTT,
which maintains a monopoly over gas transmission and distribution in Thailand.
PTT is an agency of the Kingdom of Thailand, which has a Ba1 sovereign debt
rating from Moody's Investors Services, Inc. and a BBB- sovereign debt rating
from Standard & Poor's Corporation, both U.S. rating agencies.
The concessionaires are able to sell their crude oil to a variety of
potential purchasers.
OIL AND GAS PROPERTIES
The table below summarizes Rutherford-Moran's net proved oil (including
condensate and crude oil) and natural gas reserves and discounted net present
value ("NPV") by field as of December 31, 1997, as
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<PAGE> 58
determined by Ryder Scott Company, independent petroleum reserve engineers. Oil
has been converted at a ratio of 6 MCF of gas to 1 barrel of crude oil when
presenting natural gas equivalents (MCFE):
<TABLE>
<CAPTION>
NPV BEFORE % OF
OIL NATURAL GAS TOTAL INCOME TAX TOTAL
FIELD (MBO) (MMCF) (MMCFE) ($ IN 000'S) NPV
----- ------ ----------- -------- ------------ ------
<S> <C> <C> <C> <C> <C>
Tantawan...................... 8,967 75,838 129,640 $37,407 59
Benchamas..................... 18,899 93,312 206,706 22,687 36
Maliwan....................... 956 16,157 21,893 2,846 5
------ ------- ------- ------- ---
Total............... 28,822 185,307 358,239 $62,940 100
====== ======= ======= ======= ===
</TABLE>
RESERVES
The following table sets forth estimates of the net proved oil (including
condensate and crude oil) and natural gas reserves of Rutherford-Moran at
December 31, 1997, as determined by Ryder Scott:
<TABLE>
<CAPTION>
OIL(MBO) NATURAL GAS(MMCF)
---------------------------------- -----------------------------------
DEVELOPED UNDEVELOPED TOTAL DEVELOPED UNDEVELOPED TOTAL
--------- ----------- ------ --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Tantawan............. 7,021 1,946 8,967 60,193 15,645 75,838
Benchamas............ -- 18,899 18,899 -- 93,312 93,312
Maliwan.............. -- 956 956 -- 16,157 16,157
----- ------ ------ ------ ------- -------
Total.............. 7,021 21,801 28,822 60,193 125,114 185,307
===== ====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
NATURAL GAS EQUIVALENTS(MMCFE)
-----------------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
<S> <C> <C> <C>
Tantawan.............................................. 102,319 27,231 129,640
Benchamas............................................. -- 206,706 206,706
Maliwan............................................... -- 21,893 21,893
------- ------- -------
Total....................................... 102,319 255,920 358,239
======= ======= =======
</TABLE>
Rutherford-Moran has not filed any different estimates of its December 31,
1997 reserves with any federal agency.
The reserve data set forth in this proxy statement/prospectus represents
only estimates. Reserve engineering is a subjective process of estimating
underground accumulations of crude oil and natural gas that cannot be measured
in an exact manner. The accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation and
adjustment. As a result, estimates of different engineers often vary. In
addition, results of drilling, testing and production subsequent to the date of
an estimate may justify revision of such estimates. Accordingly, reserve
estimates often differ from the quantities of crude oil and natural gas that are
ultimately recovered. Estimates of economically recoverable crude oil and
natural gas reserves and of future net revenues are based upon a number of
variables and assumptions, all of which may vary considerably from actual
results. The reliability of such estimates is highly dependent upon the accuracy
of the assumptions upon which they were based.
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<PAGE> 59
The following table sets forth, at December 31, 1997, the discounted net
present value attributable to Rutherford-Moran's estimated net proved reserves
at that date as estimated by Ryder Scott:
<TABLE>
<CAPTION>
TANTAWAN BENCHAMAS MALIWAN TOTAL
--------- --------- -------- ---------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C>
Future cash inflows.................. $ 285,994 $ 483,015 $ 45,021 $ 814,030
Future production costs.............. (207,576) (121,328) (6,256) (335,160)
Future development costs............. (29,337) (196,513) (20,941) (246,791)
--------- --------- -------- ---------
Future net cash inflows.............. 49,081 165,174 17,824 232,079
Discount at 10% per annum............ (11,674) (142,487) (14,978) (169,139)
--------- --------- -------- ---------
Present value of future net cash
flows, before income taxes......... $ 37,407 $ 22,687 $ 2,846 $ 62,940
========= ========= ======== =========
</TABLE>
In computing this data, assumptions and estimates have been utilized, and
no assurance can be given that such assumptions and estimates will be indicative
of future economic conditions. The future net cash inflows are determined by
using estimated quantities of proved reserves and the periods in which they are
expected to be developed and produced based on December 31, 1997 economic
conditions. The estimated future production is based on prices Rutherford-Moran
estimated it would have received at December 31, 1997, except where fixed and
determinable price escalations or oil hedges are provided by contract. The
resulting estimated future gross revenues are reduced by estimated future costs
to develop and produce the proved reserves based on December 31, 1997 cost
levels, but not for debt service and general and administrative expenses.
ACREAGE AND PRODUCTIVE WELLS
The following table sets forth Rutherford-Moran's developed and undeveloped
acreage position at December 31, 1997. A net acre is deemed to exist when the
sum of fractional ownership of working interest in gross acres equals one:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE TOTAL
-------------- -------------- --------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gulf of Thailand................ 67.9 31.5 666.4 308.8 734.3 340.3
</TABLE>
At December 31, 1997, Rutherford-Moran owned interests in the following
wells capable of production pending completion and installation of production
facilities. The number of net wells is the sum of fractional ownership of
working interest owned directly by Rutherford-Moran in gross wells expressed as
whole numbers and percentages thereof:
<TABLE>
<CAPTION>
GROSS NET
----- ----
<S> <C> <C>
Oil and Gas Wells........................................... 57 26.4
</TABLE>
The above well count does not include 14 wells (6.5 net) that are currently
under evaluation.
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<PAGE> 60
DRILLING ACTIVITY
The following table sets forth the number of gross and net successful and
dry development wells and exploratory wells drilled by Rutherford-Moran during
the years indicated.
<TABLE>
<CAPTION>
GROSS GROSS NET NET
DEVELOPMENT EXPLORATORY DEVELOPMENT EXPLORATORY
WELLS WELLS WELLS WELLS
---------------- ---------------- ---------------- ----------------
YEAR SUCCESSFUL DRY SUCCESSFUL DRY SUCCESSFUL DRY SUCCESSFUL DRY
---- ---------- --- ---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998................................. 14 -- 2 2 6.5 -- 0.9 1.8
1997................................. 18 -- 9 3 8.3 -- 4.2 1.4
1996................................. 15 -- 9 -- 7.0 -- 4.2 --
1995................................. 7 -- 4 -- 3.2 -- 1.9 --
1994................................. -- -- 5 -- -- -- 2.3 --
1993 and prior....................... -- -- 4 1 -- -- 1.9 0.5
-- -- -- -- ----- -- ----- ---
Total...................... 54 -- 33 6 25.0 -- 15.4 3.7
== == == == ===== == ===== ===
</TABLE>
Tantawan
Through December 31, 1997, Rutherford-Moran has participated in drilling a
total of 34 development and 14 exploration wells in the Tantawan Field. Of the
48 total wells, 40 are deemed capable of commercial flow rates while 8 wells are
being evaluated. All of these successful wells were drilled in the southern
portion of the Tantawan Field and have encountered an average of 178 feet of net
hydrocarbon pay. As of December 31, 1997, net proved reserves for the Tantawan
Field were 129.6 Bcfe.
In August 1996, Rutherford-Moran set its "A" and "B" twelve slot production
platforms and mobilized two drilling rigs to tie-back and complete a total of 19
wells. To facilitate moving the natural gas and crude oil to market, the
operator participated in a long-term lease for an oceangoing tanker, the T/T
Bayern, the only FPSO vessel in the Gulf of Thailand. The vessel, recommissioned
as the Tantawan Explorer, was delivered in December 1996.
During 1997, Thai Romo and its partners installed the nine slot "C"
platform and production commenced from it during the fourth quarter of 1997.
Also during that quarter, the concessionaires installed the nine slot "D"
platform and began drilling and completing development wells. Production from
these wells commenced in February 1998.
In 1998, the concessionaires approved fabrication of the Tantawan "E"
platform. Production startup for the Tantawan "E" platform is scheduled for the
second quarter of 1999.
Benchamas
In January 1997, the concessionaires submitted a plan of development to the
Thai government and applied for approval to produce oil and gas from the
Benchamas Field and part of the Pakakrong area. In June 1997, the
concessionaires received a production license covering approximately 101,000
acres from the Ministry of Industry in these areas. Rutherford-Moran believes
this is the largest production license area ever awarded in the Gulf of
Thailand.
Through December 31, 1997, Rutherford-Moran has participated in drilling a
total of 11 exploration wells and 6 development wells in the Benchamas Field,
all of which were hydrocarbon bearing and 15 of which were considered to be
capable of commercial flowrates, while 2 are under evaluation. The wells
encountered an average of 222 feet of net hydrocarbon pay. As of December 31,
1997, net proved reserves for the Benchamas Field were 206.7 Bcfe.
Rutherford-Moran conducted an active program of development drilling in the
Benchamas Field in 1998 with first production expected to commence in the third
quarter of 1999.
The Benchamas Field phase one plan of development calls for the
construction and installation of:
- Central process/compression platform,
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<PAGE> 61
- Living quarters/utilities platform,
- Wellhead platforms 'A' 'B', and 'C',
- Platform interconnecting bridges at wellhead platform 'A',
- 16-inch, 32-mile gas sales tie-in pipeline and infield flowlines,
- Floating storage and offloading vessel.
The central process/compression platform will be a large eight-leg
structure located adjacent to wellhead platform 'A'. Its primary function will
be to separate the produced wellstreams into three components -- oil, gas, and
water -- and to prepare the gas for entry into PTT's sales pipeline. Produced
oil will be prepared for delivery through the oil pipeline into the FSO vessel.
Produced water will be treated and discharged. The FSO will provide sufficient
storage for optimal offloading of oil to export tankers, as well as providing
spare capacity in the event of delays in tanker arrival. The concessionaires
have negotiated a ten year bareboat charter and related operating agreement for
a ship with a capacity of approximately 1.35 million barrels.
The living quarters/utilities platform will also be a part of the central
complex. It will be bridge connected to the central process/compression platform
opposite wellhead platform 'A'. The platform will be a large four-pile platform
containing a multi-story 60-man accommodation module, a power generation module
and utility systems to support both the quarters facilities and the process
platform.
The three wellhead platforms will be set in the vicinity of the Benchamas
Nos. 1, 3, and 12 wells. Wellhead platforms 'A', 'B', and 'C' will be four-pile
jackets and have twelve, sixteen and six well conductors, respectively. All
three platforms can accommodate either a jack-up or platform rig.
Flowlines will bring segregated production from the wellhead platforms to
the central process/compression platform for final separation, dehydration,
compression, and measurement. The production facilities have been designed to
handle up to 150 MMcf and 50 MBbl of produced liquids per day through a single
separation train. The crude oil and condensate will flow to the FSO. Based on
test data, the Benchamas Field is expected to produce a sweet, light crude
oil/condensate blend with a moderate paraffin content. The average CO(2) content
of the natural gas produced during the various drill stem tests was 7.8%.
The concessionaires expect that the gross cost of this development
(drilling and facilities) to be approximately $400 million and have awarded
construction contracts to Nippon Steel Company and Hyundai Heavy Industries Ltd.
for the wellhead platforms and central process/compression platform,
respectively. The wellhead platforms have been designed to accept either a
jack-up rig or a low cost, tender assisted rig with the capability of drilling
directional wells to a depth of 13,000 feet measured depth.
Projected Drilling and Completion Program. Plans for the drilling of wells
in the initial development phase are based on the utilization of only one
drilling rig. The concessionaires have signed a letter of intent with a
contractor to utilize a tender assisted rig. The majority of the development
wells at Benchamas Field will be drilled using slim hole drilling and completion
technology and should result in significant cost savings over conventional
programs.
Estimated Project Timing. Production from Benchamas phase one development
is projected to commence during the third quarter of 1999. The producing life of
phase one reserves is estimated at 15 years. Future production rates may be more
or less than estimated because of changes in project timing, reservoir
performance or market conditions.
During 1998, the concessionaires successfully drilled the Benchamas #19 and
#22 exploration wells. These wells, which were drilled outside the phase and
development, encountered 238 and 242 feet of net oil and gas pay respectively.
While no additional development decisions have been made, the results of these
wells increase the likelihood of additional development at Benchamas Field.
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<PAGE> 62
Maliwan
During 1997, four exploration wells were drilled in the Maliwan area,
located between the Tantawan and Benchamas Fields. All wells encountered
hydrocarbons with 2 deemed successful and 2 under evaluation. The wells
encountered an average of 129 feet of net hydrocarbon pay. In July 1997, the
concessionaires made formal application for a production license. The
concessionaires received a 91,000 acre production license in November 1997. As
of December 31, 1997, net proved reserves for the Maliwan 2 and 4 were 21.9
BCFE.
Pakakrong
In late 1995, a 100 square mile 3-D seismic survey of the Pakakrong
prospect was acquired, processed and interpreted. The prospect is centered 8.5
miles southwest of the Benchamas-1 well. Production tests in the two Pakakrong
wells drilled in early 1996 have established potential commercial reservoirs at
depths considerably shallower than found to date elsewhere within the
concession. Both wells are currently under evaluation. The production license
awarded for the Benchamas Field includes a portion of Pakakrong.
Drill stem tests conducted on the Pakakrong-1 yielded cumulative flow rates
of 25.5 MMcfd of natural gas and 0.7 Mbpd of oil or condensate. Three drill stem
tests were conducted in the Pakakrong-2 well. Two of the tests conducted across
intervals at 7,400 feet and 7,640 feet produced approximately 60% and 80%,
respectively, of CO(2). The third test, conducted at a depth of 4,200 feet,
yielded a flow of 1.6 MBPD of oil and condensate. Based on seismic
interpretation, Rutherford-Moran believes that this zone may be the same zone
observed but not tested in the Pakakrong-1 well located one mile northwest.
However, Rutherford-Moran expects that additional delineation drilling and
further geological assessment will be required prior to formulation of a
development plan.
North Benchamas
During 1997, Rutherford-Moran drilled three exploratory wells in the North
Benchamas portion of the concession. Two of the three wells encountered
non-commercial accumulations of hydrocarbons and all three wells were deemed
unsuccessful. Rutherford-Moran intends to further examine and refine its
existing seismic data before deciding on further drilling in this area.
Jarmjuree
During 1997, the concessionaires shot a 900 square kilometer 3-D seismic
survey of the Jarmjuree Area, which is located in the southern portion of the
concession. Rutherford-Moran will interpret this data in 1998 before deciding on
future drilling activities.
THAILAND TAXES
Under the Petroleum Income Tax Act B.E. 2514 and (No. 4) B.E. 2532, Thai
Romo's and B8/32 Partners' net profits derived from the petroleum business are
subject to Thai income tax at the rate specified by the Royal Decree Prescribing
Petroleum Income Tax Rates B.E. 2514, which must not be lower than 50% and not
be higher than 60% of such net profits. Under the Royal Decree, the Thai income
tax rate to be imposed on Thai Romo's and B8/32 Partners' anticipated net
profits derived from their petroleum business is 50%.
In computing Thai Romo's and B8/32 Partners' anticipated net profits from
its petroleum business that will be subject to Thai tax, any interest paid on
loans by Thai Romo and B8/32 Partners to any lenders or shareholders, whether or
not resident or doing business in Thailand, is not deductible. Royalties to be
paid by Thai Romo and B8/32 Partners to the Ministry of Industry that are
required under the concession are deductible in computing Thai Romo's and B8/32
Partners' net profits from their petroleum business.
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<PAGE> 63
COMPETITION
Rutherford-Moran experiences competition from other oil and gas companies
in its operations. Many of these companies have financial resources greater than
Rutherford-Moran.
EMPLOYEES
At December 31, 1998, Rutherford-Moran employed 9 people (excluding Messrs.
Rutherford and Moran) in its Houston, Texas headquarters whose functions are
associated with management, engineering, geology, finance and administration.
Rutherford-Moran has no collective bargaining arrangement with employees and
believes its relations with its employees are good.
OFFICES
Rutherford-Moran leases its Houston office under a lease covering
approximately 11,000 square feet, expiring in February 2002. The monthly rent
and expenses are approximately $11,000.
CERTAIN LITIGATION
On December 16, 1998, Mr. Bruce Nakfoor, formerly a Rutherford-Moran
stockholder, filed a lawsuit in state district court in Harris County, Texas
under Cause No. 1998-59080 against Rutherford-Moran, John A. Moran, Patrick R.
Rutherford and David F. Chavenson. Mr. Nakfoor was a stockholder of
Rutherford-Moran from January 1998 through August of 1998. Mr. Nakfoor alleges
that his original purchase of the shares was made because of information
published in early 1998 that Rutherford-Moran was intent upon maximizing the
value of its shares and, towards that end, was engaging investment bankers to
advise it in connection with a sale of the company. Mr. Nakfoor alleges that, in
several conversations with officers of the company, he was encouraged to keep
his shares and purchase additional stock in the company. He also alleges that
the officers stated they were confident of obtaining a sale of the company at
given prices and that Rutherford-Moran was in good shape financially. Mr.
Nakfoor alleges that the representations made to him by these officers were
knowingly and falsely made and that he was damaged by these misrepresentations.
Three defendants have been served and filed their general denial to the
allegations on January 22, 1999.
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<PAGE> 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The following discussion is intended to assist in understanding
Rutherford-Moran's financial position and results of operations for each year in
the three year period ended December 31, 1997 and for the three and nine month
periods ended September 30, 1997 and September 30, 1998. The consolidated
financial statement as of and for the years ended December 31, 1995, 1996 and
1997 and the unaudited condensed consolidated financial statements and for the
three and nine month periods ended September 30, 1997 and September 30, 1998 and
the notes thereto are attached to this proxy statement/prospectus and should be
referred to in conjunction with this discussion.
From time to time, Rutherford-Moran may elect to make certain statements
that provides stockholders and the investing public with "forward-looking"
information (as defined in the Private Securities Litigation Reform Act of
1995). Words such as "anticipate," "believe," "estimate," "project," and similar
expressions are intended to identify such forward-looking statements.
Forward-looking statements may be made by management orally or in writing,
including, but not limited to, in press releases, as part of the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this proxy statement/prospectus and as part of other sections of the
company's filings with the SEC under the Securities Act and the Securities
Exchange Act. Such forward-looking statements may include, but not be limited
to, statements concerning estimates of current and future results of operations,
financial position, reserves, the timing and commencement of wells and the
production therefrom, production estimates based upon drill stem tests and other
test data, future capacity under its credit arrangements, future capital
expenditures, liquidity requirements and year 2000 compliance.
Such forward-looking statements are subject to certain risks, uncertainties
and assumptions, including without limitation, those identified below. Should
one or more of these risks or uncertainties materialize, or should any of the
underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated, estimated or projected.
Among the factors that have a direct bearing on Rutherford-Moran's results
of operations and the oil and gas industry in which it operates are
uncertainties inherent in estimating reserves and future production and cash
flows, particularly with respect to wells with limited production histories;
access to additional capital; changes in the price of oil and natural gas; the
limited exploration histories in the concession; the status of
Rutherford-Moran's existing and future contractual relationships with the
Government of Thailand, including the concession and the gas sales agreement;
risks associated with having the Government of Thailand as the sole purchaser of
Rutherford-Moran's gas production, including the potential for political
instability and economic downturns in the Thailand economy and a reduction in
demand for oil and natural gas in Thailand; foreign currency fluctuation risks;
Rutherford-Moran's substantial indebtedness, the presence of competitors with
greater financial resources and capacity; difficulties and risks associated with
offshore oil and gas exploration and development operations and risks associated
with offshore marine operations such as capsizing, sinking, grounding, collision
and damage from severe weather conditions.
OVERVIEW
RMEC was formed on September 21, 1990 for the purpose of holding an
interest in the concession. RMEC paid all of the expenses of the concession on
behalf of Thai Romo through November 4, 1993.
Effective September 24, 1990, the stockholders of RMEC elected to have it
treated as an S Corporation under the Internal Revenue Code of 1986, as amended.
As such, RMEC did not incur federal income taxes at the corporate level prior to
June 18, 1996, and its taxable income or loss was passed through to its
stockholders based on their interests.
In November 1993, Thai Romo amended its Articles of Association so that it
would be treated as a partnership for U.S. income tax purposes and added
additional partners, including Rutherford-Moran's
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<PAGE> 65
current Chairman of the Board and current President and Chief Executive Officer.
As such, Thai Romo was not subject to federal income taxes from November 1993 to
June 17, 1996. Income and losses earned by Thai Romo were passed through to the
partners on the basis of their interest in Thai Romo.
In June 1996, Rutherford-Moran entered into an exchange transaction whereby
the partners of Thai Romo (other than RMEC) exchanged their interests (including
outstanding notes payable to them) in Thai Romo for Rutherford-Moran common
stock which interests in Thai Romo were simultaneously transferred to TRH, and
the stockholders of RMEC, which include Rutherford-Moran's current Chairman of
the Board and current President and Chief Executive Officer, exchanged their
shares of RMEC for shares of Rutherford-Moran common stock. Immediately
following this exchange, RMEC and Thai Romo (indirectly) were wholly-owned by
Rutherford-Moran. Rutherford-Moran's results of operations and financial
positions prior to the exchange reflect the results of operations and financial
position of RMEC, TRH and Thai Romo as Rutherford-Moran's predecessors.
Following the exchange of shares described above, Rutherford-Moran
completed its initial public offering of Rutherford-Moran common stock, raising
net proceeds, after deducting underwriting commissions and discounts and
expenses of the offering, of approximately $97 million, which were utilized to
repay outstanding debt to the company's principal stockholders, repay bank debt
and fund cash outlays.
Rutherford-Moran began producing oil and gas from the Tantawan Field, its
first development in the concession, in February 1997. Prior to that time,
Rutherford-Moran was classified as a development stage company. As a result,
Rutherford-Moran's historical results of operations and period-to-period
comparisons of such results, and certain financial data may not be meaningful or
indicative of future results. Rutherford-Moran's financial condition, results of
operations, future growth and the carrying value of its proved reserves will
depend substantially on its ability to access substantial additional sources of
funds to acquire or find and successfully develop additional oil and gas
reserves within the concession. The revenues expected to be generated by
Rutherford-Moran's future operations will be highly dependent upon production
levels, commodity prices and demand for oil and natural gas. Natural gas
produced from Rutherford-Moran's Tantawan and Benchamas Fields is subject to the
gas sales agreement with PTT, with prices subject to semi-annual adjustment (or
more frequent adjustments under certain circumstances) based on movements in,
among other things, inflation, oil prices and the Thai Baht/U.S. Dollar exchange
rate. The price received by Rutherford-Moran for its oil production and the
level of production will depend on numerous factors beyond Rutherford-Moran's
control, including the condition of the world economy, political and regulatory
conditions in Thailand and other oil and gas producing countries, and the
actions of the Organization of Petroleum Exporting Countries. Decreases in the
prices of oil or gas could have an adverse effect on the carrying value of
Rutherford-Moran's proved reserves and Rutherford-Moran's revenues,
profitability, cash flow and availability of credit.
During the fourth quarter of 1997, Rutherford-Moran changed its method of
accounting for its investment in oil and gas properties from the full cost to
the successful efforts method. Under the successful efforts method of
accounting, costs of exploration and development, including lease acquisition
and intangible drilling costs associated with exploration efforts which result
in the discovery of proved reserves and costs associated with development
drilling, whether or not successful, are capitalized. The cost of unsuccessful
exploration wells and geological and geophysical costs are expensed as incurred.
Gain or loss is recognized when a property is sold or ceases to produce and is
abandoned. Capitalized drilling costs of producing properties are amortized
utilizing the units-of-production method based on units of proved developed
reserves for each field. Lease acquisition cost related to producing oil and gas
properties are amortized utilizing the units of production method based on units
of proved reserves for each field.
Rutherford-Moran believes that the successful efforts method of accounting
is preferable as it will more accurately reflect Rutherford-Moran's future
operations. The company believes that the significant number of exploratory
wells drilled annually, as well as the amount of geological and geophysical
costs necessary to evaluate Rutherford-Moran's large acreage position, justifies
the utilization of the successful efforts method. Additionally, Rutherford-Moran
expects such activities to increase and remain at such an increased level for an
indefinite period of time, given the potential of the concession and the
prospective
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<PAGE> 66
nature of the acreage. As a result, Rutherford-Moran believes that a change in
accounting principle to successful efforts is appropriate at this time. The
change to this method resulted in no impairment to long-lived assets in
accordance with Statement of Financial Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
See Note 2 to Consolidated Financial Statements.
All financial statements for periods prior to this change in accounting
method have been restated to reflect the aforementioned change (see Note 2 to
unaudited condensed consolidated financial statements).
Since the latter half of 1997, many countries in Southeast Asia, including
Thailand, have experienced significant reductions in economic growth. Natural
gas produced in Thailand by Rutherford-Moran and other producers is primarily
used for electrical power generation. The current recession in Thailand has
reduced the use of electricity thereby slowing the increase and potentially
reducing the consumption of hydrocarbon fuels used to power electric generators.
Prolonged decreased demand for fuel oil and natural gas at a time when sources
of supplies are increasing may impact Rutherford-Moran's long term ability to
market substantial increases in gas production. In the near term,
Rutherford-Moran believes that its natural gas will displace either imported
crude oil, lignite or imported natural gas as power generation feedstock,
because domestic natural gas is cheaper to purchase, environmentally preferable
and enables the government to increase its U.S. Dollar reserves during a period
of economic uncertainty.
As Rutherford-Moran exports its crude oil to the highest bidder for U.S.
Dollars, it does not believe that the recent events in Thailand and other
countries in Southeast Asia will impact its ability to market crude oil.
RESULTS OF OPERATIONS
Year Ended December 31, 1997, compared with the year ended December 31,
1996
Rutherford-Moran's net loss of $22,651,000 or $0.88 per basic and diluted
share increased from a net loss of $2,437,000 or $0.10 per basic and diluted
share for the twelve months ended December 31, 1996. The increase in net loss is
primarily due to higher interest expense caused by increased debt levels,
depletion and a foreign exchange loss, offset by the revenues associated with
the commencement of production from the Tantawan Field, net of related operating
costs, and a related tax benefit.
Rutherford-Moran's total revenues for the twelve months ended December 31,
1997 were $35,465,000 compared to $170,000 for the twelve months ended December
31, 1996. Oil and gas revenues were $35,034,000 and interest income was $431,000
for the current year, as compared to interest income of $170,000 for the twelve
months ended December 31, 1996.
Production volumes for the twelve months ended December 31, 1997, before
royalties, were 906,700 barrels of oil and 13,696,800 Mcf of gas, compared to no
production volumes previously.
Operating expenses incurred for the twelve months ended December 31, 1997,
were $24,243,000 as compared to no operating expenses previously. This increase
is due to the commencement of production in the Tantawan Field February 1997.
Exploration cost increased for the twelve months ended December 31, 1997,
due to drilling three unsuccessful exploration wells in the North Benchamas Area
as well as the completion of a large 3-D seismic survey of the Jarmjuree Area
located in the southern portion of the concession.
Depreciation, depletion and amortization expenses recorded for the twelve
months ended December 31, 1997 was $18,055,000 as compared to $29,000 for the
twelve months ended December 31, 1996. This increase is primarily due to the
commencement of production in February 1997.
Interest expense of $7,157,000 for the twelve months ended December 31,
1997 increased compared to $806,000 for the twelve months ended December 31,
1996. This increase is due to an increase in borrowings and the amortization of
deferred financing costs partially offset by increases in capitalized
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interest. Outstanding debt at December 31, 1997 was $189,000,000 as compared to
$22,842,000 at December 31, 1996.
General and administrative expenses of $5,737,000 for the twelve months
ended December 31, 1997 increased compared to $2,268,000 for the twelve months
ended December 31, 1996. These increases are related to higher activity levels
in 1997 as well as a significantly larger amount of general and administrative
expenses capitalized in 1996.
Rutherford-Moran had foreign exchange losses of $6,323,000 for the twelve
months ended December 31, 1997 compared to none in 1996. As Rutherford-Moran is
paid for its gas in Thai Baht and also has some Baht denominated working
capital, the decision of the Kingdom of Thailand to allow the Baht to float
against the U.S. Dollar, tantamount to a devaluation of the Baht, resulted in
the recording of foreign exchange losses by Rutherford-Moran as the value of the
Baht declined during the second half of 1997.
Year ended December 31, 1996, Compared with the Year Ended December 31,
1995
Rutherford-Moran's net loss of $2,437,000 for the twelve months ended
December 31, 1996 increased from Rutherford-Moran's net loss of $2,037,000 for
the twelve months ended December 31, 1995. This increase in net loss is
primarily due to an increase in exploration cost related to an extensive 3-D
seismic survey shot during 1996, and higher general and administrative expenses
offset partially by an increase in interest income and an income tax benefit.
As RMEC and Thai Romo became part of Rutherford-Moran's consolidated
federal tax return following the exchange, RMEC and Thai Romo recorded an income
tax benefit and a corresponding deferred tax asset of $1,283,000, for the
difference between the book basis and tax basis of oil and gas properties on
June 17, 1996. This benefit was increased by a $2,238,000 tax benefit recorded
in the third and fourth quarters associated with the operating loss generated by
Rutherford-Moran.
Exploration costs for the twelve months ended December 31, 1996 were
$3,025,000 compared to $1,525,000 for the twelve months ended December 31, 1995.
This increase was due primarily to a large 3-D seismic survey incurred in 1996
for the purposes of evaluating a large area of prospective acreage in the
concession.
Interest income of $170,000 for the twelve months ended December 31, 1996,
increased compared to $5,000 for the twelve months ended December 31, 1995, due
principally to the investment of cash available from the proceeds of the initial
public offering.
Interest expense of $806,000 for the twelve months ended December 31, 1996,
increased compared to $190,000 for the twelve months ended December 31, 1995.
This increase is caused by higher levels of outstanding debt and an increase in
the amortization of deferred financing costs, partially offset by the
capitalization of $1,600,000 in interest during 1996. There was no
capitalization of interest in 1995.
General and administrative expenses of $2,268,000 for the twelve months
ended December 31, 1996 increased compared to $322,000, for the twelve months
ended December 31, 1995. These increases are primarily due to the capitalization
of a greater portion of salaries and wages and direct costs related to oil and
gas property development in 1995 compared to 1996 and, to a lesser extent, an
increase in compensation expense.
Three Months Ended September 30, 1998, Compared with Three Months Ended
September 30, 1997.
Rutherford-Moran's net loss of $15,711,000 or $0.61 per share for the three
months ended September 30, 1998 increased from a net loss of $4,766,000 or $0.19
per share for the three months ended September 30, 1997. The increase in net
loss is primarily due to the extraordinary loss on early extinguishment of debt,
higher depletion expense and increased interest expense caused by higher debt
levels, partially offset by foreign exchange gains and increased revenues
associated with production from the Tantawan Field, net of related operating
costs.
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Sales volumes for the three months ended September 30, 1998, before
royalties, were 434,182 barrels of oil and 3,559,219 Mcf of gas, compared to
236,026 barrels of oil and 3,937,924 Mcf of gas during the three months ended
September 30, 1997. Oil sales volumes increased as a result of two liftings
during the three months ended September 30, 1998 as compared to one lifting
during the three months ended September 30, 1997, while gas volumes declined due
to production declines and a change in production strategy. See "-- Liquidity
and Capital Resources."
Operating expenses incurred for the three months ended September 30, 1998,
were $6,057,000 as compared to $7,458,000 during the three months ended
September 30, 1997. Operating expenses decreased due to allocating a portion of
operating overhead to the Benchamas development program starting in the fourth
quarter of 1997.
Interest expense of $4,397,000 for the three months ended September 30,
1998 increased compared to $1,972,000 for the three months ended September 30,
1997. This is due to an increase in borrowings, higher annual interest rates
associated with the placement in September 1997 of $120 million 10.75% Senior
Subordinated Notes and increases in amortization of deferred financing costs,
partially offset by increases in capitalized interest.
Depreciation, depletion and amortization expense recorded for the three
months ended September 30, 1998, was $7,774,000 as compared to $5,137,000 for
the three months ended September 30, 1997. This increase is primarily due to
increases in the depletable base, as well as decreases in proved reserves at
Tantawan Field.
General and administrative expenses of $1,559,000 for the three months
ended September 30, 1998 increased compared to $1,226,000 for the three months
ended September 30, 1997. These increases were primarily attributable to
activities related to the review of strategic alternatives announced by
Rutherford-Moran in 1998.
Rutherford-Moran had a foreign exchange gain of $814,000 for the three
months ended September 30, 1998, compared to a foreign exchange loss of
$1,850,000 for the three months ended September 30, 1997. This change was due to
fluctuations in the value of the Thai Baht versus the U.S. Dollar.
Rutherford-Moran did not record an income tax benefit for the three months
ended September 30, 1998 because management believes that there is a risk that
net operating losses may expire unused. Rutherford-Moran recorded an income tax
benefit for the three months ended September 30, 1997 in the amount of
$2,212,000.
Rutherford-Moran recorded an extraordinary loss during the third quarter of
1998 of $7,452,000 associated with the early extinguishment of debt related to
the Second Restated Credit Agreement.
Nine Months Ended September 30, 1998, Compared with Nine Months Ended
September 30, 1997
Rutherford-Moran's net loss of $29,526,000 or $1.15 per share increased
from a net loss of $8,680,000 or $0.34, per share for the nine months ended
September 30, 1997. The increase in net loss is primarily attributable to the
extraordinary loss on early extinguishment of debt, higher depletion expense and
increased interest expense associated with increased debt levels, dry hole
costs, general and administrative expense and operating expense partially offset
by increased oil and gas revenues and gains on foreign exchange and futures
contracts.
Sales volumes for the nine months ended September 30, 1998, before
royalties, were 851,154 barrels of oil and 11,682,497 Mcf of gas, compared to
594,905 barrels of oil and 8,888,267 Mcf of gas, for the nine months ended
September 30, 1997. Oil and gas production increases are due to two additional
production platforms added in the third quarter 1997. Increased oil and gas
revenues for the nine months ended September 30, 1998 associated with these
increased volumes were partially offset by lower oil and gas prices.
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Operating expense incurred for the nine months ended September 30, 1998,
was $18,239,000 as compared to $17,100,000 for the nine months ended September
30, 1997. This increase is primarily attributable to an increase in the number
of production platforms, as well as recording only eight months of operating
expense for the nine months ended September 30, 1997 due to Tantawan production
beginning in February, 1997, partially offset by allocating a portion of
operating overhead to the Benchamas development program starting in the fourth
quarter 1997.
Dry hole cost was $2,516,000 for the nine months ended September 30, 1998
and represents costs associated with the Tantawan 18 and 19 that were
unsuccessful exploratory wells. No dry hole costs were recorded for the nine
months ended September 30, 1997. Exploration expense credits for the nine months
ended September 30, 1998 are primarily attributable to the overaccrual of
Jarmjuree seismic costs recorded in the fourth quarter of 1997 that were
reversed in the second quarter of 1998 upon final accounting of such cost.
Interest expense of $13,345,000 for the nine months ended September 30,
1998 increased compared to $4,620,000 for the nine months ended September 30,
1997. Such increase is primarily attributable to an increase in borrowings,
higher interest rates and amortization of deferred financing cost associated
with the placement of the Notes, partially offset by increases in capitalized
interest.
Depreciation, depletion and amortization expense recorded for the nine
months ended September 30, 1998 was $20,145,000 as compared to $11,208,000 for
the nine months ended September 30, 1997. Such increase was attributable to
increases in the depletable base and production volumes, as well as decreases in
Tantawan proved reserves.
General and administrative expenses of $5,298,000 for the nine months ended
September 30, 1998 increased compared to $3,993,000 for the nine months ended
September 30, 1997. These increases were primarily attributable to activities
related to the review of strategic alternatives announced by the Company in
1998.
A foreign exchange gain of $1,732,000 was recorded for the nine months
ended September 30, 1998 compared to a loss of $1,850,000 for the nine months
ended September 30, 1997. This increase is related to fluctuations in the value
of the Thai Baht in relation to the U.S. dollar.
Rutherford-Moran recorded an extraordinary loss during the third quarter of
1998 of $7,452,000 associated with the early extinguishment of debt related to
the Second Restated Credit Agreement.
LIQUIDITY AND CAPITAL RESOURCES
During the period from the inception of Rutherford-Moran on September 21,
1990 through September 30, 1998, the company invested approximately $305
million, primarily for development and exploration activities conducted in the
concession and the acquisition of interests in or rights to the concession.
During this period, Rutherford-Moran had negative operating cash flow. Since its
inception, Rutherford-Moran has financed its growth with a combination of equity
infusions by its principal stockholders (primarily Messrs. Rutherford and
Moran), bank and stockholders loans, the sale of common stock and net proceeds
of $117,000,000 from the issuance of 10.75% Senior Subordinated Notes (the
"Notes").
In June 1996, Rutherford-Moran completed an initial public offering which
resulted in net proceeds of approximately $97 million. The proceeds were used to
repay outstanding debt to Rutherford-Moran's principal stockholders, repay bank
debt, and fund cash expenditures.
On September 20, 1996, Rutherford-Moran entered into a $150 million
revolving credit agreement (the "Credit Agreement") with a group of commercial
lenders. The Credit Agreement was to mature on September 30, 1999 and contained
a borrowing base limitation. The Credit Agreement was secured by the stock of
certain subsidiaries of Rutherford-Moran.
On September 8, 1997, Rutherford-Moran entered into a short-term credit
agreement (the "Bridge Loan") with Chase Manhattan for an additional borrowing
of $5 million. The Bridge Loan contained
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covenants substantially identical to those in the Credit Agreement. The Bridge
Loan was repaid on September 29, 1997 with proceeds from the Notes.
On September 29, 1997, Rutherford-Moran issued $120 million of Notes. The
net proceeds from this offering were used to repay $93 million of outstanding
debt under the Credit Agreement and the Bridge Loan and to purchase a portfolio
of U.S. Government obligations of approximately $24 million, which is sufficient
to provide for payment in full when due, the first four scheduled interest
payments on the Notes. The indenture pursuant to which the Notes were issued
imposes customary financial and other restrictions on Rutherford-Moran and its
subsidiaries.
In December 1997, Rutherford-Moran entered into the Restated Credit
Agreement. The borrowing base was reset at a fixed amount of $150 million until
September 30, 1998 (or earlier upon the completion of certain new financings or
other specified events). The Restated Credit Agreement provided that
Rutherford-Moran pay interest at rates based on a margin of 1.75% over LIBOR if
the aggregate outstanding principal amount is less than or equal to threshold
amount, which was set at $60 million, (the "Threshold Amount"), a margin of
2.75% over LIBOR if the principal amount outstanding was greater than the
Threshold Amount on or prior to June 30, 1998, and a margin of 3.50% over LIBOR
if the principal amount outstanding was greater than the Threshold Amount after
June 30, 1998. Alternatively, Rutherford-Moran could pay a margin over the prime
rate of 0.25%, 1% and 1.75% respectively, for similar levels of borrowings. The
borrowing rate under this facility was 3.50% over LIBOR, and the commitment fee
was equal to 0.5% per annum on the average daily balance of the unused borrowing
base. Under this facility Rutherford-Moran was required to repay by September
30, 1998 all amounts borrowed in excess of the Threshold Amount.
The Restated Credit Agreement also provided for semi-annual borrowing base
redeterminations subsequent to September 30, 1998, as well as a limitation on
additional indebtedness and the issuance of warrants to purchase 200,000 shares
of common stock under specified circumstances. The warrants were issued on July
10, 1998 with a seven year term and an exercise price of $21 per share (repriced
to $10.50 per share on September 28, 1998).
The Restated Credit Agreement also required Rutherford-Moran to (1) make
principal payments from the proceeds of certain asset sales, (2) restrict the
payment of dividends under certain circumstances, and (3) maintain an operating
cash flow to interest expense ratio, or interest coverage ratio, as follows:
1.5:1 for each quarter ending on or before September 30, 1998 and 2.5:1
thereafter, such rates to be calculated excluding interest payable from the
interest escrow for the Notes. At March 31 and June 30, 1998 the lender waived
the interest coverage ratio covenant.
On September 28, 1998, Rutherford-Moran entered into the Second Restated
Credit Agreement. The Second Restated Credit Agreement amends and increases the
amount of the borrowing base available under the Restated Credit Agreement from
$150,000,000 to $200,000,000. The maturity of the facility has been extended
until December 31, 1999. The covenants under the Second Restated Credit
Agreement are substantially similar to those of the Restated Credit Agreement,
but the Second Restated Credit Agreement changes the interest coverage ratio to
not less than (1) 1.25:1 as of the end of the fiscal quarter ending on March 31,
1999; (2) 1.50:1 as of the end of the fiscal quarter ending June 30, 1999; and
(3) 2.00:1 as of the end of any fiscal quarter thereafter. Additionally, the
Second Restated Credit Agreement no longer requires scheduled borrowing base
redeterminations. If at any time after October 31, 1999, the aggregate principal
amount outstanding under the Second Restated Credit Agreement exceeds an amount,
which initially was set at $60,000,000, the excess must be prepaid immediately.
The Second Restated Credit Agreement provides for interest at rates based on a
margin of 4.50% over LIBOR or 3% over the higher of the prime rate of Chase
Manhattan or the Federal funds rate plus .5%. These margins increased by 1% on
January 1, 1999, and by an additional 1% on the last business day of each
successive calendar quarter following January 1, 1999. Rutherford-Moran was
paying a stated interest rate of 9.875% at September 30, 1998. A commitment fee
of .5% per annum is charged on the balance of the unused commitment. Under the
terms of the Second Restated Credit Agreement and, related warrant agreement,
Rutherford-Moran incurred fees of $2,625,000 which was paid in a combination of
cash and warrants with
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a ten year term at $0.01 per share to purchase 256,140 shares of
Rutherford-Moran's common stock. In addition, the exercise price on the 200,000
warrants issued on July 10, 1998 was reset from $21 per share to $10.50 per
share.
Additionally, the warrant agreement provides for the issuance of warrants
to Chase Manhattan to purchase an additional 256,140 shares of Rutherford-Moran
common stock, if Rutherford-Moran has not executed a purchase and sale agreement
with a buyer for the sale of not less than 65% of the outstanding common stock
of Rutherford-Moran prior to October 31, 1998. The exercise price on the
warrants is $0.01 per share with a ten year term. These warrants were issued on
October 31, 1998, pursuant to the terms of the warrant agreement. If
Rutherford-Moran has not satisfied the conditions to closing of such a purchase
and sale agreement by November 30, 1998, Chase Manhattan will receive additional
warrants to purchase 768,420 shares at an exercise price of $0.01 per share with
a ten year term, and if the company has not satisfied the conditions to closing
of such a purchase and sale agreement by December 31, 1998, Chase Manhattan will
receive additional warrants to purchase 1,280,700 shares at an exercise price of
$0.01 per share with a ten year term. Therefore, if Rutherford-Moran has not
satisfied the conditions to closing of such a purchase and sale agreement by
December 31, 1998, Chase Manhattan could receive warrants to purchase a total of
2,561,400 shares, or approximately 10% of Rutherford-Moran's common stock, under
the terms of the Second Restated Credit Agreement and related warrant agreement.
Pursuant to the terms of a mutual release and waiver, Chase Manhattan has agreed
to return, in connection with the closing of the merger, warrants with respect
to 2,149,120 shares of Rutherford-Moran common stock, with an exercise price of
$0.01 per share, in return for Rutherford-Moran releasing Chase Manhattan, Chase
Securities and certain affiliates thereof from certain liabilities, and Chase
Manhattan and Chase Securities have agreed to release Rutherford-Moran and
certain affiliates thereof from certain liabilities. If the merger agreement
with Chevron is terminated, the warrants would remain outstanding.
Rutherford-Moran's effective interest rate for the Second Restated Credit
Agreement includes the effect of both the additional warrants expected to be
issued and the total interest expected to be incurred. Based upon
Rutherford-Moran's stated interest rate at September 30, 1998 the effective
interest rate for the Second Restated Credit Agreement will reach 16.3% if not
repaid prior to its maturity date.
At December 31, 1998, approximately $182 million was outstanding under the
Second Restated Credit Agreement. On February 2, 1999, approximately $189
million was outstanding under the Second Restated Credit Agreement. As of this
date Rutherford-Moran expected to exhaust its currently available cash reserves
and available bank credit in February 1999. Chase Manhattan had informed
Rutherford-Moran that it is not currently willing to increase the commitment
under the Second Restated Credit Agreement. If Rutherford-Moran does not access
substantial additional sources of funds in the near term, it will not have the
ability to complete the development of proved undeveloped reserves in the
concession, which will result in a downward revision of Rutherford-Moran's
proved reserves and the recognition of a significant impairment charge at
December 31, 1998. Such events will raise substantial doubt about the ability of
Rutherford-Moran to continue as a going concern past that date.
At the concessionaires' request, PTT reduced its maximum gas nomination
from 115% of the DCQ 85 MMcf per day from May through September 1998. This
reduction reflected a prudent reservoir management measure. Effective October 1,
1998, PTT increased its nomination to 115% of the DCQ, or approximately 98 MMcfd
per day. Because of production declines, the current rate of gas production
cannot meet 115% of the DCQ, nor can it meet the DCQ. In order to maximize
current cash flow, the concessionaires have offset the effects of decreased gas
volumes with increased oil volumes until such time as drilling, workover
maintenance and additional platform installation increase gas production to an
amount equal to or exceeding the DCQ. Rutherford-Moran management believes the
economic benefits of increased oil production exceed the costs of the gas price
penalty (a sum in cash equal to the difference between the daily quantity and
the nominated quantity times 25% of the prevailing price during such period)
incurred due to failure to meet the gas nomination.
Rutherford-Moran makes, and is obligated to continue making, substantial
expenditures for the development and production of oil and natural gas reserves.
Additional expenditures could also be required
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for exploration activities. Since its inception, the company has financed these
expenditures primarily through a combination of equity infusions by its
principal stockholders, bank and stockholder loans, the issuance of the Notes
and the sale of common stock. Rutherford-Moran made approximately $159 million
in capital expenditures during the twelve months ended December 31, 1998, which
includes approximately $48 million for capital leases, and currently expects
capital expenditures for 1999 to be approximately $155 million. The company also
expects to expend funds over the next several years to support additional
exploration and development activities in the concession. Recently,
Rutherford-Moran has funded these activities with substantial additional bank
borrowings under the Second Restated Credit Agreement and was able to do so
until February 1999. Subsequent to February, Rutherford-Moran would need to
access additional sources of substantial funds in order to pay the principal and
interest on its outstanding debt and meet its other obligations.
Rutherford-Moran did not have sufficient cash resources to meet a cash call
invoice due February 8, 1999 with respect to activities in the concession. In
order to meet this invoice and provide for payment of other expenses, Messrs.
Rutherford and Moran agreed to arrange for such funding on the basis of $1.5
million each. Mr. Moran provided his portion as a loan to Rutherford-Moran at
the current rate being paid to Chase Manhattan under the credit facility and Mr.
Rutherford provided a guaranty for his portion to Chase Manhattan.
As a result of Mr. Rutherford's guaranty, Chase Manhattan increased the
commitment available under the Second Restated Credit Agreement from $200
million to $201.5 million, provided that the additional $1.5 million would be
considered a term loan to be repaid on March 10, 1999. Mr. Moran provided to
Rutherford-Moran a term loan due on March 12, 1999 in the amount of $1.5 million
bearing interest at a rate of 10.25% per annum. These additional financings
permitted Rutherford-Moran to meet the cash call and should permit
Rutherford-Moran to satisfy its expected obligations due in February 1999.
The payment of the cash call also exhausted the $200 million credit
available under the Second Restated Credit Agreement from Chase Manhattan.
Rutherford-Moran anticipates that additional funding will be required to meet
expenses, debt service and monthly cash call invoices. The merger agreement
provides that Chevron will arrange interim financing for Rutherford-Moran if
most conditions to closing of the merger have been met. See "Certain Provisions
of the Merger Agreement -- Interim Financing." As of the date of this proxy
statement/prospectus, these conditions have not been satisfied, although Chevron
believes that substantial progress has been made in its negotiations with Pogo
and Palang Sophon that could result in satisfaction of two important conditions.
There can be no assurance at this time that the merger will occur or that the
conditions to interim financing will be satisfied. Also, there can be no
assurance that further funding will be available from Messrs. Rutherford and
Moran or any other source. Should such funding not be available,
Rutherford-Moran does not expect to be in a position to meet its ongoing
obligations.
In connection with entering into the merger agreement, Chase Manhattan has
agreed to return, prior to the closing of the merger, warrants with respect to
approximately 2,149,120 shares of Rutherford-Moran's common stock, with an
exercise price of $0.01 per share and Chase Manhattan and Chase Securities have
agreed to release Rutherford-Moran and certain affiliates thereof from certain
liabilities, in return for Rutherford-Moran releasing Chase Manhattan, Chase
Securities and certain affiliates thereof from certain liabilities. If the
merger agreement with Chevron is terminated, the warrants would remain
outstanding.
CHANGING OIL PRICES
Rutherford-Moran is dependent on crude oil prices, which have historically
been volatile. The company may use crude oil price swaps and other similar
arrangements to hedge against potential adverse effects of fluctuations in
future prices for Rutherford-Moran's future oil production. While the swaps are
intended to reduce the company's exposure to declines in the market price of
crude oil, they may limit the the company's gain from increases in the market
price.
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NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). The statement standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize these items as assets or
liabilities in the statement of financial positions and measure them at fair
value. SFAS 133 is effective as of the beginning of the first quarter of the
fiscal year beginning after June 15, 1999. Rutherford-Moran is evaluating the
effects SFAS 133 may have on reported results.
YEAR 2000 COMPLIANCE
The Year 2000 issue arises because many currently installed computer
systems are not capable of distinguishing between 20th century dates and 21st
century dates. This results from computer programs being written using two
digits rather than four digits to define the applicable year. Consequently, on
January 1, 2000, the year will revert to "00" in many non-Year 2000 compliant
applications, and the time will appear to have reverted back 100 years to the
year 1900. Therefore, in computing basic lengths of time, the Rutherford-Moran's
computer programs, certain building infrastructure components and any additional
time-sensitive software that are non-Year 2000 compliant could suffer system
failures or miscalculations which could cause personal injury and property
damage. Disruption of activities such as operations, production or
transportation or a temporary inability to process transactions may also result,
any or all of which could affect materially and adversely Rutherford-Moran's
business, financial condition or results of operations.
Rutherford-Moran recognizes the need to ensure that its operations will not
be adversely affected by Year 2000 software failures. Therefore, in mid 1998 the
company began examining the Year 2000 issue in an effort to minimize the
disruptions to the its business and potential liabilities that could result from
Year 2000 software failures. The company has engaged experts to assist in
assessing system compliance and to complete remediation work where necessary.
Rutherford-Moran has reviewed its information and operating systems which
are located in its Houston headquarters. Based on this review, the company
believes that such financial and operational systems are Year 2000 compliant.
Because the company believes that its Houston headquarters systems are Year 2000
compliant, it has not developed a comprehensive contingency plan for the Houston
headquarters. However, if the company identifies significant risks related to
its Year 2000 compliance in Houston, it will develop contingency plans as
necessary. Rutherford-Moran has not incurred any material costs in making
systems in its Houston headquarters Year 2000 compliant because the software and
hardware was replaced as part of Rutherford-Moran's normal program of
periodically upgrading such systems. Rutherford-Moran also has initiated efforts
to evaluate the Year 2000 readiness of its key vendors. There can be no
guarantee that Year 2000 problems originating with vendors will not occur,
causing a loss of or delay in the delivery of products and services necessary to
the company's operations.
As to computer systems and equipment used for the development and
production of the concession, Thaipo operates such systems and is in the process
of reviewing its Year 2000 compliance. While Rutherford-Moran has questioned
Thaipo about such compliance, Rutherford-Moran must rely on the representations
of Thaipo with respect to those issues. Experts engaged by Rutherford-Moran are
assessing Thaipo's system and advising Rutherford-Moran as to Year 2000
compliance as well as the consequences of any Year 2000 failures, and their
necessary remediation. Thaipo has completed an inventory which indicates that
not all of its systems and equipment are Year 2000 compliant, and indicated that
it is in the process of completing a plan to insure Year 2000 compliance;
however, Rutherford-Moran has not yet been informed of the time frame for
completion of such project or the costs expected to address such non-
compliance. Until Rutherford-Moran receives more detailed information from
Thaipo regarding the Year 2000 compliance of the systems and equipment in
Thailand, it is impracticable, if not impossible, to develop a useful
contingency plan for such systems.
68
<PAGE> 74
Rutherford-Moran believes that Year 2000 interruptions in its customers'
operations could impact its sales, receivables and/or cash flow. Thaipo is also
responsible for investigating compliance by customers of the concessionaires. To
date, Rutherford-Moran has not yet been informed of the status of such
compliance.
There can be no assurance that Rutherford-Moran will identify and remediate
all significant Year 2000 problems soon enough, that remedial efforts will not
involve significant time and expense, that technical resources will be available
to perform any necessary remedial work or that third parties whose systems and
operations impact the company will not suffer from non-compliance. Year 2000
non-compliance could result in a material disruption of Rutherford-Moran's
operations, production or deliveries, an interruption in its ability to collect
amounts due from customers, personal injury or property damage or any number of
other difficulties. Depending on the length and magnitude of non-compliance and
system failure, any or all of these situations could have a material adverse
impact on the company's results of operations and financial position.
69
<PAGE> 75
BENEFICIAL OWNERSHIP OF RUTHERFORD-MORAN COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of Rutherford-Moran common stock as of the record date. The
information provided covers beneficial ownership by (1) each person known by
Rutherford-Moran to be the beneficial owner of 5% or more of the outstanding
shares of Rutherford-Moran common stock and (2) each director and executive
officer, individually and as a group, of Rutherford-Moran. Rutherford-Moran
believes that each of the beneficial owners of Rutherford-Moran common stock
listed below, based on the information furnished by such owners, has sole voting
and investment power (or shares such powers with his spouse) with respect to the
shares, subject to the information contained in the notes to the table.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
---------------------
NUMBER PERCENT
---------- -------
<S> <C> <C>
BENEFICIAL OWNER
5% STOCKHOLDERS:
JAMTHAI, Inc.(1).......................................... 7,290,736 28.5%
5 Greenway Plaza, Suite 220
Houston, Texas 76046
THAIJAM, L.P.(1).......................................... 6,173,612 24.1%
5 Greenway Plaza, Suite 220
Houston, Texas 76046
PRRTHAI, Inc.(2).......................................... 9,663,007 37.7%
5 Greenway Plaza, Suite 220
Houston, Texas 76046
The Chase Manhattan Bank(8)............................... 3,762,979 14.7%
380 Madison Avenue, 9th floor
New York, New York 10019
The John A. Moran Charitable Remainder Unit Trust of
1994.................................................... 2,057,871 8.0%
5 Greenway Plaza, Suite 220
Houston, Texas 76046
DIRECTORS AND EXECUTIVE OFFICERS:
John A. Moran(1).......................................... 9,348,607 36.4%
Patrick R. Rutherford(2).................................. 9,686,007 37.7%
Michael D. McCoy(3)....................................... 140,000 *
David F. Chavenson(4)..................................... 22,464 *
Gregory Nelson(5)......................................... 33,850 *
Howard Gittis(6).......................................... 9,500 *
Jere W. McKenny(6)........................................ 9,500 *
Harry C. Lee(6)........................................... 9,500 *
Chote Sophonpanich(6)..................................... 9,500 *
Thomas E. Rankin(7)....................................... 9,000 *
Executive officers and directors as a group (9 persons)... 19,277,928 75.1%
</TABLE>
- ---------------
* Less than one percent.
(1) JAMTHAI, Inc.'s ownership includes (1) 6,173,612 shares owned by THAIJAM,
L.P., a limited partnership for which JAMTHAI is the sole general partner
and (2) 120,000 shares owned by a partnership in which JAMTHAI and Mr. Moran
serve as general partners. Mr. Moran's ownership includes all shares owned
by JAMTHAI, for which Mr. Moran is the President and sole stockholder and
all shares owned by The John A. Moran Charitable Remainder Unit Trust of
1994 in which Mr. Moran is the trustee, but excludes 16,000 shares owned by
Mr. Moran's wife, for which be disclaims beneficial ownership.
(2) PRRTHAI, Inc.'s ownership includes 19,673 shares owned by a limited
partnership for which PRRTHAI serves as the sole general partner. Mr.
Rutherford's ownership includes all shares beneficially owned by PRRTHAI,
for which Mr. Rutherford is the President and sole stockholder and 23,000
shares in a trust controlled by Mr. Rutherford. Mr. Rutherford's ownership
excludes the following shares for which he disclaims beneficial ownership:
(1) 144,587 shares owned by a company controlled by Mr. Rutherford's wife
and (2) 28,000 shares owned directly by Mr. Rutherford's wife.
(3) As of March 31, 1998, when Mr. McCoy ceased to be employed by
Rutherford-Moran, Mr. McCoy's holdings included 136,000 shares owned
directly by MDMTHAI, Inc., a Texas corporation owned by Mr. McCoy and 4,000
shares owned directly.
(4) Includes 16,650 shares underlying options that are presently exercisable or
exercisable within 60 days and 3,489 shares of restricted stock not yet
vested; excludes 43,350 shares underlying options that are not presently
exercisable or exercisable within 60 days.
(5) Includes 21,850 shares underlying options that are presently exercisable or
exercisable within 60 days and 7,200 shares of restricted stock not yet
vested; excludes 31,150 shares underlying options that are not presently
exercisable or exercisable within 60 days.
(6) Each includes 3,500 shares underlying options that are presently exercisable
or exercisable within 60 days and 1,000 shares underlying options that are
not presently exercisable or exercisable within 60 days.
(7) Includes 4,000 shares underlying options that are presently exercisable or
exercisable within 60 days and 4,000 shares of restricted stock not yet
vested; excludes 16,000 shares underlying options that are not presently
exercisable or exercisable within 60 days.
(8) Includes 2,728,066 shares underlying warrants that are presently exercisable
within 60 days. Warrants to acquire 166,666 were issued on July 28, 1998 and
have a seven-year term and an exercise price of $10.50 per share. The
balance of warrants to purchase 2,561,400 shares were issued on September
28, 1998 and have a ten-year term and an exercise price of $0.01 per share.
Pursuant to the mutual release and waiver, Chase Manhattan has agreed to
surrender warrants to acquire 2,149,120 shares which have an exercise price
of $0.01 per share, which would result in Chase Manhattan beneficially
owning approximately 5.6% of the outstanding Rutherford-Moran common stock.
The surrender of the warrants is conditioned on the consummation of the
merger.
70
<PAGE> 76
LEGAL MATTERS
The validity of the Chevron common stock issuable pursuant to the merger
and certain other legal matters relating thereto will be passed upon for Chevron
by Pillsbury Madison & Sutro LLP, San Francisco, California. Certain tax matters
will be passed upon for Rutherford-Moran by Skadden, Arps, Slate, Meagher & Flom
LLP, New York, New York, Rutherford-Moran's outside legal counsel.
EXPERTS
The financial statements of Chevron incorporated in this proxy
statement/prospectus by reference to Chevron's Annual Report on Form 10-K for
the year ended December 31, 1997, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of the Caltex Group of Companies incorporated in
this proxy statement/ prospectus by reference to Chevron's Annual Report on Form
10-K for the year ended December 31, 1997 have been so incorporated in reliance
on the report of KPMG LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Rutherford-Moran included in this proxy
statement/prospectus have been included in reliance on the report of KPMG LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The report of KPMG LLP covering the December 31, 1997
financial statements refers to a change from the full cost method to the
successful efforts method of accounting for oil and gas properties.
STOCKHOLDER PROPOSALS
Due to the contemplated consummation of the merger, Rutherford-Moran does
not currently expect to hold a 1999 Annual Meeting of Stockholders because,
following the merger, Rutherford-Moran will not be a publicly traded company. In
the event that the merger is not consummated and such a meeting is held, to be
eligible for inclusion in Rutherford-Moran's proxy statement and form of proxy
relating to the meeting, proposals of stockholders intended to be presented at
such meeting must be received at the offices of Rutherford-Moran at 5 Greenway
Plaza, Suite 220, Houston, Texas 77046 no later than February 1, 1999 in order
to be eligible for inclusion in Rutherford-Moran's proxy statement and form of
proxy used in connection with such meeting.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document, the documents of Chevron and Rutherford-Moran incorporated
by reference herein and other communications to Rutherford-Moran stockholders,
may contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements relate to
expectations concerning matters that are not historical facts. Also, when we use
words such as "believes," "expects," "anticipates" or similar expressions, we
are making forward-looking statements. All forward-looking statements
attributable to Chevron are expressly qualified in their entirety by the factors
which may cause actual results to differ materially from expectations described
herein and in Chevron's reports filed with the SEC, including its Annual Report
on Form 10-K for the year ended December 31, 1997, and its quarterly reports on
Form 10-Q for the quarterly periods ended March 31, 1998, June 30, 1998 and
September 30, 1998. All forward-looking statements attributable to
Rutherford-Moran are expressly qualified in their entirety by the factors which
may cause actual results to differ materially from expectations described herein
and in Rutherford-Moran's reports filed with the SEC, including its Annual
Report on Form 10-K for the year ended December 31, 1997 and its quarterly
reports on Form 10-Q for the quarterly periods ended March 31, 1998, June 30,
1998 and September 30, 1998.
71
<PAGE> 77
WHERE YOU CAN FIND MORE INFORMATION
Chevron and Rutherford-Moran file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by either company at the SEC's
public reference rooms at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the SEC: Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. The
companies' filings are also available to the public from commercial document
retrieval services and at the Internet web site maintained by the SEC at
http://www.sec.gov.
Chevron filed a registration statement on Form S-4 to register with the SEC
the Chevron common stock to be issued to Rutherford-Moran stockholders in the
merger. This proxy statement/prospectus is a part of that registration statement
and constitutes a prospectus of Chevron in addition to being a proxy statement
for Rutherford-Moran's special meeting of stockholders. As allowed by the SEC's
rules, this proxy statement/prospectus does not contain all of the information
you can find in the registration statement or the exhibits to the registration
statement. This proxy statement/prospectus summarizes some of the documents that
are exhibits to the registration statement, and you should refer to the exhibits
for a more complete description of the matters covered by those documents.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Chevron to "incorporate by reference" information into this
proxy statement/ prospectus. This means that Chevron may disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be part of
this proxy statement/prospectus, except for any information modified or
superseded by information in (or incorporated by reference in) this proxy
statement/prospectus. This proxy statement/prospectus incorporates by reference
the documents set forth below that have been previously filed by Chevron with
the SEC. The documents contain important information about Chevron and its
operations.
CHEVRON SEC FILINGS (FILE NO. 1-368-2)
1. Annual Report on Form 10-K for the year ended December 31, 1997;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;
3. Current Reports on Form 8-K filed on November 25, 1998 and January 26,
1999; and
4. Registration Statement on Form 8-A filed on November 25, 1998.
Chevron is also incorporating by reference additional documents that it may
file with the SEC between the date of this proxy statement/prospectus and the
date of the merger. Statements contained in documents incorporated by reference
may be modified or superseded by later statements in this proxy
statement/prospectus or by statements in subsequent documents incorporated by
reference, in which case you should refer to the later statement.
Chevron has supplied all information contained or incorporated by reference
in this proxy statement/ prospectus relating to Chevron, and Rutherford-Moran
has supplied all such information relating to Rutherford-Moran.
72
<PAGE> 78
Chevron will provide, without charge, a copy of any or all of its documents
incorporated by reference in this proxy statement/prospectus (other than
exhibits to such documents, unless the exhibits are specifically incorporated by
reference in such documents). You may obtain documents incorporated by reference
in this proxy statement/prospectus by requesting them in writing from Chevron
Corporation, 575 Market Street, San Francisco, California 94105, Attention:
Corporate Secretary, or by telephone at (415) 894-7700.
Chevron's documents are also available on its website at
http://www.chevron.com. If you would like to request documents from Chevron,
please do so by March 9, 1999 in order to receive them before the special
meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS IN DECIDING HOW TO VOTE ON THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED FEBRUARY
12, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO THE RUTHERFORD-MORAN
STOCKHOLDERS NOR THE ISSUANCE OF CHEVRON COMMON STOCK IN THE MERGER SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
73
<PAGE> 79
INDEX TO RUTHERFORD-MORAN FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Statements of Operations, for the year ended
December 31, 1997 and the periods June 18, 1996 through
December 31, 1996 (Company), and January 1, 1996 through
June 17, 1996 and for the year ended December 31, 1995
(Predecessors)............................................ F-3
Consolidated Balance Sheets, December 31, 1997 and 1996..... F-4
Consolidated Statements of Changes in Stockholders' Equity,
for the year ended December 31, 1997 and the periods June
18, 1996 through December 31, 1996 (Company), and January
1, 1996 through June 17, 1996 and for the year ended
December 31, 1995 (Predecessors).......................... F-5
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 and the periods June 18, 1996 through
December 31, 1996 (Company), and January 1, 1996 through
June 17, 1996 and for the year ended December 31, 1995
(Predecessors)............................................ F-6
Notes to Consolidated Financial Statements.................. F-7
Unaudited Condensed Consolidated Statement of Operations for
the three month periods ended September 30, 1998 and
September 30, 1997 and for the nine month periods ended
September 30, 1998 and September 30, 1997................. F-21
Condensed Consolidated Balance Sheets, September 30, 1998
(unaudited) and December 31, 1997......................... F-22
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine month periods ended September 30, 1998 and
September 30, 1997........................................ F-23
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-24
</TABLE>
F-1
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rutherford-Moran Oil Corporation:
We have audited the accompanying consolidated balance sheets of
Rutherford-Moran Oil Corporation as of December 31, 1997 and 1996 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended December 31, 1997 and the period June 18, 1996
through December 31, 1996 and the Company's Predecessors' consolidated
statements of operations, changes in partners' equity and cash flows for the
period January 1, 1996 through June 17, 1996 and for the year ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Rutherford-Moran Oil Corporation as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for the year ended December 31,
1997 and the period June 18, 1996 through December 31, 1996, and those of its
Predecessors for the period January 1, 1996 through June 17, 1996 and for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the consolidated financial statements, the
Company has given retroactive effect to the change in accounting for oil and gas
properties from the full cost method to the successful efforts method.
KPMG LLP
March 2, 1998
Houston, Texas
F-2
<PAGE> 81
RUTHERFORD-MORAN OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 18, JANUARY 1,
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 17, DECEMBER 31,
1997 1996* 1996* 1995*
------------ ------------ -------------- --------------
(COMPANY) (COMPANY) (PREDECESSORS) (PREDECESSORS)
<S> <C> <C> <C> <C>
Revenues:
Oil revenue............................. $ 11,281 $ -- $ -- $ --
Gas revenue............................. 23,753 -- -- --
Interest income......................... 431 170 -- 5
-------- ------- ------- -------
Total revenues.................. 35,465 170 -- 5
-------- ------- ------- -------
Expenses:
Operating expense....................... 24,243 -- -- --
Exploration costs....................... 7,630 2,882 143 1,525
Interest expense........................ 7,157 411 395 190
Depreciation, depletion and
amortization......................... 18,055 25 4 5
General and administrative.............. 5,737 1,980 288 322
Foreign exchange loss................... 6,323 -- -- --
Gain on futures contract................ (506) -- -- --
-------- ------- ------- -------
Total expenses.................. 68,639 5,298 830 2,042
-------- ------- ------- -------
Loss before income tax benefit............ (33,174) (5,128) (830) (2,037)
Income tax benefit........................ (10,523) (2,238) (1,283) --
-------- ------- ------- -------
Net income (loss)......................... $(22,651) $(2,890) $ 453 $(2,037)
======== ======= ======= =======
Net income (loss) per basic share......... $ (0.88) $ (0.11) $ 0.02 $ (0.10)
======== ======= ======= =======
Net income (loss) per diluted share....... $ (0.88) $ (0.11) $ 0.02 $ (0.10)
======== ======= ======= =======
Weighted average number of common shares
outstanding............................. 25,612 25,514 21,000(a) 21,000(a)
======== ======= ======= =======
</TABLE>
- ---------------
* Restated
(a) Rutherford-Moran Oil Corporation became a public entity in June 1996. See
Note 2 to Consolidated Financial Statements -- Significant Accounting
Policies.
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 82
RUTHERFORD-MORAN OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996*
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,979 $ 444
Accounts receivable....................................... 10,457 --
Value added tax receivable................................ 5,579 2,806
Joint interest receivable................................. 2,169 --
Other..................................................... 1,916 17
-------- --------
Total current assets.............................. 22,100 3,267
Property and equipment (successful efforts method).......... 238,651 113,680
Accumulated depreciation, depletion, and amortization....... (18,002) (37)
-------- --------
Net property and equipment........................ 220,649 113,643
Deferred charges:
Loan acquisition costs, net............................... 8,493 1,548
Escrowed funds, net....................................... 21,263 --
Deferred charge........................................... 1,026 1,400
Deferred income tax....................................... 6,169 3,521
-------- --------
Total deferred assets............................. 36,951 6,469
-------- --------
Total assets.................................... $279,700 $123,379
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 16,695 $ 852
Joint interest payable.................................... -- 2,565
-------- --------
Total current liabilities......................... 16,695 3,417
-------- --------
Note payable to bank........................................ 69,000 22,842
10.75% senior subordinated notes............................ 120,000 --
Premium on written option................................... 625 1,400
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized, and 25,614,000 and 25,607,000 shares issued
and outstanding at December 31, 1997 and 1996,
respectively........................................... 256 256
Additional paid-in capital................................ 99,571 99,412
Deferred compensation..................................... (906) (1,058)
Accumulated deficit....................................... (25,541) (2,890)
-------- --------
Total stockholders' equity........................ 73,380 95,720
-------- --------
Commitments and contingencies............................. -- --
Total liabilities and stockholders' equity...... $279,700 $123,379
======== ========
</TABLE>
- ---------------
* Restated
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 83
RUTHERFORD-MORAN OIL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL TOTAL
PREDECESSORS' SHARES PAID-IN ACCUMULATED DEFERRED STOCKHOLDERS'
EQUITY OUTSTANDING AMOUNT CAPITAL DEFICIT COMPENSATION EQUITY
------------- ----------- ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... $ 15,484 -- $ -- $ -- $ -- $ -- $ 15,484
Cumulative effect of change in
accounting principle, as
retroactively applied.......... (5,267) -- -- -- -- -- (5,267)
Capital contributions............ 8,297 -- -- -- -- -- 8,297
Net loss......................... (2,037) -- -- -- -- -- (2,037)
-------- ---------- ---- -------- -------- ------- --------
Balance at December 31, 1995*.... 16,477 -- -- -- -- -- 16,477
Net income from January 1, 1996
to June 17, 1996............... 453 -- -- -- -- -- 453
Transfer of interests and
issuance of common stock in
initial public offering........ (16,930) 24,955,662 250 100,889 -- -- 84,209
Redemption of Rutherford-Moran
Exploration Company stock by
majority shareholders.......... -- -- -- (12,360) -- -- (12,360)
Exercise of call option on Thai
Romo Limited stock............. -- -- -- (3,130) -- -- (3,130)
Issuance of common stock for
initial public offering
over-allotment................. -- 600,000 6 12,828 -- -- 12,834
Grant of restricted stock
awards......................... -- 51,338 -- 1,185 -- (1,185) --
Amortization of restricted stock
awards......................... -- -- -- -- -- 127 127
Net loss from June 18, 1996 to
December 31, 1996.............. -- -- -- -- (2,890) -- (2,890)
-------- ---------- ---- -------- -------- ------- --------
Balance at December 31, 1996*.... -- 25,607,000 256 99,412 (2,890) (1,058) 95,720
Grant of restricted stock
awards......................... -- 7,000 -- 159 -- (159) --
Amortization of restricted stock
awards......................... -- -- -- -- -- 311 311
Net loss......................... -- -- -- -- (22,651) -- (22,651)
-------- ---------- ---- -------- -------- ------- --------
Balance at December 31, 1997..... $ -- 25,614,000 $256 $ 99,571 $(25,541) $ (906) $ 73,380
======== ========== ==== ======== ======== ======= ========
</TABLE>
- ---------------
* Restated
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 84
RUTHERFORD-MORAN OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 18, JANUARY 1,
THROUGH THROUGH
YEAR ENDED DECEMBER 31, JUNE 17, YEAR ENDED
1997 1996* 1996* 1995*
---------- ------------ -------------- --------------
(COMPANY) (COMPANY) (PREDECESSORS) (PREDECESSORS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ (22,651) $ (2,890) $ 453 $ (2,037)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization........ 18,055 25 4 5
Deferred income tax benefit...................... (10,523) (2,238) (1,283) --
Foreign exchange loss............................ 6,323 -- -- --
Dry hole cost.................................... 2,768 -- -- --
Other............................................ 791 268 -- --
Changes in assets and liabilities
Accounts receivable............................ (10,457) (764) (559) (1,628)
Value added tax receivable..................... (5,367) -- -- --
Joint interest receivable...................... (4,734) -- -- --
Accounts payable and accrued liabilities....... 15,843 (4,116) 6,336 479
Other.......................................... (1,899) 13 (172) (25)
--------- -------- -------- --------
Cash provided by (used in) operating
activities................................ (11,851) (9,702) 4,779 (3,206)
--------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures............................... (90,451) (34,023) (30,272) (35,263)
Acquisition of Maersk, net of cash acquired........ (29,414) -- -- --
--------- -------- -------- --------
Cash used in investing activities........... (119,865) (34,023) (30,272) (35,263)
--------- -------- -------- --------
Cash flows from financing activities:
Subordinated debt borrowings....................... 120,000 -- -- --
Deferred financing costs........................... (7,916) (1,689) -- --
Exercise of call option on Thai Romo Limited
stock............................................ -- (3,130) -- --
Capital contributions.............................. -- -- -- 7,898
Proceeds from initial public offering.............. -- 97,043 -- --
Redemption of Rutherford-Moran Exploration Company
stock by majority stockholders................... -- (12,360) -- --
Proceeds from loans from stockholders.............. 4,000 -- 15,654 6,993
Payments on loans from stockholders................ (4,000) (24,144) -- --
Repayments of bank notes........................... (99,176) (49,664) (13,885) --
Borrowings under bank notes........................ 145,334 22,842 29,164 32,985
Escrowed funds..................................... (21,263) -- -- --
--------- -------- -------- --------
Cash provided by financing activities....... 136,979 28,898 30,933 47,876
--------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 5,263 (14,827) 5,440 9,407
Effect of foreign exchange rate on cash............ (3,728) -- -- --
Cash and cash equivalents, beginning of period..... 444 15,271 9,831 424
--------- -------- -------- --------
Cash and cash equivalents, end of period........... $ 1,979 $ 444 $ 15,271 $ 9,831
========= ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period of interest............ $ 2,468 $ 1,139 $ 767 $ 211
========= ======== ======== ========
Cash paid during the period for income tax......... $ -- $ -- $ -- $ --
========= ======== ======== ========
Supplemental disclosure of noncash investing and
financing activities:
Issuance of partnership interest in Thai Romo
Limited for loan acquisition costs............... $ -- $ -- $ -- $ 400
========= ======== ======== ========
Capitalization of amortized loan acquisition
costs............................................ $ 3,938 $ -- $ 168 $ 231
========= ======== ======== ========
Interests in Thai Romo Limited and Rutherford-Moran
Exploration Company contributed for common
stock............................................ $ -- $ -- $ 16,930 $ --
========= ======== ======== ========
Premium deferred and premium on written option..... $ 775 $ 843 $ 557 $ --
========= ======== ======== ========
</TABLE>
- ---------------
* Restated
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 85
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
The accompanying consolidated financial statements of Rutherford-Moran Oil
Corporation ("RMOC" or the "Company"), a Delaware corporation, have been
prepared pursuant to the rules and regulation of the Securities and Exchange
Commission ("SEC").
The Company is an independent energy company engaged in the acquisition,
exploration, development and production of oil and gas properties in Southeast
Asia. As of December 31, 1997, the Company's exploration activities are entirely
in the Gulf of Thailand and are conducted through its subsidiary, Thai Romo,
Limited ("Thai Romo"), and its affiliate, B8/32 Partners, Ltd. ("B8/32
Partners").
The financial statements reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
In April 1996, Rutherford/Moran Oil Corporation changed its name to
Rutherford-Moran Exploration Company ("RMEC"). RMEC was formed on September 21,
1990 for the purpose of holding an interest in an oil and gas concession in
Thailand through its subsidiary, Thai Romo, which was organized as a foreign
corporation under the laws of the Kingdom of Thailand. Thai Romo was formed as a
wholly-owned subsidiary of RMEC. Thai Romo is one of the concessionaires under
the Petroleum Concession No. 1/2534/36 (the "Concession") awarded by the
Ministry of Industry of the Kingdom of Thailand for the development and
production of oil and gas reserves in offshore Block B8/32 in the central
portion of the Gulf of Thailand. The Concession was awarded on August 1, 1991,
to Thai Romo, Thaipo Limited ("Thaipo"), a wholly-owned subsidiary of Pogo
Producing Company, and Maersk Oil (Thailand), Limited ("MOTL"), a wholly-owned
subsidiary of Maersk Olie og Gas As. Subsequent to the award, the Sophonpanich
Co., Limited ("Sophonpanich") elected to participate in the Concession as a
co-venturer. Thaipo has been the operator of the Tantawan Field within the
Concession, while prior to March 1997 the remainder of the Concession was
operated by MOTL. Subsequent to March 1997, Thaipo operated the remainder of the
Concession, as the shares of MOTL were sold to the Concessionaires.
Effective June 17, 1996, the stockholders of RMEC and the partners of Thai
Romo exchanged their interests for shares of common stock of a newly formed
entity, RMOC. RMOC is the parent company of RMEC and Thai Romo Holdings, Inc.
("TRH"). RMEC and TRH collectively own the outstanding shares of Thai Romo.
During June 1996, RMOC sold 16% of its common stock in an initial public
offering (the "Offering") in conjunction with the consummation of the exchange
of RMEC common stock and Thai Romo interests for common stock of RMOC. In
conjunction with the Offering, RMEC redeemed for $12.4 million approximately
56,000 shares of its common stock from Patrick R. Rutherford and John A. Moran,
majority stockholders of RMEC (the "Redemption"), exercised RMEC's call option
on 3% of the partners' interest in Thai Romo held by Red Oak Holdings, Inc. (an
affiliate of Chase Manhattan Bank, the Company's primary lender) for $3.1
million and repaid outstanding debt of $62 million owed stockholders and banks.
On June 18, 1996, the stockholders' equity accounts were adjusted to reflect the
transfer of accumulated deficit to additional paid-in capital upon RMEC and Thai
Romo becoming subject to federal income taxes. During July 1996, an additional
2.4% of RMOC's common stock was sold when the underwriters exercised their
over-allotment option.
The consolidated financial statements for 1997 and 1996 include the
accounts of RMOC and its wholly owned subsidiaries, RMEC, Thai Romo, TRH and
Thai-Tex Insurance Company, Inc., as well as a proportionate interest in B8/32
Partners since its purchase on March 3, 1997. All material intercompany accounts
and transactions have been eliminated in consolidation.
F-7
<PAGE> 86
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The financial statements for the year ended December 31, 1995 and the
period from January 1, 1996 to June 17, 1996 include the accounts of RMEC, Thai
Romo and TRH (the "Predecessors"). All material intercompany accounts and
transactions have been eliminated in the combination. The combined financial
statements are presented due to the commonality of the stockholders and partners
of RMEC and Thai Romo.
The Company's planned principal operations did not commence until February
1997. As a result, the Company was considered a development stage company until
that time.
OIL AND GAS PROPERTIES
During the fourth quarter of 1997, the Company changed its method of
accounting for its investment in oil and gas properties from the full cost to
the successful efforts method (See Note 3). Under the successful efforts method
of accounting, costs of exploration, including lease acquisition and intangible
drilling costs associated with exploration efforts, which result in the
discovery of proved reserves and costs associated with development drilling,
whether of not successful, are capitalized. Gain or loss is recognized when a
property is sold or ceases to produce or is abandoned.
The cost of unproved leasehold is capitalized pending the results of
exploration efforts. Significant unproved leasehold costs are reviewed
periodically and a loss is recognized to the extent, if any, that the cost of
the property has been impaired. Exploratory dry holes, geological and
geophysical costs and delay rentals are expensed as incurred.
Capitalized drilling costs for oil and gas properties are amortized using
the units of production method based on units of proved developed reserves for
each field. Lease acquisition costs related to producing oil and gas properties
are amortized using the units of production method based on units of proved
reserves for each field.
The Company reviews proved oil and gas properties on a depletable unit
basis whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. An impairment loss is recognized whenever the
carrying value of an asset exceeds the fair value. Fair value, on a depletable
unit basis, is estimated to be the present value of expected future net revenues
computed by application of estimated future oil and gas prices, production, and
expenses, as determined by management, over the economic life of the reserves.
No such impairment was recognized as a result during 1997, 1996 or 1995.
CASH AND CASH EQUIVALENTS
The Company considers all currency and any liquid investments with a
maturity of three months or less to be cash equivalents.
HEDGING
During the first quarter of 1996, the Company entered into crude oil price
swaps with an affiliate of its lender in the amount of 1,000,000 barrels at
$15.92 per barrel for the period April through December of 1997, and in the
amount of 1,750,000 barrels at $15.92 per barrel for the year 1998. As the
Company's production in 1997 did not meet its swap obligation and the Company
expected that situation to continue in 1998, a portion of the Company's
obligation was considered speculative in 1997, marked to market and recognized
in consolidated net income.
During the first quarter of 1998, the Company entered into an offsetting
position for its entire 1998 swap position, thus resulting in no material future
exposure to the original swaps. The cost of establishing this position was
insignificant.
F-8
<PAGE> 87
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also sold to an affiliate of its bank lender an option to
purchase 1,250,000 barrels of aggregate oil volumes from January through
December 1999 at a price of $18.30 per barrel. The Company has accounted for the
swap option separately as it does not qualify as a hedge. At December 31, 1997,
the Company estimates the fair market value of this position to be $625,000 and
has recorded the amount as a liability on the consolidated balance sheet. The
Company has recorded a net gain of $506,000 in the 1997 Consolidated Statement
of Operations for the effect of speculative swap transactions.
REVENUE RECOGNITION
The Company recognizes revenues from the sale of natural gas when it is
discharged from the FPSO to the PTT pipeline. Revenue from the sale of crude oil
is recorded at the time of sale to a customer. Both oil and gas revenues are
also recorded using the entitlements method. Under that method, production
volumes received in excess of the Company's ownership percentage in the property
are recorded as a liability whereas production volumes less than the Company's
entitlement are recorded as a receivable. At December 31, 1997, there were no
gas imbalances.
GEOGRAPHICAL CONCENTRATION
The Concession is located in the Gulf of Thailand. Consequently,
substantially all the assets of Thai Romo and B8/32 Partners are subject to
regulation by the government of Thailand. Political changes, such as increases
in tax rates, nationalization of strategic or other assets, abrogation of
contracts or limitations on the convertibility of currency by the government of
Thailand, could adversely affect the Company and have an impact on future
results.
Since the latter half of 1997, many countries in Southeast Asia, including
Thailand, have experienced significant reductions in economic growth. The
Company does not believe that this situation, even if prolonged, will
significantly impact its business position. Natural gas produced in Thailand by
the Company and other producers is primarily used for electrical power
generation. The Company believes that its natural gas will displace either
imported crude oil, lignite or imported natural gas as power generation
feedstock, because domestic natural gas is cheaper to purchase, environmentally
preferable and enables the government to retain its U.S. Dollar reserves during
a period of economic uncertainty.
As the Company has the right to export its crude oil to the highest bidder
for U.S. Dollars, it does not believe that the recent events in Thailand and
other countries in Southeast Asia will impact its ability to receive market
prices for its crude oil.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the reporting of quantities
of proved oil and gas reserves, and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
FOREIGN TRANSLATION GAIN/LOSS
Business transactions and foreign operations recorded in a foreign currency
are restated in U.S. Dollars, which is the Company's functional currency.
Revenues, operating and general and administrative expenses are translated at an
average exchange rate for the period. Transaction gains and losses that arise
from exchange rate fluctuations on transactions denominated in a currency other
than the functional currency are recognized in consolidated income in the year
of occurrence. Net current assets and liabilities are translated monthly at
current rates and recognized in consolidated income in the year of occurrence.
F-9
<PAGE> 88
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Currency translations resulted in a loss of $6,323,000 during the year ended
December 31, 1997; no such gains or losses resulted in prior periods.
VALUE ADDED TAX REFUND RECEIVABLE
Expenditures on certain concession joint operations are assessed a value
added tax by the government of Thailand. Because the Thai Petroleum Income Tax
Act provides an exemption from value added taxes, all value added taxes are
refundable. Accordingly, a refund due is recorded when value added taxes are
paid by the operator. As such taxes are denominated in Thai Baht, translation
gains and losses are included in consolidated income in the year of occurrence.
CAPITALIZATION OF INTEREST EXPENSE
Interest in connection with expenditures on major exploration and
development projects is capitalized. During the year ended December 31, 1997,
approximately $2,200,000 of interest was capitalized as compared to
approximately $1,600,000 for the year ended December 31, 1996.
STOCK-BASED COMPENSATION
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 123 allows a company to adopt a fair value based method of accounting
for a stock-based employee compensation plan or to continue to use the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"). The
Company has chosen to continue to account for stock-based compensation under APB
No. 25. Under this method, the Company has not recorded any compensation expense
related to stock options granted. The disclosures required by SFAS No. 123,
however, have been included in Note 10.
EARNINGS PER SHARE
During the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 introduces the concept of basic earnings per share, which represents net
income divided by the weighted average common shares outstanding -- without the
dilutive effects of common stock equivalents (options, warrants, etc.). Common
stock equivalents with a weighted average of 201,754 and 115,750 during 1997 and
the period June 18, 1996 through December 31, 1996, respectively are not
included in the calculation of diluted earnings per share due to the net loss
recorded during the periods.
NOTE 3 CHANGE IN ACCOUNTING PRINCIPLE
During the fourth quarter of 1997, the Company changed its method of
accounting for its investment in oil and gas properties from the full cost to
the successful efforts method. All prior years' financial statements presented
herein have been restated to reflect the change.
The effect of adopting the change in accounting principle resulted in a
decrease in net loss of $26,683,000 (or $1.04 per share) which would have been
recognized had the Company continued to use the full cost method through
December 31, 1997. The effect of adopting the change in accounting principle
resulted in an increase in net loss during the period July 18 through December
31, 1996 and the year ended December 31, 1995 of $1,174,000 (or $0.05 per share)
and $1,525,000 (or $0.07 per share), respectively, and a decrease in net loss
during the period January 1 through July 17, 1996 of $3,061,000 (or $0.15 per
share). The cumulative effect of this change in accounting principle through
December 31,
F-10
<PAGE> 89
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 was an increase in stockholders' equity and net oil and gas properties of
$21,780,000 and $47,972,000, respectively, and a decrease in deferred income tax
assets of $21,019,000
The Company believes that the successful efforts method of accounting is
preferable as it will accurately reflect the Company's future operations. The
Company believes that the significant number of exploratory wells drilled
annually, as well as the amount of geological and geophysical cost necessary to
evaluate the Company's large acreage position, justifies the utilization of the
successful efforts method. Additionally, the Company expects such activities to
increase and remain at such an increased level for an indefinite period of time,
given the size of the Company's Thai assets and the prospectivity of the
acreage. As a result, the Company believes that a change in accounting principle
to successful efforts is appropriate at this time.
NOTE 4 INCOME TAXES
Deferred taxes are accounted for under the asset and liability method of
accounting for income taxes. Under this method deferred income taxes and related
benefits are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred income taxes of a change in tax
rates is recognized in income in the period the change occurs.
The Predecessors were a limited partnership and an S Corporation under the
Internal Revenue Code of 1986, as amended. As such, they did not incur federal
income taxes; the taxable income or loss was passed through to the partners or
stockholders. As a result of the initial public offering in June 1996, the
Company became a taxable entity and recorded a one-time benefit of $1,283,000,
representing the difference between the financial statement and income tax basis
of its foreign oil and gas properties. The deferred income tax benefit recorded
for the year ended December 31, 1997 and the period June 18, 1996 through
December 31, 1996, was $10,523,000 and $2,238,000, respectively, which
represents foreign income tax benefits.
Total income tax benefit for the year ended December 31, 1997 and the
period June 18, 1996, through December 31, 1996, differs from the amount
computed by applying the federal income tax rate of 34% to the loss before
income taxes. The reasons for this difference follows (amounts in thousands):
<TABLE>
<CAPTION>
PERIOD JUNE 18, 1996
1997 THROUGH DECEMBER 31, 1996
------- -------------------------
<S> <C> <C>
Expected federal income tax benefit................. $11,279 $1,744
Nondeductible costs for foreign income tax
purposes.......................................... (5,250) (394)
Foreign income tax rate difference.................. 4,494 888
------- ------
$10,523 $2,238
======= ======
</TABLE>
F-11
<PAGE> 90
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that result in a significant
portion of the deferred income tax assets and liabilities and a description of
the financial statement items creating these differences are as follows on
December 31, 1997 and 1996 (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards:
Foreign................................................ $ 40,337 $ --
U.S.................................................... 7,555 1,954
Property and equipment
Foreign................................................ -- 5,866
U.S.................................................... 2,983 --
-------- -------
Deferred tax assets......................................... 50,875 7,820
Less: valuation allowance................................... (11,226) (1,622)
-------- -------
Net deferred tax assets..................................... 39,649 6,198
-------- -------
Deferred tax liabilities:
Property and equipment
Foreign................................................ (33,480) --
U.S.................................................... -- (2,677)
-------- -------
Deferred tax liabilities.................................... (33,480) (2,677)
-------- -------
Net deferred tax assets..................................... $ 6,169 $ 3,521
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based upon projections for future taxable
income over the periods which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the benefits
of these deductible differences, net of the existing valuation allowances at
December 31, 1997. During 1997, the valuation allowance increased $9.6 million
primarily due to the increase in net operating loss carryforwards generated.
At December 31, 1997, the Company had a net operating loss carryforward of
$80.7 million for Thai tax purposes, which expires in 2007, and $22.2 million
for U.S. tax purposes, which expires in 2011 and 2012.
NOTE 5 ACQUISITIONS
On December 19, 1996, Rutherford-Moran Oil Corporation, through its
wholly-owned subsidiary, Thai Romo, exercised its preferential right to purchase
46.34% of the outstanding shares of Maersk Oil (Thailand), Limited ("MOTL"), a
wholly owned subsidiary of Maersk Olie og Gas As of Copenhagen, Denmark
("Maersk"). MOTL was a former co-concessionaire in Block B8/32 located offshore
Thailand with a 31.67% interest in the Concession but had no previous
operations. The purchase was consummated on March 3, 1997, with TRH, a wholly
owned subsidiary of the Company and Thai Romo's nominee under the Share Sales
Agreement with Maersk, purchasing the shares for $28,617,000, which included
$1,554,000 in satisfaction of outstanding debt. After the closing, MOTL was
renamed B8/32 Partners, Ltd.
The purchase price was established in a Share Sale Agreement dated November
2, 1996, between Maersk and BG Egypt S.A. Pursuant to the Joint Operating
Agreement among the co-concessionaires, Thai Romo and the remaining
co-concessionaires jointly had a preferential right to purchase the stock of
MOTL on the terms and conditions agreed between Maersk and BG Egypt S.A.
F-12
<PAGE> 91
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the purchase the Company recorded $7,875,000 for the
deferred tax liability related to the excess of the acquisition price over the
tax basis of the MOTL property.
The remaining 53.66% of MOTL's stock was purchased by Thaipo Limited
("Thaipo") and by Palang Sophon Limited ("Palang") of Bangkok, Thailand. Thaipo,
Palang and MOTL were co-concessionaires with Thai Romo prior to the sale of
MOTL. As a result, RMOC's interest in the entire Block B8/32 increased from
31.67% to 46.34%.
NOTE 6 DEBT
CREDIT FACILITY
On September 20, 1996, the Company entered into a $150 million Revolving
Credit Facility with a group of commercial lenders. The Revolving Credit
Facility has a final maturity of September 30, 1999, and contained an initial
borrowing base limitation of $60 million. On April 29, 1997, the borrowing base
limitation was redetermined to $120 million. Subsequent to the issuance of the
Company's 10.75% Senior Subordinated Notes (the "Notes") in September 1997, the
borrowing base was reset to $60 million. The Revolving Credit Facility is
secured by the stock of certain subsidiaries and affiliates of the Company.
On September 8, 1997, the Company entered into a Credit Agreement with
Chase Manhattan Bank for an additional borrowing of $5 million. The Credit
Agreement contains covenants substantially identical to those in the Revolving
Credit Facility. The Credit Agreement was repaid on September 29, 1997 with
proceeds from the Notes.
In December 1997, the Company and two of its lenders amended the Revolving
Credit Facility. The borrowing base was reset at a fixed amount of $150 million
until September 30, 1998 (or on the completion of certain new financings or
other specified events, if earlier). The amended Facility provides that the
Company pays interest at rates based on a margin of 1.75% over LIBOR if the
aggregate outstanding principal amount is less than or equal to a threshold
amount, which was set at $60 million, a margin of 2.75% over LIBOR if the
principal amount outstanding is greater than the threshold amount on or prior to
June 30, 1998, and a margin of 3.50% over LIBOR if the principal amount
outstanding is greater than the threshold amount after June 30, 1998.
Alternatively, the Company may pay a margin over the prime rate of 0.25%, 1% and
1.75% respectively, for similar levels of borrowings. The Company is also
assessed a commitment fee equal to 0.5% per annum on the average daily balance
of the unused borrowing base. As of September 30, 1998 and semi-annually
thereafter, the borrowing base will be redetermined by the lenders on customary
industry terms and the Company's then current reserve base. Bank borrowings in
excess of the borrowing base, if any, will have to be repaid upon such
redetermination.
The Revolving Credit Facility also provides for semi-annual borrowing base
redeterminations subsequent to September 30, 1998 as well as certain
restrictions, including limitations on additional indebtedness, payment of
dividends and maintenance of an interest coverage ratio, as well as the issuance
of 200,000 common stock warrants under specified circumstances.
At December 31, 1997, $69 million was outstanding under the Revolving
Credit Facility at an interest rate of 8.375% per annum.
NOTES
On September 29, 1997, the Company issued $120 million of Senior
Subordinated Notes due 2004 (the "Notes") at an annual interest rate of 10.75%.
The net proceeds were used to repay $93 million of outstanding indebtedness
under the Revolving Credit Facility and Credit Agreement and to purchase $24
million of securities which were escrowed to pay interest on the Notes. The
Notes contain customary
F-13
<PAGE> 92
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
covenants, including limitations on the incurrence of additional indebtedness,
restricted payments and the establishment of certain liens.
In February 1998, the Company completed the exchange of the Notes, which
had been privately placed, for publicly registered notes. The new Notes
otherwise contain identical terms and conditions to the privately placed notes.
The Company expects to expend monies over the next several years to support
additional exploration and development activities in Block B8/32. Should the
Company not be able to access additional sources of funds over that period, the
Company might not generate sufficient cash flow to pay the principal and
interest on its outstanding debt.
LOANS FROM STOCKHOLDERS
RMEC had loans from stockholders at December 31, 1995 as follows (amounts
in thousands):
<TABLE>
<CAPTION>
PAYMENT INTEREST
STOCKHOLDER TERMS RATES 1995
----------- --------- -------- ------
<S> <C> <C> <C>
Patrick R. Rutherford................................ On demand Prime $4,254
John A. Moran........................................ On demand Prime 4,036
Sidney F. Jones, Jr.................................. On demand Prime 200
------
$8,490
======
</TABLE>
The loans from stockholders were retired on June 28, 1996 with proceeds
from the initial public offering.
Interest of $368,000 and $190,000 was expensed by RMEC under the above
loans during January 1, 1996 through June 17, 1996 and the year ended December
31, 1995, respectively.
On November 14, 1997, the Company borrowed $4 million from Patrick R.
Rutherford, President and Chief Executive Officer of the Company. The note
matured on December 12, 1997 and carried an interest rate of 8.75%. The note was
repaid on December 4, 1997.
As of December 31, 1997, the total debt maturities by year are as follows
(amounts in thousands):
<TABLE>
<S> <C>
1998.............................................. $ --
1999.............................................. 69,000
2000.............................................. --
2001.............................................. --
2002.............................................. --
Thereafter........................................ 120,000
--------
$189,000
========
</TABLE>
NOTE 7 ESCROWED FUNDS
In conjunction with the issuance of the Notes (See Note 6) the Company was
required to purchase $24,300,000 of U.S. Government securities and placed the
proceeds in escrow with the Trustee. The amount of the securities purchased will
be sufficient upon receipt of scheduled interest and principal payments to
provide for payment in full of the first four scheduled interest payments due on
the Notes. As the result, the utilization of escrowed funds will be amortized
over that period of time.
F-14
<PAGE> 93
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 CAPITAL STOCK
COMMON AND PREFERRED STOCK
The Certificate of Incorporation of the Company authorizes the issuance of
up to 40,000,000 shares of common stock and 10,000,000 shares of preferred
stock, the terms, preferences, rights and restrictions of which will be
established by the Board of Directors of the Company. All shares of common stock
have equal voting rights of one vote per share on all matters to be voted upon
by stockholders. Cumulative voting for the election of directors is not
permitted.
On June 17, 1996, the Company sold 4,000,000 shares of its common stock in
an initial public offering at $23 per share. During July 1996, the Company sold
an additional 600,000 shares at $23 per share when the underwriters exercised
their over-allotment option.
NOTE 9 RELATED PARTY TRANSACTIONS
Historically, Rutherford Oil Corporation ("Rutherford Oil"), which is
controlled by Patrick R. Rutherford, obtained certain oil and gas related and
medical insurance on behalf of the Company and performed certain payroll related
services for the Company. The Company has reimbursed Rutherford Oil for its
out-of-pocket expenses relating to such insurance and services, which aggregated
$133,000 and $731,000, during period January 1, 1996 to June 17, 1996 and the
year ended December 31, 1995. Subsequent to June 1996 Rutherford Oil no longer
obtained insurance or performed any such services on behalf of the Company.
NOTE 10 EMPLOYEE BENEFIT PLANS
KEY EMPLOYEE STOCK PLAN
During 1996, the Company established its 1996 Key Employee Stock Plan (the
"Stock Plan"). Under the Stock Plan, an aggregate of 500,000 shares will be
available for the granting of either stock options or restricted stock awards.
The Compensation Committee of the Board of Directors administers this plan.
Stock options issued under the Stock Plan may not exceed a term of more
than ten years and the stock option price may not be less than the fair market
value of the shares at the time the option is granted. The options are
exercisable ratably over a five year period. During 1997 and 1996, 157,250 and
105,750 stock options were issued. At December 31, 1997, 263,000 stock options
were outstanding, of which 21,150 are currently exercisable. The weighted
average exercise prices for options granted during 1997 and 1996 were $22.04 and
$23.00 per share, respectively, with exercise prices ranging from $18.19 to
$23.00 per share.
The Compensation Committee may award shares of restricted stock to
employees for no payment by the employee or for a payment below the fair market
value on the date of grant. Issuance of the stock may be subject to certain
restrictions, but in no case can the conditions continue for more than ten years
from the date of the award. As the shares vest, each employee receiving such
restricted stock has all of the rights of a stockholder, including without
limitation, the right to vote such shares. At December 31, 1997, restricted
stock awards for 58,338 shares had been granted at no cost to the employees, of
which 7,000 and 51,338 shares were granted during 1997 and 1996, respectively.
Deferred compensation is recorded at the date of the restricted stock award and
is amortized into compensation expense over the vesting period. At December 31,
1997, deferred compensation of $906,000 was recorded and related compensation
expense in 1997 and 1996 of $311,000 and $127,000, respectively, was recognized.
Substantially all restricted stock awards outstanding at December 31, 1997, vest
ratably over a five year period. At December 31, 1997, 12,368 shares were
vested.
F-15
<PAGE> 94
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
During 1996, the Company established its 1996 Non-Employee Director Stock
Option Plan (the "Director Plan"). Under the Director Plan, an aggregate of
50,000 shares of common stock will be available for the granting of stock
options to non-employee directors of the Company. The exercise price of a stock
option granted pursuant to the Director Plan may not be less than the fair
market value of the common stock on the date of grant and the stock option term
may not exceed ten years. Stock options granted under the Director Plan are
exercisable in full after the first anniversary of grant. The Director Plan
provides for an initial grant of stock options to each non-employee director to
purchase 2,500 shares of common stock contemporaneously with the initial public
offering and the annual grant of stock options to acquire 1,000 shares of stock
to each non-employee director serving on the board of directors following each
annual meeting of the stockholders. As of December 31, 1997, non-employee
directors have been granted stock options to acquire 14,000 shares of common
stock, of which 10,000 shares are exercisable. The range of exercise prices for
all options granted to date is $22.00 to $23.00 per share.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its Stock Plan and Director Plan. Accordingly, no compensation has been
recognized for stock-based compensation other than for restricted stock awards.
Had compensation cost for the stock options issued under the Stock Plan and
Director Plan been determined based upon SFAS No. 123, the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under the Company's net loss and net loss per share would have
increased by approximately $348,279, or $.01 per share during 1997 and
$1,812,000, or $0.07 per share during 1996. The fair value of the stock options
granted during the twelve-month periods ended December 31, 1997 and 1996 are
estimated as $10.63 and $16.32, respectively on the date of grant using the
Black-Scholes option pricing model with the following assumptions: dividend
yield of 0%, volatility of 55.10% and 23%, respectively, risk-free interest rate
of 5.54% and 6.42%, respectively, assumed forfeiture rate of 0%, and an expected
life of 4 years and 9.5 years, respectively.
At December 31, 1997, 239,962 and 36,000 shares of common stock were
reserved for issuance pursuant to the Stock Plan and the Director Plan,
respectively. The remaining weighted average life of the 273,000 options
outstanding at December 31, 1997, is 9 years.
NOTE 11 COMMITMENTS AND CONTINGENCIES
GUARANTY AND INDEMNITY AGREEMENT
On February 9, 1996, Thai Romo entered into a Guaranty and Indemnity
Agreement ("Guaranty") associated with a Bareboat Charter Agreement between
Tantawan Services, LLC ("Tantawan Services"), as charterer, and Tantawan
Production B.V., as lessor, for the leasing and operation of a Floating
Production Storage and Offloading system (FPSO) known as the Tantawan Explorer.
The initial duration of the Bareboat Charter Agreement is 10 years commencing
upon delivery of crude oil to the FPSO. The hire rate under the Bareboat Charter
Agreement is $55,000 per day. Thai Romo has guaranteed payment of 46.34% of
these costs or $25,448 per day. The Guaranty terminates upon the expiration of
the Bareboat Charter Agreement, notwithstanding the lawful termination or
cancellation of the Bareboat Charter Agreement. Should the initial term of the
Guaranty be extended or the FPSO purchased, Thai Romo would remain obligated for
46.34% of any subsequent obligations incurred by Tantawan Services.
F-16
<PAGE> 95
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASE COMMITMENTS
RMEC is subject to an office lease which expires in February 2002. The
commitment under this lease is as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1998.................................................. $133
1999.................................................. 142
2000.................................................. 159
2001.................................................. 159
2002.................................................. 27
----
$620
====
</TABLE>
Rental expense paid during 1997 and the years ended December 31, 1996 and
1995 was $133,000, $97,000, and $67,000, respectively.
NOTE 12 LITIGATION
As of December 31, 1997, the Company is not aware of any current or
potential legal proceedings.
NOTE 13 PRIMARY CUSTOMERS
All natural gas produced from the Tantawan and Benchamas Fields will be
sold to PTT, which maintains a monopoly over gas transmission and distribution
in Thailand.
A Gas Sales Agreement (the "GSA") with PTT for the Tantawan Field was
signed on November 7, 1995. Under the GSA, which is a take or pay agreement,
contracted deliveries of gas to PTT began in 1997 at a reduced price and was
sold at full contractual price at the conclusion of a 72-hour production test,
which was completed in March 1997. The natural gas price is based on formulae
which provide adjustments to the base price for natural gas on each April 1 and
October 1. Adjustments will be made to reflect changes in (i) wholesale prices
in Thailand, (ii) the U.S. producer price index for oil field machinery and
tools, and (iii) medium fuel oil prices. Adjustment factors for oil field
machinery and medium fuel oil prices will be subsequently adjusted for Thai
Baht/U.S. Dollar fluctuations, since payments from PTT are in Thai Baht. The
realized price was estimated to be equivalent to $1.64 per thousand cubic feet
(Mcf) in December 1997.
The GSA was amended in November 1997 to incorporate production from the
Benchamas Field and the daily contract quantity will be increased upon the
conclusion of a 72 hour production test at Benchamas Field once such production
commences.
The crude oil and condensate blend is sold on the spot market. The Company
believes that it can sell the blend to a variety of purchasers.
NOTE 14 SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
At December 31, 1997 and 1996 the Concession accounted for 100% of the
Company's future net cash flow from proved reserves.
Included herein is information with respect to oil and gas acquisition,
exploration, development and production activities, which is based on estimates
of year-end oil and gas reserve quantities and estimates of future development
costs and production schedules. The prices used in the reserve estimates are
prices the Company estimated it would have received at the respective date had
the Tantawan and Benchamas fields been producing at such time, except where
fixed and determinable price escalations or oil hedges are
F-17
<PAGE> 96
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provided by contract. Reserve quantities and future production are based
primarily upon reserve reports prepared by the independent petroleum engineering
firm of Ryder Scott Company. These estimates are inherently imprecise and
subject to substantial revision.
All reserve estimates presented herein were prepared by Ryder Scott
Company, independent petroleum engineers. The Company cautions that there are
many uncertainties inherent in estimating proved reserve quantities, and in
projecting future production rates and the timing of future development
expenditures, including many factors beyond the control of the producer.
Accordingly, these estimates are subject to change as additional information
becomes available. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
way, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of drilling, testing and production subsequent to the date of an
estimate may justify revision of the estimate. Accordingly, reserve estimates
are often different from the quantities of oil and gas that are ultimately
recovered.
Estimates of future net cash flows from proved reserves of oil and gas were
made in accordance with Statement of Financial Accounting Standards No. 69,
"Disclosures about Oil and Gas Producing Activities." The estimates are based on
prices the Company estimated it would have received at the respective date had
the Tantawan and Benchamas fields been producing at such time. Estimated future
cash inflows are reduced by estimated future development and production costs
based on year-end cost levels, assuming continuation of existing economic
conditions, and by estimated future tax expense. Tax expense is calculated by
applying the existing U.S. and Thailand statutory tax rates, including any known
future changes. The results of these disclosures should not be construed to
represent the fair market value of the Company's oil and gas properties. A
market value determination would include many additional factors including: (i)
anticipated future increases and decreases in oil and gas prices and production
and development costs; (ii) an allowance for return on investment; (iii) the
value of additional reserves not considered proved at the present, which may be
recovered as a result of further exploration and development activities; and
(iv) other business risks.
In computing the present value of the estimated future net cash flows, a
discount factor of 10% was used pursuant to SEC regulations to reflect the
timing of those net cash flows. Present value, regardless of the discount rate
used, is materially affected by assumptions about timing of future production,
which may prove to have been inaccurate. The following reserve value data
represent estimates only, which are subject to uncertainty given the current
energy markets.
Capitalized Costs of Oil and Gas Producing Activities
The following table sets forth the aggregate amounts of capitalized costs
relating to the Company's oil and gas producing activities and the aggregate
amount of related accumulated depreciation, depletion and amortization as of the
dates indicated (amounts in thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Productive and nonproductive properties being depleted...... $151,176 $ --
Unevaluated leasehold and property costs not subject to
amortization.............................................. 87,092 113,484
Less accumulated depreciation, depletion and amortization... (17,893) --
-------- --------
Net capitalized costs....................................... $220,375 $113,484
======== ========
</TABLE>
F-18
<PAGE> 97
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs Incurred in Oil and Gas Producing Activities
The following table reflects the costs incurred in oil and gas property
acquisition, exploration and development activities during the periods indicated
(amounts in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Property acquisition costs........................... $ 29,354 $ -- $ 4,224
Exploratory costs.................................... 23,485 7,460 26,601
Development cost..................................... 71,703 59,890 6,182
-------- ------- -------
$124,542 $67,350 $37,007
======== ======= =======
</TABLE>
The following table sets forth the Company's interest in estimated total
proved oil and gas reserves for the years ended December 31, 1997, 1996, and
1995:
<TABLE>
<CAPTION>
OIL GAS
(BBLS) (MMCF)
----------- -------
<S> <C> <C>
Total proved reserves at December 31, 1994.................. 7,674,372 56,739
New discoveries and extensions.............................. 7,634,009 43,376
Revisions of previous estimates............................. 133,636 5,208
Purchase of reserves........................................ 3,554,975 26,284
----------- -------
Total proved reserves at December 31, 1995.................. 18,996,992 131,607
New discoveries and extensions.............................. 6,209,030 46,447
Revisions of previous estimates............................. (3,874,242) (33,056)
----------- -------
Total proved reserves at December 31, 1996.................. 21,331,780 144,998
New discoveries and extensions.............................. 4,665,021 42,404
Revisions of previous estimates............................. (1,119,811) (10,731)
Purchase of reserves........................................ 4,766,073 21,400
Production.................................................. (820,289) (12,764)
----------- -------
Total proved reserves at December 31, 1997.................. 28,822,774 185,307
=========== =======
Proved developed reserves:
December 31, 1995......................................... -- --
=========== =======
December 31, 1996......................................... 5,191,993 45,998
=========== =======
December 31, 1997......................................... 7,020,943 60,193
=========== =======
</TABLE>
Proved reserves are estimated quantities of natural gas, crude oil, and
condensate which geological and engineering data demonstrate, with reasonable
certainty, to be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed reserves are proved
reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods.
F-19
<PAGE> 98
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Standardized Measure of Discounted Future Net Cash Flows
The following table reflects the Standardized Measure of Discounted Future
Net Cash Flows relating to the Company's interest in proved oil and gas reserves
as of December 31, 1997, 1996 and 1995 (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Future cash inflows............................. $ 814,030 $ 811,239 $ 621,742
Future development costs........................ (246,791) (184,753) (127,198)
Future production costs......................... (335,160) (245,398) (207,352)
--------- --------- ---------
Future net cash inflows before income taxes..... 232,079 381,088 287,192
Future income taxes............................. (18,006) (134,276) (137,204)
--------- --------- ---------
Future net cash flows........................... 214,073 246,812 149,988
Discount at 10% per annum....................... (156,016) (103,446) (74,669)
--------- --------- ---------
Standardized measure of discounted future net
cash inflows.................................. $ 58,057 $ 143,366 $ 75,319
========= ========= =========
</TABLE>
Principal changes in the Standardized Measure of Discounted Futures Net
Cash Flows attributable to the Company's proved oil and gas reserves for the
periods indicated are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Sales, net........................................ $ (10,791) $ -- $ --
New discoveries and extensions.................... 23,106 101,776 52,372
Revisions of quantity estimates................... (11,381) (51,043) 6,027
Purchases of reserves in place.................... 19,189 -- 27,182
Net changes in sales and transfer prices, net of
production costs................................ (120,927) 5,647 (2,712)
Accretion of discount............................. 17,419 13,163 5,211
Net change in income taxes........................ 129,393 2,405 (38,163)
Changes in future development costs............... (5,059) -- --
Change in production rates (timing) and other..... (126,258) (3,901) (8,561)
--------- -------- --------
Net Change........................................ $ (85,309) $ 68,047 $ 41,356
========= ======== ========
</TABLE>
NOTE 15 FINANCIAL INSTRUMENTS
Determination of Fair Values of Financial Instruments
Fair value for cash and cash equivalents, short-term investments,
receivables and payables at December 31, 1997, and December 31, 1996,
approximates carrying value.
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of these instruments. The value added tax
receivable, which is denominated in Thai Baht, approximates fair value as it is
translated at the December 31, 1997 exchange rate and can be converted into cash
within a short period of time. The carrying amount of joint interest receivables
and payables and accounts payable and accrued expenses approximates fair value
because they are generally paid or earned within sixty days. The carrying amount
of the note payable to bank approximates fair value because the interest rate is
reset at periodic intervals based upon market rates. The carrying amount of the
Notes approximates fair value based upon current market prices. See Note 2 for
discussion of the fair value of hedging and swap options.
F-20
<PAGE> 99
RUTHERFORD-MORAN OIL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997* 1998 1997*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas revenue.................... $ 10,632 $10,187 $ 27,567 $ 25,784
Interest income........................ 130 68 315 162
-------- ------- -------- --------
Total revenues................. 10,762 10,255 27,882 25,946
Expenses:
Operating expense...................... 6,057 7,458 18,239 17,100
Exploration costs...................... 33 -- (449) 159
Dry hole costs......................... 47 -- 2,516 --
Interest expense....................... 4,397 1,972 13,345 4,620
Depreciation, depletion and
amortization........................ 7,774 5,137 20,145 11,208
General and administrative............. 1,559 1,226 5,298 3,993
Foreign exchange (gain) loss........... (814) 1,850 (1,732) 1,850
Gain on futures contract............... (32) (410) (813) (275)
-------- ------- -------- --------
Total expenses................. 19,021 17,233 56,549 38,655
-------- ------- -------- --------
Loss before income tax benefit and
extraordinary loss on early
extinguishment of debt................. (8,259) (6,978) (28,667) (12,709)
Income tax benefit....................... -- (2,212) (6,593) (4,029)
-------- ------- -------- --------
Loss before extraordinary loss on early
extinguishment of debt................. (8,259) (4,766) (22,074) (8,680)
Extraordinary loss on early
extinguishment of debt (net of -0-
income tax)............................ 7,452 -- 7,452 --
-------- ------- -------- --------
Net loss................................. $(15,711) $(4,766) $(29,526) $ (8,680)
======== ======= ======== ========
Net loss per share....................... $ (0.61) $ (0.19) $ (1.15) $ (0.34)
======== ======= ======== ========
Weighted average number of common shares
outstanding............................ 25,598 25,615 25,607 25,612
======== ======= ======== ========
</TABLE>
- ---------------
* Restated
See accompanying notes to unaudited condensed consolidated financial statements.
F-21
<PAGE> 100
RUTHERFORD-MORAN OIL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,601 $ 1,979
Accounts receivable....................................... 6,964 10,457
Value added tax receivable................................ 9,817 5,579
Joint interest receivable................................. 16,897 2,169
Other..................................................... 646 1,916
-------- --------
Total current assets.............................. 36,925 22,100
Property and equipment (successful efforts method).......... 293,361 238,651
Accumulated depreciation, depletion, and amortization....... (37,678) (18,002)
-------- --------
Net property and equipment........................ 255,683 220,649
Deferred charges:
Deferred financing costs, net............................. 3,548 8,493
Escrowed funds, net....................................... 18,225 24,300
Deferred charges.......................................... 259 1,026
Deferred income tax....................................... 12,763 6,169
-------- --------
Total deferred assets............................. 34,795 39,988
-------- --------
Total assets...................................... $327,403 $282,737
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 14,127 $ 19,732
-------- --------
Total current liabilities......................... 14,127 19,732
Note payable to bank........................................ 147,000 69,000
10.75% senior subordinated notes............................ 120,000 120,000
Premium on written option................................... 36 625
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized, and 25,598,000 shares issued and
outstanding at September 30, 1998 and 25,614,000 at
December 31, 1997...................................... 256 256
Additional paid-in capital................................ 101,748 99,571
Deferred compensation..................................... (695) (906)
Accumulated deficit....................................... (55,069) (25,541)
-------- --------
Total stockholders' equity........................ 46,240 73,380
-------- --------
Total liabilities and stockholders' equity........ $327,403 $282,737
======== ========
</TABLE>
- ---------------
See accompanying notes to unaudited condensed consolidated financial statements.
F-22
<PAGE> 101
RUTHERFORD-MORAN OIL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997*
------------------ -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (29,526) $ (8,680)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation, depletion, and amortization............. 20,145 11,208
Extraordinary loss on early extinguishment of debt.... 7,452 --
Amortization of deferred financing cost............... 1,973 424
Deferred income tax benefit........................... (6,593) (4,029)
Foreign exchange (gain) loss.......................... (1,732) 1,850
Dry hole cost......................................... 2,516 --
Other................................................. 390 (45)
Changes in working capital............................ (18,621) (12,738)
--------- ---------
Cash used in operating activities................ (23,996) (12,010)
Cash flows from investing activities:
Capital expenditures..................................... (57,226) (57,132)
Acquisition of Maersk Oil (Thailand), Limited, net of
cash acquired......................................... -- (29,414)
--------- ---------
Cash used in investing activities................ (57,226) (86,546)
Cash flows provided by (used in) financing activities:
Deferred financing costs................................. (146) (187)
Issuance of 10.75% senior subordinated notes............. -- 120,000
Repayments under bank notes.............................. (152,350) (99,176)
Debt issuance cost....................................... (2,625) (2,965)
Borrowings under bank notes.............................. 230,350 106,330
Escrowed funds........................................... 6,075 (24,300)
--------- ---------
Cash provided by financing activities............ 81,304 99,702
--------- ---------
Net increase in cash and cash equivalents........ 82 1,146
Effect of foreign exchange rate on cash.................. 540 1,825
Cash and cash equivalents, beginning of period........... 1,979 444
--------- ---------
Cash and cash equivalents, end of period................. $ 2,601 $ 3,415
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest................. $ 13,461 $ 1,031
========= =========
Cash paid during the period for income tax............... $ -- $ --
========= =========
Supplemental disclosure of noncash investing and financing
activities:
Premium on written option................................ $ (589) $ 550
========= =========
</TABLE>
- ---------------
* Restated
See accompanying notes to unaudited condensed consolidated financial statements.
F-23
<PAGE> 102
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
include all adjustments necessary to present fairly the consolidated financial
position of Rutherford-Moran Oil Corporation ("RMOC" or the "Company") at
September 30, 1998 and December 31, 1997, and its results of operations for the
three and nine months ended September 30, 1998 and 1997 and statements of cash
flows for the nine months ended September 30, 1998 and 1997. The financial
statements herein should be read in conjunction with the consolidated financial
statements and notes to the consolidated financial statements as of and for the
year ended December 31, 1997, as included in the Company's annual report on Form
10-K. Certain prior year amounts have been reclassified to conform to the 1998
presentation.
(2) CHANGE IN ACCOUNTING PRINCIPLE
During the fourth quarter of 1997, the Company changed its method of
accounting for its investment in oil and gas properties from the full cost to
the successful efforts method. All prior period financial statements presented
herein have been restated to reflect the change.
Under the successful efforts method of accounting, costs of exploration,
including lease acquisition and intangible drilling costs associated with
exploration efforts which result in the discovery of proved reserves, and costs
associated with development drilling, whether or not successful, are
capitalized. Gain or loss is recognized when a property is sold or ceases to
produce or is abandoned. Estimated future expenditures for abandonment and
dismantlement costs, if material, are charged to operations utilizing the
units-of-production method based upon estimates of proved oil and gas reserves.
The cost of unproved leasehold is capitalized pending the results of
exploration efforts. Significant unproved leasehold costs are reviewed
periodically and a loss is recognized to the extent, if any, that the cost of
the property has been impaired. Exploratory dry holes, geological and
geophysical costs and delay rentals are expensed as incurred.
Capitalized drilling costs for oil and gas properties are amortized
utilizing the units of production method based on units of proved developed
reserves for each field. Lease acquisition costs related to producing oil and
gas properties are amortized using the units of production method based on units
of proved reserves for each field.
The effect of adopting the change in accounting principle resulted in an
increase in net loss for the three months ended September 30, 1997 of
approximately $488,000 (or $0.02 per share) and a decrease in net loss for the
nine months ended September 30, 1997 of $310,000 (or $0.01 per share).
The Company reviews proved oil and gas properties on a depletable unit
basis whenever events or circumstances indicate that the carrying value of those
assets may not be recoverable. An impairment loss is recognized whenever the
carrying value of an asset exceeds the fair value. Fair value, on a depletable
unit basis, is estimated to be the present value of expected future net revenues
computed by application of estimated future oil and gas prices, production, and
expenses, as determined by management, over the economic life of the reserves.
No such impairment was recognized during the three and nine months ended
September 30, 1998 or 1997.
(3) OIL AND GAS PROPERTY ACQUISITION
On December 19, 1996, the Company, through its wholly-owned subsidiary,
Thai Romo Limited ("Thai Romo"), exercised its preferential right to purchase
46.34% of the outstanding shares of Maersk Oil (Thailand) Limited ("MOTL"), a
wholly-owned subsidiary of Maersk Olie og Gas AS of Copenhagen, Denmark
("Maersk"). MOTL was a former co-concessionaire in Block B8/32 (the
F-24
<PAGE> 103
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Block"), with a 31.67% interest in the Concession. The purchase was consummated
on March 3, 1997, with Thai Romo Holdings ("TRH"), Thai Romo's nominee under the
Share Sales Agreement with Maersk, purchasing the shares for $28,617,000, which
included $1,554,000 in satisfaction of outstanding debt. After the closing, MOTL
was renamed B8/32 Partners, Limited ("B8/32").
In connection with the purchase, the Company recorded $7,875,000 for the
deferred tax liability related to the excess of the acquisition price over the
tax basis of the MOTL property.
The remaining 53.66% of MOTL's stock was purchased by Thaipo Limited
("Thaipo") and by Palang Sophon Limited ("Palang") of Bangkok, Thailand. Thaipo,
Palang and MOTL were co-concessionaires with Thai Romo prior to the sale of
MOTL. As a result, RMOC's interest in the Block increased to a uniform 46.34%.
(4) DEBT
On September 20, 1996, the Company entered into a $150 million revolving
credit agreement (the "Credit Agreement") with a group of commercial lenders.
The Credit Agreement had a final maturity of September 30, 1999, and contained
an initial borrowing base limitation of $60 million. On April 29, 1997, the
borrowing base limitation was redetermined to $120 million. Subsequent to the
issuance of the Company's 10.75% Senior Subordinated Notes ("the Notes") in
September 1997, the borrowing base was reset to $60 million. The Credit
Agreement was secured by the stock of certain subsidiaries of the Company.
On September 8, 1997, the Company entered into a short-term credit
agreement (the "Bridge Loan") with Chase Manhattan Bank for an additional
borrowing of $5 million. The Bridge Loan contained covenants substantially
identical to those in the Credit Agreement. The Bridge Loan was repaid on
September 29, 1997 with proceeds from the Notes.
In December 1997, the Company and two of its lenders entered into an
Amended and Restated Credit Agreement (the "Restated Credit Agreement"). The
borrowing base was reset at a fixed amount of $150 million until September 30,
1998 (or earlier upon the completion of certain new financings or other
specified events). The Restated Credit Agreement provided that the Company pay
interest at rates based on a margin of 1.75% over LIBOR if the aggregate
outstanding principal amount is less than or equal to a threshold amount, which
was set at $60 million, (the "Threshold Amount") a margin of 2.75% over LIBOR if
the principal amount outstanding is greater than the Threshold Amount on or
prior to June 30, 1998, and a margin of 3.50% over LIBOR if the principal amount
outstanding is greater than the Threshold Amount after June 30, 1998.
Alternatively, the Company could pay a margin over the prime rate of 0.25%, 1%
and 1.75% respectively, for similar levels of borrowings. The borrowing rate
under this facility was 3.50% over LIBOR, and the commitment fee was equal to
0.5% per annum on the average daily balance of the unused borrowing base. Under
this facility the Company was required to repay by September 30, 1998 all
amounts borrowed in excess of the Threshold Amount.
The Restated Credit Agreement also provided for semi-annual borrowing base
redeterminations subsequent to September 30, 1998 as well as a limitation on
additional indebtedness, and the issuance of warrants to purchase 200,000 shares
of common stock under specified circumstances. The warrants were issued on July
10, 1998 with a seven year term and an exercise price of $21 per share (repriced
to $10.50 per share on September 28, 1998).
The Restated Credit Agreement also required the Company to (i) make
principal payments from the proceeds of certain asset sales (ii) restrict the
payment of dividends under certain circumstances, and (iii) maintain an
Operating Cash Flow (as defined therein) to interest expense ratio (the
"Interest Coverage Ratio") as follows: 1.5:1 for each quarter ending on or
before September 30, 1998 and 2.5:1
F-25
<PAGE> 104
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
thereafter, such rates to be calculated excluding interest payable from the
interest escrow for the Notes. At March 31 and June 30, 1998 the lender waived
the Interest Coverage Ratio covenant.
On September 28, 1998, the Company entered into the Second Amended and
Restated Credit Agreement (the "Second Restated Credit Agreement") with The
Chase Manhattan Bank (hereinafter the "Lender"). The Second Restated Credit
Agreement amends and increases the amount of the borrowing base available under
the Restated Credit Agreement from $150,000,000 to $200,000,000. The maturity of
the facility has been extended until December 31, 1999. The covenants under the
Second Restated Credit Agreement are substantially similar to those of the
Restated Credit Agreement, but the Second Restated Credit Agreement changes the
Interest Coverage Ratio to not less than (i) 1.25:1 as of the end of the fiscal
quarter ending on March 31, 1999; (ii) 1.50:1 as of the end of the fiscal
quarter ending on June 30, 1999; and (iii) 2.00:1 as of the end of any fiscal
quarter thereafter. Additionally, the Second Restated Credit Agreement no longer
requires scheduled borrowing base redeterminations. If at any time after October
31, 1999, the aggregate principal amount outstanding under the Second Restated
Credit Agreement exceeds an amount, which initially was set at $60,000,000
(defined therein as the "Threshold Amount") the excess must be prepaid
immediately. The Second Restated Credit Agreement provides for interest at rates
based on a margin of 4.50% over LIBOR or 3% over the higher of the prime rate of
the Lender or the Federal funds rate plus .5%. These margins increase by 1% on
January 1, 1999, and by an additional 1% on the last business day of each
successive calendar quarter following January 1, 1999. The Company was paying a
stated interest rate of 9.875% at September 30, 1998. A commitment fee of .5%
per annum is charged on the balance of the unused commitment. Under the terms of
the Second Restated Credit Agreement and related Warrant Agreement the Company
incurred fees of $2,625,000 consisting of cash and warrants with a ten year term
at $0.01 per share to purchase 256,140 shares of the Company's common stock. In
addition, the exercise price on the 200,000 warrants issued on July 10, 1998 was
reset from $21 per share to $10.50 per share.
Additionally, the Warrant Agreement provides for the issuance of warrants
to the Lender to purchase an additional 256,140 shares of common stock of the
Company, if the Company has not executed a purchase and sale agreement with a
buyer for the sale of not less than 65% of the outstanding common stock of the
Company prior to October 31, 1998. The exercise price on the warrants is $.01
per share with a ten year term. These warrants were issued on October 31, 1998,
pursuant to the terms of the Warrant Agreement. If the Company has not satisfied
the conditions to closing of such purchase and sale agreement by November 30,
1998, the Lender will receive additional warrants to purchase 768,420 shares of
common stock of the Company at an exercise price of $.01 per share, with a ten
year term and if the Company has not satisfied the conditions to closing of such
purchase and sale agreement by December 31, 1998, the Lender will receive
additional warrants to purchase 1,280,700 shares of common stock of the Company
at an exercise price of $.01 per share with a ten year term. Therefore if the
Company has not satisfied the conditions to closing of such purchase and sale
agreement by December 31, 1998, the Lender could receive warrants to purchase a
total of 2,561,400 shares or approximately 10%, of the Company's common stock
under the terms of the Second Restated Credit Agreement and related Warrant
Agreement.
The Company's effective interest rate for the Second Restated Credit
Agreement includes the effect of both the additional warrants expected to be
issued and the total interest expected to be incurred. Based upon the Company's
stated interest rate at September 30, 1998, the effective interest rate for the
Second Restated Credit Agreement will reach 16.3% if not repaid prior to its
maturity date.
The Company recorded an extraordinary loss during the third quarter of 1998
of $7,452,000 associated with the early extinguishment of debt related to the
September 1998 Second Restated Credit Agreement with the Lender.
F-26
<PAGE> 105
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At September 30, 1998, approximately $147 million was outstanding under the
Second Restated Credit Agreement. On November 4, 1998, approximately $172
million was outstanding under the Second Restated Credit Agreement.
On September 29, 1997, the Company issued $120 million of Senior
Subordinated Notes due 2004 (the "Notes") at an annual interest rate of 10.75%.
The net proceeds were used to repay $93 million of outstanding indebtedness
under the Credit Agreement and to purchase approximately $24 million of
securities which were escrowed to pay interest on the Notes. The amount of the
securities purchased will be sufficient to provide for payment in full of the
first four semi-annual installments of scheduled interest payments commencing
April 1, 1998. The Notes contain customary covenants, including limitations on
the incurrence of additional indebtedness, restricted payments and the
establishment of certain liens.
In February 1998, the Company completed the exchange of the Notes, which
had been privately placed, for publicly registered notes. The new Notes
otherwise contain identical terms and conditions to the privately placed notes.
Additional bank borrowings by the Company are permitted under the indenture
pursuant to which the Notes were issued so long as the Company's indebtedness
does not exceed certain levels and it maintains certain ratios.
As of November 4, 1998, the Company had $28 million available under the
Second Restated Credit Agreement. The Company expects to exhaust its currently
available cash reserves and available bank credit in January 1999. The Lender
has informed the Company that it is not currently willing to increase the
commitment under the Second Restated Credit Agreement. The Company must raise
substantial additional funds to continue to fund activities subsequent to 1998.
Otherwise, the Company will not have the ability to undertake or complete
current and future drilling programs or to pay the principal and interest on its
outstanding debt. There can be no assurance that increased bank commitments,
debt, equity or other sources of funds will be available or that, if available,
will be on terms acceptable to the Company or sufficient to meet these and other
requirements. If the Company does not access substantial additional sources of
funds in the near term, it will not have the ability to complete the development
of proved undeveloped reserves in the Block, which will result in a downward
revision of the Company's proved reserves and the recognition of a significant
impairment charge by December 31, 1998. Such events will raise substantial doubt
about the ability of the Company to continue as a going concern past that date.
The Company continues to explore alternatives which may enable it to meet its
capital commitments at an acceptable cost. No assurances can be given that such
efforts will be successful in raising capital to continue pursuing development
activities.
On January 22, 1998, the Company announced that it intended to explore
various strategic alternatives regarding the ongoing development of its interest
in the Block. Exploration of these alternatives, including the possible merger
or sale of the Company is ongoing. On November 12, 1998, the Company issued a
statement reporting on the status of its efforts to explore such strategic
alternatives. During this process, the Company has had discussions with numerous
parties about their interest in acquiring the Company, but none of these
discussions resulted in a definitive agreement. The Company is currently in
discussions with one party on an exclusive basis. If a definitive merger
agreement is reached, it may result in a per share value to shareholders which
is less than the per share market price. No assurances can be given that any
definitive merger agreement will be reached or that any sale or similar
transaction will occur.
(5) TAXES
During the quarter ended September 30, 1998, the Company did not increase
its deferred tax asset which would have occurred as a result of the net loss of
$15,711,000 incurred for the quarter. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
F-27
<PAGE> 106
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
planning strategies in assessing the realization of deferred tax assets. The
Company's deferred tax asset is primarily associated with Net Operating Losses
(the "NOL's") in Thailand, whose realization is dependent upon generating
sufficient taxable income prior to their expiration. Management believes that
there is a risk that certain of these NOL's may expire unused and, accordingly,
has established a valuation allowance against them. Although realization is not
assured for the remaining deferred tax assets, management believes it is more
likely than not that they will be realized through future taxable earnings or
alternative tax strategies.
(6) CRUDE OIL HEDGING ACTIVITIES
During the first quarter of 1996, the Company entered into crude oil price
swaps with an affiliate of its lender in the amount of 1,000,000 barrels at
$15.92 per barrel for the period April through December of 1997, and in the
amount of 1,750,000 barrels at $15.92 per barrel for the year 1998. As the
Company's production in 1997 did not meet its swap obligation and the Company
expected that situation to continue in 1998, a portion of the Company's
obligation was considered speculative in 1997, marked to market and recognized
in the consolidated statement of operations.
During the first quarter of 1998, the Company entered into offsetting
positions for its entire 1998 swap position, thus resulting in no material
future exposure to the original swaps. The cost of establishing this position
was insignificant.
The Company also sold to an affiliate of its lender an option to purchase
1,250,000 barrels of aggregate oil volumes from January through December 1999 at
a price of $18.30 per barrel. The Company has accounted for the swap option
separately as it does not qualify as a hedge. At September 30, 1998, the Company
estimates the fair market value of this position to be $36,000 and has recorded
the amount as a liability on the consolidated balance sheet.
The Company has recorded a net gain of $32,000 in the Consolidated
Statement of Operations for the three months ended September 30, 1998 for the
increase in market value of the swap option as compared to a gain of $410,000
during the three months ended September 30, 1997.
(7) FOREIGN TRANSLATION GAIN/LOSS
Business transactions and foreign operations recorded in a foreign currency
are restated in U.S. Dollars, which is the Company's functional currency.
Revenues, operating and general and administrative expenses denominated in
currencies other than the functional currency are translated at an average
exchange rate for the period. Transaction gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other than
the functional currency are recognized in the consolidated statement of
operations in the year of occurrence. Net current assets and liabilities are
translated monthly at current rates and recognized in the consolidated statement
of operations in the year of occurrence. Currency translations resulted in a
gain of $814,000 and $1,732,000 for the three and nine month periods ended
September 30, 1998, compared to a loss of $1,850,000 for the three and nine
month periods ended September 30, 1997.
F-28
<PAGE> 107
RUTHERFORD-MORAN OIL CORPORATION
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) SUBSEQUENT EVENT
At the Concessionaires' request, PTT reduced its maximum gas nomination
from 115% of Daily Contract Quantities to 85 MMCF per day (the "DCQ") from May
through September 1998. This reduction reflected a prudent reservoir management
measure. Effective October 1, 1998, PTT increased its nomination to 115% of DCQ,
or approximately 98 MMCF per day. Because of production declines, the current
rate of gas production cannot meet 115% of DCQ, nor can it meet DCQ. In order to
maximize current cash flow, the Concessionaires have offset the effects of
decrease gas volumes with increase oil volumes until such time as drilling,
workover maintenance and additional platform installation increase gas
production to an amount equal to or exceeding DCQ. Management believes the
economic benefits of increased oil production exceed the costs of the gas price
penalty (being a sum in cash equal to the difference between the daily quantity
and the nominated quantity times 25% of the prevailing price during such period)
incurred due to failure to meet the gas nomination.
F-29
<PAGE> 108
ANNEX
A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 23, 1998
BY AND AMONG
CHEVRON CORPORATION,
CHEVRON THAILAND INC.
AND
RUTHERFORD-MORAN OIL CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE> 109
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1 The Merger........................................................ A-5
Section 1.01 The Merger.................................................. A-5
Section 1.02 Closing..................................................... A-5
Section 1.03 Effective Time.............................................. A-5
Section 1.04 Effects of the Merger....................................... A-6
Section 1.05 The Surviving Corporation................................... A-6
ARTICLE 2 Conversion of Securities.......................................... A-6
Section 2.01 Effect on Capital Stock..................................... A-6
Section 2.02 Exchange of Certificates.................................... A-7
ARTICLE 3 Representations and Warranties of the Company..................... A-9
Section 3.01 Organization, Standing and Corporate Power.................. A-9
Section 3.02 Company Subsidiaries........................................ A-9
Section 3.03 Capital Structure........................................... A-9
Section 3.04 Authority; Non-Contravention................................ A-10
Section 3.05 Company Public Documents, Financial Statements and
Outstanding
Indebtedness................................................ A-11
Section 3.06 Absence of Certain Changes or Events........................ A-12
Section 3.07 Litigation; Compliance with Law............................. A-13
Section 3.08 Company Benefit Plans and Labor Relations................... A-13
Section 3.09 Tax Returns and Tax Payments................................ A-14
Section 3.10 Environmental, Health and Safety Matters.................... A-14
Section 3.11 Assets; Encumbrances........................................ A-15
Section 3.12 Intellectual Property....................................... A-15
Section 3.13 Books and Records........................................... A-16
Section 3.14 Brokers..................................................... A-16
Section 3.15 Insurance................................................... A-16
Section 3.16 Material Contracts.......................................... A-16
Section 3.17 Affiliate Transactions...................................... A-17
Section 3.18 Opinion of Company's Financial Advisor...................... A-17
Section 3.19 Company Board Approval and Recommendation................... A-17
Section 3.20 Company Stockholder Approval................................ A-17
Section 3.21 Concession and Joint Operating Agreement.................... A-17
Section 3.22 No Other Agreements to Sell the Company Stock............... A-19
Section 3.23 Year 2000 Compliance........................................ A-19
Section 3.24 Accuracy of Information..................................... A-19
ARTICLE 4 Representations and Warranties of Parent and Merger Sub........... A-19
Section 4.01 Organization, Standing and Corporate Power.................. A-19
Section 4.02 Authority; Non-Contravention................................ A-20
Section 4.03 Parent SEC Documents........................................ A-21
Section 4.04 Litigation; Compliance with Law............................. A-21
Section 4.05 Organization and Authority of Merger Sub.................... A-21
Section 4.06 No Prior Activities......................................... A-21
Section 4.07 Parent Common Stock......................................... A-21
Section 4.08 Ownership of Company Capital Stock.......................... A-21
</TABLE>
A-2
<PAGE> 110
<TABLE>
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<S> <C> <C>
ARTICLE 5 Covenants Regarding Conduct of Business........................... A-22
Section 5.01 Conduct of Business by the Company.......................... A-22
Section 5.02 Acts Permitted to Preserve Enterprise....................... A-23
ARTICLE 6 Additional Agreements............................................. A-23
Section 6.01 Preparation of Form S-4 and Proxy Statement; Stockholder
Meetings.................................................... A-23
Section 6.02 Access to Financial and Operational Information............. A-24
Section 6.03 Notices of Certain Events................................... A-25
Section 6.04 Mutual Best Efforts......................................... A-26
Section 6.05 Public Announcements........................................ A-26
Section 6.06 Affiliate Agreements........................................ A-26
Section 6.07 Stock Exchange Listing...................................... A-27
Section 6.08 Acquisition of 5% Interest.................................. A-27
Section 6.09 No Solicitation............................................. A-27
Section 6.10 Indemnification............................................. A-27
Section 6.11 Insurance................................................... A-28
Section 6.12 Financial Information....................................... A-28
Section 6.13 Obligations of Merger Sub................................... A-28
Section 6.14 Tax Treatment............................................... A-28
Section 6.15 HSR Act..................................................... A-28
Section 6.16 Parent Board Approval....................................... A-29
Section 6.17 Interim Financing........................................... A-29
ARTICLE 7 Employment Matters................................................ A-29
Section 7.01 Employees................................................... A-29
Section 7.02 Conduct of Business by the Company with Respect to Certain
Employee Matters............................................ A-29
Section 7.03 Continuing COBRA Coverage................................... A-29
ARTICLE 8 Conditions Precedent to Merger.................................... A-30
Section 8.01 Conditions to Each Party's Obligation....................... A-30
Section 8.02 Conditions to Obligations of Parent......................... A-30
Section 8.03 Conditions to Obligation of the Company..................... A-31
Section 8.04 Effect of Exercise of Options............................... A-32
ARTICLE 9 Termination, Amendment, Fees and Expenses......................... A-32
Section 9.01 Termination................................................. A-32
Section 9.02 Effect of Termination....................................... A-33
Section 9.03 Amendment................................................... A-33
Section 9.04 Extension; Waiver........................................... A-33
Section 9.05 Authorization of Termination, Amendment, Etc. .............. A-34
Section 9.06 Fees and Expenses........................................... A-34
ARTICLE 10 General Provisions............................................... A-34
Section 10.01 Nonsurvival of Representations and Warranties............... A-34
Section 10.02 Notices..................................................... A-34
Section 10.03 Certain Definitions......................................... A-35
Section 10.04 Interpretation.............................................. A-39
Section 10.05 Counterparts................................................ A-39
Section 10.06 Entire Agreement............................................ A-39
Section 10.07 Governing Law............................................... A-40
</TABLE>
A-3
<PAGE> 111
<TABLE>
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Section 10.08 Assignment.................................................. A-40
Section 10.09 Enforcement................................................. A-40
Section 10.10 Severability................................................ A-40
Section 10.11 Service of Process.......................................... A-40
Section 10.12 Company Disclosure Schedules................................ A-40
</TABLE>
<TABLE>
<S> <C>
EXHIBITS
Exhibit A Option and Voting Agreement
Exhibit B Company Tax Certificate
Exhibit C Parent Tax Certificate
COMPANY DISCLOSURE SCHEDULES
Schedule 3.02 Company Subsidiaries
Schedule 3.03(a) Capitalization and Stock Options and Warrants
Schedule 3.03(d) Capitalization of Thai Romo
Schedule 3.03(e) Capitalization of B8/32 Partners
Schedule 3.03(f) Securities Having Voting and/or Registration Rights
Schedule 3.04(b) Non-Contravention
Schedule 3.04(c) Consents and Approvals
Schedule 3.05(c) Indebtedness and Liens
Schedule 3.06 Absence of Changes
Schedule 3.07 Litigation
Schedule 3.08(a) Company Benefit Plans
Schedule 3.08(b) Severance Payments
Schedule 3.09(a) Tax Returns and Tax Payments
Schedule 3.10 Environmental Matters
Schedule 3.11 Encumbrances
Schedule 3.16(a) Material Contracts
Schedule 3.16(b) Licenses
Schedule 3.21(c) Concession and Joint Operating Agreement
Schedule 3.21(g) Disputes Regarding the Concession
Schedule 3.21(h) Writings Related to the Concession or the JOA
Schedule 3.21(j) Sole Risk Operations
Schedule 5.01 Conduct of Business by Company
Schedule 7.01 Employees, Directors and Consultants
Schedule 7.02 Conduct of Business by Company Related to Employee Matters
PARENT DISCLOSURE SCHEDULE
Schedule 4.02(c) Consents and Approvals
</TABLE>
A-4
<PAGE> 112
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of
December 23, 1998, by and among Chevron Corporation, a Delaware corporation (the
"Parent"), Chevron Thailand Inc., a Delaware corporation (the "Merger Sub") and
a wholly owned subsidiary of Parent, and Rutherford-Moran Oil Corporation, a
Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Merger Sub and the Company
have approved the reorganization whereby Merger Sub will acquire all of the
stock of the Company through the merger of Merger Sub with and into the Company,
and the Company would become a wholly owned subsidiary of Parent (the "Merger");
and
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's and Merger Sub's willingness to enter
into this Agreement, certain record and beneficial stockholders of the Company
representing approximately 75.1% of the voting power of the Company have granted
to Parent options (the "Options") pursuant to an Option and Voting Agreement
(the "Option and Voting Agreement") attached hereto as Exhibit A to acquire such
stockholders' shares of Company Stock, along with an agreement to vote in favor
of the Merger and irrevocable proxies to Parent authorizing a vote in favor of
the Merger; and
WHEREAS, for Federal income-tax purposes, it is intended that the
acquisition of the shares of the stockholders of the Company pursuant to the
Option and Voting Agreement and the Merger will constitute an integrated
transaction qualifying as a tax free reorganization under the provisions of
section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements in this Agreement, the
parties, intending to be legally bound hereby, agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01 The Merger. Under the terms and subject to the conditions in
this Agreement, and in accordance with the Delaware General Corporation Law, as
amended (the "DGCL"), Merger Sub shall be merged with and into the Company at
the Effective Time (as hereinafter defined). At the Effective Time, the separate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation in the Merger (the "Surviving Corporation"), and as a
wholly owned subsidiary of Parent.
SECTION 1.02 Closing. Unless this Agreement shall have been terminated
pursuant to Article 9, and subject to satisfaction or waiver of the conditions
in Article 8, the closing of the Merger (the "Closing") will occur at 10:00
a.m., local time, on the first Business Day after satisfaction or waiver of the
conditions set forth in Section 8.01 (or as soon as practicable thereafter
following satisfaction or waiver of the conditions set forth in Sections 8.02
and 8.03), at the offices of Pillsbury Madison & Sutro LLP in San Francisco,
California (the day on which the Closing occurs being the "Closing Date") or at
such other time, date and place as Parent and the Company may agree.
SECTION 1.03 Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date (or on such other date as Parent and
the Company may agree), the parties shall cause to be duly prepared and filed
with the Secretary of State of the State of Delaware a certificate of merger for
the Merger (a "Certificate of Merger"), executed in accordance with the
applicable provisions of the DGCL, and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective upon (i)
the date and time of filing of the Certificate of Merger with the Secretary of
A-5
<PAGE> 113
State of the State of Delaware or (ii) on such other date as Parent and the
Company may agree (such time when the Merger becomes effective being the
"Effective Time").
SECTION 1.04 Effects of the Merger. The Merger shall have the effects
stated in the DGCL.
SECTION 1.05 The Surviving Corporation.
(a) Certificate of Incorporation. At the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation.
(b) Bylaws. At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation.
(c) Directors and Officers. At and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law or until their earlier death, resignation or removal, the
directors of Merger Sub at the Effective Time shall be the directors of the
Surviving Corporation, and the officers of Merger Sub at the Effective Time
shall be the initial officers of the Surviving Corporation.
ARTICLE 2
CONVERSION OF SECURITIES
SECTION 2.01 Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Common Stock, par value $0.01 per share, of the Company (the "Company Stock") or
capital stock of Merger Sub, each of the following shall occur:
(a) Conversion of Company Stock.
(i) Except as otherwise provided herein, at the Effective Time, each
issued and outstanding share of Company Stock (including those shares of
Company Stock issued upon exercise of Stock Options) shall be converted
into the right to receive that number of fully paid and nonassessable
shares of common stock, $1.50 par value, of Parent ("Parent Common Stock")
equal to the Exchange Ratio (as hereinafter defined) divided by the Average
Closing Price (as hereinafter defined) (the "Merger Per Share
Consideration").
(ii) "Exchange Ratio" shall be the result obtained by dividing a
numerator equal to the sum of (a) Ninety-One Million Dollars ($91,000,000),
(b) the amount, if any, of cash received by the Company in consideration of
the issuance of its equity securities after the date of this Agreement, and
(c) an amount equal to the value, if any, as agreed by the Company and
Parent, of any non-cash consideration received by the Company in
consideration of its equity securities after the date of this Agreement, by
a denominator equal to the number of shares of Company Stock (including
those shares issued upon exercise of Stock Options) issued and outstanding
at the Effective Time. "Average Closing Price" shall be the arithmetic
average of the closing prices of Parent Common Stock as reported on the
NYSE Composite Transactions Tape for the twenty (20) consecutive trading
days ending on the second trading day prior to the Closing Date (or if the
Options are exercised by Parent, the second trading day prior to the
exercise of the Options).
(iii) Holders of shares of Company Stock shall also receive together
with each share of Parent Common Stock issued in the Merger, one associated
preferred stock purchase right (a "Right") in accordance with the Rights
Agreement dated as of November 23, 1998, between Parent and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent. References herein to the
shares of Parent Common Stock issuable in the Merger shall also be deemed
to include the associated Rights.
(b) Cancellation of Treasury Stock and Parent Owned Company Stock. At the
Effective Time, each share of Company Stock that is owned by the Company as
treasury stock or by any Company Subsidiary, and each share of Company Stock
that is owned by Parent or Merger Sub, shall automatically be canceled
A-6
<PAGE> 114
and retired and shall cease to exist, and no cash, Parent Common Stock or other
consideration shall be delivered in exchange therefor.
(c) Company Options and Warrants. Any Stock Options (as hereinafter
defined) which have not vested or which have not been exercised prior to the
Closing Date shall be canceled, and none of the Parent, Merger Sub, the Company
or the Surviving Corporation shall have any obligations with respect to such
Stock Options.
(d) Capital Stock of Merger Sub. Each issued and outstanding share of the
capital stock of Merger Sub shall be converted into and become one fully paid
and nonassessable share of Common Stock, par value $0.01 per share, of the
Surviving Corporation.
(e) Adjustments to Merger Per Share Consideration. In the event that,
between the date of this Agreement and the Effective Time, the issued and
outstanding shares of Company Stock or Parent Common Stock shall have been
changed into a different number of shares or a different class of shares as a
result of a stock split, reverse stock split, dividend payable in stock or other
securities, recapitalization, reclassification or other similar transaction,
then the Merger Per Share Consideration shall be appropriately adjusted to
reflect such event to provide to the holders of Company Stock with the same
economic effect as contemplated by this Agreement prior to such stock split,
reverse stock split, dividend payable in stock or other securities, spin-off,
combination or exchange of shares, extraordinary dividend, recapitalization,
reclassification or other similar transaction.
SECTION 2.02 Exchange of Certificates.
(a) Exchange Agent. On the Closing Date, Parent shall deposit with
ChaseMellon Shareholder Services, L.L.C. or such other bank or trust company
designated by Parent and reasonably acceptable to the Company (the "Exchange
Agent") all certificates evidencing Parent Common Stock and cash for fractional
shares thereof which holders of shares of Company Stock are entitled to receive
under this Agreement as the Merger Per Share Consideration for the benefit of
such holders and for exchange in accordance with this Article 2 (such cash and
shares of Parent Common Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, being hereinafter
referred to as the "Exchange Fund"). The Exchange Agent shall, under irrevocable
instructions, deliver and pay all Merger Per Share Consideration and other
consideration in accordance with this Article 2.
(b) Exchange Procedures.
(i) Promptly after the Effective Time, Parent shall cause the Exchange
Agent to mail to each holder of record of a certificate evidencing shares
of Company Stock ("Company Stock Certificate") outstanding at the Effective
Time, whose shares were converted pursuant to Section 2.01 into the right
to receive shares of Parent Common Stock, (A) a letter of transmittal and
(B) instructions to effect the surrender of such Company Stock Certificate
in exchange for certificates representing shares of Parent Common Stock and
cash in lieu of fractional shares.
(ii) With respect to each holder of a Company Stock Certificate that
is surrendered to the Exchange Agent (together with and in accordance with
the duly executed letter of transmittal and such other customary documents
as may be reasonably required pursuant to the instructions provided by the
Exchange Agent), Parent shall cause the Exchange Agent to deliver and pay
to such holder certificates evidencing the number of whole shares of Parent
Common Stock to which such holder is entitled pursuant to this Agreement
and a check representing the amount of cash in lieu of fractional shares,
if any, to which such holder is entitled pursuant to this Agreement, plus,
in the event the Options are exercised by Parent, such holder's pro rata
portion of the amount of any accrued dividends or other distributions with
a record date after the date of exercise of the Options by the Parent to
the Closing Date paid with respect to the Parent Common Stock.
(iii) After the Effective Time, there shall be no further transfer on
the records of the Company or its transfer agent of any Company Stock
Certificate. If any Company Stock Certificate is presented
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for transfer, it shall be canceled against delivery by the Exchange Agent
of the Merger Per Share Consideration. If any Merger Per Share
Consideration is to be delivered or paid to a name other than that in which
the surrendered Company Stock Certificate is registered, a condition of
such exchange shall be that such Stock Certificate so surrendered shall be
properly endorsed, with signature guaranteed, or otherwise in proper form
for transfer and the Person requesting such exchange shall (A) pay to
Merger Sub any transfer (or other) tax required by reason of the issuance
of such certificate in a name other than that in which the surrendered
certificate is registered, or (B) establish to the reasonable satisfaction
of Parent or Merger Sub that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section, each Company Stock
Certificate shall, at all times after the Effective Time, represent only
the right to receive the Merger Per Share Consideration upon such
surrender.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions having a record date after the Effective Time with respect to
Parent Common Stock shall be paid to the holder of any unsurrendered Company
Stock Certificate, until surrender thereof in accordance with this Agreement.
Following surrender of any such Company Stock Certificate, there shall be paid
(without interest) to the holder of Company Stock issued in exchange therefor,
(i) at the time of such surrender, the amount of any dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to whole shares of Parent Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with respect to
such Company Stock having a record date after the Effective Time but prior to
such surrender, and a payment date after such surrender with respect to such
whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Stock. The Merger Per Share
Consideration paid and delivered upon surrender of any Company Stock Certificate
in accordance with this Article 2 shall be deemed to have been issued (and paid)
in full satisfaction of all rights regarding Company Stock theretofore
represented by such Stock Certificate, subject, however, to the Surviving
Corporation's obligations, with respect to shares of Company Stock outstanding
immediately before the Effective Time, to pay any dividends or make any other
distributions having a record date prior to the Effective Time which were
declared or made by the Company with respect to such Company Stock, prior to the
date hereof, or thereafter in accordance with this Agreement and which remain
unpaid at the Effective Time. If, after the Effective Time, Company Stock
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in Article 2.
(e) No Fractional Shares. Notwithstanding anything in this Article 2 to the
contrary, no certificate or scrip representing any fractional shares of Parent
Common Stock shall be issued as Merger Per Share Consideration and no such
fractional-share interest will entitle the holder thereof to any vote or any
other right of a stockholder of Parent. Each holder entitled to receive Merger
Per Share Consideration who would otherwise have been entitled to receive a
fraction of a share of Parent Common Stock (after taking into account all Merger
Per Share Consideration) shall receive, in lieu thereof, a cash payment (without
interest) equal to such fraction multiplied by the Average Closing Price (each a
"Fractional Share Payment").
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains unclaimed by the former stockholders of the Company for one year after
the Closing Date shall be delivered to Parent upon demand, and any Person
otherwise entitled to receive Merger Per Share Consideration or other
consideration who has not theretofore complied with this Article 2 shall
thereafter look only to Parent and only as a general creditor thereof for
payment of any claim for Merger Per Share Consideration, any dividends or
distributions with respect to Parent Common Stock and any cash in lieu of
fractional shares of Parent Common Stock, to which such Person may be entitled.
(g) No Liability. None of the Company, the Parent, Merger Sub, the
Surviving Corporation or the Exchange Agent shall be liable to any Person in
respect of any cash from the Exchange Fund that may be delivered to a public
official pursuant to any applicable law regarding abandoned property, escheat or
similar matters.
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(h) Affiliates. Notwithstanding anything herein to the contrary, Company
Stock Certificates surrendered by an "affiliate" (as determined pursuant to
Section 6.06) of the Company shall not be exchanged until Parent has received a
written agreement from such Person as provided in Section 6.06 hereof.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub that, except
as disclosed in the disclosure schedules delivered to Parent and Merger Sub by
the Company at the time of execution of this Agreement (the "Company Disclosure
Schedules" and each a "Company Disclosure Schedule"):
SECTION 3.01 Organization, Standing and Corporate Power. Each of the
Company and the Company Subsidiaries is duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as now
being conducted, to own or use the properties and assets that it purports to own
or use, and to perform all its obligations under its Material Contracts (as
hereinafter defined). Each of the Company and the Company Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed or to be in good standing would not have
a material adverse effect (as hereinafter defined) on the Company. The Company
has made available to Parent complete and correct copies of the organizational
documents and bylaws of the Company and of each Company Subsidiary, in each case
as in effect on the date of this Agreement.
SECTION 3.02 Company Subsidiaries. The only direct or indirect
subsidiaries of the Company are those listed in Company Disclosure Schedule 3.02
(the "Company Subsidiaries" and each a "Company Subsidiary"). All outstanding
shares of capital stock of each such Company Subsidiary that is a corporation
have been duly authorized and validly issued, are fully paid and nonassessable,
were not issued in violation of preemptive rights or similar rights and are
owned (of record and beneficially) by the Company or by another Company
Subsidiary, and except as disclosed on Company Disclosure Schedule 3.02, are
free and clear of all rights of first refusal, pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever. Except for
(a) the ownership interests listed in Company Disclosure Schedule 3.02 and (b)
other ownership interests not having a value in excess of $100,000, the Company
does not own, directly or indirectly, any capital stock or other ownership
interest in any corporation, partnership, joint venture or other entity.
SECTION 3.03 Capital Structure.
(a) The authorized capital stock of the Company consists of 40,000,000
shares of Company Stock and 10,000,000 shares of preferred stock, $0.01 par
value per share ("Company Preferred Stock"). As of the close of business on
December 18, 1998, there were 25,598,000 shares of Company Stock issued and
outstanding and no shares of Company Preferred Stock outstanding. As of the date
of this Agreement, there are options to purchase 223,800 shares of Company Stock
outstanding and warrants to purchase 1,480,700 shares of Company Stock
outstanding. Company Disclosure Schedule 3.03(a) lists all outstanding options,
warrants or other rights to purchase or acquire shares of Company Stock ("Stock
Options"), showing for each such option: (1) the holder, (2) the number of
shares issuable, (3) the number of vested shares, (4) the date of expiration and
(5) the exercise price.
(b) The authorized capital stock of RMEC consists of an aggregate of 10,000
shares of common stock, par value $.01 per share, of which 1,000 shares are duly
and validly issued and outstanding, each of which shares is fully paid and
nonassessable. All of such issued and outstanding shares of common stock are
owned beneficially and of record by the Company.
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(c) The authorized capital stock of TRH consists of an aggregate of 1,000
shares of common stock, par value $.01 of which 1,000 shares are duly and
validly issued and outstanding, each of which shares is fully paid and
nonassessable. All of such issued and outstanding shares of common stock are
owned beneficially and of record by the Company.
(d) The registered capital of Thai Romo consists of an aggregate of
1,065,317 ordinary shares of which 1,065,317 shares are duly and validly issued
and outstanding, each of which shares is fully paid and nonassessable. All of
such issued and outstanding ordinary shares of common stock are owned
beneficially and of record as set forth on Company Disclosure Schedule 3.03(d)
hereto.
(e) The registered capital of B8/32 Partners consists, on the date hereof,
of an aggregate of 110,000 ordinary shares all of which are duly and validly
issued and outstanding, each of which shares is fully paid and nonassessable. As
of the date hereof, all of such issued and outstanding ordinary shares of common
stock are owned beneficially and of record by the Persons as set forth on
Company Disclosure Schedule 3.03(e) hereto.
(f) Except as stated above, no shares of capital stock or other equity
securities of the Company are issued and outstanding and neither the Company nor
any Company Subsidiary is a party to any contract, understanding or arrangement
based on or otherwise tracking the performance or characteristics of such stock
or other equity securities. All outstanding shares of Company Stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive (or similar) rights. Except as set forth on Company Disclosure
Schedule 3.03(f), there are no outstanding bonds, debentures, notes or other
indebtedness or other securities of the Company having the right to vote (or
convertible into, or exercisable or exchangeable for securities having the right
to vote) on any matters on which stockholders of the Company may vote. Except as
disclosed on Company Disclosure Schedule 3.03(a) or 3.03(f), there are no
outstanding securities, options, warrants, rights, or agreements of any kind to
which the Company or any Company Subsidiary is a party (or by which any of them
is bound) obligating the Company or any Company Subsidiary to issue, deliver,
transfer or sell shares of capital stock or other equity securities of the
Company or any Company Subsidiary. There are no outstanding contractual
obligations, commitments or arrangements of the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of the Company or any Company Subsidiary.
Except as disclosed in Company Disclosure Schedule 3.03(f), there are no
agreements or arrangements pursuant to which the Company is required to register
shares of Company Stock under the Securities Act of 1933, as amended (the
"Securities Act"). None of the outstanding equity securities of the Company was
issued in violation of the Securities Act or applicable blue sky laws of any
jurisdiction.
(g) The Board of Directors of the Company has taken all necessary action to
cause all unexpired and unexercised Stock Options to automatically expire and
terminate to the extent unexercised immediately prior to the Effective Time.
SECTION 3.04 Authority; Non-Contravention.
(a) The Company has the requisite corporate power and authority to enter
into this Agreement and (subject to the Company Stockholder Approval) to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company (subject to the Company Stockholder
Approval). This Agreement has been duly executed and delivered by the Company
and (assuming this Agreement is a valid and binding obligation of Checkers and
Merger Sub) constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms (subject in each
case to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally, and to general
principles of equity and the discretion of the court before which any
proceedings seeking injunctive relief or specific performance may be brought).
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(b) Except as disclosed in Company Disclosure Schedule 3.04(b) and except
for the governmental filings and other matters referred to in paragraph (c)
below, execution and delivery of this Agreement by the Company do not (and
consummation of the transactions contemplated hereby will not)
(i) conflict with or violate the certificate of incorporation or
bylaws of the Company or any comparable charter documents of any Company
Subsidiary, or any resolution adopted by the Board of Directors or
stockholders of the Company or any Company Subsidiary;
(ii) violate in any material respect any judgment, order, statute,
law, rule or regulation applicable to the Company or any Company
Subsidiary; or
(iii) with respect to any loan or credit agreement, or note, bond,
mortgage, indenture, lease or other material agreement, instrument, or
license applicable to the Company or any Company Subsidiary (including by
virtue of any effect on the Joint Operating Agreement or the operations
conducted thereunder), result in any breach or violation of, or default
thereunder (with or without notice or lapse of time, or both), or give rise
to a material right of termination, cancellation or modification, or
imposition of material fees or penalties thereunder, or acceleration of any
material obligation thereunder, or result in the creation of any material
Lien upon assets of the Company or any Company Subsidiary thereunder.
(c) No consent, approval, order or authorization of (or from), or
registration, notification, declaration or filing with, any Federal, state or
local government or any court, administrative agency of other governmental
authority, domestic or foreign (each a "Governmental Entity"), or other third
party, is required by or with respect to the Company or any Company Subsidiary
in connection with execution and delivery of this Agreement by the Company or
consummation by the Company of the transactions contemplated hereby or the
preservation of the Company's rights under the Joint Operating Agreement or the
operations conducted thereunder, except for
(i) filing of a pre-merger notification and report form under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act");
(ii) filing with the SEC of a proxy statement relating to the Company
Stockholder Approval (such proxy statement as amended or supplemented from
time to time, being referred to herein as the "Proxy Statement");
(iii) filing of the Certificate of Merger with the Secretary of State
of the State of Delaware and appropriate documents with authorities of
other states in which Merger Sub or the Company is qualified to do
business;
(iv) the notices and approvals required pursuant to the terms of the
Joint Operating Agreement;
(v) the notices and approvals required by the Government of the
Kingdom of Thailand (the "Thai Government") with respect to the
transactions contemplated hereby;
(vi) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices disclosed in Company
Disclosure Schedule 3.04(c); and
(vii) such third-party consents and approvals (if any), the absence of
which would not be material to the Company and its subsidiaries taken as a
whole or would not prevent or materially delay the consummation of the
transactions contemplated hereby.
SECTION 3.05 Company Public Documents, Financial Statements and
Outstanding Indebtedness.
(a) The Company has filed all required reports, schedules, forms,
statements and other documents with the SEC since June 3, 1996. The Company has
delivered or made available to the Parent all reports, schedules, forms,
statements and other documents filed with the SEC since such date (collectively,
and in each case including all exhibits and schedules thereto and documents
incorporated by reference therein, the "Company Public Documents"). As of their
respective filing dates, the Company Public Documents complied in all material
respects with the requirements of the Securities Act or the Securities Exchange
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Act of 1934, as amended (the "Exchange Act"), as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such Company
Public Documents. As of their respective filing dates, none of the Company
Public Documents (including any and all financial statements therein) contained
any untrue statement of a material fact or failed to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Company included in the
Company Public Documents (the "Company Financial Statements") comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles of the
United States ("GAAP") (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the period involved (except as may be indicated in the notes thereto) and
present fairly, in all material respects, the consolidated financial position of
the Company and the Company Subsidiaries at the respective dates thereof and the
consolidated results of operations and cash flows for the periods specified
therein (subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments). The consolidated balance sheet of the Company and
the Company Subsidiaries as of October 31, 1998 (the "Interim Balance Sheet")
has been prepared in accordance with GAAP and presents fairly, in all material
respects, the consolidated financial position of the Company and the Company
Subsidiaries as of such date, subject to normal quarterly adjustments and
year-end audit adjustments and subject to the lack of any accompanying notes to
the Interim Balance Sheet.
(b) Except to the extent reflected or reserved against in the Company
Financial Statements as of September 30, 1998 (and the notes thereto), the
Interim Balance Sheet, or otherwise disclosed in the Company Disclosure
Schedules, the Company and the Company Subsidiaries have no material liabilities
(including contingent liabilities and obligations) except (i) liabilities and
obligations incurred in the ordinary course of business since the date of the
most recent audited balance sheet included in the Company Financial Statements,
(ii) expenses not in excess of $8,000,000, payable to its accountants, legal and
financial advisors and other vendors of goods and services incurred in
connection with this Agreement and the transactions contemplated hereby, or
(iii) that would not be required to be reflected or reserved against in the
consolidated balance sheet of the Company and its subsidiaries prepared in
accordance with GAAP or otherwise disclosed in the footnotes to financial
statements of the Company and the Company Subsidiaries prepared in accordance
with GAAP.
(c) Part A of Company Disclosure Schedule 3.05(c) is a complete and correct
list of each Production Payment, each credit agreement, loan agreement,
indenture, purchase agreement, Guarantee, letter of credit or other arrangement
providing for or otherwise relating to any Indebtedness or any extension of
credit (or commitment for any extension of credit) to, or Guarantee by, the
Company or any of the Company Subsidiaries (other than loans and advances
between the Company and any of the Company Subsidiaries), outstanding on the
date hereof, and the aggregate principal or face amount outstanding or that may
become outstanding under each such arrangement is correctly described in Part A
of said Company Disclosure Schedule. Part B of such Company Disclosure Schedule
is a complete and correct list of each Lien securing Indebtedness of any Person
outstanding on the date hereof, and covering any assets of the Company or any of
the Company Subsidiaries, and the aggregate Indebtedness secured (or that may be
secured) by each such Lien and the Property covered by each such Lien is
correctly described in Part B. Except as set forth in Company Disclosure
Schedule 3.05(c), the Company is presently and at all times has been and shall
be in compliance, in all material respects, with the terms and conditions of the
agreements governing the terms and conditions of the Indebtedness listed in Part
A of Company Disclosure Schedule 3.05(c), and there has not occurred any
material default by the Company or any Company Subsidiary under such governing
documents.
SECTION 3.06 Absence of Certain Changes or Events. Except as disclosed in
the Company Public Documents, the Interim Balance Sheet or in Company Disclosure
Schedule 3.06, since January 1, 1998, the Company and each Company Subsidiary
has conducted its business in the ordinary course consistent with past practice,
and there is not and has not been (a) any material adverse change to the
Company,
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(b) any distribution or dividend made by the Company, (c) any material
repurchase of equity securities by the Company, (d) any condition, event or
occurrence which could reasonably be expected to prevent or materially delay the
Company's consummation of the transactions contemplated by this Agreement or (e)
any material change in accounting methods, principles or practices of the
Company, except as required by law or the rules of the Nasdaq National Market or
GAAP.
SECTION 3.07 Litigation; Compliance with Law.
(a) Except as disclosed in Company Disclosure Schedule 3.07, (i) there is
no material suit, order, action or proceeding outstanding or pending (or, to the
best knowledge of the Company, threatened) against the Company, any Company
Subsidiary, any officer or director of the Company in their capacity as such,
or, to the best knowledge of the Company, the operator under the Joint Operating
Agreement in its capacity as operator thereunder or relating to its activities
thereunder, including, without limitation, any claims for indemnification, and
(ii) neither the Company, any Company Subsidiary, any officer or director of the
Company in their capacity as such, or, to the best knowledge of the Company, the
operator under the Joint Operating Agreement in its capacity as operator
thereunder or relating to its activities thereunder, is subject to any material
judgment, decree, injunction or order of any Governmental Entity outstanding
against the Company, any Company Subsidiary or such operator.
(b) Each of the Company and each Company Subsidiary and, to the best
knowledge of the Company, the operator under the Joint Operating Agreement with
respect to the operations thereunder have conducted its respective business in
compliance in all material respects with all judgments, orders, statutes, laws,
rules, and regulations (collectively, "Laws") applicable thereto including, with
limitation, the Foreign Corrupt Practices Act.
SECTION 3.08 Company Benefit Plans and Labor Relations.
(a) For purposes of this Agreement, "Compensation and Benefit Plans" means,
collectively, each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
incentive bonus pool, stock purchase, restricted stock, stock option,
employment, termination, severance, compensation, medical, health, or other
plan, agreement, policy or arrangement, whether written or oral, that covers
employees, directors or consultants of the Company or any of the Company
Subsidiaries, or pursuant to which former employees, directors or consultants of
the Company or any of the Company Subsidiaries are entitled to current or future
benefits. Company Disclosure Schedule 3.08(a) lists all Compensation and Benefit
Plans maintained, or contributed to, by the Company or any of the Company
Subsidiaries or any Person that, together with the Company or any of the Company
Subsidiaries, is treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code. Each Compensation and Benefit Plan has been administered in
accordance with its terms and is in material compliance with the applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended,
the Code and any other applicable law. All Compensation and Benefit Plans that
are intended to be qualified under Sections 401(a) and 501(a) of the Code are
the subject of favorable determination letters form the Internal Revenue
Service, and no such determination letter has been revoked nor has any event
occurred since the date of its most recent determination letter or application
therefor that would materially adversely affect its qualification or materially
increase its costs.
(b) Except as contemplated by this Agreement or disclosed in Company
Disclosure Schedule 3.08(b), the execution of, and performance of the
transactions contemplated by, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Compensation and Benefit Plan or agreement that will or may reasonably be
expected to result in any payment (whether severance pay or otherwise),
acceleration, vesting or increase in benefits with respect to any employee,
former employee, director or consultant of the Company or any of the Company
Subsidiaries whether or not any such payment would be an "excess parachute
payment" (within the meaning of Section 280G of the Code). Except as provided in
Company Disclosure Schedule 3.08(c), no payment described therein constitutes an
excess parachute payment.
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(c) Neither the Company, any Company Subsidiary, nor, to the best knowledge
of the Company, the operator under the Joint Operating Agreement with respect to
the operations thereunder is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed the Company, any
Company Subsidiary or any such operator, as the case may be, and, to the best
knowledge of the Company, there are no activities or proceedings of any labor
union to organize any such employees. There are no strikes, work stoppages or
other material labor disputes involving the Company, any Company Subsidiary or,
to the best knowledge of the Company, such operator pending (or, to the best
knowledge of the Company, threatened).
(d) The Board of Directors of the Company has taken all necessary action to
cause all Compensation and Benefit Plans to automatically expire and terminate
prior to the Effective Time.
SECTION 3.09 Tax Returns and Tax Payments.
(a) Except as disclosed in Company Disclosure Schedule 3.09(a), each of the
Company and the Company Subsidiaries has filed all tax returns and reports
required to be filed by it (or requests for extensions to file such returns or
reports have been timely filed and granted and have not expired) and all such
tax returns and reports were complete and accurate in all respects when filed,
except to the extent that such failures to file, to have extensions granted that
remain in effect or to be complete and accurate in all respects, as applicable,
would not, individually or in the aggregate, have a material adverse effect on
the Company and its Subsidiaries taken as a whole. Except as disclosed on
Company Disclosure Schedule 3.09(a), the Company and each Company Subsidiary has
paid (or the Company has paid on its behalf) or has accrued on its financial
statements all taxes shown as due on such tax returns and reports. The most
recent Company Financial Statements reflect an adequate reserve for all taxes
payable by the Company and Company Subsidiaries for all taxable periods and
portions thereof accrued through the date of such Company Financial Statements.
Except as disclosed on Company Disclosure Schedule 3.09(a), the Company has
received no written notice of deficiencies for any taxes proposed, asserted or
assessed against the Company or any Company Subsidiary that are not adequately
reserved for, except for any inadequately reserved taxes and inadequately
reserved deficiencies that, individually or in the aggregate, would not be
material to the Company and its subsidiaries taken as a whole. Except as
disclosed on Company Disclosure Schedule 3.09(a), no requests for waivers of the
time to assess any taxes against the Company or any Company Subsidiary have been
granted or are pending, except for requests with respect to such taxes that have
been adequately reserved for in the most recent Company Financial Statements or,
to the extent not adequately reserved, the assessment of which would not,
individually or in the aggregate, be material to the Company and its
subsidiaries taken as a whole.
(b) The term "taxes" shall include all Federal, state, local and foreign
income, franchise, property, sales, use, excise and other taxes, including
obligations for withholding taxes from payments due or made to any other Person
and any interest, penalties or additions to tax.
SECTION 3.10 Environmental, Health and Safety Matters.
(a) Except as disclosed in Company Disclosure Schedule 3.10:
(i) each of the Company, the Company Subsidiaries and, to the best
knowledge of the Company, the operator under the Joint Operating Agreement
with respect to the operations thereunder, holds, and is in compliance
with, all material Environmental, Health and Safety Permits and is
otherwise in compliance in all material respects with all applicable
Environmental, Health and Safety Laws;
(ii) neither the Company, any Company Subsidiary nor, to the best
knowledge of the Company, the operator under the Joint Operating Agreement
with respect to the operations thereunder has received any material
Environmental, Health and Safety Claim against the Company, any Company
Subsidiary or such operator;
(iii) neither the Company, any Company Subsidiary nor, to the best
knowledge of the Company, the operator under the Joint Operating Agreement
with respect to the operations thereunder (A) has
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entered into or agreed to any material consent decree or order under any
Environmental, Health and Safety Law, or (B) is subject to any material
judgment, decree or order of any Governmental Entity relating to compliance
with any Environmental, Health and Safety Law or to investigation, cleanup,
remediation or removal of Hazardous Materials under any Environmental,
Health and Safety Law (other than orders applying generally to any industry
in which the Company or any Company Subsidiary operates); and
(iv) each of the Company and Company Subsidiaries, and, to the best
knowledge of the Company, the operator under the Joint Operating Agreement
with respect to the operations thereunder, is in compliance in all material
respects with all applicable requirements of the Production License
Applications, Environmental Impact Assessments, and the Initial
Environmental Evaluations.
(b) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Environmental, Health and Safety Claim" means any written notice,
claim, demand, action, suit, complaint or proceeding by any Person alleging
liability or potential liability (including, without limitation, liability
or potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property damage, personal injury,
fines or penalties) arising out of, based on or resulting from (A) the
presence, discharge, emission or release of any Hazardous Materials or (B)
any violation or alleged violation of any Environmental, Health and Safety
Law or Environmental, Health and Safety Permit.
(ii) "Environmental, Health and Safety Permits" with respect to any
entity means all permits, licenses, registrations and other governmental
authorizations required for current operations of such entity's business
and facilities and otherwise to conduct such entity's business in
compliance with Environmental, Health and Safety Laws.
(iii) "Environmental, Health and Safety Laws" means all applicable
international, national, state and local statutes, rules, regulations,
ordinances, orders and decrees regarding contamination, pollution or
protection of natural resources, human health, safety or the environment.
(iv) "Hazardous Materials" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any
fraction thereof) and petroleum products, asbestos and asbestos-containing
materials, pollutants, contaminants and all other materials and substances
regulated by Environmental, Health and Safety Laws.
SECTION 3.11 Assets; Encumbrances. The Company and Company Subsidiaries
own all the assets and properties reflected as owned by the Company and the
Company Subsidiaries on the Interim Balance Sheet as of October 31, 1998, (and
any subsequent balance sheet delivered pursuant to Section 6.12) and hold valid
and subsisting leasehold interests or licenses in all properties or assets of
which either the Company or a Company Subsidiary is lessee or licensee, as the
case may be. All material tangible assets are in good operating condition,
ordinary wear and tear excepted. Except as disclosed on Company Disclosure
Schedule 3.11, all material assets and properties directly or indirectly owned
or leased by the Company and the Company Subsidiaries are free and clear of
material encumbrances other than (a) liens for current taxes not yet due, (b)
minor imperfections of title, if any, none of which materially impairs the
present use of the property subject thereto or impairs the current operations of
the Company or the Company Subsidiaries, (c) zoning laws and other use
restrictions that do not materially impair the current use of the property
subject thereto and (d) mechanic's, courier's, worker's, repairer's,
materialman's, warehouseman's and other similar liens arising or incurred in the
ordinary course of business, none of which would, individually or in the
aggregate, materially adversely affect the value of, or materially adversely
interfere with the use of, the property subject thereto. Neither the Company nor
any Company Subsidiary owns any real property other than fixtures, leasehold
improvements and property owned pursuant to the Joint Operating Agreement.
SECTION 3.12 Intellectual Property. The Company and the Company
Subsidiaries own, or have all necessary rights to use, all trademarks, trade
names, copyrights, and other intellectual property currently being used by the
Company and the Company Subsidiaries, which rights are sufficient in all
material
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respects to permit such current use by the Company and the Company Subsidiaries.
The Company has received no written notice of any claim of any infringement of
any trademark, trade name, copyright or other intellectual property owned by the
Company and the Company Subsidiaries.
SECTION 3.13 Books and Records. The minute books and other records of the
Company, and each of the Company Subsidiaries that have been made available to
Parent contain the records of all meetings held of, and corporate action taken
by, the stockholders, the Board of Directors, and committees of the Board of
Directors of the Company, and each of the Company Subsidiaries, as the case may
be, and other than the meeting of the Board of Directors of the Company held on
December 15, 1998, no meeting of such stockholders, Board of Directors or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. The Company has made available to Parent all
records in its possession with respect to any meetings held pursuant to the
Joint Operating Agreement.
SECTION 3.14 Brokers. The Company has not made (and is not bound by) any
agreement or arrangement under which any broker, investment banker, financial
advisor or other Person (other than Chase Securities Inc. and Bear, Stearns &
Co. Inc., whose fees and expenses will be paid in full by the Company under
agreements copies of which have been previously furnished to Parent) is entitled
to any broker's, finder's or financial advisor's fee or any similar payment in
connection with the transactions contemplated by this Agreement.
SECTION 3.15 Insurance. Copies of all material insurance policies and
arrangements of the Company and each of the Company Subsidiaries have been made
available to Parent. Such insurance policies and arrangements are in full force
and effect, all premiums with respect thereto are currently paid, and the
Company and the Company Subsidiaries are in compliance in all material respects
with the terms thereof. Such insurance is sufficient for compliance by the
Company and the Company Subsidiaries with all requirements of law and all
agreements and leases to which the Company or any of the Company Subsidiaries is
a party. To the best knowledge of the Company, the operator under the Joint
Operating Agreement maintains insurance policies and arrangements in coverage
amounts sufficient to insure, at levels customary in the business of the
Company, all operations related to the Joint Operating Agreement and Concession.
SECTION 3.16 Material Contracts. (a) Company Disclosure Schedule 3.16(a)
lists all contracts material to the business, assets, properties or financial
condition of the Company and its Subsidiaries, taken as a whole, which (1) the
Company or a Company Subsidiary is a party to or (2) the Company believes or has
knowledge that (x) the Company or a Company Subsidiary is a third-party
beneficiary of or (y) the operator (or any affiliate thereof) under the Joint
Operating Agreement is a party and which affects or concerns assets or
operations within the Block (any such contract, a "Material Contract"). The
Company has made available to Parent copies of all Material Contracts (and all
material correspondence related thereto) to which it or a Company Subsidiary is
a party or which otherwise are in the Company's possession. The copies of the
Material Contracts provided to Parent are true and correct, as modified to date,
and with respect to any oral Material Contracts the Company has provided true
and complete memoranda describing the terms of all such oral contracts, and all
liabilities and obligations under the Material Contracts, whether written or
oral, can be ascertained from such copies or memoranda. Each Material Contract
is a valid and binding obligation of the Company or one of the Company
Subsidiaries, to the extent either is a party thereto, and, to the extent that
the Company or one or more of its subsidiaries is a party, to the best knowledge
of the Company, each other party thereto, and is enforceable against the Company
or one or more Company Subsidiaries and, to the best knowledge of the Company,
each other party thereto, in accordance with its terms, except to the extent
that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and is subject to general principles of equity. Except in connection
with the transactions contemplated by this Agreement or as disclosed on Company
Disclosure Schedule 3.16(a), neither the Company nor any Company Subsidiary has
been involved in any discussion or received any correspondence regarding the
renegotiation, amendment or termination of any Material Contract. The Company
and the Company Subsidiaries, as the case may be, have complied in all material
respects with the Material Contracts, and there has not occurred as to any
Material Contract any material default by the Company or
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any Company Subsidiary or any event that, with notice or the lapse of time or
otherwise, would become a material default by the Company or any Company
Subsidiary. Neither the Company nor any Company Subsidiary has granted or been
granted any waiver or forbearance with respect to any of the Material Contracts.
To the best knowledge of the Company, there has not occurred as to any Material
Contract any default by another party thereto or any event that with notice or
the lapse of time or at the election of any Person other than the Company, could
become a material default by such party.
(b) The permits, licenses, waivers or other authorizations from
Governmental Entities ("Licenses") set forth on Company Disclosure Schedule
3.16(b) are the only Licenses material to the Company and the Company
Subsidiaries. None of the Company or Company Subsidiaries has made any untrue
statement of material fact, or omitted to state a material fact, necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading to any Governmental Entity or taken or failed to take any
action, which misstatements or omissions, actions or failures to act,
individually or in the aggregate, would subject or could reasonably be expected
to subject any of the material Licenses held by the Company or the Company
Subsidiaries to revocation or failure to renew. No event has occurred with
respect to any of the material Licenses which permits, or after notice or lapse
of time or both would permit, revocation or termination thereof or would result
in any other material impairment of the rights of the holder of any of the
material Licenses.
(c) The Material Contracts and the Licenses are, or provide, all of the
rights, licenses, permits and other authorizations used or necessary to lawfully
operate and conduct the business of the Company and the Company Subsidiaries as
described in the Company Public Documents and as presently conducted.
SECTION 3.17 Affiliate Transactions. Since the date of the most recent
proxy statement issued by the Company, the Company has not engaged in any
transaction with any officer, director or owner of more than 10 percent of the
equity interests of the Company which would be required to be disclosed under
Item 404 of Regulation S-K of the rules and regulations of the SEC.
SECTION 3.18 Opinion of Company's Financial Advisor. The Company has
received the opinion of Bear, Stearns & Co. Inc. to the effect that the
consideration to be received in the Merger is fair, from a financial point of
view, to the Company's public stockholders.
SECTION 3.19 Company Board Approval and Recommendation. The Board of
Directors of the Company at a meeting duly called and held, has unanimously
approved the execution of this Agreement by the Company and determined that this
Agreement and the transactions contemplated hereby are in the best interests of
the stockholders of the Company, and (b) recommended that such stockholders
approve this Agreement. The Board of Directors, other than Messrs. Rutherford
and Moran, has unanimously approved the entry of Messrs. Rutherford and Moran
into the Option and Voting Agreement. The Board of Directors of the Company has
taken all appropriate action so that neither Parent nor Merger Sub will be an
"interested stockholder" within the meaning of Section 203 of the DGCL by virtue
of the Company's entry into this Agreement or the Option and Voting Agreement
and the consummation of the transactions contemplated hereunder and thereunder.
SECTION 3.20 Company Stockholder Approval. The Company Stockholder
Approval consists of an affirmative vote of holders of a majority of the issued
and outstanding Company Stock and is the only vote of holders of any class or
series of the Company's securities necessary to approve this Agreement and the
Merger.
SECTION 3.21 Concession and Joint Operating Agreement.
(a) Thai Romo is the sole legal and beneficial owner of an undivided
46.34146% interest in the Tantawan area of the Concession as a joint
concessionaire. Thai Romo is the sole legal and beneficial owner of an undivided
31.666% interest in all areas of the Concession outside the Tantawan area as a
joint concessionaire. TRH is the sole legal and beneficial owner of 46.34146% of
the capital stock of B8/32 Partners, Ltd. B8/32 Partners, Ltd. is the sole legal
and beneficial owner of an undivided 31.666% interest in all areas of the
Concession outside the Tantawan area as a joint concessionaire. Thai Romo is the
sole legal and beneficial owner of an undivided 46.34146% interest in the Joint
Operating Agreement
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as it governs the Tantawan Area within the Block, and is the sole legal and
beneficial owner of an undivided 31.666% interest in the Joint Operating
Agreement as it governs all other areas of the Block. B8/32 Partners is the sole
legal and beneficial owner of a 31.666% interest in the Joint Operating
Agreement as it governs all areas of the Block outside the Tantawan Area.
(b) The Concession is free from any mortgage, charge (whether fixed or
floating), pledge, material lien, equity or other material encumbrance and from
all overriding interests, royalties, deferred payments, net profit interests,
carried interests and production payments and there is no agreement or
commitment to give or create any of the same.
(c) Except as disclosed in Company Disclosure Schedule 3.21(c), neither the
Company nor any Company Subsidiary has committed any material breach of, or is
in material default under, the Concession or the Joint Operating Agreement, and
neither Company nor any Company Subsidiary has received written notice (or is it
aware) that any of the parties to the Concession or the Joint Operating
Agreement has committed any material breach of, or is in material default under,
the Concession or the Joint Operating Agreement.
(d) The Concession and the Joint Operating Agreement and all rights and
interests thereunder or deriving thereof are in full force and effect, and no
act or omission of the Company, any Company Subsidiary, or, to the best
knowledge of the Company, of any other Person has occurred, including the
consummation of the transactions contemplated herein, which would or might
entitle the Thai Government to revoke or materially alter or modify the
Concession, and no written notice has been received by the Company or any
Company Subsidiary or, to the knowledge of the Company, by any other Person, of
any intention by the Thai Government to revoke the Concession, and there are no
other grounds for rescission, avoidance, revocation, repudiation or termination
of the Concession. The Company has made all requisite filings with, and provided
all appropriate notifications to, the Thai Government, to preserve all of its
rights in the Concession.
(e) To the best knowledge of the Company, all accrued obligations and
liabilities imposed by the Concession (including, without limitation, work
obligations) have been duly fulfilled and discharged and there are no
outstanding work obligations to be fulfilled under the Concession, and the Thai
Government has not given written notice to the Company, any Company Subsidiary
or, to the best knowledge of the Company, any other Concessionaire of any
intention to require further works to be conducted (whether in relation to
exploration or development), or to call for the submission of or impose any
development program.
(f) The Company has kept proper and consistent accounts, books and records
of its activities relating to its and its subsidiaries' operations conducted
with respect to the Concession, and such accounts, books and records have been
made available to Parent and are current, and since January 1, 1998, there has
been no change in any practice or policy insofar as such change might affect the
valuation of assets or the recording of expenditures or receipts relating to the
Concession.
(g) Except as disclosed in Company Disclosure Schedule 3.21(g), neither the
Company nor any Company Subsidiary is a party to any litigation, arbitration or
administrative proceedings or to any dispute in relation to the Concession and
there is no such litigation, arbitration or administrative proceedings pending
or, to the best knowledge of the Company, threatened either by or against
Company or any Company Subsidiary and there are no facts known to Company, or
any Company Subsidiary which are likely so to jeopardize or endanger the
Concession. To the best knowledge of the Company, none of the parties to the
Concession is involved in or threatened with any litigation, arbitration or
administrative proceedings or any dispute in relation to, or which is likely to
prejudice or endanger in any manner, the Concession.
(h) Except as disclosed in Company Disclosure Schedule 3.21(h), the
Concession and the Joint Operating Agreement provided to Parent conform to the
originals, and there are no other documents or written information relating to
either the Concession or the Joint Operating Agreement which would, taken as a
whole, render the Concession or the Joint Operating Agreement materially
inaccurate or misleading.
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(i) The Concession constitutes all of the documents affecting title to the
Concession, and neither the Company nor any Company Subsidiary is a party to
and, to the best knowledge of the Company, there is no other agreement,
arrangement or undertaking relating to the creation or validity of the
Concession.
(j) Except as disclosed in Company Disclosure Schedule 3.21(j), no sole
risk operation has, since the Company or any of the Company Subsidiaries became
a party to the Concession, been carried out in relation to the Concession, nor
is any such operation in the process of being carried out and, to the best of
knowledge of the Company, since January 1, 1997, no sole risk operation has been
proposed in relation to the Concession.
(k) To the best knowledge of the Company, all wells located within the
Concession which have been abandoned have been abandoned in accordance with good
industry practice and in material compliance with all applicable laws, rules and
regulations thereto.
(l) Neither the Company nor any of the Concessionaires has received any
written demand, claim or notice which relates to pollution or to environmental
damage, and which requires remediation or action with respect to the Concession
or any written demand or notice with respect to the breach of any pollution or
environmental laws applicable to the Concession and to the best knowledge of the
Company, there have been no escapes of waste material, hazardous substances or
other pollution events other than what is recognized as industry practice and
within the pollution or environmental laws applicable to the Concession.
(m) The Concessionaires in their capacity as such directly or indirectly
possess or have the right to use all the Facilities, Properties and all other
leaseholds, personal property and other assets reasonably necessary to conduct
the operations under the Joint Operating Agreement as presently conducted, and
all such Facilities and other Property are in good condition, ordinary wear and
tear excepted, and suitable for the use to which they have been put.
SECTION 3.22 No Other Agreements to Sell the Company Stock. Except for
warrants and options disclosed in Company Disclosure Schedule 3.03(a), the
Company has no commitment or legal obligation, absolute or contingent, to any
other Person other than Parent and Merger Sub to sell, assign, transfer or
effect a sale of any of the capital stock of the Company or any of its
Subsidiaries, to effect any merger, consolidation, liquidation, dissolution or
other reorganization of the Company or any of its Subsidiaries, or to enter into
any agreement or cause the entering of an agreement with respect to the
foregoing.
SECTION 3.23 Year 2000 Compliance. Except as disclosed in the Company
Public Documents, the Company has no reason to believe any technology or systems
which are material or necessary to the operations under the Joint Operating
Agreement are not year 2000 compliant.
SECTION 3.24 Accuracy of Information. No information furnished by the
Company or its Representatives to Parent or its Representatives in connection
with Parent's investigation of the Company, which has been prepared by, or at
the direction or request of, the Company or its Representatives, contains any
material misstatement of a fact, or omits to state a material fact necessary in
order to make the information furnished (in the light of the circumstances under
which it was provided) not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company that:
SECTION 4.01 Organization, Standing and Corporate Power. Parent is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted, to own or use the
properties and assets that it purports to own or use, and to perform all its
obligations under this Agreement and the transactions contemplated hereby.
Parent is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or its properties makes
such qualification
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or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed or to be in good standing would not have a material
adverse effect on Parent.
SECTION 4.02 Authority; Non-Contravention.
(a) When the Board of Directors of Parent approves this Agreement and the
transactions contemplated hereby, Parent will have the requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. When the Board of Directors of Parent approves this
Agreement and the transactions contemplated hereby, execution and delivery of
this Agreement by Parent and consummation by Parent of the transactions
contemplated hereby will be duly authorized by all necessary corporate action on
the part of Parent. This Agreement has been duly executed and delivered by and
(assuming this Agreement is approved by the Board of Directors of Parent, is a
valid and binding obligation of the Company) constitutes a valid and binding
obligation of Parent, enforceable against Parent in accordance with its terms
(subject in each case to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally, and to general principles of equity and the discretion of the
court before which any proceedings seeking injunctive relief or specific
performance may be brought).
(b) Notwithstanding subparagraph (a) above of this Section 4.02, except
with regard to the issuance of Parent Common Stock as contemplated by this
Agreement (which requires approval of the Board of Directors of Parent), the
Executive Committee of Parent has approved this Agreement and the transactions
contemplated hereby, and the Executive Committee is authorized to cause Parent
to enter into this Agreement and to consummate the transactions contemplated
hereby (except with respect to the issuance of Parent Common Stock). Based upon
such Executive Committee approval, the execution and delivery of this Agreement
by Parent and consummation by Parent of the transactions contemplated hereby has
been duly authorized by all necessary corporate action on the part of Parent
(other than with respect to the issuance of Parent Common Stock). Based upon
such Executive Committee approval, this Agreement has been duly executed and
delivered by and (assuming this Agreement is a valid and binding obligation of
the Company) constitutes a valid and binding obligation of Parent (other than
with respect to the issuance of Parent Common Stock), enforceable against Parent
in accordance with its terms (subject in each case to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally, and to general principles of equity and
the discretion of the court before which any proceedings for injunctive relief
or specific performance may be brought).
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity or other third party is
required by or with respect to Parent in connection with execution and delivery
of this Agreement by Parent or consummation by Parent of the transactions
contemplated hereby, except for
(i) filing of a pre-merger notification and report form under the HSR
Act;
(ii) filing with the SEC of (A) the Form S-4 (as hereinafter defined)
and (B) such reports under the Exchange Act, as may be required in
connection with this Agreement and the transactions contemplated hereby;
(iii) filing of the Certificates of Merger with the Secretary of State
of the State of Delaware and appropriate documents with authorities of
other states in which Parent or the Company is qualified to do business;
(iv) the notices and approvals required pursuant to the terms of the
Joint Operating Agreement;
(v) the notices and approvals required by the Thai Government with
respect to the transactions contemplated hereby;
(vi) such other consents, approvals, orders, authorizations,
registrations, declarations, filing and notices as stated in Parent
Disclosure Schedule 4.02(c).
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(d) The execution and delivery of this Agreement by Parent does not (and
consummations of the transactions contemplated hereby will not)
(i) conflict with or violate the certificate of incorporation or
bylaws of Parent, or any resolution adopted by the Board of Directors of
Parent; or
(ii) subject to the governmental filings and other matters referred to
in paragraph (c) below, violate in any material respect any judgment,
order, statute, law, rule or regulation applicable to Parent.
SECTION 4.03 Parent SEC Documents. Parent has filed all required reports,
schedules, forms, statements and other documents with the SEC since December 31,
1996. Parent has delivered or made available to the Company all reports,
schedules, forms, statements and other documents filed with the SEC since such
date (collectively, and in each case including all exhibits and schedules
thereto and documents incorporated by reference therein, the "Parent SEC
Documents"). As of their respective dates, the Parent SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents. As of their
respective dates, none of the Parent SEC Documents (including any and all
financial statements therein) contained any untrue statement of a material fact
or failed to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
Parent included in the Parent SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except, in the case of unaudited consolidated quarterly statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
period involved (except as may be indicated in the notes thereto) and present
fairly, in all material respects, the consolidated financial position of Parent
and its subsidiaries at the respective dates thereof and the consolidated
results of operations and cash flows for the periods specified therein (subject,
in the case of unaudited quarterly statements, to normal year-end audit
adjustments).
SECTION 4.04 Litigation; Compliance with Law. There is no suit, order,
action or proceeding outstanding or pending (or, to the best knowledge of
Parent, threatened) against Parent that could reasonably be expected to prevent
or materially delay Parent's consummating the transactions contemplated by this
Agreement, and Parent is not subject to any judgment, decree, injunction or
order of any Governmental Entity having any such effect.
SECTION 4.05 Organization and Authority of Merger Sub. Merger Sub is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. Execution and delivery of this Agreement by Merger Sub and
the consummation by Merger Sub of the transactions contemplated hereby have been
duly authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by and constitutes a valid and binding obligation of
Merger Sub, enforceable against Merger Sub in accordance with its terms (subject
in each case to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally,
and to general principles of equity).
SECTION 4.06 No Prior Activities. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby and has engaged in
no business or other activities except as contemplated by this Agreement.
SECTION 4.07 Parent Common Stock. All outstanding shares of Parent Common
Stock are, and all shares of Parent Common Stock which may be issued pursuant to
this Agreement shall be when issued, duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights.
SECTION 4.08 Ownership of Company Capital Stock. As of the date hereof,
neither Parent nor, to the knowledge of Parent, any of its affiliates, (i)
beneficially owns (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, or (ii) other than this Agreement and the Option and Voting
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Agreement, is party to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of, in each case, shares of
the capital stock of the Company.
ARTICLE 5
COVENANTS REGARDING CONDUCT OF BUSINESS
SECTION 5.01 Conduct of Business by the Company. Except as otherwise
contemplated by this Agreement, during the period from the date hereof to the
earlier of (i) the exercise of the Options by Parent and (ii) the Effective
Time, the Company shall (and shall cause each Company Subsidiary to) conduct its
businesses only in the ordinary course of business in all material respects and
consistent with its practice since January 1, 1998 and, to the extent consistent
therewith, use reasonable best efforts to preserve intact its current business
organizations, keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it. In addition, during the period from the date of this
Agreement to the earlier of (i) the exercise of the Options by Parent and (ii)
the Effective Time, except as contemplated by this Agreement or disclosed in
Company Disclosure Schedule 5.01, the Company shall not (and shall not permit
any Company Subsidiary to):
(a) (i) declare, set aside or pay any dividend on, or make any other
distribution in respect of, any of its capital stock, other than dividends
between the Company and its subsidiaries, (ii) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock or
make any other changes to its capital structure, or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any Company
Subsidiary or any other securities thereof or any right, warrant or option to
acquire any such shares or other securities other than the issuance of Company
Stock upon the exercise of options or warrants outstanding on the date hereof as
identified on Company Disclosure Schedule 3.03(a);
(b) issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock or the capital stock of any Company Subsidiary other than the
issuance of Company Stock or any other security which by its terms either
expires prior to the Effective Time or is converted into Company Stock at the
Effective Time;
(c) amend or propose to amend the certificate of incorporation, bylaws or
other comparable charter or organizational documents of the Company or any
Company Subsidiary;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof;
(e) except pursuant to existing contracts previously disclosed to Parent or
with the written consent of Parent, which consent will not be unreasonably
withheld, sell, lease, license, mortgage or otherwise encumber or subject to any
Lien other than Permitted Liens or otherwise dispose of any of its properties or
assets except in the ordinary course of business consistent with past practice
and in transactions involving consideration no greater than $10,000 in any one
case or $100,000 in the aggregate;
(f) except with the written consent of Parent, which consent will not be
unreasonably withheld, (i) incur any indebtedness for borrowed money other than
pursuant to the Company's existing credit facilities or extensions of, additions
to, or replacements of such facilities on comparable terms and conditions or
intercompany loans or guarantee any such indebtedness of another Person other
than any Company Subsidiary, issue or sell any debt security or warrant or other
right to acquire any debt securities of the Company or any Company Subsidiary,
guarantee any debt security of another Person other than any Company Subsidiary
or agree to maintain the financial condition of any Person (other than the
Company or any Company Subsidiary), or (ii) make any loan, advance or capital
contribution to, or investment in, any other Person other than any Company
Subsidiary;
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(g) except pursuant to existing contracts previously disclosed to Parent or
with the written consent of Parent, which consent will not be unreasonably
withheld, make any cash call or other payment or investment under the Joint
Operating Agreement that is not necessary to comply with such agreement or
preserve the Company's rights thereunder and otherwise not to acquire any assets
or make or agree to make any capital expenditure, except acquisitions and
capital expenditures the commitment or consideration for which do not exceed
$10,000 in any one case or $100,000 in the aggregate;
(h) adopt a plan of liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or reorganization;
(i) change any material accounting principle used by it, except for such
changes as may be required under GAAP or the rules and regulations of the SEC;
(j) except with the written consent of Parent which consent shall not be
unreasonably withheld, make any tax election or settle or compromise any
disputed Federal, state, local or foreign income tax liability;
(k) except with the written consent of Parent which consent shall not be
unreasonably withheld, enter into any Hedging Agreement or terminate or modify
in any material respect any Hedging Agreement to which the Company or any
Company Subsidiary is a party or waive, release or assign any material rights or
claims thereunder;
(l) except with the written consent of Parent which consent shall not be
unreasonably withheld, enter into any contract which would involve the payment
by the Company or any Company Subsidiary of an amount in excess of $10,000 in
any one case or $100,000 in the aggregate;
(m) except with the written consent of Parent which consent shall not be
unreasonably withheld, amend or waive any provision of, or terminate, any
Material Contract to which the Company or any Company Subsidiary is a party, or
release or assign any rights or claims thereunder;
(n) enter into, or otherwise engage in, any transaction referred to in
Section 3.17;
(o) except with the written consent of Parent, which consent will not be
unreasonably withheld, pay, discharge, satisfy, waive, settle or release any
claim or cause of action of the Company or any Company Subsidiary which could
reasonably be disputed;
(p) accelerate any payment to any vendor of goods or services; or
(q) commit or agree to take any of the foregoing actions.
SECTION 5.02 Acts Permitted to Preserve Enterprise. Nothing in Section
5.01 of this Agreement shall prevent the Board of Directors of the Company from
causing the Company to take any action otherwise in violation of the agreements
contained in Section 5.01 hereof if the Board of Directors of the Company in
good faith reasonably determines such action to be necessary or advisable to
preserve the Company as a going concern and the value of the equity interests
held by the Company's stockholders; provided, however, that the Company shall
give Parent prompt notice of, and details concerning, any such action.
ARTICLE 6
ADDITIONAL AGREEMENTS
SECTION 6.01 Preparation of Form S-4 and Proxy Statement; Stockholder
Meetings.
(a) As promptly as practicable following execution of this Agreement, the
Company shall prepare the Proxy Statement, and the Company shall file it with
the SEC, and Parent shall prepare and file with the SEC a Form S-4 relating to
the Parent Common Stock to be issued in connection with the Merger (as amended
or supplemented from time to time, the "Form S-4"), in which the Proxy Statement
will be included. Parent shall cause the Form S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder and shall use
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its reasonable best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. No filing of, or
amendment or supplement to, the Form S-4 shall be made by Parent without
providing the Company a reasonable opportunity to review and comment thereon.
The Company shall cause the Proxy Statement to comply as to form in all material
respects with the applicable provisions of the Exchange Act and the rules and
regulations thereunder and shall use its reasonable best efforts to cause the
Proxy Statement to be mailed to the Company's stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
No filing of, or amendment or supplement to, the Proxy Statement shall be made
by the Company without providing Parent a reasonable opportunity to review and
comment thereon. Parent shall take any reasonable action required to be taken
under any applicable state securities laws in connection with the issuance of
Parent Common Stock in the Merger, and the Company shall furnish all information
concerning the Company and holders of Company Stock and rights to acquire
Company Stock as may be reasonably requested in connection with any such action.
Each of Parent, Merger Sub and the Company, respectively, shall:
(i) cause all information provided (and to be provided) by it for use
in the Form S-4 to be true and correct in all material respects;
(ii) not omit from such information any material fact required to be
stated therein or necessary in order to make such information, in light of
the circumstances under which it was provided, not misleading; and
(iii) correct any information provided by it for use in the Form S-4
which shall have become false or misleading.
(b) Parent shall advise the Company promptly after it receives (i) notice
that the Form S-4 or any amendment thereto has become effective, (ii) the
issuance of any stop order with respect to the Form S-4, (iii) the suspension of
the qualification of Parent Common Stock to be issued in connection with the
Merger for offering or sale in any jurisdiction, (iv) any request by the SEC or
the NYSE for amendment to the Form S-4, or (v) any comments or requests for
additional information received from the SEC with respect to the Form S-4 or the
Proxy Statement which forms a part thereof.
(c) As soon as practicable after the Form S-4 is declared effective by the
SEC, the Company shall, through its Board of Directors, duly call, give notice
of and hold a meeting of its stockholders (the "Company Stockholder Meeting")
for the purpose of approving the Merger and approving and adopting this
Agreement. The Board of Directors of the Company (i) has recommended approval of
the Merger and this Agreement, (ii) shall include, and shall not withdraw or
modify, each such recommendation in the Proxy Statement unless under applicable
law it is required to omit, withdraw or modify any such recommendation, and
(iii) shall submit for approval of its stockholders at the Company Stockholder
Meeting the Merger and the Merger Agreement, regardless of whether it later
withdraws its recommendation that stockholders vote for the approval of such
matters. At the Company Stockholders Meeting, Parent shall, and shall cause its
subsidiaries to, cause all shares of Company Common Stock then beneficially
owned by Parent or any subsidiary of Parent to be voted in favor of the approval
of the Merger and the approval and adoption of this Agreement.
(d) The Company will cause its transfer agent to make stock-transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 6.02 Access to Financial and Operational Information. (a) Subject
to compliance with applicable law, upon reasonable notice, the Company will, and
will cause each of the Company Subsidiaries to, give Parent, its directors, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties, books
and records of the Company and the Company Subsidiaries ("Access"), will furnish
to Parent and its authorized Representatives such financial and operating data
as such Persons may reasonably request and will instruct the Company's
Representatives to cooperate with Parent in its investigation of the business of
the Company and the Company Subsidiaries and in the planning for the combination
of the businesses of the Company and Parent following the consummation of the
Merger, provided that no investigation pursuant
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to this Section shall affect any representation or warranty given by the Company
to Parent hereunder; and provided further that notwithstanding the provision of
information by Company to Parent or any investigation by Parent prior to or
after the date hereof, Company shall not be deemed to make any representation or
warranty regarding the Company except as expressly set forth in this Agreement.
(b) Unless otherwise required by law or the applicable rules of the NYSE or
the Nasdaq National Market, the parties will hold any such information which is
nonpublic in confidence until such time as such information otherwise becomes
publicly available through no wrongful act of either party and will not use any
such nonpublic information for any purpose other than in connection with the
planning, negotiation and implementation of the transactions contemplated
hereby. In the event of the termination of this Agreement for any reason, each
party shall promptly return all nonpublic documents obtained from any other
party, and any copies made of such documents, to such other party. In addition,
in the event of such termination, all documents, memoranda, notes and other
writing whatsoever prepared by each party based on the information in such
material shall be destroyed (and each party shall use its best efforts to cause
its advisors and their representatives to similarly destroy their respective
documents, memoranda and notes), and such destruction (and best efforts) shall
be certified in writing to the other party by an authorized officer supervising
such destruction.
SECTION 6.03 Notices of Certain Events. (a) The Company shall, upon
obtaining knowledge of any of the following, promptly notify Parent in writing
of:
(i) any material notice or other material communication from any
Governmental Entity in connection with the Merger;
(ii) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against the Company or any of the
Company Subsidiaries which, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 3.09 or which
relate to the consummation of the Merger;
(iii) any representation or warranty made by the Company contained in
this Agreement becoming untrue or inaccurate in any material respect
(including in the case of any representations or warranties by the Company,
the Company's receiving knowledge of any fact, event or circumstance which
may cause any representation qualified as to the best knowledge of Company
to be or become untrue or inaccurate in any material respect and
disregarding for such purposes any limitation in the representations or
warranties referring to written instruments);
(iv) the failure of the Company or any Company Subsidiary to comply
with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by the Company or any Company
Subsidiary under this Agreement;
(v) any material development affecting the assets, liabilities,
business, financial condition, operations, results of operations, or future
prospects of the Company or any Company Subsidiary, or, to the best
knowledge of the Company, the operator under the Joint Operating Agreement
with respect to the operations thereunder; and
(vi) any material development affecting the ability of the Company to
effect the Merger and transactions contemplated under the Agreement.
The Company shall promptly notify Parent in writing of any event which would
cause a previously delivered Company Disclosure Schedule to be inaccurate and
shall thereafter provide Parent with a revised Company Disclosure Schedule
reflecting such information or event. No disclosure by the Company or any
Company Subsidiary pursuant to this Section 6.03, however, shall be deemed to
amend or supplement any Company Disclosure Schedule hereto which has not been
consented to in writing by Parent.
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(b) Parent shall, upon obtaining knowledge of any of the following,
promptly notify the Company in writing of:
(i) any material notice or other material communication from any
Governmental Entity in connection with the Merger;
(ii) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against Parent or any affiliates of
Parent which relate to the consummation of the Merger;
(iii) any representation or warranty made by Parent contained in this
Agreement becoming untrue or inaccurate in any material respect (including
in the case of any representations or warranties by Parent, Parent's
receiving knowledge of any fact, event or circumstance which may cause any
representation qualified as to the best knowledge of Parent to be or become
untrue or inaccurate in any material respect);
(iv) the failure of Parent or Merger Sub to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied
with or satisfied by Parent or Merger Sub under this Agreement; and
(v) any material development affecting the ability of Parent or Merger
Sub to effect the Merger and transactions contemplated under the Agreement.
SECTION 6.04 Mutual Best Efforts.
(a) Subject to the conditions set forth in this Agreement, each party shall
use its reasonable best efforts to (and cause each Person under its control to)
take all actions, and assist and cooperate with each other party in taking all
actions necessary, useful or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement. Each party shall use its reasonable best efforts
and cooperate with each other party in (i) promptly determining whether any
filings are required to be made or consents, approvals, waivers, permits or
authorizations are required to be obtained (under any applicable law or
regulation or from any Governmental Entity or third party) in connection with
the transactions contemplated by this Agreement, and (ii) promptly making any
such filings, in furnishing information required in connection therewith and in
timely seeking to obtain any such consents, approvals, waivers, permits and
authorizations.
(b) The Company shall take all reasonable actions requested by Parent or
Merger Sub in cooperation with Parent's efforts to negotiate and cause the
execution of a definitive agreement between the Company and Neutron with respect
to all the rights, duties and responsibilities as operator within the Block
pursuant to the Joint Operating Agreement ("Operatorship") on terms acceptable
to Parent.
(c) The Company shall take all reasonable actions requested by Parent or
Merger Sub in cooperation with Parent's efforts to secure waivers of any and all
preferential rights which may arise under the Joint Operating Agreement as a
result of the Merger.
(d) The Company shall take all reasonable action requested by Parent or
Merger Sub in cooperation with Parent's efforts to negotiate and execute a new
joint operating agreement ("New JOA") for the Block that shall provide for,
among other provisions, (i) control by Parent of key operating decisions, such
as budget and AFE approvals, and (ii) clarification that the area of mutual
interest is limited to the Block.
SECTION 6.05 Public Announcements. With respect to any news release or
other public announcement or statement relating to this Agreement or any
transaction contemplated hereby (each an "Announcement"), Parent, Merger Sub and
the Company will each consult with the others before issuing such Announcement,
and will provide to each other a reasonable opportunity to review and comment on
such Announcement, and shall not issue such Announcement prior to such
consultation and opportunity (except as otherwise required by applicable law or
any applicable rules of the NYSE or the Nasdaq National Market).
SECTION 6.06 Affiliate Agreements. Prior to the Closing Date, the Company
shall deliver to Parent a letter identifying each Person who is, at the time
this Agreement is submitted for Company Stockholder
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Approval, an "affiliate" of the Company for purposes of Rule 145 under the
Securities Act (each a "Rule 145 Affiliate"). The Company shall use its
reasonable best efforts to cause each Rule 145 Affiliate to deliver to Parent on
or prior to the Closing Date a written agreement concerning dispositions of
Parent Common Stock in form reasonably satisfactory to both Parent and the
Company.
SECTION 6.07 Stock Exchange Listing. Parent shall promptly prepare and
submit to the NYSE a listing application covering the shares of Parent Common
Stock issuable in connection with the Merger and which are not treasury shares,
and shall use its best efforts to obtain, as promptly as practicable after the
date hereof, approval for listing of such shares of Parent Common Stock.
SECTION 6.08 Acquisition of 5% Interest. Parent plans to offer to acquire
at least a 5% interest in the Concession under the Joint Operating Agreement
from Sophonpanich for consideration and upon the terms and conditions acceptable
to Parent in its sole discretion.
SECTION 6.09 No Solicitation.
(a) Prior to January 28, 1999, and at all times thereafter if the
conditions set forth in paragraphs (e), (f), and (g) of Section 8.02 hereof
shall have been satisfied or waived by Parent, the Company shall not (and shall
not permit any of its officers, directors, agents, representatives or advisors
to) solicit, initiate or knowingly encourage the submission of any proposal or
offer from any Person relating to any (A) acquisition of a substantial amount of
assets of the Company (other than in the ordinary course of business) or of more
than 15% of all outstanding Company Stock or (B) tender offer or exchange offer
that, if consummated, would result in any Person beneficially owning more than
15% of all outstanding Company Stock, or (C) merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation or
similar transaction involving the Company, other than the transactions
contemplated by this Agreement (each an "Alternative Proposal") or agree to or
endorse any Alternative Proposal.
(b) Notwithstanding the foregoing, however, nothing herein shall prohibit,
subject to Section 6.01(b), the Company following receipt of an Alternative
Proposal from disclosing to its stockholders such Alternative Proposal and a
position with respect to such Alternative Proposal to the extent required by
applicable law.
(c) The Company shall notify Parent promptly (and in any event no later
than 24 hours) after receipt by the Company of any Alternative Proposal or any
request for non-public information in connection with an Alternative Proposal or
for access to the Company's properties, books or records by any Person that
informs the Company that it is considering making an Alternative Proposal. Such
notification shall include the terms of any Alternative Proposal and the name of
any Person making any such proposal or requesting non-public information or
access to the Company's properties, books or records in connection with an
Alternative Proposal.
SECTION 6.10 Indemnification. Reference is hereby made to all provisions
of the certificate of incorporation, articles of organization and bylaws of the
Company and the Company Subsidiaries and all indemnification agreements between
the Company or any Company Subsidiary and any director, officer or employee of
the Company which agreements are disclosed on Company Disclosure Schedule
3.16(a) which contemplate indemnification of directors, officers and employees
of the Company and the Company Subsidiaries (the "Company Indemnification
Provisions"). From and after the Effective Time, Parent shall cause the
Surviving Corporation to honor (or if the Surviving Corporation does not honor,
then Parent shall honor and fund) the Company's existing obligations to
indemnify all present and former directors, officers and employees of the
Company and the Company Subsidiaries to the fullest extent called for by the
Company Indemnification Provisions (in each case as the Company Indemnification
Provisions exist as of December 1, 1998. Parent shall maintain or cause to be
maintained for a period of not less than five years after the Closing Date, the
directors' and officers' liability insurance policy currently maintained by the
Company covering those persons who are currently covered by the Company's
directors' and officers' liability insurance policy on terms (including the
amounts of coverage and amounts of deductibles, if any) substantially comparable
to the terms now applicable to such persons or, if not available, comparable
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policies or coverage; provided, however, that Parent shall not be obligated to
make annual premium payments for such insurance to the extent that premiums
exceed 175% of the annual premiums paid as of the date hereof by the Company for
such insurance (the "Current Premium"), and if such premiums for such insurance
would at any time exceed 175% of the Company's Current Premium, then Parent
shall cause to be maintained policies of insurance which provide the maximum
coverage available at an annual insurance premium equal to 175% of the Current
Premium. The provisions of this Section 6.10 are intended to be for the benefit
of, and shall be enforceable by, each indemnified Person, his or her heirs and
his or her representatives.
SECTION 6.11 Insurance. The Company or its Subsidiaries shall continue in
full force and effect and shall not permit to lapse any policy or arrangement of
insurance. The Company or its Subsidiaries shall renew any such insurance
policies or arrangements which expire or lapse prior to the Effective Time on
substantially identical terms. In the event the Company or its Subsidiaries is
unable to renew such policies or arrangements on substantially identical terms,
the Company or its Subsidiaries shall use its reasonable efforts to enter into
substitute insurance policies or arrangements providing for substantially
identical coverage, on substantially identical terms.
SECTION 6.12 Financial Information. Between the date hereof and the
Closing Date, the Company shall provide Parent with monthly balance sheets and
monthly statements of income and expenses of the Company and Company
Subsidiaries on a consolidated basis for the monthly accounting periods between
the date hereof and the Closing Date, in each case no later than the thirtieth
day of each month following the month to which such interim statements relate.
The Company represents and warrants to the Parent that such balance sheets and
statements of income and expenses shall be prepared in accordance with GAAP and
present fairly, in all material respects, the consolidated financial position of
the Company and the Company Subsidiaries at the respective dates thereof and the
consolidated results of operations and cash flows for the periods specified
therein, subject to normal monthly adjustments and year-end audit adjustments
and subject to the lack of any accompanying notes thereto.
SECTION 6.13 Obligations of Merger Sub. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement. Prior to the Effective Time, Merger Sub will not (i) issue any shares
of capital stock, any option, warrant or other right to acquire its capital
stock to any Person other than Parent, (ii) incur directly or indirectly any
liabilities or obligations other than those incurred in connection with the
Merger and the other transactions contemplated hereby, (iii) engage directly or
indirectly in any business or activities of any type or kind and not enter into
any agreements or arrangements with any Person, or be subject to or bound by any
obligation or undertaking, which is not contemplated by this Agreement and (iv)
not create, grant or suffer to exist any Lien upon its properties or assets
which would attach to any properties or assets of the Surviving Corporation
after the Effective Time.
SECTION 6.14 Tax Treatment. The parties intend the Merger to qualify as a
reorganization under Section 368(a) of the Code. Concurrently with the execution
of this Agreement, Parent shall deliver to Skadden, Arps, Slate, Meagher & Flom
LLP ("Skadden Arps") a representation letter substantially in the form attached
hereto as Exhibit B (the "Parent Tax Certificate") and the Company shall deliver
to Skadden Arps a representation letter substantially in the form attached
hereto as Exhibit C (the "Company Tax Certificate"). Parent agrees that neither
it nor any of its affiliates shall take any action that would cause the Merger
not to qualify as a reorganization under Section 368(a) of the Code. The Company
agrees that neither it nor any of its affiliates shall take any action that
would cause the Merger not to qualify as a reorganization under Section 368(a)
of the Code.
SECTION 6.15 HSR Act. To the extent that the transactions contemplated
hereby are not exempt from having to comply with the requirements of the HSR
Act, the Company, Parent and Merger Sub shall take all actions necessary to file
as soon as practicable after the date hereof all notifications, filings and
other documents required under the HSR Act, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission, the
Antitrust Division of the Department of Justice
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and any other Governmental Entity for additional information or documentation
and to respond as promptly as practicable to all inquiries and requests received
from any State Attorney General or other Governmental Entity in connection
therewith.
SECTION 6.16 Parent Board Approval. Management of Parent will present and
recommend this Agreement and the transactions contemplated hereby to its Board
of Directors for approval and authorization no later than January 27, 1999 and
will promptly notify the Company of the actions taken by such Board.
SECTION 6.17 Interim Financing. If all conditions to Closing have been met
except those conditions set forth in Section 8.01(a), (b) and (e), Parent shall,
at the Company's request, either exercise the Options or, until such time as the
Options are exercised or the Merger is effective, lend the Company monies
necessary to meet its operating expenses, general administrative expenses, and
capital commitments on terms and conditions substantially similar to those on
which Parent lends monies from time to time to its wholly owned subsidiaries,
subordinate to any then existing secured credit facilities.
ARTICLE 7
EMPLOYMENT MATTERS
SECTION 7.01 Employees. Company Disclosure Schedule 7.01 contains a list
of all employees, directors and consultants of the Company and each of the
Company Subsidiaries, each such employee's title or capacity in which employed,
the date of hire of each such employee, and a description of all compensation
(including bonus arrangements and severance payments as a result of termination)
for each such employee. Except for obligations imposed under the provisions of
Section 4980B of the Code or Sections 601 to 609 of ERISA, neither the Company
nor any Company Subsidiary has any responsibility, residual or otherwise, for or
obligations to any employees or employees of the third parties other than the
persons listed in Company Disclosure Schedule 7.01. The Company shall take all
action necessary to cause all employees of the Company and the Company
Subsidiaries to be terminated immediately prior to the Effective Time. The
Company shall cooperate with Parent's efforts to cause such employees as Parent
shall designate to enter into consulting arrangements with the Company on terms
mutually agreeable to such employees and Parent.
SECTION 7.02 Conduct of Business by the Company with Respect to Certain
Employee Matters. During the period from the date of this Agreement to the
earlier of (i) the exercise of the Options by Parent and (ii) the Effective
Time, except as contemplated by this Agreement or disclosed in Company
Disclosure Schedule 7.02, the Company shall not (and shall not permit any
Company Subsidiary to), without the prior written consent of Parent:
(a) adopt, enter into, amend or terminate any bonus, profit-sharing,
compensation, severance, termination, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement for the benefit or welfare of any individual;
(b) enter into any new employment arrangement or relationship with new or
existing employees;
(c) increase the compensation or fringe benefits of any director, officer
or management-level employee or pay any such increase to any director, officer
or management-level employee;
(d) grant any award to any director, officer or employee under any bonus,
incentive, performance or other compensation plan or arrangement (including the
removal of existing restrictions in any benefit plan or agreement or award made
thereunder); or
(e) except as required by law or existing contract, take any action to
segregate assets for, or in any other way secure, the payment of compensation or
benefits to any employee under any employee plan, agreement, contract or
arrangement.
SECTION 7.03 Continuing COBRA Coverage. From and after the Effective Time,
Parent shall provide group health plan continuation coverage at any employee's
sole cost pursuant to Section 4980B of
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the Code and Sections 601 through 609 of ERISA with respect to any individual
who was an employee of the Company prior to the Effective Time and who had or
has a "qualifying event" (within the meaning of Section 4980B(f)(3) of the Code)
before, on or after the Effective Time. Parent shall be required to provide such
continuation coverage notwithstanding the fact that any group health plan
maintained by the Company prior to the Effective Time may have been eligible for
an exception from such continuation coverage requirements. As of the Effective
Time, Parent shall assume and agree to perform (i) all obligations of the
Company pursuant to the Rutherford-Moran Incentive Bonus Plan (the "Bonus
Plan"), including, without limitation, the obligation to make any payments
remaining due to any plan participant pursuant to Section 6 of the Bonus Plan,
and (ii) all obligations of the Company pursuant to the letter, dated March 28,
1996, to David F. Chavenson from Patrick R. Rutherford on behalf of the Company.
Parent agrees that, any employee of the Company or a Company Subsidiary whose
employment with the Company is terminated pursuant to the provisions of Section
7.01 hereof will nevertheless receive an award pursuant to Section 6 of the
Bonus Plan, which award shall not be reduced on account of any such termination
of employment.
ARTICLE 8
CONDITIONS PRECEDENT TO MERGER
SECTION 8.01 Conditions to Each Party's Obligation. The respective
obligation of each party to effect the Merger is subject to the satisfaction or
waiver, on or prior to the Closing Date, of the following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval shall
have been obtained.
(b) Stock Exchange Listing. The shares of Parent Common Stock issuable
under this Agreement shall have been approved for listing on the NYSE, subject
only to official notice of issuance.
(c) HSR Act. To the extent that the transactions contemplated hereby are
not exempt from having to comply with the requirements of the HSR Act, the
waiting period (and each extension thereof, if any) applicable to the Merger
under the HSR Act shall have been terminated or shall have expired.
(d) No Injunction. No judgment, order, injunction, decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued
by any Governmental Entity of competent jurisdiction (collectively,
"Restraints") shall be in effect which prohibits the consummation of the Merger;
provided, however, that each of the parties shall have used their reasonable
best efforts to prevent the entry of any such Restraints and to appeal as
promptly as possible any such Restraints that may be entered.
(e) Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be subject to any stop order and no stop order or proceedings
seeking a stop order with respect to the Form S-4 shall be threatened by the SEC
or shall have been initiated by the SEC and not terminated. Parent shall use its
reasonable best efforts to, but shall not otherwise be obligated to, register on
Form S-4 the shares of Parent Common Stock to be delivered to signatories of the
Option and Voting Agreement.
SECTION 8.02 Conditions to Obligations of Parent. The obligations of
Parent to effect the Merger are further subject to the satisfaction (or waiver
by Parent) of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date (other than those representations and warranties that expressly
address matters only as of a particular date or only with respect to a specific
period of time which need only be true and correct in all material respects as
of such date or with respect to such period). Parent shall have received a
certificate to such effect, signed on behalf of the Company by its chief
executive officer and its chief financial officer.
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(b) Performance by Company. The Company shall have performed in all
material respects all of its obligations under this Agreement required to be
performed on or prior to the Closing Date and shall have complied in all
material respects or be in compliance in all material respects with any
agreement or covenant of the Company to be performed by it under this Agreement
on or prior to the Closing Date, and Parent shall have received a certificate to
such effect, signed on behalf of the Company by its chief executive officer and
its chief financial officer.
(c) Consents, etc. Parent shall have received satisfactory evidence that
the Company has received such licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities and other
third parties as are necessary with respect to the Company or any Company
Subsidiary in connection with the transactions contemplated hereby or to the
preservation of the Company's rights under the Joint Operating Agreement or the
operations conducted thereunder (except for those the absence of which would not
have a material adverse effect on the Company or the ability of Parent or Merger
Sub to effect the Merger).
(d) Opinion. Parent shall have received an opinion of Fulbright & Jaworski
LLP, counsel to Company, dated as of the Closing Date, in form reasonably
satisfactory to Parent.
(e) Waiver of Preferential Rights. All parties to the Joint Operating
Agreement shall have waived any and all preferential rights that may have arisen
thereunder as a result of the Merger.
(f) New JOA. The Company shall have executed the New JOA on terms and
conditions acceptable to Parent in its sole discretion.
(g) Operatorship of Block. Pogo shall have executed a definitive agreement
with respect to Operatorship under the Joint Operating Agreement to Parent on
terms and conditions acceptable to Parent in its sole discretion.
(h) Expenses. The Company's expenses and costs incurred after October 1,
1998, and which are related to the transactions contemplated under this
Agreement, including, without limitation: (i) any severance payments; (ii)
investment banker or advisory fees; (iii) all registration and filing fees and
expenses; (iv) all fees and expenses of compliance with federal securities and
state blue sky or securities laws; (v) all expenses of printing; (vi) all fees
and disbursements of counsel for the Company; (vii) all fees and disbursements
of independent certified public accountants of the Company; and (viii) all
expenses related to the stockholder meeting of the Company, shall be limited to
Eight Million Dollars ($8,000,000).
(i) Acquisition. Parent shall have acquired at least a 5% interest in the
Concession under the Joint Operating Agreement from Sophonpanich.
(j) Material Adverse Change. There shall not have been a material adverse
change in the Company.
SECTION 8.03 Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the satisfaction (or
waiver by the Company) of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing
Date (other than those representations and warranties that expressly address
matters only as of a particular date or only with respect to a specific period
of time which need only be true and correct in all material respects as of such
date or with respect to such period). The Company shall have received a
certificate to such effect, signed on behalf of Parent and Merger Sub by their
respective chief executive officers and chief financial officers.
(b) Performance by Parent and Merger Sub. Each of Parent and Merger Sub
shall have performed all of its obligations, each in all material respects,
required to be performed under this Agreement at or prior to the Closing Date
and shall have complied in all material respects or be in compliance in all
material respects with any agreement or covenant of Parent or Sub, as the case
may be, required to be performed by it under this Agreement on or prior to the
Closing Date, and the Company shall have
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received a certificate to such effect, signed on behalf of Parent and Merger Sub
by their respective chief executive officers and chief financial officers.
(c) Consents, etc. The Company shall have received evidence that Parent has
received such licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and other third parties as
are necessary with respect to Parent or Merger Sub in connection with the
transactions contemplated hereby (except for those the absence of which would
not have a material adverse effect on Merger Sub, Parent or the Company or the
ability of the Company to effect the Merger).
(d) Confirmation of Tax Certificate. The Company shall have received from
Parent a certificate to the effect that neither Parent nor any of its affiliates
has taken any action between the date hereof and the Closing Date to cause or
which is reasonably likely to cause the matters set forth in the Parent Tax
Certificate delivered pursuant to Section 6.14 hereof to be untrue in any
material respect.
SECTION 8.04 Effect of Exercise of Options. In the event Parent exercises
the Options, the conditions to Parent's obligation to effect the Merger
contained in Article 8 shall be deemed waived or satisfied, except with respect
to the conditions contained in Sections 8.01(c), (d) and (e) and except as
otherwise required by law.
ARTICLE 9
TERMINATION, AMENDMENT, FEES AND EXPENSES
SECTION 9.01 Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after any approval by stockholders
of the Company:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company, if any Governmental Entity shall have
issued an order, decree or ruling permanently enjoining or prohibiting the
Merger and such order, decree or ruling shall have become final and
nonappealable (but only if the party seeking to terminate pursuant to this
clause (b) shall have used its reasonable best efforts to oppose and remove such
order, decree or ruling); or
(c) by either Parent or the Company, if the Merger shall not have been
consummated on or before June 1, 1999 (other than due to failure of the party
seeking termination to perform in all material respects its obligations under
this Agreement required to be performed at or prior to the Closing Date) and
provided further that the termination right pursuant to this clause may not be
exercised by either party if the Options shall have been exercised by Parent; or
(d) by Parent, if (i) as of such time of determination, any of the
representations and warranties of the Company shall not be true and correct in
all material respects (other than those representations and warranties that
expressly address matters only as of a particular date or only with respect to a
specific period of time which need only be true and correct in all material
respects as of such date or with respect to such period) except to the extent
the effect of breaches thereof would not have a material adverse effect on the
Company, or (ii) the Company or, with respect to the Company Stockholder
Approval, its stockholders, shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any material
agreement or covenant of the Company to be performed or complied with by it or,
with respect to the Company Stockholder Approval, its stockholders, under this
Agreement or the Option Agreement and, in the case of (i), such untruth or
incorrectness cannot be or has not been cured within 30 days after the giving of
written notice to the Company by Parent, and, in the case of (ii), such failure
cannot be or has not been cured within 15 days after the giving of written
notice to the Company or the Company stockholders by Parent, as appropriate; or
(e) by the Company, if (i) as of such time of determination, any of the
representations and warranties of Parent shall not be true and correct in all
material respects (other than those representations and warranties that
expressly address matters only as of a particular date or only with respect to a
specific period of time which need only be true and correct in all material
respects as of such date or with respect
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to such period), except to the extent the effect of breaches thereof would not
have a material adverse effect on Parent or (taking into account the transaction
contemplated hereby) Merger Sub, as the case may be, or (ii) Parent or Merger
Sub shall have failed to perform in any material respect any material obligation
or to comply in any material respect with any material agreement or covenant of
Parent or Merger Sub to be performed or complied with by it under this Agreement
and, in the case of (i), such untruth or incorrectness cannot be or has not been
cured within 30 days after the giving of written notice to Parent by the
Company, and, in the case of (ii), such failure cannot be or has not been cured
within 15 days after the giving of written notice to Parent by the Company; or
(f) by the Company, if the approval of the Board of Directors of Parent is
not obtained on or before January 27, 1999, provided that, at the Company's sole
option, which must be exercised on or before February 3, 1999, this Agreement
shall not be terminated but (i) section 2.01(a)(i) hereof shall be amended to
delete the words "that number of fully paid and nonassessable shares of common
stock, $1.50 par value, of Parent ("Parent Common Stock")" and to insert in lieu
thereof the word "cash", and (ii) the Agreement shall otherwise be amended in an
appropriate manner to reflect that a tax-free exchange would no longer be
contemplated; and provided, further, that if the Company shall not have
exercised such right to terminate or amend this Agreement by February 3, 1999,
the Agreement may be terminated thereafter by Parent; or
(g) by the Company, if (i) the conditions to Closing set forth in
paragraphs (e), (f) and (g) of Section 8.02 have not been satisfied or waived by
Parent on or before January 27, 1999, (ii) the Company and a third party shall
have signed an agreement on or after January 28, 1999 pursuant to which the
third party is obligated to consummate an Alternative Transaction subject only
to termination of this Agreement and the satisfaction of closing conditions,
(iii) the Company shall have complied in all respects with the provisions of
Section 6.09, and (iv) the Company, after the signing of the agreement referred
to in clause (ii) of this paragraph (g), shall have provided Parent with five
(5) Business Days' advance notice of such intended termination and Parent shall
not, prior to such termination, have exercised the Options; or
(h) by Parent, if the Company shall have taken any action or actions
pursuant to Section 5.02 that would, but for the provisions of Section 5.02,
constitute a material breach of the covenants or agreements to be performed by
the Company hereunder, provided that, for purposes of this paragraph (h) only,
Parent must effect such termination within ten (10) Business Days after the
latest notice or details it has received from the Company pursuant to Section
5.02; and provided further that no failure by Parent to have exercised such
right of termination within a particular permitted period shall act as a waiver
of its rights to terminate this Agreement with respect to any subsequent
permitted period.
SECTION 9.02 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 9.01, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall immediately
become void and have no effect, without any liability or obligation on the part
of Merger Sub, Parent or the Company, other than the provisions of the last two
sentences of Section 6.02, this Section 9.02, and Section 9.06. Nothing in this
Section shall relieve any party for any willful breach of such party's covenants
or agreements in this Agreement.
SECTION 9.03 Amendment. Subject to Section 9.05 hereof, this Agreement may
be amended by the parties at any time before or after the Company Stockholder
Approval contemplated hereby, at any time prior to the Closing Date with respect
to any of the terms contained herein; provided, however, that after the Company
Stockholder Approval, no such amendment, modification or supplement shall reduce
or change the Merger Per Share Consideration or adversely affect the rights of
the Company's stockholders hereunder without the approval of such stockholders.
This Agreement may be amended only by a writing signed on behalf of each party.
SECTION 9.04 Extension; Waiver. At any time prior to the Effective Time,
any party may, to the extent legally allowed, by a writing signed on behalf of
such party (a) extend the time to perform any obligation or other act of another
party, (b) waive any inaccuracy in any representation or warranty or (c) waive
compliance with any agreement or condition in this Agreement. The failure of any
party to
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assert any right under this Agreement or otherwise shall not constitute a waiver
of such right. The waiver by any party hereto or the failure to insist upon
strict compliance with any provision contained herein shall not operate or be
construed as a waiver of, or estoppel with respect to, any prior or subsequent
breach of the same or any other provisions hereof.
SECTION 9.05 Authorization of Termination, Amendment, Etc. A party's
termination, amendment, extension or waiver hereunder shall, in order to be
effective, require action by such party's Board of Directors or the duly
authorized designee of such Board of Directors. From and after the time, if any,
that Parent's or Merger Sub's designees constitute a majority of the Company's
Board of Directors, any amendment of this Agreement, any termination of this
Agreement by the Company, any extension of time for performance of any of the
obligations of Parent or Merger Sub hereunder, any waiver of any condition or
any of the Company's rights hereunder or other action by the Company hereunder
may be effected only by the action of a majority of the directors of the Company
then in office who were directors of the Company on the date hereof, which
action shall be deemed to constitute the action of the full Board of Directors.
SECTION 9.06 Fees and Expenses. Except as otherwise expressly provided
herein, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses (whether or not the Merger is consummated).
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.01 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time or the termination
of this Agreement. This Article 10 shall survive the Effective Time, but shall
not limit any covenant or agreement which by its terms contemplates performance
after the Effective Time including (i) the covenants and agreements contained in
Sections 6.02(b), 6.10 and 6.14, and (ii) the covenants, agreements,
representations and warranties contained in the Company Tax Certificate and the
Parent Tax Certificate, which shall survive the Effective Time.
SECTION 10.02 Notices. All notices, requests, claims and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, by overnight courier or when successfully
transmitted by telecopier without interruption (with a confirming copy of such
transmission sent by overnight courier) to the addressee, provided that any
notice received by telecopy at the addressee's location on any Business Day
after 5:00 p.m. (addressee's local time) shall be deemed to have been received
at 9:00 a.m. (addressee's local time) on the next Business Day. All notices
shall be sent to the parties at the following addresses or telecopy numbers (or
at such other address or telecopy number for a party as shall be specified by
notice from such party pursuant to this Section 10.02):
(a) if to Parent or Merger Sub, to
Chevron Corporation
575 Market Street
San Francisco, CA 94105
Telecopy: (925) 842-1301
Attention: Mr. Richard H. Matzke
with a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
Telecopy: (415) 983-1200
Attention: Terry M. Kee
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(b) if to the Company, to
Rutherford-Moran Oil Corporation
5 Greenway Plaza, Suite 220
Houston, Texas 77046
Telecopy: (713) 621-7072
Attention: Chief Financial Officer
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022-3897
Telecopy: (212) 735-2000
Attention: Jeffrey W. Tindell
SECTION 10.03 Certain Definitions. For purposes of this Agreement:
(a) "AFE" shall mean an authorization for expenditure by a party to
estimate the costs to be incurred in conducting an operation under the Joint
Operating Agreement.
(b) An "affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.
(c) "B8/32 Partners" shall mean B8/32 Partners Ltd., a limited liability
company organized under the laws of the Kingdom of Thailand.
(d) "Bareboat Charter" shall mean the Bareboat Charter dated as of February
9, 1996, between Tantawan Production B.V. and Tantawan Services, LLC in
connection with the charter of the "TANTAWAN EXPLORER" for use in the Tantawan
Field in the Gulf of Thailand.
(e) "Block" shall mean Block B8/32 in the Gulf of Thailand, the
geographical area subject to the Concession.
(f) "Business Day" means a day, other than a Saturday or a Sunday, on which
banking institutions in New York, Houston and San Francisco are required to be
open.
(g) "Capital Lease Obligations" shall mean, for any Person, all obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
(h) "Credit Agreement" shall mean that certain Second Amended and Restated
Credit Agreement dated as of September 28, 1998, and among the Company, as
Borrower, Rutherford-Moran Exploration Company, Thai Romo Holdings, inc., Thai
Romo Limited, certain other subsidiary guarantors and The Chase Manhattan Bank,
as a lender and administrative agent.
(i) "Concession" shall mean, collectively, (i) Petroleum Concession No.
1/2534/36 dated as of August 1, 1991, whereby the Ministry of Industry of the
Kingdom of Thailand awarded to Maersk, Thaipo and Thai Romo the concession to
develop hydrocarbon producing properties in Block B8/32 in the Gulf of Thailand;
(ii) Supplementary Petroleum Concession No. 1 to Petroleum Concession No.
1/2534/36 dated as of March 6, 1992, whereby Sophonpanich entered into Petroleum
Concession No. 1/2534/36; and (iii) Supplementary Petroleum Concession No. 2 to
Petroleum Concession No. 1/2534/36 dated as of September 4, 1995, whereby Maersk
transferred all of its interest in the Tantawan Field to Thaipo and whereby
Thaipo, Thai Romo and Sophonpanich readjusted their respective interests in the
Tantawan Field; (iv) Supplementary Petroleum Concession No. 3 to Petroleum
Concession 1/2534/36 dated March 6, 1998, awarded to Thai Romo Limited, Thaipo
Limited and B8/32 Partners, Ltd, as well as (v) any and all Production Licenses.
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(j) "Concessionaire" shall mean each concessionaire under the Concession.
(k) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor act, and the rules and regulations thereunder or
under any successor act.
(l) "Facilities Contracts" shall mean any contracts, agreements or
arrangements related to any and all equipment, fixtures and appurtenances beyond
the wellhead connections acquired for production of natural gas and oil in
connection with the operations under the Joint Operating Agreement, including,
without limitation, platforms, pipelines, fixtures and other appurtenances,
whether or not counted on a Production Area and equipment for storage, treating
compression, and production handling. Facilities shall also include pipelines,
barges, tankers, FPSOs and other vessels used for storing, offloading,
transporting and marketing Petroleum produced from a Production Area, together
with all necessary support facilities, whether or not located in the Production
Area.
(m) "Facilities" shall mean all equipment, fixtures and appurtenances
beyond the wellhead connections acquired for production of Petroleum pursuant to
this Agreement, including, without limitation, Platforms, pipelines, fixtures
and other appurtenances, whether or not located on a Production Area and
equipment for storage, treating, compression, and production handling.
(n) "Gas Sales Agreement" shall mean the Gas Sales Agreement dated as of
November 7, 1995 among the Petroleum Authority of Thailand, as gas purchaser,
and Thaipo, Thai Romo and Sophonpanich, as gas sellers, as amended by the First
Amendment to Gas Sales Agreement dated as of November 12, 1997.
(o) "Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, or working capital of any Person or
any production or revenues generated by (or any capital or other expenditures
incurred in connection with the acquisition and exploitation of, or the
exploration for or development or production of) any Hydrocarbon Properties, or
a guarantee of the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) Property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and including,
without limitation, a guarantee in favor of a bank or other financial
institution in order to cause such bank or financial institution to issue a
letter of credit or other similar instrument for the benefit of another Person,
but excluding endorsements for collection or deposit in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a
correlative meaning.
(p) "Hedging Agreement" shall mean, for any Person, an agreement or
arrangement between such Person and one or more financial institutions or other
entities providing for the transfer or mitigation of risks of fluctuations in
(x) the prices of hydrocarbons, either generally or under specific circumstances
or (y) currency exchange rates between U.S. dollars and Thai baht either
generally or under specific circumstances.
(q) "Hydrocarbon Properties" shall mean, without duplication, the Company's
and the Company's Subsidiaries' interests in hydrocarbon reserves.
(r) "Indebtedness" shall mean, for any Person (without duplication): (a)
obligations created, issued or incurred by such Person for borrowed money
(whether by loan, the issuance and sale of debt securities or the sale of
Property to another Person subject to an understanding or agreement, contingent
or otherwise, to purchase or repurchase the same or similar Property from such
Person); (b) obligations of such Person to pay the deferred purchase or
acquisition price of Property or services, other than trade accounts payable
(other than for borrowed money) arising, and accrued expenses incurred, in the
ordinary course of business so long as such trade accounts payable are payable
within 90 days after the date of receipt of the invoice therefor; (c)
obligations of others secured by a Lien on the Property of such Person, whether
or not the respective obligations so secured have been assumed by such Person;
(d) obligations of such Person in respect of letters of credit, surety bonds or
similar instruments issued or accepted by banks,
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surety companies and other financial institutions for account of such Person and
issued in respect of liabilities of such Person of the type described in other
clauses of this definition; (e) Capital Lease Obligations of such Person other
than any thereof for which Thai Romo is liable and which is incurred in
connection with transactions under the Operating Agreement or the Joint
Operating Agreement; (f) obligations of such Person in respect of obligations of
the types specified in other clauses of this definition as a partner or joint
venturer of any partnership or joint venture (other than in respect of
obligations incurred in the ordinary course of business); (g) obligations of
such Person in respect of Interest Rate Protection Agreements or Hedging
Agreements; and (h) Indebtedness of others Guaranteed by such Person, provided
that the term "Indebtedness" shall not include any of the foregoing which are
subject to irrevocable legal defeasance in accordance with the terms thereof.
When used with respect to Thai Romo, "Indebtedness" shall include Thai Romo's
obligations to reimburse the operator under the Operating Agreement or the Joint
Operating Agreement for Thai Romo's pro rata share of payments made by such
operator in respect of Indebtedness incurred by such operator in connection with
transactions under such agreements.
(s) "Interest Rate Protection Agreement" shall mean, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
(t) "Investment" in any Person shall mean any investment, whether by means
of share purchase, loan, advance, extension of credit, capital contribution or
otherwise, in or to such Person, the Guarantee of any Indebtedness of such
Person or the subordination of any claim against such Person to other
Indebtedness of such Person; except that "Investment" shall not include
investments in inventory or trade receivables made or arising in the ordinary
course of business for the sale of goods or services; provided that when used
with respect to Thai Romo, "Investments" shall include any payments made by Thai
Romo to the operator under the Operating Agreement in satisfaction of Thai
Romo"s obligations to reimburse such operator for its pro rata share of
Investments made by such operator in connection with transactions under such
agreement.
(u) "Joint Operating Agreement" shall mean, collectively, (i) the Joint
Operating Agreement dated as of August 1, 1991 between Maersk, Thai Romo, Thaipo
and Sophonpanich, (ii) the Transfer Agreement dated March 2, 1995 between
Maersk, Thai Romo, Thaipo and Sophonpanich, whereby Maersk agrees to convey its
interest and operatorship in respect of the Tantawan Area of Block B8/32 to
Thaipo, (iii) the Agreement of Operatorship and Conveyance of Interest dated as
of March 3, 1995 between Maersk and Thaipo, (iv) the Joint Operating Agreement
dated as of March 3, 1995 between Thaipo, Thai Romo and Sophonpanich and (v) the
Agreement dated as of March 2, 1997, by and between Pogo Producing Company,
Thaipo, TRH, Thai Romo and Palang Sophon Limited.
(v) "knowledge" of any Person which is not an individual means such facts
and other information which as of the date of determination are actually known
to any vice president, chief financial officer, general counsel, chief
compliance officer, controller, and any officer superior to any of the
foregoing, of the referenced Person, and with respect to the Company or any
Company Subsidiary, specifically includes Messrs. Rutherford and Moran.
(w) "Lien" shall mean, with respect to any Property, any assignment in
trust, mortgage, lien, pledge, charge, fiduciary or security assignment,
security interest or encumbrance of any kind in respect of such Property
(including, without limitation, any production payment obligation, advance,
payment or similar arrangement with respect to minerals in place). For purposes
of the foregoing, a Person shall be deemed to own subject to a Lien any Property
that it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement (other than an operating lease) relating to such Property.
(x) "Maersk" shall mean Maersk Oil (Thailand) Limited, a company organized
under the laws of the Kingdom of Thailand.
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(y) "Material adverse change" or "material adverse effect" means, when used
in connection with the Company, Parent or Merger Sub, any change or effect that,
either individually or in the aggregate with all other such changes or effects,
is or would reasonably be expected to be materially adverse to the business,
assets, properties, condition (financial or otherwise) or results of operations
(current and prospective) of such party and its subsidiaries taken as a whole.
(z) "NYSE" means the New York Stock Exchange, Inc.
(aa) "Permitted Liens" means (i) liens for current taxes not yet due, (ii)
minor imperfections of title, if any, none of which materially impairs the
present use of the property subject thereto or impairs the current operations of
the Company or the Company Subsidiaries, (iii) zoning laws and other use
restrictions that do not materially impair the current use of the property
subject thereto, and (iv) and mechanic's, courier's, worker's, repairer's,
materialman's, warehouseman's and other similar liens arising or incurred in the
ordinary course of business, none of which would, individually or in the
aggregate, materially adversely affects the value of, or materially adversely
interfere with the use of, the property subject thereto.
(ab) "Person" or "Person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization, labor union,
estate, limited liability company, joint stock company, Governmental Entity or
other entity.
(ac) "Petroleum" shall mean crude oil, natural gas, natural gas liquid,
by-products and other naturally occurring hydrocarbons in a free state, whether
solid, semi solid, liquid or gaseous, and it shall include all heavy
hydrocarbons which can be recovered in situ by thermal or chemical processes,
but shall not include coal, oil shale or other kinds of rocks from which oil can
be extracted by application of heat or chemical process.
(ad) "Platform" shall mean an offshore structure, including a structure
that solely supports Facilities, whether fixed, compliant or floating, and the
components of that structure, including but not limited to, caissons or well
protectors, rising above the water line and used for the exploration,
development or production of Petroleum. The term "Platform" shall also mean an
offshore subsea structure or template (excluding templates used for drilling
operations) and any component thereof (including, but not limited to, flowlines,
umbilicals and control systems, other than those installed in connection with
completion of a well) that is attached to the sea floor and used to obtain
production of Petroleum.
(ae) "Pledge Agreements" shall mean the Borrower Pledge Agreement and the
Thai Pledge Agreements.
(af) "Pogo" shall mean Pogo Producing Company, a Delaware corporation.
(ag) "Production Area" shall mean any portion of the Concession to which a
Production License relates.
(ah) "Production License" shall mean an instrument authorizing development,
exploitation and operations within the Concession, as concluded between the
Ministry of Industry of the Kingdom of Thailand and the parties to the Joint
Operating Agreement and any extension, renewal or amendment thereof agreed to in
writing by the parties to the Joint Operating Agreement.
(ai) "Production License Application" shall mean any application for a
Production License.
(aj) "Production Payment" shall mean any production payment obligation of
the Company or the Company Subsidiaries, whether payable from a specified share
of proceeds received from production from specific Properties or payable from a
specified share of production from specific Properties.
(ak) "Property" shall mean any property of any kind whatsoever, whether
real, personal or mixed and whether tangible or intangible, including any right
or interest therein or thereto.
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(al) "Representatives" means, with respect to a party, a party's directors,
officers, employees, affiliates, agents and advisors (including its attorneys,
accountants, consultants, bankers and financial advisors).
(am) "RMEC" shall mean Rutherford-Moran Exploration Company, a Delaware
corporation.
(an) "SBM" shall mean, collectively, SBM Bahamas Limited, a Bahamian
corporation, SBM Marine Services Thailand Ltd., a Thai corporation, and Tantawan
Production B.V., a Netherlands corporation.
(ao) "Senior Notes" shall mean the Senior Subordinated Notes due 2004 in
the aggregate principal amount not to exceed $120 million issued by the Company
as governed by that certain Indenture dated as of September 27, 1997, between
the Company and the Bank of Montreal Trust Company, as trustee.
(ap) "Sophonpanich" shall mean Palang Sophon Limited, a limited liability
company organized under the laws of the Kingdom of Thailand, as successor in
interest to Sophonpanich Co., Limited.
(aq) A "subsidiary" of any Person means another Person of which the first
Person owns (directly or indirectly).
(i) an amount of voting securities or other voting interests which is
sufficient to elect at least a majority of its Board of Directors or other
governing body; or
(ii) if there are no voting interests, 50% or more of all equity
interests.
(ar) "Thai Pledge Agreements" shall mean the Pledge Agreements executed by
RMEC and TRH, respectively, in favor of the Lenders represented by the
Administrative Agent under a power of attorney, as each shall be modified and
supplemented and in effect from time to time.
(as) "Thaipo" shall mean Thaipo Limited, a limited liability company
organized under the laws of the Kingdom of Thailand.
(at) "Thai Romo" shall mean Thai Romo Limited, a limited liability company
organized under the laws of the Kingdom of Thailand.
(au) "TRH" shall mean Thai Romo Holdings, Inc., a Delaware corporation.
SECTION 10.04 Interpretation. When a reference is made in this Agreement
to an Article, Section, Exhibit or Schedule, such reference shall be to an
Article or Section of, or an Exhibit or Schedule to, this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the word "include,"
"includes" or "including" is used in this Agreement, it shall be deemed to be
followed by the words "without limitation." The words "hereof," "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement. All terms defined in this Agreement shall have the
defined meanings contained herein when used in any certificate, instrument or
other document made or delivered pursuant hereto unless otherwise defined
therein. The plural of any defined term shall have a meaning correlative to such
defined term, and words denoting any gender shall include all genders. Where a
word or phrase is defined herein, each of its other grammatical forms shall have
a corresponding meaning. A reference to any legislation or to any provision of
any legislation shall include any modification or re-enactment. All references
to "$" and dollars shall be deemed to refer to United States currency unless
otherwise specifically provided.
SECTION 10.05 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to each other party. Delivery of an executed counterpart of
a signature page to this Agreement by telecopier shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 10.06 Entire Agreement. This Agreement (including the Company
Disclosure Schedules and the Exhibits attached hereto, all of which are a part
hereof) and the Option Agreement contain the
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entire understanding of the parties hereto and thereto with respect to the
subject matter contained herein and therein, supersede and cancel all prior
agreements, negotiations, correspondence, undertakings and communications of the
parties, oral or written, respecting such subject matter. There are no
restrictions, promises, representations, warranties, agreements or undertakings
of any party hereto with respect to the transactions contemplated by this
Agreement other than those set forth herein or in the Option Agreement or made
hereunder or thereunder.
SECTION 10.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
any laws that might otherwise govern under applicable principles of conflicts of
laws thereof or of any other jurisdiction.
SECTION 10.08 Assignment. Neither this Agreement nor any right, interest
or obligation hereunder shall be assigned, in whole or in part, by operation of
law or otherwise, by any party without the prior written consent of each other
party. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and permitted assigns.
SECTION 10.09 Enforcement. The parties agree that irreparable damage would
occur if any provision of this Agreement were not performed in accordance with
its terms or were otherwise breached. Each party shall be entitled to injunctive
relief to prevent any breach of this Agreement and to enforce this Agreement
specifically (in addition to any other remedy to which such party is entitled at
law or in equity) in any court of the State of Delaware or any court of the
United States located in the State of Delaware (collectively, the "Delaware
Courts"). In addition, each party hereby
(a) submits itself to the personal jurisdiction of the Delaware Courts with
respect to any dispute arising out of this Agreement or any transaction
contemplated hereby to the extent such courts would have subject matter
jurisdiction with respect to such dispute;
(b) agrees that it will not attempt to deny or defeat such personal
jurisdiction or venue by motion or other request for leave from any Delaware
Court;
(c) waives the right to any other jurisdiction or venue for any litigation
arising out of or in connection with this Agreement or the transactions
contemplated hereby to which any of them may be entitled by reason of its
present or future domicile;
(d) waives, in any action for specific performance, the defense of adequacy
of a remedy at law; and
(e) agrees that it will not bring any action relating to this Agreement (or
any transactions contemplated by this Agreement) in any court other than such
courts referred to above.
Notwithstanding the foregoing, each of the parties hereto agrees that each of
the other parties shall have the right to bring any action or proceeding for
enforcement of a judgment entered by the Delaware Courts in any other court or
jurisdiction.
SECTION 10.10 Severability. Each provision of this Agreement will be
interpreted so as to be effective and valid under applicable law, but if any
provision is held invalid, illegal or unenforceable under applicable law in any
jurisdiction, then such invalidity, illegality or unenforceability will not
affect any other provision, and if the rights or obligations of any party hereto
under this Agreement shall not be materially and adversely affected thereby, the
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been included herein.
SECTION 10.11 Service of Process. Each party irrevocably consents to the
service of process in any action or proceeding by mailing copies thereof by
registered United States mail, postage prepaid, return receipt requested, to its
address as specified in or pursuant to Section 10.2 hereof. However, the
foregoing shall not limit the right of a party to effect service of process on
the other party by any other legally available method.
SECTION 10.12 Company Disclosure Schedules. Any matter disclosed pursuant
to any Company Disclosure Schedule shall be deemed to be disclosed for all
purposes under this Agreement but such
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disclosure shall not be deemed to be an admission or representation as to the
materiality of the item so disclosed.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective duly authorized officers, all as of
the date first written above.
CHEVRON CORPORATION
By: /s/ R. H. MATZKE
------------------------------------
Name: R. H. Matzke
Title: Vice President
CHEVRON THAILAND INC.
By: /s/ R. H. MATZKE
------------------------------------
Name: R. H. Matzke
Title: President
RUTHERFORD-MORAN OIL CORPORATION
By: /s/ JOHN A. MORAN
------------------------------------
Name: John A. Moran
Title: Chairman of the Board
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ANNEX B
OPTION AND VOTING AGREEMENT
THIS OPTION AND VOTING AGREEMENT (this "Agreement") is dated as of December
23, 1998, among certain stockholders of RUTHERFORD-MORAN OIL CORPORATION, a
Delaware corporation (the "Company") listed on Schedule A hereto (each a
"Stockholder" and, collectively, the "Stockholders"), on the one hand, and
CHEVRON CORPORATION, a Delaware corporation ("Parent"), on the other hand.
WITNESSETH:
WHEREAS, the Company, Parent and a wholly owned subsidiary of Parent
("Merger Sub") propose to enter into an Agreement and Plan of Merger dated as of
the date hereof (as the same may be amended or supplemented, the "Merger
Agreement"; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement) providing that Parent shall acquire
the Company through a merger of Merger Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth in the Merger
Agreement; and
WHEREAS, pursuant to the Merger, the common stock, par value $0.01, of the
Company (the "Company Stock") will be converted into the right to receive shares
of common stock, par value $1.50, of Parent ("Parent Common Stock"); and
WHEREAS, each Stockholder owns of record and possesses legal title to the
number of shares of Company Stock set forth opposite its name on Schedule A
attached hereto (the "Subject Shares"); and
WHEREAS, the Subject Shares represent at least 75.1% of the voting power of
the issued and outstanding shares of capital stock of the Company entitled to
vote on the matters set forth in Section 3 hereof; and
WHEREAS, as an inducement to Parent to enter into the Merger Agreement,
Parent has required that each Stockholder enter into this Agreement; and
WHEREAS, for federal income tax purposes, it is intended that the
acquisition of the Subject Shares from the Stockholders pursuant to this
Agreement and the Merger will constitute an integrated transaction qualifying as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, this Agreement has been approved by the independent members of the
Board of Directors of the Company; and
WHEREAS Parent is prepared to execute the Merger Agreement and tender it to
the Company for execution by the Company upon receipt of this Option and Voting
Agreement;
NOW, THEREFORE, to induce Parent to enter into, and in consideration of its
entering into, the Merger Agreement, and in consideration of the promises and
the representations, warranties and agreements contained herein and therein, the
parties, intending to be legally bound hereby, agree as follows:
1. Representations and Warranties of Each Stockholder. Each Stockholder
hereby, severally and not jointly, represents and warrants to Parent as of the
date hereof in respect of itself as follows:
(a) Authority. The Stockholder has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Stockholder and, assuming this Agreement is a valid and binding obligation of
Parent, constitutes a valid and binding obligation of the Stockholder
enforceable in accordance with its terms, except that such enforceability (i)
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally and (ii)
is subject to
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general principles of equity and the discretion of the court before which any
proceedings seeking injunctive relief or specific performance may be brought.
Except as set forth in Company Disclosure Schedule 3.04(b), the execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time or both) under any provision of, any trust agreement, loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, notice,
decree, statute, law, ordinance, rule or regulation applicable to the
Stockholder or to the Stockholder's property or assets the effect of which, in
any case, would be material and adverse to the ability of the Stockholder to
consummate the transactions contemplated hereby or to comply with the terms
hereof.
(b) The Subject Shares. The Stockholder is the beneficial owner of and has
the sole right to vote and dispose of the Subject Shares set forth opposite such
Stockholder's name on Schedule A attached hereto, free and clear of any claims,
liens, encumbrances and security interests ("Liens") whatsoever, except for any
Liens which arise hereunder. None of such Subject Shares is subject to any
voting trust or other agreement, arrangement or restriction, except as
contemplated by this Agreement.
(c) Certain Transactions Involving Company Stock. Except as set forth on
the disclosure schedule delivered to Parent by the Stockholder at the time of
execution of this Agreement, except for transactions between Stockholders, since
January 1, 1998, the Stockholder has not purchased, received, accepted as
collateral, sold, transferred, hypothecated, pledged, or exchanged any Company
Stock, or any options, warrants, or rights to purchase or sell Company Stock,
and has not entered into any agreement to do any of the foregoing.
2. Representations and Warranties of Parent. Parent hereby represents and
warrants to each Stockholder that Parent has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent, and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly executed and delivered by Parent and constitutes a valid
and binding obligation of Parent enforceable in accordance with its terms.
3. Covenants of Each Stockholder as to Voting. Until the termination of
this Agreement in accordance with Section 8, each Stockholder, severally and not
jointly, agrees as follows:
(a) Vote for the Merger. At any duly noticed meeting of stockholders of the
Company called to vote upon the Merger Agreement or at any adjournment thereof
or in any other circumstances upon which a vote, consent or other approval
(including by written consent) with respect to the Merger Agreement is sought,
the Stockholder shall vote (or cause to be voted), or execute a written consent
in respect of, the Subject Shares in favor of the Merger and the adoption by the
Company of the Merger Agreement.
(b) Vote Against Alternative Proposals. At any duly noticed meeting of
stockholders of the Company or at any adjournment thereof or in any other
circumstances upon which the vote, consent or other approval of the Company's
stockholders is sought, the Stockholders shall be present (in person or by
proxy) and shall vote (or cause to be voted) the Subject Shares against (i) any
Alternative Proposal or (ii) any amendment of the Company's certificate of
incorporation or by-laws or other proposal or transaction involving the Company
or any of its subsidiaries, which amendment or other proposal or transaction
would in any manner impede, frustrate, prevent, delay or nullify the Merger
Agreement or any of the other transactions contemplated by the Merger Agreement
or change in any manner the voting rights of any class of capital stock of the
Company. The Stockholders further agree not to commit or agree to take any
action inconsistent with the foregoing.
(c) Transfer of Subject Shares. Except pursuant to this Agreement, the
Stockholder agrees not to (i) transfer, sell, pledge, assign or otherwise
dispose of (including by gift) (collectively, "Transfer"), or enter into any
contract, option or other arrangement (including any profit sharing arrangement)
with respect to the Transfer of, any of the Subject Shares to any person other
than pursuant to the terms of the Merger Agreement or this Agreement, or (ii)
enter into any voting arrangement, whether by proxy, power-
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of-attorney, voting agreement, voting trust or otherwise in connection, directly
or indirectly, with any Alternative Proposal.
4. Grant of Options. Each Stockholder hereby grants to Parent an option
(each an "Option" and, collectively, the "Options") to purchase such
Stockholder's Subject Shares on the following terms and conditions:
(a) Exercise Price.
(i) The exercise price of the Option for each Subject Share shall be
that number of fully paid and nonassessable shares of Parent Common Stock
equal to the Option Exchange Ratio (as hereinafter defined) divided by the
Average Closing Price (as hereinafter defined) (the "Option Per Share
Consideration").
(ii) "Option Exchange Ratio" shall be the result obtained by dividing
a numerator equal to the sum of (a) Ninety-One Million Dollars
($91,000,000), (b) the amount, if any, of cash received by the Company in
consideration of the issuance of its equity securities after the date of
the Merger Agreement and before the date on which Parent exercises the
Options (the "Option Exercise Date"), (c) an amount equal to the value, if
any, as agreed by the Company and Parent, of any non-cash consideration
received by the Company in consideration of its equity securities after the
date of the Merger Agreement and before the Option Exercise Date, and (d)
the cash consideration projected to be received by the Company in exchange
for the expected issuance of equity securities pursuant to then existing
contractual commitments and based on an exercise price equal to or less
than the Merger Per Share Consideration, by a denominator equal to the sum
of (e) the number of shares of Company Stock issued and outstanding on the
Option Exercise Date and (f) the number of shares issuable upon exercise of
all outstanding warrants or options to acquire Company Common Stock which
have an exercise price equal to or less than the Merger Per Share
Consideration, assuming, for the purposes of this calculation only, that
the Effective Time of the Merger is the same date as the Option Exercise
Date. For purposes of the preceding sentence, outstanding warrants or
options to acquire Company Common Stock shall include any commitment,
contingent or otherwise, of the Company, to grant warrants or options or
otherwise to issue shares of Company Common Stock. "Average Closing Price"
shall be the arithmetic average of the closing prices of Parent Common
Stock as reported on the NYSE Composite Transactions Tape for the twenty
(20) consecutive trading days ending on the second trading day prior to the
exercise of the Options.
(iii) The Stockholders shall also receive, together with each share of
Parent Common Stock issued upon exercise of the Options, one associated
preferred stock purchase right (a "Right") in accordance with the Rights
Agreement dated as of November 23, 1998, between Parent and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent. References herein to the
shares of Parent Common Stock issuable upon exercise of the Options shall
also be deemed to include the associated Rights.
(iv) In the event that, between the date of this Agreement and the
Option Exercise Date, the issued and outstanding shares of Company Stock or
Parent Common Stock shall have been changed into a different number of
shares or a different class of shares as a result of a stock split, reverse
stock split, dividend payable in stock or other securities,
recapitalization, reclassification or other similar transaction, then the
Option Per Share Consideration shall be appropriately adjusted to provide
the Stockholders with the same economic effect as contemplated by this
Agreement prior to such stock split, reverse stock split, dividend payable
in stock or other securities, spin-off, combination or exchange of shares,
extraordinary dividend, recapitalization, reclassification or other similar
transaction.
(b) Notwithstanding anything in this Section 4 to the contrary, no
certificate or scrip representing any fractional shares of Parent shall be
issued hereunder to any Stockholder and no such fractional-share interest shall
entitle the holder thereof to any vote or any other right of a stockholder of
Parent. Each Stockholder entitled to receive Parent Common Stock who would
otherwise have been entitled to receive a
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fraction of a share of Parent Common Stock shall receive, in lieu thereof, a
cash payment (without interest) equal to such fraction multiplied by the Average
Closing Price (each a "Fractional Share Payment").
(c) The Options shall remain exercisable until June 1, 1999.
(d) Parent may exercise the Options with respect to all, but not less than
all, of the Subject Shares.
(e) If Parent exercises the Options, Parent shall take all appropriate
action to complete the Merger and there shall be no conditions to Parent's
obligations to effect the Merger other than the absence of any law or regulation
or any order, decree or injunction of a court of competent jurisdiction
enjoining or prohibiting the consummation of the Merger; provided, however, that
if the Merger is so enjoined or prohibited, then Parent shall, as promptly as
practicable after the issuance of any such order, decree or injunction, effect
an exchange offer to acquire any and all such shares for shares of Parent Common
Stock on the same terms as set forth in the Merger Agreement, unless such
exchange offer is so enjoined or otherwise prohibited by law.
(f) Parent may exercise the Options at any time before the Options
terminate by giving to each Stockholder a written notice evidencing the exercise
of the Options and specifying a closing date, which shall not be later than ten
Business Days from the date of the notice. Parent's obligation to purchase the
Subject Shares upon any exercise of the Options and the Stockholders' obligation
to sell the Subject Shares upon any exercise of the Options are subject to the
conditions that (i) no preliminary or permanent injunction or other order
prohibiting the purchase, issuance or delivery of the Shares issued by any
Governmental Entities will be in effect and (ii) any applicable waiting period
required for the purchase of the Subject Shares under the HSR Act will have
expired or been terminated, provided that if such injunction or other order has
become final and nonappealable, the Options shall terminate. The Stockholders'
obligation to sell the Shares upon exercise of the Options is subject to the
further condition that the Company's tax counsel shall have received from Parent
a certificate to the fact that Parent has not taken any action to cause or which
is reasonably likely to cause the matters set forth in the Parent Tax
Certificate delivered pursuant to Section 6.14 of the Merger Agreement to be
untrue in any material respect.
(g) The closing will occur at the principal office of Parent. At the
closing, Parent will deliver to each Stockholder the Option Per Share
Consideration. Each Stockholder will deliver to Parent the certificates
representing the Stockholder's shares, together with a duly executed stock
power.
5. Grant of Irrevocable Proxy.
(a) Existing Proxies Revoked. The Stockholders represent that any proxies
heretofore given in respect of the Subject Shares are not irrevocable, and that
any such proxies are hereby revoked.
(b) Grant of Irrevocable Proxy to Parent and Merger Sub. Following the
receipt of the vote of the Stockholders called for in Section 3(a) above, upon
Parent's or Merger Sub's request, each Stockholder hereby agrees to irrevocably
grant to, and appoint, Parent and Merger Sub, and each of them, and any person
who may hereafter be designated by Parent or Merger Sub as permitted under
applicable law, and each of them individually, the Stockholders' proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of the Stockholder, to vote the Subject Shares, or grant a consent or
approval in respect of such Subject Shares, in favor of or against, as the case
may be, the matters set forth in Sections 3(a) and 3(b), and to execute and
deliver an appropriate instrument irrevocably granting such proxy. The proxy
granted herein shall terminate upon any termination of this Agreement in
accordance with its terms.
(c) Affirmations. Each Stockholder hereby affirms that any irrevocable
proxy granted pursuant to Section 5(b) will be given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy will be given
to secure the performance of the duties of the Stockholder under this Agreement.
If so granted, the Stockholders hereby ratify and confirm all that such
irrevocable proxy may lawfully do or cause to be done by virtue thereof. Such
irrevocable proxy, if and when executed, is
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intended to be irrevocable in accordance with the provisions of Section 212(e)
of the DGCL until such time as this Agreement terminates in accordance with its
terms.
6. Further Assurances. Each Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
consents, documents and other instruments as Parent or Merger Sub may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
7. Assignment. Except as provided herein, neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties without the prior written consent of the other parties, except that
Parent may assign, it its sole discretion, any or all of its rights, interest
and obligations hereunder to Merger Sub or to any direct or indirect wholly
owned subsidiary of Parent. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
8. Termination. This Agreement shall terminate upon the earlier of (a) June
1, 1999, (b) the Effective Time of the Merger and (c) the termination of the
Merger Agreement. All representations and warranties contained herein shall
terminate upon the termination of this Agreement.
9. General Provisions.
(a) Amendments. This Agreement may not be amended except by an instrument
in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to Parent
in accordance with the notification provision contained in the Merger Agreement
and to the Stockholders at their respective addresses set forth on the books of
the Company (or at such other address for a party as shall be specified by like
notice).
(c) Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section to this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Wherever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties hereto and delivered to the other parties, it being
understood that each party need not sign the same counterpart. Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be as effective as delivery of a manually executed counterpart of this
Agreement.
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement and the
Schedules attached hereto, and the Merger Agreement and the Schedules and
Exhibits attached thereto, all of which are a part hereof, contain the entire
understanding of the parties hereto and thereto with respect to the subject
matter contained herein and therein, and supersede and cancel all prior
agreements, negotiations, correspondence, undertakings and communications of the
parties, oral or written, respecting such subject matter. There are no
restrictions, promises, representations, warranties, agreements or undertakings
of any party hereto with respect to the transactions contemplated by this
Agreement other than those set forth herein or in the Merger Agreement or made
hereunder or thereunder. This Agreement is not intended to confer upon any
person other than the parties hereto and Merger Sub, which is an express
beneficiary of this Agreement, any rights or remedies hereunder.
(f) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof
or of any other jurisdiction.
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(g) Severability. If any term, provision, covenant or restriction herein,
or the application thereof to any circumstance, shall, to any extent, be held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law, and the parties hereto shall
reasonably negotiate in good faith a substitute term or provision that comes as
close as possible to the invalidated and unenforceable term or provision, and
that puts each party in a position as nearly comparable as possible to the
position each such party would have been in but for the finding of invalidity or
unenforceability, while remaining valid and enforceable.
(h) Waiver. Any provisions of this Agreement may be waived at any time by
the party that is entitled to the benefits thereof. No such waiver, amendment or
supplement will be effective unless in writing and is signed by the party or
parties sought to be bound thereby. Any waiver by any party of a breach of any
provision of this Agreement will not operate as or be construed to be a waiver
of any other breach of such provisions or of any breach of any other provision
of this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement or one or more sections hereof will not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
10. Stockholder Representatives. Each Stockholder signs solely in its
capacity as the beneficial owner of, or the general partner of a partnership or
the trustee of a trust which is the beneficial owner of, such Stockholder's
Subject Shares and nothing contained herein shall limit or affect any actions
taken by any officer, director, partner, affiliate or representative of a
Stockholder who is or becomes an officer or a director of the Company in his or
her capacity as an officer or director of the Company and none of such actions
in such capacity shall be deemed to constitute a breach of this Agreement.
11. Release from and Assignment of All Known and Unknown Claims. Each
Stockholder hereby releases and forever discharges the Company and its former
and current officers, directors, employees, agents and representatives
(collectively, the "Company Releasees") from any and all claims, liens, demands,
expenses, causes of action, obligations, damages, liabilities, losses and
judgments, known or unknown, which existed in the past or which currently exist
(collectively, together with any future causes of action, "Claims"). To the
maximum extent permitted by law, each Stockholder hereby assigns all Claims to
Parent. Each Stockholder understands and expressly acknowledges that it is
possible that unknown Claims exist against the Company Releasees and each
Stockholder warrants that he, she or it explicitly took this into account in
determining whether to enter into this Agreement. Consequently, each Stockholder
expressly waives and assigns to Parent any and all such unknown Claims,
provided, however, that nothing in this Section 11 shall in any way affect the
rights of any Stockholder (i) to indemnification as a director, officer or
employee of the Company according to the terms of the Company's charter or
bylaws, any indemnification agreement between the Company and its directors, or
the Merger Agreement, (ii) to the Option Per Share Consideration or the Merger
Per Share Consideration, and (iii) to any compensation, benefits and expense
reimbursement owed to such Stockholder in its capacity as an employee of the
Company. This release and assignment shall be effective upon the earlier of the
Effective Time of the Merger or the Option Exercise Date.
12. Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in a Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit such party to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that such party will not
bring any action relating to this Agreement or the transactions contemplated
hereby in any
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court other than a Federal court sitting in the state of Delaware or a Delaware
state court, (iv) waives any right to trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby, and (v) appoints The Corporation Trust Company
as such party's agent for service of process in the State of Delaware.
13. Amendment of Merger Agreement. If the Merger Agreement shall have been
amended pursuant to Section 9.01(f) thereof, Parent shall have the right to
amend this Agreement in a manner corresponding to the amendments made in the
Merger Agreement, so that the Option Per Share Consideration would consist of
cash equal to the Option Exchange Ratio divided by the Average Closing Price.
B-7
<PAGE> 156
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
CHEVRON CORPORATION
By: /s/ R. H. MATZKE
----------------------------------
Name: R. H. Matzke
--------------------------------------
Title: Vice President
----------------------------------
STOCKHOLDERS
/s/ PATRICK R. RUTHERFORD
--------------------------------------
Patrick R. Rutherford
/s/ PATRICK R. RUTHERFORD
--------------------------------------
Patrick R. Rutherford, for and on
behalf of
PRRTHAI, Inc.
/s/ PATRICK R. RUTHERFORD
--------------------------------------
Patrick R. Rutherford, for and on
behalf of
THAIPRR, L.P.
/s/ PATRICK R. RUTHERFORD
--------------------------------------
Patrick R. Rutherford, as Trustee of
the
P.R. Rutherford Trust, dated 6/4/83
/s/ SUSAN R. RUTHERFORD
--------------------------------------
Susan R. Rutherford
/s/ SUSAN R. RUTHERFORD
--------------------------------------
Susan R. Rutherford, for and on behalf
of
SRRTHAI, Inc.
/s/ JOHN A. MORAN
--------------------------------------
John A. Moran, for and on behalf of
JAMTHAI, Inc.
/s/ JOHN A. MORAN
--------------------------------------
John A. Moran, for and on behalf of
THAIJAM, L.P.
B-8
<PAGE> 157
/s/ JOHN A. MORAN
--------------------------------------
John A. Moran, for and on behalf of
Texas Gulf Partnership
/s/ JOHN A. MORAN
--------------------------------------
John A. Moran, as Trustee of the John
A. Moran Charitable Remainder Unitrust
of 1994
/s/ CAROLE O. MORAN
--------------------------------------
Carole O. Moran
B-9
<PAGE> 158
SCHEDULE A
LIST OF STOCKHOLDERS
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
NAME BENEFICIALLY OWNED
---- ----------------------
<S> <C>
JAMTHAI, Inc. (a Delaware corporation)...................... 997,124
THAIJAM, L.P. (a Delaware limited partnership).............. 6,173,612
Texas Gulf Partnership (a Texas partnership)................ 120,000
The John A. Moran Charitable Remainder Unitrust of 1994,
John A. Moran, Trustee.................................... 2,057,871
PRRTHAI, Inc. (a Delaware corporation)...................... 3,625,488
THAIPRR, L.P. (a Delaware limited partnership).............. 19,673
SRRTHAI, Inc. (a Delaware corporation)...................... 144,587
Susan R. Rutherford......................................... 28,000
P. R. Rutherford Trust, dated 6/4/83, Patrick R. Rutherford,
Trustee; Michael G. Rutherford, Trustee; Eugene Heideman,
Trustee................................................... 23,000
Patrick R. Rutherford....................................... 6,017,846
Carole O. Moran............................................. 16,000
</TABLE>
B-10
<PAGE> 159
ANNEX C
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
December 23, 1998
Board of Directors
Rutherford-Moran Oil Corporation
5 Greenway Plaza
Suite 220
Houston, Texas 77046
Dear Gentlemen:
We understand that Rutherford-Moran Oil Corporation ("Rutherford-Moran")
proposes to enter into a merger agreement (the "Merger Agreement") with Chevron
Corporation ("Chevron") pursuant to which a wholly-owned subsidiary of Chevron
will merge (the "Merger") with and into Rutherford-Moran. Upon the terms and
subject to the conditions set forth in the Merger Agreement at the Effective
Time (as defined in the Merger Agreement) of the Merger, Chevron will acquire
all of the outstanding shares of Rutherford-Moran for approximately $91 million
in Chevron common stock (based upon the average closing prices during a 20
trading day period prior to closing) (the "Consideration").
You have asked us to render our opinion as to whether the Consideration to
be received per outstanding share of Rutherford-Moran common stock
(approximately $3.50 per share) is fair, from a financial point of view, to the
non-affiliated public shareholders of Rutherford-Moran.
In the course of performing our reviews our analyses for rendering this
opinion, we have:
1. reviewed the Merger Agreement and the Option Agreement to be entered
into between Chevron and certain holders of Rutherford-Moran common
stock;
2. reviewed Rutherford-Moran's Annual Report to Shareholders and Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 and its
Quarterly Reports on Form 10-Q for the periods ended March 31, 1998,
June 30, 1998 and September 30, 1998;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to its business and
prospects;
4. met with certain members of Rutherford-Moran's senior management to
discuss its operations, historical financial statements and forecasted
monthly cash position from November 30, 1998 through December 31, 1999;
5. reviewed the estimates of oil and natural gas reserves of
Rutherford-Moran as of December 31, 1997 as prepared by Ryder Scott
Company;
6. reviewed the Concession Agreement for Concession Block B8/32 (the
"Concession") and the Joint Operating Agreement among the participants
on the Concession;
7. reviewed the Second Amended and Restated Credit Agreement and the
Warrant Agreement between Rutherford-Moran and the Chase Manhattan Bank
(the "Restated Credit Agreement") and discussed with senior management
of Rutherford-Moran the status of negotiations with the Administrative
Agent under the Restated Credit Agreement;
8. met with certain members of Rutherford-Moran's senior management to
discuss solicitations of interest received by Rutherford-Moran or
Morgan Stanley from persons interested in acquiring Rutherford-Moran or
making an equity investment in Rutherford-Moran and negotiations with
other prospective lenders to Rutherford-Moran;
C-1
<PAGE> 160
9. reviewed the historical prices and trading volumes of the common shares
of Rutherford-Moran and Chevron;
10. reviewed the publicly available financial data and stock market
performance data of companies which we deemed generally comparable to
Rutherford-Moran;
11. reviewed the terms of recent mergers and acquisitions of companies
which we deemed generally comparable to Rutherford-Moran and the
Merger; and
12. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by
Rutherford-Moran. With respect to Rutherford-Moran's projected financial
results, we have assumed that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Rutherford-Moran as to its expected future performance. We have
not assumed any responsibility for the information or projections provided to us
and we have further relied upon the assurances of the management of
Rutherford-Moran that they are unaware of any facts that would make the
information or projections provided to us incomplete or misleading. In arriving
at our opinion, we have not performed or obtained any independent appraisal of
the assets or liabilities of Rutherford-Moran. Our opinion is necessarily based
on economic, market and other conditions, and the information made available to
us, as of the date hereof. We have assumed the Merger will qualify as a tax-free
transaction under the Internal Revenue Code.
Bear Stearns has been previously engaged by Rutherford-Moran to provide
certain investment banking and financial advisory services, including serving as
an underwriter with respect to a public debt offering by Rutherford-Moran. In
the ordinary course of business, Bear Stearns may actively trade the equity
securities of Rutherford-Moran for its own account and the for the account of
its customers and, accordingly, may at any time hold a long or short position in
such securities.
We do not express any opinion as to the price or range of prices at which
shares of common stock of Chevron may trade subsequent to the consummation of
the Merger.
In the ordinary course of business, Bear Stearns may actively trade equity
securities of Chevron for its own account and for the account of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of Rutherford-Moran and does not constitute a
recommendation to the Board of Directors or any holders of Rutherford-Moran
common stock as to how to vote in connection with the Merger. This opinion does
not address Rutherford-Moran's underlying business decision to pursue the
Merger. This letter is not to be used for any other purpose, or reproduced,
disseminated, quoted to or referred to at any time, in whole or in part, without
our prior written consent; provided, however, that this letter may be included
in its entirety in any proxy statement/prospectus to be distributed to the
holders of Rutherford-Moran common stock in connection with the Merger.
Based on the foregoing, it is our opinion that the Consideration to be
received per outstanding share of Rutherford-Moran common stock to be received
is fair, from a financial point of view, to the non-affiliated public
shareholders of Rutherford-Moran.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ STEPHEN M. STRATY
------------------------------------
Managing Director
C-2
<PAGE> 161
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of Delaware Law permits Chevron's board of directors to
indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
her in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his or her being or
having been a director, officer, employee or agent of Chevron, or serving or
having served, at the request of Chevron, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. The statute provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise.
Article IX of the Chevron Certificate provides for indemnification of its
directors, officers, employees and other agents to the fullest extent permitted
by law.
As permitted by sections 102 and 145 of Delaware Law, the Chevron
Certificate eliminates the liability of a Chevron director for monetary damages
to Chevron and its stockholders arising from a breach or alleged breach of a
director's fiduciary duty except for liability under section 174 of Delaware Law
or liability for any breach of the director's duty of loyalty to Chevron or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction from
which the director derived an improper personal benefit.
In addition, Chevron maintains officers' and directors' insurance covering
certain labilities that may be incurred by officers and directors in the
performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
See Exhibit Index for the list of exhibits at page II-4 of this
registration statement, which is incorporated herein by reference.
(b) Financial Statement Schedules.
[None]
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (1) that is filed pursuant
to the paragraph immediately preceding, or (2) that purports to meet the
requirements of section 10(a)(3) of the
II-1
<PAGE> 162
Securities Act and is used in connection with an offering of securities subject
to Rule 415 of the Securities Act, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the proxy statement/prospectus which
forms a part of this registration statement pursuant to Items 4, 10(b), 11, or
13 of this registration statement, within one business day of receipt of such
request, and to send the incorporated documents by first-class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement through the date
of responding to the request.
The registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in this
registration statement when it became effective.
II-2
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on February 11, 1999.
CHEVRON CORPORATION
By /s/ KENNETH T. DERR*
------------------------------------
Kenneth T. Derr
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 11th day of February,
1999.
<TABLE>
<S> <C>
PRINCIPAL EXECUTIVE OFFICERS (AND DIRECTORS) DIRECTORS
/s/ KENNETH T. DERR* /s/ SAMUEL H. ARMACOST*
- --------------------------------------------- ---------------------------------------------
Kenneth T. Derr, Chairman of the Board Samuel H. Armacost
and Chief Executive Officer
/s/ SAM GINN*
/s/ JAMES N. SULLIVAN* ---------------------------------------------
- --------------------------------------------- Sam Ginn
James N. Sullivan, Vice-Chairman of the Board
/s/ CARLA A. HILLS*
/s/ DAVID J. O'REILLY* ---------------------------------------------
- --------------------------------------------- Carla A. Hills
David J. O'Reilly, Vice-Chairman of the Board
/s/ J. BENNETT JOHNSTON*
PRINCIPAL FINANCIAL OFFICER ---------------------------------------------
J. Bennett Johnston
/s/ MARTIN R. KLITTEN*
- --------------------------------------------- /s/ RICHARD H. MATZKE*
Martin R. Klitten, Vice-President and Chief ---------------------------------------------
Financial Officer Richard M. Matzke
PRINCIPAL ACCOUNTING OFFICER /s/ CHARLES M. PIGOTT*
---------------------------------------------
/s/ STEPHEN J. CROWE* Charles M. Pigott
- ---------------------------------------------
Stephen J. Crowe, Comptroller /s/ CONDOLEEZZA RICE*
---------------------------------------------
Condoleezza Rice
/s/ FRANK A. SHRONTZ*
---------------------------------------------
Frank A. Shrontz
/s/ CHANG-LIN TIEN*
---------------------------------------------
Chang-Lin Tien
/s/ GEORGE H. WEYERHAEUSER*
*By: /s/ LYDIA I. BEEBE ---------------------------------------------
- --------------------------------------------- George H. Weyerhaeuser
Lydia I. Beebe, Attorney-in-Fact
/s/ JOHN A. YOUNG*
---------------------------------------------
John A. Young
</TABLE>
II-3
<PAGE> 164
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of December 23, 1998,
by and among Chevron, Chevron Thailand Inc. and
Rutherford-Moran, a copy of which is included as Annex A to
the proxy statement/prospectus which forms a part of this
registration statement.
3.1* Restated Certificate of Incorporation of Chevron, dated
November 25, 1998.
3.2 By-Laws of Chevron, as amended July 27, 1994, including
provisions giving attorneys-in-fact authority to sign on
behalf of officers of the corporation, filed as Exhibit 3.2
to Chevron's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1994 and incorporated herein by
reference.
4.1 Rights Agreement dated as of November 22, 1998 between
Chevron and ChaseMellon Shareholder Services, L.L.C. filed
as Exhibit 4.1 to Chevron's Current Report on Form 8-K dated
November 25, 1998 and incorporated herein by reference.
Pursuant to Regulation S-K, Item 601(b)(4), certain
instruments defining the rights of holders of long-term debt
securities of Chevron and its consolidated subsidiaries are
not filed because the total amount of securities authorized
under any such instrument does not exceed 10 percent of the
total assets of the corporation and its subsidiaries an a
consolidated basis. A copy of such instrument will be
furnished to the Commission upon request.
5.1* Opinion of Pillsbury Madison & Sutro LLP regarding the
legality of the securities being offered.
8.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters.
9.1 Option and Voting Agreement, dated as of December 23, 1998,
by and among Chevron and certain stockholders of
Rutherford-Moran, a copy of which is included as Annex B to
the proxy statement/prospectus which form a part of this
registration statement.
10.1 Management Incentive Plan of Chevron, as amended and
restated effective October 30, 1996, filed as Appendix B to
Chevron's Notice of Annual Meeting of Stockholders and Proxy
Statement dated March 21, 1997, and incorporated herein by
reference.
10.2 Chevron Excess Benefit Plan, amended and restated as of July
1, 1996, filed as Exhibit 10 to Chevron's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1997
and incorporated herein by reference.
10.3 Supplemental Pension Plan of Gulf Oil Corporation, amended
as of June 30, 1986, filed as Exhibit 10.4 to Chevron's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1986 and incorporated herein by reference.
10.4 Chevron Restricted Stock Plan for Non-Employee Directors, as
amended and restated effective April 30, 1997, filed as
Appendix A to Chevron's Notice of Annual Meeting of
Stockholders and Proxy Statement dated March 21, 1997 and
incorporated herein by reference.
10.5 Chevron Long-Term Incentive Plan, as amended and restated
effective October 30, 1996, filed as Appendix C to Chevron's
Notice of Annual Meeting of Stockholders and Proxy Statement
dated March 21, 1997 and incorporated herein by reference.
10.6 Chevron Salary Deferral Plan for Management Employees,
effective January 1, 1997, filed as Exhibit 10 to Chevron's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997 and incorporated by reference.
21.1* Subsidiaries of Chevron.
23.1* Consent of Pillsbury Madison & Sutro LLP, included in the
opinion filed as Exhibit 5.1 to this registration statement.
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP,
included in the opinion filed as Exhibit 8.1 to this
registration statement.
</TABLE>
II-4
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
23.3* Consent of Bear, Stearns & Co. Inc.
23.4* Consent of PricewaterhouseCoopers LLP.
23.5* Consent of KPMG LLP (with respect to its report on the
financial statements of the Caltex Group of Companies).
23.6* Consent of KPMG LLP (with respect to its report on the
financial statements of Rutherford-Moran).
24.1* Powers of Attorney for directors and certain officers of
to Chevron, authorizing the signing of this registration
24.16 statement on their behalf.
</TABLE>
- ---------------
* Filed herewith.
II-5
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
CHEVRON CORPORATION
CHEVRON CORPORATION, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The Corporation was originally incorporated under the name Standard
Oil Company of California. The date of filing its original Certificate of
Incorporation with the Secretary of State was January 27, 1926.
2. This Restated Certificate of Incorporation of Chevron Corporation
was duly adopted by the Board of Directors of the Corporation in accordance with
the provisions of section 245 of the General Corporation Law of the State of
Delaware. This Restated Certificate of Incorporation of Chevron Corporation only
restates and integrates and does not further amend the provisions of the
Corporation's Restated Certificate of Incorporation, as filed August 2, 1994 and
heretofore amended or supplemented, and there is no discrepancy between those
provisions and the provisions of this Restated Certificate of Incorporation.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated to read as herein set forth in full:
ARTICLE I
The name of the corporation is CHEVRON CORPORATION.
ARTICLE II
The corporation's registered office is located at 1013 Centre Road, in
the City of Wilmington, County of New Castle. The name of the corporation's
registered agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
1. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is one billion one hundred million
(1,100,000,000), of which one hundred million (100,000,000) shares shall be
Preferred Stock of the par value of one dollar
<PAGE> 2
($1.00) per share, and one billion (1,000,000,000) shares shall be Common Stock
of the par value of one dollar and fifty cents ($1.50) per share.
The number of authorized shares of Common Stock and Preferred Stock may
be increased or decreased (but not below the number of shares thereof
outstanding) if the increase or decrease is approved by the holders of a
majority of the shares of Common Stock, without the vote of the holders of the
shares of Preferred Stock or any series thereof, unless any such Preferred Stock
holders are entitled to vote thereon pursuant to the provisions established by
the Board of Directors in the resolution or resolutions providing for the issue
of such Preferred Stock, and if such holders of such Preferred Stock are so
entitled to vote thereon, then, except as may otherwise be set forth in this
Restated Certificate of Incorporation, the only stockholder approval required
shall be that of a majority of the combined voting power of the Common and
Preferred Stock so entitled to vote.
2. The Board of Directors is expressly authorized to provide for the
issue, in one or more series, of all or any shares of the Preferred Stock and,
in the resolution or resolutions providing for such issue, to establish for each
such series
(a) the number of its shares, which may thereafter (unless
forbidden in the resolution or resolutions providing for such issue) be
increased or decreased (but not below the number of shares of the
series then outstanding) pursuant to a subsequent resolution of the
Board of Directors,
(b) the voting powers, full or limited, of the shares of such
series, or that such shares shall have no voting powers, and
(c) the designations, preferences and relative, participating,
optional or other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof.
3. In furtherance of the foregoing authority and not in limitation of
it, the Board of Directors is expressly authorized, in the resolution or
resolutions providing for the issue of a series of Preferred Stock,
(a) to subject the shares of such series, without the consent
of the holders of such shares, to being converted into or exchanged for
shares of another class or classes of stock of the Corporation, or to
being redeemed for cash, property or rights, including securities, all
on such conditions and on such terms as may be stated in such
resolution or resolutions, and
(b) to make any of the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of
the shares of the series dependent upon facts ascertainable outside
this Restated Certificate of Incorporation.
-2-
<PAGE> 3
4. Whenever the Board of Directors shall have adopted a resolution or
resolutions to provide for
(a) the issue of a series of Preferred Stock,
(b) a change in the number of authorized shares of a series of
Preferred Stock, or
(c) the elimination from this Restated Certificate of
Incorporation of all references to a previously authorized series of
Preferred Stock by stating that none of the authorized shares of a
series of Preferred Stock are outstanding and that none will be issued,
the officers of the Corporation shall cause a certificate, setting forth a copy
of such resolution or resolutions and, if applicable, the number of shares of
stock of such series, to be executed, acknowledged, filed and recorded, in order
that the certificate may become effective in accordance with the provisions of
the General Corporation Law of the State of Delaware, as from time to time
amended. When any such certificate becomes effective, it shall have the effect
of amending this Restated Certificate of Incorporation, and wherever such term
is used in these Articles, it shall be deemed to include the effect of the
provisions of any such certificate.
5. As used in this Article IV, the term "Board of Directors" shall
include, to the extent permitted by the General Corporation Law of the State of
Delaware, any duly authorized committee of the Board of Directors.
6. Holders of shares of Common Stock shall be entitled to receive such
dividends or distributions as are lawfully declared on the Common Stock; to have
notice of any authorized meeting of stockholders; to one vote for each share of
Common Stock on all matters which are properly submitted to a vote of such
stockholders; and, upon dissolution of the Corporation, to share ratably in the
assets thereof that may be available for distribution after satisfaction of
creditors and of the preferences, if any, of any shares of Preferred Stock.
7. The Series A Participating Preferred Stock of the Corporation shall
consist of the following:
(a) Designation and Amount. The shares of the series of
Preferred Stock shall be designated as "Series A Participating
Preferred Stock," $1.00 par value per share, and the number of shares
constituting such series shall be five million. Such number of shares
may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series
A Participating Preferred Stock to a number less than that of the
shares then outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion
of outstanding securities issued by the Corporation.
-3-
<PAGE> 4
(b) Dividends and Distributions.
(i) Subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking
prior and superior to the shares of Series A Participating
Preferred Stock with respect to dividends or distributions
(except as provided in paragraph (f) below), the holders of
shares of Series A Participating Preferred Stock, in
preference to the holders of shares of Common Stock, par value
$1.50 per share (the "Common Stock"), of the Corporation and
any other junior stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally
available for the purpose, in an amount per share (rounded to
the nearest cent) equal to the greater of (x) $25.00 or (y)
subject to the provision for adjustment hereinafter set forth,
1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other
distributions (except as provided in paragraph (f) below)
other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock,
since the first issuance of any share or fraction of a share
of Series A Participating Preferred Stock. In the event the
Corporation shall at any time after the first issuance of any
share or fraction of a share of Series A Participating
Preferred Stock (A) declare any dividend on Common Stock
payable in shares of Common Stock, (B) subdivide the
outstanding Common Stock, or (C) combine the outstanding
Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the
amount to which holders of shares of Series A Participating
Preferred Stock were entitled immediately prior to such event
under the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such
event.
(ii) Other than with respect to a dividend on the
Common Stock payable in shares of Common Stock, the
Corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in
subparagraph (i) above at the same time as it declares a
dividend or distribution on the Common Stock. The date or
dates set for the payment of such dividend or distribution on
the Series A Participating Preferred Stock and the record date
or dates for the determination of entitlement to such dividend
or distribution shall be the same date or dates as are set for
the dividend or distribution on the Common Stock. On any such
payment date, no dividend or distribution shall be paid on the
Common Stock until the
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appropriate payment has been made on the Series A
Participating Preferred Stock.
(iii) Other than as set forth in this Section 2(b),
no dividend or other distribution shall be paid on the Series
A Participating Preferred Stock.
(c) Voting Rights. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(i) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Participating
Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders
of the Corporation. In the event the Corporation shall at any
time after the first issuance of any share or fraction of a
share of Series A Participating Preferred Stock (A) declare
any dividend on Common Stock payable in shares of Common
Stock, (B) subdivide the outstanding Common Stock into a
greater number of shares, or (C) combine the outstanding
Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the
number of votes per share to which holders of shares of Series
A Participating Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of
Common Stock outstanding immediately prior to such event.
(ii) Except as otherwise provided herein or by law,
the holders of shares of Series A Participating Preferred
Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(iii)(A) If at any time dividends on any
Series A Participating Preferred Stock shall be in
arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a
"default period") which shall extend until such time
when all accrued and unpaid dividends for all
previous quarterly dividend periods and for the
current quarterly dividend period on all shares of
Series A Participating Preferred Stock then
outstanding shall have been declared and paid or set
apart for payment. During each default period, all
holders of Preferred Stock (including holders of the
Series A Participating Preferred Stock) with
dividends in arrears in an amount equal to six (6)
quarterly dividends thereon, voting as a
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class, irrespective of series, shall have the right
to elect two (2) Directors.
(B) During any default period, such voting
right of the holders of Series A Participating
Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (C)
of this Section 7(c)(iii) or at any annual meeting of
stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting right
nor the right of the holders of any other series of
Preferred Stock, if any, to increase, in certain
cases, the authorized number of Directors shall be
exercised unless the holders of ten percent (10%) in
number of shares of Preferred Stock outstanding shall
be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock
of such voting right. At any meeting at which the
holders of Preferred Stock shall exercise such voting
right initially during an existing default period,
they shall have the right, voting as a class, to
elect Directors to fill such vacancies, if any, in
the Board of Directors as may then exist up to two
(2) Directors, or if such right is exercised at an
annual meeting, to elect two (2) Directors. If the
number which may be so elected at any special meeting
does not amount to the required number, the holders
of the Preferred Stock shall have the right to make
such increase in the number of Directors as shall be
necessary to permit the election by them of the
required number. After the holders of the Preferred
Stock shall have exercised their right to elect
Directors in any default period and during the
continuance of such period, the number of Directors
shall not be increased or decreased except by vote of
the holders of Preferred Stock as herein provided or
pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series A
Participating Preferred Stock.
(C) Unless the holders of Preferred Stock
shall, during an existing default period, have
previously exercised their right to elect Directors,
the Board of Directors may order, or any stockholder
or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series,
may request, the calling of a special meeting of the
holders of Preferred Stock, which meeting shall
thereupon be called by the Chairman of the Board, a
Vice Chairman of the Board or the Secretary of the
Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are
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<PAGE> 7
entitled to vote pursuant to this subparagraph
(c)(iii)(C) shall be given to each holder of record
of Preferred Stock by mailing a copy of such notice
to him at his last address as the same appears on the
books of the Corporation. Such meeting shall be
called for a time not earlier than 10 days and not
later than 60 days after such order or request or in
default of the calling of such meeting within 60 days
after such order or request, such meeting may be
called on similar notice by any stockholder or
stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of
Preferred Stock outstanding. Notwithstanding the
provisions of this subparagraph (c)(iii)(C), no such
special meeting shall be called during the period
within 60 days immediately preceding the date fixed
for the next annual meeting of the stockholders.
(D) In any default period, the holders of
Common Stock, and other classes of stock of the
Corporation, if applicable, shall continue to be
entitled to elect the whole number of Directors until
the holders of Preferred Stock shall have exercised
their right to elect two (2) Directors voting as a
class, after the exercise of which right (x) the
Directors so elected by the holders of Preferred
Stock shall continue in office until their successors
shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy
in the Board of Directors may (except as provided in
subparagraph (c)(iii)(B) of this Section 7) be filled
by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of
stock which elected the Director whose office shall
have become vacant. References in this paragraph
(iii) to Directors elected by the holders of a
particular class of stock shall include Directors
elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(E) Immediately upon the expiration of a
default period (x) the right of the holders of
Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the
holders of Preferred Stock as a class shall
terminate, and (z) the number of Directors shall be
such number as may be provided for in, or pursuant
to, this Restated Certificate of Incorporation or
By-Laws irrespective of any increase made pursuant to
the provisions of subparagraph (c)(iii)(B) of this
Section 7 (such number being subject, however, to
change thereafter in any manner provided by law or in
this Restated Certificate of Incorporation or
By-Laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and
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<PAGE> 8
(z) in the preceding sentence may be filled by a
majority of the remaining Directors, even though less
than a quorum.
(iv) Following the establishment of a Fairness
Committee of the Board of Directors, pursuant to the
provisions of Article VII of this Restated Certificate of
Incorporation of the Corporation as in effect on the date
hereof, no action requiring the approval of the holders of
Common Stock pursuant to such provisions may be effected
without the approval of the holders of a majority of the
voting power of the aggregate outstanding shares of the Series
A Participating Preferred Stock and the Common Stock.
(v) Except as set forth herein, holders of Series A
Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the
extent they are entitled to vote on matters submitted to the
stockholders of the Corporation as set forth herein) for
taking any corporate action.
(d) Certain Restrictions.
(i) Whenever quarterly dividends or other dividends
or distributions payable on the Series A Participating
Preferred Stock as provided in Subsection (b) are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid
in full, the Corporation shall not:
(A) declare or pay dividends on, make any
other distributions on, or redeem or purchase or
otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series
A Participating Preferred Stock;
(B) declare or pay dividends on or make any
other distributions on any shares of stock ranking on
a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A
Participating Preferred Stock except dividends paid
ratably on the Series A Participating Preferred Stock
and all such parity stock on which dividends are
payable or in arrears in proportion to the total
amounts to which the holders of all such shares are
then entitled;
(C) redeem or purchase or otherwise acquire
for consideration shares of any stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A
Participating Preferred Stock provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation
ranking junior
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<PAGE> 9
(either as to dividends or upon dissolution,
liquidation or winding up) to the Series A
Participating Preferred Stock; or
(D) purchase or otherwise acquire for
consideration any shares of Series A Participating
Preferred Stock or any shares of stock ranking on a
parity with the Series A Participating Preferred
Stock except in accordance with a purchase offer made
in writing or by publication (as determined by the
Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates
and other relative rights and preferences of the
respective series and classes, shall determine in
good faith will result in fair and equitable
treatment among the respective series or classes.
(ii) The Corporation shall not permit any subsidiary
of the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under subparagraph (i) of this
Subsection (d), purchase or otherwise acquire such shares at
such time and in such manner.
(e) Reacquired Shares. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
(f) Liquidation, Dissolution or Winding Up.
(i) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no distribution
shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A
Participating Preferred Stock shall have received per share,
the greater of $1,000 or 1,000 times the payment made per
share of Common Stock, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A
Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series
A Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (A) the Series A Liquidation
Preference by (B) 1,000 (as appropriately adjusted as set
forth in subparagraph (iii) below to reflect such events as
stock splits, stock dividends
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and recapitalization with respect to the Common Stock) (such
number in clause (B), the "Adjustment Number"). Following the
payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all
outstanding shares of Series A Participating Preferred Stock
and Common Stock, respectively, holders of Series A
Participating Preferred Stock and holders of shares of Common
Stock shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the
Adjustment Number to 1 with respect to such Preferred Stock
and Common Stock, on a per share basis, respectively.
(ii) In the event there are not sufficient assets
available to permit payment in full of the Series A
Liquidation Preference and the liquidation preferences of all
other series of Preferred Stock, if any, which rank on a
parity with the Series A Participating Preferred Stock then
such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their
respective liquidation preferences. In the event there are not
sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(iii) In the event the Corporation shall at any time
after the first issuance of any share or fraction of a share
of Series A Participating Preferred Stock (A) declare any
dividend on Common Stock payable in shares of Common Stock,
(B) subdivide the outstanding Common Stock, or (C) combine the
outstanding Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the
Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(g) Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in any
such case the shares of Series A Participating Preferred Stock shall at
the same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal
to 1,000 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the
event the Corporation shall at any time after the first issuance of any
share or fraction of a share of Series A Participating Preferred Stock
(i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with
respect to the
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<PAGE> 11
exchange or change of shares of Series A Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number
of shares of Common Stock that are outstanding immediately prior to
such event.
(h) Redemption. The shares of Series A Participating Preferred
Stock shall not be redeemable.
(i) Ranking. The Series A Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as
to the payment of dividends and the distribution of assets, unless the
terms of any such series shall provide otherwise.
(j) Amendment. This Restated Certificate of Incorporation and
the By-Laws of the Corporation shall not be amended in any manner which
would materially alter or change the powers, preferences or special
rights of the Series A Participating Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a
majority of the outstanding shares of Series A Participating Preferred
Stock voting separately as a class.
(k) Fractional Shares. Series A Participating Preferred Stock
may be issued in fractions of a share which shall entitle the holder,
in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and have the
benefit of all other rights of holders of Series A Participating
Preferred Stock.
ARTICLE V
The corporation shall be entitled to treat the person in whose name any
share is registered as the owner thereof, for all purposes, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not the corporation shall have
notice thereof, save as expressly provided by the laws of the United States of
America or of the State of Delaware.
ARTICLE VI
The Board of Directors is expressly authorized to make and alter the
By-Laws of the corporation, without any action on the part of the stockholders;
but the By-Laws made by the Directors and the powers so conferred may be altered
or repealed by the Directors or stockholders.
ARTICLE VII
1. A Fairness Committee of the Board of Directors of the Corporation is
hereby established during any period of the existence of a 10% Stockholder. The
Fairness
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<PAGE> 12
Committee shall have such powers and duties as may be set forth in this
Certificate of Incorporation, and such additional powers and duties as may be
established and set forth in the By-Laws of the Corporation or a resolution of
the Board of Directors of the Corporation. Each Director of the Corporation who
is not a 10% Stockholder and has served continuously since before any current
establishment of the Fairness Committee, shall be a member of such committee; no
other Director shall be a member of the committee unless chosen unanimously by
the other members. The Fairness Committee shall act by a majority of its
members, and shall establish such other rules of procedure as it sees fit to
govern its actions; provided, however, that it shall have no power to take any
action unless there are at least three members in agreement on such action. The
Corporation shall pay all the reasonable expenses of the Fairness Committee,
including the fees and expenses of persons (including former members of the
committee) hired to assist the committee or its members in their tasks, and
expenses incurred by the members of the committee in the course of attending its
meetings or otherwise carrying out its functions.
2. It shall be the duty of the Fairness Committee to make a separate
determination as to the fairness to the Corporation and all of its stockholders
of transactions that are not in the ordinary course of the business of the
Corporation. Such extraordinary transactions shall include:
(a) any liquidation or dissolution of the Corporation, or its
merger or consolidation with or into any other corporation;
(b) any one or any series of sales, leases, exchanges,
pledges, transfers or other dispositions of any substantial portion of
the assets of the Corporation and its consolidated subsidiaries, taken
as a whole;
(c) any substantial increase in the total debt of the
Corporation and its consolidated subsidiaries, taken as a whole;
(d) any purchase or other acquisition of securities or other
assets or liabilities from, or any loan of money or other assets to, or
any guarantee of indebtedness or other obligations of, any 10%
Stockholder; and
(e) any issuance, redemption, reclassification or other
exchange or transfer (except the recordation of transfer) of securities
of the Corporation or any of its subsidiaries, which, directly or
indirectly, increases any 10% Stockholder's relative voting power or
other beneficial interest in the Corporation or any of its
subsidiaries.
If the Fairness Committee does not determine it to be in the best interests of
the Corporation and its stockholders for an extraordinary transaction to proceed
without special ratification by the stockholders, then such ratification shall
be a condition to any corporate act that would effect or facilitate such
transaction. Such ratification shall require not less than the affirmative vote
of either
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<PAGE> 13
(a) two-thirds of the outstanding shares of the Common Stock
of the Corporation, or
(b) a majority of the outstanding shares of the Common Stock
of the Corporation, and a majority of the outstanding shares of the
Common Stock of the Corporation excluding any shares of which any 10%
Stockholder is a beneficial owner.
Any determination by the Fairness Committee or ratification by the stockholders
of the Corporation pursuant to the provisions of this paragraph 2 shall not
affect any other requirements that applicable law, this Certificate of
Incorporation, or the By-Laws of the Corporation may establish as conditions to
particular corporate acts.
3. For purposes of this Article VII:
(a) "10% Stockholder" shall mean any person who is a
beneficial owner of securities of the Corporation aggregating at least
ten percent of the voting power of the outstanding securities of the
Corporation entitled to vote on the election of Directors.
(b) A person shall be deemed to be a "beneficial owner" of
securities if the right, pursuant to an agreement or otherwise, to
(i) vote such securities,
(ii) receive dividends or interest declared thereon,
(iii) dispose or receive money or other property upon
the sale or surrender thereof, whether at maturity or
otherwise, or
(iv) acquire the beneficial ownership thereof,
whether immediately, at the expiration of a term, or upon
satisfaction of any condition,
is held or shared by
(i) such person,
(ii) anyone related to such person, or
(iii) anyone else with whom such person or any such
related person has any agreement, arrangement or understanding
(except to act solely as a holder of record, or as a broker
for purchasing or selling securities) for the purpose of
acquiring, holding, voting or disposing of securities of the
Corporation.
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Without limiting the generality of the foregoing, a person is also a
"beneficial owner" of securities if such securities are listed or
described in the text of, or a note to, any report on a Schedule 13-D
or a Form 3 or 4 or any successor form or schedule which such person
has on file with the Securities and Exchange Commission or a successor
agency; and, notwithstanding any of the foregoing,
(i) a trustee under a qualified profit-sharing plan
established by the Corporation is not a beneficial owner of
securities in the trust if the trustee is not permitted to
vote such securities other than in accordance with the
direction of the beneficiaries of the trust, and
(ii) the holder of a revocable proxy to vote
securities of the Corporation at a meeting of stockholders or
with respect to a proposed action by written consent shall not
be deemed a beneficial owner of such securities if such
revocable proxy was solicited on the basis of information
presented in a proxy statement conforming to the requirements
of the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder, and such proxy holder
possesses no other incident of beneficial ownership with
respect to such securities.
(c) One is "related to" a person and is a "related person" to
such person if one is
(i) the spouse of such person,
(ii) a relative of such person or such spouse sharing
the home of such person,
(iii) a corporation, trust, estate, partnership,
joint venture or other organization in which such person,
spouse or relative is a director, officer, trustee, executor,
partner, joint venturer or other executive or manager, or in
which such person, spouse or relative has a substantial
beneficial interest, or
(iv) a person who, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is
under common control with, any of the foregoing.
4. The Fairness Committee shall have the power to interpret and to
determine the satisfaction of all the terms, provisions and requirements of this
Article VII. If the Fairness Committee shall be unable to act, a majority of all
present and former members of the Fairness Committee shall have the power to
determine who is a 10% Stockholder, what transactions are extraordinary, and
what percentage of the outstanding shares of the Common Stock of the Corporation
that are not held by any 10% Stockholder have voted to ratify any extraordinary
transaction.
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<PAGE> 15
5. Nothing contained in this Article VII shall relieve any person from
any fiduciary obligation otherwise imposed by law, or impose any fiduciary
obligation not otherwise imposed by law on the Board of Directors of the
Corporation or any committee or member thereof to approve any action or
recommend its adoption or approval by the stockholders of the Corporation.
6. Any proposal to amend or repeal any provision of this Article VII or
any other proposal to amend this Certificate of Incorporation that is
inconsistent with any provision set forth in this Article VII shall require not
less than the affirmative vote of two-thirds of the outstanding shares of the
Common Stock of the Corporation.
ARTICLE VIII
1. Not less than thirty days' prior notice of any meeting of
stockholders and of any business to be conducted at such meeting, together with
a proxy statement which
(a) complies as to form and content with the requirements
which have been established for proxy statements pursuant to the
Securities Exchange Act of 1934, as amended, and
(b) describes any action of stockholders to be taken at such
meeting and the recommendations of the several Directors with respect
thereto,
shall be given in writing by the Corporation to each stockholder entitled to
vote at such meeting, and no business shall be conducted at such meeting except
that which has been set forth in the notice of such meeting.
2. Any action which may be taken by stockholders of the Corporation at
an annual or special meeting and which requires the approval of at least a
majority of
(a) the voting power of the securities of the Corporation
present at such meeting and entitled to vote on such action, or
(b) the shares of the Common Stock of the Corporation present
at such meeting,
may not be effected except at such an annual or special meeting by the vote
required for the taking of such action.
3. Any of the provisions of paragraph 1 or 2 of this Article VIII may
be waived by the Fairness Committee, if one has been established by the
provisions of Article VII of this Certificate of Incorporation, or, if no such
Fairness Committee shall have been established, then by the Board of Directors
of the Corporation.
4. Any proposal to amend or repeal any provision of this Article VIII
or any other proposal to amend this Certificate of Incorporation that is
inconsistent with any
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<PAGE> 16
provision set forth in this Article VIII shall require not less than the
affirmative vote of two-thirds of the outstanding shares of the Common Stock of
the Corporation.
ARTICLE IX
1. A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (c) pursuant to section 174 of the Corporation Law; or (d) for any
transaction from which the director derived an improper personal benefit.
2. To the fullest extent authorized by the Corporation Law, the
corporation shall indemnify any Corporate Servant who was or is a party or is
threatened to be made a party to any Proceeding by reason of the fact that such
person was or is a Corporate Servant.
3. In serving or continuing to serve the corporation, a Corporate
Servant is entitled to rely and shall be presumed to have relied on the rights
granted pursuant to the foregoing provisions of this Article IX, which shall be
enforceable as contract rights and inure to the benefit of the heirs, executors
and administrators of the Corporate Servant; and no repeal or modification of
the foregoing provisions of this Article IX shall adversely affect any right
existing at the time of such repeal or modification.
4. The Board of Directors is authorized, to the extent permitted by the
Corporation Law, to cause the corporation to pay expenses incurred by Corporate
Servants in defending Proceedings and to purchase and maintain insurance on
their behalf whether or not the corporation would have the power to indemnify
them under the provisions of this Article IX or otherwise.
5. Any right or privilege conferred by or pursuant to the provisions of
this Article IX shall not be exclusive of any other rights to which any
Corporate Servant may otherwise be entitled.
6. As used in this Article IX:
(a) "Corporate Servant" means any natural person who is or was
a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
manager, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other organization or enterprise,
nonprofit or otherwise, including an employee benefit plan;
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(b) "Corporation Law" means the General Corporation Law of the
State of Delaware, as from time to time amended;
(c) "indemnify" means to hold harmless against expenses
(including attorneys' fees), judgments, fines (including excise taxes
assessed with respect to an employee benefit plan) and amounts paid in
settlement actually and reasonably incurred by the Corporate Servant in
connection with a Proceeding;
(d) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal or administrative;
and
(e) "request of the corporation" includes any written
authorization by an officer of the Corporation.
IN WITNESS WHEREOF, said Chevron Corporation has caused this
certificate to be signed by Kenneth T. Derr, its Chairman of the Board, and
attested by Lydia I. Beebe, its Secretary, as of this 23rd day of November,
1998.
CHEVRON CORPORATION
By /s/ Kenneth T. Derr
--------------------------------
Kenneth T. Derr
Chairman of the Board
ATTEST:
By /s/ Lydia I. Beebe
--------------------------------
Lydia I. Beebe
Secretary
<PAGE> 1
EXHIBIT 5.1
OPINION OF PILLSBURY MADISON & SUTRO LLP
February 11, 1999
Chevron Corporation
575 Market Street
San Francisco, CA 94105
RE: REGISTRATION STATEMENT ON FORM S-4 (FILE NUMBER )
Ladies and Gentlemen:
We are acting as counsel for Chevron Corporation, a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended, of: (a) the shares of common stock, par value
$1.50 per share, of the Company, to be delivered to holders of common stock, par
value $0.01 per share, of Rutherford-Moran Oil Company, a Delaware corporation,
pursuant to an Agreement and Plan of Merger, dated as of December 23, 1998 (the
"Merger Agreement"), by and among the Company, Chevron Thailand Inc., a Delaware
corporation and wholly-owned subsidiary of the Company, and Rutherford-Moran Oil
Corporation and (b) the Chevron Preferred Stock Purchase Rights that will be
attached to and represented by the certificates issued for shares of the
Company's common stock (which Preferred Stock Purchase Rights have no market
value independent of the Company's common stock to which they are attached). In
this regard we have participated in the preparation of a Registration Statement
on Form S-4 relating to such shares of Common Stock (the "Registration
Statement").
We are of the opinion that the shares of common stock to be delivered by
the Company have been duly authorized and, when delivered pursuant to the terms
of the Merger Agreement, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Proxy Statement/Prospectus
included therein.
Very truly yours,
/s/ PILLSBURY MADISON & SUTRO LLP
[04843]
II-6
<PAGE> 1
EXHIBIT 8.1
[OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM]
February 11, 1999
Rutherford-Moran Oil Corporation
5 Greenway Plaza
Suite 220
Houston, Texas 77046
Ladies and Gentlemen:
We have acted as counsel to Rutherford-Moran Oil Corporation
("Rutherford-Moran"), a Delaware corporation, in connection with (i) the Merger,
as defined and described in the Agreement and Plan of Merger, dated as of
December 23, 1998 (the "Merger Agreement"), by and among Chevron Corporation, a
Delaware corporation, Merger Sub, a Delaware corporation and a wholly owned
subsidiary of Chevron, and Rutherford-Moran, and (ii) the preparation and filing
of the Registration Statement dated February 11, 1999 (the "Registration
Statement"), which includes the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus"), filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Ex-
<PAGE> 2
Rutherford-Moran Oil Corporation
February 11, 1999
Page 2
change Act of 1934, as amended. Unless otherwise indicated, each capitalized
term used herein has the meaning ascribed to it in the Merger Agreement.
In connection with this opinion, we have examined the Merger
Agreement, the Proxy Statement/Prospectus and such other documents as we have
deemed necessary or appropriate in order to enable us to render the opinion
below. For purposes of this opinion, we have assumed (i) the validity and
accuracy of the documents that we have examined and the facts concerning the
Merger that have come to our attention during our engagement and (ii) that the
Merger will be consummated in the manner described in the Merger Agreement and
the Proxy Statement/Prospectus.
Subject to the assumptions set forth above and the assumptions
and qualifications set forth in the discussion in the Proxy Statement/Prospectus
under the heading "Certain United States Federal Income Tax Consequences of the
Merger" ("the Discussion") and the fact that the Discussion is a summary and
does not purport to discuss all possible United States federal income tax
consequences of the Merger to Rutherford-Moran stockholders, we are of the
opinion that the Discussion states
<PAGE> 3
Rutherford-Moran Oil Corporation
February 11, 1999
Page 3
the material United States federal income tax consequences of the Merger to
Rutherford-Moran stockholders. We express no opinion as to whether the Discus-
sion addresses all of the United States federal income tax consequences of the
Merger. In addition, we express no opinion as to the United States federal,
state, local, foreign or other tax considerations, other than as set forth in
the Discussion. Further, there can be no assurances that the opinion expressed
herein will be accepted by the IRS or, if challenged, by a court. This opinion
is delivered in accordance with the requirements of Item 601(b)(8) of Regulation
S-K under the Securities Act.
In rendering our opinion, we have considered the applicable
provisions of the Code, Treasury Department regulations promulgated thereunder,
pertinent judicial authorities, interpretive rulings of the IRS and such other
authorities as we have considered relevant. It should be noted that statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time (possibly with retroactive effect). A change in the
authorities or the accuracy or completeness of any of the information,
documents, corporate records, covenants, statements, representations or
assumptions on which our opinion is based could affect our conclusions. This
opinion is expressed as of the date hereof, and we are
<PAGE> 4
Rutherford-Moran Oil Corporation
February 11, 1999
Page 4
under no obligation to supplement or revise our opinion to reflect any changes
(including changes that have retroactive effect) (i) in applicable law or (ii)
if any information, document, corporate record, covenant, statement,
representation or assumption on which our opinion is based becomes untrue or
incorrect.
This letter is furnished to you solely for use in connection
with the Merger, as described in the Merger Agreement, and is not to be used,
circulated, quoted, or otherwise referred to for any other purpose without our
express written permission. In accordance with the requirements of Item
601(b)(23) of Regulation S-K under the Securities Act, we hereby consent to the
filing of this opinion as an exhibit to the Registration Statement " and to the
reference to our firm under the heading "Legal Matters" in the Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF CHEVRON CORPORATION*
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OR COUNTRY
(REPORTED BY PRINCIPAL AREA OF OPERATION) IN WHICH ORGANIZED
----------------------------------------- ------------------
<S> <C>
UNITED STATES
Chevron U.S.A. Inc. Pennsylvania
Principal Divisions:
Chevron U.S.A. Production Company
Chevron Products Company
Limited Liability Companies:
Chevron Chemical Company LLC Delaware
Chevron Capital U.S.A. Inc. Delaware
Chevron Oil Finance Company Delaware
Chevron Pipe Line Company Delaware
Huntington Beach Company California
The Pittsburg & Midway Coal Mining Co. Missouri
INTERNATIONAL
Bermaco Insurance Company Limited Bermuda
Cabinda Gulf Oil Company Limited Bermuda
Chevron Asiatic Limited Delaware
Chevron Canada Limited Canada
Chevron Canada Enterprises Limited Canada
Chevron Canada Resources Canada
Chevron International Limited Liberia
Chevron International Oil Company, Inc. Delaware
Chevron Niugini Pty. Limited Papua New Guinea
Chevron Overseas Petroleum Inc. Delaware
Chevron Standard Limited Delaware
Chevron U.K. Limited United Kingdom
Chevron Transport Corporation Liberia
Chevron Nigeria Limited Nigeria
Insco Limited Bermuda
</TABLE>
- ---------------
* All of the subsidiaries in the above list are wholly owned, either directly or
indirectly, by Chevron Corporation. Certain subsidiaries are not listed since,
considered in the aggregate as a single subsidiary, they would not constitute
a significant subsidiary at December 31, 1998.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF FINANCIAL ADVISOR
We consent to the use of our fairness opinion letter dated December 23,
1998 forming a part of this Registration Statement on Form S-4 filed by Chevron
Corporation in connection with the merger of Chevron Corporation and
Rutherford-Moran Oil Corporation, to be included in this proxy statement/
prospectus. We also consent to the references to our fairness opinion letter,
the analysis conducted by us and the use of our name in this proxy
statement/prospectus under the headings "Summary" and "The Merger."
Bear Stearns & Co., Inc.
February 11, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting part of this Registration Statement on Form S-4 of Chevron
Corporation of our report dated February 20, 1998, appearing on page FS-14 of
Chevron Corporation's Annual Report on Form 10-K for the year ended December 31,
1997. We also consent to the reference to us under the heading "Experts" in such
proxy statement/prospectus.
PricewaterhouseCoopers LLP
San Francisco, California
February 11, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the proxy
statement/prospectus constituting part of this Registration Statement on Form
S-4 of Chevron Corporation of our report dated February 9, 1998, appearing on
page C-7 of Chevron's Annual Report on Form 10-K for the year ended December 31,
1997. We also consent to the reference to us under the heading "Experts" in such
proxy statement/ prospectus.
KPMG LLP
February 11, 1999
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-4 of Chevron
Corporation of our report dated March 2, 1998, on the financial statements of
Rutherford-Moran Oil Corporation and to the reference to our firm under the
heading "Experts" in such proxy statement/prospectus.
Our report refers to a change from the full cost method to the successful
efforts method of accounting for oil and gas properties.
KPMG LLP
February 11, 1999
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ KENNETH T. DERR
--------------------------------------
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ JAMES N. SULLIVAN
--------------------------------------
<PAGE> 1
EXHIBIT 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ DAVID J. O'REILLY
--------------------------------------
<PAGE> 1
EXHIBIT 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ SAMUEL H. ARMACOST
--------------------------------------
<PAGE> 1
EXHIBIT 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ SAM GINN
--------------------------------------
<PAGE> 1
EXHIBIT 24.6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ CARLA A. HILLS
--------------------------------------
<PAGE> 1
EXHIBIT 24.7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ J. BENNETT JOHNSTON
--------------------------------------
<PAGE> 1
EXHIBIT 24.8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ RICHARD H. MATZKE
--------------------------------------
<PAGE> 1
EXHIBIT 24.9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ CHARLES M. PIGOTT
--------------------------------------
<PAGE> 1
EXHIBIT 24.10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ CONDOLEEZA RICE
--------------------------------------
<PAGE> 1
EXHIBIT 24.11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ FRANK A. SHRONTZ
--------------------------------------
<PAGE> 1
EXHIBIT 24.12
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ CHANG-LIN TIEN
--------------------------------------
<PAGE> 1
EXHIBIT 24.13
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ GEORGE H. WEYERHAEUSER
--------------------------------------
<PAGE> 1
EXHIBIT 24.14
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ JOHN A. YOUNG
--------------------------------------
<PAGE> 1
EXHIBIT 24.15
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ MARTIN R. KLITTEN
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<PAGE> 1
EXHIBIT 24.16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Chevron Corporation, a Delaware corporation (the "Corporation"),
contemplates filing with the Securities and Exchange Commission at Washington,
D.C., S-4 Registration Statement.
WHEREAS, the undersigned is an officer or director of the Corporation.
NOW, THEREFORE, the undersigned hereby constitutes and appoints LYDIA I.
BEEBE, HILMAN P. WALKER, TERRY MICHAEL KEE AND KEITH J. MENDELSON, or any of
them, his or her attorneys-in-fact and agents, with full power of substitution
and resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, to sign the aforementioned document (and any and all
amendments thereto) and to file the same, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully as to all intents and purposes he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do and cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this
11th day of February, 1999.
/s/ STEPHEN J. CROWE
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