As filed with the Securities and Exchange Commission on April 11, 2001
Registration No. 333-54240
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
CHEVRON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 2911 94-0890210
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
575 Market Street
San Francisco, CA 94105
(415) 894-7700
(Address, Including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
Harvey D. Hinman, Esq.
Vice President and General Counsel
Chevron Corporation
575 Market Street
San Francisco, CA 94105
(415) 894-7700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Terry M. Kee, Esq. Michael G. McQueeney, Esq. Dennis S. Hersch, Esq.
Rodney R. Peck, Esq. Acting General Counsel Ulrika Ekman, Esq.
Pillsbury Winthrop LLP Texaco Inc. Davis Polk & Wardwell
50 Fremont Street 2000 Westchester Avenue 450 Lexington Avenue
San Francisco, CA 94105 White Plains, NY 10650 New York, NY 10017
(415) 983-1000 (914) 253-4000 (212) 450-4000
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effectiveness of this registration statement and the
effective time of the merger of a wholly-owned subsidiary of the registrant with
and into Texaco Inc. as described in the Agreement and Plan of Merger dated as
of October 15, 2000.
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. [ ]
--------------------------
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.
[Chevron logo] [Texaco logo]
TO CHEVRON AND TEXACO STOCKHOLDERS:
A PROPOSAL TO MERGE OUR COMPANIES
The Boards of Directors of Chevron Corporation and Texaco Inc. have
approved a merger agreement that provides for the combination of our two
companies. Texaco will join the Chevron group and Chevron will be renamed
ChevronTexaco Corporation. We believe ChevronTexaco will rank with the world's
largest and most competitive international energy companies and will create
greater value for stockholders than either Chevron or Texaco could have achieved
on its own.
If the merger is completed, holders of Texaco common stock will receive
0.77 shares of ChevronTexaco common stock for each share of Texaco common stock
they hold. Chevron stockholders will continue to own their existing shares after
the merger. Chevron stock, after the closing of the merger, will be
ChevronTexaco stock. ChevronTexaco will issue approximately ____ million shares
of ChevronTexaco common stock to Texaco stockholders in the merger, based on the
outstanding shares of Texaco on _______________, 2001. These shares will
represent approximately ___ percent of the outstanding ChevronTexaco common
stock after the merger. Shares of ChevronTexaco common stock will be listed on
the New York Stock Exchange under the ticker symbol "CHV." The value of the
ChevronTexaco common stock Texaco stockholders will receive in the merger is
currently unknown and may be less than the current market value of Chevron
common stock.
The Board of Directors of Texaco recommends that its stockholders approve
the merger and the merger agreement. Therefore, we are asking the Texaco
stockholders to vote for this proposal.
The Board of Directors of Chevron recommends that its stockholders approve
the issuance of common stock to Texaco stockholders and the amendment of
Chevron's restated certificate of incorporation to change its name to
ChevronTexaco Corporation. Therefore, we are asking the Chevron stockholders to
vote for these proposals.
We cannot complete the merger unless Texaco stockholders approve the merger
and Chevron stockholders approve the common stock issuance. Your vote is very
important.
We encourage you to read this entire document, including the discussion of
risks associated with the merger beginning on page 13, carefully before voting.
The dates, times and places of the meetings are:
For Chevron stockholders: For Texaco stockholders:
--------------------- ---------------------
--------------------- ---------------------
--------------------- ---------------------
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[signature] [signature]
David J. O'Reilly Glenn F. Tilton
Chairman of the Board and Chief Chairman of the Board and Chief
Executive Officer Executive Officer
Chevron Corporation Texaco Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the ChevronTexaco common stock to be
issued under this joint proxy statement/prospectus or determined if this joint
proxy statement/prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
This joint proxy statement/prospectus is dated ________, 2001, and was first
mailed to stockholders on or about ____________, 2001.
ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Chevron and Texaco from other documents that are not
included in or delivered with the joint proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain the documents incorporated by reference in this joint
proxy statement/prospectus through the Securities and Exchange Commission
website at www.sec.gov or by requesting them in writing or by telephone from the
appropriate company at one of the following addresses:
Chevron Corporation Texaco Inc.
575 Market Street 2000 Westchester Avenue
San Francisco, California 94105 White Plains, New York 10650
Attn: Corporate Secretary Attention: Secretary
(415) 894-7700 (914) 253-4000
If you would like to request any documents, please do so by _______ __,
2001 in order to receive them before the special meetings.
See "Where You Can Find More Information" on page 85.
[Note: Page for Chevron Booklet only.]
[Chevron logo]
Notice of Special Meeting of Stockholders of Chevron Corporation
Meeting Date: , 2001
Meeting Time: a.m., PDT
Meeting Location: Chevron Park
Building A
6001 Bollinger Canyon Road
San Ramon, CA 94583
Agenda:
o Vote on the proposed issuance of shares of common stock to stockholders
of Texaco Inc. in connection with the merger; and
o Vote on the proposed amendment of the corporation's Restated Certificate
of Incorporation to change the name of the corporation to "ChevronTexaco
Corporation."
Admission
All stockholders and representatives whom stockholders have authorized in
writing are cordially invited to attend the Special Meeting. We will hold the
Special Meeting at Chevron Park in San Ramon, California. Seating will be
limited at Chevron Park. We will give our stockholders priority seating at the
Special Meeting. Depending on stockholder attendance, we may have to seat guests
in an overflow area.
Voting
Only stockholders of record on , 2001, or their duly authorized
proxies, may vote at the Special Meeting.
Your vote is important. Please complete, sign, date and return your proxy
card in the enclosed envelope promptly, or authorize the individuals named on
your proxy card to vote your shares by calling the toll-free telephone number or
using the internet as described in the instructions included with your proxy
card.
[SIGNATURE]
Lydia I. Beebe
Corporate Secretary
, 2001
[Note: Page for Texaco Booklet only.]
[Texaco logo]
NOTICE OF SPECIAL MEETING
TO BE HELD ON __________________
To the Stockholders of Texaco Inc.:
A special meeting of stockholders of Texaco Inc. will be held on
_______________, at __________, at ___________________________ to consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated as of October 15, 2000, among Texaco, Chevron Corporation and Keepep Inc.,
a subsidiary of Chevron, and the merger, as described in the attached joint
proxy statement/prospectus.
Only holders of record of Texaco common stock at the close of business on
______________, 2001, will be entitled to vote at the Texaco meeting or any
adjournment or postponement.
Your vote is important to us. Even if you do not plan to attend the meeting,
please complete and sign the enclosed proxy card and mail it promptly in the
return envelope. If you are a stockholder of record, you can also vote over the
internet or by calling the toll-free telephone number shown on the proxy card.
You must have an admission card to be admitted to the meeting. If you are a
stockholder of record, we have included an admission card with your proxy card.
If you are not a stockholder of record, you should contact the bank or broker
holding your shares to obtain an admission card.
[SIGNATURE]
Michael H. Rudy
Secretary
___________, 2001
TABLE OF CONTENTS
THE MERGER..........................................1
QUESTIONS AND ANSWERS ABOUT THE MERGER..............1
SUMMARY.............................................3
Who We Are.......................................3
Why We Recommend the Merger (see pages 22
through 31)...................................3
Opinions of Financial Advisors (see
pages 32 through 47)..........................3
What Texaco Stockholders Will Receive in
the Merger (see page 64)......................4
The Merger is a Tax-Free Reorganization
(see page 28).................................4
Ownership of ChevronTexaco After the Merger......4
Stockholder Vote Required to Approve the
Merger, the Common Stock Issuance and
the Name Change...............................4
Appraisal Rights Are Not Available (see
page 30)......................................5
Board of Directors of ChevronTexaco and
Related Matters After the Merger (see
page 27)......................................5
The Interests of Texaco Directors and
Officers in the Merger May Differ from
Your Interests (see page 47)..................5
Accounting Treatment (see pages 27 and 28).......5
Conditions to Completion of the Merger
(see page 70).................................5
We Have Not Yet Obtained All Required
Regulatory Approvals..........................6
The Merger Agreement May Be Terminated
(see page 71).................................6
Fees May Be Payable On Termination (see
pages 71 and 72)..............................6
We Have Granted Each Other Stock Options.........7
Market Price Information.........................7
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA....8
How We Prepared the Financial Statements.........8
Pooling-of-Interests Accounting Treatment........8
Merger-Related Expenses..........................8
Integration-Related Expenses.....................8
Periods Covered..................................8
SELECTED HISTORICAL FINANCIAL DATA..................9
Selected Historical Financial Data of Chevron....9
Selected Historical Financial Data of Texaco....10
Selected Unaudited Pro Forma Combined
Financial Data...............................11
Comparative Per Share Data......................12
RISK FACTORS.......................................13
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS...................................15
THE MERGER.........................................16
General.........................................16
Background of the Merger........................16
Our Reasons for the Merger......................19
Recommendation of, and Factors Considered
by, the Chevron Board........................22
Recommendation of, and Factors Considered
by, the Texaco Board.........................24
Directors of ChevronTexaco......................27
Principal Officers of ChevronTexaco.............27
Other Senior Officers of ChevronTexaco..........27
Accounting Treatment............................27
Material Federal Income Tax Consequences
of the Merger................................28
Regulatory Matters..............................29
Appraisal Rights................................30
Federal Securities Laws Consequences;
Stock Transfer Restriction Agreements........30
OPINIONS OF FINANCIAL ADVISORS.....................32
Opinion of Chevron's Financial Advisor..........32
Valuation Analysis..............................34
Comparative Transaction Multiples Analysis......36
Contribution Analysis...........................37
Premiums Paid Analysis..........................37
Synergy Payout Ratio Analysis...................38
Pro Forma Merger Consequences Analysis..........39
Opinion of Texaco's Financial Advisor...........40
Valuation Analysis..............................42
Relative Analyses...............................44
Pro Forma Merger Analysis.......................45
Other Analyses..................................45
Miscellaneous...................................46
Texaco's Financial Advisors.....................46
INTERESTS OF DIRECTORS AND OFFICERS IN
THE MERGER...................................47
Board of Directors..............................47
Executive Officers..............................47
Indemnification; Directors' and
Officers' Insurance..........................48
Severance Agreements............................48
Employee Severance Benefits.....................50
Stock Incentive Plans...........................51
Stock Grantor Trust.............................52
COMPARATIVE PER-SHARE MARKET PRICE AND
DIVIDEND INFORMATION.........................53
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Effect of Merger on Texaco Investor
Services Plan................................54
Liabilities........................................57
Stockholders' Equity...............................57
BUSINESS RELATIONSHIPS BETWEEN CHEVRON
AND TEXACO...................................63
The Caltex Group of Companies...................63
Fuel and Marine Marketing LLC (FAMM)............63
P.T. Mandau Cipta Tenaga Nusantara..............63
THE MERGER AGREEMENT...............................64
Structure of the Merger.........................64
Timing of Closing...............................64
Merger Consideration............................64
Treatment of Texaco Stock Options; Other
Texaco Stock-Based Awards....................64
Exchange of Shares..............................64
ChevronTexaco Board and Related Matters.........65
Covenants.......................................65
Representations and Warranties..................69
Conditions to the Completion of the Merger......70
Termination of the Merger Agreement.............71
Expenses........................................72
Amendments; Waivers.............................72
Stock Option Agreements.........................72
INFORMATION ABOUT THE MEETINGS AND VOTING..........75
Matters Relating to the Meetings................75
Vote Necessary to Approve the Chevron and
Texaco Proposals.............................76
Voting..........................................76
Other Business; Adjournments....................78
COMPARISON OF STOCKHOLDER RIGHTS...................79
DESCRIPTION OF CHEVRON CAPITAL STOCK...............82
Chevron Common Stock............................82
Chevron Preferred Stock.........................82
Transfer Agent and Registrar....................83
Stock Exchange Listing; Delisting and
Deregistration of Texaco Common Stock........83
LEGAL MATTERS......................................83
EXPERTS............................................83
STOCKHOLDERS' PROPOSALS............................84
ADDITIONAL INFORMATION FOR STOCKHOLDERS............85
WHERE YOU CAN FIND MORE INFORMATION................85
Chevron SEC Filings (File No. 1-368-2)..........85
Texaco SEC Filings (File No. 1-27)..............85
Annexes
Annex A -- Agreement and Plan of Merger
Annex A-1 -- Amendment No. 1 to Agreement and Plan of Merger
Annex B -- Stock Option Agreement
Annex C -- Stock Option Agreement
Annex D -- Opinion of Lehman Brothers
Annex E -- Opinion of Credit Suisse First Boston
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THE MERGER
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: When and where are the stockholder meetings? Q: Why is it important for me to vote?
A: Each company's meeting will take place on A: We cannot complete the merger without Texaco stockholders voting
____________, 2001. Chevron's meeting will be in favor of the merger and Chevron stockholders voting in favor of
held at Chevron Park, in San Ramon, California. the common stock issuance.
Texaco's meeting will be held at _______________.
Q: What do I need to do now? Q: What if I don't vote?
A: Mail your signed proxy card in the enclosed A: If you are a Chevron stockholder and you do not give voting
return envelope or vote by telephone or the internet, instructions to your broker or you do not vote, you will, in effect,
as soon as possible, so your shares will be be voting against the name change and will not be voting on the
represented at your meeting. In order to be sure issuance of common stock.
that your vote is counted, please submit your proxy
as instructed on your proxy card even if you plan to If you are a Texaco stockholder and do not give voting instructions
attend a meeting in person. to your broker or you do not vote, you will, in effect, be voting
against the merger.
Q: What does my board of directors recommend?
Q: Should I send in my stock certificates now?
A: The board of directors of Texaco recommends that
its stockholders vote in favor of the merger. The board A: No. If the merger is completed, we will send Texaco
of directors of Chevron recommends that its stockholders stockholders written instructions for exchanging their share
vote in favor of the issuance of common stock in the certificates. Chevron stockholders will keep their existing
merger and the name change. certificates.
Q: What do I do if I want to change my vote? Q: What happens to my future dividends?
A: You should send in a later-dated, signed proxy card to A: We expect no change in Chevron's or Texaco's dividend policies
your company's Secretary or vote again by telephone or the before the merger. We expect that ChevronTexaco will continue to pay
internet before your meeting. Or you can attend your meeting quarterly dividends on ChevronTexaco common stock after the merger.
in person and vote. You may also revoke your proxy by sending The payment of dividends by ChevronTexaco in the future will
a notice of revocation to your company's Secretary at the continue to depend on business conditions, ChevronTexaco's financial
address under "Who We Are" on page 3. condition and earnings, and other factors. To compare dividends paid
by each of Chevron and Texaco, see page 53.
Q: If my shares are held in "street name" by my broker, will
my broker vote my shares for me? Q: When do you expect the merger to occur?
A: If you do not provide your broker with instructions on how A: Assuming we receive the required stockholder and regulatory
to vote your "street name" shares, your broker will not be approvals, we expect to complete the merger immediately after the
permitted to vote them on the merger. Therefore, you should stockholder meetings.
be sure to provide your broker with instructions on how to
vote your shares. Please check the voting form used by your
broker to see if it offers telephone or internet voting.
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Q: When will Chevron's name change occur?
A: The Chevron name change will take effect if and when
the merger is completed and if the Chevron stockholders have
also approved the name change.
Q: What are the tax consequences of the merger?
A: The merger has been structured so that the
companies and their stockholders will not recognize
gain or loss as a result of the merger. Texaco
stockholders will not recognize gain or loss on the
exchange of their stock, other than on account of
cash received for a fractional share.
Q: Who do I call if I have questions about the
meetings or the merger?
A: Chevron stockholders may call 1-800-________.
Texaco stockholders may call 1-800-________.
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SUMMARY
This summary highlights material information described more fully elsewhere
in this joint proxy statement/prospectus. This summary does not contain all of
the information that you should consider. To understand the merger fully and for
a more complete description of the legal terms of the merger, you should read
this document and the documents we have referred you to carefully, including the
merger agreement attached as Annex A to this joint proxy statement/prospectus.
See "Where You Can Find More Information" on page 85.
Who We Are Why We Recommend the Merger
(see pages 22 through 31)
Chevron Corporation
575 Market Street We believe the combined ChevronTexaco will be positioned for
San Francisco, CA 94105 stronger financial returns than could be achieved by either company
(415) 894-7700 separately, partly through significant cost reductions, but also
Chevron manages its investments in, and provides because the combined company will have a broader mix of quality
administrative, financial and management support to, U.S. assets, skills and technology. Chevron and Texaco are natural
and foreign subsidiaries and affiliates that engage in partners, with many complementary operations and a long history of
fully integrated petroleum operations, chemicals working together successfully. Of course, these benefits depend on
operations and coal mining. Collectively, these our ability to obtain the necessary approvals for the merger, and on
companies, which we refer to as Chevron, operate in the other uncertainties described beginning on page 70.
United States and approximately 100 other countries.
Petroleum operations consist of exploring for, developing To Chevron Stockholders:
and producing crude oil and natural gas; refining crude
oil into finished petroleum products; marketing crude oil, The Chevron board believes that the merger, the issuance of common
natural gas and the many products derived from petroleum; stock in the merger and the name change are fair to you and in
and transporting crude oil, natural gas and petroleum your best interest and recommends that you vote for the issuance
products by pipelines, marine vessels, motor equipment of common stock and for the name change.
and rail car. Chemicals operations include the manufacture
and marketing of commodity petrochemicals, plastics for To Texaco Stockholders:
industrial uses and fuel and lube oil additives.
The Texaco board believes that the merger is fair to you and in your
Texaco Inc. best interest and recommends that you vote for the approval of the
2000 Westchester Avenue merger agreement and the merger.
White Plains, NY 10650
(914) 253-4000 Opinions of Financial Advisors
Texaco Inc. and its subsidiary companies, together with (see pages 32 through 47)
affiliates owned 50 percent or less, represent a vertically
integrated enterprise principally engaged in the worldwide In deciding to approve the merger, each board considered the opinion
exploration for and production, transportation, refining and of its financial advisor. Chevron received an opinion from Lehman
marketing of crude oil, natural gas liquids, natural gas and Brothers Inc. as of October 15, 2000 as to the fairness to Chevron
petroleum products, power generation and gasification. from a financial point of view of the exchange ratio, and Texaco
Directly and through affiliates, Texaco operates in more received an opinion from Credit Suisse First Boston Corporation as
than 150 countries. of October 15, 2000 as to the fairness to the holders of Texaco
common stock from a financial point of view of the exchange
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ratio. These opinions are attached as Annex D and Annex E. The Merger is a Tax-Free Reorganization
You may read these opinions for a discussion of the (see page 28)
assumptions made, matters considered and limitations on the
review by Lehman Brothers Inc. and Credit Suisse First Boston It is a condition to the obligations of Texaco and Chevron to
in rendering their opinions. complete the merger that each receive a legal opinion from its
outside counsel that the merger will be a tax-free reorganization
What Texaco Stockholders Will Receive in the Merger (see for federal income tax purposes. Accordingly, the transaction has
page 64) been structured so that the companies themselves, as well as holders
of Chevron stock, will not recognize gain or loss as a result of the
As a result of the merger, Texaco stockholders will receive, merger. Holders of Texaco common stock will not recognize any gain
for each share of Texaco common stock, 0.77 shares of or loss for federal income tax purposes on the exchange of their
ChevronTexaco common stock. Texaco stock for ChevronTexaco stock in the merger, except for any
gain or loss recognized in connection with the receipt of cash
ChevronTexaco will not issue any fractional shares. Texaco instead of a fractional share of ChevronTexaco common stock. You
stockholders will receive a cash payment in the amount of should consult your tax advisor regarding the tax consequences of
the proceeds from the sale of their fractional shares in the merger to you.
the market.
Ownership of ChevronTexaco After the Merger
Example:
ChevronTexaco will issue approximately ____ million shares of
o If you own 10 shares of Texaco common stock, then after ChevronTexaco common stock to Texaco stockholders in the merger. The
the merger you will receive 7 shares of ChevronTexaco shares of ChevronTexaco common stock to be issued to Texaco
common stock and a cash payment for the sale proceeds for stockholders in the merger will represent approximately ___ percent
seven-tenths of one share of ChevronTexaco common stock, of the outstanding ChevronTexaco common stock after the merger. This
rounded to the nearest one cent. The value of the stock information is based on the number of Chevron and Texaco shares
that you will receive will change as the price of outstanding on __________ __, 2001 and does not take into account
ChevronTexaco common stock changes after the merger. stock options or other equity-based awards or any other shares which
may be issued before the merger as allowed by the merger agreement.
o On ______ __, 2001, the last per-share price of Chevron
common stock on the New York Stock Exchange Consolidated Stockholder Vote Required to Approve the Merger, the Common Stock
Tape was $_____. Applying the 0.77 exchange ratio to this Issuance and the Name Change
Chevron price, holders of Texaco common stock would be
entitled to receive ChevronTexaco common stock with a For Chevron stockholders: Approval of the common stock issuance
market value of approximately $_____ for each share of in the merger requires the affirmative vote of a majority of the
Texaco common stock. However, the market prices for Texaco votes cast for or against the common stock issuance, provided that
and Chevron common stock are likely to change before the the total number of votes cast for or against the common stock
merger. You are urged to obtain current price quotes for issuance represents at least a majority of Chevron's outstanding
Texaco and Chevron common stock. See "Risk Factors" on shares. Approval of the name change requires the affirmative vote
page 13 for more information about the exchange ratio. of a majority of the outstanding shares of Chevron common stock.
As of the record date, Chevron's directors, executive officers and
The shares of ChevronTexaco common stock will be listed their affiliates beneficially
on the New York Stock Exchange under the ticker symbol "CHV."
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owned in the aggregate less than 1 percent of Chevron's Accounting Treatment (see pages 27 and 28)
outstanding common stock entitled to vote at the Chevron
stockholders meeting. We expect the merger to qualify as a "pooling-of-interests." This
means that we will treat our companies as if they had always been
For Texaco stockholders: Approval of the merger requires combined for accounting and financial reporting purposes.
the affirmative vote of a majority of the outstanding
shares of Texaco common stock. As of the record date, Conditions to Completion of the Merger (see page 70)
Texaco's directors, executive officers and their affiliates
beneficially owned in the aggregate less than 1 percent of The completion of the merger depends upon meeting a number of
Texaco's outstanding common stock entitled to vote at the conditions, including the following:
Texaco stockholders meeting.
o approval of the merger agreement and the merger by the
Appraisal Rights Are Not Available stockholders of Texaco;
(see page 30)
o approval of the issuance of common stock in the merger by the
The holders of Chevron and Texaco common stock do not Chevron stockholders;
have any right to an appraisal of the value of their
shares in connection with the merger. o expiration or termination of the relevant waiting period under the
Hart-Scott-Rodino Act;
Board of Directors of ChevronTexaco and Related Matters
After the Merger (see page 27) o approval by the European Commission of the merger;
Following the merger, the board of directors of ChevronTexaco o absence of any law or court order prohibiting the merger;
will have 15 members, of whom six must be persons who are
Texaco directors designated by Texaco and reasonably o receipt of a letter from the independent accountants of Chevron
acceptable to Chevron. The remainder of the board will reconfirming their concurrence with Chevron's management that
be current Chevron directors. Mr. Glenn F. Tilton, Chairman "pooling-of-interests" accounting treatment for the merger is
of Texaco, will become a Vice Chairman of ChevronTexaco. In appropriate;
addition, at least one Texaco designee will be appointed to
each committee of the board of directors of ChevronTexaco. o receipt of a letter from the independent accountants of Texaco
reconfirming their concurrence with Texaco's management that
The Interests of Texaco Directors and Officers in the Merger Texaco is eligible to participate in a "pooling-of-interests"
May Differ from Your Interests (see page 47) transaction;
When you consider the Texaco board's recommendation that o receipt of opinions of Chevron's and Texaco's counsel that the
Texaco stockholders vote in favor of the merger, you should merger will qualify as a tax-free reorganization;
be aware that a number of Texaco directors and officers may
have interests in the merger that may be different from, or o absence of a material adverse effect on Chevron or Texaco during
in addition to, yours. For instance, as described on page 47, the period from October 15, 2000 until the closing of the merger;
after the merger, some Texaco officers will become
executives of ChevronTexaco and other Texaco officers will o material accuracy as of closing of the representations and
receive benefits under severance agreements. warranties made by Chevron and Texaco, respectively;
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o absence of any proceedings seeking to limit Chevron's The Merger Agreement May Be Terminated
ownership of Texaco or to compel divestiture of assets, (see page 71)
in either case that would be reasonably likely to result
in a material adverse effect on ChevronTexaco; and Either Chevron or Texaco can terminate the merger agreement if any
of the following occurs:
o receipt of all material regulatory approvals for the
merger on terms that are not reasonably likely to result o we do not complete the merger by the end date, October 15, 2001;
in a material adverse effect on ChevronTexaco. however, that date will be extended to April 15, 2002 if the
reason for not closing by October 15, 2001 is that the regulatory
We Have Not Yet Obtained All Required Regulatory Approvals conditions specified in the merger agreement have not been
satisfied;
Under the Hart-Scott-Rodino Act, the merger cannot be
completed until after we have given to the Federal Trade o Chevron or Texaco stockholders do not give the required approvals;
Commission information requested by its staff, and a
required waiting period has expired or been terminated. We o a law or court order permanently prohibits the merger; or
are in the process of gathering the information that the
FTC staff has requested. The FTC has the authority to o a material breach by the other party of the representations and
challenge the merger on antitrust grounds by seeking a warranties in the merger agreement which is not cured.
federal court order enjoining the transaction pending an
administrative hearing. In addition, Texaco can terminate the merger agreement if the
Chevron board changes its recommendation of the common stock
On March 1, 2001 the European Union announced that it issuance and the name change to its stockholders in a manner adverse
had approved the merger. to Texaco, and Chevron can terminate the merger agreement if the
Texaco board changes its recommendation of the merger to its
The merger is also subject to regulatory review in stockholders in a manner adverse to Chevron.
jurisdictions other than the U.S. and the EU.
Neither party can terminate the merger agreement for the reasons
Chevron and Texaco are working to obtain the required described in the first bullet above if the merger has not closed
regulatory approvals and consents. However, we can give no because that party is in material breach of its obligations
assurance as to when or whether any of these approvals and under the merger agreement.
consents will be obtained or the terms and conditions
that may be imposed. Finally, the boards of Chevron and Texaco can mutually agree to
terminate the merger agreement even if the merger has been approved
We anticipate that the FTC will require asset by their stockholders.
dispositions as a condition of not challenging the merger.
While the scope and method of these dispositions are unknown Fees May Be Payable On Termination
at this time, we do anticipate being required to make (see pages 71 and 72)
divestitures of Texaco's interests in two joint ventures
involved in the United States refining, marketing and Texaco must pay Chevron a termination fee of $500 million in cash
transportation businesses in order to address market if the merger agreement is terminated in any of the following
concentration concerns. circumstances:
As described beginning on page 70, Chevron and Texaco are
not required to close the merger unless the regulatory
conditions to completion of the merger are satisfied.
-6-
o the Texaco board fails to recommend the merger or We Have Granted Each Other Stock Options
recommends a superior offer to its stockholders,
In connection with the merger agreement, Chevron and Texaco entered
o Texaco stockholders do not approve the merger and prior into a stock option agreement under which Texaco granted to Chevron
to the Texaco stockholders' meeting a proposal by a third an option to purchase a number of shares approximately equal to
party for an alternative transaction was made to Texaco or 19.9 percent of the number of outstanding shares of Texaco's common
its stockholders, or stock, at a price of $53.71 per share. The number of shares subject
to the option and the option price per share are subject to
o a proposal by a third party for an alternative transaction adjustment. The option is exercisable under the same circumstances
was made to Texaco or its stockholders and the merger in which Texaco is required to pay to Chevron the termination fee
agreement is thereafter terminated because the merger is referred to above. This stock option agreement is attached as Annex
not completed by the October 15, 2001 or April 15, 2002 B. We encourage you to read this agreement.
end date.
In connection with the merger agreement, Texaco and Chevron entered
Texaco must pay Chevron an additional termination fee of into a stock option agreement under which Chevron granted to Texaco
$500 million in cash if Texaco agrees to an alternative an option to purchase a number of shares approximately equal to
transaction or consummates an alternative transaction within 19.9 percent of the number of outstanding shares of Chevron's common
12 months after the termination. stock, at a price of $85.96 per share. The number of shares subject
to the option and the option price per share are subject to
Chevron must pay Texaco a termination fee of $500 million adjustment. The option is exercisable under the same circumstances
in cash if the merger agreement is terminated in any of the in which Chevron is required to pay to Texaco the termination fee
following circumstances: referred to above. This stock option agreement is attached as Annex
C. We encourage you to read this agreement.
o the Chevron board fails to recommend the common stock
issuance or the name change or recommends a superior Market Price Information
offer to its stockholders,
Shares of each of Chevron and Texaco common stock are traded on the
o Chevron stockholders do not approve the common stock New York Stock Exchange. On October 13, 2000, the last trading day
issuance and prior to the Chevron stockholders' meeting before the public announcement of the merger, Chevron common stock
a proposal by a third party for an alternative transaction closed at $84.25 per share and Texaco common stock closed at
was made to Chevron or its stockholders, or $55.125 per share. Based on the Texaco common stock exchange ratio,
0.77, the pro forma equivalent per share value of the Texaco common
o a proposal by a third party for an alternative stock on October 13, 2000 was equal to approximately $64.87 per
transaction was made to Chevron or its stockholders and share. On ______, 2001 Chevron common stock closed at $_____ per
the merger agreement is thereafter terminated because the share and Texaco common stock closed at $_____ per share. The pro
merger is not completed by the October 15, 2001 or forma equivalent per share value of the Texaco common stock on
April 15, 2002 end date. _______, 2001 was approximately $_____ per share.
Chevron must pay Texaco an additional termination fee of
$500 million in cash if Chevron agrees to an alternative
transaction or consummates an alternative transaction
within 12 months after the termination.
-7-
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
How We Prepared the Financial Statements
We are providing the following information to aid you in your analysis of
the financial aspects of the merger. We derived this information from the
audited financial statements of Chevron and Texaco for the years 1996 through
2000. The financial statements also reflect the consolidation of entities
commonly owned by Chevron and Texaco, primarily Caltex. The information is only
a summary, and you should read it together with our historical financial
statements and related notes contained in the annual reports and other
information that we have filed with the SEC and incorporated by reference. See
"Where You Can Find More Information" on page 85.
Pooling-of-Interests Accounting Treatment
We expect that the merger will be accounted for as a
"pooling-of-interests." This means that, for accounting and financial reporting
purposes, we will treat our companies as if they had always been combined. For a
more detailed description of pooling-of-interests accounting, see "The Merger
Transaction--Accounting Treatment" on pages 27 and 28.
We have presented unaudited pro forma condensed combined financial
information that reflects the pooling-of-interests method of accounting to give
you a better picture of what our businesses might have looked like had they been
combined since January 1, 1998. We prepared the unaudited pro forma condensed
combined statements of income and unaudited pro forma condensed combined balance
sheet by adding or combining the historical amounts of each company. The
accounting policies of Chevron and Texaco are substantially comparable.
Consequently, we did not make adjustments to the unaudited pro forma condensed
combined financial statements to conform the accounting policies of the
combining companies. Additionally, we did not make adjustments to the unaudited
pro forma condensed combined financial statements to reflect the effect of any
asset dispositions that may be required by order of regulatory agencies.
The companies may have had different financial results had they always been
combined. You should not rely on the unaudited pro forma condensed combined
financial information as being indicative of the historical results that would
have been achieved had our companies always been combined or of the future
results that we will experience after the merger. See "Unaudited Pro Forma
Condensed Combined Financial Statements" on page 59 for more information.
Merger-Related Expenses
We estimate that merger-related fees and expenses, consisting primarily of
SEC filing fees, fees and expenses of investment bankers, attorneys and
accountants, and financial printing and other related charges, will total
approximately $125 million. See note 5 on pages 61 and 62 for more information
about merger-related expenses.
Integration-Related Expenses
Though not yet fully quantified, significant costs will be incurred for
employee severance and other integration-related expenses, including the
elimination of duplicate facilities, operational realignment and workforce
reductions. These expenditures are necessary to reduce the costs of ongoing
operations and to operate more effectively. These amounts will be charged to
operations in the appropriate periods and, therefore, are not reflected in the
unaudited pro forma condensed combined financial statements. See note 5 on pages
61 and 62 for more information about integration-related expenses.
Periods Covered
The unaudited pro forma condensed combined statements of income combine
Chevron's and Texaco's results for the years ended December 31, 2000, 1999 and
1998, giving effect to the merger as if it had occurred on January 1, 1998. The
unaudited pro forma condensed combined balance sheet combines the balance sheets
of Chevron and Texaco as of December 31, 2000, giving effect to the merger as if
it had occurred on December 31, 2000.
-8-
SELECTED HISTORICAL FINANCIAL DATA
Selected Historical Financial Data of Chevron
The selected historical financial data for each of the years ended December
31, 1996 through 2000 have been derived from Chevron's audited consolidated
financial statements. This information is only a summary and you should read it
together with Chevron's historical financial statements and related notes
contained in the annual reports and other information that we have filed with
the SEC and incorporated by reference into this joint proxy
statement/prospectus. See "Where You Can Find More Information" on page 85.
Years Ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(millions of dollars, except per-share
amounts)
Sales and other operating revenues*............... $50,592 $35,448 $29,943 $40,596 $42,782
Net income ....................................... 5,185 2,070 1,339 3,256 2,607
Net income per common share:
Basic......................................... 7.98 3.16 2.05 4.97 3.99
Diluted....................................... 7.97 3.14 2.04 4.95 3.98
Cash dividends per common share................... 2.60 2.48 2.44 2.28 2.08
* Includes consumer excise taxes.................. 4,060 3,910 3,756 5,587 5,202
At December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total assets ..................................... $41,264 $40,668 $36,540 $35,473 $34,854
Long-term debt and capital lease obligations..... 5,153 5,485 4,393 4,431 3,988
-9-
Selected Historical Financial Data of Texaco
The selected financial information for each of the years ended December 31,
1996 through 2000 have been derived from Texaco's audited consolidated financial
statements. This information is only a summary and you should read it together
with Texaco's historical financial statements and related notes contained in the
annual reports and other information that Texaco has filed with the SEC and
incorporated by reference into this joint proxy statement/prospectus. See "Where
You Can Find More Information" on page 85.
Years Ended December 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(millions of dollars, except per-share amounts)
Sales and services revenues.................... $50,100 $34,975 $30,910 $45,187 $44,561
Income
Before cumulative effect of accounting
changes................................... 2,542 1,177 603 2,664 2,018
Cumulative effect of accounting changes...... -- -- (25) -- --
Net income..................................... 2,542 1,177 578 2,664 2,018
Preferred stock dividend requirements.......... 15 29 54 56 58
Net income available for common stock.......... 2,527 1,148 524 2,608 1,960
Income per common share--basic*
Before cumulative effect of accounting
changes................................... 4.66 2.14 1.04 4.99 3.77
Cumulative effect of accounting changes...... -- -- (0.05) -- --
Net income--basic............................... 4.66 2.14 0.99 4.99 3.77
Income per common share--diluted*
Before cumulative effect of accounting
changes................................... 4.65 2.14 1.04 4.87 3.68
Cumulative effect of accounting changes...... -- -- (0.05) -- --
Net income--diluted............................. 4.65 2.14 0.99 4.87 3.68
Cash dividends per common share*............... 1.80 1.80 1.80 1.75 1.65
* Reflects two-for-one stock split effective September 29, 1997.
At December 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total assets................................... $30,867 $28,972 $28,570 $29,600 $26,963
Long-term debt and capital lease obligations... 6,815 6,606 6,352 5,507 5,125
-10-
Selected Unaudited Pro Forma Combined Financial Data
The following selected unaudited pro forma combined financial data have
been derived from and should be read together with the unaudited pro forma
condensed combined financial statements and related notes on pages 55 through
62. This information is based on the historical consolidated balance sheets and
related historical consolidated statements of income of Chevron and Texaco,
giving effect to the merger using the pooling-of-interests method of accounting
for business combinations. The financial statements also reflect the
consolidation of entities commonly owned by Chevron and Texaco, primarily
Caltex. We did not make adjustments to the unaudited pro forma condensed
combined financial statements to reflect the effect of any asset dispositions
that may be required by order of regulatory agencies. This information is
included for illustrative purposes only. The financial results may have been
different had the companies actually been combined during the periods.
You should not rely on the selected unaudited pro forma combined financial
data as being indicative of the historical results that would have been achieved
had the companies always been combined or the future results that the combined
company will experience after the merger.
Years Ended December 31,
--------------------------------------------
2000 1999 1998
---- ---- ----
(millions of dollars, except per-share
amounts)
Sales and other operating revenues*....... $ 117,074 $ 83,431 $ 71,345
Net income................................ 7,727 3,247 1,917
Net income per common share
Basic................................... 7.22 3.01 1.75
Diluted................................. 7.21 3.00 1.75
Cash dividends per common share........... 2.50 2.43 2.40
* Includes consumer excise taxes.......... 6,601 6,029 5,930
At December 31,
2000
------------------------
Total assets........................................ $ 77,319
Long-term debt and capital lease obligations........ 12,821
-11-
Comparative Per Share Data
Set forth below are the net income, cash dividends and book value per
common share data separately for Chevron and Texaco on a historical basis, for
ChevronTexaco on a pro forma combined basis and on a pro forma combined basis
per Texaco equivalent share. The exchange ratio of the business combination is
0.77 shares of ChevronTexaco common stock for each share of Texaco common stock.
The ChevronTexaco pro forma data was derived by combining the historical
consolidated financial information of Chevron and Texaco, using the
pooling-of-interests method of accounting for business combinations as described
under "Unaudited Pro Forma Condensed Combined Financial Statements" beginning on
page 55.
The Texaco equivalent-share pro forma information shows the effect of the
merger from the perspective of an owner of Texaco common stock. The information
was computed by multiplying the ChevronTexaco pro forma information by the
exchange ratio of 0.77.
You should read the information below together with the historical
financial statements and related notes contained in the annual reports and other
information filed with the SEC and incorporated by reference. See "Where You Can
Find More Information" on page 85. The unaudited pro forma combined data below
is for illustrative purposes only. The financial results may have been different
had the companies actually been combined during the periods. We did not make
adjustments to the unaudited pro forma condensed combined financial statements
to reflect the effect of any asset dispositions that may be required by order of
regulatory agencies.
You should not rely on this information as being indicative of the
historical results that would have been achieved had the companies always been
combined or of the future results that the combined company will experience
after the merger.
Years Ended December 31,
--------------------------------
2000 1999 1998
---- ---- ----
Chevron historical per common share data:
Net income-- basic......................... $ 7.98 $ 3.16 $ 2.05
Net income-- diluted....................... 7.97 3.14 2.04
Cash dividends ............................ 2.60 2.48 2.44
Book value at end of period................ 31.08 27.04 26.08
ChevronTexaco pro forma combined per ChevronTexaco
common share data:
Net income-- basic......................... $ 7.22 $ 3.01 $ 1.75
Net income-- diluted....................... 7.21 3.00 1.75
Cash dividends ............................ 2.50 2.43 2.40
Book value at end of period................ 30.97
Texaco historical per common share data:
Net income-- basic......................... $ 4.66 $ 2.14 $ 0.99
Net income-- diluted....................... 4.65 2.14 0.99
Cash dividends ............................ 1.80 1.80 1.80
Book value at end of period................ 24.30 21.59 21.24
ChevronTexaco pro forma combined per Texaco
equivalent common share data:
Net income-- basic......................... $ 5.56 $ 2.32 $ 1.35
Net income-- diluted....................... 5.55 2.31 1.35
Cash dividends ............................ 1.93 1.87 1.85
Book value at end of period................ 23.84
-12-
RISK FACTORS
In addition to the other information that we have included and incorporated
by reference in this joint proxy statement/prospectus, you should carefully read
and consider the following factors in evaluating the proposals to be voted on at
the special meetings of Chevron and Texaco stockholders.
The value of the merger consideration that Texaco stockholders will receive may
decline and will depend on the market value of Chevron common stock at the
effective time of the merger.
In the merger, Texaco stockholders will receive 0.77 shares of Chevron
common stock in exchange for each of their shares of Texaco common stock. The
market value of Chevron common stock is likely to vary between the date of this
proxy statement/prospectus and the effective time of the merger and may decline.
Because the value of the merger consideration depends on the market value of
Chevron common stock at the effective time of the merger, the value of the
merger consideration that Texaco stockholders will receive in the merger cannot
now be determined. This market value may be less than or greater than $____ per
share of Texaco common stock, which is the value of the merger consideration
based upon the closing Chevron common stock price on the NYSE of $_____ on
________ __, 2001, the last full trading day prior to the date of this joint
proxy statement/prospectus. If the market value of Chevron common stock declines
prior to the effective time of the merger, then the value of the merger
consideration to be received by the holders of Texaco common stock in the merger
will correspondingly decline. The merger agreement does not allow Texaco to
terminate the merger agreement because of a decline in the price of Chevron
common stock. After the merger, the market value of ChevronTexaco common stock
will undoubtedly also change over time. Detailed information about various
factors which may contribute to changes in securities prices of Chevron and
Texaco is contained in their filings with the SEC.
Because the exchange ratio is not subject to adjustment for changes in the price
of Chevron or Texaco common stock, the fixed exchange ratio may be less
favorable to Chevron or Texaco stockholders on the closing date than it was when
the merger agreement was approved.
Texaco stockholders will receive 0.77 shares of Chevron common stock for
each of their shares of Texaco common stock on the closing date of the merger.
This exchange ratio will not be adjusted for changes in the market price of
Chevron common stock or Texaco common stock. In the event the value of Chevron
common stock declines in relation to the value of Texaco common stock prior to
the closing date, the fixed ratio will be less favorable to Texaco stockholders
than it was at the time Credit Suisse First Boston rendered its opinion on the
exchange ratio to Texaco's board of directors and the Texaco board approved the
merger. On the other hand, in the event the value of Chevron common stock
increases in relation to the value of Texaco common stock prior to the closing
date, the fixed ratio will be less favorable to Chevron stockholders than it was
at the time Lehman Brothers rendered its opinion on the exchange ratio to
Chevron's board of directors and the Chevron board approved the merger.
Any delay in the consummation of the merger could diminish the benefits of the
merger.
The merger is conditioned upon the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Act. In addition, other
filings with, notifications to and authorizations and approvals of, various
governmental agencies in numerous other countries with respect to the merger
relating primarily to antitrust issues must be made and received prior to the
consummation of the merger. We cannot predict how long it will take for us to
satisfy regulatory requirements. A long delay will have an adverse financial
impact on ChevronTexaco to the extent that cost savings and other benefits that
we expect from the merger are foregone or deferred.
Divestitures or other restrictions ordered by government agencies may have an
adverse effect on the combined company.
As in any large transaction, it is possible that governmental agencies may
seek restrictions on the combined operations of Chevron and Texaco, including
divestitures, as a condition to obtaining the required regulatory approvals. Any
such restrictions on operations or divestitures could diminish the benefits of
the merger to Chevron and Texaco to the extent they adversely affect the
operations of the combined company. In particular, we anticipate
-13-
that divestiture of Texaco's investments in its United States downstream
affiliates, Equilon and Motiva, will be required as a condition of approval of
the merger. We have assumed their divestiture in estimating merger synergies.
However, under the circumstances of a required divestiture, the terms of which
have not yet been negotiated with regulatory authorities, we may realize
substantially less value for these assets than if they were retained for sale
without conditions imposed on the timing and manner of sale. Texaco has held
discussions with Shell and Saudi Refining, its joint venture partners in Equilon
and Motiva, regarding such a transaction. However, we cannot predict what value
we might receive in exchange for these interests in the event such a disposition
is ordered. If we are required to divest these or any other assets on
unfavorable terms, the combined company may be adversely affected.
The deal-protection provisions of the merger agreement may deter alternative
business combinations and could negatively impact the stock price of either
company in the event it terminates the merger agreement.
As a result of the provisions of the ChevronTexaco agreements, it is
possible that a third party who might be interested in submitting a business
combination proposal to either or both of Chevron and Texaco will be discouraged
from doing so. Any such proposal might be advantageous to the stockholders of
Chevron and Texaco relative to the terms and conditions of the transaction
described in this joint proxy statement/prospectus. In particular, the
termination fee provisions of the merger agreement and the reciprocal stock
options Chevron and Texaco have granted each other may deter third parties from
proposing alternative business combinations that might result in greater value
to stockholders than the merger. In addition, in the event the merger is
terminated by Chevron or Texaco in circumstances that obligate it to pay a
termination fee to the other company, the other company's stock option will
become exercisable. If this occurs, the terminating company's stock price may
decline as a result of the termination fee and because the existence of the
stock option could prevent it from accounting for alternative business
combinations as a pooling-of-interests. See "The Merger Agreement--Termination
of the Merger Agreement" and "--Stock Option Agreements" for more information.
The anticipated benefits of the merger may be more costly to realize than
expected or may not be realized within the anticipated time frame or at all.
The success of the merger will depend, in part, on the ability of
ChevronTexaco to realize the anticipated synergies, cost savings and growth
opportunities from integrating the businesses of Chevron and Texaco. If the
combined company is not able to realize the anticipated synergies, cost savings
and growth opportunities, the market value of ChevronTexaco stock may be
adversely impacted. ChevronTexaco's success in realizing these synergies, cost
savings and growth opportunities, and the timing of this realization, depends on
the successful integration of Texaco's operations into Chevron. Even if Chevron
and Texaco are able to integrate their business operations successfully, this
integration may not result in the realization of the full benefits of the
synergies, cost savings and growth opportunities that both companies currently
expect to result from this integration or that these benefits will be achieved
within the anticipated time frame. For example, the elimination of significant
duplicative costs may not be possible or may take longer than anticipated; the
benefits from the merger may be offset by costs incurred in integrating the
companies; and regulatory authorities may impose adverse conditions on the
combined businesses, such as divestiture of product lines, in connection with
granting approval of the merger.
-14-
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains or incorporates by reference
forward-looking statements that have been made in reliance on the provisions of
the Private Securities Litigation Reform Act of 1995 and speak only as of the
date of this joint proxy statement/prospectus. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are not historical facts, but simply reflect our
current expectations, estimates and projections. Forward-looking statements are
subject to risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
You should not depend on these forward-looking statements as reliable
predictions of future events.
You should understand that the following important factors, in addition to
those discussed elsewhere in this document and in the documents which are
incorporated by reference, could affect the future results of Chevron and
Texaco, and of ChevronTexaco after the merger, and could cause those results or
other outcomes to differ materially from those expressed in our forward-looking
statements:
Economic and Industry Conditions Political/Governmental Factors
o materially adverse changes in economic, financial o political instability or civil unrest in the
or industry conditions generally or in the markets areas of the world relating to our operations
served by our companies o political developments and laws and
o the competitiveness of alternative energy sources regulations, such as forced divestiture of
or product substitutes assets, restrictions on production or on imports
o actions of competitors or exports, price controls, tax increases and
o crude oil and natural gas prices retroactive tax claims, expropriation of assets,
o refining and marketing margins cancellation of contract rights, and
o petrochemicals prices and competitive conditions environmental laws or regulations
affecting supply and demand for chemical products,
including aromatics, olefins and additives products o potential liability for remedial actions under
o changes in demographics and consumer preferences environmental regulations and litigation
Transaction or Commercial Factors Operating Factors
o the outcome of negotiations with partners, o potential failure to achieve expected
governments, suppliers, unions, customers or others production from existing and future oil and gas
o our ability to successfully integrate the development projects
operations of Chevron and Texaco after the merger o potential delays in the development,
and to minimize the diversion of management's construction or start-up of planned projects
attention and resources during the integration o successful introduction of new products
process o labor relations
o the process of, or conditions imposed in o accidents or technical difficulties
connection with, obtaining regulatory approvals for o changes in operating conditions and costs
the merger o weather and natural disasters
Advances in Technology
o oil, natural gas and petrochemical project
advancement
o the development and use of new technology by us
or our competitors
-15-
THE MERGER
General
Chevron's board of directors is using this joint proxy statement/prospectus
to solicit proxies from the holders of Chevron common stock for use at the
Chevron meeting. Texaco's board of directors is also using this document to
solicit proxies from the holders of Texaco common stock for use at the Texaco
meeting.
Chevron Proposals
At the Chevron meeting, holders of Chevron common stock will be asked to
vote upon:
o approval of the proposed issuance of ChevronTexaco common stock in
connection with the merger; and
o approval of the amendment of Chevron's restated certificate of
incorporation to change Chevron's name to "ChevronTexaco
Corporation."
Texaco Proposals
At the Texaco meeting, holders of Texaco common stock will be asked to vote
upon approval and adoption of the merger agreement and the merger.
Background of the Merger
Against a backdrop of industry consolidations, Chevron and Texaco entered
into a confidentiality agreement on February 5, 1999 for the purpose of
facilitating discussions concerning a potential business combination. These
discussions took place principally between Kenneth Derr, who was then the
Chevron Chairman and CEO, and Peter Bijur, who was then the Texaco Chairman and
CEO. On May 28, 1999, Chevron proposed a transaction in which each Texaco share
would be exchanged for 0.765 of a Chevron share. The discussions were terminated
by Texaco on June 2, 1999 following press reports that merger negotiations had
occurred. In deciding to terminate these discussions, Texaco's board concluded
that the proposed combination with Chevron was not compelling in terms of
creating value for Texaco's stockholders. The board's decision was based upon
its evaluation at that time of the price and terms being offered, particularly
in the context of Texaco's expectation of its ability to create stockholder
value by executing its strategic plan. The board concluded at that time that
Texaco could satisfactorily grow shareholder value as an independent entity.
Chevron expressed its disappointment at the termination of merger discussions,
but did not amend its proposal or otherwise seek to keep the discussions alive.
In February 2000, Chevron and Texaco undertook a joint study of their
investment in Caltex Corporation. Mr. Bijur and David O'Reilly, who had
succeeded Mr. Derr as Chevron's Chairman and CEO, jointly oversaw the review. On
May 19, 2000, Mr. Bijur met privately with Mr. O'Reilly in San Francisco to
discuss the Caltex study and to schedule a further meeting on that subject for
June 2, 2000. In the course of the private meeting, Mr. Bijur indicated a
willingness to begin new discussions with Chevron regarding a potential business
combination.
Following the May 19, 2000 meeting, Mr. O'Reilly engaged Chevron's staff to
work with outside financial and legal advisors to develop a recommendation to be
presented to Chevron's board of directors at its meeting on May 31, 2000. During
the week of May 22, 2000, John Watson, a Chevron Vice President, and Bill
Wicker, a Texaco Senior Vice President, together with other Chevron and Texaco
employees, had three conference calls to discuss potential synergies in a
Chevron-Texaco business combination. At the board meeting, Mr. O'Reilly sought
and obtained approval to negotiate a combination with Texaco.
Messrs. O'Reilly and Watson met with Messrs. Bijur and Wicker in New York
on June 2, 2000. At the meeting, Mr. O'Reilly outlined terms of a proposed
business transaction. Pursuant to Chevron's proposal, Texaco would become a
Chevron subsidiary through a merger in which each Texaco share would be
exchanged for 0.75 share of Chevron. Chevron would rename itself ChevronTexaco,
but remain headquartered in San Francisco. Texaco Chairman and CEO Peter Bijur
would become a Vice Chairman of ChevronTexaco. The transaction would
-16-
be conditioned on pooling accounting, and regulatory and stockholder
approvals. Mr. Bijur, in response to the terms outlined by Mr. O'Reilly, then
proposed an exchange ratio in the range of 0.76 and 0.77. Mr. O'Reilly indicated
that Chevron could get within that range. A working-level meeting was scheduled
to explore issues arising from this proposal.
On June 7, 2000, Mr. Watson and Mr. Wicker met in Dallas, accompanied by a
number of internal and external advisors. The participants discussed possible
regulatory issues arising out of a business combination including what should
happen in the likely event that antitrust authorities would not permit the
combined company to retain both Chevron's and Texaco's United States
"downstream" (petroleum refining and marketing) businesses. Chevron's U.S.
downstream business is wholly-owned, while Texaco's consists principally of
interests in two joint venture companies, Equilon Enterprises LLC and Motiva
Enterprises LLC. Equilon is a joint venture with Shell Oil Company and Motiva is
a joint venture with Shell and Saudi Refining, Inc. Chevron and Texaco
ultimately concluded that it would likely be necessary for Texaco to divest its
interests in both Equilon and Motiva to satisfy the competitive concerns that
regulatory authorities would likely raise. The conclusion that a divestiture of
the U.S. refining, marketing and transportation businesses would likely be
required was formulated after reviewing with counsel potential antitrust
objections to the merger, based on FTC reviews of the BP/Amoco, BP/Arco and
Exxon/Mobil transactions and the market concentration that the FTC would likely
deem to result from the merger. Because ChevronTexaco would own a substantial
share of Equilon and Motiva, the parties expected that the FTC would likely
analyze the merger as the combination of Chevron's downstream business with the
Equilon and Motiva downstream businesses, even if those operations remain
operationally separate. In prior industry transactions, the FTC had been
concerned that the divested assets remain viable competitors in the marketplace.
Since a divestiture of Texaco's ownership in Equilon and Motiva would be of
equity interests, not of isolated assets or business lines, the parties expected
that this divestiture would address these concerns. In addition, such a
divestiture would leave intact Chevron's own refining and marketing system, a
strategic consideration for Chevron.
On June 12, 2000, Mr. O'Reilly, accompanied by an outside legal advisor,
met in New York with Mr. Bijur, accompanied by Mr. Wicker and Deval Patrick,
then Texaco's general counsel. The participants reviewed the progress made at
the June 7th meeting, and continued to discuss the proposed transaction. Texaco
representatives expressed concerns about the expected complexity of the
transaction and the length of time it might take to complete, and also expressed
a desire to discuss with Shell the potential effect of a merger on Equilon and
Motiva. Mr. Bijur also indicated nevertheless that he would discuss the Chevron
proposal with the Texaco board later that month.
On June 23, 2000, Texaco management reviewed for the Texaco board the
consolidations in the petroleum industry and the decreasing opportunities Texaco
might have to acquire other oil and gas or energy companies. Management reviewed
its long-term strategic plan and described the factors that could cause Texaco
to succeed or fail to achieve its strategic objectives. Management also reviewed
Texaco's prospects as an independent company as well as the strategic rationale
for a merger with Chevron. Management described the terms of the Chevron
proposal and presented a preliminary financial analysis relating to the
combination. On the basis of its analysis of these factors, the board indicated
a willingness to continue merger discussions with Chevron.
Following the Texaco board meeting, Mr. Bijur telephoned Mr. O'Reilly to
report that the Texaco board had expressed a desire for additional information
regarding the potential divestitures of the joint ventures and had recommended
that Mr. Bijur meet with Shell. On June 26, 2000, legal representatives of
Chevron and Texaco had a teleconference to discuss issues related to the joint
ventures. Mr. O'Reilly reported the developments to the Chevron Board at its
meeting on June 28, 2000.
On July 3, 2000, Mr. Bijur and Glenn Tilton, then a Senior Vice President
of Texaco, met in London with Mark Moody-Stuart, Chairman of the Royal
Dutch/Shell Group and Paul Skinner, CEO of Oil Products for Shell. They
discussed, among other things, the fact that Texaco was considering a merger
which would likely require divestiture of its interests in the joint ventures
and whether, under those circumstances, Shell might be interested in acquiring
those interests.
Representatives of Texaco and Chevron and some of their outside advisors
met on July 13, 2000 in New York to discuss potential alternative approaches to
handling the issues relating to Equilon and Motiva. At the
-17-
meeting, representatives of Texaco proposed the use of a liquidating trust
to hold the Equilon and Motiva interests if, as expected, they became the
subject of a divestiture order as a result of antitrust review of the
transaction.
On July 27, 2000, representatives of Texaco and Shell met in New York to
discuss specifically the terms upon which Shell might acquire Texaco's interest
in Equilon (it was agreed that there would be no conversations regarding Motiva
without Saudi Refining, Inc.'s participation).
On August 16, 2000, Mr. Bijur met with Mr. Abdullah S. Jum'ah, President &
CEO of Saudi Arabian Oil Company, an affiliate of Saudi Refining, Inc. Mr. Bijur
told Mr. Jum'ah that Texaco was contemplating a transaction which might affect
Texaco's interests in Motiva and Equilon. He discussed the fact that a
preliminary meeting had been held with Shell regarding possible alternatives
regarding Equilon and suggested a three way meeting.
On September 6, 2000, Messrs. Bijur and O'Reilly met to consider further
the terms of the proposed merger and discussed an exchange ratio of .77 of a
Chevron share for each Texaco share along with the other terms that had been
previously discussed. Following the meeting, Mr. O'Reilly instructed the Chevron
staff and outside advisors to prepare draft agreements embodying the terms
discussed at the meeting on September 6, 2000.
On September 9, 2000, Mr. Bijur met with Mr. Jum'ah and Mr. Moody-Stuart in
Saudi Arabia. During the course of that meeting it was agreed that Texaco and
Shell would try to come to agreement regarding Equilon assuming Texaco were to
divest its interests in Equilon and Motiva. Meanwhile, Saudi Refining, Inc. and
Shell would meet to discuss views regarding Motiva going forward, with the
intent being that once a basis had been agreed for Equilon, the three companies
would move on to address Motiva.
On September 15, 2000, the Texaco board of directors met and Mr. Bijur
described his discussions with Chevron's representatives with respect to the
principal terms of the proposed merger. Mr. Bijur also described the status of
discussions with the Equilon and Motiva joint venture partners. Following the
meeting, Mr. Bijur telephoned Mr. O'Reilly to indicate that the Texaco board had
authorized management to enter into negotiations with Chevron and requested that
Chevron tender draft agreements. Chevron's legal advisers then circulated to
Texaco a draft merger agreement embodying the terms that had been discussed and
other terms customary to merger agreements of this type, including forms of
common deal protections such as a "no shop" clause and breakup fees. Chevron
also requested that Texaco grant Chevron an option to purchase the maximum
number of shares of Texaco stock that Texaco could issue without stockholder
approval. A draft stock option agreement with these terms was included in the
package circulated to Texaco.
On September 20, 2000, Chevron sent Texaco a list of requested due
diligence materials. Based on this list, the parties exchanged background
information on various aspects of their businesses. In essence, these materials
confirmed assessments obtained from the publicly available information that had
been used by both sides and their advisers in evaluating the potential
transaction or estimates of potential merger synergies.
On September 21, 2000, representatives of Chevron and its legal advisors
met in New York with representatives of Texaco and its legal advisors. At the
meeting, the Texaco representatives provided preliminary comments on the initial
draft agreements. To help provide certainty of closing, Texaco wanted Chevron to
agree that the Texaco companies holding the joint venture interests could be
placed in a liquidating trust if divestiture were mandated but no agreement had
been reached for the disposition of the joint venture interests. Texaco also
expressed concerns about granting a nonreciprocal stock option to Chevron.
On September 26, 2000, at a meeting of the Chevron board of directors in
Caracas, Venezuela, the status of negotiations was discussed and Lehman Brothers
advised the board that as of that date the proposed exchange ratio was fair,
from a financial point of view, to Chevron.
On September 29, 2000, Texaco's legal advisors distributed to Chevron and
its legal advisors an initial draft of a trust agreement to address Texaco's
concerns about Equilon and Motiva.
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On October 3, 2000, the respective legal teams met again in New York to
discuss the various draft agreements in detail. Texaco's counsel provided more
detailed comments on the earlier Chevron drafts and further explained Texaco's
position on the liquidating trust. Revised drafts of the merger and stock option
agreements were prepared and distributed by Chevron's counsel on October 6,
2000. The revised drafts incorporated the concept of the liquidating trust and
also provided for reciprocal stock options.
On October 10, 2000, Texaco and Chevron executives, other employees,
counsel and financial advisors met by teleconference for approximately half a
day to conduct confirmatory due diligence for the transaction. The session was
primarily in question-and-answer format, and covered the key aspects of the
business of each company, including corporate structure, the exploration and
production businesses, the refining and marketing businesses, the gas and power
businesses, a financial review, a discussion of material pending legal
proceedings and a description of human resources matters. Some follow-up
questions, mostly related to the international upstream business, were responded
to in the following days.
Beginning on October 11, 2000, counsel for Chevron and Texaco met again in
New York to review and negotiate the draft agreements. During these meetings,
numerous points still outstanding relating to the respective representations,
warranties, covenants and agreements of Chevron and Texaco were resolved subject
to ultimate approval of the boards of directors of Chevron and Texaco. Revised
drafts were prepared, circulated and reviewed by counsel during the remainder of
the week.
On October 14, 2000, Mr. O'Reilly and Mr. Bijur, together with other senior
executives of Chevron and Texaco and their respective staff and advisors, met in
New York to review merger communications issues. On the same day and through the
following morning, counsel to Chevron and Texaco resolved remaining documentary
issues.
On October 15, 2000, the board of directors of Texaco held a special
meeting to consider the proposed transaction. At this meeting, the board
reviewed the progress of the negotiations with Chevron as well as the status of
discussions with the Equilon and Motiva joint venture partners. Texaco's legal
advisors discussed with the board its fiduciary duties under Delaware law and
described the terms of the proposed merger agreement, stock option agreements
and trust agreement and responded to questions from directors. Texaco's
financial advisor, Credit Suisse First Boston, presented a summary of its
financial analyses relating to the proposed merger and delivered its opinion
that as of that date the proposed exchange ratio was fair to the holders of
Texaco common stock from a financial point of view. Following discussions, the
board approved the merger agreement and the related agreements and the
transactions contemplated by those agreements and resolved to recommend that its
stockholders vote to approve the merger agreement.
On the same day, the Chevron board met in San Francisco, with Mr. O'Reilly
participating by telephone from New York. The board reviewed information that
had been provided to the directors in advance of the meeting by Chevron's
counsel and financial advisors, and both counsel and financial advisors were
present with Mr. O'Reilly and provided additional advice to the board. Mr.
O'Reilly reviewed the course of the merger negotiations and led the discussion
of the issues related to the merger. At the meeting, Lehman Brothers delivered
its opinion that as of that date the exchange ratio was fair, from a financial
point of view, to Chevron. Following the discussion, the board approved the
entry into the merger agreement and related transaction documents and resolved
to recommend that its stockholders vote to approve the issuance of common stock
and the change in the company's name under the merger agreement.
Following the Texaco and Chevron board meetings, Mr. O'Reilly and Mr.
Bijur, accompanied by other senior executives of Chevron and Texaco, and by
their respective legal and financial advisors, met in New York on October 15,
2000 to execute the merger agreement and related transaction documents.
Our Reasons for the Merger
By joining Chevron and Texaco we will create a U.S.-based, global
enterprise that we believe will rank with the world's largest and most
competitive international energy companies and will be highly competitive across
all energy sectors. As separate companies, Chevron and Texaco are leading energy
companies with positive
-19-
prospects for the future; however, we believe that a combined Chevron and
Texaco will create greater value for the stockholders of both companies than we
could deliver as separate companies.
Simply stated, and as described in more detail below, we believe that by
combining Chevron and Texaco we can save money, increase profits and returns and
reduce risk. In addition, the combined company will have greater financial,
technological, and human resources. All of this will better position us to
compete effectively with our global competitors.
The benefits that we expect to realize by combining Chevron and Texaco
depend, in part, on our ability to successfully integrate the operations of the
two companies. It is possible that the expected benefits may not be fully
realized or that these expected benefits may not be realized in a timely or
cost-effective manner. You should review the risk factors beginning on page 13
for a discussion of the risks associated with ChevronTexaco not fully or timely
realizing the expected benefits of the merger.
ChevronTexaco will be positioned for stronger financial returns than could
be achieved by either Chevron or Texaco on its own. We believe that these
stronger returns will be achieved partly through significant cost savings, but
also because we will be able to pursue our business from a much broader base of
quality assets, skills and technology. ChevronTexaco will have the financial
resources to fund the best growth opportunities of both companies. As a result,
we believe this merger will help us accomplish our combined goal: to be first in
our industry in total stockholder return.
Chevron has set a goal of being number one in its industry peer group in
total stockholder return for the five-year period January 1, 2000 through
December 31, 2004. For the period beginning January 1, 2000 through October 15,
2000, the day prior to the merger announcement, Texaco and Chevron ranked third
and fourth, respectively, among their industry peer group which includes Royal
Dutch/Shell, ExxonMobil and BP Amoco. For the period beginning January 1, 2000
through March 31, 2001, Texaco and Chevron ranked first and second,
respectively, in total stockholder return among the same peer group. The
experience of the last several years has demonstrated, in the opinion of
Chevron's and Texaco's management, that investors believe that the so-called
"super-majors," Royal Dutch/Shell, ExxonMobil and BP Amoco, deserve a higher
relative valuation, as measured by price to earnings (P/E) ratios and other
measures. Analyst commentaries suggest that this is due in part to the larger
companies' ability to achieve higher rates of return on capital employed, which
is commonly referred to as ROCE. Over time, we believe that the combined
company will be able to generate higher ROCE than either company on a standalone
basis, as a result of improved capital efficiency through funding the best
growth opportunities of both companies. We believe that following the merger,
ChevronTexaco will be able to generate merger synergies that will help
ChevronTexaco to better compete with its competitors in earnings growth, ROCE,
and total shareholder return.
We believe the combined company will have the strength and resources to
compete more effectively with our largest competitors and succeed around the
globe. ChevronTexaco will have
o world-class positions in reserves, production and exploration
opportunities;
o an integrated, worldwide refining and marketing business;
o a global chemicals business (principally through Chevron Phillips
Chemical Company, a recently formed joint venture with Phillips Petroleum
Company);
o expanded growth opportunities in natural gas and power; and
o industry leading skills in technology innovation.
We believe that the benefits of the merger will be realized in many
different areas:
o Significant cost savings: We believe that the combined company can
operate more efficiently than can either individual company.
Specifically, we expect that the merger will reduce our combined costs
by at least $1.2 billion per year and that this reduction will be
realized within six to nine months of the merger's completion. Based on
integration planning efforts to date, we continue to expect that these
cost savings will be realized. However, as discussed in the risk factors
beginning on page 13, these
-20-
cost savings are dependent, in part, on the timely and cost-effective
integration of the two companies. We expect that the historic
associations and strategic compatibility of Chevron and Texaco will
enable rapid integration of the two companies. The most significant
savings, approximately $700 million, will come from more efficient
exploration and production activities, but other areas will contribute
as well, including some $300 million from the consolidation of corporate
functions and $200 million from other operations. We anticipate that the
combined workforce of about 57,000 will be reduced by approximately
seven percent worldwide.
o Leadership position in exploration and production (or "Upstream"): We
expect the combined company to be a premier global competitor in the
exploration and production of petroleum and natural gas, with a
significantly enhanced leadership position in most of the world's major
and emerging exploration and producing areas. In addition, Chevron and
Texaco have complementary positions in many promising geographical areas,
as well as overlap and synergy in many of the mature and large
exploration and production operations around the world. For example:
o ChevronTexaco will have world-class reserves and growth
opportunities in both west Africa and the Caspian region,
where, in the latter case, the new company will be the
largest producer.
o The combined company will have a superior exploration
acreage position in promising deepwater areas in West
Africa, Brazil and the U.S. Gulf of Mexico.
o The combination will significantly strengthen positions in core
producing areas in North America and the North Sea.
o The combination will create an outstanding portfolio of
growth opportunities in Latin America and the Asia-Pacific
region.
o On a worldwide basis, the new company will hold the fourth
largest oil and gas reserve position, with reserves of
11.5 billion barrels of oil equivalent, and will be the
fourth largest producer, with a daily production of 2.7
million barrels.
o In the United States, ChevronTexaco will be the nation's
third largest producer of oil and gas, with production of
1.1 million barrels of oil equivalent per day, and will
hold the nation's third largest reserve position, with 3.9
billion barrels of proved reserves.
o Worldwide petroleum refining and marketing (or "downstream") platform:
ChevronTexaco will create a worldwide business built around three
well-recognized, international brands: Chevron, Texaco and Caltex. By
integrating the operations of Caltex, a 65-year international refining
and marketing joint venture between Chevron and Texaco, the combined
company will be able to realize efficiencies from streamlined
decision-making and management. The merger also allows the combined
company to take a worldwide approach to lubricants (including the
well-known quality lubricants brands Havoline and Delo), trading,
international markets and customers, and to expand on the existing fuels
and marine marketing joint venture. In addition, the brand presence of
the combined company may help facilitate new activities and entries
in other areas, including the upstream, and the gas and power businesses
in Asia, Latin America and Europe.
o Strength and scale in chemicals: The chemicals business of the
combined company will mainly consist of Chevron's recently formed
50/50 joint venture, Chevron Phillips Chemical Company. With more
than $6 billion in assets and $6 billion in annual revenues,
Chevron Phillips Chemical Company has a strong, global position in
three primary chemical products: olefins, polyolefins and
aromatics.
o Power generation: Texaco's power and gasification (the conversion
of low-grade liquid petroleum products to useful gas products)
business, with equity interests in 3,500 megawatts of power
operating or under construction, and Chevron's 26 percent stake in
Dynegy, Inc., give the combined company more options in the
fast-growing power and energy convergence businesses.
-21-
o Broad technology portfolio: The merger will strengthen the new
company's technologies in its core businesses by bringing together
specialized expertise from the two companies. The combined
company will also have a broader portfolio in advanced technologies,
e-business ventures and alternate energy, such as fuel cells and
gas-to-liquids conversion.
Chevron and Texaco are natural partners. We have a historic relationship
with each other and the operational fit of our companies is highly complementary
because we operate in many of the same areas in many of the same lines of
business. We know each other well, and we already have long, highly productive
experience working together in both the upstream and downstream, which we
believe will permit a smooth integration of the companies.
In addition, Chevron and Texaco share common corporate values. These values
include protection of the environment, active support for the communities where
we operate, and promoting diversity and opportunity in our workforce and among
our business partners.
Finally, we believe that ChevronTexaco will benefit from improved
organizational capability. The capabilities of the new company will be
strengthened by the combination of people from both Chevron and Texaco who have
the diverse skills, talent and vast experience to compete successfully in an
increasingly competitive industry. The merged company will also benefit from
proven leadership in many facets of the global, integrated energy business and a
track record of success in executing key strategies.
Recommendation of, and Factors Considered by, the Chevron Board
The Chevron board met on October 15, 2000 to consider and vote upon the
merger and related transactions. At this meeting, after due consideration, the
Chevron board:
o determined that the merger and other transactions contemplated by the
merger agreement, including the issuance of Chevron common stock in the
merger and the stock option agreements, are fair to, and in the best
interests of, Chevron and its stockholders;
o approved the merger agreement, the option agreements, related documents
and the transactions contemplated by those agreements and documents;
o approved and declared advisable the amendment of Chevron's restated
certificate of incorporation to change Chevron's name to "ChevronTexaco
Corporation"; and
o determined to recommend that the Chevron stockholders approve the
issuance of Chevron common stock in the merger and the proposed name
change amendment to the restated certificate of incorporation.
Accordingly, the Chevron board recommends that Chevron stockholders vote
for approval of (a) the proposed issuance of Chevron common stock in connection
with the merger and (b) the amendment of Chevron's restated certificate of
incorporation to change Chevron's name to "ChevronTexaco Corporation."
In reaching these decisions and recommendations, the Chevron board
considered and discussed the information provided to it at and prior to the
October 15 meeting, including presentations by Chevron's management, as well as
by Chevron's legal and financial advisors. The Chevron board considered the
following material factors in the context of information concerning Chevron's
and Texaco's respective businesses, financial performance and condition,
operations, management, competitive position, and stock performance:
o all of the reasons described under "Our Reasons for the Merger" beginning
on page 19;
o the exchange ratio being used in the merger and the resulting ownership
interest of approximately 61.1 percent in ChevronTexaco by Chevron's
current stockholders based upon the number of shares of Chevron and
Texaco common stock outstanding on October 15, 2000;
-22-
o the analyses and presentations of Lehman Brothers Inc. on the financial
aspects of the merger, and their written opinion, delivered October 15,
2000, that, as of that date, the exchange ratio in the merger was fair,
from a financial point of view, to Chevron;
o the corporate governance arrangements for the combined company, including
the fact that nine of the fifteen members of the board of directors of
the combined company will be Chevron directors prior to the merger and
the fact that David J. O'Reilly will be the Chairman and Chief Executive
Officer of the combined company and that Richard A. Matzke will be a
Vice Chairman of the combined company;
o the fact that the headquarters of the combined company will be in San
Francisco, California;
o the long-time associations between Chevron and Texaco, and their
knowledge of each other's business;
o the risks and potential rewards associated with, as an alternative to the
merger, continuing to execute Chevron's strategic plan as an independent
entity. These risks include, among others, those associated with
remaining independent amidst industry-wide consolidation, and the
rewards include the ability of existing Chevron stockholders to share
in the potential future growth and profits of Chevron;
o the feasibility of potential business combinations or joint
ventures with an entity other than Texaco and the conclusion that
a transaction with Texaco is more feasible, and is expected to
yield greater benefits, than the likely alternatives;
o current industry, economic and market conditions, including the
increased competitive position achieved by Exxon from its
acquisition of Mobil and by BP from its acquisitions of Amoco and
ARCO, and the higher trading multiples accorded to the equity of
the "super-majors" in the securities markets (BP Amoco,
ExxonMobil, and Royal Dutch/Shell), such as price-to-2001 estimated
earnings multiples, as of October 13, 2000, of 17.0 for BP Amoco, 21.7
for ExxonMobil and 18.8 for Royal Dutch/Shell as compared to 13.7 for
Chevron;
o our expectation that the merger will be a "tax-free reorganization" for
U.S. federal income tax purposes;
o our expectation that the merger will be accounted for as a
"pooling-of-interests," the potential restrictions on corporate
activities as a condition and consequence of pooling, and the letter
from PricewaterhouseCoopers LLP, as of October 15, 2000, concurring with
Chevron's conclusion that as of that date, no conditions existed that
would preclude accounting for the merger as a pooling-of-interests;
o our expectation that the merger will yield significant cost savings,
in part through an approximate 7% workforce reduction worldwide;
o the implications and potential advantages and disadvantages of the "deal
protection" provisions of the merger agreement, including "no
solicitation" clauses, breakup fees, stock options and a restriction
against terminating the agreement until it has been voted on by
stockholders and that these provisions allow Chevron to furnish
information to and conduct negotiations with third parties and also
allow the Chevron board, upon receipt of a superior proposal,
to change its recommendation to stockholders with respect to the merger;
and
o that the representations and warranties contained in the merger agreement
are generally reciprocal and qualified by what does not result in a
material adverse effect on either Chevron or Texaco.
The Chevron board also considered the potential adverse consequences of
other factors on the proposed merger, including:
o the risk of a prolonged delay between the signing of the merger agreement
and closing of the merger resulting from potential political and
regulatory obstacles typically associated with an antitrust review of a
significant transaction in the oil and gas sector;
-23-
o the likelihood that some significant divestitures will be required and
the risk that the circumstances of any such divestitures may not maximize
the value received for the divested assets;
o the existence of risks associated with unexpected difficulties in
integrating the two companies, disappointments in the quality of the
acquired assets or businesses, or material liabilities undetected in the
due diligence process;
o the risk of diverting management focus and corporate resources from other
strategic opportunities and operational matters for an extended period
of time; and
o the fact that the deal protection provisions of the merger
agreement could discourage alternative proposals being made for
Chevron and could prevent an alternative business combination with
Chevron from being accounted for as a pooling-of-interests (in
this regard, the board took into account the likelihood of a
proposal being made for Chevron, that the various provisions are
not unusual for transactions of this type and that the termination
fees were for amounts within a range that is customary).
This discussion of the information and factors considered by the Chevron
board is not intended to be exhaustive. In view of the wide variety of factors
considered in connection with its evaluation of the merger and the complexity of
these matters, the Chevron board did not quantify or otherwise assign relative
weights to the specific factors it considered. In addition, the Chevron board
did not undertake to make any specific determination as to whether any
particular factor, or any aspect of any particular factor, was favorable or
unfavorable to the board's ultimate determination or assign any particular
weight to any factor, but rather the board conducted an overall analysis of the
factors described above, including thorough discussions with and questioning of
Chevron's management and legal, financial and accounting advisors. In
considering the factors described above, individual members of the Chevron board
may have given different weights to different information and different factors.
The Chevron board considered this information and these factors as a whole, and
overall considered the relevant information and factors to be favorable to, and
in support of, its determinations and recommendations.
Recommendation of, and Factors Considered by, the Texaco Board
The Texaco board met on October 15, 2000 to consider and vote on the
merger. At this meeting, after due consideration, the Texaco board:
o determined that the merger and other transactions contemplated by
the merger agreement and the stock option agreements are fair to
and in the best interests of Texaco and its stockholders;
o approved the merger agreement, the option agreements, and the
transactions contemplated by those agreements; and
o determined to recommend that the Texaco stockholders approve the merger
agreement and the merger.
Accordingly, the Texaco board recommends that Texaco stockholders vote for
approval of the merger and the merger agreement.
In reaching its decision to approve and recommend the merger, the Texaco
board considered and discussed the information provided to it at and prior to
the October 15 meeting, including presentations by Texaco's management, as well
as by Texaco's legal and financial advisors. The Texaco board considered the
following material factors in the context of information concerning Texaco's and
Chevron's respective businesses, financial performance and condition,
operations, management, competitive position and stock performance:
o all of the reasons described under "Our Reasons for the Merger" beginning
on page 19;
o the risks associated with, as an alternative to the merger, continuing to
execute Texaco's strategic plan as an independent entity. The risks
included, among others:
-24-
o remaining independent amidst industry-wide consolidation;
o that the relative size, scale and scope of the operations of oil and
gas companies appeared to be making an increasing difference in
price/cash flow and price/earnings ratios, as well as to analysts and
investors;
o that historically low upstream prices might reoccur over the strategic
plan's period, which would make it difficult to reach plan objectives;
and
o that a delay in any of the company's upstream projects would likely
materially impact reaching plan objectives;
o the board's conclusion that the merger will result in a combined
company with the expanded scale, scope and growth opportunities
necessary to compete in the changed competitive landscape;
o the fact that since late 1998 Texaco had seriously considered an
acquisition of, or business combination with, several other
parties. Of these, three (including Chevron) would have resulted
in formation of a mega-major, one would have involved acquisition
of an independent upstream company and two would have resulted in
a sizeable expansion into the gas/power sectors. Discussions were
held with each of these potential partners, but no transaction
resulted with any party except Chevron;
o current industry, economic and market conditions, including the
increased competitive position achieved by Exxon from its
acquisition of Mobil and by BP from its acquisitions of Amoco and
ARCO, and the higher trading multiples accorded to the equity of
the "super-majors" in the securities markets, such as
price-to-2001 estimated earnings multiples, as of October 13, 2000, of
15.3 for BP Amoco, 19.2 for Exxon Mobil and 19.4 for Royal Dutch/Shell as
compared to 12.4 for Texaco, and price-to-2001 estimated cash flow
multiples, as of October 13, 2000, of 9.9 for BP Amoco, 12.3 for Exxon
Mobil and 11.9 for Royal Dutch/Shell as compared to 6.8 for Texaco;
o that the 0.77 exchange ratio provided for in the merger agreement
represented a 17.7 percent premium to the closing Texaco stock price on
October 13, 2000, a 25.3 percent premium to the average Texaco stock
price over the 30 days prior to the signing of the merger
agreement, and premiums ranging from 14.6 percent to 25.9 percent to the
average Texaco stock price over other periods ranging from one week to
three years;
o that Chevron had proposed an exchange ratio of 0.765 in 1999;
o that the premiums paid in comparable transactions reviewed by the
board, based on the last closing share price of the applicable
companies before the announcement or rumor of a transaction, ranged
from 23 percent to 33 percent;
o the resulting approximate 38.9 percent ownership interest in
ChevronTexaco by Texaco's current stockholders;
o the analyses and presentations of Credit Suisse First Boston on
the financial aspects of the merger, including the fact that the
0.77 exchange ratio was above or at the upper end of each exchange
ratio reference range implied by each financial analysis that
Credit Suisse First Boston presented, and Credit Suisse First
Boston's written opinion, delivered October 15, 2000, that, as of
that date, the exchange ratio was fair from a financial point of
view to the holders of Texaco common stock;
o the corporate governance arrangements for the combined company, including
that six Texaco designees will become directors of the combined company;
o our expectation that the merger will be a "tax-free reorganization" for
U.S. federal income tax purposes;
o our expectation that the merger will be accounted for as a
"pooling-of-interests," the potential restrictions on corporate
activities as a condition and consequence of pooling, and the
opinion of Arthur Andersen LLP, as of October 15, 2000, to the
effect that Texaco is eligible to participate in a transaction
accounted for as a pooling-of-interests;
-25-
o the potential effect of the "deal protection" provisions on
possible third party proposals to acquire Texaco after execution
of the merger agreement, including that if any third party made a
superior proposal, the Texaco board could provide information to
and engage in negotiations with that third party and decide not to
recommend the merger, but that the Texaco Board could not
terminate the merger agreement until it had been voted on by
stockholders;
o that while the termination payment provisions of the merger
agreement could have the effect of discouraging alternative
proposals for a business combination with Texaco and that the
stock option agreement could prevent an alternative business
combination with Texaco from being accounted for as a
pooling-of-interests, these provisions would not preclude bona
fide alternative proposals, and that the size of the termination
fee was reasonable in light of the size and benefits of the
transaction;
o the ability of Texaco generally to conduct its business in the ordinary
course pending closing under the terms of the merger agreement;
o the representations and warranties contained in the merger agreement are
generally reciprocal and qualified by an exception for matters that
would not result in a material adverse effect on either Chevron or
Texaco; and
o the long-time associations between Chevron and Texaco, and their
knowledge of each other's business.
The Texaco board also considered the potential adverse consequences of
other factors on the proposed merger, including:
o while the exchange ratio provided for in the merger agreement is
approximately the same as the exchange ratio proposed by Chevron
in 1999, the dollar value of the merger consideration is somewhat
less than the dollar value implied by the exchange ratio proposed
in 1999, as explained below. Notwithstanding this difference in
value, the board concluded that the merger was in the best
interests of Texaco's stockholders for the reasons stated above,
especially the recognition that industry consolidation made it
important to increase in size to sustain growth in stockholder value.
o based on Chevron's closing share price of $90.4375 on June 1, 1999
(the last trading day before the Texaco board considered Chevron's
1999 offer), the dollar value of the consideration implied by the
proposed ratio would have been $69.18 per share of Texaco stock.
Based on Chevron's closing share price of $84.25 on October 13,
2000 (the last trading day before the signing of the merger
agreement), the dollar value of consideration implied by the ratio
provided for in the merger agreement is $64.87. In either case,
the consideration actually to be received by the stockholders will
be determined by the Chevron share price on the merger date;
o the risk of a prolonged delay between the signing of the merger
agreement and closing of the merger resulting from potential
political and regulatory obstacles typically associated with an
antitrust review of a significant transaction in the oil and gas
sector;
o the likelihood that some significant divestitures will be required
and the risk that the circumstances of any such divestitures may
not maximize the value received for the divested assets;
o the existence of risks associated with unexpected difficulties in
integrating the two companies, disappointments in the quality of
Chevron's assets or businesses, or material liabilities undetected
in the due diligence process;
o the risk of diverting management focus and corporate resources from other
strategic opportunities and operational matters for an extended period
of time; and
o the interests that executive officers and directors of Texaco may
have with respect to the merger in addition to their interests as
stockholders of Texaco generally, as described more fully in
"Interests of Directors and Officers in the Merger" on page 47.
This discussion of the information and factors considered by the Texaco
board is not intended to be exhaustive. In view of the wide variety of factors
considered in connection with its evaluation of the merger and the complexity of
these matters, the Texaco board did not quantify or otherwise assign relative
weights to the specific
-26-
factors it considered. Individual members of the Texaco board may have
given different weights to different information and different factors. The
Texaco board considered this information and these factors as a whole, and
overall considered the relevant information and factors to be favorable to, and
in support of, its determinations and recommendations.
Directors of ChevronTexaco
Upon completion of the merger, the board of directors of ChevronTexaco will
be comprised of fifteen individuals, nine of whom will be directors of Chevron
prior to the merger and six of whom will be directors of Texaco prior to the
merger designated by Texaco. At least one Texaco designee will be appointed to
each committee of the board of directors of ChevronTexaco.
Principal Officers of ChevronTexaco
David J. O'Reilly will be the Chairman and Chief Executive Officer of
ChevronTexaco. Richard H. Matzke and Glenn F. Tilton will be Vice Chairmen.
Messrs. O'Reilly, Matzke and Tilton will form a newly created Office of the
Chairman, which will have oversight of the operations of ChevronTexaco.
Other Executive Officers of ChevronTexaco
Darry W. Callahan, currently Executive Vice President of Chevron, will
retain his responsibilities for technology, chemical additives and coal, plus
power and gasification as Executive Vice President, Power, Chemicals and
Technology of ChevronTexaco. Mr. Callahan will also have responsibility for
ChevronTexaco's interests in the Chevron Phillips Chemical Company joint
venture, Dynegy, Inc., and the Sasol/Chevron Gas-to-Liquids joint venture;
Harvey D. Hinman, Esq., currently Vice President and General Counsel of
Chevron, will be Vice President and General Counsel of ChevronTexaco;
George Kirkland, currently Vice President of Chevron and President of
Chevron U.S.A. Production Company, will be Vice President and President, North
America, of ChevronTexaco;
Peter J. Robertson, currently Vice President of Chevron and President of
Chevron Overseas Petroleum, will be Vice President and President, Overseas
Petroleum, of ChevronTexaco;
John S. Watson, currently Vice President, Finance and Chief Financial
Office of Chevron, will be Vice President, Finance and Chief Financial Officer
of ChevronTexaco; and
Patricia A. Woertz, currently Vice President of Chevron, and President,
Chevron Products Company, will lead ChevronTexaco's global downstream businesses
as Executive Vice President, Downstream, of ChevronTexaco.
Accounting Treatment
We expect that the merger will be accounted for under the
"pooling-of-interests" method under the requirements of Opinion No. 16 (Business
Combinations) of the Accounting Principles Board of the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board, and the
rules and regulations of the SEC.
Chevron has received a letter regarding pooling dated October 15, 2000 from
PricewaterhouseCoopers LLP, its independent accountants. The letter states that,
as of October 15, 2000, based on information provided to PricewaterhouseCoopers
LLP by Chevron and based on the Arthur Andersen LLP letter described below,
PricewaterhouseCoopers LLP concurred with Chevron's conclusion that no
conditions existed which would preclude Chevron from accounting for the merger
as a pooling-of-interests.
-27-
Texaco has received a letter regarding pooling dated October 15, 2000 from
Arthur Andersen LLP, its independent accounting firm. The letter states that, as
of October 15, 2000, Arthur Andersen LLP concurred with Texaco's conclusion that
Texaco is eligible to participate in a transaction to be accounted for as a
pooling-of-interests.
The receipt of letters from PricewaterhouseCoopers LLP and Arthur Andersen
LLP dated as of the closing date of the merger reconfirming their conclusions is
a condition to the closing of the merger.
Under the pooling-of-interests accounting method, the reported balance
sheet amounts and results of operations of the separate companies for prior
periods will be combined, reclassified and conformed, as appropriate, to reflect
the combined financial position and results of operations for ChevronTexaco. See
"Unaudited Pro Forma Condensed Combined Financial Statements" beginning on page
55.
Material Federal Income Tax Consequences of the Merger
The following discussion summarizes the opinions of McDermott, Will &
Emery, tax counsel to Chevron, and Davis Polk & Wardwell, tax counsel to Texaco
(together, "tax counsel"), dated as of the date of this joint proxy
statement/prospectus, as to the material federal income tax consequences of the
merger. We have filed these opinions with the SEC as exhibits to the
registration statement related to this joint proxy statement/prospectus. See
"Where You Can Find More Information" on page 85. It is a condition to the
obligations of Texaco and Chevron to complete the merger that on the closing
date each receive an additional legal opinion (the "closing date opinions") from
its tax counsel that the merger constitutes a tax-free reorganization, within
the meaning of Section 368 of the Internal Revenue Code of 1986, as amended, for
federal income tax purposes. Although the merger agreement allows us to waive
this condition to closing, Chevron and Texaco currently do not anticipate doing
so. If either of us does waive the condition that closing date opinions be
received, we will resolicit proxies and ask you to vote on the merger taking
this and all risks resulting to the stockholders from such a waiver into
consideration.
In delivering their opinions regarding the merger as of the date of this
joint proxy statement/prospectus, tax counsel have each relied, and in
delivering the closing date opinions, tax counsel will each rely, on
o representations and covenants made by Chevron and Texaco, including those
contained in certificates of officers of Chevron and Texaco, and
o specified assumptions, including an assumption regarding the completion
of the merger in the manner contemplated by the merger agreement.
In addition, in their opinions dated as of the date of this joint proxy
statement/prospectus, tax counsel have assumed, and tax counsel's ability to
provide the closing date opinions will depend on, the absence of changes in
existing facts or in law between the date of this joint proxy
statement/prospectus and the closing date. If any of those representations,
covenants or assumptions is inaccurate or if any such change in fact or law
occurs, then either or both tax counsel may not be able to provide the required
closing date opinions and the tax consequences of the merger could differ from
those described in the opinions that tax counsel have delivered. The Internal
Revenue Service may not adopt tax counsel's opinions and may adopt a contrary
position, which may be sustained by the courts. Neither Texaco nor Chevron
intends to obtain a ruling from the Internal Revenue Service with respect to the
tax consequences of the merger.
Based on the assumptions, representations and covenants described above, it
is the opinion of each tax counsel that the merger will qualify as a
reorganization under Section 368(a) of the Internal Revenue Code. The discussion
below assumes that the merger is treated in accordance with the opinions just
described and is based upon the Internal Revenue Code, the regulations
promulgated under the Internal Revenue Code, Internal Revenue Service rulings,
and judicial and administrative rulings in effect as of the date hereof, all of
which are subject to change, possibly with retroactive effect. The discussion
below does not address all aspects of federal income taxation that may be
relevant to a stockholder in light of the stockholder's particular circumstances
or to those Texaco stockholders subject to special rules, such as stockholders
who are not citizens or residents of the United States, stockholders that are
foreign corporations, foreign estates or foreign trusts, financial institutions,
tax-exempt organizations, insurance companies, dealers or brokers in securities,
stockholders who acquired their Texaco stock
-28-
upon the exercise of options or similar derivative securities or otherwise
as compensation or stockholders who hold their Texaco stock as part of a hedge,
appreciated financial position, straddle or conversion transaction. This
discussion assumes that Texaco stockholders hold their respective shares of
Texaco stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code.
Federal Income Tax Consequences to Chevron Stockholders. Holders of Chevron
stock will not recognize any gain or loss for federal income tax purposes as a
result of the merger.
Federal Income Tax Consequences to Texaco Stockholders. Holders of shares
of Texaco stock will (1) not recognize any gain or loss for federal income tax
purposes as a result of the exchange of their shares of Texaco stock for
ChevronTexaco common stock in the merger except with respect to cash received
instead of a fractional share of ChevronTexaco common stock and (2) have a tax
basis in the ChevronTexaco common stock received in the merger equal to the tax
basis of the Texaco stock surrendered in the merger less any tax basis of the
Texaco stock surrendered that is allocable to a fractional share of
ChevronTexaco common stock for which cash is received. The Texaco stockholders'
holding period with respect to the ChevronTexaco common stock received in the
merger will include the holding period of the Texaco stock surrendered in the
merger.
To the extent that a holder of shares of Texaco stock receives cash instead
of a fractional share of ChevronTexaco common stock, the holder will be required
to recognize gain or loss for federal income tax purposes, measured by the
difference between the amount of cash received and the portion of the tax basis
of the holder's shares of Texaco stock allocable to such fractional share of
ChevronTexaco common stock. This gain or loss will be a capital gain or loss and
will be a long-term capital gain or loss if the share of Texaco stock exchanged
for the fractional share of ChevronTexaco common stock was held continuously for
more than one year at the effective time of the merger.
Federal Income Tax Consequences to Texaco, Chevron and the Merger
Subsidiary. None of Chevron, Texaco, or the merger subsidiary will recognize
gain or loss for federal income tax purposes as a result of the merger.
We intend this discussion to provide only a summary of the material federal
income tax consequences of the merger. We do not intend that it be a complete
analysis or description of all potential federal income tax consequences of the
merger. In addition, we do not address tax consequences that may vary with, or
are contingent upon, a stockholder's particular circumstances. Moreover, we do
not address any non-income tax or any foreign, state or local tax consequences
of the merger. Accordingly, we strongly urge you to consult your tax advisor to
determine your United States federal, state, local or foreign income or other
tax consequences resulting from the merger, with respect to your individual
circumstances.
Regulatory Matters
U.S. Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the related rules, the merger may not be completed until
notifications have been given, information requested by the FTC has been
furnished to it and waiting period requirements have been satisfied. Chevron and
Texaco submitted these notifications on October 23 and October 24, 2000,
respectively. On October 25, 2000, we received an informal request for
additional information from the FTC, and commenced developing responsive
information and submitting it to the FTC on a voluntary basis. On November 17,
2000, Chevron voluntarily re-submitted its filing in order to provide the staff
of the FTC additional time to consider the information voluntarily provided by
Chevron and Texaco in advance of the staff's formulating a formal second request
for information. Chevron and Texaco received additional informal requests for
information on December 1, 2000. On December 15, 2000, the staff of the FTC
issued a formal second request for information. We are in the process of
responding to this request.
If the FTC believes that the merger would violate the federal antitrust law
by substantially lessening competition in any line of commerce affecting U.S.
consumers, the FTC has the authority to challenge the merger by seeking a
federal court order temporarily enjoining the transaction pending conclusion of
an administrative hearing. The FTC may also proceed with an administrative
proceeding if the injunction is denied, and if the merger is found to be
anticompetitive, challenge it after the fact. We can give no assurance that a
challenge to the merger will not be made or, if such a challenge is made, that
it would be unsuccessful. In addition, a number of state attorneys general
-29-
have indicated their intent to review the proposed merger and to coordinate
that review with the FTC. Expiration or termination of the HSR Act waiting
period is a condition to the merger. See "The Merger Agreement--Conditions to
the Completion of the Merger" on page 70.
We anticipate that the FTC will require asset dispositions as a condition
of not challenging the merger. While the scope and method of such dispositions
are unknown at this time, we do anticipate being required to make divestitures
of United States refining, marketing and transportation businesses in order to
address market concentration concerns. We believe that we will be able to
resolve these concerns by the disposition of Texaco's interests in Equilon and
Motiva.
European Union. On March 1, 2001, the European Union announced that it had
approved the merger.
Other Laws. Chevron and Texaco conduct operations in a number of
jurisdictions where other regulatory filings or approvals are required or
advisable in connection with the completion of the merger. We have made filings
in some jurisdictions and are currently in the process of reviewing whether
other filings or approvals may be required or desirable in other jurisdictions.
We recognize that some of these filings may not be completed before the closing,
and that some of these approvals, which are not as a matter of practice required
to be obtained prior to effectiveness of a merger transaction, may not be
obtained prior to the closing.
General. It is possible that governmental entities having jurisdiction over
Chevron and Texaco may seek regulatory concessions as conditions for granting
approval of the merger. If any regulatory body's approval contains terms which
would be reasonably likely to result in a material adverse effect on
ChevronTexaco after the closing, Chevron or Texaco can decline to close under
the merger agreement. We can give no assurance that the required regulatory
approvals will be obtained on terms that satisfy the conditions to closing of
the merger or within the time frame contemplated by Chevron and Texaco. See "The
Merger Agreement--Conditions to the Completion of the Merger" on page 70.
Appraisal Rights
Holders of Chevron common stock and Texaco common stock are not entitled to
appraisal rights under Delaware law in connection with the merger. Appraisal
rights under Delaware law are not available in connection with the merger
because the shares of ChevronTexaco common stock that Texaco stockholders will
be entitled to receive in the merger will be listed on the New York Stock
Exchange at the closing and because Texaco common stock was traded on the New
York Stock Exchange as of the record date.
Federal Securities Laws Consequences; Stock Transfer Restriction Agreements
This joint proxy statement/prospectus does not cover any resales of the
ChevronTexaco common stock to be received by the stockholders of Texaco upon
completion of the merger, and no person is authorized to make any use of this
joint proxy statement/prospectus in connection with any such resale.
All shares of ChevronTexaco common stock received by Texaco stockholders in
the merger will be freely transferable, except that shares of ChevronTexaco
common stock received by persons who are deemed to be "affiliates" of Texaco
under the Securities Act of 1933, as amended, at the time of the Texaco meeting
may be resold by them only in transactions permitted by Rule 145 under the 1933
Act or as otherwise permitted under the 1933 Act. Persons who may be deemed to
be affiliates of Texaco for such purposes generally include individuals or
entities that control, are controlled by or are under common control with Texaco
and include directors and some of the executive officers of Texaco. The merger
agreement requires Texaco to use its reasonable best efforts to cause each of
such affiliates to execute a written agreement to the effect that such persons
will not sell, transfer or otherwise dispose of any of the shares of
ChevronTexaco common stock issued to them in the merger in violation of the 1933
Act or the related SEC rules.
In addition, each of the directors and some of the executive officers of
Chevron and Texaco are expected to execute written agreements prohibiting them
from selling, transferring or otherwise disposing of, or acquiring or selling
any options or other securities relating to, securities of Chevron or Texaco
that would be intended to reduce
-30-
the individual's risk relative to, any shares of Chevron common stock or
Texaco common stock beneficially owned by him or her during the period,
beginning 30 days prior to the closing and ending at such time as financial
results covering at least 30 days of combined operations of Chevron and Texaco
have been publicly released by ChevronTexaco after the merger.
-31-
OPINIONS OF FINANCIAL ADVISORS
We each retained our own financial advisor to assist us and our boards of
directors in the consideration of valuation, financial and other matters
relating to the merger. Chevron retained Lehman Brothers Inc. as its financial
advisor and Texaco retained Credit Suisse First Boston Corporation as its
financial advisor.
Opinion of Chevron's Financial Advisor
General. Lehman Brothers has acted as financial advisor to Chevron in
connection with the merger. On October 15, 2000, Lehman Brothers rendered its
opinion to the Chevron board of directors that as of such date, from a financial
point of view, the exchange ratio to be paid by Chevron to Texaco stockholders
in the merger was fair to Chevron.
The full text of the Lehman Brothers opinion dated October 15, 2000 is
included as Appendix D to this joint proxy statement/prospectus. Holders of
Chevron common stock may read the Lehman Brothers opinion for a discussion of
the factors considered, assumptions made and qualifications of the review
undertaken by Lehman Brothers in connection with its opinion.
Lehman Brothers' advisory services and opinion were provided for the
information and assistance of the Chevron board of directors in connection with
its consideration of the merger. Lehman Brothers' opinion is not a
recommendation to any stockholder of Chevron as to how such stockholder should
vote with respect to the merger. Lehman Brothers was not requested to opine as
to, and its opinion does not address, Chevron's underlying business decision to
proceed with or effect the merger.
In arriving at its opinion, Lehman Brothers reviewed, among other things:
o the merger agreement and specific terms of the merger;
o publicly available information concerning Chevron and Texaco
that Lehman Brothers believed to be relevant to its analysis,
including Annual Reports on Form 10-K for the fiscal year
ended December 31, 1999 and Quarterly Reports on Form 10-Q for
the quarters ended March 31 and June 30, 2000;
o financial and operating information with respect to the
business, operations and prospects of Chevron furnished to
Lehman Brothers by Chevron, including the amounts and timing
of the cost savings and operating synergies which management
of Chevron estimates will result from a combination of the
businesses of Chevron and Texaco;
o the trading histories of Chevron's common stock and Texaco's
common stock from September 22, 1999 to October 13, 2000 and a
comparison of these trading histories with each other and with
those of other companies that Lehman Brothers deemed relevant;
o a comparison of the historical financial results and present
financial condition of each of Chevron and Texaco with each
other and with those of other companies that Lehman Brothers
deemed relevant;
o a comparison of the financial terms of the merger with the financial
terms of a number of other transactions that Lehman Brothers deemed
relevant;
o the potential pro forma impact of the merger on the future financial
performance of Chevron (including the expected cost savings and
synergies);
o the relative contributions of Chevron and Texaco to the historical and
future financial performance of the combined company on a pro forma
basis; and
o the pro forma impact on the combined company of the potential divestiture
of Texaco's two domestic downstream businesses in connection with the
merger.
-32-
In addition, Lehman Brothers had discussions with the managements of Texaco
and Chevron concerning their respective businesses, operations, assets,
financial conditions and prospects and undertook such other studies, analyses
and investigations as Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information. With respect to information regarding Chevron, Lehman Brothers
relied upon the assurances of the management of Chevron that they were not aware
of any facts or circumstances that would make such information inaccurate or
misleading. In arriving at its opinion, Lehman Brothers did not rely upon
financial forecasts or business plans of Chevron and Texaco prepared by
management of Chevron or Texaco. Accordingly, with the consent of Chevron,
Lehman Brothers assumed that the published estimates of third-party research
analysts were a reasonable basis upon which to evaluate the future financial
performance of Chevron and Texaco and that Chevron and Texaco would perform
substantially in accordance with such estimates. Upon the advice of Chevron,
Lehman Brothers also assumed that the amounts and timing of the expected cost
savings and operating synergies were reasonable and that the cost savings would
be realized substantially in accordance with such estimates. In arriving at its
opinion, Lehman Brothers did not conduct a physical inspection of the properties
and facilities of Chevron or Texaco. Lehman Brothers also did not make or obtain
any evaluations or appraisals of the assets or liabilities of Chevron or Texaco.
Upon advice of Chevron, Lehman Brothers assumed that the merger will qualify (a)
for pooling-of-interests accounting treatment and (b) as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and therefore as a tax-free transaction to the stockholders of Texaco. Lehman
Brothers' opinion was necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, October 15, 2000.
In arriving at its opinion, Lehman Brothers did not ascribe a specific
range of value to Chevron or Texaco, but rather made its determination as to the
fairness to Chevron, from a financial point of view, of the exchange ratio to be
offered to Texaco's stockholders in the merger on the basis of financial and
comparative analyses described below. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances, and therefore, such an opinion is not readily
susceptible to summary description. Furthermore, Lehman Brothers did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. In particular, with regard to the comparable company and
comparable transaction analyses summarized below, because of the inherent
differences between the businesses, operations, financial conditions and
prospects of Chevron and Texaco and the businesses, operations, financial
conditions and prospects of the companies included in their comparable company
group and in the comparable transaction group, Lehman Brothers believed that it
was inappropriate to rely solely on the quantitative results of the analysis.
Accordingly, Lehman Brothers also made qualitative judgments concerning
differences between the financial and operating characteristics of Chevron,
Texaco and the companies in their respective comparable company groups and in
the comparable transaction analysis that would affect the public trading values
of Chevron, Texaco and the comparable companies. These judgments, based on
Lehman Brothers' own experience, involve complex considerations of general
economic, market and financial conditions as well as considerations of the
business, operations and market positions of some or all of the companies in the
comparable companies group and comparable transactions group. Because these
judgments and considerations vary from company to company, Lehman Brothers did
not discuss with the board of directors of Chevron each qualitative judgment or
consideration made with respect to each of the companies included in the
comparable companies group and comparable transactions group. Accordingly,
Lehman Brothers believes that its analyses must be considered as a whole and
that considering any portion of such analyses and factors, without considering
all analyses and factors as a whole, could create a misleading or incomplete
view of the process underlying its opinion. In its analyses, Lehman Brothers
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the control
of Chevron and Texaco. None of Chevron, Texaco, Lehman Brothers or any other
person assumes responsibility if future results are materially different from
those discussed. Any estimates contained in these analyses were not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth in the analyses. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
-33-
The following is a summary of the material financial analyses prepared and
used by Lehman Brothers in connection with rendering its opinion to the Chevron
board of directors. Some of the summaries of the financial and comparative
analyses include information presented in tabular format. In order to fully
understand the methodologies used by Lehman Brothers and the results of its
financial and comparative analyses, the tables must be read together with the
text of each summary. The tables alone do not constitute a complete description
of the financial and comparative analyses. Accordingly, the information
presented in the tables and described below must be considered as a whole.
Considering any portion of such analyses and of the factors considered, without
considering all analyses and factors as a whole, could create a misleading or
incomplete view of the process underlying Lehman Brothers' opinion.
Valuation Analysis
Lehman Brothers performed a valuation analysis of Chevron and Texaco using
the following methodologies: comparable company trading analysis; comparable
transaction analysis; discounted cash flow analysis; and segment valuation
analysis. Each of these methodologies was used to generate a reference
enterprise value range for Chevron and Texaco. The enterprise value ranges were
adjusted for relevant on and off balance sheet assets and liabilities to arrive
at an equity value range (in aggregate dollars and dollars per share). The per
share equity value ranges were then used to determine implied exchange ratio
ranges.
Summary descriptions of each of the valuation methodologies noted above
and the implied exchange ratio ranges derived using each methodology are
included in the following table. This table should be read together with the
more detailed descriptions set forth below. Considering the exchange ratios
without considering the narrative description of the financial analyses,
including the assumptions underlying these analyses, could create a misleading
or incomplete view of the process underlying, and conclusions represented by,
Lehman Brothers' opinion.
Summary Description of Valuation
Valuation Methodology Methodology Implied Exchange Ratio
----------------------------------- ------------------------------------------ ---------------------------
Comparable Company Trading Analysis Market valuation benchmark based on the 0.71 -- 0.75
common stock trading multiples of selected
comparable companies
Comparable Transaction Analysis Market valuation benchmark based on the 0.72 -- 0.78
consideration paid in selected comparable
precedent transactions
Discounted Cash Flow Analysis Net present valuation of after-tax cash 0.71 -- 0.73
flows (based on third-party research
analyst projections) using various discount
rates and terminal value multiples and
selected hydrocarbon pricing scenarios
Segment Valuation Analysis Build up of total enterprise value based on 0.74 -- 0.80
the separate valuation of each of the
business segments of the two companies;
those separate segment valuations are based
on the three methodologies highlighted
above (comparable company trading analysis,
comparable transaction analysis, and
discounted cash flow analysis)
-----------------------------------------------------------------------------------------------------------------------
Implied Range 0.71 -- 0.80
-----------------------------------------------------------------------------------------------------------------------
The Exchange Ratio in the Merger 0.77
-----------------------------------------------------------------------------------------------------------------------
In conducting each of the analyses detailed in the above table, Lehman
Brothers performed the same type of analysis with respect to both Chevron and
Texaco. No additional premium was added to the Texaco valuations in
-34-
any analysis to reflect the fact that Chevron is acquiring control of
Texaco in the merger and that Chevron could thus expect to pay a control premium
to Texaco stockholders. Lehman Brothers noted that some of the valuations
supported the exchange ratio without incorporation of such a control premium.
Lehman Brothers took into consideration that by incorporating a control premium
into the Texaco valuations, the resulting implied exchange ratios, in Lehman
Brothers' judgment, supported its opinion regarding the fairness, from a
financial point of view, of the exchange ratio to Chevron.
Comparable Company Trading Analysis. With respect to each of Chevron and
Texaco, using publicly available information, Lehman Brothers compared selected
financial data of each company with similar data of selected
large-capitalization domestic and international integrated oil and gas
companies. For each of these companies, Lehman Brothers calculated and analyzed
the common equity market value multiples of various projected financial criteria
based upon published analyst estimates of net income and discretionary cash flow
for the years 2000 and 2001. Lehman Brothers also calculated and analyzed the
ratio of enterprise value to earnings before interest, taxes, depreciation,
amortization and exploration expense, commonly referred to as EBITDAX for the
years 2000 and 2001. The enterprise value of each company was obtained by adding
long-term debt to the sum of the market value of its common equity, the value of
its preferred stock, and the book value of any minority interest minus the cash
balance. The companies and their multiples of common equity market value to net
income, or p/e ratio, based on consensus earnings estimates for the years 2000
and 2001, are detailed in the following table:
2000E 2001E
Company P/E Ratio P/E Ratio
------------------------------------------------------ ------------- ------------
Exxon Mobil Corporation 20.6x 21.7x
Royal Dutch Petroleum Company/The Shell Transport and
Trading Company, p.l.c. 17.7x 18.8x
TOTAL Fina Elf S.A. 17.3x 16.4x
BP Amoco p.l.c. 15.2x 17.0x
Chevron Corporation 12.1x 13.7x
Texaco Inc. 11.5x 13.2x
Eni S.p.A. 9.8x 10.7x
Conoco Inc. 9.8x 10.7x
Phillips Petroleum Company 9.5x 10.5x
Repsol YPF, S.A. 9.4x 9.5x
USX Corporation-Marathon Group 7.6x 9.1x
Amerada Hess Corporation 7.0x 9.0x
Occidental Petroleum Corporation 5.8x 6.9x
This methodology yielded an implied exchange ratio range of 0.71 - 0.75.
Comparable Transaction Analysis. Lehman Brothers reviewed publicly
available information related to the following selected recent corporate merger
transactions involving large-capitalization integrated oil and gas companies:
Transaction Announcement Date
------------------------------------------------------ -----------------------
The British Petroleum Company p.l.c./Amoco Corporation 8/11/98
Exxon Corporation/Mobil Corporation 12/1/98
TOTAL S.A./PetroFina S.A. 12/1/98
BP Amoco p.l.c./Atlantic Richfield Company 4/1/99
TOTAL Fina S.A./Elf Aquitaine S.A. 7/6/99
For each transaction, Lehman Brothers calculated equity and enterprise value
multiples based on net income, discretionary cash flow and EBITDAX. This
methodology yielded an implied exchange ratio range of 0.72 - 0.78.
-35-
Discounted Cash Flow Analysis. Lehman Brothers prepared after-tax
discounted cash flow models for both Chevron and Texaco utilizing third-party
research analyst projections. Discount rates of 8 percent - 10 percent and
terminal value EBITDAX multiples of 8.0x to 9.0x were used to generate a range
of enterprise values, equity values and equity values per share for each of
Chevron and Texaco. This methodology yielded an implied exchange ratio of 0.71 -
0.73. However, because of the subjectivity inherent in the assignment of
discount rates to projected cash flows and multiples to derive terminal values,
Lehman Brothers believed that it was inappropriate to and therefore did not,
rely solely on the quantitative results of the discounted cash flow analysis.
Segment Valuation Analysis. Lehman Brothers performed a comparable company
trading analysis, a comparable transactions analysis and a discounted cash flow
analysis for each of the business segments of Chevron and Texaco. Lehman
Brothers segmented Chevron and Texaco along the operating segment categories
that appear in each of Chevron and Texaco's respective Forms 10-K for the fiscal
year ended December 31, 1999. For each segment, a different group of comparable
companies and comparable transactions was examined. In addition, different
discount rates and terminal multiples were used in the discounted cash flow
analysis. The segment enterprise value ranges calculated were added together to
calculate an enterprise value range for each of Chevron and Texaco. The segment
valuation analysis resulted in an implied exchange ratio range of 0.74 - 0.80.
Comparative Transaction Multiples Analysis
Based on the exchange ratio and Chevron's closing stock price as of October
13, 2000, Lehman Brothers calculated an aggregate equity purchase price and an
aggregate transaction enterprise value for the merger. Lehman Brothers
calculated equity and enterprise value multiples for the merger based on
different statistics of Texaco, including EBITDAX, discretionary cash flow and
net income. Multiples were based on those statistics for 1999, 1997-1999 average
and 1995-1999 average. Next, these transaction multiples were compared to the
same multiples as calculated for the following three precedent transactions:
o The British Petroleum Company p.l.c. / Amoco Corporation
o Exxon Corporation / Mobil Corporation
o BP Amoco p.l.c. / Atlantic Richfield Company
Lehman Brothers determined that the transaction multiples implied by the
exchange ratio in the merger were generally consistent with multiples of the
three above-referenced precedent transactions. The following table sets forth
the results of this analysis:
Chevron/
Texaco Precedent
Enterprise Value to: Multiple Transactions Average
------------------------------ ------------------ ----------------------
EBITDAX
LTM 7.2x 11.0x
3-Year Average 10.0x 8.9x
5-Year Average 9.8x 9.5x
Equity Purchase Price to:
------------------------------
Net Income
LTM 17.1x 33.6x
3-Year Average 26.4x 22.4x
5-Year Average 25.9x 25.2x
Discretionary Cash Flow
LTM 8.5x 11.6x
3-Year Average 10.4x 10.9x
5-Year Average 10.5x 11.5x
-36-
Contribution Analysis
Lehman Brothers utilized publicly available historical financial data
regarding Chevron and Texaco to calculate the relative contributions by Chevron
and Texaco to the pro forma combined company with respect to net income and
discretionary cash flow for the calendar years 1997, 1998 and 1999. Lehman
Brothers also calculated similar contributions based on 2000 and 2001 projected
net income and discretionary cash flow based on consensus earnings estimates for
both companies as reported by First Call, a service reporting equity analyst
estimates. In its analysis, Lehman Brothers did not consider the pro forma
impact of any anticipated operating or cost saving synergies associated with the
merger. In all cases, Lehman Brothers compared Chevron's contribution
percentages to Chevron stockholders' expected 61 percent pro forma ownership of
the combined company. The following table summarizes the results of this
analysis.
Chevron Texaco Implied
Contribution Contribution Exchange Ratio
---------------- -------------- -----------------
Historical Results
1997 Net Income 62.7% 37.3% .716
1998 Net Income 68.5% 31.5% .553
1999 Net Income 64.6% 35.4% .660
1997 Discretionary Cash Flow 59.6% 40.4% .815
1998 Discretionary Cash Flow 63.5% 36.5% .691
1999 Discretionary Cash Flow 63.4% 36.6% .693
Projected Results
2000E Net Income 63.6% 36.4% .687
2001E Net Income 64.0% 36.0% .678
2000E Discretionary Cash Flow 63.0% 37.0% .707
2001E Discretionary Cash Flow 62.1% 37.9% .734
Premiums Paid Analysis
Using publicly available information, Lehman Brothers reviewed the premiums
paid in the following five precedent transactions:
o The British Petroleum Company p.l.c. / Amoco Corporation
o Exxon Corporation / Mobil Corporation
o BP Amoco p.l.c. / Atlantic Richfield Company
o TOTAL S.A. / PetroFina S.A.
o TOTAL Fina S.A. / Elf Aquitaine S.A.
For each of these five precedent transactions, Lehman Brothers calculated
the premium per share paid by the acquiror by comparing the announced exchange
ratio in each transaction to the historical exchange ratio implied by the
relative trading performance of both the acquiror company's common stock and the
target company's common stock during selected periods leading up the
announcement date of the transaction. In two of the five transactions, market
rumors of the transaction preceded actual announcement. In these cases, Lehman
Brothers measured the premium relative to the two companies' closing prices as
of the day before the "rumor surface date," which is a date prior to the date of
official announcement when the acquiring company publicly confirmed the
existence of discussions with the target company regarding a possible
transaction. The two transactions where rumors existed are:
-37-
Rumor Surface Announcement
Transaction Date Date
------------------------------------------ ------------- ------------
Exxon Corporation/Mobil Corporation 11/25/98 12/1/98
BP Amoco p.l.c./Atlantic Richfield Company 3/29/99 4/1/99
Lehman Brothers compared the premiums paid in the five precedent transactions to
the premium being paid by Chevron to Texaco stockholders as calculated based on
the two companies' relative stock price performance for various periods ending
October 13, 2000. The table below sets forth the summary results of the
analysis:
Five Precedent Transactions
--------------------------------
Time Period The Merger Mean Median
------------------ -------------- ------------ -------------
1-Day Prior 17.7% 26.0% 26.0%
5-Day Average 20.8% 26.6% 26.3%
10-Day Average 23.2% 28.2% 27.5%
20-Day Average 24.9% 30.3% 27.9%
30-Day Average 25.4% 29.6% 27.4%
60-Day Average 25.3% 28.9% 23.9%
90-Day Average 24.4% 27.7% 25.9%
120-Day Average 25.5% 26.9% 25.2%
Synergy Payout Ratio Analysis
Using publicly available information, Lehman Brothers reviewed the synergy
payout ratios in the following five precedent transactions:
o The British Petroleum Company p.l.c. / Amoco Corporation
o Exxon Corporation / Mobil Corporation
o BP Amoco p.l.c. / Atlantic Richfield Company
o TOTAL S.A. / PetroFina S.A.
o TOTAL Fina S.A. / Elf Aquitaine S.A.
To arrive at the synergy payout ratios, Lehman Brothers first calculated
the aggregate dollar value of the premium being paid by the acquiring company to
the stockholders of the target company. Such premiums were calculated based on
the per share premium implied by the relative performance of the acquirer's and
target's common share prices over selected time periods. Lehman Brothers then
compared those total dollar value amounts of the premium to the estimated net
present value of the after-tax projected synergies as announced in connection
with each of the five transactions. Next, Lehman Brothers prepared the same
calculation for the merger based on stock price performance during various
periods ending October 13, 2000 and based on $1.2 billion in estimated pre-tax
cost savings expected to result from the merger.
This analysis is theoretical. It assumes that mergers create shareholder
value for the companies' stockholders through earnings accretion that derives
from the synergies. At the same time, the analysis assumes that, from the
perspective of the acquiror's stockholders, value is transferred through payment
of a premium to the stockholders of the target company. The purpose of the
analysis is to assess how much of the value created by the merger synergies is
theoretically conveyed, or paid, to the stockholders of the target through the
payment of a control premium. The analysis concludes that, in the five precedent
transactions, the acquiror theoretically conveyed an average of 69.8 percent of
the value created by synergies to the target stockholders in the form of
premium. By comparison, the amount of the synergy value being theoretically
conveyed by Chevron to Texaco's shareholders is 57.7 percent.
-38-
Five Precedent Transactions
--------------------------------
Time Period The Merger Mean Median
------------------ -------------- ------------ -------------
1-Day Prior 57.7% 69.8% 71.3%
5-Day Average 67.8% 70.1% 71.5%
10-Day Average 73.9% 73.1% 72.2%
20-Day Average 77.8% 76.5% 75.2%
30-Day Average 79.8% 74.7% 74.9%
60-Day Average 77.8% 72.6% 67.4%
90-Day Average 76.5% 71.2% 71.5%
120-Day Average 80.6% 69.4% 71.8%
Pro Forma Merger Consequences Analysis
Lehman Brothers analyzed the pro forma impact of the merger on Chevron's
historical and projected earnings per share and discretionary cash flow per
share. Historical analysis was based on net income and discretionary cash flow
for both Chevron and Texaco for the 12-month period ending June 30, 2000.
Projected net income and discretionary cash flow for fiscal years 2000 and 2001
was based on consensus earnings estimates for both companies as reported by
First Call, a service reporting equity analyst estimates. The pro forma results
reflected the following adjustments: (a) the inclusion of $1.2 billion in pretax
synergies; (b) the estimated impact of a potential disposition of Texaco's joint
venture interests in Equilon and Motiva; and (c) the consolidation of the
Chevron's and Texaco's Caltex joint venture under unified ownership. Based on
these assumptions, Lehman Brothers' analysis indicated that the merger would be
accretive to Chevron's earnings per share by 4.2 percent to 4.5 percent, and
would be accretive to Chevron's discretionary cash flow per share by 3.1 percent
to 5.0 percent.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Chevron board of directors
selected Lehman Brothers because of its expertise, reputation and familiarity
with Chevron and the oil and gas industry in general and because its investment
banking professionals have substantial experience in transactions comparable to
the merger.
Lehman Brothers has previously rendered various financial advisory and
investment banking services to Chevron unrelated to the merger, for which it has
received compensation. During the two years prior to the announcement of the
merger, Lehman Brothers was paid for such services an aggregate of $6,748,625 in
fees, $5,000,000 of which were fees paid to Lehman Brothers by Chevron for
financial advisory services in connection with Chevron's formation of a chemical
joint venture with Phillips Petroleum Company, which was completed in July 2000.
Under Chevron's engagement letter with Lehman Brothers, dated April 13,
1999, Chevron has agreed to pay Lehman Brothers upon completion of the merger an
aggregate fee equal to 0.085 percent of the total consideration payable in the
merger, including liabilities assumed by Chevron. If this fee were calculated as
of the date of this joint proxy statement/prospectus, such fee would be
approximately $39 million. In addition, Chevron has agreed to reimburse Lehman
Brothers for reasonable out-of-pocket expenses incurred in connection with
Lehman Brothers' work in connection with the merger and to indemnify Lehman
Brothers for various liabilities that may arise out of its engagement by Chevron
and the rendering of the Lehman Brothers opinion.
In the ordinary course of its business, Lehman Brothers may actively trade
in the debt or equity securities of Chevron and Texaco for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
-39-
Opinion of Texaco's Financial Advisor
Credit Suisse First Boston Corporation has acted as Texaco's financial
advisor in connection with the merger. Texaco selected Credit Suisse First
Boston based on Credit Suisse First Boston's experience, expertise, reputation
and familiarity with Texaco's business. Credit Suisse First Boston is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, Texaco
requested that Credit Suisse First Boston evaluate the fairness, from a
financial point of view, to the holders of Texaco common stock of the exchange
ratio provided for in the merger. On October 15, 2000, at a meeting of Texaco's
board of directors held to consider the merger, Credit Suisse First Boston
delivered to Texaco's board of directors its written opinion, dated October 15,
2000, to the effect that, as of that date and based on and subject to the
matters described in its opinion, the exchange ratio was fair from a financial
point of view to the holders of Texaco common stock.
The full text of Credit Suisse First Boston's written opinion dated October
15, 2000 to Texaco's board of directors, which sets forth the procedures
followed, assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex E and is incorporated by reference into this
joint proxy statement/prospectus. Texaco stockholders are urged to read
carefully this opinion in its entirety. Credit Suisse First Boston's opinion is
addressed to Texaco's board of directors and relates only to the fairness to
holders of Texaco common stock of the exchange ratio from a financial point of
view. The opinion does not address any other aspect of the proposed merger or
any related transaction and does not constitute a recommendation to any
stockholder as to how to vote or act on any matter relating to the merger. The
summary of Credit Suisse First Boston's opinion in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the opinion.
In arriving at its opinion, Credit Suisse First Boston reviewed the merger
agreement and related documents, as well as publicly available business and
financial information relating to Texaco and Chevron. Credit Suisse First Boston
also reviewed other information relating to Texaco and Chevron, including
financial forecasts, which Texaco and Chevron provided to or discussed with
Credit Suisse First Boston, and met with the managements of Texaco and Chevron
to discuss the businesses and prospects of Texaco and Chevron.
Credit Suisse First Boston also considered financial and stock market data
of Texaco and Chevron and compared those data with similar data for other
publicly held companies in businesses similar to Texaco and Chevron and
considered, to the extent publicly available, the financial terms of other
business combinations and other transactions that have recently been effected.
Credit Suisse First Boston also considered other information, financial studies,
analyses and investigations and financial, economic and market criteria that it
deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information that
was provided to, or otherwise reviewed by, it and relied on that information
being complete and accurate in all material respects. With respect to financial
forecasts, Credit Suisse First Boston was advised, and assumed, that the
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Texaco and Chevron,
respectively, as to the future financial performance of Texaco and Chevron and
the potential synergies and strategic benefits anticipated to result from the
merger, including the amount, timing and achievability of those synergies and
benefits. Credit Suisse First Boston also assumed that the merger will be
treated as a pooling-of-interests in accordance with generally accepted
accounting principles and will qualify as a tax-free reorganization for U.S.
federal income tax purposes. In addition, Credit Suisse First Boston assumed
that the merger would be completed in accordance with the terms of the merger
agreement without any amendments or waivers and also assumed that in the course
of obtaining the necessary regulatory and third party consents for the proposed
merger and related transactions, there will be no delays, restrictions or
dispositions of assets that will have a material adverse effect on the
contemplated benefits of the proposed merger to the holders of Texaco common
stock. Whether or not these assumptions continue to be accurate, Texaco has no
legal or contractual obligation to seek an updated opinion from Credit Suisse
First Boston and does not intend to do so.
-40-
Credit Suisse First Boston was not requested to, and did not, make an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of Texaco or Chevron, and was not furnished with any such evaluations
or appraisals. Credit Suisse First Boston's opinion was based on information
available to, and financial, economic, market and other conditions as they
existed and could be evaluated by, Credit Suisse First Boston on the date of its
opinion. Credit Suisse First Boston did not express any opinion as to the actual
value of Chevron common stock when issued in the merger or the prices at which
shares of Chevron common stock will trade after the merger. In connection with
its engagement, Credit Suisse First Boston was not requested to, and did not,
solicit third-party indications of interest in the possible acquisition of all
or a part of Texaco. Although Credit Suisse First Boston evaluated the exchange
ratio from a financial point of view, Credit Suisse First Boston was not
requested to, and did not, recommend the specific consideration payable in the
merger, which consideration Credit Suisse First Boston understood was determined
through arm's length negotiations between Texaco and Chevron. No other
limitations were imposed on Credit Suisse First Boston with respect to the
investigations made or procedures followed in rendering its opinion.
In preparing its opinion to Texaco's board of directors, Credit Suisse
First Boston performed a variety of valuation and relative analyses, including
those described below. The preparation of a fairness opinion is a complex
analytical process involving various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances; therefore, a fairness opinion is not readily
susceptible to summary description. In arriving at its opinion, Credit Suisse
First Boston made qualitative judgments as to the significance and relevance of
each analysis and factor that it considered. Accordingly, Credit Suisse First
Boston believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
In its analyses, Credit Suisse First Boston considered industry
performance, regulatory, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Texaco and
Chevron. No company, transaction or business used in Credit Suisse First
Boston's analyses as a comparison is identical to Texaco or Chevron or the
proposed merger, and an evaluation of the results of those analyses is not
entirely mathematical. Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, business segments or transactions analyzed.
The estimates contained in Credit Suisse First Boston's analyses and the
ranges of valuations resulting from any particular analysis 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 the analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Credit Suisse First Boston's
analyses and estimates are inherently subject to substantial uncertainty.
Credit Suisse First Boston's opinion and financial analyses were not the
only factors considered by Texaco's board of directors in its evaluation of the
proposed merger and should not be viewed as necessarily determinative of the
views of Texaco's board of directors with respect to the exchange ratio.
The following is a summary of the material analyses underlying Credit
Suisse First Boston's opinion to Texaco's board of directors in connection with
the merger. The financial analyses summarized below include information
presented in tabular format. The tables alone do not constitute a complete
description of the financial analyses. To understand fully Credit Suisse First
Boston's financial analyses, the tables must be read together with the full
narrative description of the financial analyses, including the methodologies and
assumptions underlying the analyses of each summary. Not doing so could create a
misleading or incomplete view of Credit Suisse First Boston's financial
analyses.
-41-
Valuation Analysis
Credit Suisse First Boston conducted three valuation analyses:
o a discounted cash flow analysis,
o a comparable companies analysis, and
o a comparable transactions analysis.
Each of these analyses compared the exchange ratio in the merger of 0.77x
with the exchange ratios implied by each of these analyses.
Discounted Cash Flow Analysis
Credit Suisse First Boston estimated the present value of the stand-alone,
unlevered, after-tax free cash flows that Texaco could produce over calendar
years 2001 through 2004 and that Chevron could produce over the same period. The
analysis was based on estimates of the managements of Texaco and Chevron
adjusted, as reviewed by or discussed with Texaco management, to reflect, among
other things, differing assumptions about future oil and gas prices.
Ranges of estimated terminal values were calculated by multiplying
estimated calendar year 2004 earnings before interest, taxes, depreciation,
amortization and exploration expense, commonly referred to as EBITDAX, by
terminal EBITDAX multiples of 6.5x to 7.5x in the case of both Texaco and
Chevron. The estimated unlevered after-tax free cash flows and estimated
terminal values were then discounted to present value using discount rates of
9.0 percent to 10.0 percent. That analysis indicated an implied exchange ratio
reference range of 0.56x to 0.80x.
Comparable Companies Analysis
Credit Suisse First Boston compared financial, operating and stock market
data of Texaco and Chevron to corresponding data of three categories of
companies in the integrated petroleum business. Chevron and Texaco are each
comparable to the companies in each of the three categories in some, but not in
all, respects, though Credit Suisse First Boston believed Chevron to be somewhat
more comparable to the "Super Majors" (as identified below) than was Texaco. The
categories and the companies in each category are:
o Super Majors: o BP Amoco p.l.c.
o Exxon Mobil Corporation
o Royal Dutch Petroleum Company/The Shell
Transport and Trading Company p.l.c.
o International Majors: o Eni S.p.A.
o Repsol YPF S.A.
o TOTAL Fina Elf S.A.
o Domestic Integrateds: o Conoco Inc.
o USX Corporation--Marathon Group
o Phillips Petroleum Company
-42-
Credit Suisse First Boston reviewed:
o adjusted market value as a multiple of estimated EBITDAX for calendar
years 2000 and 2001,
o market value as a multiple of estimated after-tax cash flow for
calendar years 2000 and 2001, and
o market value as a multiple of estimated net income for calendar years
2000 and 2001.
Market values were calculated by multiplying the October 13, 2000 stock
price for the relevant company by the diluted number of shares outstanding,
after taking into account option proceeds, and adjusted market values were
calculated as market value plus net debt (including preferred stock and minority
interests). Estimated after-tax cash flows, estimated net income and estimated
EBITDAX for purposes of determining public trading multiples for the selected
companies were based on Credit Suisse First Boston research and for Texaco and
Chevron were based on Credit Suisse First Boston research and the adjusted
management cases.
The range of selected multiples for the comparable companies are indicated
in the following table. In this table, "AMV" refers to adjusted market value and
"MV" refers to market value.
Texaco Chevron
------------------------------------ -----------------------------------
Comparable Companies Comparable Companies
Reference Range Reference Range
------------------------------------ -----------------------------------
Valuation Parameter Low High Low High
-------------------------------------------------------------------------------------------------------------
AMV/2000E EBITDAX 5.0x -- 6.0x 5.5x -- 6.5x
AMV/2001E EBITDAX 6.0x -- 7.0x 6.5x -- 7.5x
MV/2000E Cash Flow 6.0x -- 7.0x 6.5x -- 7.5x
MV/2001E Cash Flow 6.0x -- 7.0x 7.0x -- 8.0x
MV/2000E Net Income 11.0x -- 13.0x 11.5x -- 13.5x
MV/2001E Net Income 12.0x -- 14.0x 14.0x -- 16.0x
Based on the multiples shown on this table, Credit Suisse First Boston then
applied a range of selected multiples for the comparable companies to
corresponding financial data of Texaco and Chevron, utilizing adjusted
management case estimates for Texaco and Chevron. That analysis indicated an
implied exchange ratio reference range of 0.52x to 0.75x.
Comparable Transactions Analysis
Credit Suisse First Boston analyzed the implied transaction multiples paid
in the following selected merger and acquisition transactions involving major
integrated petroleum companies announced since August 1998:
Date Acquiror Acquired Company
-------------------------------- ------------------------------------ ------------------------------------
August 11, 1998 The British Petroleum Company p.l.c. Amoco Corporation
December 1, 1998 Exxon Corporation Mobil Corporation
December 1, 1998 TOTAL S.A. PetroFina S.A.
April 1, 1999 BP Amoco p.l.c. Atlantic Richfield Company
April 30, 1999 Repsol S.A. YPF S.A.
July 5, 1999 TOTAL Fina S.A. Elf Aquitaine S.A.
-43-
Credit Suisse First Boston compared market values in the selected
transactions as multiples of the latest 12 months after-tax cash flow and net
income, and adjusted market values as multiples of the latest 12 months EBITDAX.
Market values were calculated by multiplying the announced transaction price per
share for the relevant transaction by the diluted number of target company
shares outstanding, after taking into account option proceeds, and adjusted
market values were calculated as market value plus net debt (including preferred
stock and minority interests). All multiples were based on publicly available
financial information.
The range of selected multiples for the comparable transactions are
indicated in the following table. In this table, "AMV" refers to adjusted market
value, "MV" refers to market value, and "LTM" refers to latest 12 months results
based on the most recently completed four quarters for which results have been
publicly reported.
Reference Range
---------------------------------
Valuation Parameter Low High
-----------------------------------------------------------------------
AMV/LTM EBITDAX 8.5x -- 10.5x
MV/LTM Cash Flow 9.0x -- 12.0x
MV/LTM Net Income 22.0x -- 26.0x
Based on the multiples shown in this table, Credit Suisse First Boston then
applied a range of selected multiples for the selected transactions of the
latest 12 months after-tax cash flow, net income and EBITDAX to corresponding
financial data of Texaco and Chevron. That analysis indicated an implied
exchange ratio reference range of 0.51x to 0.82x.
Relative Analyses
Credit Suisse First Boston also conducted two relative analyses--relative
contribution analysis and historical stock trading analysis--and compared the
exchange ratio in the merger of 0.77x with the exchange ratios implied by those
analyses.
Relative Contribution Analysis
Credit Suisse First Boston performed an exchange ratio analysis, based on
adjusted management case estimates of Texaco and Chevron, comparing the relative
contributions of Texaco and Chevron to estimated net income and after-tax cash
flows of the combined company in calendar years 2000, 2001 and 2002. No
synergies were assumed in that analysis. That analysis yielded an implied
exchange ratio reference range of 0.64x to 0.74x, as indicated in the following
table:
Texaco Chevron
Percentage Percentage Implied
Contribution Contribution Exchange Ratios
-------------- -------------- -----------------
Net Income:
2000E 35% 65% 0.64x
2001E 37% 63% 0.70x
2002E 36% 64% 0.69x
After-Tax Cash Flow:
2000E 36% 64% 0.69x
2001E 37% 63% 0.73x
2002E 38% 62% 0.74x
-44-
Historical Stock Trading Analysis
Credit Suisse First Boston performed an exchange ratio analysis comparing
the exchange ratios implied by average daily closing stock prices for Texaco
common stock and Chevron common stock on October 13, 2000, and during the
one-week, one-month, three-month, six-month, one-year, two-year and three-year
periods preceding October 13, 2000, and the premiums over market exchange ratios
for those periods implied by the exchange ratio in the merger. That analysis
indicated an implied exchange ratio reference range of 0.61x to 0.67x and is
shown in the following table:
Implied Premium at Merger
Period Implied Exchange Ratio Exchange Ratio
---------------------------- ------------------------ -------------------------
October 13, 2000 0.65x 17.7%
One week preceding 0.63x 21.6%
One month preceding 0.61x 25.3%
Three months preceding 0.62x 25.1%
Six months preceding 0.61x 25.9%
One year preceding 0.63x 22.6%
Two years preceding 0.65x 18.7%
Three years preceding 0.67x 14.6%
Pro Forma Merger Analysis
Credit Suisse First Boston analyzed the potential pro forma effect of the
merger on Chevron's estimated diluted earnings per share, commonly referred to
as diluted EPS, and estimated diluted after-tax cash flow per share for
calendar years 2001 and 2002, based on the adjusted management cases of Texaco
and Chevron, both before and after giving effect to potential cost savings and
other synergies anticipated by the management of Texaco and Chevron to result
from the merger. Based on the exchange ratio in the merger of 0.77x, that
analysis indicated that, in each of the years analyzed, the merger would be
accretive to Chevron with synergies and dilutive without synergies on an EPS
basis, and accretive both with and without synergies on an after-tax cash flow
basis. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
Other Analyses
In the course of preparing its opinion, Credit Suisse First Boston also
reviewed and considered other information and data and performed other analyses,
including the three analyses described below.
Premiums Paid in Precedent Transactions
Credit Suisse First Boston compared the premiums paid in the following
selected merger and acquisition transactions involving major integrated
petroleum companies announced since August 1998:
Date Acquiror Acquired Company
----------------------------- ------------------------------------- ---------------------------
August 11, 1998 The British Petroleum Company p.l.c. Amoco Corporation
December 1, 1998 Exxon Corporation Mobil Corporation
December 1, 1998 TOTAL S.A. PetroFina S.A.
April 1, 1999 BP Amoco p.l.c. Atlantic Richfield Company
July 5, 1999 TOTAL Fina S.A. Elf Aquitaine S.A.
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For the precedent transactions, the one-day premiums paid ranged from 23
percent to 33 percent, compared with 18 percent for the Chevron/Texaco merger
calculated using the closing stock prices for Texaco common stock and Chevron
common stock on October 13, 2000, or 25 percent calculated using the average
daily closing stock prices for Texaco common stock and Chevron common stock
during the 30-day period leading up to October 13, 2000.
Ratio of Premium Paid to Capitalized Synergies in Precedent Transactions
Credit Suisse First Boston compared, for the transactions used in the
premiums paid analysis described above, the ratio of the premium paid to the
capitalized expected synergies. For the precedent transactions, this ratio
ranged from 57 percent to 109 percent, compared with 61 percent for the
Chevron/Texaco merger calculated using the closing stock prices for Texaco
common stock and Chevron common stock on October 13, 2000, or 83 percent
calculated using the average daily closing stock prices for Texaco common stock
and Chevron common stock during the 30-day period leading up to October 13,
2000.
Return on Gross Invested Capital Comparison
Credit Suisse First Boston compared the ten-year average return on gross
invested capital generated by each of Chevron and Texaco, and for the following
parts of their respective businesses:
o exploration and production--worldwide,
o exploration and production--U.S. only,
o exploration and production--non-U.S. only,
o refining and marketing--worldwide,
o refining and marketing--U.S. only, and
o refining and marketing--non-U.S. only.
These comparisons indicated that Texaco's return on gross invested capital was
lower than Chevron's return on gross invested capital for each business segment
other than worldwide and international refining and marketing.
Miscellaneous
Texaco has agreed to pay Credit Suisse First Boston for its financial
advisory services upon completion of the merger an aggregate fee equal to 0.075
percent of the total consideration payable in the merger, including liabilities
assumed by Chevron. If the merger had been completed on __________, 2001, Credit
Suisse First Boston's aggregate fee would have been approximately $____ million.
Texaco also has agreed to reimburse Credit Suisse First Boston for its
reasonable out-of-pocket expenses, including reasonable fees and expenses of
legal counsel and any other advisor retained by Credit Suisse First Boston, and
to indemnify Credit Suisse First Boston and related parties against liabilities
arising out of its engagement.
Credit Suisse First Boston and its affiliates have in the past provided
financial services to Texaco and its affiliates and to Chevron and its
affiliates unrelated to the proposed merger, for which services Credit Suisse
First Boston and its affiliates have received customary compensation. In the
ordinary course of business, Credit Suisse First Boston and its affiliates may
actively trade the debt and equity securities of both Texaco and Chevron for
their own accounts and for the accounts of customers and, accordingly, may at
any time hold long or short positions in such securities.
Texaco's Financial Advisors
In May 2000, Texaco retained Credit Suisse First Boston as its financial
advisor, as more fully described above. In addition, in October 2000, Texaco
retained Morgan Stanley & Co. Incorporated as financial advisor to provide
additional advice with respect to this transaction. Morgan Stanley was not asked
to, and did not, provide a fairness opinion with respect to the merger, but has
provided advice relating to the anticipated divestitures of
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Equilon and Motiva which may be necessary to effect the merger. The fees to
be paid Morgan Stanley are normal and customary and have been included in the
overall estimate of $125 million of merger-related expenses.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendation of the Texaco board with respect to the
merger agreement, Texaco stockholders should be aware that members of the
management of Texaco and the Texaco board have interests in the merger that may
be different from, or in addition to, the interests of the other stockholders of
Texaco generally.
Board of Directors
Chevron has agreed that as of the closing of the merger it will expand its
board of directors to 15 members and, in part by filling the resulting
vacancies, will appoint to the ChevronTexaco board Mr. Tilton and five other
persons who immediately prior to the closing were directors of Texaco. See "The
Merger Agreement--ChevronTexaco Board and Related Matters" on page 65. It is
expected that in addition to Mr. Tilton, ____________________,
_________________, _________________, _________________, and __________________,
will be the directors of Texaco who will be nominated by Texaco for election to
the ChevronTexaco board as of the closing.
Texaco's directors will not receive any special payments as the result of
the merger, although payment of certain amounts previously earned will be
accelerated.
Executive Officers
After the merger, some Texaco executives will become executives of
ChevronTexaco. Glenn F. Tilton, currently Texaco's Chairman and Chief Executive
Officer, will become a Vice Chairman of ChevronTexaco. Discussions have been
held with Mr. Tilton regarding the terms of his post-merger employment, but no
agreement has been reached. Janet Stoner, currently Texaco's Vice President for
Human Resources, and Rosemary Moore, currently Texaco's Vice President for
Corporate Communications and Government Affairs, will both have similar
positions with ChevronTexaco. Ms. Stoner and Ms. Moore are each eligible to
receive a retention bonus approximately equivalent to the applicable "base pay
severance" and "bonus severance" payments described below payable within three
years following the closing of the merger.
Other than salary increases in the ordinary course and the arrangements
described above, the only change in compensation for a Texaco executive officer
since the announcement of the merger is the promotion of Mr. Tilton from Senior
Vice President to Chairman and Chief Executive Officer and a corresponding
increase in his annual base salary effective February 4, 2001 from $426,300
to $889,600. Mr. Tilton's bonus and long term awards for 2001 will be based
on his new position.
Since the announcement of the merger, Peter I. Bijur has resigned as
Chairman and Chief Executive Officer of Texaco, and Deval Patrick has resigned
as Vice President and General Counsel of Texaco.
Texaco's executive officers are entitled to benefits under their individual
severance agreements if they do not continue employment with ChevronTexaco. The
amounts payable under the severance agreements are slightly more than three
times annual cash compensation. These agreements are described on pages 48 and
49. Assuming that the closing occurs on July 1, 2001 and all Texaco executives
who are party to severance agreements are terminated without cause or resign for
good reason immediately following that date, the amount of the cash severance
payments payable to these executives would be approximately $50 million and the
gross-up payment would not be expected to exceed approximately $40 million.
In addition, the Compensation Committee of the Texaco board may, in its
discretion, award special cash bonuses totaling up to $15 million in the
aggregate. No decision regarding any such payments has been made. Some executive
officers, as well as other Texaco employees, may receive payments under this
program.
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Indemnification; Directors' and Officers' Insurance
Chevron has agreed to indemnify, to the extent provided under Texaco's
certificate of incorporation and by-laws in effect on October 15, 2000, the
individuals who on or before the closing were officers, directors and employees
of Texaco or its subsidiaries with respect to all acts or omissions before the
closing by these individuals in these capacities. Chevron has further agreed to
cause Texaco to honor all its indemnification agreements, including under
Texaco's by-laws, in effect on October 15, 2000. Chevron has also agreed to
provide, for six years after the closing, directors' and officers' liability
insurance in respect of acts or omissions occurring before the closing covering
each person currently covered by Texaco's directors' and officers' liability
insurance policy, up to 300 percent of the per annum rate of premium paid by
Texaco. See "The Merger Agreement--Covenants--Indemnification and Insurance of
Texaco Directors and Officers" on page 69.
Severance Agreements
Twenty Texaco executives have severance agreements with Texaco, which
expire as of the first day of the month immediately following the executive's
65th birthday. An executive will be entitled to the severance benefits set forth
in the severance agreements if, after the date of first contact by a party, or a
party's representative, with Texaco which results in a "change of control" (as
defined in the severance agreements) involving that party or its affiliate and
up to 36 months after a change of control, either the executive's employment is
terminated without "just cause" (as defined in the severance agreements) or the
executive resigns for "good reason." Under the severance agreements, an
executive will be deemed to resign for good reason if he or she resigns within
60 days after:
o a reduction in the executive's base pay;
o a reduction in the executive's cash bonus in excess of 20 percent of the
prior year's award (unless the reduction is due to Texaco's performance
under the objective measurements of Texaco's Incentive Bonus Plan
effective immediately before the change of control or under the objective
measurements of an incentive compensation program with target bonuses
and performance goals comparable to and not materially less favorable to
the executive than the targets and goals described in the Incentive
Bonus Plan in existence prior to the change of control);
o the assignment of any duties inconsistent with the position in Texaco
that the executive held immediately prior to the change of control or a
significant adverse alteration in the nature or status of the executive's
responsibilities or condition of employment from those in effect
immediately prior to such change of control;
o the failure of Texaco to continue in effect any material compensation or
benefit plan in which the executive participated immediately prior to the
change of control, unless an equitable arrangement (embodied in an
ongoing substitute or alternate plan) has been made with respect to such
plan, or the failure by Texaco to continue the executive's participation
in such material compensation or benefit plan (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of the executive's
participation relative to other participants, as that which existed at
the time of the change of control, unless any such change is
independently justified based on peer group practices; or
o the requirement to relocate to a work location which is 50 or more miles
from the executive's former work location, without the executive's
consent.
If there is a change of control and the executive is terminated without
just cause or resigns for good reason within three years thereafter, a typical
executive will be entitled to receive a cash payment, except as otherwise
provided below, equal to the following (although benefits may vary slightly on a
case by case basis):
o "base pay severance" equal to thirty-six months' base pay, which means
the monthly base salary in effect immediately before the change of
control or, if greater, the base salary during the year immediately
before the executive's termination without just cause or resignation for
good reason; plus
o "bonus severance" equal to three times the highest cash bonus earned by
the executive in any of the five years preceding the executive's
termination date (if the executive has not yet earned a company
-48-
bonus prior to the change of control, then the executive's target bonus
will be used in this regard); plus
o three times the annual value of benefits earned or accrued by the
executive as a result of the executive's participation in the following
plans immediately preceding the change of control or immediately
preceding the executive's resignation, whichever is greater:
o in lieu of additional service credit under the retirement and
supplemental plans, a cash payment equal to 10 percent of the amount
of the total of base pay severance and bonus severance; plus
o in lieu of additional contributions to the thrift and supplemental
plans, a cash payment equal to 6 percent of the amount of base pay
severance; plus
o if the executive is not eligible for retiree medical coverage under
the bullet immediately below, a cash payment equal to three times
the annual company contribution to the Texaco comprehensive medical
plan (or alternate sponsored medical plan or HMO) for the
executive's elected coverage option.
o executives who are age 45 or older with at least ten years of service
will receive retiree medical coverage under the terms and conditions that
existed immediately prior to the change of control with the full company
portion of the premium paid by the company. In order to qualify, the
executive must have been covered under a company-sponsored medical plan
immediately prior to the change of control or immediately prior to
termination of employment;
o executives who are age 45 or older with at least ten years of service
will receive full retiree life insurance coverage under the terms and
conditions that existed immediately prior to the change of control with
the full amount of insurance paid by the company. In order to qualify
for retiree life insurance, the executive must have participated in
contributory life insurance coverage immediately prior to the date of
the change of control or immediately prior to termination of employment;
o outplacement services with a nationally recognized outplacement firm,
with a cost not to exceed $15,000; plus
o continued participation under the terms and practices of the company's
tax assistance plan for the year of termination or resignation and three
calendar years immediately following.
Notwithstanding the above, if the executive is within 36 months of
attaining age 65 at the time of termination of employment or resignation, the
benefits described in the first three bullets above will be reduced by
multiplying such benefit amounts by a fraction the numerator of which is the
number of full and partial months from the date the executive terminates
employment to the last day of the month he or she turns age 65, and the
denominator of which is 36 months.
Under the severance agreements, Texaco is required, if necessary, to make
an additional gross-up payment to any executive to offset fully the effect of
any excise tax imposed by Section 4999 of the Internal Revenue Code on any
excess parachute payment, whether made to that executive under the severance
agreements or otherwise. In general, Section 4999 imposes an excise tax on the
recipient of any excess parachute payment equal to 20 percent of that payment. A
parachute payment is any payment contingent on a change of control that equals
or exceeds three times the executive's "base amount", which is defined as
average taxable compensation received by the executive from the employer during
the five taxable years preceding the year in which the change of control occurs.
Excess parachute payments consist of the excess of parachute payments over an
individual's base amount. If the individual has been employed for fewer than
five taxable years, all years of employment preceding the year in which the
change of control occurs will be used to calculate the excess parachute payment.
Severance benefits received by the executive under the severance agreements will
be made in lieu of and will replace any benefit entitlements under the U.S.
Separation Pay Plan.
The merger will constitute a change of control under the severance
agreements. Assuming that the closing occurs on July 1, 2001 (which assumption
may not be valid) and all of the Texaco executives who are party to the
severance agreements are terminated without just cause or resign for good reason
immediately following that date, the amount of the cash severance payments
payable to all of the Texaco executive officers who are party to the
-49-
severance agreements would be approximately $50 million and the gross-up payment
payable would not be expected to exceed approximately $40 million.
Employee Severance Benefits
Texaco maintains severance pay programs in most locations around the world.
In general, all regular, full-time Texaco employees on the U.S. payroll are
eligible to participate in the U.S. Separation Pay Plan. Under the terms of the
U.S. Separation Pay Plan, benefits will be provided to all eligible employees if
their employment is terminated or the conditions of their employment are changed
adversely within two years following a change of control. The severance pay
programs maintained outside the United States are designed to be competitive
locally and do not provide special change of control benefits.
Under the U.S. Separation Pay Plan, an eligible Texaco employee will
receive change of control benefits if any of the following occurs within two (2)
years after a change of control of Texaco:
o the employee's employment is terminated without "just cause" (as defined
in the U.S. Separation Pay Plan);
o the employee resigns within 60 days after:
o a reduction in the employee's base pay; or
o a reduction in approved overtime (other than an across-the-board cut
for operational reasons); or
o a reduction in the employee's cash bonus or cash stipend bonus in
excess of 20 percent of the employee's prior year award (unless the
reduction is due to Texaco's performance under the objective
measurements of its incentive bonus plan effective immediately
before the change of control or under the objective measurements of
an incentive compensation program with target bonuses and
performance goals comparable to and not materially less favorable
to the employee than the targets and goals described in
Texaco's incentive bonus plan in existence prior to the change of
control); or
o a reduction in the employee's position or position grade or any
equivalent action; or
o the benefits under one or more of the benefit plans or perquisites
in which the employee may participate at the time of the change of
control are reduced or terminated (except as required by law)
unless any such change is independently justified based on peer
group practices; or
o being required to relocate to a work location which is 50 or more
miles from the employee's former work location, without the
employee's consent.
The change of control benefits consist of an amount equal to the following:
o "base pay benefit" - one month's base pay (which means the greater of the
monthly rate of pay in effect immediately prior to the change of control
or during the highest paid month in the year immediately prior to the
employee's termination or resignation) for each completed or partial
year of service up to a maximum of 24 months' base pay (minimum of 3
months' base pay if the employee has at least one year of service); plus
o "bonus and overtime benefit" - 1/12th of the employee's highest cash
bonus, PCP award, cash stipend bonus, merit stipend or annual overtime
pay received in any of the five years immediately preceding the
employee's termination and qualifying resignation, multiplied by the
same number of months used to calculate the employee's base pay benefit;
plus
o the benefit plans make-up payment equal to the sum of:
o retirement plan - 10 percent of the sum of the base pay benefit and
the bonus and overtime benefit;
o thrift plan - 6 percent of the base pay benefit; and
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o medical plan - company's monthly contribution to the Texaco
comprehensive medical plan (or alternate company-sponsored medical
plan or HMO), for the employee's elected coverage option either
immediately preceding a change of control or immediately preceding
the employee's termination or qualifying resignation, whichever is
greater, multiplied by the number of years of service determined in
calculating the base pay benefit;
o "retiree medical coverage" - employees who are age 45 with at least 10
years of service will receive retiree medical coverage. Employees with
20 or more years of service will receive 100 percent of Texaco's
contribution. Texaco's contribution will be pro-rated downward 5 percent
per year for years of service less than 20. In order to qualify for
retiree coverage, the employee must have been covered under a Texaco-
sponsored medical plan immediately prior to the change of control or
immediately prior to termination or qualifying resignation. Employees who
are not eligible for retiree medical can participate in the Texaco-
sponsored medical plan at their own expense for three years following
termination (inclusive of COBRA coverage); and
o "retiree life insurance coverage" - employees age 45 or older with at
least 10 years of service will be eligible for Texaco-provided retiree
life insurance coverage. Employees with 20 or more years of service will
receive 100 percent retiree life insurance coverage. Coverage is reduced
5 percent per year for each year of service below 20 years. The amount of
coverage will be determined based on the employee's level of
participation in Texaco's term life insurance plan immediately prior to
the date of the change of control or immediately prior to termination or
qualifying resignation; and
o "retirement plan" - more favorable early commencement discount factors
will apply when an employee starts his or her pension at age 50 or older,
even if the employee leaves Texaco before age 50. Social security offset
in the final average pay formula will not apply until age 62, if the
employee starts pension before age 62.
Also, employees in Grade 20 or higher qualifying for benefits under the
U.S. Separation Pay Plan will be entitled to the following supplemental benefit.
In determining years of company service under the first bullets above setting
forth benefits to be provided to eligible participants in the separation pay
plan upon a change of control, employees will be credited with a minimum of
twelve years of deemed service plus (a) for employees in Grade 20, one
additional year for each actual completed or partial year of company service;
(b) for employees in Grade 21, one and one-half additional years for each actual
completed or partial year of company service; or (c) for employees in Grades 22
and above, two additional years for each actual completed or partial year of
company service. In no event will the aggregate years of service, actual and
deemed, used in determining benefits under the U.S. Separation Pay Plan exceed
24 years of service.
Under the U.S. Separation Pay Plan, Texaco is required, if necessary, to
make an additional gross-up payment to any employee to offset fully the effect
of any excise tax imposed by Section 4999 of the Internal Revenue Code on any
excess parachute payment.
The merger will constitute a change of control under the U.S. Separation
Pay Plan. If the closing occurs on July 1, 2001 and if all of the eligible
Texaco employees are terminated without just cause or resign for the specified
reasons immediately following that date, the amount of the cash severance
payment payable to all of the U.S. Texaco employees would be approximately $1.2
billion and the gross-up payment payable would not be expected to exceed
approximately $25 million.
Stock Incentive Plans
At the effective time, each outstanding option granted by Texaco to
purchase shares of Texaco common stock will cease to represent a right to
acquire shares of Texaco common stock and will, after the effective time,
constitute an option to acquire, on the same terms and conditions as applied to
the Texaco stock option prior to the effective time, the number, rounded to the
nearest whole number, of shares of ChevronTexaco common stock determined by
multiplying:
o the number of shares of Texaco common stock subject to the option
immediately before the effective time by
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o the exchange ratio.
The exercise price of each of these options will be a price per share of
ChevronTexaco common stock, rounded to the nearest one-hundredth of a cent,
equal to:
o the per share exercise price for Texaco common stock that otherwise could
have been purchased under the Texaco stock option divided by
o the exchange ratio.
As of December 31, 2000, options to purchase 13,719,638 shares of Texaco common
stock were outstanding, with a weighted average exercise price of $61.95 per
share. Of these outstanding options, options to purchase 9,657,813 shares were
exercisable, with a weighted average exercise price of $63.35 per share.
Under the merger agreement, each other stock-based award granted by Texaco
under its employee or director plans or arrangements maintained as of October
15, 2000 will be vested and converted, as of the effective time, into a similar
ChevronTexaco stock-based award, adjusted as appropriate to preserve the award's
inherent value.
The other terms and conditions of these other stock-based awards, and the
plans or agreements under which they were issued, will continue to apply in
accordance with their terms and conditions as these terms and conditions have
been interpreted and applied by Texaco in accordance with its past practice, but
with such adjustments as are necessary or appropriate in light of the merger.
Stock Grantor Trust
Texaco maintains a stock grantor trust which secures Texaco's obligations
under various employee benefit and executive compensation programs, including
the obligations under the severance agreements. As of December 31, 2000, the
stock grantor trust held assets valued at approximately $572 million. The stock
grantor trust will continue to hold assets following the merger.
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COMPARATIVE PER-SHARE MARKET PRICE AND DIVIDEND INFORMATION
Chevron common stock and Texaco common stock are each listed on the NYSE.
Chevron's ticker symbol on the NYSE is "CHV" and Texaco's ticker symbol on the
NYSE is "TX." The following table shows, for the periods indicated, the high and
low prices per share of Chevron common stock and Texaco common stock, and the
dividends per share.
Chevron Common Stock Texaco Common Stock(1)
------------------------------------- ---------------------------------
High Low Dividend High Low Dividend
----------- ---------- --------- ---------- ---------- ---------
1997
First Quarter................... $ 72.6250 $63.5000 $0.540 $55.7500 $48.8750 $0.425
Second Quarter.................. $ 77.2500 $61.7500 $0.580 $57.4375 $50.5000 $0.425
Third Quarter................... $ 89.1875 $73.5000 $0.580 $61.6875 $54.3438 $0.450
Fourth Quarter.................. $ 88.8750 $71.5000 $0.580 $63.4375 $51.1250 $0.450
1998
First Quarter................... $ 90.1875 $67.7500 $0.610 $65.0000 $49.0625 $0.450
Second Quarter.................. $ 86.8125 $77.3750 $0.610 $63.7500 $55.7500 $0.450
Third Quarter................... $ 89.0000 $73.0000 $0.610 $64.8750 $55.2500 $0.450
Fourth Quarter.................. $ 89.4375 $78.3750 $0.610 $63.8750 $50.2500 $0.450
1999
First Quarter................... $ 90.3125 $73.1250 $0.610 $59.1875 $44.5625 $0.450
Second Quarter.................. $104.9375 $86.3750 $0.610 $70.0625 $55.1250 $0.450
Third Quarter................... $100.8125 $85.5625 $0.610 $68.5000 $60.3125 $0.450
Fourth Quarter.................. $ 96.9375 $83.3750 $0.650 $67.1875 $52.3750 $0.450
2000
First Quarter................... $ 94.2500 $69.9375 $0.650 $61.4375 $44.2500 $0.450
Second Quarter.................. $ 94.8750 $82.3125 $0.650 $59.6875 $48.5625 $0.450
Third Quarter................... $ 92.3125 $76.8750 $0.650 $56.1300 $48.2500 $0.450
Fourth Quarter.................. $ 88.9375 $78.1875 $0.650 $63.7500 $50.8100 $0.450
2001
First Quarter................... $ 93.4500 $78.4375 $0.650 $70.2100 $57.8100 $0.450
Second Quarter (2).............. $ 89.9000 $84.5900 $67.7000 $63.1600
-------------------
(1) Reflects a two-for-one stock split effective September 29, 1997.
(2) Through April 6, 2001.
On October 13, 2000, the last full trading day before the public
announcement of the proposed merger, the last reported closing price was $84.25
per share for Chevron common stock and $55.125 per share for Texaco common
stock. On _______________, 2001, the most recent practicable date prior to the
printing of this joint proxy statement/prospectus, the last reported closing
price was $_______ per share for Chevron common stock and $_______ per share for
Texaco common stock. We urge you to obtain current market quotations prior to
making any decision as to how to vote your shares with respect to the merger.
See "Risk Factors" on page 13 for more information about the value of the merger
consideration and fixed exchange ratio.
Following the merger, ChevronTexaco common stock will be traded on the NYSE
under the ticker symbol "CHV."
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The merger agreement permits Chevron and Texaco to pay, prior to the
closing, regular quarterly cash dividends to holders. The merger agreement also
permits the subsidiaries of Chevron and Texaco to pay, prior to the closing,
regular periodic cash or other required dividends to holders. The parties have
agreed in the merger agreement to coordinate the declaration of dividends and
the related record dates and payment dates so that Texaco stockholders do not
receive two dividends, or fail to receive one dividend, for any single calendar
quarter with respect to their Texaco shares and the ChevronTexaco shares to be
received by them in the merger.
Chevron and Texaco expect that the combined company will continue to pay
quarterly dividends on ChevronTexaco common stock after completion of the
merger. The payment of dividends by ChevronTexaco in the future will continue to
depend on business conditions, ChevronTexaco's financial condition and earnings,
and other factors.
Effect of Merger on Texaco Investor Services Plan
Upon completion of the merger, Texaco's Investor Services Plan will
terminate. In its place, ChevronTexaco's investment program will be available to
former Texaco stockholders. For each Texaco plan participant, the procedures for
transitioning to ChevronTexaco's investment program will depend on how the
participant's shares are held when the merger closes, as follows: If the Texaco
shares in a plan participant's account are held in book-entry form by the
custodian, shares of ChevronTexaco, including any interest in a fractional
portion of a share, will be automatically issued in exchange for the Texaco
shares and the participant will automatically be rolled over into
ChevronTexaco's investment program. If the Texaco shares in a plan participant's
account are held in certificated form, ChevronTexaco shares will not be
automatically issued in exchange for the Texaco shares. Instead, participants
holding Texaco stock certificates will be required to exchange their
certificates for shares of ChevronTexaco. In this case, you will receive
instructions on how to exchange your shares. Once a participant receives the
ChevronTexaco certificates, he or she can enroll those shares in ChevronTexaco's
investment program.
Upon completion of the merger, the participation preferences of Texaco plan
participants will be automatically carried forward into ChevronTexaco's
investment program to the extent practicable. However, the mechanics of merging
records may require that certain provisions of the Texaco plan be suspended or
that participants receive a dividend in cash. ChevronTexaco's investment program
will require participants to pay fees for certain services including the
reinvestment of dividends. Should they so desire, Texaco plan participants will
be provided with an opportunity to terminate or revise their plan enrollment to
avoid participation in any fee-based plan services. Texaco plan participants
will receive additional information regarding ChevronTexaco's investment program
as soon as practicable following the merger.
-54-
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
-----------------------------------------------------------
The following unaudited pro forma condensed combined financial statements
combine the historical consolidated balance sheet and statements of income of
Chevron and Texaco, giving effect to the merger using the pooling-of-interests
method of accounting for a business combination. The financial statements also
reflect the consolidation of entities jointly owned by Chevron and Texaco,
primarily the Caltex Group (Caltex) of equity affiliates.
We are providing the following information to aid you in your analysis of
the financial aspects of the merger. We derived this information from the
audited financial statements of Chevron, Texaco and Caltex for the years 2000,
1999 and 1998. The information is only a summary and you should read it together
with the historical financial statements and related notes contained in the
annual reports and other information filed with the SEC and incorporated by
reference. See "Where You Can Find More Information" on page 85.
The unaudited pro forma condensed combined statements of income assume the
merger was effected on January 1, 1998. The unaudited pro forma condensed
combined balance sheet gives effect to the merger as if it had occurred on
December 31, 2000. Since accounting policies of the combining companies are
substantially comparable, we did not make any conforming accounting policy
adjustments to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma combined financial information is for illustrative
purposes only. The financial results may have been different had the companies
actually been combined. Further, unaudited pro forma condensed combined
financial statements do not reflect the effect of any asset dispositions that
may be required by order of regulatory agencies. See note 7 on page 62 for more
information.
You should not rely on the unaudited pro forma combined financial
information as being indicative of the historical results that would have been
achieved had the companies been combined during the periods or the future
results that the combined company will experience after the merger.
-55-
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT DECEMBER 31, 2000
(Millions of dollars)
Historic Pro Forma Adjustments
------------------- --------------------------- Pro Forma
Chevron Texaco Caltex(6A) Other Combined
--------- ------- ---------- ----------- ---------
Assets
Cash and cash equivalents.................... $ 1,896 $ 207 $ 219 $ 6 (6B) $ 2,028
(300) (6E)
Marketable securities ....................... 734 46 11 - 791
Accounts and notes receivable, net........... 3,837 5,583 1,703 (385) (4) 10,759
21 (6B)
Inventories
Crude oil and petroleum products............. 631 814 533 - 1,978
Chemicals .................................. 191 - - - 191
Materials, supplies and other ............... 250 209 24 3 (6B) 486
---- ------ ------ ------ ------
1,072 1,023 557 3 2,655
Prepaid expenses and other current assets.... 674 194 54 - 922
------ ------ ------ ------ ------
Total Current Assets ........................ 8,213 7,053 2,544 (655) 17,155
Long-term receivables........................ 802 957 52 - 1,811
Investments and advances..................... 8,107 5,932 2,246 (4,294) (6A) 11,726
(204) (6B)
(59) (6C)
(2) (6F)
Properties, plant and equipment, at cost..... 51,908 32,821 9,693 166 (6B) 94,588
Less: accumulated depreciation, depletion
and amortization............................. 29,014 17,140 4,552 2 (6B) 50,708
------ ------ ------ ------ ------
Properties, plant and equipment, net ........ 22,894 15,681 5,141 164 43,880
Deferred charges and other assets ........... 1,248 1,244 239 15 (6B) 2,747
1 (6C)
------ ------ ------- ------ ------
Total Assets ................................ $41,264 $30,867 $10,222 $ (5,034) $77,319
======= ======= ======= ======== =======
-56-
Liabilities
Short-term debt ............................. $ 1,079 $ 376 $ 1,639 - $ 3,094
Accounts payable............................. 3,163 3,362 1,415 (385) (4) 7,660
5 (6B)
100 (5)
Accrued liabilities.......................... 1,530 1,299 193 - 3,022
Federal and other taxes on income............ 1,479 329 67 - 1,875
Other taxes payable.......................... 423 618 71 - 1,112
------ ------ ------ ------- ------
Total Current Liabilities.................... 7,674 5,984 3,385 (280) 16,763
Long-term debt .............................. 4,872 6,776 846 - 12,494
Capital lease obligations ................... 281 39 7 - 327
Deferred credits and other noncurrent obligations 1,704 1,246 1,344 - 4,294
Minority Interests .......................... 64 713 27 (58) (6C) 746
Noncurrent deferred income taxes ............ 4,908 1,547 232 - 6,687
Reserves for employee benefit plans ......... 1,836 1,118 87 - 3,041
------ ------ ------ ------- ------
Total Liabilities............................ 21,339 17,423 5,928 (338) 44,352
------ ------ ------ ------- ------
Stockholders' Equity
Preferred stock ............................. - 300 - (300) (6E) -
Common stock ................................ 534 1,774 355 (355) (6A) 852
(1,456) (6D)
Capital in excess of par value .............. 2,758 1,301 2 (2) (6A) 4,727
668 (6D)
Deferred compensation and benefit plan trust. (611) (310) - - (921)
Accumulated other comprehensive loss ........ (180) (130) (211) 211 (6A) (310)
Retained earnings ........................... 20,909 11,297 4,148 (4,148) (6A) 32,106
(100) (5)
Treasury stock, at cost ..................... (3,485) (788) - 788 (6D) (3,487)
(2) (6F)
------- ------- ------- ------- --------
Total Stockholders' Equity .................. 19,925 13,444 4,294 (4,696) 32,967
------- ------- ------- ------- --------
Total Liabilities and Stockholders' Equity .. $41,264 $30,867 $10,222 $(5,034) $77,319
======= ======= ======= ======= =======
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
-57-
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2000
(Millions of dollars except per-share amounts)
Historical Pro Forma Adjustments
------------------ ----------------------- Pro Forma
Chevron Texaco Caltex(6A) Other Combined
--------- -------- ------------ --------- -----------
Revenues and Other Income
Sales and other operating revenues*.......... $ 50,592 $ 52,638 $20,239 $(6,403) (4) $117,074
8 (6B)
Income from equity affiliates................ 750 785 85 (519) (6A) 1,076
(5) (6B)
(20) (6C)
Other income ................................ 787 97 80 (4) (6B) 960
------- ------- ------ ------ -------
Total Revenues and Other Income......... 52,129 53,520 20,404 (6,943) 119,110
------- ------- ------ ------ -------
Costs and Other Deductions
Purchased crude oil and products ............ 27,292 32,843 15,928 (6,334) (4) 69,729
Minority interests .......................... 6 125 - (20) (6C) 111
Operating expenses........................... 5,171 2,419 733 (69) (4) 8,260
6 (6B)
Selling, general and administrative expenses. 1,725 1,291 537 - 3,553
Exploration expenses ........................ 564 358 27 - 949
Depreciation, depletion and amortization .... 2,848 1,917 494 1 (6B) 5,260
Taxes other than on income* ................. 4,793 9,891 1,405 - 16,089
Interest and debt expense ................... 460 458 192 - 1,110
------- ------- ------ ------ -------
Total Costs and Other Deductions........ 42,859 49,302 19,316 (6,416) 105,061
------- ------- ------ ------ -------
Income Before Income Tax Expense ............ 9,270 4,218 1,088 (527) 14,049
Income Tax Expense .......................... 4,085 1,676 569 (8) (6B) 6,322
(107) (6F)
------- ------- ------ ------ -------
Net Income................................... $ 5,185 $ 2,542 $ 519 $ (519) $ 7,727
======== ======== ======= ====== ========
Per Share of Common Stock:
Net Income - Basic .......................... $ 7.98 $ 4.66 $ 7.22 (3)
- Diluted ........................ $ 7.97 $ 4.65 $ 7.21 (3)
Dividends ................................... $ 2.60 $ 1.80 $ 2.50 (3)
Weighted Average Number of
Shares Outstanding (thousands) - Basic ...... 649,948 542,322 1,067,494 (3)
- Diluted..... 651,085 543,952 1,069,928 (3)
* Includes consumer excise taxes ............ $ 4,060 $ 2,519 $ 22 $ 6,601
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
-58-
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1999
(Millions of dollars except per-share amounts)
Historical Pro Forma Adjustments
------------------ ----------------------- Pro Forma
Chevron Texaco Caltex(6A) Other Combined
--------- -------- ------------ --------- -----------
Revenues and Other Income
Sales and other operating revenues*.......... $35,448 $37,112 $14,942 $(4,071) (4) $83,431
Income from equity affiliates ............... 526 483 260 (390) (6A) 851
(10) (6B)
(18) (6C)
Other income ................................ 612 184 61 1 (6B) 858
------ ------ ------ ------ ------
Total Revenues and Other Income......... 36,586 37,779 15,263 (4,488) 85,140
------ ------ ------ ------ ------
Costs and Other Deductions
Purchased crude oil and products ............ 17,982 20,895 11,631 (4,014) (4) 46,494
Minority interests .......................... 4 83 2 (18) (6C) 71
Operating expenses .......................... 5,086 2,050 694 (57) (4) 7,765
(8) (6B)
Selling, general and administrative expenses. 1,404 1,186 604 - 3,194
Exploration expenses ........................ 538 501 33 - 1,072
Depreciation, depletion and amortization .... 2,866 1,543 459 - 4,868
Taxes other than on income*.................. 4,586 9,238 908 - 14,732
Interest and debt expense ................... 472 504 152 4 (6B) 1,132
------ ------ ------ ------ ------
Total Costs and Other Deductions ....... 32,938 36,000 14,483 (4,093) 79,328
------ ------ ------ ------ ------
Income Before Income Tax Expense ............ 3,648 1,779 780 (395) 5,812
Income Tax Expense .......................... 1,578 602 390 (5) (6B) 2,565
------ ------ ------ ------ ------
Net Income .................................. $ 2,070 $ 1,177 $ 390 $ (390) $ 3,247
======= ======= ======= ====== =======
Per Share of Common Stock:
Net Income - Basic........................... $3.16 $2.14 $3.01 (3)
- Diluted......................... $3.14 $2.14 $3.00 (3)
Dividends.................................... $2.48 $1.80 $2.43 (3)
Weighted Average Number of
Shares Outstanding (thousands) ..- Basic..... 656,537 535,369 1,068,758 (3)
- Diluted .. 659,457 537,860 1,073,683 (3)
* Includes consumer excise taxes $3,910 $ 2,097 $ 22 $ 6,029
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
-59-
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1998
(Millions of dollars except per-share amounts)
Historical Pro Forma Adjustments
------------------ ----------------------- Pro Forma
Chevron Texaco Caltex(6A) Other Combined
--------- -------- ------------ --------- -----------
Revenues and Other Income
Sales and other operating revenues* ......... $29,943 $33,088 $11,522 $(3,208) (4) $71,345
Income from equity affiliates................ 228 485 65 (143) (6A) 634
3 (6B)
(4) (6C)
Other income ................................ 386 227 74 - 687
------ ------ ------ ------ ------
Total Revenues and Other Income........ 30,557 33,800 11,661 (3,352) 72,666
------ ------ ------ ------ ------
Costs and Other Deductions
Purchased crude oil and products ............ 14,036 17,672 8,310 (3,208) (4) 36,810
Minority interests........................... 7 56 3 (4) (6C) 62
Operating expenses .......................... 4,827 2,262 573 3 (6B) 7,665
Selling, general and administrative expenses. 2,239 1,224 692 - 4,155
Exploration expenses ........................ 478 461 31 - 970
Depreciation, depletion and amortization .... 2,320 1,675 431 - 4,426
Taxes other than on income*.................. 4,411 9,294 980 - 14,685
Interest and debt expense ................... 405 480 172 - 1,057
------ ------ ------ ------ -------
Total Costs and Other Deductions....... 28,723 33,124 11,192 (3,209) 69,830
------ ------ ------ ------- -------
Income Before Income Tax Expense............. 1,834 676 469 (143) 2,836
Income Tax Expense .......................... 495 98 326 - 919
------- ------- ------- ------- -------
Net Income .................................. $ 1,339 $ 578 $ 143 $ (143) $ 1,917
======= ======= ======= ======= =======
Per Share of Common Stock:
Net Income - Basic.......................... $ 2.05 $ .99 $1.75 (3)
- Diluted...................... $ 2.04 $ .99 $1.75 (3)
Dividends ................................ $ 2.44 $ 1.80 $2.40 (3)
Weighted Average Number of
Shares Outstanding (thousands) - Basic....... 654,858 528,416 1,061,768 (3)
- Diluted .... 657,076 528,965 1,064,430 (3)
* Includes consumer excise taxes $ 3,756 $ 2,148 $ 26 $ 5,930
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
-60-
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
--------------------------------------------------------------------
Note 1. Basis of Presentation
The unaudited pro forma condensed combined statements of income are based on the
audited consolidated financial statements of Chevron and Texaco for the years
ended December 31, 2000, 1999 and 1998. The unaudited pro forma condensed
combined balance sheet is based on the audited consolidated financial statements
of Chevron and Texaco at December 31, 2000. The financial statements also
reflect the consolidation of entities commonly owned by Chevron and Texaco,
primarily Caltex. We have presented the consolidating financial data of Caltex
separately from other pro forma adjustments to aid your analysis of all pro
forma adjustments.
Chevron and Texaco consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United States and require
estimates that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities. In the opinion
of Chevron and Texaco, the unaudited pro forma condensed combined financial
statements include all adjustments necessary to present fairly the results of
the periods presented.
The unaudited pro forma combined financial information is for illustrative
purposes only. The financial results may have been different had the companies
always been combined. You should not rely on the unaudited pro forma combined
financial information as being indicative of the historic results that would
have been achieved had the companies actually been combined or the future
results that the combined company will experience after the merger.
Note 2. Accounting Policies and Financial Statement Classifications
Since the accounting policies of the combining companies are substantially
comparable, we did not make any accounting policy conformance adjustments to the
unaudited pro forma condensed combined financial statements.
Certain revenues, costs and other deductions in the consolidated statements of
income for Texaco and Caltex have been reclassified to conform to the line-item
presentation in the unaudited pro forma condensed combined statements of income.
Certain assets and liabilities in the consolidated balance sheets for Texaco and
Caltex have been reclassified to conform to the line-item presentation in the
unaudited pro forma condensed combined balance sheet.
Note 3. Unaudited Pro Forma Combined Net Income Per Share and Dividends Per
Share
The unaudited pro forma combined net income per common share is based on net
income less preferred stock dividends and the weighted average number of
outstanding common shares. Diluted net income per common share includes the
effect of dilutive securities, including stock options. The historical weighted
average number of outstanding common shares has been adjusted to reflect the
exchange ratio of 0.77 shares of ChevronTexaco common stock for each share of
Texaco common stock.
The pro forma combined dividends per share reflect the sum of the dividends paid
by Chevron and Texaco divided by the number of shares that would have been
outstanding for the periods, after adjusting the Texaco shares for the exchange
ratio of 0.77 shares of ChevronTexaco common stock.
Note 4. Intercompany Transactions
Intercompany sales and purchase transactions among Chevron, Texaco and Caltex
have been eliminated in the unaudited pro forma condensed combined statements of
income. Intercompany amounts receivable and payable have been eliminated in the
unaudited pro forma condensed combined balance sheet.
Note 5. Merger-Related and Integration-Related Expenses
Merger-related fees and expenses, consisting primarily of SEC filing fees; fees
and expenses of investment bankers, attorneys and accountants; and financial
printing and other related charges, are estimated to be approximately $125
-61-
million. Through December 31, 2000, approximately $25 million had been incurred.
The remaining fees and expenses of $100 million have been reflected in the
unaudited pro forma condensed combined balance sheet as of December 31, 2000.
Though not yet fully quantified, significant costs will be incurred for employee
severance and other integration-related expenses, including the elimination of
duplicate facilities, operational realignment and workforce reductions. These
expenditures are necessary to reduce the costs of ongoing operations and to
operate more effectively. These amounts will be charged to operations in the
appropriate periods and, therefore, are not reflected in the unaudited pro forma
condensed combined financial statements. The unaudited pro forma condensed
combined financial statements reflect neither the impact of these charges nor
the benefits from the expected synergies.
Note 6. Other Pro Forma Adjustments
(A) Pro forma adjustments have been made to consolidate the accounts of Caltex,
which is owned 50 percent each by Chevron and Texaco. Both companies accounted
for their respective investments in Caltex using the equity method.
(B) Pro forma adjustments have been made to consolidate the accounts of P.T.
Mandau Cipta Tenaga Nusantara, an Indonesian company, which is owned jointly by
the combining companies and which was accounted for by Chevron and Texaco using
the equity method.
(C) Pro forma adjustments have been made for certain accounts relating to Fuel
and Marine Marketing LLC (FAMM), which is owned 69 percent by Texaco and 31
percent by Chevron. Texaco consolidated the results of FAMM and recorded entries
to reflect Chevron's minority interest. Chevron accounted for its share of FAMM
using the equity method.
(D) A pro forma adjustment has been made to reflect the cancellation of
approximately 18 million shares of Texaco common stock accounted for as treasury
stock and the assumed issuance of approximately 420 million shares of Chevron
common stock in exchange for all of the outstanding Texaco common stock (based
on the exchange ratio of 0.77). The actual number of shares of Chevron common
stock to be issued in connection with the merger will be based on the number of
shares of Texaco common stock issued and outstanding at the effective time.
(E) A pro forma adjustment has been made for the redemption of Texaco's 1,200
Market Auction Preferred Shares at their liquidation preference of $250,000 per
share as provided for in the Merger Agreement.
(F) A pro forma adjustment has been made to reclassify 24,999 shares of Chevron
and 20,640 shares of Texaco owned by Caltex at December 31, 2000 to treasury
stock, at cost. The Texaco shares have been converted to Chevron stock at the
exchange ratio of 0.77. The shares reclassified to treasury stock have been
excluded from the pro forma number of shares outstanding at December 31, 2000.
Note 7. Expected Asset Dispositions
We anticipate that the Federal Trade Commission will require certain asset
dispositions as a condition of not challenging the merger. While the scope and
method of such dispositions are not fully known at this time, we do anticipate
being required to make divestitures of Texaco's interests in two joint ventures
involved in the United States refining, marketing and transportation businesses
in order to address market concentration concerns. We believe that we will be
able to resolve these concerns by the disposition of Texaco's interests in
Equilon and Motiva. Since discussions with the FTC are ongoing, the unaudited
pro forma condensed combined financial statements do not include any adjustments
for the anticipated divestiture of Equilon and Motiva or for any other
operations of the combined company. At December 31, 2000, Texaco's combined
investment in Equilon and Motiva, in millions, was $2,467. For the year ended
December 31, 2000, Texaco's combined after-tax equity in net income of Equilon
and Motiva, in millions, was $198.
-62-
BUSINESS RELATIONSHIPS BETWEEN CHEVRON AND TEXACO
The Caltex Group of Companies
Chevron and Texaco each hold a 50 percent interest in the Caltex Group of
Companies, which consists of
o Caltex Corporation, which, through its subsidiaries and affiliates,
conducts refining, trading and marketing activities principally in Asia,
Africa, the Middle East, Australia and New Zealand;
o P.T. Caltex Pacific Indonesia, an exploration and production company
operating in Indonesia; and
o American Overseas Petroleum Limited, which, through its subsidiary,
manages operations in Indonesia.
Chevron and Texaco created the Caltex Group of Companies in 1936. For more
information about the Caltex Group of Companies, please see the financial
statements and related notes contained in the annual reports and other
information that Chevron and Texaco have filed with the SEC and incorporated by
reference in this joint proxy statement/prospectus. See "Where You Can Find More
Information" on page 85.
Fuel and Marine Marketing LLC (FAMM)
Chevron and Texaco formed FAMM in 1998. FAMM is a joint venture which
purchases residual fuel oil from Chevron and Texaco, including the residual fuel
output of Chevron's and Texaco's refineries worldwide and other suppliers, and
markets that fuel to marine vessel operators, power plants and other industrial
users. FAMM also conducts research, development and marketing of marine
lubricants, coolants and other maritime products. Texaco holds 69 percent of
FAMM and Chevron owns 31 percent. For more information about FAMM, please see
information that Chevron and Texaco have filed with the SEC and incorporated by
reference in this joint proxy statement/prospectus. See "Where You Can Find More
Information" on page 85.
P.T. Mandau Cipta Tenaga Nusantara
Chevron and Texaco formed P. T. Mandau Cipta Tenaga Nusantara, or MCTN, in
1998. MCTN is an Indonesian company which provides steam and electricity supply
for operations in Indonesia. Chevron and Texaco each hold 47.5 percent of MCTN.
See note 6 on page 62 for more information about MCTN.
-63-
THE MERGER AGREEMENT
The following summary highlights material terms of the merger agreement.
This summary is qualified by reference to the complete text of the merger
agreement, which is incorporated by reference into this booklet and attached as
Annex A. We urge you to read the full text of the merger agreement.
Structure of the Merger
Under the merger agreement, a Chevron subsidiary will merge with and into
Texaco so that Texaco becomes a wholly-owned subsidiary of ChevronTexaco.
Timing of Closing
We expect that the closing will occur on the day on which the last of the
conditions set forth in the merger agreement has been satisfied or waived. Under
the merger agreement, Texaco may not hold its stockholder meeting until such
time at which, in the reasonable judgment of Chevron and Texaco, all conditions
to closing (other than Texaco stockholder approval) have been satisfied or are
then capable of being satisfied or to the extent legally permissible have been
waived by the applicable party. As such, assuming Texaco stockholders approve
the merger, we expect to close the transaction immediately after the Texaco
stockholders meeting. Immediately upon the closing of the merger, we will file a
certificate of merger with the Secretary of State of the State of Delaware, at
which time the merger will be effective. The Chevron name change will only take
effect if the merger closes and Chevron stockholders have approved the name
change.
Merger Consideration
The merger agreement provides that each share of Texaco common stock
outstanding immediately prior to the effective time will, at the effective time,
be converted into the right to receive 0.77 shares of ChevronTexaco common
stock. However, any shares of Texaco common stock held by Texaco as treasury
stock or owned by Chevron or any subsidiary of Chevron will be canceled without
any payment for those shares. Shares held in Texaco's stock grantor trust will
not be treated as treasury stock for this purpose.
Treatment of Texaco Stock Options; Other Texaco Stock-Based Awards
At the effective time, each outstanding option granted by Texaco to
purchase shares of Texaco common stock will be converted into an option to
acquire ChevronTexaco common stock having the same terms and conditions as the
Texaco stock option had before the effective time. The number of shares that the
new ChevronTexaco option will be exercisable for and the exercise price of the
new ChevronTexaco option will be adjusted in accordance with the exchange ratio
in the merger.
Each other stock-based award granted by Texaco under its employee or
director plans or arrangements maintained as of October 15, 2000 will be
converted, as of the effective time, into a similar ChevronTexaco stock-based
award, adjusted as appropriate to preserve the award's inherent value. For
additional information on Texaco stock-based awards, see "Interests of Directors
and Officers in the Merger" on page 47.
Exchange of Shares
We will appoint an exchange agent to handle the exchange of Texaco stock
certificates in the merger for ChevronTexaco stock and the payment of cash for
fractional shares of ChevronTexaco stock. Soon after the closing, the exchange
agent will send to each holder of Texaco stock a letter of transmittal for use
in the exchange and instructions explaining how to surrender Texaco stock
certificates to the exchange agent. Holders of Texaco stock who surrender their
certificates to the exchange agent, together with a properly completed letter of
transmittal, will receive the appropriate merger consideration. Holders of
unexchanged shares of Texaco stock will not be entitled to receive any dividends
or other distributions payable by ChevronTexaco after the closing until their
certificates are surrendered. Exchange procedures for participants in Texaco's
Investor Services Plan are described on page 54 under "Effect of Merger on
Texaco Investor Services Plan."
-64-
ChevronTexaco will not issue any fractional shares in the merger. Holders
of Texaco common stock will receive a cash payment in the amount of the proceeds
from the sale of their fractional shares in the market.
ChevronTexaco Board and Related Matters
Chevron has agreed to take the necessary corporate action so that, as of
the closing:
o The ChevronTexaco board size will be increased to 15 directors.
o Mr. Tilton will become a Vice Chairman of the ChevronTexaco board.
o Five directors of Texaco designated by Texaco, in addition to Mr. Tilton,
will also become directors of ChevronTexaco.
o At least one Texaco designee will become a member of each committee of
the ChevronTexaco board.
Covenants
Each of Chevron and Texaco has undertaken various covenants in the merger
agreement. The following summarizes the more significant of these covenants.
No Solicitation. Each of Chevron and Texaco has agreed that it and its
subsidiaries and their officers, directors, employees and advisers will not take
action to solicit or encourage an offer for an alternative acquisition
transaction involving Chevron or Texaco. An "alternative acquisition
transaction" is any offer or proposal for, or indication of interest in, any:
o direct or indirect acquisition or purchase of a business or asset of
Chevron or Texaco or any of its subsidiaries that constitutes 20 percent
or more of the net revenue, net income or assets of Chevron or Texaco and
its subsidiaries, taken as a whole;
o direct or indirect acquisition or purchase of 20 percent or more of any
class of equity securities of Chevron or Texaco or of any of its
subsidiaries whose business constitutes 20 percent or more of the net
revenue, net income or assets of Chevron or Texaco and its subsidiaries,
taken as a whole;
o tender offer or exchange offer that, if completed, would result in any
person owning 20 percent or more of any class of equity securities of
Chevron or Texaco, or any of its subsidiaries whose business constitutes
20 percent or more of the net revenue, net income or assets of Chevron or
Texaco and its subsidiaries, taken as a whole; or
o merger, consolidation, business combination, joint venture, partnership,
recapitalization, liquidation, dissolution or similar transaction
involving Chevron or Texaco or any of its subsidiaries whose business
constitutes 20 percent or more of the net revenue, net income or assets
of Chevron or Texaco and its subsidiaries, taken as a whole.
Excluded from this definition are transactions by Chevron that would not
materially delay the merger and that are otherwise not prohibited by the merger
agreement, and the disposition by Texaco of its interests in Equilon and Motiva.
Restricted actions include engaging in discussions or negotiations with any
potential bidder, disclosing non-public information or affording access to their
properties, books or records to a potential bidder. These actions are permitted
in response to an unsolicited bona fide offer so long as prior to doing so:
o the Chevron or Texaco board, as applicable, concludes in good faith,
after receipt of the advice of a financial advisor of nationally
recognized reputation and outside legal counsel, that such offer
is reasonably likely to result in a superior proposal with respect to
Chevron or Texaco, as applicable;
o Chevron or Texaco, as applicable, complies with all of its obligations
under the merger agreement; and
-65-
o the Chevron or Texaco board, as applicable, receives from such person an
executed confidentiality agreement with terms no less favorable to
Chevron or Texaco and no less restrictive to such person than those
contained in the existing confidentiality agreement between Chevron and
Texaco.
Any party must keep the other informed of the identity of any potential
bidder and the terms and status of any offer.
Texaco Board's Covenant to Recommend. The Texaco board has agreed to
recommend the approval and adoption of the merger agreement to Texaco's
stockholders. However, the Texaco board is permitted not to make this
recommendation or to withdraw or modify it in a manner adverse to Chevron if:
o Texaco has received a superior proposal;
o the Texaco board determines in its good faith judgment, after receiving
the advice of outside legal counsel, that in light of the superior
proposal, failure to withdraw or modify its recommendation would be
reasonably likely to be inconsistent with fulfilling its fiduciary duty
to stockholders under applicable law;
o Texaco has given Chevron five business days' advance written notice of
its decision to withdraw or modify its recommendation;
o Texaco has given Chevron the opportunity to propose revisions to the
merger agreement in response to the superior proposal and negotiated in
good faith with Chevron with respect to those revisions; and
o Texaco has complied with its obligations under the no solicitation
covenant described above under "No Solicitation."
Even if the Texaco board changes, in a manner adverse to Chevron, its
recommendation in favor of the merger, Texaco must still call a stockholders'
meeting as otherwise required by the merger agreement to vote on the approval
and adoption of the merger agreement and the merger.
Chevron Board's Covenant to Recommend. The Chevron board has agreed to
recommend to Chevron's stockholders the approval of the issuance of common stock
in the merger and the amendment of Chevron's restated certificate of
incorporation to change its name. However, the Chevron board is permitted not to
make this recommendation, or to withdraw or modify it in a manner adverse to
Texaco if:
o Chevron has received a superior proposal;
o the Chevron board determines in its good faith judgment, after receiving
the advice of outside legal counsel, that in light of the superior
proposal, failure to withdraw or modify its recommendation would be
reasonably likely to be inconsistent with fulfilling its fiduciary duty
to stockholders under applicable law;
o Chevron has given to Texaco five business days' advance written notice of
its decision to withdraw or modify its recommendation;
o Chevron has given Texaco the opportunity to propose revisions to the
merger agreement in response to the superior proposal and negotiated in
good faith with Texaco with respect to those revisions; and
o Chevron has complied with its obligations under the no solicitation
covenant described above under "No Solicitation."
Even if the Chevron board changes, in a manner adverse to Texaco, its
recommendation in favor of the merger, Chevron must still call a stockholders'
meeting as otherwise required by the merger agreement to vote on the common
stock issuance and the name change amendment. The merger agreement provides that
the Chevron stockholders' meeting may be held on the same date as the Texaco
stockholders' meeting, but that it must conclude prior to the Texaco
stockholders' meeting.
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Interim Operations of Chevron and Texaco. Each of Chevron and Texaco has
undertaken a separate covenant that places restrictions on it and its
subsidiaries until either the merger becomes effective or the merger agreement
is terminated. In general, Chevron and its subsidiaries and Texaco and its
subsidiaries are required to conduct their business in the ordinary course
consistent with past practice and in a manner not representing a new strategic
direction and to use their reasonable best efforts to preserve intact their
business organizations and relationships with third parties. The companies have
also agreed to some specific restrictions which are subject to exceptions
described in the merger agreement. The following table summarizes the more
significant of these restrictions undertaken by each company:
Restricted actions: Chevron Texaco
Amendment of its organizational documents |X| |X|
Entering into any merger, liquidation or other significant transaction |X| |X|
Issuance or disposal of equity securities, options or other securities
convertible into or exercisable for equity securities |X| |X|
Split, combination or reclassification of its capital stock |X| |X|
Declaration of dividends, except for regular quarterly or periodic cash or other
required dividends as they may periodically be increased consistent with
past practice |X| |X|
Redemption or repurchase of its capital stock |X| |X|
Amendment of the terms of any outstanding stock options |X|
Capital expenditures except within the budget for a given year, subject to
ordinary course exceptions |X|
Increase in employee compensation or benefits except for normal ordinary course
increases consistent with past practice |X|
Acquisition of material assets, except in ordinary course consistent with past
practice |X|
Disposal of material assets, except in ordinary course consistent with past
practice or under existing commitments |X| |X|
Entering into any material joint venture or partnership |X|
Any tax election or change in an existing tax election relating to a material
tax liability |X| |X|
Entering into any agreement that would prevent ChevronTexaco or any of its
subsidiaries from competing in any line of business or geographic area |X|
Changing accounting policies |X| |X|
Any other action that would make any representation or warranty by it
inaccurate in any material respect |X| |X|
Any action that delays or impedes the merger |X| |X|
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Best Efforts Covenant. Chevron and Texaco have agreed to cooperate with
each other and use their best efforts to take all actions and do all things
necessary or advisable under the merger agreement and applicable laws to
complete the merger and the other transactions contemplated by the merger
agreement. However, neither Chevron nor Texaco is required to take any action if
that action would reasonably be expected to result in a material adverse effect
on Chevron, Texaco and their subsidiaries, taken as a whole, following the
merger.
Chevron and Texaco anticipate that there will be objections raised by the
FTC to the combination of Chevron's U.S. downstream operations with Texaco's
alliance interests in two joint ventures, Equilon Enterprises LLC and Motiva
Enterprises LLC. In this regard, Texaco and Chevron have agreed to jointly
determine how to promptly address any FTC objections to the merger. If any such
objections require negotiations regarding Equilon and Motiva, Texaco has agreed
to negotiate, in consultation with Chevron, definitive agreements responsive to
the regulatory requirements. The merger agreement further provides that if an
agreement of this kind is required and Texaco has not entered into such an
agreement 15 days before the date of the Texaco stockholders' meeting for the
merger, Mr. O'Reilly and Mr. Tilton will meet to discuss the status of such
efforts by Texaco. Chevron and Texaco have agreed to place Texaco's alliance
interests in a liquidating trust if necessary to achieve any remaining
conditions to closing.
The merger agreement specifically provides that a disposition of Texaco's
alliance interests in Equilon and Motiva under agreements contemplated above
will not be deemed to have a material adverse effect on Texaco for purposes of
determining whether conditions to closing have been satisfied. Conversely, the
merger agreement also provides that any requirement imposed by a regulatory
agency to sell, hold separate or limit in any material respect the operations of
Chevron's refining and marketing business in the Western United States will be
deemed to have a material adverse effect on Chevron for purposes of determining
whether conditions to closing have been satisfied and would therefore give
Chevron the option not to complete the merger.
Chevron and Texaco do not expect that any regulatory agency will impose a
requirement in connection with the merger that Chevron sell, hold separate or
limit in any material respect Chevron's Western U.S. refining and marketing
business.
Employee Benefits Matters. The merger agreement provides that Chevron will
cause the surviving corporation to honor in accordance with their terms all
obligations under Texaco's executive benefit arrangements and under all other
existing Texaco employee and retiree arrangements and plans to the extent
entitlements or rights exist under those arrangements or plans as of the
effective time of the merger. Chevron and Texaco have agreed that the merger
will constitute a change in control under Texaco's employment arrangements and
benefit plans in accordance with the terms of those arrangements and plans.
Chevron has also agreed, following the closing, to provide Texaco employees
who were employed by Texaco or its subsidiaries at the closing and who continue
as employees of ChevronTexaco or its subsidiaries, for so long as they remain so
employed, employee benefits, under benefit plans and arrangements as provided to
those employees immediately prior to the closing, or under benefit plans and
arrangements maintained by Chevron providing coverage and benefits which, in the
aggregate, are no less favorable than those provided to employees of Chevron in
positions comparable to the positions held by the continuing Texaco employees.
In addition, Chevron has agreed that, following the closing, ChevronTexaco
will continue to provide former employees of Texaco and its subsidiaries (and to
Texaco employees whose employment terminates prior to the closing)
post-retirement benefits, other than pensions, under benefit plans and
arrangements applicable to those retirees as in effect as of October 15, 2000,
or under benefit plans or arrangements maintained by Chevron or its subsidiaries
providing post-retirement coverage and benefits, other than pensions, which, in
the aggregate, are no less favorable than those provided to former employees of
Chevron.
Please see "Interests of Directors and Officers in the Merger," beginning
on page 47, for additional information on employee benefits matters covered in
the merger agreement.
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Indemnification and Insurance of Texaco Directors and Officers. Chevron has
agreed that:
o it will indemnify former Texaco directors, officers and employees for
liabilities from their acts or omissions in those capacities occurring
prior to closing to the extent provided under Texaco's certificate of
incorporation and by-laws as in effect on October 15, 2000;
o it will cause Texaco to honor all indemnification agreements with its
former directors, officers and employees in effect as of October 15,
2000; and
o for six years after the merger becomes effective, it will provide
officers' and directors' liability insurance covering acts or omissions
occurring prior to the effective time of the merger by each person
currently covered by Texaco's officers' and directors' liability
insurance policy. This ChevronTexaco policy must be no less favorable
than the Texaco policy in effect on October 15, 2000, except that
ChevronTexaco will be obligated to pay only up to 300 percent of the
annual premium paid by Texaco for such insurance as of October 15, 2000.
Chevron may provide this coverage through a policy underwritten by a
wholly-owned Chevron subsidiary.
Other Covenants. The merger agreement contains additional mutual covenants
of the parties, including an agreement not to jeopardize the intended tax or
accounting treatment of the merger.
Representations and Warranties
The merger agreement contains substantially reciprocal representations and
warranties made between Chevron and Texaco. The most significant of these relate
to:
o corporate authorization to enter into the transactions contemplated by
the merger agreement;
o the stockholder votes and governmental approvals required in connection
with the contemplated transactions;
o absence of any breach of organizational documents, law or various
material agreements as a result of the contemplated transactions;
o capitalization;
o ownership of subsidiaries;
o filings with the SEC;
o financial statements;
o accuracy of information provided for inclusion in this joint proxy
statement/prospectus;
o absence of material changes since a specified balance sheet date;
o absence of undisclosed material liabilities;
o litigation;
o tax matters;
o employee benefits matters; o compliance with laws;
o finders' or advisors' fees;
o environmental matters;
o the receipt of accountants' letters regarding accounting treatment of the
merger;
o absence of circumstances inconsistent with the intended accounting
treatment of the merger;
o inapplicability of the Delaware anti-takeover statute; and
o amendments to stockholder rights plans to render them inapplicable to the
merger and the stock options.
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In addition, Texaco represents and warrants to the best of its knowledge
and belief to Chevron as to the audited consolidated financial statements of
each of Equilon Enterprises LLC and Motiva Enterprises LLC.
The representations and warranties in the merger agreement do not survive
the closing or termination of the merger agreement.
Conditions to the Completion of the Merger
Mutual Closing Conditions. The obligations of Chevron and Texaco to
complete the merger are subject to the satisfaction or, to the extent legally
permissible, waiver of the following conditions:
o approval by the Chevron stockholders of the common stock issuance in the
merger;
o approval by the Texaco stockholders of the merger agreement and the
merger;
o expiration of the HSR Act waiting period;
o approval by the European Commission of the contemplated transactions;
o absence of any legal prohibition on completion of the merger or any legal
requirement that, if not complied with, will be reasonably likely to have
a material adverse effect on ChevronTexaco following the merger;
o Chevron's registration statement on Form S-4, which includes this proxy
statement/prospectus, being effective and not subject to any stop order
by the SEC;
o approval for the listing on the NYSE of the shares of Chevron common
stock to be issued in the merger;
o receipt of a letter from the independent accountants of Chevron
reconfirming their concurrence with Chevron's management that
"pooling-of-interests" accounting treatment for the merger is
appropriate;
o receipt of a letter from the independent public accountant of Texaco
reconfirming their concurrence with Texaco's management that Texaco is
eligible to participate in a "pooling-of-interests" transaction;
o absence of any condition to approval of the merger by the Federal Trade
Commission or the Department of Justice that would be reasonably likely
to result in a material adverse effect on ChevronTexaco following the
merger;
o absence of any proceeding seeking to limit Chevron's ownership of Texaco
or to compel divestiture of assets, in either case that would be
reasonably likely to result in a material adverse effect on ChevronTexaco
following the merger;
o absence of any statute, rule or other governmental order applicable to
the merger that would be reasonably likely to result in a material
adverse effect on ChevronTexaco following the merger;
o receipt of all material regulatory approvals for the merger on terms that
are not reasonably likely to result in a material adverse effect on
ChevronTexaco following the merger;
o performance in all material respects by the other party of the
obligations required to be performed by it at or prior to closing;
o accuracy as of closing of the representations and warranties made by the
other party to the extent specified in the merger agreement;
o receipt of opinions of Chevron's and Texaco's counsel that the merger
will qualify as a tax-free reorganization; and
o absence of a material adverse effect or any reasonable likelihood of a
material adverse effect on Chevron or Texaco during the period from
October 15, 2000 until closing.
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For purposes of the applicable closing conditions listed above, any
requirement imposed by a regulatory agency to sell, hold separate, or limit in
any material respect the operations of Chevron's refining and marketing business
in the Western United States will be deemed to have a material adverse effect on
ChevronTexaco following the merger.
Satisfaction of Closing Conditions. On March 1, 2001, the European
Commission announced that it had approved the merger. The other conditions
listed above have not been satisfied and may not be satisfied until immediately
prior to the closing.
Termination of the Merger Agreement
Right to Terminate. The merger agreement may be terminated at any time
prior to the closing in any of the following ways:
(a) by mutual written consent of Chevron and Texaco.
(b) by either Chevron or Texaco if:
o the merger has not been completed by October 15, 2001. However,
that date becomes April 15, 2002 if the reason for not closing by
October 15, 2001 is that the regulatory conditions specified in the
merger agreement have not been satisfied by that date;
o Chevron or Texaco stockholders fail to give the necessary approvals;
or
o there is a permanent legal prohibition to closing the merger.
(c) by Chevron if the Texaco board fails to recommend the merger or
withdraws or modifies in a manner adverse to Chevron its approval or
recommendation of the merger, breaches its agreement to call the Texaco
meeting or recommends a superior offer.
(d) by Texaco if the Chevron board fails to recommend the merger or
withdraws or modifies in a manner adverse to Texaco its approval or
recommendation of the common stock issuance or name change, breaches
its agreement to call the Chevron meeting or recommends a superior
offer.
(e) by Chevron or Texaco if the other party has breached its
representations, warranties, covenants or obligations under the merger
agreement, which breach would result in the failure to satisfy related
closing conditions and such breach shall be incapable of being cured,
or, if capable of being cured, shall not have been cured within 30 days
after written notice thereof was received.
Neither Chevron nor Texaco can terminate the merger agreement for the
reasons described in the first bullet under paragraph (b) above if its failure
to fulfill in any material respect its obligations under the merger agreement
has resulted in the failure to complete the merger.
If the merger agreement is validly terminated, the agreement will become
void without any liability on the part of any party unless such party is in
willful breach. However, the provisions of the merger agreement relating to
expenses and termination fees, as well as the confidentiality agreement and the
stock option agreements entered into between Chevron and Texaco, will continue
in effect notwithstanding termination of the merger agreement.
Termination Fees Payable by Texaco. Texaco has agreed to pay Chevron a cash
amount equal to $500 million in any of the following circumstances:
o Chevron terminates the merger agreement as described in paragraph (c)
under "Right to Terminate" above;
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o either Chevron or Texaco terminates the merger agreement if Texaco
stockholders fail to give the necessary approval at a duly held meeting
and prior to such meeting an alternative offer was made to Texaco or its
stockholders; or
o a third party makes an alternative offer to Texaco or its stockholders
and thereafter the merger agreement is terminated as described in the
first bullet of paragraph (b) above.
Texaco has agreed to pay Chevron an additional termination fee of $500 million
in cash if an alternative transaction is agreed to or consummated within 12
months after the termination of the merger agreement.
Termination Fees Payable by Chevron. Chevron has agreed to pay Texaco a
cash amount equal to $500 million in any of the following circumstances:
o Texaco terminates the merger agreement as described in paragraph (d)
under "Right to Terminate" above;
o either Texaco or Chevron terminates the merger agreement if Chevron
stockholders fail to approve the common stock issuance at a duly held
meeting and prior to such meeting an alternative offer was made to
Chevron or its stockholders; or
o a third party makes an alternative offer to Chevron or its stockholders
and thereafter the merger agreement is terminated as described in the
first bullet of paragraph (b) above.
Chevron has agreed to pay Texaco an additional termination fee of $500 million
in cash if an alternative transaction is agreed to or consummated within 12
months after the termination of the merger agreement.
Expenses
Except as described above, all costs and expenses incurred in connection
with the merger agreement and related transactions will be paid by the party
incurring such costs or expenses. We estimate that merger-related fees and
expenses, consisting primarily of SEC filing fees, fees and expenses of
investment bankers, attorneys and accountants, and financial printing and other
related charges, will total approximately $125 million assuming the merger is
completed.
Amendments; Waivers
Any provision of the merger agreement may be amended or waived prior to
closing if the amendment or waiver is in writing and signed, in the case of an
amendment, by Texaco, Chevron and the merger subsidiary or, in the case of a
waiver, by the party against whom the waiver is to be effective. After the
approval of the merger agreement by the stockholders of Texaco, no amendment or
waiver shall change the amount or kind of merger consideration or any term of
Chevron's or Texaco's certificate of incorporation or otherwise adversely affect
the Texaco stockholders without the further approval of such stockholders.
Stock Option Agreements
The following summary of the stock option agreements is qualified by
reference to the complete text of the two stock option agreements, which are
incorporated by reference into this proxy statement/prospectus and attached as
Annex B and Annex C.
General. At the same time that Chevron and Texaco entered into the merger
agreement, they also entered into two separate stock option agreements. Under
the stock option agreements, Texaco granted Chevron an irrevocable option to
purchase up to 107,000,000 shares of Texaco common stock at a price per share of
$53.71, and Chevron granted Texaco an irrevocable option to purchase up to
127,000,000 shares of Chevron common stock at a price per share of $85.96. The
exercise price of each option was calculated based on the average of the closing
prices of the stock subject to the option for the ten trading days prior to the
announcement of the merger agreement. The options are exercisable in the
circumstances described below.
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Exercise of the Stock Option. Chevron can exercise the option in whole or
in part at any time after the occurrence of any event, which we call a trigger
event in this section, entitling Chevron to receive the cash termination fee
payable by Texaco under the merger agreement (see "--Termination of the Merger
Agreement--Termination Fees Payable by Texaco" on pages 71 and 72) and prior to
termination of the option. Texaco can exercise the option in whole or in part at
any time after the occurrence of any event, which we call a trigger event in
this section, entitling Texaco to receive the cash termination fee payable by
Chevron under the merger agreement (see "--Termination of the Merger
Agreement--Termination Fees Payable by Chevron" on page 72) and prior to
termination of the option.
The option terminates upon the earliest to occur of
o the closing of the merger;
o 90 days after Chevron or Texaco, as applicable, has paid the cash
termination fee in full; or
o one day after termination of the merger agreement so long as no trigger
event has occurred or could still occur.
The exercise price and number of option shares are also subject to
anti-dilution and other adjustments specified in the stock option agreements.
Any purchase of option shares is subject to specified closing conditions,
including receipt of applicable regulatory approvals. The closing of any
purchase of option shares may be postponed for up to nine months beyond the
termination of the option pending satisfaction of the conditions to purchase.
Cash Election. The stock option agreements further provide that, so long as
the option is exercisable, Chevron or Texaco, as applicable, may, instead of
exercising the option, elect to require the other party to pay, in exchange for
the cancellation of the relevant portion of the option, an amount in cash equal
to the "spread" (as defined below) multiplied by the number of option shares as
to which such a cash election is made.
"Spread" means the excess, if any, over the exercise price of the higher of
o the highest price per share of Texaco common stock or Chevron common
stock, as applicable, paid or proposed to be paid by any third party
under an alternative acquisition proposal (which we call the alternative
exercise price) and
o the average of the closing price of shares of Texaco common stock or
Chevron common stock, as applicable, on the NYSE, at the end of the
regular session, as reported on the Consolidated Tape, Network A for the
five consecutive trading days ending on the trading date immediately
preceding the date on which Chevron or Texaco notifies the other party
that it intends to make a cash election (which we call the average
market price).
At any time following exercise of either of the stock options, the company
against which the option was exercised has the right, within 5 business days
after written notice to the other, to purchase for cash all of the option shares
at a purchase price per share equal to the higher of the alternative exercise
price or the average market price.
Limitation on Total Profit. The stock option agreements provide that,
notwithstanding any other provision of the stock option agreements or the merger
agreement, neither company's total profit (as defined below) will exceed $1.1
billion in the aggregate. If either party's total profit otherwise would exceed
such amount that party, at its sole election, may pay cash to the other, deliver
to the other for cancellation option shares previously acquired by it or any
combination thereof, so that its actually realized total profit does not exceed
$1.1 billion after taking into account the foregoing actions.
For purposes of the stock option agreements, "total profit" means the
aggregate amount, before taxes, of the following: (1) (x) the cash amount
actually received by a party in payment by the other party of the termination
fee under the merger agreement, less (y) any repayment by that party as
described in the preceding paragraph; (2) the net cash amounts received by that
party upon the sale of option shares (or of any other securities into or for
which such option shares are converted or exchanged), less its purchase price
for such option shares (or other securities),
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plus (3) the aggregate amount received by that party upon exercise of the
cash election described under "Cash Election" above.
The stock option agreements also provide that, notwithstanding any other
provision of the agreements, the option may not be exercised for a number of
option shares that would, as of the date of exercise, result in a notional total
profit (as described below) exceeding $1.1 billion. For purposes of the stock
option agreements, the "notional total profit" with respect to the option shares
for which Chevron or Texaco may propose to exercise the option means the total
profit determined as of the date a party notifies the other party of its intent
to exercise the option and assuming that the applicable option shares, together
with all other option shares previously acquired upon exercise of the option and
held by the exercising party or its affiliates as of such date, were sold for
cash at the NYSE closing price on the preceding trading day.
Listing and Registration Rights. Each of Chevron and Texaco has agreed to
list the option shares on the NYSE and to grant the other customary rights to
require registration of the option shares under the securities laws.
Effect of Options. The options are intended to make it more likely that the
merger will be completed on the agreed terms and to compensate Chevron or Texaco
for its efforts and costs in case the merger is not completed under
circumstances generally involving a third party proposal for a business
combination with the other party. Among other effects, the options could also
prevent an alternative business combination with either party from being
accounted for as a "pooling-of-interests." The options may therefore discourage
proposals for alternative business combinations with Texaco and Chevron even if
a third party were prepared to offer Texaco stockholders consideration with a
higher market value than the value of the ChevronTexaco stock to be exchanged
for Texaco stock in the merger.
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INFORMATION ABOUT THE MEETINGS AND VOTING
Chevron's board of directors is using this joint proxy statement/prospectus
to solicit proxies from the holders of Chevron common stock for use at the
Chevron meeting. Texaco's board of directors is also using this document to
solicit proxies from the holders of Texaco common stock for use at the Texaco
meeting. We are first mailing this joint proxy statement/prospectus and
accompanying form of proxy to Chevron and Texaco stockholders on or about
_________, 2001.
Matters Relating to the Meetings
Chevron Meeting Texaco Meeting
Time and Place:
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Purpose of Meeting is 1. The proposed issuance of 1. The proposal to approve and adopt
to Vote on the ChevronTexaco common stock to the Texaco the merger agreement and the merger.
Following Items: stockholders under the terms of the
merger agreement; and
2. The proposed amendment to Chevron's
restated certificate of incorporation to
change its name to "ChevronTexaco
Corporation" upon the closing of the
merger.
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Record Date: The record date for shares entitled to vote The record date for shares entitled to vote
is _______, 2001. is ________, 2001.
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Outstanding At ______, 2001, there were __________ At ______, 2001, there were _________
Shares on shares of Chevron common stock outstanding. shares of Texaco common stock outstanding.
Record Date:
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Shares Entitled to Shares entitled to vote are shares of Chevron Shares entitled to vote are shares of Texaco
Vote: common stock held at the close of business on common stock held at the close of business on
the record date, ______, 2001. the record date, _______, 2001.
Each share of Chevron common stock that you Each share of Texaco common stock that you
own entitles you to one vote. own entitles you to one vote.
Shares held by Chevron in its treasury are Shares held by Texaco in its treasury are not
not voted. voted. This does not include shares held in its
stock grantor trust, which are treated in a
manner similar to treasury shares for
accounting purposes only.
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Quorum A quorum of stockholders is necessary to hold A quorum of stockholders is necessary to hold a
Requirement: a valid meeting. valid meeting.
The presence in person or by proxy at the The presence in person or by proxy at the
meeting of holders of shares representing a meeting of holders of shares representing a
majority of the votes of the Chevron common majority of the votes of the Texaco common stock
stock entitled to vote at the meeting is a entitled to vote at the meeting is a quorum.
quorum. Abstentions and broker "non-votes" Abstentions and broker "non-votes" count as
count as present for establishing a quorum. present for establishing a quorum. Shares held
Shares held by Chevron in its treasury do not by Texaco in its treasury do not count toward a
count toward a quorum. quorum, except for shares held in its stock
grantor trust, which are treated in a manner
A broker "non-vote" occurs on an item when a similar to treasury shares for accounting purposes
broker is not permitted to vote on that item only.
without instruction from the beneficial owner
of the shares and no instruction is given. A broker "non-vote" occurs on an item when a
broker is not permitted to vote on that item
without instruction from the beneficial owner
of the shares and no instruction is given.
Vote Necessary to Approve the Chevron and Texaco Proposals
Item Vote Necessary*
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Merger Proposals Chevron: Approval of the common stock issuance requires the affirmative vote
of a majority of the votes cast by holders of Chevron common stock,
provided that the total number of votes cast for or against the common
stock issuance represents at least a majority of Chevron's outstanding
shares. Withheld votes and abstentions will have no effect on the
approval of the common stock issuance.
Approval of the name change requires the affirmative vote of holders
of at least a majority of the outstanding shares of Chevron common
stock. Withheld votes and abstentions have the same effect as a vote
against the name change. The common stock issuance and name
change are provided for in the merger and merger agreement described
beginning on pages 15 and 59. If the merger is not completed for any
reason, the name change will not be made.
Texaco: Approval of the merger and the merger agreement described beginning
on pages 15 and 59 requires the affirmative vote of holders of at least a
majority of the outstanding shares of Texaco common stock. Withheld
votes and abstensions have the same effect as a vote against.
--------------------------------------------------------------------------------------------------------------------------------
* Under New York Stock Exchange rules, if your broker holds your shares in
its name, your broker may not vote your shares on the merger proposals
absent instructions from you. Without your voting instructions, a broker
non-vote will occur on the merger proposals and, if you are a Chevron
stockholder, will have the same effect as a vote against the name change
and will have no effect on the approval of the common stock issuance and,
if you are a Texaco stockholder, will have the effect of a vote against the
merger.
Voting
Voting Your Proxy. You may vote in person at your meeting or by proxy. We
recommend you vote by proxy even if you plan to attend your meeting. You can
always change your vote at the meeting.
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Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed. You may vote for or
against the merger proposals or abstain from voting.
How to Vote by Proxy
Chevron Texaco
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By Telephone*: Call toll-free __________ and follow the Call toll-free _____________ and follow the
instructions. You will need to give the personal instructions. You will need to give the
identification number contained on your proxy card. control number contained on your proxy card.
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By Internet*: Go to www._____________ and follow the Go to www.___________ and follow the
instructions. You will need to give the personal instructions. You will need to give the
identification number contained on your proxy card. control number contained on your proxy card.
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In Writing: Complete, sign, date and return your proxy card in Complete, sign, date and return your proxy
the enclosed envelope. card in the enclosed envelope.
_____________________
* If you hold shares through a broker or other custodian, please check the
voting form used by that firm to see if it offers telephone or internet
voting. Applicable laws authorize the use of telephonic transmission and
electronic transmission, such as transmission over the internet, to grant a
proxy.
If you submit your proxy but do not make specific choices, your proxy will
follow the board's recommendations and vote your shares:
Chevron Texaco
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"FOR" the proposed issuance of shares of Chevron common "FOR" the approval and adoption of the merger agreement
stock in connection with the merger. and the merger.
"FOR" the proposed amendment of Chevron's restated
certificate of incorporation to change the name of
the corporation to "ChevronTexaco Corporation."
Revoking Your Proxy. You may revoke your proxy before it is voted by:
o submitting a new proxy with a later date, including a proxy given by
telephone or internet;
o notifying your company's Secretary in writing before the meeting that you
have revoked your proxy; or
o voting in person at the meeting.
Voting in person. If you plan to attend a meeting and wish to vote in
person, we will give you a ballot at the meeting. However, if your shares are
held in the name of your broker, bank or other nominee, you must bring an
account statement or letter from the nominee indicating that you are the
beneficial owner of the shares on _____, 2001, the record date for voting.
Confidential voting. Ballots, proxy forms and voting instructions returned
to brokerage firms, banks and other holders of record are treated as
confidential. Only the proxy solicitor, the proxy tabulator and the inspectors
of election have access to the ballots, proxy forms and voting instructions.
Anyone who processes or inspects the ballots, proxy forms and voting
instructions signs a pledge to treat them as confidential. None of these persons
is a director, officer or employee of Chevron or Texaco.
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The proxy solicitor and the proxy tabulator will disclose information taken
from the ballots, proxy forms and voting instructions only in the event of a
proxy contest or as otherwise required by law.
The proxy tabulator will forward comments written on proxy form to
management but will not disclose your identity unless you request it in writing.
Proxy solicitation. Each of Chevron and Texaco will pay its own costs of
soliciting proxies.
In addition to this mailing, Chevron and Texaco employees may solicit
proxies personally, electronically or by telephone. Chevron is paying
____________________ a fee of $________ plus their reasonable out-of-pocket
expenses to help with the solicitation. Texaco is paying __________ a fee of
$________ plus their reasonable out-of-pocket expenses to help with the
solicitation.
The extent to which these proxy soliciting efforts will be necessary
depends entirely upon how promptly proxies are submitted. You should send in
your proxy by mail, telephone or internet without delay. We also reimburse
brokers and other nominees for their expenses in sending these materials to you
and getting your voting instructions.
Do not send in any stock certificates with your proxy cards. The exchange
agent will mail transmittal forms with instructions for the surrender of stock
certificates for Texaco common stock to former Texaco stockholders as soon as
practicable after the completion of the merger.
Other Business; Adjournments
Under the laws of Delaware, where Chevron and Texaco are incorporated, no
business other than procedural matters may be raised at the stockholder
meetings, unless proper notice to the stockholders has been given.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time without
further notice other than by an announcement made at the meeting. For Texaco,
the chairman of the meeting has the power to adjourn the Texaco stockholder
meeting. For Chevron, any adjournment may be made by approval of the holders of
shares representing a majority of the votes present in person or by proxy at the
meeting, whether or not a quorum exists. Under the merger agreement, Texaco must
adjourn its meeting until such time as all conditions to the merger (other than
Texaco stockholder approval) have been satisfied or waived.
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COMPARISON OF STOCKHOLDER RIGHTS
The rights of Texaco stockholders under Delaware law, the Texaco
certificate of incorporation and the Texaco by-laws prior to the merger are
substantially the same as the rights ChevronTexaco stockholders will have
following the merger under Delaware law, the ChevronTexaco restated certificate
of incorporation and the ChevronTexaco by-laws, with principal exceptions
summarized in the chart below. The certificate of incorporation and by-laws of
ChevronTexaco will be identical in all respects to those of Chevron after giving
effect to the name change. Copies of the Texaco certificate of incorporation,
the Texaco by-laws, the Chevron restated certificate of incorporation and the
Chevron by-laws are incorporated by reference and will be sent to holders of
shares of Texaco common stock upon request. See "Where You Can Find More
Information" on page 85. The summary contained in the following chart is
qualified by reference to Delaware law, the Texaco certificate of incorporation,
the Texaco by-laws, the Chevron restated certificate of incorporation and the
Chevron by-laws.
ChevronTexaco
Texaco Stockholder Rights Stockholder Rights
--------------------------------------------------------------------------------------------------------------------------------
Authorized The authorized capital stock of Texaco The authorized capital stock of Chevron
Capital Stock: consists of 850 million shares of common consists of two billion shares of common
stock and 30 million shares of preferred stock and one hundred million shares of
stock. preferred stock.
--------------------------------------------------------------------------------------------------------------------------------
Number of Texaco's by-laws provide that the number of Chevron's by-laws provides that the number of
Directors: directors will be as determined by the directors will be determined by the Chevron
Texaco board but shall not be less than board. Chevron's board currently consists of
three. The Texaco board currently consists 11 directors.
of 13 directors.
Under the merger agreement, Chevron has
agreed to increase the number of directors on
its board to 15.
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Classification of Texaco's board is divided into three classes Chevron does not have a classified board.
Board of as nearly equal in number as possible, with Chevron's by-laws require that all directors
Directors: each class serving a staggered three-year be elected at each annual meeting of
term. stockholders for a term of one year.
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Removal of Texaco's certificate of incorporation and Chevron stockholders may remove directors
Directors: Texaco's by-laws provide that Texaco with or without cause by the affirmative vote
directors may be removed from office with or of the majority of stockholders entitled to
without cause only by the affirmative vote of vote in the election of directors.
the holders of two-thirds of the voting
power of the then outstanding shares
entitled to vote generally in the election
of directors, voting as a single class.
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Two-thirds vote The affirmative vote of at least two-thirds The affirmative vote of at least two-thirds of
requirements: of the voting power of Texaco's outstanding the voting power of Chevron's outstanding
voting stock is required to amend by-law and voting stock is required to amend various
charter provisions relating to provisions of the Chevron restated certificate
of incorporation, including provisions relating
o stockholder action, to
o the number, election and terms of o prior notice of stockholders' meetings
directors,
o stockholder action and
o newly created directorships and
vacancies, o the fairness committee.
o nominations and removal of directors and
o various charter and by-laws amendments.
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ChevronTexaco
Texaco Stockholder Rights Stockholder Rights
-----------------------------------------------------------------------------------------------------------------------------
Stockholder Under the Texaco stockholder rights plan, the Under the Chevron stockholder rights plan,
Rights Plan: rights become exercisable if a person or the beneficial ownership threshold is 10 percent
group acquires beneficial ownership of 20 rather than 20 percent. Chevron has taken all
percent or more of the outstanding Texaco common action necessary to render its rights plan
stock. Texaco has taken all action necessary inapplicable to the merger agreement and the
to render its rights plan inapplicable to the related agreements and transactions.
merger agreement and the related agreements
and transactions.
The Texaco stockholder rights plan includes The Chevron stockholder rights plan does not
an exception for an all-cash, fully-financed include such an exception.
tender offer, provided it remains open for at
least 45 days, results in the acquiror owning a
majority of Texaco's voting stock and the
acquiror agrees to purchase for cash all
remaining shares.
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Texaco's by-laws contain advance notice Chevron's by-laws do not contain similar
Stockholder Proposals provisions applicable to stockholder advance notice provisions. Chevron's
and Nominations: proposals and nominations. In order to restated certificate of incorporation, however,
bring business before a Texaco annual precludes taking action on any proposal at a
meeting, a stockholder must deliver written stockholder meeting that is not included in
notice thereof to Texaco generally not less the proxy statement for that meeting (unless
than 60 days nor more than 90 days before this requirement is waived by the board of
the first anniversary of the prior year's directors).
annual meeting. In order to nominate
directors, a stockholder must deliver
written notice thereof to Texaco not later
than 90 days before an annual meeting or 7
days after notice of a special meeting, as
applicable.
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Texaco's certificate of incorporation and Chevron's restated certificate of incorporation
Business by-laws provide that any Business Combination provides that a fairness committee of the
Combinations: with an interested stockholder of Texaco board of directors will be established during
requires, in addition to any vote required any period of the existence of a 10 percent stockholder.
by law, the affirmative approval of at least The fairness committee will consist of all
80 percent of the voting power of the directors serving at the time any such stockholder
outstanding shares of voting stock, voting becomes a 10 percent stockholder. The fairness committee
together as a single class, unless either: will look into the fairness to the corporation
and its stockholders of transactions the committee
o a majority of disinterested deems "extraordinary," which may include
directors, as defined in Texaco's mergers or liquidations, transactions with
charter and by-laws, have expressly major stockholders, major asset sales or
approved the Business Combination or recapitalizations. The fairness committee
may require that the corporation's
o fair price criteria and disclosure stockholders ratify such an extraordinary
obligations set forth in the charter transaction by the affirmative vote of
and bylaws are satisfied. two-thirds of the shares of outstanding
common stock or a majority of the
outstanding shares of common stock,
excluding shares held by the 10 percent
stockholder.
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ChevronTexaco
Texaco Stockholder Rights Stockholder Rights
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The fair price criteria and disclosure The Chevron fairness committee has taken all
obligations generally require that: action necessary to approve the merger and
the related transactions (including the stock
o common stockholders and holders of any option agreements) and has not required that
other class of outstanding voting stock Chevron stockholders ratify the merger and
receive the same form of consideration the related transactions (including the stock
and the highest per share price (or fair option agreements) by a two-thirds majority.
market value) paid by the interested
stockholder within two years prior to the
announcement date of the Business
Combination.
o since such person becomes an interested
stockholder: (i) there be no failure to pay
quarterly dividends on the preferred
stock or reduction in the annual
dividends on the common stock; and (ii)
such interested stockholder not become
the beneficial owner of additional shares
of voting stock.
o the interested stockholder not receive the
benefit of any loans, financial assistance
or tax advantages from Texaco.
o a proxy statement be mailed at least 30
days prior to the consummation of the
Business Combination.
"Business Combination" is defined in
Texaco's charter and by-laws, and generally
includes a merger, significant asset sales,
significant stock issuances, and other
significant transactions. "Interested
stockholder" is also defined in the Texaco
charter and by-laws and generally means a
20 percent stockholder of Texaco.
The Texaco board has taken the necessary
action to make the foregoing provisions of the
Texaco charter and by-laws inapplicable to
the merger and the related transactions
(including the stock option agreements).
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DESCRIPTION OF CHEVRON CAPITAL STOCK
The following description highlights material terms of the capital stock of
Chevron. This description is qualified in its entirety by reference to the
restated certificate of incorporation and by-laws of Chevron which are
incorporated herein by reference. See "Where You Can Find More Information" on
page 85 for more information about the documents incorporated by reference in
this joint proxy statement/prospectus.
The authorized capital stock of Chevron currently consists of two billion
shares of common stock, par value $0.75 per share, and one hundred million
shares of preferred stock, par value $1.00 per share. At December 31, 2000,
there were outstanding 641,059,971 shares of Chevron common stock, with an
additional 71,427,097 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. At December 31, 2000, there were 108,604 holders of Chevron
common stock.
Chevron Preferred Stock
Chevron's restated certificate of incorporation expressly authorizes the
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 otherwise. At December
31, 2000, there were no shares of Chevron participating preferred stock
outstanding.
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Transfer Agent and Registrar
Mellon Investor Services, L.L.C., is the transfer agent and registrar for
the Chevron common stock.
Stock Exchange Listing; Delisting and Deregistration of Texaco Common Stock
It is a condition to the merger that the shares of ChevronTexaco common
stock issuable in the merger be approved for listing on the NYSE at or prior to
the closing, subject to official notice of issuance. If the merger is completed,
Texaco common stock will cease to be listed.
DESCRIPTION OF TEXACO'S CAPITAL STOCK
Texaco's certificate of incorporation authorizes the issuance of eight
hundred fifty million shares of common stock, par value $3.125 per share, and
thirty million shares of preferred stock, par value $1.00 per share, of which
3,000,000 are designated Series D Junior Participating Preferred Stock and 1,200
are designated Market Auction Preferred Shares of various series. At December
31, 2000, there were outstanding 550,161,286 shares of Texaco common stock, no
shares of Series D Junior Participating Preferred Stock and 1,200 shares of
Market Auction Preferred Stock. All shares of Market Auction Preferred Stock
will be redeemed prior to the merger.
The holders of Texaco common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding Texaco preferred stock,
holders of Texaco common stock are entitled to receive ratably such dividends as
may be declared by the Texaco board out of funds legally available therefor. In
the event of a liquidation or dissolution of Texaco, holders of Texaco Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding Texaco preferred
stock. Holders of Texaco common stock have no preemptive rights, no redemption
rights and no rights to convert their Texaco common stock into any other
securities.
Under Texaco's stockholder rights plan, rights to purchase Texaco's Series
D Junior Participating Preferred Stock are attached to shares of common stock.
For a description of the rights, see Texaco's definitive proxy statement on
Schedule 14 filed with the SEC on March 17, 1998 and Amendment No. 1 to its Form
8-A filed with the SEC on October 25, 2000.
Texaco's certificate of incorporation contains a provision imposing special
requirements on business combinations with large stockholders. See "Certain
Legal Information-Comparison of Stockholder Rights" on page 79.
LEGAL MATTERS
The validity of the ChevronTexaco common stock to be issued to Texaco
stockholders in the merger will be passed upon by Pillsbury Winthrop LLP, San
Francisco, California. It is a condition to the completion of the merger that
Chevron and Texaco receive opinions from McDermott, Will & Emery and Davis Polk
& Wardwell, respectively, with respect to the tax treatment of the merger. See
"The Merger Agreement--Conditions to the Completion of the Merger" on page 70
and "The Merger--Material Federal Income Tax Consequences of the Merger" on page
28.
EXPERTS
The consolidated financial statements and schedule incorporated in this
joint proxy statement/prospectus by reference to the Annual Report on Form 10-K
of Chevron Corporation for the year ended December 31, 2000 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 combined financial statements of the Caltex Group of Companies as of
December 31, 2000 and 1999 and for each of the years in the three-year period
ended December 31, 2000 have been incorporated in this joint
-83-
proxy statement/prospectus by reference to the Annual Reports on Form 10-K of
Chevron and Texaco, respectively, for the year ended December 31, 2000, in
reliance upon the report of KPMG, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in auditing and accounting.
The audited consolidated financial statements and schedule included or
incorporated by reference in the Annual Report of Texaco Inc. for the fiscal
year ended December 31, 2000 filed on Form 10-K, incorporated by reference in
this joint proxy statement/prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said reports.
The consolidated financial statements of Equilon Enterprises LLC as of
December 31, 2000 and 1999, and for each of the years in the three-year period
ended December 31, 2000, incorporated in this joint proxy statement/prospectus
by reference to the Annual Report of Texaco Inc. on Form 10-K for the year ended
December 31, 2000, incorporated herein by reference, have been audited by Arthur
Andersen LLP and PricewaterhouseCoopers LLP, independent accountants, as
indicated in their report with respect thereto, and have been so incorporated in
reliance upon the report of such firms given upon their authority as experts in
accounting and auditing.
The financial statements of Motiva Enterprises LLC as of December 31, 2000
and 1999, and for the years ended December 31, 2000 and 1999, and for the six
months ended December 31, 1998, incorporated in this joint proxy
statement/prospectus by reference to the Annual Report of Texaco Inc. on Form
10-K for the year ended December 31, 2000, incorporated herein by reference,
have been audited by Arthur Andersen LLP, Deloitte & Touche LLP, and
PricewaterhouseCoopers LLP, independent accountants, as indicated in their
report with respect thereto, and have been so incorporated in reliance upon the
report of such firms given upon their authority as experts in accounting and
auditing.
STOCKHOLDERS' PROPOSALS
Under Rule 14a-8 under the Securities and Exchange Act of 1934,
stockholders may present proper proposals for inclusion in a company's proxy
statement and for consideration at the next annual meeting of its stockholders
by submitting their proposals to the company in a timely manner.
Chevron. Chevron's restated certificate of incorporation precludes taking
action on any proposal that is not included in the proxy statement unless the
board decides to waive the restriction. For stockholder proposals to be included
in the proxy statement, the proponent and the proposal must comply with the
proxy proposal submission rules of the SEC. One of the requirements is that the
proposal be received by the corporate secretary no later than November 21, 2001.
Proposals that Chevron receives after that date will not be included in the
proxy statement or acted upon at the annual meeting. We urge Chevron
stockholders to submit proposals by certified mail, return receipt requested.
You should address your proposal to: Corporate Secretary, Chevron Corporation,
575 Market Street, San Francisco, California 94105. Chevron prints qualifying
proposals in the proxy statement in the form that we receive them. We do not
print the name, address and share ownership of the stockholder submitting a
qualifying proposal but will promptly send the information upon oral or written
request.
Texaco. Texaco will hold an annual meeting in the year 2002 only if the
merger has not already been completed. You may present a proposal to be
considered for inclusion in Texaco's 2002 proxy statement, provided we receive
it at our principal executive office no later than November 13, 2001, and that
it complies with applicable laws and SEC regulations. In addition, Texaco's
by-laws allow you to bring business before the annual meeting of stockholders,
if you have given us written notice not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting of
stockholders (subject to adjustment if the subsequent year's meeting date is
substantially moved). Your notice must include the proposed business and your
interest in it, your address, and your stockholdings. You should address your
proposal to: Secretary, Texaco Inc., 2000 Westchester Avenue, White Plains, New
York 10650.
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ADDITIONAL INFORMATION FOR STOCKHOLDERS
WHERE YOU CAN FIND MORE INFORMATION
Chevron and Texaco file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
room. Our SEC filings are also available to the public from commercial document
retrieval services and at the 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 Texaco stockholders in the merger. This
joint proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of Chevron in addition to being a proxy statement of
Chevron and Texaco for the meetings. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement/prospectus, except for any information superseded by
information in, or incorporated by reference in, this joint proxy statement/
prospectus. This joint proxy statement/prospectus incorporates by reference the
documents set forth below that we have previously filed with the SEC. These
documents contain important information about our companies and their finances.
Chevron SEC Filings (File No. 1-368-2)
1. Annual Report on Form 10-K for the year ended December 31, 2000.
2. Amendment No. 1 to Registration Statement on Form 8A/A filed December 7,
2000.
Texaco SEC Filings (File No. 1-27)
1. Annual Report on Form 10-K for the year ended December 31, 2000.
2. Current Reports on Form 8-K filed on January 24, 2001 and February 7,
2001.
We are also incorporating by reference all documents that we file with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date
of this joint proxy statement/prospectus and the date of the stockholder
meetings.
Chevron has supplied all information contained or incorporated by reference
in this joint proxy statement/prospectus relating to Chevron, and Texaco has
supplied all such information relating to Texaco.
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If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference an
exhibit in this joint proxy statement/prospectus. You may obtain documents
incorporated by reference in this joint proxy statement/prospectus by requesting
them in writing or by telephone from the appropriate party at the following
address:
Chevron Corporation Texaco Inc.
575 Market Street 2000 Westchester Avenue
San Francisco, California 94105 White Plains, New York 10650
Attn: Corporate Secretary Attention: Secretary
(415) 894-7700 (914) 253-4000
If you would like to request documents from us, please do so by
___________, 2001, to receive them before the meetings.
You can also get more information by visiting Chevron's web site at
www.Chevron.com and Texaco's web site at www.Texaco.com. Web site materials are
not part of this joint proxy statement/prospectus.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to vote on the Chevron merger
proposals and the Texaco merger proposals. We have not authorized anyone to
provide you with information that is different from what is contained in this
joint proxy statement/ prospectus. This joint proxy statement/prospectus is
dated ______, 2001.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
October 15, 2000
among
TEXACO INC.
CHEVRON CORPORATION
and
KEEPEP INC.
TABLE OF CONTENTS
Page
ARTICLE 1 THE MERGER...........................................................2
SECTION 1.1 The Merger......................................................2
SECTION 1.2 Conversion of Shares............................................2
SECTION 1.3 Surrender and Payment...........................................3
SECTION 1.4 Stock Options and Equity Awards.................................5
SECTION 1.5 Adjustments.....................................................6
SECTION 1.6 Fractional Shares...............................................6
SECTION 1.7 Withholding Rights..............................................7
SECTION 1.8 Lost Certificates...............................................8
SECTION 1.9 Shares Held by Company Affiliates...............................8
SECTION 1.10 Appraisal Rights...............................................8
ARTICLE 2 CERTAIN GOVERNANCE MATTERS...........................................8
SECTION 2.1 Name; Trade Name................................................8
SECTION 2.2 Parent Board of Directors.......................................8
SECTION 2.3 Transition Committee............................................9
SECTION 2.4 Certificate of Incorporation of the Surviving Corporation...... 9
SECTION 2.5 By-laws of the Surviving Corporation........................... 9
SECTION 2.6 Directors and Officers of the Surviving Corporation............ 9
ARTICLE 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY............10
SECTION 3.1 Corporate Existence and Power..................................10
SECTION 3.2 Corporate Authorization........................................10
SECTION 3.3 Governmental Authorization.....................................11
SECTION 3.4 Non-Contravention..............................................11
SECTION 3.5 Capitalization.................................................12
SECTION 3.6 Subsidiaries...................................................13
SECTION 3.7 Commission Filings.............................................14
SECTION 3.8 Financial Statements...........................................14
SECTION 3.9 Disclosure Documents...........................................15
SECTION 3.10 Absence of Certain Changes....................................15
SECTION 3.11 No Undisclosed Material Liabilities...........................16
SECTION 3.12 Litigation....................................................17
SECTION 3.13 Taxes.........................................................17
SECTION 3.14 Employee Benefit Plans........................................18
SECTION 3.15 Compliance with Laws..........................................20
SECTION 3.16 Finders' or Advisors' Fees....................................20
A-i
SECTION 3.17 Environmental Matters.........................................20
SECTION 3.18 Opinion of Financial Advisor..................................21
SECTION 3.19 Pooling; Tax Treatment........................................21
SECTION 3.20 Pooling Letter................................................21
SECTION 3.21 Takeover Statutes.............................................21
SECTION 3.22 Stockholder Rights Plan.......................................22
SECTION 3.23 Joint Ventures................................................22
ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT.................22
SECTION 4.1 Corporate Existence and Power..................................22
SECTION 4.2 Corporate Authorization........................................23
SECTION 4.3 Governmental Authorization.....................................23
SECTION 4.4 Non-Contravention..............................................24
SECTION 4.5 Capitalization.................................................24
SECTION 4.6 Subsidiaries...................................................25
SECTION 4.7 Commission Filings.............................................26
SECTION 4.8 Financial Statements...........................................26
SECTION 4.9 Disclosure Documents...........................................27
SECTION 4.10 Absence of Certain Changes....................................27
SECTION 4.11 No Undisclosed Material Liabilities...........................28
SECTION 4.12 Litigation....................................................29
SECTION 4.13 Taxes.........................................................29
SECTION 4.14 Employee Benefit Plans........................................29
SECTION 4.15 Compliance with Laws..........................................31
SECTION 4.16 Finders' or Advisors' Fees....................................31
SECTION 4.17 Environmental Matters.........................................31
SECTION 4.18 Opinion of Financial Advisor..................................31
SECTION 4.19 Pooling; Tax Treatment........................................31
SECTION 4.20 Pooling Letter................................................32
SECTION 4.21 Takeover Statutes.............................................32
SECTION 4.22 Stockholder Rights Plan.......................................32
ARTICLE 5 COVENANTS OF THE COMPANY............................................32
SECTION 5.1 Conduct of the Company.........................................32
SECTION 5.2 Company Stockholder Meeting; Proxy Material....................36
SECTION 5.3 Equity Conversion..............................................37
SECTION 5.4 Resignation of Company Directors...............................37
ARTICLE 6 COVENANTS OF PARENT.................................................37
SECTION 6.1 Conduct of Parent..............................................37
SECTION 6.2 Obligations of Merger Subsidiary...............................39
SECTION 6.3 Director and Officer Liability.................................39
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SECTION 6.4 Parent Stockholder Meeting; Form S-4...........................39
SECTION 6.5 Stock Exchange Listing.........................................40
SECTION 6.6 Employee Benefits..............................................40
ARTICLE 7 COVENANTS OF PARENT AND THE COMPANY.................................42
SECTION 7.1 Best Efforts...................................................42
SECTION 7.2 Certain Filings................................................44
SECTION 7.3 Access to Information..........................................44
SECTION 7.4 Tax and Accounting Treatment...................................45
SECTION 7.5 Public Announcements...........................................45
SECTION 7.6 Further Assurances.............................................45
SECTION 7.7 Notices of Certain Events......................................45
SECTION 7.8 Affiliates.....................................................45
SECTION 7.9 Payment of Dividends...........................................46
SECTION 7.10 No Solicitation...............................................46
SECTION 7.11 Letters from Accountants......................................49
SECTION 7.12 Takeover Statutes.............................................49
SECTION 7.13 Headquarters..................................................50
SECTION 7.14 Section 16(b).................................................50
ARTICLE 8 CONDITIONS TO THE MERGER............................................50
SECTION 8.1 Conditions to the Obligations of Each Party....................50
SECTION 8.2 Conditions to the Obligations of Parent and Merger Subsidiary..52
SECTION 8.3 Conditions to the Obligations of the Company...................52
ARTICLE 9 TERMINATION.........................................................53
SECTION 9.1 Termination....................................................53
SECTION 9.2 Effect of Termination..........................................54
ARTICLE 10 MISCELLANEOUS......................................................55
SECTION 10.1 Notices.......................................................55
SECTION 10.2 Non-Survival of Representations and Warranties................56
SECTION 10.3 Amendments; No Waivers........................................56
SECTION 10.4 Expenses......................................................57
SECTION 10.5 Company Termination Fee.......................................57
SECTION 10.6 Parent Termination Fee........................................57
SECTION 10.7 Successors and Assigns........................................58
SECTION 10.8 Governing Law.................................................58
SECTION 10.9 Jurisdiction..................................................58
SECTION 10.10 Waiver of Jury Trial.........................................58
SECTION 10.11 Counterparts; Effectiveness..................................58
SECTION 10.12 Entire Agreement.............................................59
SECTION 10.13 Captions.....................................................59
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SECTION 10.14 Severability.................................................59
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EXHIBITS AND ANNEXES
Exhibit A -- Company Stock Option Agreement
Exhibit B -- Parent Stock Option Agreement
Exhibit C-1 -- Affiliate's Pooling Letter (for Parent Affiliates)
Exhibit C-2 -- Affiliate's Pooling Letter (for Company Affiliates)
Exhibit C-3 -- Affiliate's Rule 145 Letter (for Company Affiliates)
Annex 7.1 -- Form of Agreement and Declaration of Trust
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DEFINED TERMS
-------------
Section
368 Reorganization.....................................................3.19(b)
Acquisition Proposal...................................................7.10(b)
Affected Employees......................................................6.6(b)
Affected Retirees.......................................................6.6(b)
Agreement.............................................................Preamble
Alliance Interests...................................................7.1(d)(i)
Alliance Transaction Agreement.......................................7.1(d)(i)
Anti-Discrimination Laws...............................................3.14(h)
Benefit Triggers.......................................................3.14(e)
Certificates............................................................1.3(a)
Closing.................................................................1.1(d)
Closing Date............................................................1.1(d)
Code..................................................................Recitals
Commission............................................................Recitals
Common Shares Trust.....................................................1.6(b)
Common Stock Issuance......................................................4.2
Common Stock Issuance Approval.............................................4.2
Company...............................................................Preamble
Company 10-K...............................................................3.7
Company 2000 Capital Expenditure Budget.................................5.1(g)
Company 2001 Permitted Capital Expenditure Budget.......................5.1(g)
Company 2002 Permitted Capital Expenditure Budget.......................5.1(g)
Company Award...........................................................1.4(c)
Company Balance Sheet......................................................3.8
Company Balance Sheet Date.................................................3.8
Company Benefit Plans..................................................3.14(a)
Company Board Designees.................................................2.2(a)
Company Commission Documents...............................................3.7
Company Common Stock..................................................Recitals
Company Disclosure Schedules.........................................Article 3
Company Non-U.S. Employees.................................................3.7
Company Option Agreement..............................................Recitals
Company Proxy Statement....................................................3.9
Company Rights.............................................................3.5
Company Rights Agreement...................................................3.5
Company Securities.........................................................3.5
Company Stock Option....................................................1.4(a)
Company Stock Option Plans..............................................1.4(a)
Company Stockholder Approval...............................................3.2
Company Stockholder Meeting................................................5.2
Company Subsidiary Securities...........................................3.6(b)
Company U.S. Employees.................................................3.14(e)
Condition Satisfaction Time................................................5.2
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Confidentiality Agreement..................................................7.3
Delaware Law............................................................1.1(a)
downstream..............................................................5.1(l)
EC Merger Regulation.......................................................3.3
Effective Time..........................................................1.1(b)
employee benefit plan..................................................3.14(a)
End Date.............................................................9.1(b)(i)
Environmental Laws.....................................................3.17(b)
Equity Conversion..........................................................5.3
ERISA..................................................................3.14(a)
Excess Shares...........................................................1.6(a)
Exchange Act...............................................................3.3
Exchange Agent..........................................................1.3(a)
Exchange Ratio.....................................................1.2(a)(iii)
Foreign Company Benefit Plan...........................................3.14(a)
Foreign Parent Benefit Plan............................................4.14(a)
Form S-4................................................................4.9(a)
GAAP..................................................................Recitals
HSR Act....................................................................3.3
Indemnitees.............................................................6.3(a)
Joint Ventures............................................................3.23
Lien.......................................................................3.4
Market Auction Preferred Stock.............................................3.5
Material Adverse Effect....................................................3.1
Merger..................................................................1.1(a)
Merger Consideration....................................................1.2(b)
Merger Subsidiary.....................................................Preamble
mid-stream..............................................................5.1(l)
multiemployer plan.....................................................3.14(a)
Name Change Amendment...................................................2.1(a)
Name Change Amendment Approval..........................................4.2(a)
NYSE....................................................................1.6(a)
Option Agreements.....................................................Recitals
Parent................................................................Preamble
Parent 10-K.............................................................4.7(a)
Parent Balance Sheet.......................................................4.8
Parent Balance Sheet Date..................................................4.8
Parent Benefit Plans...................................................4.14(a)
Parent Commission Documents.............................................4.7(a)
Parent Common Stock...................................................Recitals
Parent Disclosure Schedules..........................................Article 4
Parent Option Agreement...............................................Recitals
Parent Proxy Statement..................................................4.9(a)
Parent Rights......................................................1.2(a)(iii)
Parent Rights Agreement............................................1.2(a)(iii)
Parent Securities..........................................................4.5
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Parent Stockholder Approvals............................................4.2(a)
Parent Stockholder Meeting.................................................6.4
Parent Subsidiary Securities............................................4.6(b)
Person..................................................................1.3(c)
Rabbi Trust Shares...................................................1.2(a)(i)
Securities Act..........................................................1.4(d)
Significant Subsidiary..................................................3.6(a)
Subsidiary..............................................................3.6(a)
Superior Proposal......................................................7.10(b)
Surviving Corporation...................................................1.1(a)
Tax Returns...............................................................3.13
Taxes.....................................................................3.13
Transition Committee......................................................2.3
Trust Agreement....................................................7.1(d)(iii)
Trustees...........................................................7.1(d)(iii)
upstream................................................................5.1(l)
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AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of October
15, 2000 by and among TEXACO INC., a Delaware corporation (the "Company"),
CHEVRON CORPORATION, a Delaware corporation ("Parent"), and KEEPEP INC., a newly
formed Delaware corporation and a wholly owned subsidiary of Parent ("Merger
Subsidiary").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary
and the Company have approved this Agreement, and deem it advisable and in the
best interests of their respective stockholders to consummate the merger of
Merger Subsidiary with and into the Company on the terms and conditions set
forth herein;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger contemplated by this Agreement qualify as a "reorganization" within
the meaning of Section 368 of the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling of interests" under United States generally accepted
accounting principles ("GAAP") and the rules and regulations of the Securities
and Exchange Commission (the "Commission");
WHEREAS, (i) as a condition and inducement to Parent's willingness to enter
into this Agreement, concurrently with the execution and delivery of this
Agreement, Parent and the Company are entering into a Stock Option Agreement
dated as of the date of this Agreement in the form attached as Exhibit A (the
"Company Option Agreement"), pursuant to which the Company shall grant to Parent
an option to purchase shares of common stock, par value $3.125 per share, of the
Company ("Company Common Stock") at $53.71 per share, under certain
circumstances, and (ii) as a condition and inducement to the Company's
willingness to enter into this Agreement, concurrently with the execution and
delivery of this Agreement, Parent and the Company are entering into a Stock
Option Agreement dated as of the date of this Agreement in the form attached as
Exhibit B (the "Parent Option Agreement" and, together with the Company Option
Agreement, the "Option Agreements"), pursuant to which Parent shall grant to the
Company an option to purchase shares of common stock, par value $0.75 per share,
of Parent ("Parent Common Stock"), at $85.96 per share, under certain
circumstances.
NOW, THEREFORE, in consideration of the promises and the respective
representations, warranties, covenants, and agreements set forth herein, the
parties hereto agree as follows:
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ARTICLE 1
-----------
THE MERGER
-----------
SECTION 1.1 The Merger.
----------
(a) At the Effective Time, Merger Subsidiary shall be merged (the "Merger")
with and into the Company in accordance with the requirements of the General
Corporation Law of the State of Delaware (the "Delaware Law"), whereupon the
separate existence of Merger Subsidiary shall cease, and the Company shall be
the surviving corporation in the Merger (the "Surviving Corporation").
(b) On the Closing Date, immediately after the Closing, the Company will
file a certificate of merger with the Secretary of State of the State of
Delaware and make all other filings or recordings required by Delaware Law in
connection with the Merger. The Merger shall become effective at such time as
the certificate of merger is duly filed with the Secretary of State of the State
of Delaware or at such later time as is specified in the certificate of merger
(the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of the Company and Merger
Subsidiary, all as provided under Delaware Law.
(d) The closing of the Merger (the "Closing") shall take place (i) at the
offices of Pillsbury Madison & Sutro LLP, 50 Fremont Street, San Francisco,
California, as soon as practicable on the day on which the last to be fulfilled
or waived of the conditions set forth in Article 8 (other than those conditions
that by their nature are to be fulfilled at the Closing, but subject to the
fulfillment or waiver of such conditions) shall be fulfilled or waived in
accordance with this Agreement, including pursuant to Sections 5.2 and 7.1, or
(ii) at such other place and time or on such other date as the Company and
Parent may agree in writing (the date of the Closing, the "Closing Date").
SECTION 1.2 Conversion of Shares.
--------------------
(a) At the Effective Time by virtue of the Merger and without any action on
the part of the holder thereof:
(i) each share of the Company Common Stock held by the Company as
treasury stock or owned by Parent or any subsidiary of Parent or the
Company (excluding shares, if any, held in any "Rabbi trust" identified on
Section 3.14 of the Company Disclosure Schedule, which may be accounted
for as treasury stock ("Rabbi Trust Shares")) immediately prior to the
Effective Time (together with the associated Company Right (as defined in
Section 3.5), if any) shall be canceled, and no payment shall be made with
respect thereto;
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(ii) each share of common stock of Merger Subsidiary
outstanding immediately prior to the Effective Time shall be converted
into and become one share of common stock of the Surviving Corporation
with the same rights, powers and privileges as the shares so converted
and shall constitute the only outstanding shares of capital stock of
the Surviving Corporation; and
(iii) each share of Company Common Stock (including each Rabbi
Trust Share) (together with the associated Company Right) outstanding
immediately prior to the Effective Time shall, except as otherwise
provided in Section 1.2(a)(i), be converted into the right to receive
0.77 of a share of Parent Common Stock (the "Exchange Ratio"),
including the corresponding fraction of a right to purchase shares of
Series A Participating Preferred Stock of Parent (the "Parent Rights")
in accordance with the Rights Agreement (the "Parent Rights Agreement")
dated as of November 23, 1998 between Parent and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent. References herein to
shares of Parent Common Stock issuable pursuant to the Merger shall
also be deemed to include the associated Parent Rights.
(b) All Parent Common Stock issued as provided in this Section 1.2 shall be
of the same class and shall have the same terms as the currently outstanding
Parent Common Stock. The shares of Parent Common Stock to be received as
consideration pursuant to the Merger with respect to shares of Company Common
Stock (together with cash in lieu of fractional shares of Parent Common Stock as
specified below) are referred to herein as the "Merger Consideration."
(c) From and after the Effective Time, all shares of Company Common Stock
(together with the associated Company Rights) converted in accordance with
Section 1.2(a)(iii) shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration and any dividends
payable pursuant to Section 1.3(f). From and after the Effective Time, all
certificates representing the common stock of Merger Subsidiary shall be deemed
for all purposes to represent the number of shares of common stock of the
Surviving Corporation into which they were converted in accordance with Section
1.2(a)(ii).
SECTION 1.3 Surrender and Payment.
---------------------
(a) Prior to the Effective Time, Parent shall appoint ChaseMellon
Shareholder Services, L.L.C. or such other exchange agent reasonably acceptable
to the Company (the "Exchange Agent") for the purpose of exchanging certificates
representing shares of Company Common Stock ("Certificates") for the Merger
Consideration. Parent will make available to the Exchange Agent, as needed, the
Merger Consideration to be delivered in respect of the shares of Company Common
Stock. Promptly after the Effective Time, Parent will send, or will cause the
Exchange Agent to send, to each holder of record of shares of Company Common
Stock as of the Effective Time, a letter of transmittal for use in such exchange
(which shall specify that the delivery shall be effected, and risk of loss and
title shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) in such form as the Company and Parent may reasonably
A-3
agree, for use in effecting delivery of shares of Company Common Stock to
the Exchange Agent.
(b) Each holder of shares of Company Common Stock that have been converted
into a right to receive the Merger Consideration, upon surrender to the Exchange
Agent of a Certificate, together with a properly completed letter of
transmittal, will be entitled to receive the Merger Consideration in respect of
the shares of Company Common Stock represented by such Certificate. Until so
surrendered, each such Certificate shall, after the Effective Time, represent
for all purposes only the right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be registered in the
name of a Person other than the Person in whose name the applicable surrendered
Certificate is registered, it shall be a condition to the registration thereof
that the surrendered Certificate shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting such delivery of the
Merger Consideration shall pay to the Exchange Agent any transfer or other taxes
required as a result of such registration in the name of a Person other than the
registered holder of such Certificate or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable. For purposes of
this Agreement, "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
(d) After the Effective Time, there shall be no further registration of
transfers of shares of Company Common Stock. If, after the Effective Time,
Certificates are presented to the Exchange Agent, the Surviving Corporation or
the Parent, they shall be canceled and exchanged for the consideration provided
for, and in accordance with the procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.3(a) that remains unclaimed by the holders of shares
of Company Common Stock one year after the Effective Time shall be returned to
Parent, upon demand, and any such holder who has not exchanged his shares of
Company Common Stock for the Merger Consideration in accordance with this
Section 1.3 prior to that time shall thereafter look only to Parent for delivery
of the Merger Consideration in respect of such holder's shares. Notwithstanding
the foregoing, Parent shall not be liable to any holder of shares for any Merger
Consideration delivered to a public official pursuant to applicable abandoned
property laws. Any Merger Consideration remaining unclaimed by holders of shares
of Company Common Stock three years after the Effective Time (or such earlier
date immediately prior to such time as such amounts would otherwise escheat to
or become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of Parent free and clear of any claims or
interest of any Person previously entitled thereto.
(f) No dividends or other distributions with respect to shares of Parent
Common Stock issued in the Merger shall be paid to the holder of any
unsurrendered Certificates until such Certificates are surrendered as provided
in this Section 1.3. Subject to the effect of applicable laws, following such
surrender, there shall be paid, without interest, to the record
A-4
holder of the shares of Parent Common Stock issued in exchange therefor (i)
at the time of such surrender, all dividends and other distributions payable in
respect of such shares of Parent Common Stock with a record date after the
Effective Time and a payment date on or prior to the date of such surrender and
not previously paid and (ii) at the appropriate payment date, the dividends or
other distributions payable with respect to such shares of Parent Common Stock
with a record date after the Effective Time but with a payment date subsequent
to such surrender. For purposes of dividends or other distributions in respect
of shares of Parent Common Stock, all shares of Parent Common Stock to be issued
pursuant to the Merger (but not options therefor described in Section 1.4 unless
actually exercised at the Effective Time) shall be entitled to dividends
pursuant to the immediately preceding sentence as if issued and outstanding as
of the Effective Time.
SECTION 1.4 Stock Options and Equity Awards.
-------------------------------
(a) The Board of Directors of the Company shall take such action as is
necessary so that at the Effective Time, each outstanding option to purchase
shares of Company Common Stock (a "Company Stock Option") granted under the
Company's plans or agreements identified in Company Disclosure Schedule (defined
in the introductory clause to Article 3) 1.4 as being the only compensation or
benefit plans or agreements pursuant to which shares of Company Common Stock may
be issued (collectively, the "Company Stock Option Plans"), whether vested or
not vested, shall cease to represent a right to acquire shares of Company Common
Stock and shall thereafter constitute an option to acquire, on the same terms
and conditions as were applicable under such Company Stock Option (including
without limitation the stock option restoration feature applicable thereto)
pursuant to the relevant Company Stock Option Plan under which it was issued and
the agreement evidencing the grant thereof prior to the Effective Time, the
number (rounded to the nearest whole number) of shares of Parent Common Stock
determined by multiplying (x) the number of shares of Company Common Stock
subject to such Company Stock Option immediately prior to the Effective Time by
(y) the Exchange Ratio. The exercise price per share of Parent Common Stock
subject to any such Company Stock Option at and after the Effective Time shall
be an amount (rounded to the nearest one-hundredth of a cent) equal to (x) the
exercise price per share of Company Common Stock subject to such Company Stock
Option prior to the Effective Time, divided by (y) the Exchange Ratio.
Notwithstanding any other provisions of this Section 1.4(a), if use of the above
methods would disqualify the Merger as a "pooling of interests" for financial
accounting purposes, then such methods will be adjusted to the extent necessary
to preserve such accounting treatment. In addition, prior to the Effective Time,
the Company will make any amendments to the terms of such Company Stock Option
Plans that are necessary to give effect to the transactions contemplated by this
Section 1.4. The Company represents and warrants that no consents are or will be
necessary to give effect to the transactions contemplated by this Section 1.4.
(b) Parent shall take all corporate action necessary to assume as of the
Effective Time the Company's obligations under the Company Stock Options and
reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery pursuant to the terms set forth in this Section 1.4.
A-5
(c) At the Effective Time, each award or account (including restricted
stock, stock equivalents and stock units, but excluding Company Stock Options)
outstanding as of the Effective Time ("Company Award") that has been
established, made or granted under any employee incentive or benefit plans,
programs or arrangements and non-employee director plans maintained by the
Company on or prior to the date hereof that provide for grants of equity-based
awards or equity-based accounts and which are identified in Company Schedule 1.4
shall to the extent practicable be amended or converted into a similar
instrument of Parent, in each case with such adjustments to the terms and
conditions of such Company Awards as are appropriate to preserve the value
inherent in such Company Awards with no detrimental effects on the holders
thereof. The other terms and conditions of each Company Award, and the plans or
agreements under which they were issued, shall continue to apply in accordance
with their terms and conditions, including any provisions for acceleration (as
such terms and conditions have been interpreted and applied by the Company in
accordance with its past practice), but with such adjustments, if any, as may be
necessary or appropriate in light of the transactions contemplated hereby and
which do not materially affect the intended value of such awards, in each case
to the extent consistent with Section 7.4. The Company represents and warrants
that (i) there are as of the date hereof no Company Awards or Company Stock
Options other than those reflected in Section 3.5 and (ii) all employee
incentive or benefit plans, programs or arrangements and non-employee director
plans under which any Company Award has been established, made or granted and
all Company Stock Option Plans are disclosed in Company Disclosure Schedule 1.4.
(d) As soon as practicable after the Effective Time, Parent shall file with
the Commission a registration statement on an appropriate form or a
post-effective amendment to a previously filed registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Parent Common Stock subject to options and other equity based awards described
in this Section 1.4, and shall use its reasonable best efforts to maintain the
current status of the prospectus contained therein, as well as comply with any
applicable state securities or "blue sky" laws, for so long as such options or
other equity based awards remain outstanding.
SECTION 1.5 Adjustments. If at any time during the period
-----------
between the date of this Agreement and the Effective Time, any change in the
outstanding shares of capital stock of Parent or the Company shall occur by
reason of any reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, or any stock dividend thereon with a record
date during such period, the Merger Consideration shall be appropriately
adjusted to provide the holders of shares of Company Common Stock the same
economic effect as contemplated by this Agreement prior to such event.
SECTION 1.6 Fractional Shares.
-----------------
(a) No fractional shares of Parent Common Stock shall be issued in the
Merger, but in lieu thereof each holder of shares of Company Common Stock
otherwise entitled to a fractional share of Parent Common Stock will be entitled
to receive, from the Exchange Agent in accordance with the provisions of this
Section 1.6, a cash payment in lieu of such fractional shares of Parent Common
Stock representing such holder's proportionate interest, if any, in the
A-6
proceeds from the sale by the Exchange Agent in one or more transactions of
shares of Parent Common Stock equal to the excess of (x) the aggregate number of
shares of Parent Common Stock to be delivered to the Exchange Agent by Parent
pursuant to Section 1.3(a) over (y) the aggregate number of whole shares of
Parent Common Stock to be distributed to the holders of Certificates pursuant to
Section 1.3(b) (such excess being herein called the "Excess Shares"). The
parties acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting problems that would otherwise be caused by the issuance of
fractional shares. As soon as practicable after the Effective Time, the Exchange
Agent, as agent for the holders of the certificates representing shares of
Company Common Stock, shall sell the Excess Shares at then prevailing prices on
the New York Stock Exchange (the "NYSE") in the manner provided in the following
paragraph.
(b) The sale of the Excess Shares by the Exchange Agent, as agent for the
holders that would otherwise receive fractional shares, shall be executed on the
NYSE through one or more member firms of the NYSE and shall be executed in round
lots to the extent practicable. The compensation payable to the Exchange Agent
and the expenses incurred by the Exchange Agent, in each case, in connection
with such sale or sales of the Excess Shares, and all related commissions,
transfer taxes and other out-of-pocket transaction costs, will be paid by the
Surviving Corporation out of its own funds and will not be paid directly or
indirectly by Parent. Until the proceeds of such sale or sales have been
distributed to the holders of shares of Company Common Stock, the Exchange Agent
shall hold such proceeds in trust for the holders of shares of Company Common
Stock (the "Common Shares Trust"). The Exchange Agent shall determine the
portion of the Common Shares Trust to which each holder of shares of Company
Common Stock shall be entitled, if any, by multiplying the amount of the
aggregate proceeds comprising the Common Shares Trust by a fraction, the
numerator of which is the amount of the fractional share interest to which such
holder of shares of Company Common Stock would otherwise be entitled and the
denominator of which is the aggregate amount of fractional share interests to
which all holders of shares of Company Common Stock would otherwise be entitled.
(c) As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of shares of Company Common Stock in lieu of any
fractional shares of Parent Common Stock, the Exchange Agent shall make
available such amounts to such holders of shares of Company Common Stock without
interest.
SECTION 1.7 Withholding Rights. Each of the Surviving Corporation and
------------------
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable to any Person pursuant to this Article 1 such amounts as it is required
to deduct and withhold with respect to the making of such payment under any
provision of federal, state, local or foreign tax law. To the extent that
amounts are so withheld by the Surviving Corporation or Parent, as the case may
be, such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in respect
of which such deduction and withholding was made by the Surviving Corporation or
Parent, as the case may be.
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SECTION 1.8 Lost Certificates. If any Certificate shall have been lost,
-----------------
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent or the Surviving Corporation, the posting by such Person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration to be paid in respect of the shares of
Company Common Stock represented by such Certificate as contemplated by this
Article 1.
SECTION 1.9 Shares Held by Company Affiliates. Anything to the contrary
---------------------------------
herein notwithstanding, no shares of Parent Common Stock (or certificates
therefor) shall be issued in exchange for any Certificate to any Person who may
be an "affiliate" of the Company (identified pursuant to Section 7.8) until such
Person shall have delivered to Parent duly executed letters as contemplated by
Section 7.8. Such Person shall be subject to the restrictions described in such
letters, and such shares (or certificates therefor) shall bear a legend
describing such restrictions.
SECTION 1.10 Appraisal Rights. In accordance with Section 262 of the
----------------
Delaware Law, no appraisal rights shall be available to holders of shares of
Company Common Stock in connection with the Merger.
ARTICLE 2
---------
CERTAIN GOVERNANCE MATTERS
--------------------------
SECTION 2.1 Name; Trade Name.
----------------
(a) Parent shall take all such action as is necessary to change its name to
"ChevronTexaco Corporation" effective as of the Effective Time, which action
shall include, without limitation, seeking stockholder approval to amend
Parent's Restated Certificate of Incorporation to effect such name change (the
"Name Change Amendment") as provided in Section 6.4. Subject to Parent obtaining
the necessary approval of its stockholders under Delaware Law for the Name
Change Amendment, simultaneously with the filing of the certificate of merger
contemplated by Section 1.1(b), Parent shall file a certificate of amendment to
its Restated Certificate of Incorporation with the Secretary of State of the
State of Delaware and make all other filings and records required by Delaware
Law in connection with the amendment of the certificate of incorporation
contemplated hereby. This amendment shall become effective at the Effective
Time.
(b) It is the intention of Parent that the marketing operations currently
conducted by the Company and its Subsidiaries outside the United States will
continue to be conducted under the "Texaco" trademark.
SECTION 2.2 Parent Board of Directors.
-------------------------
(a) At the Effective Time, the Board of Directors of Parent shall consist
of fifteen
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(15) directors, of whom six (6) directors shall be persons who are
directors of the Company designated prior to the Effective Time by the Company
and reasonably acceptable to Parent (the "Company Board Designees"), and the
remainder of whom shall be directors of Parent prior to the Effective Time.
Prior to the Effective Time, the Board of Directors of Parent shall take all
action necessary to increase the size of the Board of Directors of Parent as
necessary and to elect the Company Board Designees to the Board of Directors of
Parent, in each case as of the Effective Time.
(b) The Board of Directors of Parent shall take all action necessary to
cause Peter I. Bijur to be elected as Vice Chairman of the Board of Directors of
Parent as of the Effective Time.
(c) Parent shall cause, as of the Effective Time, each Committee of the
Board of Directors of Parent to include at least one Company Board Designee.
SECTION 2.3 Transition Committee. The parties agree to establish a
--------------------
transition committee (the "Transition Committee") which will have a consultative
role and which will be in effect from the date hereof until the earlier of the
termination hereof and the Effective Time. The Transition Committee shall be
comprised of Peter I. Bijur and David J. O'Reilly. The Transition Committee will
be concerned with matters relating to planning the integration after the
Effective Time of Parent and the Company, including organization and staffing.
Notwithstanding anything in this Section 2.3, Parent shall not be deemed to
control the business or operations of the Company and, likewise, the Company
shall not be deemed to control the business or operations of Parent. The members
of the Transition Committee may delegate specific tasks to others and otherwise
will draw upon the resources of Parent and the Company as necessary or
appropriate.
SECTION 2.4 Certificate of Incorporation of the Surviving Corporation. The
---------------------------------------------------------
certificate of incorporation of the Company in effect at the Effective Time
shall be the certificate of incorporation of the Surviving Corporation until
subsequently amended in accordance with applicable law.
SECTION 2.5 By-laws of the Surviving Corporation. The by-laws of the
------------------------------------
Company in effect at the Effective Time shall be the by-laws of the Surviving
Corporation until subsequently amended in accordance with applicable law.
SECTION 2.6 Directors and Officers of the Surviving Corporation. From and
---------------------------------------------------
after the Effective Time, until successors are duly elected or appointed and
qualified in accordance with applicable law, (a) the directors of Merger
Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation, and (b) the officers of the Company at the Effective Time shall be
the officers of the Surviving Corporation.
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ARTICLE 3
---------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
--------------------------------------------------------
The Company represents and warrants to Parent that (except as set forth in
the disclosure schedules delivered by the Company to Parent simultaneously with
the execution of this Agreement (the "Company Disclosure Schedules")):
SECTION 3.1 Corporate Existence and Power. The Company is a corporation
-----------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, except for those the absence of which would not, individually or in
the aggregate, have, or be reasonably likely to have, a Material Adverse Effect
on the Company. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have, or be reasonably
likely to have, a Material Adverse Effect on the Company. For purposes of this
Agreement, a "Material Adverse Effect" with respect to any Person means a
material adverse effect on the financial condition, business, liabilities,
properties, assets or results of operations of such Person and its Subsidiaries,
taken as a whole, except, to the extent resulting from (x) any changes in
general United States or global economic conditions, (y) any changes affecting
the oil and gas industry in general (including changes to commodity prices)
except, other than where referring to a Material Adverse Effect on Parent after
the Effective Time, to the extent that the changes disproportionately affect
Parent or the Company, as applicable, compared to the manner in which the
changes affect the other party or (z) any disposition of the Alliance Interests
(as defined in Section 7.1) in accordance with the terms of Section 7.1. The
Company has heretofore delivered to Parent true and complete copies of the
Company's certificate of incorporation and by-laws as currently in effect.
SECTION 3.2 Corporate Authorization.
-----------------------
(a) The execution, delivery and performance by the Company of this
Agreement and the Option Agreements and the consummation by the Company of the
transactions contemplated hereby and thereby are within the Company's corporate
powers and, except for any required approval by the Company's stockholders (the
"Company Stockholder Approval") in connection with the consummation of the
Merger, have been duly authorized by all necessary corporate action. The
affirmative vote of holders of a majority of the outstanding shares of Company
Common Stock in favor of the approval and adoption of this Agreement and the
Merger is the only vote of the holders of any of the Company's capital stock
necessary in connection with consummation of the Merger. Assuming due
authorization, execution and delivery of this Agreement and the Option
Agreements by Parent and/or Merger Subsidiary, as applicable, each of this
Agreement and each Option Agreement constitutes a valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
subject to bankruptcy,
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insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights, and to
general equity principles.
(b) The Company's Board of Directors, at a meeting duly called and held on
or prior to the date hereof, has (i) determined that this Agreement and the
Option Agreements and the transactions contemplated hereby and thereby
(including the Merger) are advisable, fair to and in the best interests of the
Company's stockholders, (ii) approved and adopted this Agreement and the Option
Agreements and the transactions contemplated hereby and thereby (including the
Merger), and (iii) resolved (subject to Section 5.2) to recommend the approval
and adoption of this Agreement and the Merger by its stockholders.
SECTION 3.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by the Company of this Agreement and the Option Agreements and the
consummation by the Company of the transactions contemplated hereby and thereby
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority other than (a) the filing of a certificate of
merger in accordance with Delaware Law, (b) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), (c) compliance with any applicable requirements of Council
Regulation No. 4064/89 of the European Community, as amended (the "EC Merger
Regulation"), (d) compliance with any applicable requirements of laws, rules and
regulations in other foreign jurisdictions governing antitrust or merger control
matters, (e) compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), (f) compliance with any applicable requirements
of the Securities Act and (g) other actions or filings which if not taken or
made would not, individually or in the aggregate, have, or be reasonably likely
to have, a Material Adverse Effect on the Company or prevent or materially delay
the Company's consummation of the Merger.
SECTION 3.4 Non-Contravention. The execution, delivery and performance by
-----------------
the Company of this Agreement and the Option Agreements and the consummation by
the Company of the transactions contemplated hereby and thereby do not and will
not, assuming compliance with the matters referred to in Sections 3.2 and 3.3,
(a) contravene or conflict with the certificate of incorporation or by-laws of
the Company, (b) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Company or any of its Subsidiaries, (c) constitute a
default under or give rise to a right of termination, cancellation or
acceleration of any right or obligation of the Company or any of its
Subsidiaries or to a loss of any benefit to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement, contract or other
instrument binding upon the Company or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by the Company or any of
its Subsidiaries, or (d) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries, except for such contraventions,
conflicts or violations referred to in clause (b) or defaults, rights of
termination, cancellation or acceleration, or losses or Liens referred to in
clause (c) or (d) that would not, individually or in the aggregate, have, or be
reasonably likely to have, a Material Adverse Effect on the Company. For
purposes of this Agreement, "Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such
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asset other than any such mortgage, lien, pledge, charge, security interest
or encumbrance (i) for Taxes (as defined in Section 3.13) not yet due or being
contested in good faith (and for which adequate accruals or reserves have been
established on the Parent Balance Sheet or the Company Balance Sheet, as the
case may be) or (ii) which is a carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like lien arising in the ordinary course of
business. Neither the Company nor any Subsidiary of the Company, nor to the
knowledge of the Company, neither Joint Venture (as defined in Section 3.23
herein) nor any of its Subsidiaries, is a party to any agreement that expressly
limits the ability of the Company or any Subsidiary of the Company, or would
limit Parent or any Subsidiary of Parent after the Effective Time, to compete in
or conduct any line of business or compete with any Person or in any geographic
area or during any period of time except to the extent that any such limitation,
individually or in the aggregate, would not have, or be reasonably likely to
have, a Material Adverse Effect on the Company.
SECTION 3.5 Capitalization. The authorized capital stock of the Company
--------------
consists of 850,000,000 shares of Company Common Stock and 30,000,000 shares of
preferred stock, par value $1.00 per share (of which 3,000,000 are designated
Series D Junior Participating Preferred Stock, 300 are designated Market Auction
Preferred Shares, Series G-1 through G-300, 300 are designated Market Auction
Preferred Shares, Series H-1 through H-300, 300 are designated Market Auction
Preferred Shares, Series I-1 through I-300 and 300 are designated Market Auction
Preferred Shares, Series J-1 through J-300, and the remaining shares of such
preferred stock are not subject to any designation). As of the close of business
on September 30, 2000, there were outstanding, (i) 550,182,530 shares of Company
Common Stock, including 9,200,000 Rabbi Trust Shares, (ii) no shares of Series D
Junior Participating Preferred Stock (all of which are reserved for issuance in
accordance with the Amended Rights Agreement (the "Company Rights Agreement"),
dated as of March 16, 1989, by and between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, as amended April 28, 1998,
pursuant to which the Company has issued rights to purchase Series D Junior
Participating Preferred Stock ("Company Rights")), and (iii) 300 shares of
Market Auction Preferred Shares, Series G-1 through G-300, 300 shares of Market
Auction Preferred Shares, Series H-1 through H-300, 300 shares of Market Auction
Preferred Shares, Series I-1 through I-300, 300 shares of Market Auction
Preferred Shares, Series J-1 through J-300 (collectively, the "Market Auction
Preferred Stock") and no other shares of capital stock or other voting
securities of the Company were then outstanding. All outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. As of September 30, 2000, there were
outstanding (i) Company Awards (other than shares of restricted stock or other
awards included in the number of shares of Company Common Stock outstanding set
forth above) with respect to 2,558,307 shares of Company Common Stock and (ii)
Company Stock Options to purchase 13,683,804 shares of Company Common Stock.
Except as set forth in this Section 3.5 and except for changes since the close
of business on September 30, 2000 resulting from the exercise of employee stock
options outstanding on such date, or options or other stock-based awards granted
or other securities issued as permitted by Section 5.1, there are outstanding
(a) no shares of capital stock or other voting securities of the Company, (b) no
Company Awards, and (c) except for the Company Rights, and the option granted
pursuant to the Company Option Agreement, (i) no options, warrants or other
rights to acquire from the Company any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
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securities of the Company, and (ii) no preemptive or similar rights,
subscription or other rights, convertible securities, agreements, arrangements
or commitments of any character, relating to the capital stock of the Company,
obligating the Company to issue, transfer or sell any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company or obligating the Company to grant, extend or
enter into any such option, warrant, subscription or other right, convertible
security, agreement, arrangement or commitment (the items in clauses 3.5(a),
3.5(b) and 3.5(c) being referred to collectively as the "Company Securities").
Except as required by the terms of any series of the Market Auction Preferred
Stock or any Company Stock Options or as permitted by Section 5.1(e), there are
no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities.
SECTION 3.6 Subsidiaries.
------------
(a) Each Subsidiary of the Company is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization, has all
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except for those the absence
of which would not, individually or in the aggregate, have, or be reasonably
likely to have, a Material Adverse Effect on the Company. For purposes of this
Agreement, the word "Subsidiary" when used with respect to any Person means any
other Person, whether incorporated or unincorporated, of which (i) more than
fifty percent of the securities or other ownership interests or (ii) securities
or other interests having by their terms ordinary voting power to elect more
than fifty percent of the board of directors or others performing similar
functions with respect to such corporation or other organization, is directly
owned or controlled by such Person or by any one or more of its subsidiaries.
Each Subsidiary of the Company is duly qualified to do business and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have, or be reasonably likely to have, a
Material Adverse Effect on the Company. All "significant subsidiaries," as such
term is defined in Section 1-02 of Regulation S-X under the Exchange Act (each,
a "Significant Subsidiary") of the Company and their respective jurisdictions of
incorporation are identified in Section 3.6(a) of the Company Disclosure
Schedule.
(b) Except for directors' qualifying shares and except as set forth in the
Company 10-K, all of the outstanding capital stock of, or other ownership
interests in, each Significant Subsidiary of the Company is owned by the
Company, directly or indirectly, free and clear of any material Lien and free of
any other material limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of the Company or
any of its Subsidiaries convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Significant
Subsidiary of the Company or (ii) options, warrants or other rights to acquire
from the Company or any of its Significant Subsidiaries any capital stock,
voting securities or other ownership interests in, or any securities convertible
into or exchangeable for any capital stock, voting securities or ownership
interests in, any Significant Subsidiary of the Company, and no
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preemptive or similar rights, subscription or other rights, convertible
securities, agreements, arrangements or commitments of any character, relating
to the capital stock of any Significant Subsidiary of the Company, obligating
the Company or any of its Significant Subsidiaries to issue, transfer or sell,
any capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital stock, voting
securities or ownership interests in, any Significant Subsidiary of the Company
or obligating the Company or any Significant Subsidiary of the Company to grant,
extend or enter into any such option, warrant, subscription or other right,
convertible security, agreement, arrangement or commitment (the items in clauses
3.6(b)(i) and 3.6(b)(ii) being referred to collectively as the "Company
Subsidiary Securities"). There are no outstanding obligations of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any
outstanding Company Subsidiary Securities. As of the date hereof, the Company
indirectly owns a 44% limited liability company interest in Equilon Enterprises
LLC and a 30.6% limited liability company interest in Motiva Enterprises LLC.
SECTION 3.7 Commission Filings.
------------------
(a) The Company has made available to Parent (i) its annual reports on Form
10-K for its fiscal years ended December 31, 1997, 1998 and 1999, (ii) its
quarterly reports on Form 10-Q for its fiscal quarters ended after December 31,
1999, (iii) its proxy or information statements relating to meetings of, or
actions taken without a meeting by, the stockholders of the Company held since
December 31, 1999, and (iv) all of its other reports, statements, schedules and
registration statements filed with the Commission since December 31, 1999 (the
documents referred to in this Section 3.7(a) being referred to collectively as
the "Company Commission Documents"). The Company's annual report on Form 10-K
for its fiscal year ended December 31, 1999 is referred to herein as the
"Company 10-K".
(b) As of its filing date, each Company Commission Document complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the Securities Act.
(c) As of its filing date, each Company Commission Document filed pursuant
to the Exchange Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Each registration statement, as amended or supplemented, if applicable,
filed by the Company since January 1, 1997 pursuant to the Securities Act as of
the date such statement or amendment became effective did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
SECTION 3.8 Financial Statements. The audited consolidated financial
--------------------
statements and unaudited consolidated interim financial statements of the
Company (including any related notes and schedules) included in its annual
reports on Form 10-K and the quarterly reports on Form 10-Q referred to in
Section 3.7 present fairly, in all material respects, the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the
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consolidated results of their operations and their cash flows for the
periods then ended (subject to normal year-end adjustments and the absence of
notes in the case of any unaudited interim financial statements), in each case
in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto). For purposes of this Agreement, "Company
Balance Sheet" means the consolidated balance sheet of the Company as of
December 31, 1999 set forth in the Company 10-K and "Company Balance Sheet Date"
means December 31, 1999.
SECTION 3.9 Disclosure Documents.
--------------------
(a) Neither the proxy statement of the Company (the "Company Proxy
Statement") to be filed with the Commission in connection with the Merger, nor
any amendment or supplement thereto, will, at the date the Company Proxy
Statement or any such amendment or supplement is first mailed to stockholders of
the Company or at the time such stockholders vote on the adoption and approval
of this Agreement and the transactions contemplated hereby, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company Proxy Statement, including all
amendments or supplements, will, when filed, comply as to form in all material
respects with the requirements of the Exchange Act. No representation or
warranty is made by the Company in this Section 3.9 with respect to statements
made or incorporated by reference therein based on information supplied by
Parent or Merger Subsidiary for inclusion or incorporation by reference in the
Company Proxy Statement.
(b) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the Parent Proxy Statement (as
defined in Section 4.9) or in the Form S-4 (as defined in Section 4.9) or any
amendment or supplement thereto will, at the time the Parent Proxy Statement or
any such supplement or amendment thereto is first mailed to the stockholders of
Parent or at the time such stockholders vote on the matters constituting the
Parent Stockholder Approvals (as defined in Section 4.2) or at the time the Form
S-4 or any such amendment or supplement becomes effective under the Securities
Act or at the Effective Time, as the case may be, contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 3.10 Absence of Certain Changes. Except as disclosed in the Company
--------------------------
Commission Documents filed prior to the date of this Agreement, or except as is
not prohibited after the date hereof by Section 5.1 (or as is otherwise
permitted by Section 5.1), since the Company Balance Sheet Date, the Company and
its Subsidiaries have conducted their business in the ordinary course,
consistent with past practice, and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which, individually or in the aggregate, has had, or would be reasonably
likely to have, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company (other
than (i) regular quarterly cash dividends payable by the Company (x) consistent
with past practice (including periodic dividend
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increases consistent with past practice) and (y) that are not special
dividends, or (ii) required dividends on the Market Auction Preferred Stock), or
any repurchase, redemption or other acquisition by the Company or any of its
wholly owned Subsidiaries of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any of its
Significant Subsidiaries (other than any such repurchases prior to the date
hereof pursuant to the Company's publicly announced stock buyback program or,
after the date hereof, as permitted under Section 5.1(e) or Section 5.3 or
pursuant to the terms of Company Stock Options and Company Awards, in each case
subject to Section 7.4);
(c) any amendment of any material term of any outstanding security of the
Company or any of its Significant Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the Company
or any of its Subsidiaries relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by the Company
or any of its Subsidiaries of any contract or other right, in either case,
material to the Company and its Subsidiaries taken as a whole, other than
transactions, commitments, contracts, agreements or settlements (including
without limitation settlements of litigation and tax proceedings) in the
ordinary course of business consistent with past practice, those contemplated by
this Agreement, or as agreed to in writing by Parent;
(e) any change in any method of accounting or accounting practice (other
than any change for tax purposes) by the Company or any of its Subsidiaries,
except for any such change which is not material or which is required by reason
of a concurrent change in GAAP;
(f) any (i) grant of any severance or termination pay to (or amendment to
any such existing arrangement with) any director, officer or employee of the
Company or any of its Subsidiaries, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company or any
of its Subsidiaries, (iii) increase in benefits payable under any existing
severance or termination pay policies or (iv) increase in (or amendments to the
terms of) compensation, bonus or other benefits payable to directors, officers
or employees of the Company or any of its Subsidiaries, other than, in each case
(x) in the ordinary course of business consistent with past practice, (y) as
permitted by this Agreement, or (z) required by applicable law; or
(g) any (i) Tax election made or changed, (ii) audit settled, or (iii)
amended Tax return filed, in each case, that is reasonably likely to result in a
Tax liability material to the Company and its Subsidiaries, taken as a whole.
SECTION 3.11 No Undisclosed Material Liabilities. There are no liabilities
-----------------------------------
of the Company or any Subsidiary of the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in the Company Balance Sheet or
in the notes thereto;
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(b) liabilities which, individually or in the aggregate, would not have, or
be reasonably likely to have, a Material Adverse Effect on the Company;
(c) liabilities disclosed in the Company Commission Documents filed prior
to the date of this Agreement; and
(d) liabilities under this Agreement.
SECTION 3.12 Litigation. Except as disclosed in the Company Commission
----------
Documents filed prior to the date of this Agreement, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of the Company
threatened against or affecting, the Company or any of its Subsidiaries or any
of their respective properties or any of their respective officers or directors
before any court or arbitrator or any governmental body, agency or official
except as would not, individually or in the aggregate, have, or be reasonably
likely to have, a Material Adverse Effect on the Company.
SECTION 3.13 Taxes.
-----
(a) Except as set forth in the Company Balance Sheet (including the notes
thereto) and except as would not, individually or in the aggregate, have, or be
reasonably likely to have, a Material Adverse Effect on the Company, (i) all
Company Tax Returns required to be filed with any taxing authority by, or with
respect to, the Company and its Subsidiaries have been filed in accordance with
all applicable laws; (ii) the Company and its Subsidiaries have timely paid all
Taxes shown as due and payable on the Company Tax Returns that have been so
filed, and, as of the time of filing, the Company Tax Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities and the status of the Company and its Subsidiaries (other than Taxes
which are being contested in good faith and for which adequate reserves are
reflected on the Company Balance Sheet); (iii) the Company and its Subsidiaries
have made provision for all Taxes payable by the Company and its Subsidiaries
for which no Company Tax Return has yet been filed; (iv) the charges, accruals
and reserves for Taxes with respect to the Company and its Subsidiaries
reflected on the Company Balance Sheet are adequate under GAAP to cover the Tax
liabilities accruing through the date thereof; (v) there is no action, suit,
proceeding, audit or claim now proposed or pending against or with respect to
the Company or any of its Subsidiaries in respect of any Tax where there is a
reasonable possibility of an adverse determination; and (vi) to the best of the
Company's knowledge and belief, neither the Company nor any of its Subsidiaries
is liable for any Tax imposed on any entity other than such Person, except as
the result of the application of Treas. Reg. section 1.1502-6 (and any
comparable provision of the tax laws of any state, local or foreign
jurisdiction) to the affiliated group of which the Company is the common parent.
For purposes of this Agreement, "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, excise, stamp, real or personal property,
ad valorem, withholding, social security (or similar), unemployment, occupation,
use, production, service, service use, license, net worth, payroll, franchise,
severance, transfer, recording, employment, premium, windfall profits,
environmental (including taxes under Section 59A of the Code), customs duties,
capital stock, profits, disability, sales, registration, value added,
alternative or add-on minimum,
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estimated or other taxes, assessments or charges imposed by any federal,
state, local or foreign governmental entity and any interest, penalties, or
additions to tax attributable thereto. For purposes of this Agreement, "Tax
Returns" shall mean any return, report, form or similar statement required to be
filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
(b) Neither the Company nor any Company Subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying or
intended to qualify for tax-free treatment under Section 355 of the Code (i) in
the two years prior to the date of this Agreement or (ii) in a distribution that
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
SECTION 3.14 Employee Benefit Plans.
----------------------
(a) The Company has provided Parent with a list (set forth in Section
3.14(a) of the Company Disclosure Schedule) identifying each material "employee
benefit plan", as defined in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), each material employment, severance
or similar contract, plan, arrangement or policy applicable to any director,
former director, employee or former employee of the Company and each material
plan or arrangement (written or oral), providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) which is
maintained, administered or contributed to by the Company or any Subsidiary and
covers any employee or director or former employee or director of the Company or
any Subsidiary, or under which the Company has any liability; provided however,
that such list need not include any Company Benefit Plan that constitutes a
Foreign Company Benefit Plan (as defined below). The material plans, agreements
or arrangements of the Company and its Subsidiaries referred to in the first
sentence of this paragraph (a) (excluding any such plan that is a "multiemployer
plan", as defined in section 3(37) of ERISA, but including Foreign Company
Benefit Plans) are referred to collectively herein as the "Company Benefit
Plans." "Foreign Company Benefit Plan" means any Company Benefit Plan of the
Company or any of its Subsidiaries that is governed by the laws of any
jurisdiction other than the United States. To the extent practicable, the
Company shall provide and deliver to Parent a list of Foreign Company Benefit
Plans as soon as practicable.
(b) Each Company Benefit Plan has been established and maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations (including but not limited to, to the
extent applicable, ERISA and the Code) which are applicable to such Plan, except
where failure to so comply would not, individually or in the aggregate, have, or
be reasonably likely to have, a Material Adverse Effect on the Company.
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(c) Neither the Company nor any affiliate of the Company has incurred a
liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any affiliate
of the Company of incurring any such liability other than liability for premiums
due the Pension Benefit Guaranty Corporation (which premiums have been paid when
due).
(d) Each Company Benefit Plan which is intended to be qualified under
section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from federal income tax pursuant to section 501(a) of the Code and, to
the knowledge of the Company, no circumstances exist which will adversely affect
such qualification or exemption.
(e) Section 3.14(e) of the Company Disclosure Schedule sets forth (a) with
respect to directors and officers of the Company as a group, the aggregate
amount of all severance and similar benefits, including enhanced or accelerated
benefits, to which such officers and directors will become entitled (including
any acceleration of vesting or lapse of repurchase rights or obligations with
respect to any Company Stock Option Plans or other benefit under any
compensation plan or arrangement of the Company), and (b) the aggregate amount
of all severance and similar benefits, including enhanced or accelerated
benefits, payable in cash or stock to which all other United States payroll
employees of the Company and its Subsidiaries (the "Company U.S. Employees")
will become entitled, in each case, (i) solely as a result of obtaining the
Company Stockholder Approval or the transactions contemplated hereby and (ii) if
a "second" trigger, including, but not limited to, a termination for "good
reason" or without "cause," is applicable, assuming it has occurred
(collectively, (i) and (ii) are hereinafter defined as the "Benefit Triggers").
With regard to employees of the Company and its Subsidiaries other than the
Company U.S. Employees (the "Company Non-U.S. Employees"), there are severance
pay plans (some legally mandated and others Company designed) in many countries
around the world which provide severance payments in the event of termination.
To the knowledge of the Company, there are no severance agreements with respect
to the Company Non-U.S. Employees which provide enhanced severance on account of
a change in control which would be triggered by the transactions contemplated
hereby. The Company Disclosure Schedule sets forth the aggregate amounts for the
Retirement Plan which will become vested upon a Change of Control. This amount
is based on the 1999 Actuarial Reports. In addition, the comparable amounts for
Supplement #1 and Supplement #3, calculated as of July 2000, are also disclosed.
To the Company's knowledge, there are no other retirement plans which require
accelerated vesting solely due to the transactions contemplated hereunder.
(f) Except as reflected in the Company Commission Documents filed prior to
the date hereof, no Company Benefit Plan provides post-retirement health and
medical, life or other insurance benefits for retired employees of the Company
or any of its Subsidiaries.
(g) There has been no amendment to, written interpretation or announcement
(whether or not written) by the Company or any of its Subsidiaries relating to,
or change in, employee participation or coverage under, any Company Benefit Plan
(other than a Foreign Company Benefit Plan) which would increase materially the
expense of maintaining such
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Company Benefit Plan above the level of the expense incurred in respect
thereof for the 12 months ended on the Company Balance Sheet Date.
(h) The Company and its Subsidiaries are in compliance in all material
respects with all applicable material federal, state and local laws, rules and
regulations respecting employment, employment practices, labor, terms and
conditions of employment and wages and hours, including all civil rights and
anti-discrimination laws, rules and regulations (collectively,
"Anti-Discrimination Laws"), and no material work stoppage or slowdown or labor
strike against the Company or any of its Subsidiaries is pending or threatened,
nor is the Company or any of its Subsidiaries involved in or threatened with
labor disputes, grievances, or litigation relating to labor matters, including
with respect to Anti-Discrimination Laws, involving classes or alleged classes
of persons.
SECTION 3.15 Compliance with Laws. Neither the Company nor any of its
--------------------
Subsidiaries is in violation of, or has since January 1, 1998 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not have, or be
reasonably likely to have, a Material Adverse Effect on the Company.
SECTION 3.16 Finders' or Advisors' Fees. Except for Credit Suisse First
--------------------------
Boston Corporation and Morgan Stanley & Co. Incorporated, copies of whose
engagement agreements have been provided to Parent, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of the Company or any of its Subsidiaries who might
be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
SECTION 3.17 Environmental Matters.
---------------------
(a) Except as set forth in the Company Commission Documents filed prior to
the date hereof and with such exceptions as, individually or in the aggregate,
would not have, or be reasonably likely to have, a Material Adverse Effect on
the Company, (i) no notice, notification, demand, request for information,
citation, summons, complaint or order has been received by, and no
investigation, action, claim, suit, proceeding or review is pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened by any Person
against, the Company or any of its Subsidiaries, and no penalty has been
assessed against the Company or any of its Subsidiaries, in each case, with
respect to any matters relating to or arising out of any Environmental Law; (ii)
the Company and its Subsidiaries are and have been in compliance with all
Environmental Laws; (iii) there are no liabilities of or relating to the Company
or any of its Subsidiaries relating to or arising out of any Environmental Law
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such a
liability; and (iv) there has been no environmental investigation, study, audit,
test, review or other analysis conducted of which the Company has knowledge in
relation to any current or prior business of the Company or any of its
Subsidiaries or any property or facility now or previously owned, leased or
operated by the Company or any of its Subsidiaries which has not been delivered
to
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Parent prior to the date hereof.
(b) For purposes of this Section 3.17 and Section 4.17, the term
"Environmental Laws" means federal, state, local and foreign statutes, laws
(including, without limitation, common law), judicial decisions, regulations,
ordinances, rules, judgments, orders, codes, injunctions, permits, governmental
agreements or governmental restrictions relating to human health and safety, the
environment or to pollutants, contaminants, wastes, or chemicals.
SECTION 3.18 Opinion of Financial Advisor. The Company has received the
----------------------------
opinion of Credit Suisse First Boston Corporation to the effect that, as of the
date of such opinion, the Exchange Ratio is fair from a financial point of view
to the holders of shares of Company Common Stock, and as of the date hereof such
opinion has not been withdrawn.
SECTION 3.19 Pooling; Tax Treatment.
----------------------
(a) The Company intends that the Merger be accounted for under the "pooling
of interests" method under the requirements of Opinion No. 16 (Business
Combinations) of the Accounting Principles Board of the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board, and the
rules and regulations of the Commission.
(b) Neither the Company nor any of its affiliates has taken or agreed to
take any action or is aware of any fact or circumstance with respect to the
Company that would prevent the Merger from qualifying (i) for "pooling of
interests" accounting treatment as described in (a) above or (ii) as a
reorganization within the meaning of Section 368 of the Code (a "368
Reorganization").
(c) Immediately after the execution of this Agreement, the Company will
terminate all stock repurchase programs (provided that the Company shall be
permitted to effect the redemption contemplated by Section 5.3).
SECTION 3.20 Pooling Letter. The Company has received a letter from Arthur
--------------
Andersen LLP dated as of October 15, 2000 and addressed to the Company, a copy
of which has been delivered to Parent, stating that Arthur Andersen LLP concurs
with the Company management's conclusion that, as of October 15, 2000, the
Company is eligible to participate in a transaction accounted for as a "pooling
of interests" under Opinion 16 (Business Combination) of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the rules and regulations of the Commission.
SECTION 3.21 Takeover Statutes. The Board of Directors of the Company has
-----------------
taken the necessary action to render section 203 of the Delaware Law, any other
potentially applicable antitakeover or similar statute or regulation and the
supermajority voting provisions of Article XIII of the Company's certificate of
incorporation and Article VII of the Company's by-laws inapplicable to this
Agreement and the Company Option Agreement and the transactions contemplated
hereby and thereby.
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SECTION 3.22 Stockholder Rights Plan. The Board of Directors of the Company
-----------------------
has resolved to, and the Company promptly after execution of this Agreement
will, take all action necessary to render the rights issued pursuant to the
terms of the Company Rights Agreement inapplicable to the Merger, this
Agreement, the Company Option Agreement and the other transactions contemplated
hereby and thereby.
SECTION 3.23 Joint Ventures. To the knowledge of the Company, the audited
--------------
consolidated financial statements of each of Equilon Enterprises LLC and Motiva
Enterprises LLC (the "Joint Ventures") for the years ended and at December 31,
1999 and 1998 (including the notes thereto) previously furnished by the Company
to Parent present fairly, in all material respects, the consolidated financial
position of the applicable Joint Venture as of the dates thereof and the
consolidated results of operations and their cash flows for the periods then
ended, in each case in conformity with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto). To the knowledge of the
Company, neither Joint Venture nor any of its Subsidiaries is subject to any
liabilities of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than: (a) liabilities disclosed or
provided for in the respective consolidated balance sheets at December 31, 1999
of the applicable Joint Venture included in the audited consolidated financial
statements referred to above, (b) liabilities which, individually or in the
aggregate, would not have, or be reasonably likely to have, a Material Adverse
Effect on the Company, and (c) liabilities disclosed in the Company Commission
Documents filed prior to the date of this Agreement. To the knowledge of the
Company, since December 31, 1999, the Joint Ventures have conducted their
respective businesses in the ordinary course.
ARTICLE 4
---------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT
---------------------------------------------------
Parent represents and warrants to the Company that (except as set forth in
the disclosure schedules delivered by Parent to the Company simultaneously with
the execution of this Agreement (the "Parent Disclosure Schedules")):
SECTION 4.1 Corporate Existence and Power. Each of Parent and Merger
-----------------------------
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all corporate powers
and all governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted, except for those the absence of which
would not, individually or in the aggregate, have, or be reasonably likely to
have, a Material Adverse Effect on Parent. Parent is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have, or be reasonably likely to have, a Material Adverse Effect on
Parent. Since the
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date of its incorporation, Merger Subsidiary has not engaged in any
activities other than in connection with or as contemplated by this Agreement.
Parent has heretofore delivered to the Company true and complete copies of
Parent's and Merger Subsidiary's certificate of incorporation and by-laws as
currently in effect.
SECTION 4.2 Corporate Authorization.
-----------------------
(a) The execution, delivery and performance by Parent and Merger Subsidiary
of this Agreement, and by Parent of the Option Agreements, and the consummation
by Parent and Merger Subsidiary of the transactions contemplated hereby and
thereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action, except for the required
approval of Parent's stockholders of (i) the Name Change Amendment (the "Name
Change Amendment Approval") and (ii) the issuance of Parent Common Stock (the
"Common Stock Issuance") in accordance with the rules and regulations of the
NYSE (the "Common Stock Issuance Approval", together with the Name Change
Amendment Approval, the "Parent Stockholder Approvals")) in each case, in
connection with the Merger. The affirmative vote of holders of at least a
majority of the outstanding shares of Parent Common Stock in favor of the Name
Change Amendment is the only vote of the holders of any of the Parent's capital
stock necessary in connection with obtaining the Name Change Amendment. The
affirmative vote in favor of the Common Stock Issuance of a majority of the
votes cast with respect to the Common Stock Issuance by the holders of Parent
Common Stock (provided that the total number of the votes cast in favor of or
against the Common Stock Issuance represents at least a majority of the
outstanding shares of Parent Common Stock) is the only vote of the holders of
any of Parent's capital stock necessary in connection with obtaining the Common
Stock Issuance Approval. Assuming due authorization, execution and delivery of
this Agreement and the Option Agreements by the Company, this Agreement
constitutes a valid and binding agreement of each of Parent and Merger
Subsidiary and each Option Agreement constitutes a valid and binding agreement
of Parent, in each case enforceable against such party in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The shares of Parent Common
Stock issued pursuant to the Merger, when issued in accordance with the terms
hereof, will be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights.
(b) Parent's Board of Directors, at a meeting duly called and held on or
prior to the date hereof, has (i) determined that this Agreement and the Option
Agreements and the transactions contemplated hereby and thereby (including the
Merger) are fair to and in the best interests of Parent's stockholders (and, in
the case of the Name Change Amendment, declaring its advisability), (ii)
approved this Agreement and the Option Agreements and the transactions
contemplated hereby and thereby (including the Merger and the Common Stock
Issuance), and (iii) resolved (subject to Section 6.4) to recommend approval by
Parent's stockholders of the matters constituting the Parent Stockholder
Approvals.
SECTION 4.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by Parent and Merger Subsidiary of this Agreement, and by Parent of
the Option Agreements,
A-23
and the consummation by Parent and Merger Subsidiary of the transactions
contemplated hereby and thereby require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than (a) the
filing of a certificate of merger and a certificate of amendment to Parent's
certificate of incorporation, in each case in accordance with Delaware Law, (b)
compliance with any applicable requirements of the HSR Act, (c) compliance with
any applicable requirements of the EC Merger Regulation, (d) compliance with any
applicable requirements of laws, rules and regulations in other foreign
jurisdictions governing antitrust or merger control matters, (e) compliance with
any applicable requirements of the Exchange Act, (f) compliance with any
applicable requirements of the Securities Act and (g) other actions or filings
which if not taken or made would not, individually or in the aggregate, have, or
be reasonably likely to have, a Material Adverse Effect on Parent or prevent or
materially delay Parent's and Merger Subsidiary's consummation of the Merger.
SECTION 4.4 Non-Contravention. The execution, delivery and performance by
-----------------
Parent and Merger Subsidiary of this Agreement, and by Parent of the Option
Agreements, and the consummation by Parent and Merger Subsidiary of the
transactions contemplated hereby and thereby do not and will not, assuming
compliance with the matters referred to in Sections 4.2 and 4.3, (a) contravene
or conflict with the certificate of incorporation or by-laws of Parent or Merger
Subsidiary, (b) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to Parent or any of its Subsidiaries, (c) constitute a
default under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of Parent or any of its Subsidiaries or
to a loss of any benefit to which Parent or any of its Subsidiaries is entitled
under any provision of any agreement, contract or other instrument binding upon
Parent or any of its Subsidiaries or any license, franchise, permit or other
similar authorization held by Parent or any of its Subsidiaries or (d) result in
the creation or imposition of any Lien on any asset of Parent or any of its
Subsidiaries, except for such contraventions, conflicts or violations referred
to in clause (b) or defaults, rights of termination, cancellation or
acceleration, or losses or Liens referred to in clause (c) or (d) that would
not, individually or in the aggregate, have, or be reasonably likely to have, a
Material Adverse Effect on Parent. Neither Parent nor any Subsidiary of Parent
is a party to any agreement that expressly limits the ability of Parent or any
Subsidiary of Parent to compete in or conduct any line of business or compete
with any Person or in any geographic area or during any period of time except to
the extent that any such limitation, individually or in the aggregate, would not
have, or be reasonably likely to have, a Material Adverse Effect on Parent.
SECTION 4.5 Capitalization. The authorized capital stock of Parent consists
--------------
of 2,000,000,000 shares of Parent Common Stock, and 100,000,000 shares of
preferred stock, par value $1.00 per share (of which 5,000,000 are designated
Series A Participating Preferred Stock, and the remaining shares of such
preferred stock are not subject to any designation). As of the close of business
on September 30, 2000, there were outstanding 642,411,517 shares of Parent
Common Stock, no shares of Series A Participating Preferred Stock (all of which
are reserved for issuance in accordance with the Parent Rights Agreement
pursuant to which Parent has issued Parent Rights), and no other shares of
capital stock or other voting securities of Parent. All outstanding shares of
capital stock of Parent have been duly authorized and validly issued and are
fully paid and nonassessable. As of September 30, 2000, there were outstanding
(i) options
A-24
to purchase 11,320,461 shares of Parent Common Stock and (ii) other
stock-based awards (other than shares of restricted stock or other equity-based
awards included in the number of shares of Parent Common Stock outstanding set
forth above) with respect to 1,475,291 shares of Parent Common Stock. Except as
set forth in this Section 4.5 and except for changes since the close of business
on September 30, 2000 resulting from the exercise of employee stock options
outstanding on such date or options or other stock-based awards granted or
securities issued as permitted by Section 6.1 and except for the shares to be
issued in connection with the Merger, there are outstanding (a) no shares of
capital stock or other voting securities of Parent, and (b) except for
securities issuable pursuant to compensation plans or arrangements, including
options issued pursuant to Parent stock option plans and performance units of
Parent convertible into Parent Common Stock and the option granted pursuant to
the Parent Option Agreement, (i) no options, warrants or other rights to acquire
from Parent any capital stock, voting securities or securities convertible into
or exchangeable for capital stock or voting securities of Parent, and (ii) no
preemptive or similar rights, subscription or other rights, convertible
securities, agreements, arrangements, or commitments of any character, relating
to the capital stock of Parent, obligating Parent to issue, transfer or sell any
capital stock, voting security or securities convertible into or exchangeable
for capital stock or voting securities of Parent or obligating Parent to grant,
extend or enter into any such option, warrant, subscription or other right,
convertible security, agreement, arrangement or commitment (the items in clauses
4.5(a), 4.5(b) and 4.5(c) being referred to collectively as the "Parent
Securities"). Except as required by the terms of any employee or director
options or other stock based awards and or as permitted by 6.1(e), there are no
outstanding obligations of Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Parent Securities.
SECTION 4.6 Subsidiaries.
-----------
(a) Each Subsidiary of Parent is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, has all powers
and all governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted, except for those the absence
of which would not, individually or in the aggregate, have, or be reasonably
likely to have, a Material Adverse Effect on Parent. Each Subsidiary of Parent
is duly qualified to do business and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualifications necessary, except for those jurisdictions
where failure to be so qualified would not, individually or in the aggregate,
have, or be reasonably likely to have, a Material Adverse Effect on Parent. All
Significant Subsidiaries of Parent and their respective jurisdictions of
incorporation are identified in Section 4.6(a) of the Parent Disclosure
Schedule.
(b) Except for directors' qualifying shares and except as set forth in the
Parent 10-K, all of the outstanding capital stock of, or other ownership
interests in, each Significant Subsidiary of Parent is owned by Parent, directly
or indirectly, free and clear of any material Lien and free of any other
material limitation or restriction (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other ownership
interests). There are no outstanding (i) securities of Parent or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
other voting securities or ownership interests in any Significant
A-25
Subsidiary of Parent, or (ii) options, warrants or other rights to acquire
from Parent or any of its Significant Subsidiaries any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership interests
in, any Significant Subsidiary of Parent, and no preemptive or similar rights,
subscriptions or other rights, convertible securities, agreements, arrangements
or commitments of any character, relating to the capital stock of any
Significant Subsidiary of Parent, obligating Parent or any of its Significant
Subsidiaries to issue, transfer or sell, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or exchangeable
for any capital stock, voting securities or ownership interests in, any
Significant Subsidiary of Parent or obligating Parent or any Significant
Subsidiary of Parent to grant, extend or enter into any such option, warrant,
subscription or other right, convertible security, agreement, arrangement or
commitment (items in clauses 4.6(b)(i) and 4.6(b)(ii) being referred to
collectively as the "Parent Subsidiary Securities"). There are no outstanding
obligations of Parent or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any outstanding Parent Subsidiary Securities.
SECTION 4.7 Commission Filings.
------------------
(a) Parent has made available to the Company (i) its annual reports on Form
10-K for its fiscal years ended December 31, 1997, 1998 and 1999, (ii) its
quarterly reports on Form 10-Q for its fiscal quarters ended after December 31,
1999, (iii) its proxy or information statements relating to meetings of, or
actions taken without a meeting by, the stockholders of Parent held since
December 31, 1999, and (iv) all of its other reports, statements, schedules and
registration statements filed with the Commission since December 31, 1999 (the
documents referred to in this Section 4.7(a) being referred to collectively as
the "Parent Commission Documents"). Parent's annual report on Form 10-K for its
fiscal year ended December 31, 1999 is referred to herein as the "Parent 10-K".
(b) As of its filing date, each Parent Commission Document complied as to
form in all material respects with the applicable requirements of the Exchange
Act and the Securities Act.
(c) As of its filing date, each Parent Commission Document filed pursuant
to the Exchange Act did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(d) Each registration statement, as amended or supplemented, if applicable,
filed by Parent since January 1, 1997 pursuant to the Securities Act as of the
date such statement or amendment became effective did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
SECTION 4.8 Financial Statements. The audited consolidated financial
--------------------
statements and unaudited consolidated interim financial statements of Parent
(including any related notes and schedules) included in the annual reports on
Form 10-K and the quarterly reports on Form 10-Q referred to in Section 4.7
present fairly, in all material respects, the consolidated financial position of
Parent and its Subsidiaries as of the dates thereof and the consolidated results
of their
A-26
operations and their cash flows for the periods then ended (subject to
normal year-end adjustments and the absence of notes in the case of any
unaudited interim financial statements), in each case in conformity with GAAP
applied on a consistent basis (except as may be indicated in the notes thereto).
For purposes of this Agreement, "Parent Balance Sheet" means the consolidated
balance sheet of Parent as of December 31, 1999 set forth in the Parent 10-K and
"Parent Balance Sheet Date" means December 31, 1999.
SECTION 4.9 Disclosure Documents.
--------------------
(a) The proxy statement of Parent (the "Parent Proxy Statement") to be
filed with the Commission in connection with the Merger and the Registration
Statement on Form S-4 of Parent (the "Form S-4") to be filed under the
Securities Act relating to the issuance of Parent Common Stock in the Merger,
and any amendments or supplements thereto, will, when filed, subject to the last
sentence of Section 4.9(b), comply as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act.
(b) Neither the Parent Proxy Statement nor any amendment or supplement
thereto, will, at the date the Parent Proxy Statement or any such amendment or
supplement is first mailed to stockholders of Parent or at the time such
stockholders vote on the matters constituting the Parent Stockholder Approval,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Neither the Form S-4
nor any amendment or supplement thereto will at the time it becomes effective
under the Securities Act or at the Effective Time contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. No
representation or warranty is made by Parent in this Section 4.9 with respect to
statements made or incorporated by reference therein based on information
supplied by the Company for inclusion or incorporation by reference in the
Parent Proxy Statement or the Form S-4.
(c) None of the information supplied or to be supplied by Parent for
inclusion or incorporation by reference in the Company Proxy Statement or any
amendment or supplement thereto will, at the date the Company Proxy Statement or
any amendment or supplement thereto is first mailed to stockholders of Company
or at the time such stockholders vote on the adoption and approval of this
Agreement and the transactions contemplated hereby, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 4.10 Absence of Certain Changes. Except as disclosed in the Parent
--------------------------
Commission Documents filed prior to the date of this Agreement, or except as is
not prohibited after the date hereof by Section 6.1 (or as is otherwise
permitted by Section 6.1), since the Parent Balance Sheet Date, Parent and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which, individually or in the aggregate, has had, or would be reasonably
likely to have, a Material Adverse Effect on Parent; or
A-27
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Parent (other than
regular quarterly cash dividends payable by Parent (x) consistent with past
practice (including periodic dividend increases consistent with past practice)
and (y) that are not special dividends), or any repurchase, redemption or other
acquisition by Parent or any of its wholly owned Subsidiaries of any outstanding
shares of capital stock or other equity securities of, or other ownership
interests in, Parent or any of its Significant Subsidiaries (other than any such
repurchases prior to the date hereof pursuant to Parent's publicly announced
stock buyback program or, after the date hereof, as permitted under Section
6.1(e), or pursuant to the terms of employee and director stock options); or
(c) any change prior to the date hereof in any method of accounting or
accounting practice (other than any change for tax purposes) by Parent or any of
its Subsidiaries, except for any such change which is not material or which is
required by reason of a concurrent change in GAAP; or
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) Parent or
any of its Subsidiaries relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by Parent or any
of its Subsidiaries of any contract or other right, in either case, material to
Parent and its Subsidiaries taken as a whole, other than transactions,
commitments, contracts, agreements or settlements (including without limitation
settlements of litigation and tax proceedings) in the ordinary course of
business consistent with past practice, those contemplated by this Agreement, or
as agreed to in writing by the Company;
(e) any amendment of any material term of any outstanding security of
Parent or any of its Significant Subsidiaries; or
(f) any (i) Tax election made or changed, (ii) audit settled, or (iii)
amended Tax return filed, in each case, that is reasonably likely to result in a
Tax liability material to Parent and its Subsidiaries, taken as a whole.
SECTION 4.11 No Undisclosed Material Liabilities. There are no liabilities
-----------------------------------
of the Parent or any Subsidiary of the Parent of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in the Parent Balance Sheet or in
the notes thereto;
(b) liabilities which, individually or in the aggregate, would not have, or
be reasonably likely to have, a Material Adverse Effect on Parent;
(c) liabilities disclosed in the Parent Commission Documents filed prior to
the date of this Agreement; and
(d) liabilities under this Agreement.
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SECTION 4.12 Litigation. Except as disclosed in the Parent Commission
----------
Documents filed prior to the date of this Agreement, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Parent
threatened against or affecting, Parent or any of its Subsidiaries or any of
their respective properties or any of their respective officers or directors
before any court or arbitrator or any governmental body, agency or official
except as would not, individually or in the aggregate, have, or be reasonably
likely to have, a Material Adverse Effect on Parent.
SECTION 4.13 Taxes. Except as set forth in the Parent Balance Sheet
-----
(including the notes thereto) and except as would not, individually or in the
aggregate, have, or be reasonably likely to have, a Material Adverse Effect on
Parent, (i) all Parent Tax Returns required to be filed with any taxing
authority by, or with respect to, Parent and its Subsidiaries have been filed in
accordance with all applicable laws; (ii) Parent and its Subsidiaries have
timely paid all Taxes shown as due and payable on Parent Tax Returns that have
been so filed, and, as of the time of filing, the Parent Tax Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities and the status of Parent and its Subsidiaries (other than Taxes which
are being contested in good faith and for which adequate reserves are reflected
on the Parent Balance Sheet); (iii) Parent and its Subsidiaries have made
provision for all Taxes payable by Parent and its Subsidiaries for which no
Parent Tax Return has yet been filed; (iv) the charges, accruals and reserves
for Taxes with respect to Parent and its Subsidiaries reflected on the Parent
Balance Sheet are adequate under GAAP to cover the Tax liabilities accruing
through the date thereof; (v) there is no action, suit, proceeding, audit or
claim now proposed or pending against or with respect to Parent or any of its
Subsidiaries in respect of any Tax where there is a reasonable possibility of an
adverse determination; and (vi) to the best of Parent's knowledge and belief,
neither Parent nor any of its Subsidiaries is liable for any Tax imposed on any
entity other than such Person, except as the result of the application of Treas.
Reg. section 1.1502-6 (and any comparable provision of the tax laws of any
state, local or foreign jurisdiction) to the affiliated group of which Parent is
the common parent.
SECTION 4.14 Employee Benefit Plans.
----------------------
(a) Parent has provided the Company with a list (set forth in Section
-------
4.14(c) of the Parent Disclosure) identifying each material "employee benefit
-------
plan," as defined in section 3(3) of ERISA, each material management,
consulting, non-compete, employment, severance or similar contract, plan,
arrangement or policy applicable to any director, former director, employee or
former employee of Parent and each material plan, program, policy, agreement or
arrangement (written or oral), providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits,
disability benefits, workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance benefits) or other
employee benefits of any kind, whether funded or unfunded which is maintained,
administered or contributed to by Parent or any Subsidiary and covers any
employee or director or former employee or director of Parent, or under which
Parent or any Subsidiary has any liability, contingent or otherwise; provided
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however, that such list need not include any Parent Benefit Plan that
constitutes a Foreign Parent Benefit Plan (as defined below). The material
plans, agreement or arrangements of the Parent and its Subsidiaries referred to
in the first sentence of this paragraph (a) (excluding any such plan that is a
"multiemployer plan," as defined in section 3(37) of ERISA, but including
Foreign Parent Benefit Plans) are referred to collectively herein as the "Parent
Benefit Plans." "Foreign Parent Benefit Plan" means any Parent Benefit Plan of
Parent or any of its Subsidiaries that is governed by the laws of any
jurisdiction other than the United States. To the extent practicable, Parent
shall provide and deliver to the Company a list of Foreign Parent Benefit Plans
as soon as practicable.
(b) Each Parent Benefit Plan has been established and maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations (including but not limited to, to the
extent applicable, ERISA and the Code) which are applicable to such Plan, except
where failure to so comply would not, individually or in the aggregate, have, or
be reasonably likely to have, a Material Adverse Effect on Parent.
(c) Neither Parent nor any affiliate of Parent has incurred a liability
under Title IV of ERISA that has not been satisfied in full, and no condition
exists that presents a material risk to Parent or any affiliate of Parent of
incurring any such liability other than liability for premiums due the Pension
Benefit Guaranty Corporation (which premiums have been paid when due).
(d) Each Parent Benefit Plan which is intended to be qualified under
section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from federal income tax pursuant to section 501(a) of the Code and, to
the knowledge of Parent, no circumstances exist which will adversely affect such
qualification or exemption.
(e) No director, officer or other employee of Parent will become entitled
to any severance or similar benefit or enhanced or accelerated benefit solely as
a result of obtaining the Parent Stockholder Approval or otherwise as a result
of the transactions contemplated hereby.
(f) Except as reflected in the Parent Commission Documents filed prior to
the date hereof, no Parent Benefit Plan provides post-retirement health and
medical, life or other insurance benefits for retired employees of Parent or any
of its Subsidiaries.
(g) There has been no amendment to, written interpretation or announcement
(whether or not written) by Parent, any Subsidiary or any of its affiliates
relating to, or change in employee participation or coverage under, any Parent
Benefit Plan (other than a Foreign Parent Benefit Plan) which would increase
materially the expense of maintaining such Parent Benefit Plan above the level
of the expense incurred in respect thereof for the 12 months ended on the Parent
Balance Sheet Date.
(h) Parent and its Subsidiaries are in compliance in all material respects
with all applicable material federal, state and local laws, rules and
regulations respecting employment, employment practices, labor, terms and
conditions of employment and wages and hours, including Anti-Discrimination
Laws, and no material work stoppage or slowdown or labor strike
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against Parent or any of its Subsidiaries is pending or threatened, nor is
Parent or any of its Subsidiaries involved in or threatened with labor disputes,
grievances or litigation relating to labor matters involving any employees,
including with respect to Anti-Discrimination Laws, involving classes or alleged
classes of persons.
SECTION 4.15 Compliance with Laws. Neither Parent nor any of its
--------------------
Subsidiaries is in violation of, or has since January 1, 1998 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not have, or be
reasonably likely to have, a Material Adverse Effect on Parent.
SECTION 4.16 Finders' or Advisors' Fees. Except for Lehman Brothers Inc.,
--------------------------
whose fees will be paid by Parent, there is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Parent or any of its Subsidiaries who might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
SECTION 4.17 Environmental Matters. Except as set forth in the Parent
---------------------
Commission Documents filed prior to the date hereof and with such exceptions as,
individually or in the aggregate, would not have, or be reasonably likely to
have, a Material Adverse Effect on Parent, (i) no notice, notification, demand,
request for information, citation, summons, complaint or order has been received
by, and no investigation, action, claim, suit, proceeding or review is pending
or, to the knowledge of Parent or any of its Subsidiaries, threatened by any
Person against, Parent or any of its Subsidiaries, and no penalty has been
assessed against Parent or any of its Subsidiaries, in each case, with respect
to any matters relating to or arising out of any Environmental Law; (ii) Parent
and its Subsidiaries are and have been in compliance with all Environmental
Laws; (iii) there are no liabilities of or relating to Parent or any of its
Subsidiaries relating to or arising out of any Environmental Law of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability; and (iv) there
has been no environmental investigation, study, audit, test, review or other
analysis conducted of which Parent has knowledge in relation to any current or
prior business of Parent or any of its Subsidiaries or any property or facility
now or previously owned, leased or operated by Parent or any of its Subsidiaries
which has not been delivered to the Company prior to the date hereof.
SECTION 4.18 Opinion of Financial Advisor. Parent has received the opinion
----------------------------
of Lehman Brothers Inc. to the effect that, as of the date of such opinion, the
exchange ratio to be paid by Parent in the Merger is fair, from a financial
point of view, to Parent, and, as of the date hereof, such opinion has not been
withdrawn.
SECTION 4.19 Pooling; Tax Treatment.
----------------------
(a) Parent intends that the Merger be accounted for as a "pooling of
interests" as described in Section 3.19(a).
(b) Neither Parent nor any of its affiliates has taken or agreed to take
any action or is
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aware of any fact or circumstance that would prevent the Merger from
qualifying (i) for "pooling of interests" accounting treatment as described in
Section 3.19(a) or (ii) as a 368 Reorganization.
(c) Immediately after execution of this Agreement, Parent will terminate
all stock repurchase programs.
SECTION 4.20 Pooling Letter. Parent has received a letter from
--------------
PricewaterhouseCoopers LLP dated as of October 15, 2000 and addressed to Parent,
a copy of which has been delivered to the Company, stating that based on the
information furnished to PricewaterhouseCoopers LLP in the related certificate
of Parent's management and based on the letter from Arthur Andersen LLP
referenced in Section 3.20, PricewaterhouseCoopers LLP concurs with Parent
management's conclusion that, as of October 15, 2000, no conditions exist that
would preclude Parent's accounting for the Merger as a pooling of interests, and
such letter has not been withdrawn or modified in any material respect as of the
date hereof.
SECTION 4.21 Takeover Statutes. The Board of Directors of Parent has (i)
-----------------
taken the necessary action to render section 203 of the Delaware Law and any
other potentially applicable antitakeover or similar statute or regulation
inapplicable to this Agreement and the Parent Option Agreement and the
transactions contemplated hereby and thereby and (ii) has resolved to, and
promptly after the execution of this Agreement will, take the necessary action
to render the supermajority voting provisions of Article VII of Parent's
Certificate of Incorporation inapplicable to this Agreement and the Parent
Option Agreement and the transactions contemplated hereby and thereby.
SECTION 4.22 Stockholder Rights Plan. The Board of Directors of Parent has
-----------------------
resolved to, and Parent promptly after execution of this Agreement will, take
all action necessary to render the rights issued pursuant to the terms of the
Parent Rights Agreement inapplicable to the Merger, this Agreement, the Parent
Option Agreement and the other transactions contemplated hereby and thereby.
ARTICLE 5
---------
COVENANTS OF THE COMPANY
------------------------
The Company agrees that:
SECTION 5.1 Conduct of the Company. From the date of this Agreement until
----------------------
the Effective Time, the Company and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and in a manner
not representing a new strategic direction for the Company and its Subsidiaries
and shall use their reasonable best efforts to preserve intact their business
organizations and relationships with third parties. Without limiting the
generality of the foregoing, except with the prior written consent of Parent or
as contemplated by this Agreement or as set forth in the Company Disclosure
Schedule, from the date hereof until the Effective Time:
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(a) the Company will not, and will not permit any of its Significant
Subsidiaries to, adopt or propose any change in its certificate of incorporation
or by-laws, except that any Significant Subsidiary may make any changes that
would not adversely affect the rights of the Company, Parent or its stockholders
under this Agreement, the transactions contemplated by this Agreement, or the
rights of holders of Company Common Stock;
(b) the Company will not, and will not permit any Significant Subsidiary of
the Company to, adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
material reorganization of the Company or any of its Significant Subsidiaries
(other than a merger or consolidation between its wholly owned Subsidiaries, and
immaterial recapitalizations of Significant Subsidiaries);
(c) the Company will not, and will not permit any Subsidiary of the Company
to, issue, sell, transfer, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class or series of the Company or its Subsidiaries other than (i) issuances
pursuant to the exercise of convertible securities outstanding on the date
hereof or issuances pursuant to stock based awards or options that are
outstanding on the date hereof and are reflected in Section 3.5 or are granted
in accordance with clause 5.1(c)(ii), (ii) additional options or stock-based
awards to acquire shares of Company Common Stock granted under the terms of any
Company Stock Option Plan as in effect on the date hereof in the ordinary course
consistent with past practice, (iii) issuances of such securities as
consideration in acquisition transactions permitted by Section 5.1(i) and
Section 5.1(l), provided that the aggregate value of all such securities issued
pursuant to this clause 5.1(c)(iii) in any period of any twelve consecutive
months following the date of this Agreement shall in no event exceed $100
million, and that the value of any securities issued in connection with any
acquisition transaction or a series of related acquisition transactions
permitted by Section 5.1(i) and Section 5.1(l) shall in no event exceed $25
million (valued, in each case, at the fair market value of such securities as of
the date of the agreement to issue such securities) and such securities shall be
issued only to the extent consistent with Section 7.4, (iv) transfers or
issuances of shares of any Subsidiary of the Company to the Company or any of
its wholly-owned Subsidiaries, and (v) where required by applicable law,
issuances of director qualifying shares in jurisdictions other than the United
States;
(d) the Company will not, and will not permit any Subsidiary of the Company
to, (i) split, combine, subdivide or reclassify its outstanding shares of
capital stock, or (ii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock other than, subject to Section 7.9, (x) regular quarterly cash dividends
payable by the Company, or regular periodic cash or other required dividends
payable by any Subsidiary of the Company, in each case (1) consistent with past
practice (including periodic dividend increases consistent with past practice)
and (2) that are not special dividends, unless, in either case, required to be
paid under an applicable agreement in effect as of the date of this Agreement,
(y) any required dividends on the Market Auction Preferred Stock or (z)
dividends paid by any Subsidiary of the Company to the Company or any wholly
owned Subsidiary of the Company;
A-33
(e) the Company will not, and will not permit any Subsidiary of the Company
to, redeem, purchase or otherwise acquire directly or indirectly any of the
Company's or any Subsidiary's capital stock, except for repurchases, redemptions
or acquisitions (x) required by the terms of its capital stock or any securities
outstanding on the date hereof or required under Section 5.3, (y) required by or
in connection with the respective terms, as of the date hereof, of any Company
Stock Option Plan or any dividend reinvestment plan as in effect on the date
hereof in the ordinary course of the operations of such plan consistent with
past practice and only to the extent consistent with Section 7.4 or (z) effected
in the ordinary course consistent with past practice and only to the extent
consistent with Section 7.4;
(f) the Company will not amend the terms (including the terms relating to
accelerating the vesting or lapse of repurchase rights or obligations) of any
outstanding options to purchase shares of Company Common Stock (which, it is
understood, will not limit the administration of the relevant plans in
accordance with past practices and interpretations of the Company's Board and
the Company's Compensation Committee to the extent consistent with Section 7.4);
(g) the Company will not, and will not permit any Subsidiary of the Company
to, (x) make or commit to make any capital expenditure in 2000 except within the
aggregate amount of the capital expenditure budget for 2000 heretofore furnished
to Parent (the "Company 2000 Capital Expenditure Budget"), (y) make or commit to
make any capital expenditure in 2001 except within a Company 2001 Permitted
Capital Expenditure Budget or (z) make or commit to make any capital expenditure
in 2002 except within a Company 2002 Permitted Capital Expenditure Budget. A
"Company 2001 Permitted Capital Expenditure Budget" means any capital
expenditure budget of the Company for 2001 adopted by the board of directors of
the Company in the ordinary course of business so long as the aggregate amount
of capital expenditures for 2001 provided for therein does not exceed 120% of
the aggregate amount of capital expenditures provided for in the Company 2000
Capital Expenditure Budget. "Company 2002 Permitted Capital Expenditure Budget"
means any capital expenditure budget of the Company for 2002 adopted by the
board of directors of the Company in the ordinary course of business so long as
the aggregate amount of capital expenditures for 2002 provided for therein does
not exceed 120% of the aggregate amount of capital expenditures provided for in
the Company 2001 Capital Expenditure Budget;
(h) the Company will not, and will not permit any Subsidiary of the Company
to, (1) increase the compensation or benefits of any director, officer or
employee, except for normal increases in the ordinary course of business
consistent with past practice or as required under applicable law or any
existing agreement or commitment, or (2) enter into (or adopt) any employment or
severance agreement or arrangement except, with respect to individual non-U.S.
payroll employees, in the ordinary course of business consistent with past
practice or as required by applicable law;
(i) the Company will not, and will not permit any of its Subsidiaries to,
acquire a material amount of assets or property (as measured with respect to the
consolidated assets of the Company and its Subsidiaries taken as a whole) of any
other Person, except in the ordinary
A-34
course of business consistent with past practice;
(j) except as contemplated by Section 7.1 hereof, the Company will not, and
will not permit any of its Subsidiaries to, sell, lease, license, encumber
(including by the grant of any option thereon) or otherwise dispose of any
material assets or property (as measured with respect to the consolidated assets
of the Company and its Subsidiaries taken as a whole) except pursuant to
existing contracts or commitments or except in the ordinary course of business
consistent with past practice;
(k) except for any such change which is not material or which is required
by reason of a concurrent change in GAAP, the Company will not, and will not
permit any Subsidiary of the Company to, change any method of accounting or
accounting practice (other than any change for tax purposes) used by it;
(l) the Company will not, and will not permit any Subsidiary of the Company
to, enter into any material joint venture, partnership or other similar
arrangement except in the ordinary course of business, and so long as such
arrangements do not obligate the Company or any Subsidiary to invest assets or
resources, or to assume or incur a liability or loss, in excess of $250 million
with respect to any individual mid-stream or downstream (including power)
arrangement or $500 million, with respect to any individual upstream
arrangement. The terms "downstream", "mid-stream" and "upstream" shall have the
meanings commonly assigned to them in the oil and gas industry.
(m) the Company will not, and will not permit any of its Subsidiaries to,
take any action that would make any representation or warranty of the Company
hereunder inaccurate in any material respect at, or as of any time prior to, the
Effective Time;
(n) the Company will not amend or waive any provisions of any standstill
agreement;
(o) the Company will not (i) make or change any Tax election, (ii) settle
any audit or (iii) file any amended Tax Return, in each case, that is reasonably
likely to result in a Tax liability material to the Company and its
Subsidiaries, taken as a whole;
(p) the Company will not, and will not permit any of its Subsidiaries to,
enter into any agreement that limits (other than in an insignificant manner) the
ability of the Company or any Subsidiary of the Company, or would limit (other
than in an insignificant manner) the ability of Parent or any Subsidiary of
Parent after the Effective Time, to compete in or conduct any line of business
or compete with any Person in any geographic area or during any period; and
(q) the Company will not, and will not permit any of its Subsidiaries to,
take any action that would prevent, materially delay or materially impede the
consummation of the Merger; and
(r) the Company will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing.
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SECTION 5.2 Company Stockholder Meeting; Proxy Material. Even if the Board
-------------------------------------------
of Directors of Parent shall take any action permitted by the third sentence of
Section 6.4, at such time at which Parent and the Company determine in their
reasonable judgment that, within 60 days, the Condition Satisfaction Time will
occur, the Company shall cause a meeting of its stockholders (the "Company
Stockholder Meeting") to be duly called and held for the purpose of voting on
the approval and adoption of this Agreement and the Merger; provided that the
Company shall not hold the Company Stockholder Meeting, and if the Company
Stockholder Meeting has been called, the Company shall adjourn the Company
Stockholder Meeting, until such time (the "Condition Satisfaction Time") at
which, in the reasonable judgment of Parent and the Company, all conditions to
the Closing (other than the condition set forth in Section 8.1(a)) have been
satisfied or (to the extent legally permissible) waived (by the applicable
party) or are then capable of being satisfied, including by placing the Alliance
Interests into an irrevocable trust as contemplated by Section 7.1(d)(iii),
(assuming that all references to the Closing Date contained in Sections 8.2(a)
and 8.3(a) are deemed to be references to the date of the Condition Satisfaction
Time). Except as provided in the next sentence, the Board of Directors of the
Company shall recommend approval and adoption of this Agreement and the Merger
by the Company's stockholders. The Board of Directors of the Company shall be
permitted (i) not to recommend to the Company's stockholders that they give the
Company Stockholder Approval or (ii) to withdraw or modify in a manner adverse
to Parent its recommendation to the Company's stockholders that they give the
Company Stockholder Approval, only if (v) the Company has received a Superior
Proposal (defined in Section 7.10), (w) the Board of Directors of the Company
determines in its good faith judgment, after receiving the advice of outside
legal counsel, that, in light of the Superior Proposal, failure to so withdraw
or modify its recommendation would be reasonably likely to be inconsistent with
fulfilling its fiduciary duty to stockholders under applicable law, (x) five
business days have elapsed following delivery by the Company to Parent of
written notice advising Parent that the Board of Directors of the Company has
resolved to so withdraw or modify its recommendation, specifying the material
terms and conditions of the Superior Proposal and identifying the Person making
the Superior Proposal, (y) the Company has given Parent the opportunity to
propose revisions to the terms of this Agreement in response to the Superior
Proposal and negotiated in good faith with Parent with respect to the proposed
revisions, if any, and (z) the Company has complied with its obligations set
forth in Section 7.10 in all material respects; provided, however, that in the
case of (i) and (ii) above, the Company shall nevertheless submit this Agreement
and the Merger to the holders of shares of Company Common Stock for approval at
the Company Stockholder Meeting unless this Agreement shall have been terminated
in accordance with its terms prior to the date of the Company Stockholder
Meeting. In connection with the Company Stockholder Meeting, the Company (i)
will prepare and file with the Commission, will use its reasonable best efforts
to have cleared by the Commission the Company Proxy Statement and all other
materials for the Company Stockholder Meeting, and (ii) will mail to its
stockholders the Company Proxy Statement and all other proxy materials for the
Company Stockholder Meeting a sufficient time prior to the Company Stockholder
Meeting as is necessary to comply with applicable law, including applicable
rules and regulations of the Commission, (iii) will use its reasonable best
efforts, subject to the immediately preceding sentence, to obtain the Company
Stockholder Approval and (iv) will otherwise comply with all legal requirements
applicable to the Company Stockholder Meeting.
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SECTION 5.3 Equity Conversion. Prior to the Closing Date, the Company shall
-----------------
cause each issued and outstanding share of the Market Auction Preferred Stock to
be redeemed for cash (the "Equity Conversion").
SECTION 5.4 Resignation of Company Directors. In order to fulfill the
--------------------------------
requirements of Section 2.6 hereof, the Company shall (i) cause each director of
the Company to deliver a written resignation to the Company effective at the
Effective Time and (ii) cause the vacancies resulting from such resignations to
be filled by persons who are directors of Merger Subsidiary immediately prior to
the Effective Time.
ARTICLE 6
---------
COVENANTS OF PARENT
-------------------
Parent agrees that:
SECTION 6.1 Conduct of Parent. From the date of this Agreement until the
-----------------
Effective Time, Parent and its Subsidiaries shall conduct their business in the
ordinary course consistent with past practice and in a manner not representing a
new strategic direction for Parent and its Subsidiaries and shall use their
reasonable best efforts to preserve intact their business organizations and
relationships with third parties. Without limiting the generality of the
foregoing, and except with the prior written consent of the Company or as
contemplated by this Agreement or as set forth in the Parent Disclosure
Schedule, from the date hereof until the Effective Time:
(a) Parent will not, and will not permit any of its Significant
Subsidiaries to, adopt or propose any change in its certificate of incorporation
or by-laws, except as contemplated hereby, and except that any Significant
Subsidiary may make any changes that would not adversely affect the rights of
Parent, the Company or its stockholders under this Agreement, the transactions
contemplated by this Agreement, or the rights of holders of Parent Common Stock;
(b) Parent will not, and will not permit any of its Significant
Subsidiaries to, adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
material reorganization of Parent or any of its Significant Subsidiaries (other
than a merger or consolidation between its wholly-owned Subsidiaries, and
immaterial recapitalizations of Significant Subsidiaries);
(c) Parent will not issue, sell, transfer, pledge, dispose of or encumber
any shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class or series of Parent, other than (i) issuances
pursuant to the exercise of convertible securities outstanding on the date
hereof or issuances pursuant to stock-based awards or options outstanding on the
date hereof or that are granted in accordance with clause 6.1(c)(ii), (ii)
additional options or stock-based awards to acquire Parent Common Stock granted
under the terms of any employee or director stock option or compensation plan or
arrangement of Parent as in effect as of the date hereof in the ordinary
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course consistent with past practice, (iii) issuances of such securities
for any other purpose, provided that the aggregate number of shares of Parent
Common Stock issued (which shall include, for purposes of this paragraph (c),
the number of shares of Parent Common Stock issuable upon the exercise,
conversion or exchange of convertible securities, options, warrants or other
similar rights) pursuant to this clause 6.1(c)(iii) in any period of any twelve
consecutive months following the date of this Agreement shall in no event exceed
more than 2% of the total number of shares of Parent Common Stock outstanding as
of the close of business on September 30, 2000 as set forth in Section 4.5 and
such shares and securities shall be issued only to the extent consistent with
Section 7.4, and (iv) transfers or issuances of shares of any Subsidiary of
Parent to Parent or any of its wholly owned Subsidiaries;
(d) Parent will not (i) split, combine, subdivide or reclassify its
outstanding shares of capital stock or (ii) declare, set aside or pay any
dividend or other distribution payable in cash, stock or property with respect
to its capital stock other than, subject to Section 7.9, (a) regular quarterly
cash dividends payable by Parent in respect of the shares of Parent Common
Stock, or regular periodic cash or other required dividends payable by any
Subsidiary of Parent, in each case (x) consistent with past practice (including
periodic dividend increases consistent with past practice) and (y) that are not
special dividends, unless, in either case, required to be paid under an
applicable agreement in effect as of the date of this Agreement, or (b)
dividends paid by any Subsidiary of Parent to Parent or any wholly owned
Subsidiary of Parent;
(e) Parent will not, and will not permit any Subsidiary of Parent to,
redeem, purchase or otherwise acquire directly or indirectly any of Parent's
capital stock, except for repurchases, redemptions or acquisitions (x) required
by the terms of capital stock or any securities outstanding on the date hereof,
(y) required by or in connection with the respective terms, as of the date
hereof, of any employee stock option plan or compensation plan or arrangement of
Parent or any dividend reinvestment plan as in effect as of the date hereof in
the ordinary course of operations of such plan consistent with past practice and
only to the extent consistent with Section 7.4 or (z) effected in the ordinary
course consistent with past practice and only to the extent consistent with
Section 7.4;
(f) except for any such change which is not significant or which is
required by reason of a concurrent change in GAAP, Parent will not, and will not
permit any Subsidiary of Parent to, change any method of accounting or
accounting practice (other than any change for tax purposes) used by it;
(g) Parent will not (i) make or change any Tax election, (ii) settle any
audit or (iii) file any amended Tax Return, in each case, that is reasonably
likely to result in a Tax liability material to Parent and its Subsidiaries,
taken as a whole;
(h) Parent will not, and will not permit any of its Subsidiaries to, take
any action that would make any representation or warranty of Parent hereunder
inaccurate in any material respect at, or as of any time prior to, the Effective
Time; and
(i) Parent will not, and will not permit any of its Subsidiaries to, take
any action which would prevent, materially delay or materially impede the
consummation of the Merger.
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(j) Parent will not, and will not permit any of its Subsidiaries to, sell,
lease, license, encumber (including by the grant of any option thereon) or
otherwise dispose of any of its assets or properties which would be material to
Parent and its Subsidiaries, taken as a whole.
(k) Parent will not, and will not permit any of its Subsidiaries to, agree
or commit to do any of the foregoing.
SECTION 6.2 Obligations of Merger Subsidiary. Parent will take all action
--------------------------------
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 6.3 Director and Officer Liability.
------------------------------
(a) Parent shall indemnify and hold harmless the individuals who on or
prior to the Effective Time were officers, directors and employees of the
Company or its Subsidiaries (collectively, the "Indemnitees") with respect to
all acts or omissions by them in their capacities as such or taken at the
request of the Company or any of its Subsidiaries at any time prior to the
Effective Time to the extent provided under the Company's certificate of
incorporation and by-laws in effect on the date hereof. Parent shall cause the
Surviving Corporation to honor all indemnification agreements with Indemnitees
(including under the Company's by-laws) in effect as of the date hereof in
accordance with the terms thereof. The Company has disclosed to Parent all such
indemnification agreements prior to the date hereof.
(b) For six years after the Effective Time, Parent shall procure the
provision of officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such Person
currently covered by the Company's officers' and directors' liability insurance
policy on terms with respect to coverage and in amounts no less favorable than
those of such policy in effect on the date hereof; provided, that if the
aggregate annual premiums for such insurance at any time during such period
shall exceed 300% of the per annum rate of premium paid by the Company and its
Subsidiaries as of the date hereof for such insurance, then Parent shall, or
shall cause its Subsidiaries to, provide only such coverage as shall then be
available at an annual premium equal to 300% of such rate.
(c) The obligations of Parent under this Section 6.3 shall not be
terminated or modified in such a manner as to adversely affect any Indemnitee to
whom this Section 6.3 applies without the consent of such affected Indemnitee
(it being expressly agreed that the Indemnitees to whom this Section 6.3 applies
shall be third party beneficiaries of this Section 6.3).
SECTION 6.4 Parent Stockholder Meeting;Form S-4. Even if the Board of
-----------------------------------
Directors of the Company shall take any action permitted by the third sentence
of Section 5.2, Parent shall cause a meeting of its stockholders (the "Parent
Stockholder Meeting") to be duly called and held for the purpose of approving
the matters constituting the Parent Stockholder Approvals; provided that the
Parent Stockholder Meeting shall conclude prior to the Company Stockholder
Meeting and may be held on the same date as the Company Stockholder Meeting.
Except as provided in the next sentence, the Board of Directors of Parent shall
recommend approval of the matters
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constituting the Parent Stockholder Approvals. The Board of Directors of
Parent shall be permitted (i) not to recommend to Parent's stockholders that
they give the Parent Stockholder Approvals or (ii) to withdraw or modify in a
manner adverse to the Company its recommendation to the Parent's stockholders
that they give the Parent Stockholder Approval, only if (v) Parent has received
a Superior Proposal, (w) the Board of Directors of Parent determines, after
receiving the advice of outside legal counsel, in its good faith judgment that,
in light of the Superior Proposal, failure to so withdraw or modify its
recommendation would be reasonably likely to be inconsistent with fulfilling its
fiduciary duty to stockholders under applicable law, (x) five business days have
elapsed following delivery by Parent to the Company of written notice advising
the Company that the Board of Directors of Parent has resolved to so withdraw or
modify its recommendation, specifying the material terms and conditions of the
Superior Proposal and identifying the Person making the Superior Proposal, (y)
Parent has given the Company the opportunity to propose revisions to the terms
of this Agreement in response to the Superior Proposal and negotiated in good
faith with the Company with respect to the proposed revisions, if any, and (z)
Parent has complied with its obligations set forth in Section 7.10; provided,
however, that in the case of (i) and (ii) above, Parent shall nevertheless
submit the matters constituting the Parent Stockholder Approvals to Parent's
stockholders for approval at the Parent Stockholder Meeting unless this
Agreement shall have been terminated in accordance with its terms prior to the
date of the Parent Stockholder Meeting. In connection with the Parent
Stockholder Meeting, Parent (i) will promptly prepare and file with the
Commission, will use its reasonable best efforts to have cleared by the
Commission, (ii) will mail to its stockholders the Parent Proxy Statement and
all other proxy materials for such meeting a sufficient time prior to the Parent
Stockholder Meeting as is necessary to comply with applicable laws including the
rules and regulations of the Commission, (iii) will use its reasonable best
efforts, subject to the immediately preceding sentence, to obtain the Parent
Stockholder Approvals, and (iv) will otherwise comply with all legal
requirements applicable to the Parent Stockholder Meeting. Subject to the terms
and conditions of this Agreement, Parent shall prepare and file with the
Commission under the Securities Act the Form S-4, and shall use its reasonable
best efforts to cause the Form S-4 to be declared effective by the Commission a
sufficient time prior to the Parent Stockholder Meeting to allow the Company and
Parent to mail the Company Proxy Statement or Parent Proxy Statement, as
applicable, to their respective stockholders, as required by applicable laws,
including the rules and regulations of the Commission, prior to the meeting of
their respective stockholders. Parent shall take any action required to be taken
under foreign or state securities or Blue Sky laws in connection with the
issuance of Parent Common Stock in connection with the Merger.
SECTION 6.5 Stock Exchange Listing. Parent shall use its reasonable best
----------------------
efforts to cause the shares of Parent Common Stock to be issued in connection
with the Merger to be listed on the NYSE, subject to official notice of
issuance.
SECTION 6.6 Employee Benefits.
-----------------
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to honor in accordance with their terms all benefits and
obligations, subject to Section 6.6(b) hereof, under the Company Benefit Plans,
each as in effect on the date hereof (or as amended
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with the prior written consent of Parent), to the extent that entitlements
or rights, actual or contingent (whether such entitlements or rights are vested
as of the Effective Time or become vested or payable only upon the occurrence of
a further event, including a discretionary determination) exist in respect
thereof as of the Effective Time. Parent and the Company hereby agree that the
consummation of the Merger shall constitute a "Change in Control" for purpose of
any employee arrangement and all other Company Benefit Plans, pursuant to the
terms of such plans in effect on the date hereof, provided, however, to the
extent consistent with Section 7.4, that the Board of Directors of the Company
will take all actions necessary so that the consummation of the Merger and
related transactions hereunder will not create additional funding obligations on
behalf of Parent, the Company or the Surviving Corporation with respect to the
Company Stock Grantor Trust. No provision of this Section 6.6(a) shall be
construed as a limitation on the right of Parent to amend or terminate any
Company Benefit Plans which the Company would otherwise have under the terms of
such Company Benefit Plan, and no provision of this Section 6.6(a) shall be
construed to create a right in any employee or beneficiary of such employee
under a Company Benefit Plan that such employee or beneficiary would not
otherwise have under the terms of such Company Benefit Plan; provided, however,
the Parent agrees that it will respect deferrals of salary, bonus or other
compensation in place prior to the Effective Time pursuant to the Company
Benefit Plans. Parent acknowledges that the Company's Separation Pay Plan by its
terms provides that benefits thereunder are vested on the day immediately prior
to a change of control.
(b) Following the Effective Time, Parent shall continue to provide to
individuals who are employed by the Company and its Subsidiaries as of the
Effective Time who remain employed with Parent or any Subsidiary of Parent
("Affected Employees"), for so long as such Affected Employees remain employed
by Parent or any Subsidiary of Parent, employee benefits (i) pursuant to the
Company's or its Subsidiaries' employee benefit plans, programs, policies and
arrangements as provided to such employees immediately prior to the Effective
Time or (ii) pursuant to employee benefit plans, programs, policies or
arrangements maintained by Parent or any Subsidiary of Parent providing coverage
and benefits which, in the aggregate, are no less favorable than those provided
to employees of Parent in positions comparable to positions held by Affected
Employees with Parent or its Subsidiaries from time to time after the Effective
Time. Following the Effective Time, Parent shall continue to provide to former
employees of the Company or its Subsidiaries (and to employees of the Company or
its Subsidiaries whose employment terminates prior to the Effective Time)
("Affected Retirees") post-retirement benefits (other than pensions) (i)
pursuant to the Company Benefit Plans applicable to such Affected Retirees, each
as in effect on the date of this Agreement, or (ii) pursuant to employee benefit
plans, programs, policies or arrangements maintained by Parent or any Subsidiary
of Parent providing post-retirement coverage and benefits (other than pensions)
which, in the aggregate, are no less favorable than those provided to former
employees of Parent.
(c) Parent will, or will cause the Surviving Corporation to, give Affected
Employees full credit for purposes of eligibility, vesting and benefit accrual
(including benefit accrual under any defined benefit pension plans, provided
that a participant's benefit under any such defined benefit pension plan may be
offset by such participant's accrued benefit under the Company defined benefit
pension plan) under any employee benefit plans or arrangements maintained by
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Parent or any Subsidiary of Parent for such Affected Employees' service
with the Company or any Subsidiary of the Company to the same extent recognized
by the Company immediately prior to the Effective Time.
(d) Parent will, or will cause the Surviving Corporation to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the Affected
Employees under any welfare benefit plans that such employees may be eligible to
participate in after the Effective Time, other than limitations or waiting
periods that are already in effect with respect to such employees and that have
not been satisfied as of the Effective Time under any welfare plan maintained
for the Affected Employees immediately prior to the Effective Time, and (ii)
provide each Affected Employee with credit for any co-payments and deductibles
paid prior to the Effective Time in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Effective Time.
ARTICLE 7
---------
COVENANTS OF PARENT AND THE COMPANY
-----------------------------------
The parties hereto agree that:
SECTION 7.1 Best Efforts.
------------
(a) Subject to Sections 5.2, 6.4, 7.1(b), 7.1(c) and 7.1(d), Company and
Parent shall each cooperate with the other and use (and shall cause their
respective Subsidiaries to use) their respective best efforts to promptly (i)
take or cause to be taken all necessary actions, and do or cause to be done all
things, necessary, proper or advisable under this Agreement and applicable laws
to consummate and make effective the Merger and the other transactions
contemplated by this Agreement as soon as practicable, including, without
limitation, preparing and filing promptly and fully all documentation to effect
all necessary filings, notices, petitions, statements, registrations,
submissions of information, applications and other documents and (ii) obtain all
approvals, consents, registrations, permits, authorizations and other
confirmations required to be obtained from any third party necessary, proper or
advisable to consummate the Merger and the other transactions contemplated by
this Agreement. Subject to applicable laws relating to the exchange of
information, the Company and Parent shall have the right to review in advance,
and to the extent practicable each will consult the other on, all the
information relating to the Company and its Subsidiaries or Parent and its
Subsidiaries, as the case may be, that appears in any filing made with, or
written materials submitted to, any third party and/or any governmental
authority in connection with the Merger and the other transactions contemplated
by this Agreement.
(b) Without limiting Section 7.1(a), Parent and the Company shall subject
to Sections 7.1(c) and 7.1(d), as applicable:
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(i) Each use its best efforts to avoid the entry of, or to have
vacated or terminated, any decree, order, or judgment that would restrain,
prevent or delay the Closing, on or before the End Date (as defined in
Section 9.1(b)(i)), including without limitation defending through
litigation on the merits any claim asserted in any court by any Person; and
(ii) each use its best efforts to avoid or eliminate each and every
impediment under any antitrust, competition or trade regulation law that
may be asserted by any governmental authority with respect to the Merger
so as to enable the Closing to occur as soon as reasonably possible (and
in any event no later than the End Date), including, without limitation,
(x) proposing, negotiating, committing to and effecting, by consent decree,
hold separate order, or otherwise, the sale, divestiture or disposition of
such assets or businesses of Parent or the Company (or any of their
respective Subsidiaries) and (y) otherwise taking or committing to take
actions that after the Closing Date would limit Parent or its
Subsidiaries' freedom of action with respect to, or its ability to retain,
one or more of its or its Subsidiaries' businesses, product lines or
assets, in each case as may be required in order to avoid the entry of, or
to effect the dissolution of, any injunction, temporary restraining
order, or other order in any suit or proceeding, which would otherwise
have the effect of preventing or materially delaying the Closing.
(c) Notwithstanding anything else contained herein, the provisions of this
Section 7.1 shall not be construed to require either party to undertake any
efforts or to take any action if such efforts or action would, or would
reasonably be expected to, result in a Material Adverse Effect on Parent and its
Subsidiaries (including the Surviving Corporation and its Subsidiaries), taken
as a whole, at or after the Effective Time; provided, further, that any
requirement to divest or hold separate, or limit in any material respect the
operations of the business of Parent and its Subsidiaries (prior to Closing)
involving the refining, marketing or transportation of petroleum products in the
Western United States, other than with respect to insignificant operations of
such business shall be deemed for purposes of this Section 7.1(c) and Sections
8.1(d), 8.1(i), 8.1(j), 8.1(k) and 8.1(l) to result in a Material Adverse
Effect.
(d) (i) The parties anticipate that there will be objections raised by the
United States Federal Trade Commission or the Antitrust Division of the United
States Department of Justice to the combination of Parent's United States
downstream operations with the Company's interests in the Joint Ventures
(collectively, the "Alliance Interests"). The parties will jointly determine how
to address any objections promptly and the Company will, subject to Section 7.4
and in consultation on an ongoing basis with Parent, negotiate one or more
definitive agreements responsive to the regulatory requirements (each, an
"Alliance Transaction Agreement") and shall promptly inform Parent of all
material developments in the negotiations. The Company shall be permitted to
enter into any Alliance Transaction Agreement only with the prior written
consent of Parent, which consent shall not be unreasonably withheld.
(ii) In the event the Company shall not have entered into an Alliance
Transaction Agreement fifteen days prior to the scheduled date of the
Company
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Stockholder Meeting, the Chairman of Parent and the Chairman of the Company
shall meet to discuss the status of such efforts by the Company.
(iii) If the stockholders of the Company, at the Company Stockholder
Meeting (which shall not take place prior to the Condition Satisfaction
Time), approve and adopt the Merger and the Merger Agreement in accordance
with Delaware Law, then, immediately upon the conclusion of such meeting,
the parties shall consummate the Closing. If the utilization of the Trust
Agreement, described below, is required in order to meet immediately any
remaining conditions to Closing, the Company shall cause all of the then
outstanding capital stock of the Subsidiary or the Subsidiaries of the
Company which own the Alliance Interests, and such other assets as Parent
and the Company shall agree, to be placed into an irrevocable trust
pursuant to an Agreement and Declaration of Trust (the "Trust Agreement")
substantially in the form of Annex 7.1 to this Agreement, with only such
changes as are (x) required by any governmental body, agency, official or
authority or (y) mutually agreed by Parent, the Company and the Trustees.
For purposes of this Section 7.1(d), "Trustees" shall mean those
Persons selected jointly by Parent and the Company to serve as the trustees
under the Trust Agreement.
SECTION 7.2 Certain Filings. The Company and Parent shall cooperate with
---------------
one another (a) in connection with the preparation of the Company Proxy
Statement, the Parent Proxy Statement and the Form S-4, (b) in determining
whether any action by or in respect of, or filing with, any governmental body,
agency or official, or authority is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement and (c) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith or with the Company Proxy Statement, the Parent Proxy
Statement or the Form S-4 and seeking timely to obtain any such actions,
consents, approvals or waivers.
SECTION 7.3 Access to Information. From the date of this Agreement until
---------------------
the Effective Time, to the extent permitted by applicable law, the Company and
Parent will upon reasonable request give the other party, its counsel, financial
advisors, auditors and other authorized representatives reasonable access to the
offices, properties, books and records of such party and its Subsidiaries during
normal business hours, furnish to the other party, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such Persons may reasonably request and
will instruct its own employees, counsel and financial advisors to cooperate
with the other party in its investigation of the business of the Company or
Parent, as the case may be; provided that no investigation of the other party's
business shall affect any representation or warranty given by either party
hereunder. All information obtained by Parent or the Company pursuant to this
Section 7.3 shall be kept confidential in accordance with, and shall otherwise
be subject to the terms of, the Confidentiality Agreement dated February 5, 1999
between Parent and the Company (the "Confidentiality Agreement").
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SECTION 7.4 Tax and Accounting Treatment. Neither Parent nor the Company
----------------------------
shall, nor shall they permit their Subsidiaries to take, any action, and Parent
and the Company shall not, and shall ensure that its Subsidiaries do not, fail
to take any action which action or failure to act would prevent, or would be
reasonably likely to prevent, the Merger from qualifying (a) for "pooling of
interests" accounting treatment as described in Section 3.19(a) or (b) as a 368
Reorganization.
SECTION 7.5 Public Announcements. Parent and the Company will consult with
--------------------
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and shall not
issue any press release or make any public statement without the prior consent
of the other party, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, any press release or public statement as may be
required by applicable law or any listing agreement with any national securities
exchange may be issued prior to such consultation, if the party making the
release or statement has used its reasonable best efforts to consult with the
other party.
SECTION 7.6 Further Assurances. At and after the Effective Time, the
------------------
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take any
other actions and do any other things, in the name and on behalf of the Company
or Merger Subsidiary, reasonably necessary to vest, perfect or confirm of record
or otherwise in the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets of the Company acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger.
SECTION 7.7 Notices of Certain Events.
-------------------------
(a) Each of the Company and Parent shall promptly notify the other party
of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement.
(b) The Company and Parent shall promptly notify the other party of any
actions, suits, claims, investigations or proceedings commenced or, to the best
of its knowledge threatened against, relating to or involving or otherwise
affecting such party or any of its Subsidiaries which relate to the consummation
of the transactions contemplated by this Agreement.
SECTION 7.8 Affiliates.
----------
(a) Not less than 45 days prior to the Effective Time, each of Parent and
the Company (i) shall have delivered to the other party a letter identifying all
Persons who, in the opinion of
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the party delivering the letter, may be, as of the date of the Company
Stockholder Meeting or Parent Stockholder Meeting, as applicable, its
"affiliates" for purposes of SEC Accounting Series Releases 130 and 135 and/or,
in the case of the Company, for purposes of Rule 145 under the Securities Act,
and (ii) shall use its reasonable best efforts to cause each Person who is
identified as an "affiliate" of it in such letter to deliver, as promptly as
practicable but in no event later than 30 days prior to the Closing (or after
such later date as the Parent and the Company may agree) to Parent in the case
of affiliates of Parent, a signed agreement substantially in the form attached
as Exhibit C-1, and in the case of affiliates of the Company, substantially in
the forms attached as Exhibits C-2 and C-3. Each of Parent and the Company shall
notify the other party from time to time after the delivery of the letter
described in Section 7.8(a)(i) of any Person not identified on such letter who
then is, or may be, such an "affiliate" and use its reasonable best efforts to
cause each additional Person who is identified as an "affiliate" to execute a
signed agreement or agreements as set forth in this Section 7.8(a).
(b) Shares of Parent Common Stock and shares of Company Common Stock
beneficially owned by each such "affiliate" of Parent or Company who has not
provided a signed agreement or agreements, as applicable, in accordance with
Section 7.8(a) shall not be transferable during any period prior to and after
the Effective Time if, as a result of this transfer during any such period,
taking into account the nature, extent and timing of this transfer and similar
transfers by all other "affiliates" of Parent and the Company, this transfer
will, in the reasonable judgment of accountants of Parent, interfere with, or
prevent the Merger from being accounted for, as a "pooling-of-interests" under
GAAP and/or the rules and regulations of the SEC. Neither Parent or the Company
shall register, or allow its transfer agent to register, on its books, any
transfer of any shares of Parent Common Stock or Company Common Stock of any
affiliate of Parent or the Company who has not provided a signed agreement in
accordance with Section 7.8(a) unless the transfer is made in compliance with
the foregoing.
SECTION 7.9 Payment of Dividends. From the date hereof until the Effective
--------------------
Time, Parent and the Company will coordinate with each other regarding the
declaration of dividends in respect of the shares of Parent Common Stock and the
shares of Company Common Stock and the record dates and payment dates relating
thereto, it being the intention of the parties that holders of shares of Company
Common Stock will not receive two dividends, or fail to receive one dividend,
for any single calendar quarter with respect to their shares of Company Common
Stock and the shares of Parent Common Stock any holder of shares of Company
Common Stock receives in exchange therefor in connection with the Merger.
SECTION 7.10 No Solicitation.
---------------
(a) Each of Parent and the Company and their respective Subsidiaries will
not, and Parent and the Company will direct and use their respective best
efforts to cause their and their Subsidiaries' respective officers, directors,
employees, investment bankers, consultants, attorneys, accountants, agents and
other representatives not to, directly or indirectly, take any action to
solicit, initiate, encourage or facilitate the making of any Acquisition
Proposal (including without limitation by amending, or granting any waiver
under, the Parent Rights Agreement or the Company Rights Agreement, as
applicable) or any inquiry with respect thereto
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or engage in discussions or negotiations with any Person with respect
thereto, or disclose any nonpublic information or afford access to properties,
books or records to, any Person that has made, or to such party's knowledge, is
considering making, any Acquisition Proposal. Nothing contained in this
Agreement shall prevent the Board of Directors of Parent or the Company from
complying with Rule 14e-2 under the Exchange Act with regard to an Acquisition
Proposal; provided that the Board of Directors of such party shall not recommend
that the stockholders of such party tender their shares in connection with a
tender offer or exchange offer except to the extent that, after receiving a
Superior Proposal, such Board of Directors of such party determines in its good
faith judgment, after receiving the advice of outside legal counsel, that, in
light of such Superior Proposal, failure to make such a recommendation would be
reasonably likely to be inconsistent with fulfilling the fiduciary duties of the
Board of Directors to such party's stockholders under applicable law and such
party shall have complied with the procedure set forth in Section 5.2 or 6.4, to
the extent applicable. Notwithstanding anything to the contrary in this
Agreement, prior to the date of approval of this Agreement and the Merger by the
stockholders of Parent or the Company, as applicable, Parent or the Company may
(A) furnish information and access to a third party, but only in response to a
request for information or access, to any Person making an Acquisition Proposal
to the board of directors of Parent or the Company, as applicable, after the
date hereof which was not knowingly encouraged, solicited or initiated by Parent
or the Company, as applicable, or any of its affiliates or any director,
employee, representative or agent of Parent or the Company, as applicable, or
any of its respective Subsidiaries (including, without limitation, any
investment banker, attorney or accountant retained by Parent or the Company or
any of its Subsidiaries) on or after the date hereof and (B) may participate in
discussions and negotiate with such Person concerning any such Acquisition
Proposal, if and only if, in any such case set forth in clause A or B of this
paragraph, (i) the Board of Directors of Parent or Company, as applicable,
concludes in good faith, after receipt of the advice of a financial advisor of
nationally recognized reputation and outside legal counsel, that such
Acquisition Proposal is reasonably likely to result in a Superior Proposal with
respect to Parent or the Company, as applicable, (ii) the Company or Parent, as
applicable, complies with all of its obligations under this Agreement, and (iii)
the board of directors of Parent or the Company, as applicable, receives from
the Person making such an Acquisition Proposal an executed confidentiality
agreement the material terms of which are (without regard to the terms of such
Acquisition Proposal) in all material respects (x) no less favorable to the
Company or Parent, as applicable, and (y) no less restrictive to the Person
making such Acquisition Proposal than those contained in the Confidentiality
Agreement.
(b) Any party receiving an Acquisition Proposal will (A) promptly (and in
no event later than 48 hours after receipt of any Acquisition Proposal) notify
(which notice shall be provided orally and in writing and shall identify the
Person making such Acquisition Proposal and set forth the material terms
thereof) the other party to this Agreement after receipt of any Acquisition
Proposal, any indication of which such party has knowledge that any Person is
considering making an Acquisition Proposal, or any request for nonpublic
information relating to such party or any Subsidiary of such party or for access
to the properties, books or records of such party or any Subsidiary of such
party by any Person that has made, or to such party's knowledge may be
considering making, an Acquisition Proposal, and (B) will keep the other party
to this Agreement informed of the status and material terms of (including all
changes to the
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status or material terms of) any such Acquisition Proposal or request. Each
of Parent and the Company (x) shall, and shall cause their respective
Subsidiaries to, immediately cease and cause to be terminated and shall use
reasonable best efforts to cause its and their officers, directors, employees,
investment bankers, consultants, attorneys, accountants, agents and other
representatives to, immediately cease and cause to be terminated, all
discussions and negotiations, if any, that have taken place prior to the date
hereof with any Persons with respect to any Acquisition Proposal and (y) shall
promptly request each Person, if any, that has executed a confidentiality
agreement within the 9 months prior to the date hereof in connection with its
consideration of any Acquisition Proposal to return or destroy all confidential
information heretofore furnished to such Person by or on behalf of it or any of
its Subsidiaries.
For purposes of this Agreement, "Acquisition Proposal" means any bona fide
written offer or proposal for, or any written indication of interest in, any (i)
direct or indirect acquisition or purchase of any business or assets of Parent
or the Company or any of their respective Subsidiaries that, individually or in
the aggregate, constitutes 20% or more of the net revenues, net income or assets
of such party and its Subsidiaries, taken as a whole, (ii) direct or indirect
acquisition or purchase of 20% or more of any class of equity securities of
Parent or the Company or any of their respective Subsidiaries whose business
constitutes 20% or more of the net revenues, net income or assets of such party
and its Subsidiaries, taken as a whole, (iii) tender offer or exchange offer
that, if consummated, would result in any Person beneficially owning 20% or more
of any class of equity securities of Parent or the Company or any of their
respective Subsidiaries whose business constitutes 20% or more the net revenues,
net income or assets of such party and its Subsidiaries, taken as a whole, or
(iv) merger, consolidation, business combination, joint venture, partnership,
recapitalization, liquidation, dissolution or similar transaction involving
Parent or the Company or any of their respective Subsidiaries whose business
constitutes 20% or more of the net revenue, net income or assets of such party
and its Subsidiaries, taken as a whole, other than the transactions contemplated
by this Agreement; provided, however, that (a) with respect to Parent, an offer
or proposal shall not be deemed an Acquisition Proposal if (x) the execution of
agreement with respect to, and consummation of, the transaction contemplated
thereby would not be reasonably likely to prevent the Parent and Merger
Subsidiary from consummating the Merger or to materially delay Parent's or
Merger Subsidiary's ability to consummate the Merger and (y) execution of an
agreement with respect to the transaction contemplated thereby is not prohibited
by Section 6.1, or, if the execution of such agreement would be prohibited by
Section 6.1, such an agreement will not be entered into until after the
provisions contained in Section 6.1 are no longer in effect and (b) with respect
to the Company, any offer or proposal for the disposition by the Company of the
Alliance Interests shall not be deemed to be an Acquisition Proposal. For
purposes of this Agreement, "Superior Proposal" means any bona fide written
Acquisition Proposal for or in respect of at least a majority of the outstanding
shares of Company Common Stock, or Parent Common Stock, as applicable (i) on
terms that the Board of Directors of Parent or the Company, as applicable,
determines in its good faith judgment (after consultation with, and taking into
account the advice of, a financial advisor of nationally recognized reputation,
taking into account all the terms and conditions of the Acquisition Proposal,
including any break-up fees, expense reimbursement provisions and conditions to
consummation) are more favorable from a financial point of view to its
stockholders than the Merger and the other transactions contemplated hereby and
(ii) that
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constitutes a transaction that is reasonably likely to be consummated on
the terms set forth, taking into account all legal, financial, regulatory and
other aspects of such proposal.
(c) Each of the Company and Parent agrees that it will take the necessary
steps promptly to inform its Subsidiaries and its officers, directors,
investment bankers, consultants, attorneys, accountants, agents and other
representatives of the obligations undertaken in this Section 7.10.
SECTION 7.11 Letters from Accountants.
------------------------
(a) Parent shall use reasonable best efforts to cause to be delivered to
Parent and the Company two letters from PricewaterhouseCoopers LLP, one dated
the date on which the Form S-4 shall become effective and one dated the Closing
Date, each addressed to the Boards of Directors of Parent and the Company, in
form and substance reasonably satisfactory to the Company and customary in scope
and substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
(b) Parent shall use reasonable best efforts to cause to be delivered to
Parent and the Company a letter from PricewaterhouseCoopers LLP, dated as of the
Closing Date, addressed to the Boards of Directors of Parent and the Company,
stating that PricewaterhouseCoopers LLP concurs with Parent's management's
conclusion that accounting for the Merger as a "pooling of interests" under
Opinion No. 16 (Business Combination) of the Accounting Principles Board of the
American Institute of Certified Public Accountants and the rules and regulations
of the Commission is appropriate if the Merger is closed and consummated in
accordance with the terms hereof.
(c) The Company shall use reasonable best efforts to cause to be
delivered to the Company and Parent two letters from Arthur Andersen LLP, one
dated the date on which the Form S-4 shall become effective and one dated the
Closing Date, each addressed to the Boards of Directors of the Company and
Parent, in form and substance reasonably satisfactory to Parent and customary in
scope and substance for comfort letters delivered by independent public
accountants in connection with registration statement similar to the Form S-4.
(d) The Company shall use reasonable best efforts to cause to be delivered
to the Company a letter from Arthur Andersen LLP, dated as of the Closing Date,
addressed to the Board of Directors of the Company, stating that Arthur Andersen
LLP concurs with the Company's management's conclusion that the Company is
eligible to participate in a transaction accounted for as a "pooling of
interests" under Opinion No. 16 (Business Combination) of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the rules and regulations of the Commission.
SECTION 7.12 Takeover Statutes. If any anti-takeover or similar statute or
-----------------
regulation is or may become applicable to the transactions contemplated hereby,
each of the parties and its Board of Directors shall grant such approvals and
take all such actions as are legally permissible so that the transactions
contemplated hereby may be consummated as promptly as practicable on
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the terms contemplated hereby and otherwise act to eliminate or minimize
the effects of any such statute or regulation on the transactions contemplated
hereby.
SECTION 7.13 Headquarters. After the Effective Time, the headquarters of
------------
Parent shall continue to be located in San Francisco, California.
SECTION 7.14 Section 16(b). Parent shall take all such steps reasonably
-------------
necessary to cause the transactions contemplated hereby and any other
dispositions of equity securities of the Company (including derivative
securities) or acquisitions of Parent equity securities (including derivative
securities) in connection with this Agreement by each individual who (a) is a
director or officer of the Company or (b) at the Effective Time, will become a
director or officer of Parent, to be exempt under Rule 16b-3 promulgated under
the Exchange Act.
ARTICLE 8
---------
CONDITIONS TO THE MERGER
------------------------
SECTION 8.1 Conditions to the Obligations of Each Party. The obligations of
-------------------------------------------
the Company, Parent and Merger Subsidiary to consummate the Merger are subject
to the satisfaction (or, to the extent legally permissible, waiver) of the
following conditions:
(a) this Agreement and the Merger shall have been approved and adopted by
the stockholders of the Company in accordance with Delaware Law;
(b) any applicable waiting period under the HSR Act relating to the Merger
shall have expired;
(c) the approval by the European Commission of the transactions
contemplated by this Agreement shall have been obtained pursuant to the EC
Merger Regulation;
(d) no provision of any applicable law or regulation and no judgment,
injunction, order or decree (i) shall prohibit or enjoin the consummation of the
Merger or (ii) if not complied with, shall have or be reasonably likely to have
a Material Adverse Effect on Parent (including the Surviving Corporation) after
the Effective Time;
(e) the Common Stock Issuance shall have been approved by the stockholders
of Parent in accordance with the rules and regulations of the NYSE;
(f) the Form S-4 shall have been declared effective under the Securities
Act and such Form S-4 shall indicate that Parent will account for the Merger as
a "pooling of interests," and no stop order suspending the effectiveness of the
Form S-4 shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the Commission;
(g) the shares of Parent Common Stock to be issued in the Merger shall have
been approved for listing on the NYSE, subject to official notice of issuance;
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(h) Parent shall have received letters of PricewaterhouseCoopers LLP and
Arthur Andersen LLP as contemplated by paragraphs (b) and (d) of Section 7.11;
(i) neither the Federal Trade Commission nor the Antitrust Division of the
Department of Justice, as the case may be, shall have, as a condition to its
approval of the Merger and the other transactions contemplated by this
Agreement, required Parent to take any action which, individually or in the
aggregate, would result in, or be reasonably likely to result in, a Material
Adverse Effect on Parent (including the Surviving Corporation) after the
Effective Time;
(j) there shall not be instituted or pending any action or proceeding by
any governmental authority (whether domestic, foreign or supranational) before
any court or governmental authority or agency, domestic, foreign or
supranational, seeking to (i) restrain, prohibit or otherwise interfere with the
ownership or operation by Parent or any Subsidiary of Parent of all or any
portion of the business of the Company or any of its Subsidiaries or of Parent
or any of its Subsidiaries or to compel Parent or any Subsidiary of Parent to
dispose of or hold separate all or any portion of the business or assets of the
Company or any of its Subsidiaries or of Parent or any of its Subsidiaries, (ii)
to impose or confirm limitations on the ability of Parent or any Subsidiary of
Parent effectively to exercise full rights of ownership of the shares of Company
Common Stock (or shares of stock of the Surviving Corporation) including,
without limitation, the right to vote any shares of Company Common Stock (or
shares of stock of the Surviving Corporation) on any matters properly presented
to stockholders or (iii) seeking to require divestiture by Parent or any
Subsidiary of Parent of any shares of Company Common Stock (or shares of stock
of the Surviving Corporation), if any such matter referred to in subclauses (i),
(ii) and (iii) hereof, individually or in the aggregate, would result in, or
would be reasonably likely to result in, a Material Adverse Effect on Parent
(including the Surviving Corporation) after the Effective Time;
(k) there shall not be any statute, rule, regulation, injunction, order or
decree, enacted, enforced, promulgated, entered, issued or deemed applicable to
the Merger and the other transactions contemplated hereby (or in the case of any
statute, rule or regulation, awaiting signature or reasonably expected to become
law), by any court, government or governmental authority or agency or
legislative body, domestic, foreign or supranational, which, individually or in
the aggregate, would result in, or would be reasonably likely to result in, a
Material Adverse Effect on Parent (including the Surviving Corporation) after
the Effective Time; and
(l) all required approvals or consents of any governmental authority
(whether domestic, foreign or supranational) in connection with the Merger and
the consummation of the other transactions contemplated hereby shall have been
obtained (and all relevant statutory, regulatory or other governmental waiting
periods, whether domestic, foreign or supranational, shall have expired) unless
the failure to receive any such approval or consent would not and would not be
reasonably expected to result in a Material Adverse Effect on Parent (including
the Surviving Corporation) after the Effective Time and (ii) all such approvals
and consents which have been obtained shall be on terms which, individually or
in the aggregate, would not result in, or would not be reasonably likely to
result in, a Material Adverse Effect on Parent (including the
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Surviving Corporation) after the Effective Time;
SECTION 8.2 Conditions to the Obligations of Parent and Merger Subsidiary.
-------------------------------------------------------------
The obligations of Parent and Merger Subsidiary to consummate the Merger are
subject to the satisfaction (or, to the extent legally permissible, waiver) of
the following further conditions:
(a) (i) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it as of or prior to the
Closing Date, (ii) the representations and warranties of the Company contained
in this Agreement and in any certificate or other writing delivered by the
Company pursuant hereto shall be true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth therein)
when made and at and as of the Effective Time as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such earlier date), except where the failure of such representations and
warranties to be true and correct (without giving effect to any limitation as to
"materiality" or "Material Adverse Effect" set forth therein) would not,
individually or in the aggregate, have, or be reasonably likely to have, a
Material Adverse Effect on the Company, and (iii) Parent shall have received a
certificate signed by an executive officer of the Company to the foregoing
effect;
(b) Parent shall have received an opinion of McDermott, Will & Emery (or
such other counsel reasonably acceptable to Parent), on the basis of customary
representations and assumptions set forth in such opinion, dated the Effective
Time, to the effect that the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the provisions of Section 368(a)
of the Code. In rendering such opinion, such counsel shall be entitled to rely
upon customary representations of officers of Parent and the Company reasonably
requested by counsel; and
(c) since the date of this Agreement, there shall not have been any event,
occurrence, development or state of circumstances which, individually or in the
aggregate, would have, or would be reasonably likely to have, a Material Adverse
Effect on the Company.
SECTION 8.3 Conditions to the Obligations of the Company. The obligation of
--------------------------------------------
the Company to consummate the Merger is subject to the satisfaction (or, to the
extent legally permissible, waiver) of the following further conditions:
(a) (i) Parent shall have performed in all material respects all of its
obligations hereunder required to be performed by it as of or prior to the
Closing Date, (ii) the representations and warranties of Parent contained in
this Agreement and in any certificate or other writing delivered by Parent
pursuant hereto shall be true and correct (without giving effect to any
limitation as to "materiality" or "Material Adverse Effect" set forth herein)
when made and at and as of the Effective Time as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case as of
such earlier date, except where the failure of such representations to be true
and correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth herein) would not, individually or in the
aggregate, have, or be reasonably likely to have, a Material Adverse Effect on
Parent and (iii) the Company shall have received a certificate signed by an
executive officer of Parent to the
A-52
foregoing effect;
(b) the Company shall have received an opinion of Davis Polk & Wardwell (or
such other counsel reasonably acceptable to the Company), on the basis of
customary representations and assumptions set forth in such opinion, dated the
Effective Time, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization qualifying under the provisions of Section
368(a) of the Code. In rendering such opinion, such counsel shall be entitled to
rely upon customary representations of officers of Parent and the Company
reasonably requested by counsel; and
(c) since the date of this Agreement, there shall not have been any event,
occurrence, development or state of circumstances which, individually or in the
aggregate, would have, or would be reasonably likely to have, a Material Adverse
Effect on Parent.
ARTICLE 9
---------
TERMINATION
-----------
SECTION 9.1 Termination. This Agreement may be terminated and the Merger
-----------
may be abandoned at any time prior to the Effective Time (notwithstanding the
obtaining of the Company Stockholder Approval or the Parent Stockholder
Approval);
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent;
(i) if the Merger has not been consummated by October 15, 2001 (the
"End Date"); provided, however, that if (x) the Effective Time has not
occurred by such date by reason of nonsatisfaction of any of the
conditions set forth in Sections 8.1(b), 8.1(c), 8.1(i), 8.1(j), 8.1(k),
8.1(l) and (y) all other conditions in Article 8 have theretofore been
satisfied or (to the extent legally permissible) waived or are then
capable of being satisfied, the End Date will be April 15, 2002; provided
further that the right to terminate this Agreement under this Section
9.1(b)(i) shall not be available to any party whose failure to fulfill in
any material respect any obligation under this Agreement has caused or
resulted in the failure of the Effective Time to occur on or before the
End Date;
(ii) if the Company Stockholder Approval shall not have been obtained
by reason of the failure to obtain the required vote at a duly held
meeting of stockholders or any adjournment thereof; or
(iii) if the Common Stock Issuance Approval shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or any adjournment thereof;
(c) by either the Company or Parent, if there shall be any law or
regulation that makes
A-53
consummation of the Merger illegal or otherwise prohibited or if any
judgment, injunction, order or decree enjoining Parent or the Company from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable;
(d) by Parent, if the Board of Directors of the Company shall have failed
to recommend or withdrawn or modified or changed in a manner adverse to Parent
its approval or recommendation of this Agreement or the Merger, whether or not
permitted by the terms hereof, or shall have failed to call and hold the Company
Stockholder Meeting in accordance with Section 5.2, or shall have recommended a
Superior Proposal (or the Board of Directors of the Company shall resolve to do
any of the foregoing);
(e) by the Company, if the Board of Directors of Parent shall have failed
to recommend or shall have withdrawn or modified or changed in a manner adverse
to the Company its approval and recommendation of the Common Stock Issuance or
the Name Change Amendment, whether or not permitted by the terms hereof, or
shall have failed to call and hold the Parent Stockholder Meeting in accordance
with Section 6.4 or shall have recommended a Superior Proposal (or the Board of
Directors of Parent resolves to do any of the foregoing);
(f) by either Parent or the Company, if there shall have been a breach by
the other of any of its representations, warranties, covenants or obligations
contained in this Agreement, which breach would result in the failure to satisfy
one or more of the conditions set forth in Section 8.2(a) (in the case of a
breach by the Company) or Section 8.3(a) (in the case of a breach by Parent),
and in any such case such breach shall be incapable of being cured or, if
capable of being cured, shall not have been cured within 30 days after written
notice thereof shall have been received by the party alleged to be in breach;
The party desiring to terminate this Agreement pursuant to clause (b), (c),
(d), (e) or (f) of this Section 9.1 shall give written notice of such
termination to the other party in accordance with Section 10.1, specifying the
provision hereof pursuant to which such termination is effected.
SECTION 9.2 Effect of Termination. If this Agreement is terminated pursuant
---------------------
to Section 9.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that (a) the agreements
contained in this Section 9.2, in Section 10.4, 10.5 and 10.6 hereof or in the
Option Agreements and in the Confidentiality Agreement, and the representations
and warranties with respect to the Option Agreements, shall survive the
termination hereof and (b) no such termination shall relieve any party of any
liability or damages resulting from any willful breach by that party of this
Agreement or the Option Agreements.
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ARTICLE 10
----------
MISCELLANEOUS
-------------
SECTION 10.1 Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing (including facsimile or similar writing) and
shall be given,
if to Parent or Merger Subsidiary, to:
Harvey D. Hinman, Esq.
Vice President and General Counsel
Chevron Corporation
575 Market Street
San Francisco, California 94105
Facsimile No.: (415) 894-6017
with copies to:
Alfred L. Pepin, Esq.
1156 Mee Lane
St. Helena, California 94574
Facsimile No.: (707) 967-0551
and
Arthur Fleischer, Jr., Esq.
Gary P. Cooperstein, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Facsimile No.: (212) 859-4000
and
Terry M. Kee, Esq.
Rodney R. Peck, Esq.
Pillsbury Madison & Sutro LLP
50 Fremont Street
San Francisco, California 94105
Facsimile No.: (415) 983-1200
A-55
if to the Company, to:
William M. Wicker
Senior Vice President
Texaco Inc.
2000 Westchester Avenue
White Plains, New York 10650
Facsimile No.: (914) 253-4280
with copies to:
Deval Patrick, Esq.
General Counsel and Vice President
Texaco Inc.
2000 Westchester Avenue
White Plains, New York 10650
Facsimile No.: (914) 253-4477
and
Dennis S. Hersch, Esq.
Ulrika Ekman, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Facsimile No.: (212) 450-4800
or such other address or facsimile number as such party may hereafter
specify for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if given by facsimile,
when such facsimile is transmitted to the facsimile number specified in this
Section and the appropriate facsimile confirmation is received or (b) if given
by any other means, when delivered at the address specified in this Section.
SECTION 10.2 Non-Survival of Representations and Warranties. The
----------------------------------------------
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement.
SECTION 10.3 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement (including the Exhibits and Schedules
hereto) may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company, Parent and Merger Subsidiary, or in the case of a waiver, by the
party against whom the waiver is to be effective; provided that after the
adoption of this Agreement by the stockholders of the Company, no such amendment
or waiver shall, without the further approval of such stockholders, alter or
change
A-56
(i) the amount or kind of consideration to be received in exchange for any
shares of capital stock of the Company or (ii) any term of the certificate of
incorporation of Parent.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.4 Expenses.
--------
(a) Except as otherwise specified in Section 10.5 or 10.6, or the Option
Agreements or as otherwise agreed to in writing by the parties, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such cost or
expense.
SECTION 10.5 Company Termination Fee. If:
-----------------------
(i) Parent shall terminate this Agreement pursuant to Section
9.1(d), or
(ii) either the Company or Parent shall terminate this Agreement
pursuant to Section 9.1(b)(ii) and prior to the Company Stockholder
Meeting an Acquisition Proposal relating to the Company has been made to
the Company or to the stockholders of the Company by any Person; or
(iii) any Person shall have made to the Company or to the stockholders
of the Company an Acquisition Proposal relating to the Company and
thereafter this Agreement is terminated pursuant to Section 9.1(b)(i);
then in any case as described in clause (i), (ii), or (iii) the Company
shall pay to Parent (by wire transfer of immediately available funds) (x)
$500,000,000 not later than the date of termination of this Agreement and (y) an
additional $500,000,000, if and not later than the date an Acquisition Proposal
is consummated or a definitive agreement is entered into by the Company in
connection with any Acquisition Proposal, as long as such Acquisition Proposal
is consummated or such definitive agreement is executed within 12 months after
the date of termination of this Agreement.
SECTION 10.6 Parent Termination Fee. If:
----------------------
(i) The Company shall terminate this Agreement pursuant to Section
9.1(e); or
(ii) either the Company or Parent shall terminate this Agreement
pursuant to Section 9.1(b)(iii) and prior to the Parent Stockholder
Meeting an Acquisition Proposal relating to Parent has been made by any
Person to the Parent or the stockholders of Parent by any Person; or
A-57
(iii) any Person shall have made to Parent or its stockholders an
Acquisition Proposal relating to Parent and thereafter this Agreement is
terminated pursuant to Section 9.1(b)(i);
then in any case as described in clause (i), (ii) or (iii) Parent shall pay
to the Company (by wire transfer of immediately available funds) (x)
$500,000,000 not later than the date of termination of this Agreement and (y) an
additional $500,000,000, if and not later than the date an Acquisition Proposal
is consummated or a definitive agreement is entered into by Parent in connection
with any Acquisition Proposal, as long as such Acquisition Proposal is
consummated or such definitive agreement is executed within 12 months after the
date of termination of this Agreement.
SECTION 10.7 Successors and Assigns. The provisions of this Agreement shall
----------------------
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Merger Subsidiary
may transfer or assign, in whole or from time to time in part, to one or more of
its affiliates, its rights under this Agreement, but any such transfer or
assignment will not relieve Merger Subsidiary of its obligations hereunder.
SECTION 10.8 Governing Law. This Agreement shall be construed in accordance
--------------
with and governed by the law of the State of Delaware, without regard to
principles of conflicts of law.
SECTION 10.9 Jurisdiction. Any suit, action or proceeding seeking to
------------
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement, the Option Agreements or the transactions contemplated
hereby or thereby may be brought in any federal or state court located in the
State of Delaware, and each of the parties hereby consents to the jurisdiction
of such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding which is brought in any such court has been
brought in an inconvenient forum. Process in any such suit, action or proceeding
may be served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 10.1 shall
be deemed effective service of process on such party.
SECTION 10.10 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
--------------------
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 10.11 Counterparts; Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become
A-58
effective when each party hereto shall have received counterparts hereof
signed by all of the other parties hereto.
SECTION 10.12 Entire Agreement. This Agreement (including the Exhibits and\
----------------
Schedules hereto), the Option Agreements and the Confidentiality Agreement
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter
hereof and thereof. Except as provided in Section 6.3(c), no provision of this
Agreement or any other agreement contemplated hereby is intended to confer on
any Person other than the parties hereto any rights or remedies.
SECTION 10.13 Captions. The captions herein are included for convenience of
--------
reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 10.14 Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
TEXACO INC.
By: /s/ PETER I. BIJUR
----------------------------------
Name: Peter I. Bijur
Title: Chairman of the Board and
Chief Executive Officer
CHEVRON CORPORATION
By: /s/ DAVID J. O'REILLY
----------------------------------
Name: David J. O'Reilly
Title: Chairman of the Board and
Chief Executive Officer
KEEPEP INC.
By: /s/ DAVID J. O'REILLY
----------------------------------
Name: David J. O'Reilly
Title: President
A-60
ANNEX A-1
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to the Agreement and Plan of Merger dated as of
October 15, 2000 among Texaco Inc. ("Texaco"), Chevron Corporation ("Chevron")
and Keepep Inc. ("Keepep") ("Agreement") is dated as of March 30, 2001. Texaco,
Chevron and Keepep are sometimes collectively referred to as the "Parties".
The Parties hereby agree to amend the Agreement as follows:
1. Amendment of Section 2.2(b). The name "Peter I. Bijur" set forth in
---------------------------
Section 2.2(b) of the Agreement is hereby deleted and replaced with
"Glenn F. Tilton".
2. Amendment of Section 2.3. The name "Peter I. Bijur" set forth in
------------------------
Section 2.3 of the Agreement is hereby deleted and replaced with "Glenn F.
Tilton".
All other terms and conditions of the Agreement shall remain in full force
and effect and unaffected by the foregoing amendments. Sections 10.3
(Amendments; No Waivers), 10.8 (Governing Law), 10.9 (Jurisdiction), 10.10
(Waiver of Jury Trial), 10.11 (Counterparts; Effectiveness) of the Agreement are
incorporated herein by reference.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment to be
effective as of the date set forth above.
TEXACO INC.
By: /s/ WILLIAM M. WICKER
-------------------------------------------
Name: William M. Wicker
Title: Senior Vice President
Date: March 30, 2001
CHEVRON CORPORATION
By: /s/ DAVID J. O'REILLY
-------------------------------------------
Name: David J. O'Reilly
Title: Chairman and CEO
Date: March 27, 2001
A-1-1
KEEPEP INC.
By: /s/ JOHN S. WATSON
-------------------------------------------
Name: John S. Watson
Title: Vice President, Secretary & Treasurer
Date: March 28, 2001
A-1-2
ANNEX B
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of October 15,
2000, between Chevron Corporation, a Delaware corporation ("Parent"), and Texaco
Inc., a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, Parent and the Company are concurrently with the execution and
delivery of this Agreement entering into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which, among other things, Merger Subsidiary
will merge with and into the Company on the terms and subject to the conditions
stated therein; and
WHEREAS, in order to induce Parent to enter into the Merger Agreement and
as a condition for Parent's agreeing so to do, the Company has granted to Parent
the Stock Option (as hereinafter defined), on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in the Merger Agreement, and for other good and valuable
consideration, the adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions. Capitalized terms used and not defined herein have
-----------
the respective meanings assigned to them in the Merger Agreement.
Section 2. Grant of Stock Option.
---------------------
(a) The Company hereby grants to Parent an irrevocable option (the "Stock
Option") to purchase, on the terms and subject to the conditions hereof, for
$53.71 per share (the "Exercise Price") in cash, up to 107,000,000 fully paid
and non-assessable shares (the "Option Shares") of the Company's common stock,
par value $3.125 per share (the "Common Stock"). The Exercise Price and number
of Option Shares shall be subject to adjustment as provided in Sections 2(b) and
6 below.
(b) In the event that any (i) additional shares of Common Stock are issued
or otherwise become outstanding after the date of the Agreement (other than
pursuant to this Agreement) or (ii) shares of Common Stock are redeemed,
repurchased, retired or otherwise cease to be outstanding after the date of the
Agreement, the number of shares of Common Stock subject to the Stock Option
shall be increased or decreased, as appropriate, so that after such issuance or
redemption, such number equals 19.9% of the number of shares of Common Stock
then issued and outstanding (without giving effect to any shares subject or
issued pursuant to the Stock Option). Nothing contained in this Section 2(b) or
elsewhere in this Agreement shall be deemed to authorize Parent or the Company
to breach any provision of the Merger Agreement.
B-1
Section 3. Exercise of Stock Option.
------------------------
(a) Parent may, subject to the provisions of this Section, exercise the
Stock Option, in whole or in part, at any time or from time to time, after the
occurrence of a Company Trigger Event (defined below) and prior to the
Termination Date. "Termination Date" shall mean the earliest of (i) the
Effective Time of the Merger, (ii) 90 days after the date full payment
contemplated by Section 10.5 of the Merger Agreement is made by the Company to
Parent thereunder or (iii) one day after the date of the termination of the
Merger Agreement so long as, in the case of this clause (iii), no Company
Trigger Event has occurred or could still occur pursuant to Section 10.5 of the
Merger Agreement. Notwithstanding the occurrence of the Termination Date, Parent
shall be entitled to purchase Option Shares pursuant to any exercise of the
Stock Option, on the terms and subject to the conditions hereof, to the extent
Parent exercised the Stock Option prior to the occurrence of the Termination
Date. A "Company Trigger Event" shall mean an event the result of which is that
the Company becomes obligated to pay a fee to Parent pursuant to Section 10.5 of
the Merger Agreement.
(b) Parent may purchase Option Shares pursuant to the Stock Option only if
all of the following conditions are satisfied: (i) no preliminary or permanent
injunction or other order issued by any federal or state court of competent
jurisdiction in the United States shall be in effect prohibiting delivery of the
Option Shares, (ii) any applicable waiting period under the HSR Act shall have
expired or been terminated, and (iii) any prior notification to or approval of
any other regulatory authority in the United States or elsewhere required in
connection with such purchase shall have been made or obtained, other than those
which if not made or obtained would not reasonably be expected to result in a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
(c) If Parent shall be entitled to and wishes to exercise the Stock Option,
it shall do so by giving the Company written notice (the "Stock Exercise
Notice") to such effect, specifying the number of Option Shares to be purchased
and a place and closing date not earlier than three business days nor later than
10 business days from the date of such Stock Exercise Notice. If the closing
cannot be consummated on such date because any condition to the purchase of
Option Shares set forth in Section 3(b) has not been satisfied or as a result of
any restriction arising under any applicable law or regulation, the closing
shall occur five days (or such earlier time as Parent may specify) after
satisfaction of all such conditions and the cessation of all such restrictions;
provided that in no event shall the closing of the purchase be postponed by more
than nine months after the Termination Date as a result of this clause (c).
(d) So long as the Stock Option is exercisable pursuant to the terms of
Section 3(a) Parent may elect to send a written notice to the Company (the "Cash
Exercise Notice") specifying a date not later than 20 business days and not
earlier than 10 business days following the date such notice is given on which
date the Company shall pay to Parent in exchange for the cancellation of the
relevant portion of the Stock Option an amount in cash equal to the Spread (as
hereinafter defined) multiplied by all or such portion of the Option Shares
subject to the Stock Option as Parent shall specify. As used herein, "Spread"
shall mean the excess, if any, over the Exercise Price of the higher of (x) if
applicable, the highest price per share of Common Stock
B-2
paid or proposed to be paid by any Person pursuant to any Acquisition
Proposal relating to the Company (the "Alternative Exercise Price") or (y) the
average of the closing price of the shares of Common Stock on the NYSE at the
end of the regular session, as reported on the Consolidated Tape, Network A for
the five consecutive trading days ending on and including the trading date
immediately preceding the date on which the Cash Exercise Notice is given (the
"Average Market Price"). If the Alternative Exercise Price includes any property
other than cash, the Alternative Exercise Price shall be the sum of (i) the
fixed cash amount, if any, included in the Alternative Exercise Price plus (ii)
the fair market value of such other property. If such other property consists of
securities with an existing public trading market, the average of the closing
prices (or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on the
five trading days ending five days prior to the date on which the Cash Exercise
Notice is given shall be deemed to equal the fair market value of such property.
If such other property includes anything other than cash or securities with an
existing public trading market, the Alternative Exercise Price shall be deemed
to equal the Average Market Price. Upon exercise of its right pursuant to this
Section 3(d) and the receipt by Parent of the applicable cash amount with
respect to the Option Shares or the applicable portion thereof, the obligations
of the Company to deliver Option Shares pursuant to Section 3(e) shall be
terminated with respect to the number of Option Shares specified in the Cash
Exercise Notice. The Spread shall be appropriately adjusted, if applicable, to
give effect to Section 6.
(e) (i) At any closing pursuant to Section 3(c) hereof, Parent shall make
payment to the Company of the aggregate purchase price for the Option Shares to
be purchased and the Company shall deliver to Parent a certificate representing
the purchased Option Shares, registered in the name of Parent or its designee
and (ii) at any closing pursuant to Section 3(d) hereof, the Company will
deliver to Parent cash in an amount determined pursuant to Section 3(d) hereof.
Any payment made by Parent to the Company, or by the Company to Parent, pursuant
to this Agreement shall be made by wire transfer of immediately available funds
to a bank designated by the party receiving such funds, provided that the
failure or refusal by the Company to designate such a bank account shall not
preclude Parent from exercising the Stock Option. If at the time of the issuance
of Option Shares pursuant to the exercise of the Stock Option, Company Rights or
any similar securities are outstanding, then the Option Shares issued pursuant
to such exercise shall be accompanied by corresponding Company Rights or such
similar securities.
(f) Certificates for Common Stock delivered at the closing described in
Section 3(c) hereof shall be endorsed with a restrictive legend which shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject to
resale restrictions arising under the Securities Act of 1933, as amended.
The shares represented by this certificate are also subject to repurchase
by the Issuer pursuant to the Stock Option Agreement dated as of
October 15, 2000, a copy of which agreement may be obtained upon request
from the Issuer."
B-3
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without this reference (i) if Parent shall
have delivered to the Company a copy of a no-action letter from the staff of the
Securities and Exchange Commission, or a written opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that such legend
is not required for purposes of, or resale may be effected pursuant to an
exemption from registration under, the Securities Act or (ii) in connection with
any sale registered under the Securities Act. In addition, these certificates
shall bear any other legend as may be required by applicable law.
(g) At any time following the exercise by Parent of the Stock Option, the
Company shall have the right, within 5 business days after written notice to
Parent, to purchase for cash all of the Option Shares received by Parent
pursuant to this Agreement at a purchase price per share equal to the higher of
(x) the Alternative Exercise Price or (y) the Average Market Price. At any
closing pursuant to this Section 3(g), the Company shall make payment to Parent
of the aggregate purchase price for the Option Shares to be purchased and Parent
shall deliver to the Company a certificate representing the purchased Option
Shares.
Section 4. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to Parent as follows:
(a) The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. The execution, delivery
and performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby (i) are within the Company's
corporate powers, (ii) have been duly authorized by all necessary corporate
action, (iii) require no action by or in respect of, or filing with, any
governmental body, agency or official, except for compliance with any applicable
requirements of the HSR Act, the Exchange Act, the Securities Act, and laws,
rules and regulations in foreign jurisdictions governing antitrust or merger
control matters (iv) assuming compliance with the matters referred to in clause
(iii), do not contravene, or constitute a violation of, any provision of
applicable law or regulation or of the certificate of incorporation or by-laws
of the Company or of any judgment, injunction, order or decree binding upon the
Company or any of its Subsidiaries, (v) do not and will not constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of the Company or any of its Subsidiaries or to a loss
of any benefit to which the Company or any of its Subsidiaries is entitled under
any provision of any agreement, contract or other instrument binding upon the
Company or any of its Subsidiaries or any license, franchise, permit or other
similar authorization held by the Company or any of its Subsidiaries, and (vi)
do not and will not result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries, except for such contraventions,
conflicts or violations referred to in clause (iv) or defaults, rights of
termination, cancellation or acceleration, or losses or Liens referred to in
clauses (v) and (vi) that would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. This Agreement has been duly executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company.
B-4
(b) The Company has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof until
such time as the obligation to deliver Option Shares upon the exercise of the
Stock Option terminates, will have reserved for issuance upon any exercise of
the Stock Option, the number of Option Shares subject to the Stock Option (less
the number of Option Shares previously issued upon any partial exercise of the
Stock Option). All of the Option Shares to be issued pursuant to the Stock
Option have been duly authorized and, upon issuance and delivery thereof
pursuant to this Agreement, will be duly authorized, validly issued, fully paid
and nonassessable, and will be delivered free and clear of all claims, liens,
charges, encumbrances and security interests (other than those created by this
Agreement). Option Shares issued upon exercise of the Stock Option will not be
subject to any preemptive or similar rights. The Board of Directors of the
Company has resolved to, and the Company promptly after execution of this
Agreement will, take all necessary action to render the Company Rights Agreement
inapplicable to the grant or exercise of the Stock Option and the transactions
contemplated hereby. The Board of Directors of the Company has taken all
necessary action to render section 203 of the Delaware Law, or any other
antitakeover statute or similar statute or regulation, and the supermajority
voting provisions of Article XIII of the Company's certificate of incorporation
and Article VII of the Company's by-laws inapplicable to the acquisition of the
Option Shares pursuant to this Agreement.
Section 5. Representations and Warranties of Parent. Parent hereby
----------------------------------------
represents and warrants to the Company as follows: Parent is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. The execution, delivery and performance by Parent of this Agreement
and the consummation of the transactions contemplated hereby (i) are within
Parent's corporate powers and (ii) have been duly authorized by all necessary
corporate action. The Option Shares acquired by Parent upon the exercise of the
Stock Option will not be, and the Stock Option is not being, acquired by Parent
with the intention of making a public distribution thereof. Neither the Stock
Option nor the Option Shares acquired upon exercise of the Stock Option will be
sold or otherwise disposed of by Parent except in compliance with the Securities
Act. This agreement has been duly executed and delivered by Parent and
constitutes a valid and binding agreement of Parent.
Section 6. Adjustment upon Changes in Capitalization or Merger.
---------------------------------------------------
(a) In the event of any change in the outstanding shares of Common Stock by
reason of a stock dividend, stock split, reverse stock split, split-up, merger,
consolidation, recapitalization, combination, conversion, exchange of shares,
extraordinary or liquidating dividend or similar transaction which would affect
Parent's rights hereunder, the type and number of shares or securities
purchasable upon the exercise of the Stock Option and the Exercise Price shall
be adjusted appropriately, and proper provision will be made in the agreements
governing such transaction, as shall fully preserve the economic benefits
provided hereunder to Parent and the full satisfaction of the Company's
obligations hereunder. In no event shall the number of shares of Common Stock
subject to the Stock Option exceed 19.9% of the number of shares of Common Stock
issued and outstanding at the time of exercise (without giving effect to any
shares subject or issued pursuant to the Stock Option).
B-5
(b) Without limiting the foregoing, whenever the number of Option Shares
purchasable upon exercise of the Stock Option is adjusted as provided in this
Section 6, the Exercise Price shall be adjusted by multiplying the Exercise
Price by a fraction, the numerator of which is equal to the number of Option
Shares purchasable prior to the adjustment and the denominator of which is equal
to the number of Option Shares purchasable after the adjustment.
(c) Without limiting or altering the parties' rights and obligations under
the Merger Agreement, in the event that the Company enters into an agreement (i)
to consolidate with or merge into any Person, other than Parent or one of its
Subsidiaries, and the Company will not be the continuing or surviving
corporation in such consolidation or merger, (ii) to permit any Person, other
than Parent or one of its Subsidiaries, to merge into the Company and the
Company will be the continuing or surviving corporation, but in connection with
such merger, the shares of Common Stock outstanding immediately prior to the
consummation of such merger will be changed into or exchanged for stock or other
securities of the Company or any other Person or cash or any other property, or
the shares of Common Stock outstanding immediately prior to the consummation of
such merger will, after such merger, represent less than 50% of the outstanding
voting securities of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any Person, other than Parent or one
of its Subsidiaries, then, and in each such case, the agreement governing such
transaction will make proper provision so that the Stock Option will, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option with identical terms
appropriately adjusted to acquire the number and class of shares or other
securities or property that Parent would have received in respect of Option
Shares had the Stock Option been exercised immediately prior to such
consolidation, merger, sale or transfer or the record date therefor, as
applicable, and shall make any other necessary adjustments. The Company shall
take such steps in connection with such consolidation, merger, liquidation or
other such transaction as may be reasonably necessary to assure that the
provisions hereof shall thereafter apply as nearly as possible to any securities
or property thereafter deliverable upon exercise of the Stock Option.
Section 7. Further Assurances; Remedies.
----------------------------
(a) The Company agrees to maintain, free from preemptive rights, sufficient
authorized but unissued or treasury shares of Common Stock so that the Stock
Option may be fully exercised without additional authorization of Common Stock
after giving effect to all other options, warrants, convertible securities and
other rights of third parties to purchase shares of Common Stock from the
Company, and to issue the appropriate number of shares of Common Stock pursuant
to the terms of this Agreement. All of the Option Shares to be issued pursuant
to the Stock Option, upon issuance and delivery thereof pursuant to this
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable, and will be delivered free and clear of all claims, liens,
charges, encumbrances and security interests (other than those created by this
Agreement).
(b) The Company agrees not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of rights,
dissolution or
B-6
sale of assets, or by any other voluntary act) the observance or
performance of any of the covenants, agreements or conditions to be observed or
performed hereunder by the Company.
(c) The Company agrees that promptly after the occurrence of a Company
Trigger Event it shall take all actions as may from time to time be required
(including (i) complying with all applicable premerger notification, reporting
and waiting period requirements under the HSR Act and (ii) in the event that
prior notification to or approval of any other regulatory authority in the
United States or elsewhere is necessary before the Stock Option may be
exercised, complying with its obligations thereunder and cooperating with Parent
in preparing and processing the required notices or applications) in order to
permit Parent to exercise the Stock Option and purchase Option Shares pursuant
to such exercise.
(d) The parties agree that Parent would be irreparably damaged if for any
reason the Company failed to issue any of the Option Shares (or other securities
or property deliverable pursuant to Section 6 hereof) upon exercise of the Stock
Option or to perform any of its other obligations under this Agreement, and that
Parent would not have an adequate remedy at law for money damages in such event.
Accordingly, Parent shall be entitled to specific performance and injunctive and
other equitable relief to enforce the performance of this Agreement by the
Company. Accordingly, if Parent should institute an action or proceeding seeking
specific enforcement of the provisions hereof, the Company hereby waives the
claim or defense that Parent has an adequate remedy at law and hereby agrees not
to assert in any such action or proceeding the claim or defense that such a
remedy at law exists. The Company further agrees to waive any requirements for
the securing or posting of any bond in connection with obtaining any such
equitable relief. This provision is without prejudice to any other rights that
Parent may have against the Company for any failure to perform its obligations
under this Agreement.
Section 8. Listing of Option Shares. Promptly after the occurrence of a
------------------------
Company Trigger Event and from time to time thereafter if necessary, the Company
will apply to list all of the Option Shares subject to the Stock Option on the
NYSE and will use its reasonable best efforts to obtain approval of such listing
as soon as practicable.
Section 9. Registration of the Option Shares.
---------------------------------
(a) If, within two years of the exercise of the Stock Option, Parent
requests the Company in writing to register under the Securities Act any of the
Option Shares received by Parent hereunder, the Company will use its reasonable
best efforts to cause the offering of the Option Shares so specified in such
request to be registered as soon as practicable so as to permit the sale or
other distribution by Parent of the Option Shares specified in its request (and
to keep such registration in effect for a period of at least 90 days), and in
connection therewith the Company shall prepare and file as promptly as
reasonably possible (but in no event later than 60 days from receipt of Parent's
request) a registration statement under the Securities Act to effect such
registration on an appropriate form, which would permit the sale of the Option
Shares by Parent in accordance with the plan of disposition specified by Parent
in its request. The Company shall not be obligated to make effective more than
two registration statements pursuant to the foregoing sentence; provided,
however, that the Company may postpone the filing of a
B-7
registration statement relating to a registration request by Parent under
this Section 9 for a period of time (not in excess of 90 days) if in the
Company's reasonable, good faith judgment (i) such filing would require the
disclosure of material information that the Company has a bona fide business
purpose for preserving as confidential or (ii) the sale of Option Shares by
Parent would materially interfere with any pending or anticipated acquisition,
financing or transaction involving the Company or its Subsidiaries (but in no
event shall the Company exercise such postponement right more than once in any
twelve-month period).
(b) The Company shall notify Parent in writing not less than 10 days prior
to filing a registration statement under the Securities Act (other than a filing
on Form S-4 or S-8 or any successor form) with respect to any shares of Common
Stock. If Parent wishes to have any portion of its Option Shares included in
such registration, it shall advise the Company in writing to that effect within
two business days following receipt of such notice, and the Company will
thereupon include the number of Option Shares indicated by Parent in such
registration; provided that if the managing underwriter(s) of the offering
pursuant to such registration statement advise the Company that in their opinion
the number of shares of Common Stock requested to be included in such
registration exceeds the number which can be sold in such offering, the Company
shall only include in such registration such number or dollar amount of Option
Shares which, in the good faith opinion of the managing underwriter(s), can be
sold without materially and adversely affecting such offering.
(c) All expenses relating to or in connection with any registration
contemplated under this Section 9 and the transactions contemplated thereby
(including all filing, printing, reasonable professional, roadshow and other
fees and expenses relating thereto) will be at the Company's expense except for
underwriting discounts or commissions and brokers' fees. The Company and Parent
agree to enter into a customary underwriting agreement with underwriters upon
such terms and conditions as are customarily contained in underwriting
agreements with respect to secondary distributions. The Company shall indemnify
Parent, its officers, directors, agents, other controlling persons and any
underwriters retained by Parent in connection with such sale of such Option
Shares in the customary way, and shall agree to customary contribution
provisions with such persons, with respect to claims, damages, losses and
liabilities (and any expenses relating thereto) arising (or to which Parent, its
officers, directors, agents, other controlling persons or underwriters may be
subject) in connection with any such offer or sale under the federal securities
laws or otherwise, except for information furnished in writing by Parent or its
underwriters to the Company. Parent and its underwriters, respectively, shall
indemnify the Company to the same extent with respect to information furnished
in writing to the Company by Parent and such underwriters, respectively.
Section 10. Miscellaneous.
-------------
(a) Extension of Exercise Periods. The periods during which Parent may
-----------------------------
exercise its rights under Sections 2 and 3 hereof, or the Company may exercise
its rights under Section 2(g), shall be extended in each such case at the
request of Parent to the extent necessary to avoid liability by Parent under
Section 16(b) of the Exchange Act by reason of such exercise.
B-8
(b) Amendments; Entire Agreement. This Agreement may not be modified,
----------------------------
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto. This Agreement, together with
the Merger Agreement (including any exhibits and schedules thereto), contains
the entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions.
(c) Notices. All notices, requests and other communications to either party
-------
hereunder shall be inwriting (including facsimile or similar writing) and shall
be given,
if to Parent, to:
Harvey D. Hinman, Esq.
Vice President and General Counsel
Chevron Corporation
575 Market Street
San Francisco, California 94105
Facsimile No.: (415) 894-6017
with copies to:
Alfred L. Pepin, Esq.
1156 Mee Lane
St. Helena, California 94574
Facsimile No.: (707) 967-0551
and
Arthur Fleischer, Jr., Esq.
Gary P. Cooperstein, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004-1980
Facsimile No.: (212) 859-4000
and
Terry M. Kee, Esq.
Rodney R. Peck, Esq.
Pillsbury Madison & Sutro LLP
50 Fremont Street
San Francisco, California 94105
Facsimile No.: (415) 983-1200
B-9
if to the Company, to:
William M. Wicker
Senior Vice President
Texaco Inc.
2000 Westchester Avenue
White Plains, New York 10650
Facsimile No.: (914) 253-4280
with copies to:
Deval Patrick, Esq.
General Counsel and Vice President
Texaco Inc.
2000 Westchester Avenue
White Plains, New York 10650
Facsimile No.: (914) 253-4477
and
Dennis S. Hersch, Esq.
Ulrika Ekman, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Facsimile No.: (212) 450-4800
or to such other address or facsimile number as either party may hereafter
specify for the purpose by notice to the other party hereto. Each such notice,
request or other communication shall be effective (i) if given by facsimile,
when such facsimile is transmitted to the facsimile number specified in this
Section and the appropriate facsimile confirmation is received or (ii) if given
by any other means, when delivered at the address specified in this Section.
(d) Expenses. Each party hereto shall pay its own expenses incurred in
--------
connection with this Agreement, except as otherwise specifically provided herein
and without limiting anything contained in the Merger Agreement.
(e) Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
(f) Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of law. Any suit, action or proceeding seeking to
enforce any provision of, or based on
B-10
any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby may be brought in any federal or state court
located in the State of Delaware, and each of the parties hereby consents to the
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 10(c)
hereof shall be deemed effective service of process on such party.
(g) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
--------------------
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(h) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shallbe an original, but all of which together shall
constitute one and the same agreement.
(i) Headings. The section headings herein are for convenience only and
--------
shall not affect the construction hereof.
(j) Assignment. This Agreement shall be binding upon each party hereto and
----------
such party's successors and assigns. This Agreement shall not be assignable by
the Company, but may be assigned by Parent in whole or in part to any direct or
indirect wholly-owned subsidiary of Parent, provided that Parent shall remain
liable for any obligations so assigned.
(k) Survival. All representations, warranties and covenants contained
--------
herein shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(l) Time of the Essence. The parties agree that time shall be of the
-------------------
essence in the performance of obligations hereunder.
(m) Public Announcement. Parent and the Company will consult with each
-------------------
other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which shall not be unreasonably withheld.
Notwithstanding the foregoing, any such press release or public statement as may
be required by applicable law or any listing agreement with any national
securities exchange, may be issued prior to such consultation, if the party
making such release or statement has used its reasonable efforts to consult with
the other party.
B-11
Section 11. Profit Limitation.
-----------------
(a) Notwithstanding any other provision of this Agreement or the Merger
Agreement, in no event shall Parent's Total Profit (as defined below) exceed
$1,100,000,000 (the "Maximum Amount") and, if it otherwise would exceed such
Maximum Amount, Parent at its sole election may (i) pay cash to the Company,
(ii) deliver to the Company for cancellation Option Shares previously purchased
by Parent, or (iii) any combination thereof, so that Parent's actually realized
Total Profit (as defined below) shall not exceed the Maximum Amount after taking
into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the Stock Option
may not be exercised for a number of Option Shares as would, as of the date of
the Stock Exercise Notice or Cash Exercise Notice, as applicable, result in a
Notional Total Profit (as defined below) of more than the Maximum Amount and, if
exercise of the Stock Option otherwise would result in the Notional Total Profit
exceeding such amount, Parent, at its discretion, may (in addition to any of the
actions specified in Section 11(a) above) increase the Exercise Price for that
number of Option Shares set forth in the Stock Exercise Notice or Cash Exercise
Notice, as applicable, so that the Notional Total Profit shall not exceed the
Maximum Amount; provided, that nothing in this sentence shall restrict any
exercise of the Stock Option permitted hereby on any subsequent date at the
Exercise Price set forth in Section 2 hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the cash amount actually received by Parent
pursuant to Section 10.5 of the Merger Agreement less any repayment by Parent to
the Company pursuant to Section 11(a)(i) hereof, (ii) (x) the net cash amounts
or the fair market value of any property received by Parent pursuant to the sale
of Option Shares (or of any other securities into or for which such Option
Shares are converted or exchanged), less (y) Parent's purchase price for such
Option Shares (or other securities) plus (iii) the aggregate amounts received by
Parent pursuant to Section 3(d).
(d) As used herein, the term "Notional Total Profit" with respect to
any number of Option Shares as to which Parent may propose to exercise the Stock
Option shall mean the Total Profit determined as of the date of the Stock
Exercise Notice or Cash Exercise Notice, as applicable, assuming that the Stock
Option was exercised on such date for such number of Option Shares and assuming
that such Option Shares, together with all other Option Shares previously
acquired upon exercise of the Stock Option and held by Parent and its affiliates
as of such date, were sold for cash at the closing price on the NYSE for the
Common Stock as of the close of business on the preceding trading day (less
customary brokerage commissions).
B-12
IN WITNESS WHEREOF, the Company and Parent have caused this Agreement to be
duly executed as of the day and year first above written.
TEXACO INC.
By: /s/ PETER I. BIJUR
-------------------------------------------
Name: Peter I. Bijur
Title Chairman of the Board and
Chief Executive Officer
CHEVRON CORPORATION
By: /s/ DAVID J. O'REILLY
-------------------------------------------
Name: David J. O'Reilly
Title: Chairman of the Board and
Chief Executive Officer
B-13
ANNEX C
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of October 15,
2000, between Chevron Corporation, a Delaware corporation ("Parent"), and Texaco
Inc., a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, Parent and the Company are concurrently with the execution and
delivery of this Agreement entering into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which, among other things, Merger Subsidiary
will merge with and into the Company on the terms and subject to the conditions
stated therein; and
WHEREAS, in order to induce the Company to enter into the Merger Agreement
and as a condition for the Company's agreeing so to do, Parent has granted to
the Company the Stock Option (as hereinafter defined), on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in the Merger Agreement, and for other good and valuable
consideration, the adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions. Capitalized terms used and not defined herein have
-----------
the respective meanings assigned to them in the Merger Agreement.
Section 2. Grant of Stock Option.
---------------------
(a) Parent hereby grants to the Company an irrevocable option (the "Stock
Option") to purchase, on the terms and subject to the conditions hereof, for
$85.96 per share (the "Exercise Price") in cash, up to 127,000,000 fully paid
and non-assessable shares (the "Option Shares") of Parent's common stock, par
value $0.75 per share (the "Common Stock"). The Exercise Price and number of
Option Shares shall be subject to adjustment as provided in Sections 2(b) and 6
below.
(b) In the event that any (i) additional shares of Common Stock are issued
or otherwise become outstanding after the date of the Agreement (other than
pursuant to this Agreement) or (ii) shares of Common Stock are redeemed,
repurchased, retired or otherwise cease to be outstanding after the date of the
Agreement, the number of shares of Common Stock subject to the Stock Option
shall be increased or decreased, as appropriate, so that after such issuance or
redemption, such number equals 19.9% of the number of shares of Common Stock
then issued and outstanding (without giving effect to any shares subject or
issued pursuant to the Stock Option). Nothing contained in this Section 2(b) or
elsewhere in this Agreement shall be deemed to authorize Parent or the Company
to breach any provision of the Merger Agreement.
C-1
Section 3. Exercise of Stock Option.
------------------------
(a) The Company may, subject to the provisions of this Section, exercise
the Stock Option, in whole or in part, at any time or from time to time, after
the occurrence of a Parent Trigger Event (defined below) and prior to the
Termination Date. "Termination Date" shall mean the earliest of (i) the
Effective Time of the Merger, (ii) 90 days after the date full payment
contemplated by Section 10.6 of the Merger Agreement is made by Parent to the
Company thereunder or (iii) one day after the date of the termination of the
Merger Agreement so long as, in the case of this clause (iii), no Parent Trigger
Event has occurred or could still occur pursuant to Section 10.6 of the Merger
Agreement. Notwithstanding the occurrence of the Termination Date, the Company
shall be entitled to purchase Option Shares pursuant to any exercise of the
Stock Option, on the terms and subject to the conditions hereof, to the extent
the Company exercised the Stock Option prior to the occurrence of the
Termination Date. A "Parent Trigger Event" shall mean an event the result of
which is that Parent becomes obligated to pay a fee to the Company pursuant to
Section 10.6 of the Merger Agreement.
(b) The Company may purchase Option Shares pursuant to the Stock Option
only if all of the following conditions are satisfied: (i) no preliminary or
permanent injunction or other order issued by any federal or state court of
competent jurisdiction in the United States shall be in effect prohibiting
delivery of the Option Shares, (ii) any applicable waiting period under the HSR
Act shall have expired or been terminated, and (iii) any prior notification to
or approval of any other regulatory authority in the United States or elsewhere
required in connection with such purchase shall have been made or obtained,
other than those which if not made or obtained would not reasonably be expected
to result in a Material Adverse Effect on Parent and its Subsidiaries, taken as
a whole.
(c) If the Company shall be entitled to and wishes to exercise the Stock
Option, it shall do so by giving Parent written notice (the "Stock Exercise
Notice") to such effect, specifying the number of Option Shares to be purchased
and a place and closing date not earlier than three business days nor later than
10 business days from the date of such Stock Exercise Notice. If the closing
cannot be consummated on such date because any condition to the purchase of
Option Shares set forth in Section 3(b) has not been satisfied or as a result of
any restriction arising under any applicable law or regulation, the closing
shall occur five days (or such earlier time as the Company may specify) after
satisfaction of all such conditions and the cessation of all such restrictions;
provided that in no event shall the closing of the purchase be postponed by more
than nine months after the Termination Date as a result of this clause (c).
(d) So long as the Stock Option is exercisable pursuant to the terms of
Section 3(a) the Company may elect to send a written notice to Parent (the "Cash
Exercise Notice") specifying a date not later than 20 business days and not
earlier than 10 business days following the date such notice is given on which
date Parent shall pay to the Company in exchange for the cancellation of the
relevant portion of the Stock Option an amount in cash equal to the Spread (as
hereinafter defined) multiplied by all or such portion of the Option Shares
subject to the Stock Option as the Company shall specify. As used herein,
"Spread" shall mean the excess, if any, over the Exercise Price of the higher of
(x) if applicable, the highest price per share of Common
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Stock paid or proposed to be paid by any Person pursuant to any Acquisition
Proposal relating to Parent (the "Alternative Exercise Price") or (y) the
average of the closing price of the shares of Common Stock on the NYSE at the
end of the regular session, as reported on the Consolidated Tape, Network A for
the five consecutive trading days ending on and including the trading date
immediately preceding the date on which the Cash Exercise Notice is given (the
"Average Market Price"). If the Alternative Exercise Price includes any property
other than cash, the Alternative Exercise Price shall be the sum of (i) the
fixed cash amount, if any, included in the Alternative Exercise Price plus (ii)
the fair market value of such other property. If such other property consists of
securities with an existing public trading market, the average of the closing
prices (or the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on the
five trading days ending five days prior to the date on which the Cash Exercise
Notice is given shall be deemed to equal the fair market value of such property.
If such other property includes anything other than cash or securities with an
existing public trading market, the Alternative Exercise Price shall be deemed
to equal the Average Market Price. Upon exercise of its right pursuant to this
Section 3(d) and the receipt by the Company of the applicable cash amount with
respect to the Option Shares or the applicable portion thereof, the obligations
of Parent to deliver Option Shares pursuant to Section 3(e) shall be terminated
with respect to the number of Option Shares specified in the Cash Exercise
Notice. The Spread shall be appropriately adjusted, if applicable, to give
effect to Section 6.
(e) (i) At any closing pursuant to Section 3(c) hereof, the Company shall
make payment to Parent of the aggregate purchase price for the Option Shares to
be purchased and Parent shall deliver to the Company a certificate representing
the purchased Option Shares, registered in the name of the Company or its
designee and (ii) at any closing pursuant to Section 3(d) hereof, Parent will
deliver to the Company cash in an amount determined pursuant to Section 3(d)
hereof. Any payment made by the Company to Parent, or by Parent to the Company,
pursuant to this Agreement shall be made by wire transfer of immediately
available funds to a bank designated by the party receiving such funds, provided
that the failure or refusal by Parent to designate such a bank account shall not
preclude the Company from exercising the Stock Option. If at the time of the
issuance of Option Shares pursuant to the exercise of the Stock Option, Parent
Rights or any similar securities are outstanding, then the Option Shares issued
pursuant to such exercise shall be accompanied by corresponding Parent Rights or
such similar securities.
(f) Certificates for Common Stock delivered at the closing described in
Section 3(c) hereof shall be endorsed with a restrictive legend which shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject to
resale restrictions arising under the Securities Act of 1933, as amended. The
shares represented by this certificate are also subject to repurchase by the
Issuer pursuant to the Stock Option Agreement dated as of October 15, 2000, a
copy of which agreement may be obtained upon request from the Issuer."
C-3
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without this reference (i) if the Company
shall have delivered to Parent a copy of a no-action letter from the staff of
the Securities and Exchange Commission, or a written opinion of counsel, in form
and substance reasonably satisfactory to Parent, to the effect that such legend
is not required for purposes of, or resale may be effected pursuant to an
exemption from registration under, the Securities Act or (ii) in connection with
any sale registered under the Securities Act. In addition, these certificates
shall bear any other legend as may be required by applicable law.
(g) At any time following the exercise by the Company of the Stock Option,
Parent shall have the right, within 5 business days after written notice to the
Company, to purchase for cash all of the Option Shares received by the Company
pursuant to this Agreement at a purchase price per share equal to the higher of
(x) the Alternative Exercise Price or (y) the Average Market Price. At any
closing pursuant to this Section 3(g), Parent shall make payment to the Company
of the aggregate purchase price for the Option Shares to be purchased and the
Company shall deliver to Parent a certificate representing the purchased Option
Shares.
Section 4. Representations and Warranties of Parent. Parent hereby
----------------------------------------
represents and warrants to the Company as follows:
(a) Parent is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. The execution, delivery and
performance by Parent of this Agreement and the consummation by Parent of the
transactions contemplated hereby (i) are within Parent's corporate powers, (ii)
have been duly authorized by all necessary corporate action, (iii) require no
action by or in respect of, or filing with, any governmental body, agency or
official, except for compliance with any applicable requirements of the HSR Act,
the Exchange Act, the Securities Act, and laws, rules and regulations in foreign
jurisdictions governing antitrust or merger control matters (iv) assuming
compliance with the matters referred to in clause (iii), do not contravene, or
constitute a violation of, any provision of applicable law or regulation or of
the certificate of incorporation or by-laws of Parent or of any judgment,
injunction, order or decree binding upon Parent or any of its Subsidiaries, (v)
do not and will not constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of Parent
or any of its Subsidiaries or to a loss of any benefit to which Parent or any of
its Subsidiaries is entitled under any provision of any agreement, contract or
other instrument binding upon Parent or any of its Subsidiaries or any license,
franchise, permit or other similar authorization held by Parent or any of its
Subsidiaries, and (vi) do not and will not result in the creation or imposition
of any Lien on any asset of Parent or any of its Subsidiaries, except for such
contraventions, conflicts or violations referred to in clause (iv) or defaults,
rights of termination, cancellation or acceleration, or losses or Liens referred
to in clauses (v) and (vi) that would not, individually or in the aggregate,
have a Material Adverse Effect on Parent. This Agreement has been duly executed
and delivered by Parent and constitutes a valid and binding agreement of Parent.
(b) Parent has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof until
such time as the obligation to deliver
C-4
Option Shares upon the exercise of the Stock Option terminates, will have
reserved for issuance upon any exercise of the Stock Option, the number of
Option Shares subject to the Stock Option (less the number of Option Shares
previously issued upon any partial exercise of the Stock Option). All of the
Option Shares to be issued pursuant to the Stock Option have been duly
authorized and, upon issuance and delivery thereof pursuant to this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, and will
be delivered free and clear of all claims, liens, charges, encumbrances and
security interests (other than those created by this Agreement). Option Shares
issued upon exercise of the Stock Option will not be subject to any preemptive
or similar rights. The Board of Directors of Parent has resolved to, and Parent
promptly after execution of this Agreement will, take all necessary action to
render the Parent Rights Agreement inapplicable to the grant or exercise of the
Stock Option and the transactions contemplated hereby. The Board of Directors of
Parent has (i) taken all necessary action to render section 203 of the Delaware
Law, or any other antitakeover statute or similar statute or regulation
inapplicable to the acquisition of the Option Shares pursuant to this Agreement,
and (ii) has resolved to, and promptly after the execution of this Agreement
will, take all necessary action to render the supermajority voting provisions of
Article VII of Parent's Certificate of Incorporation inapplicable to the
acquisition of the Option Shares pursuant to this Agreement.
Section 5. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to Parent as follows: The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby (i) are within the Company's corporate powers and (ii) have been duly
authorized by all necessary corporate action. The Option Shares acquired by the
Company upon the exercise of the Stock Option will not be, and the Stock Option
is not being, acquired by the Company with the intention of making a public
distribution thereof. Neither the Stock Option nor the Option Shares acquired
upon exercise of the Stock Option will be sold or otherwise disposed of by the
Company except in compliance with the Securities Act. This agreement has been
duly executed and delivered by the Company and constitutes a valid and binding
agreement of the Company.
Section 6. Adjustment upon Changes in Capitalization or Merger.
---------------------------------------------------
(a) In the event of any change in the outstanding shares of Common Stock by
reason of a stock dividend, stock split, reverse stock split, split-up, merger,
consolidation, recapitalization, combination, conversion, exchange of shares,
extraordinary or liquidating dividend or similar transaction which would affect
the Company's rights hereunder, the type and number of shares or securities
purchasable upon the exercise of the Stock Option and the Exercise Price shall
be adjusted appropriately, and proper provision will be made in the agreements
governing such transaction, as shall fully preserve the economic benefits
provided hereunder to the Company and the full satisfaction of Parent's
obligations hereunder. In no event shall the number of shares of Common Stock
subject to the Stock Option exceed 19.9% of the number of shares of Common Stock
issued and outstanding at the time of exercise (without giving effect to any
shares subject or issued pursuant to the Stock Option).
C-5
(b) Without limiting the foregoing, whenever the number of Option Shares
purchasable upon exercise of the Stock Option is adjusted as provided in this
Section 6, the Exercise Price shall be adjusted by multiplying the Exercise
Price by a fraction, the numerator of which is equal to the number of Option
Shares purchasable prior to the adjustment and the denominator of which is equal
to the number of Option Shares purchasable after the adjustment.
(c) Without limiting or altering the parties' rights and obligations under
the Merger Agreement, in the event that Parent enters into an agreement (i) to
consolidate with or merge into any Person, other than the Company or one of its
Subsidiaries, and Parent will not be the continuing or surviving corporation in
such consolidation or merger, (ii) to permit any Person, other than the Company
or one of its Subsidiaries, to merge into Parent and Parent will be the
continuing or surviving corporation, but in connection with such merger, the
shares of Common Stock outstanding immediately prior to the consummation of such
merger will be changed into or exchanged for stock or other securities of Parent
or any other Person or cash or any other property, or the shares of Common Stock
outstanding immediately prior to the consummation of such merger will, after
such merger, represent less than 50% of the outstanding voting securities of the
merged company, or (iii) to sell or otherwise transfer all or substantially all
of its assets to any Person, other than the Company or one of its Subsidiaries,
then, and in each such case, the agreement governing such transaction will make
proper provision so that the Stock Option will, upon the consummation of any
such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option with identical terms appropriately
adjusted to acquire the number and class of shares or other securities or
property that the Company would have received in respect of Option Shares had
the Stock Option been exercised immediately prior to such consolidation, merger,
sale or transfer or the record date therefor, as applicable, and shall make any
other necessary adjustments. Parent shall take such steps in connection with
such consolidation, merger, liquidation or other such transaction as may be
reasonably necessary to assure that the provisions hereof shall thereafter apply
as nearly as possible to any securities or property thereafter deliverable upon
exercise of the Stock Option.
Section 7. Further Assurances; Remedies.
----------------------------
(a) Parent agrees to maintain, free from preemptive rights, sufficient
authorized but unissued or treasury shares of Common Stock so that the Stock
Option may be fully exercised without additional authorization of Common Stock
after giving effect to all other options, warrants, convertible securities and
other rights of third parties to purchase shares of Common Stock from Parent,
and to issue the appropriate number of shares of Common Stock pursuant to the
terms of this Agreement. All of the Option Shares to be issued pursuant to the
Stock Option, upon issuance and delivery thereof pursuant to this Agreement,
will be duly authorized, validly issued, fully paid and non-assessable, and will
be delivered free and clear of all claims, liens, charges, encumbrances and
security interests (other than those created by this Agreement).
(b) Parent agrees not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of rights,
dissolution or sale of assets, or by any other voluntary act) the observance or
performance of any of the covenants, agreements or conditions to be observed or
performed hereunder by Parent.
C-6
(c) Parent agrees that promptly after the occurrence of a Parent Trigger
Event it shall take all actions as may from time to time be required (including
(i) complying with all applicable premerger notification, reporting and waiting
period requirements under the HSR Act and (ii) in the event that prior
notification to or approval of any other regulatory authority in the United
States or elsewhere is necessary before the Stock Option may be exercised,
complying with its obligations thereunder and cooperating with the Company in
preparing and processing the required notices or applications) in order to
permit the Company to exercise the Stock Option and purchase Option Shares
pursuant to such exercise.
(d) The parties agree that the Company would be irreparably damaged if for
any reason Parent failed to issue any of the Option Shares (or other securities
or property deliverable pursuant to Section 6 hereof) upon exercise of the Stock
Option or to perform any of its other obligations under this Agreement, and that
the Company would not have an adequate remedy at law for money damages in such
event. Accordingly, the Company shall be entitled to specific performance and
injunctive and other equitable relief to enforce the performance of this
Agreement by Parent. Accordingly, if the Company should institute an action or
proceeding seeking specific enforcement of the provisions hereof, Parent hereby
waives the claim or defense that Parent has an adequate remedy at law and hereby
agrees not to assert in any such action or proceeding the claim or defense that
such a remedy at law exists. Parent further agrees to waive any requirements for
the securing or posting of any bond in connection with obtaining any such
equitable relief. This provision is without prejudice to any other rights that
the Company may have against Parent for any failure to perform its obligations
under this Agreement.
Section 8. Listing of Option Shares. Promptly after the occurrence of a
------------------------
Parent Trigger Event and from time to time thereafter if necessary, Parent will
apply to list all of the Option Shares subject to the Stock Option on the NYSE
and will use its reasonable best efforts to obtain approval of such listing as
soon as practicable.
Section 9. Registration of the Option Shares.
---------------------------------
(a) If, within two years of the exercise of the Stock Option, the Company
requests Parent in writing to register under the Securities Act any of the
Option Shares received by the Company hereunder, Parent will use its reasonable
best efforts to cause the offering of the Option Shares so specified in such
request to be registered as soon as practicable so as to permit the sale or
other distribution by the Company of the Option Shares specified in its request
(and to keep such registration in effect for a period of at least 90 days), and
in connection therewith Parent shall prepare and file as promptly as reasonably
possible (but in no event later than 60 days from receipt of the Company's
request) a registration statement under the Securities Act to effect such
registration on an appropriate form, which would permit the sale of the Option
Shares by the Company in accordance with the plan of disposition specified by
the Company in its request. Parent shall not be obligated to make effective more
than two registration statements pursuant to the foregoing sentence; provided,
however, that Parent may postpone the filing of a registration statement
relating to a registration request by the Company under this Section 9 for a
period of time (not in excess of 90 days) if in Parent's reasonable, good faith
judgment (i) such filing would require the disclosure of material information
that Parent has a bona fide business purpose
C-7
for preserving as confidential or (ii) the sale of Option Shares by the
Company would materially interfere with any pending or anticipated acquisition,
financing or transaction involving Parent or its Subsidiaries (but in no event
shall Parent exercise such postponement right more than once in any twelve-month
period).
(b) Parent shall notify the Company in writing not less than 10 days prior
to filing a registration statement under the Securities Act (other than a filing
on Form S-4 or S-8 or any successor form) with respect to any shares of Common
Stock. If the Company wishes to have any portion of its Option Shares included
in such registration, it shall advise Parent in writing to that effect within
two business days following receipt of such notice, and Parent will thereupon
include the number of Option Shares indicated by the Company in such
registration; provided that if the managing underwriter(s) of the offering
pursuant to such registration statement advise Parent that in their opinion the
number of shares of Common Stock requested to be included in such registration
exceeds the number which can be sold in such offering, Parent shall only include
in such registration such number or dollar amount of Option Shares which, in the
good faith opinion of the managing underwriter(s), can be sold without
materially and adversely affecting such offering.
(c) All expenses relating to or in connection with any registration
contemplated under this Section 9 and the transactions contemplated thereby
(including all filing, printing, reasonable professional, roadshow and other
fees and expenses relating thereto) will be at Parent's expense except for
underwriting discounts or commissions and brokers' fees. The Company and Parent
agree to enter into a customary underwriting agreement with underwriters upon
such terms and conditions as are customarily contained in underwriting
agreements with respect to secondary distributions. Parent shall indemnify the
Company, its officers, directors, agents, other controlling persons and any
underwriters retained by the Company in connection with such sale of such Option
Shares in the customary way, and shall agree to customary contribution
provisions with such persons, with respect to claims, damages, losses and
liabilities (and any expenses relating thereto) arising (or to which the
Company, its officers, directors, agents, other controlling persons or
underwriters may be subject) in connection with any such offer or sale under the
federal securities laws or otherwise, except for information furnished in
writing by the Company or its underwriters to Parent. The Company and its
underwriters, respectively, shall indemnify Parent to the same extent with
respect to information furnished in writing to Parent by the Company and such
underwriters, respectively.
Section 10. Miscellaneous.
-------------
(a) Extension of Exercise Periods. The periods during which the Company
-----------------------------
may exercise its rights under Sections 2 and 3 hereof, or Parent may exercise
its rights under Section 2(g), shall be extended in each such case at the
request of the Company to the extent necessary to avoid liability by the Company
under Section 16(b) of the Exchange Act by reason of such exercise.
(b) Amendments; Entire Agreement. This Agreement may not be modified,
----------------------------
amended, altered or supplemented, except upon the execution and delivery of a
written
C-8
agreement executed by the parties hereto. This Agreement, together with the
Merger Agreement (including any exhibits and schedules thereto), contains the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to such transactions.
(c) Notices. All notices, requests and other communications to either party
-------
hereunder shall be in writing (including facsimile or similar writing) and shall
be given,
if to Parent, to:
Harvey D. Hinman, Esq.
Vice President and General Counsel
Chevron Corporation
575 Market Street
San Francisco, California 94105
Facsimile No.: (415) 894-6017
with copies to:
Alfred L. Pepin, Esq.
1156 Mee Lane
St. Helena, California 94574
Facsimile No.: (707) 967-0551
and
Arthur Fleischer, Jr., Esq.
Gary P. Cooperstein, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Facsimile No.: (212) 859-4000
and
Terry M. Kee, Esq.
Rodney R. Peck, Esq.
Pillsbury Madison & Sutro LLP
50 Fremont Street
San Francisco, California 94105
Facsimile No.: (415) 983-1200
C-9
if to the Company, to:
William M. Wicker
Senior Vice President
Texaco Inc.
2000 Westchester Avenue
White Plains, New York 10650
Facsimile No.: (914) 253-4280
with copies to:
Deval Patrick, Esq.
General Counsel and Vice President
Texaco Inc.
2000 Westchester Avenue
White Plains, New York 10650
Facsimile No.: (914) 253-4477
and
Dennis S. Hersch, Esq.
Ulrika Ekman, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Facsimile No.: (212) 450-4800
or to such other address or facsimile number as either party may hereafter
specify for the purpose by notice to the other party hereto. Each such notice,
request or other communication shall be effective (i) if given by facsimile,
when such facsimile is transmitted to the facsimile number specified in this
Section and the appropriate facsimile confirmation is received or (ii) if given
by any other means, when delivered at the address specified in this Section.
(d) Expenses. Each party hereto shall pay its own expenses incurred in
--------
connection with this Agreement, except as otherwise specifically provided herein
and without limiting anything contained in the Merger Agreement.
(e) Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
(f) Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware without regard to
principles of conflicts of law. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated
C-10
hereby may be brought in any federal or state court located in the State of
Delaware, and each of the parties hereby consents to the jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court or that any such suit,
action or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 10(c) hereof shall be
deemed effective service of process on such party.
(g) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
--------------------
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(h) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(i) Headings. The section headings herein are for convenience only and
--------
shall not affect the construction hereof.
(j) Assignment. This Agreement shall be binding upon each party hereto and
----------
such party's successors and assigns. This Agreement shall not be assignable by
Parent, but may be assigned by the Company in whole or in part to any direct or
indirect wholly-owned subsidiary of the Company, provided that the Company shall
remain liable for any obligations so assigned.
(k) Survival. All representations, warranties and covenants contained
--------
herein shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(l) Time of the Essence. The parties agree that time shall be of the
-------------------
essence in the performance of obligations hereunder.
(m) Public Announcement. Parent and the Company will consult with each
-------------------
other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which shall not be unreasonably withheld.
Notwithstanding the foregoing, any such press release or public statement as may
be required by applicable law or any listing agreement with any national
securities exchange, may be issued prior to such consultation, if the party
making such release or statement has used its reasonable efforts to consult with
the other party.
C-11
Section 11. Profit Limitation.
-----------------
(a) Notwithstanding any other provision of this Agreement or the Merger
Agreement, in no event shall the Company's Total Profit (as defined below)
exceed $1,100,000,000 (the "Maximum Amount") and, if it otherwise would exceed
such Maximum Amount, the Company at its sole election may (i) pay cash to
Parent, (ii) deliver to Parent for cancellation Option Shares previously
purchased by the Company, or (iii) any combination thereof, so that the
Company's actually realized Total Profit (as defined below) shall not exceed the
Maximum Amount after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the Stock Option
may not be exercised for a number of Option Shares as would, as of the date of
the Stock Exercise Notice or Cash Exercise Notice, as applicable, result in a
Notional Total Profit (as defined below) of more than the Maximum Amount and, if
exercise of the Stock Option otherwise would result in the Notional Total Profit
exceeding such amount, the Company, at its discretion, may (in addition to any
of the actions specified in Section 11(a) above) increase the Exercise Price for
that number of Option Shares set forth in the Stock Exercise Notice or Cash
Exercise Notice, as applicable, so that the Notional Total Profit shall not
exceed the Maximum Amount; provided, that nothing in this sentence shall
restrict any exercise of the Stock Option permitted hereby on any subsequent
date at the Exercise Price set forth in Section 2 hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the cash amount actually received by the
Company pursuant to Section 10.6 of the Merger Agreement less any repayment by
the Company to Parent pursuant to Section 11(a)(i) hereof, (ii) (x) the net cash
amounts or the fair market value of any property received by the Company
pursuant to the sale of Option Shares (or of any other securities into or for
which such Option Shares are converted or exchanged), less (y) the Company's
purchase price for such Option Shares (or other securities) plus (iii) the
aggregate amounts received by the Company pursuant to Section 3(d).
(d) As used herein, the term "Notional Total Profit" with respect to any
number of Option Shares as to which the Company may propose to exercise the
Stock Option shall mean the Total Profit determined as of the date of the Stock
Exercise Notice or Cash Exercise Notice, as applicable, assuming that the Stock
Option was exercised on such date for such number of Option Shares and assuming
that such Option Shares, together with all other Option Shares previously
acquired upon exercise of the Stock Option and held by the Company and its
affiliates as of such date, were sold for cash at the closing price on the NYSE
for the Common Stock as of the close of business on the preceding trading day
(less customary brokerage commissions).
C-12
IN WITNESS WHEREOF, the Company and Parent have caused this Agreement to be
duly executed as of the day and year first above written.
TEXACO INC.
By: /s/ PETER I. BIJUR
------------------------------------
Name: Peter I. Bijur
Title: Chairman of the Board and
Chief Executive Officer
CHEVRON CORPORATION
By: /s/ DAVID J. O'REILLY.
------------------------------------
Name: David J. O'Reilly
Title: Chairman of the Board and
Chief Executive Officer
C-13
ANNEX D
LEHMAN BROTHERS
October 15, 2000
Board of Directors
Chevron Corporation
575 Market Street
San Francisco, CA 94105
Members of the Board:
We understand that Chevron Corporation ("Chevron" or the "Company") and
Texaco Inc. ("Texaco") are considering entering into a transaction pursuant to
which, among other things, (i) Texaco will merge with a newly formed subsidiary
of Chevron ("Merger Sub"), with Texaco being the surviving corporation (the
"Merger"); and (ii) upon the effectiveness of the Merger, each share of common
stock of Texaco issued and outstanding prior to the Merger will be converted
into the right to receive 0.77 shares of the common stock of Chevron (the
"Exchange Ratio"). We further understand that the Merger is subject to the
condition that it qualify for pooling-of-interests accounting treatment. The
terms and conditions of the Merger are set forth in more detail in an Agreement
and Plan of Merger to be entered into among Chevron, Texaco and Merger Sub (the
"Agreement").
We have been requested by the Board of Directors of Chevron to render our
opinion with respect to the fairness, from a financial point of view, to the
Company, of the Exchange Ratio to be paid to Texaco's stockholders in the
Merger. We have not been requested to opine as to, and our opinion does not in
any manner address, the Company's underlying business decision to proceed with
or effect the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
specific terms of the Merger; (2) publicly available information concerning
Chevron and Texaco that we believe to be relevant to our analysis, including
Annual Reports on Form 10-K for the fiscal year ended December 31, 1999 and
Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30,
2000; (3) financial and operating information with respect to the business,
operations and prospects of Chevron furnished to us by Chevron, including the
amounts and timing of the cost savings and operating synergies which management
of Chevron estimates will result from a combination of the businesses of Chevron
and Texaco (the "Expected Synergies); (4) the trading histories of Chevron's
common stock and Texaco's common stock from September 22, 1999 to the present
and a comparison of these trading histories with each other and with those of
other companies that we deemed relevant; (5) a comparison of the historical
financial results and present financial condition of each of Chevron and Texaco
with each other and with those of other companies that we deemed relevant; (6) a
comparison of the financial terms of the Merger with the financial terms of
certain other transactions that we deemed
D-1
relevant; (7) the potential pro forma impact of the Merger on the future
financial performance of Chevron (including the Expected Synergies); (8) the
relative contributions of Chevron and Texaco to the historical and future
financial performance of the combined company on a pro forma basis; and (9) the
pro forma impact on the combined company of the potential divestiture of
Texaco's two domestic downstream businesses in connection with the Merger. In
addition, we have had discussions with the managements of Texaco and the Company
concerning their respective businesses, operations, assets, financial conditions
and prospects and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and, with respect to information regarding Chevron, have further relied upon the
assurances of management of Chevron that they are not aware of any facts or
circumstances that would make such information inaccurate or misleading. In
arriving at our opinion, we have not used any financial forecasts or business
plans of Chevron or Texaco prepared by management of Chevron or Texaco.
Accordingly, with the consent of Chevron, we have assumed that the published
estimates of third party research analysts are a reasonable basis upon which to
evaluate the future financial performance of Chevron and Texaco and that Chevron
and Texaco will perform substantially in accordance with such estimates. Upon
advice of Chevron, we also have assumed that the amounts and timing of the
Expected Synergies are reasonable and that the Expected Synergies will be
realized substantially in accordance with such estimates. In arriving at our
opinion, we have not conducted a physical inspection of the properties and
facilities of Chevron or Texaco and have not made or obtained any evaluations or
appraisals of specific assets or liabilities of Chevron or Texaco. Upon the
advice of Chevron and its legal and accounting advisors, we have assumed that
the Merger will qualify (i) for pooling-of-interests accounting treatment and
(ii) as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and therefore as a tax-free transaction to the
stockholders of Texaco. Our opinion necessarily is based upon market, economic
and other conditions as they exist on, and can be evaluated as of, the date of
this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be paid
by the Company in the Merger is fair to the Company.
We have acted as financial advisor to Chevron in connection with the Merger
and will receive a fee for our services which is contingent upon the
consummation of the Merger. In addition, the Company has agreed to indemnify us
for certain liabilities that may arise out of the rendering of this opinion. We
also have performed various investment banking services for the Company in the
past and have received customary fees for such services. In the ordinary course
of our business, we actively trade in the debt and equity securities of the
Company and Texaco for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
This opinion is for the use and benefit of the Board of Directors of
Chevron and is
D-2
rendered to the Board of Directors in connection with its consideration of
the Merger. This opinion is not intended to be and does not constitute a
recommendation to any stockholder of Chevron as to how such stockholder should
vote with respect to the Merger.
Very truly yours,
/S/ LEHMAN BROTHERS
D-3
ANNEX E
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue Telephone 212 325 2000
New York, NY 10010-3629
October 15, 2000
Board of Directors
Texaco Inc.
2000 Westchester Avenue
White Plains, NY 10650
Members of the Board:
You have asked us to advise you with respect to the fairness from a financial
point of view to the holders of Texaco Common Stock (as defined below) of the
Exchange Ratio (as defined below) set forth in the Agreement and Plan of Merger,
dated as of October 15, 2000 (the "Merger Agreement"), among Texaco Inc.
("Texaco"), Chevron Corporation ("Chevron") and Keepep Inc., a wholly owned
subsidiary of Chevron ("Merger Sub"). The Merger Agreement provides for, among
other things, the merger of Merger Sub with and into Texaco (the "Merger")
pursuant to which each outstanding share of the common stock, par value $3.125
per share of Texaco ("Texaco Common Stock") will be converted into the right to
receive 0.77 (the "Exchange Ratio") of a share of the common stock, par value
$0.75 per share, of Chevron ("Chevron Common Stock"). As a result of the Merger,
Texaco will become a wholly owned subsidiary of Chevron.
In arriving at our opinion, we have reviewed the Merger Agreement and certain
related documents, and certain publicly available business and financial
information relating to Texaco and Chevron. We have also reviewed certain other
information relating to Texaco and Chevron, including financial forecasts,
provided to or discussed with us by Texaco and Chevron, and have met with the
managements of Texaco and Chevron to discuss the business and prospects of
Texaco and Chevron. We have also considered certain financial and stock market
data of Texaco and Chevron, and we have compared those data with similar data
for other publicly held companies in businesses similar to Texaco and Chevron,
and we have considered, to the extent publicly available, the financial terms of
certain other business combinations and other transactions which have recently
been effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which we
deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
such information being complete and accurate in all material respects. With
respect to the financial forecasts, we have been advised, and have assumed, that
such forecasts have been reasonably prepared on bases
E-1
reflecting the best currently available estimates and judgments of the
managements of Texaco and Chevron as to the future financial performance of
Texaco and Chevron and the potential synergies (including the amount, timing and
achievability thereof) anticipated to result from the Merger. We have also
assumed, with your consent, that the Merger will be consummated in accordance
with the terms of the Merger Agreement without waiver of any condition to the
Merger. We also have assumed, with your consent, that the Merger will be
accounted for as a pooling of interests in accordance with generally accepted
accounting principles and will qualify as a tax-free reorganization for U.S.
federal income tax purposes. We have further assumed, with your consent, that in
the course of obtaining the necessary regulatory and third-party consents for
the proposed Merger and the transactions contemplated by the Merger Agreement,
no delay or restriction will result or be imposed that will have a material
effect on the expected benefits of the proposed Merger to the holders of Texaco
Common Stock. In addition, we have not been requested to make, and have not
made, an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Texaco or Chevron, nor have we been furnished with
any such evaluations or appraisals. Our opinion is necessarily based upon
information available to us, and financial, economic, market and other
conditions as they exist and can be evaluated, on the date hereof. We are not
expressing any opinion as to the actual value of the Chevron Common Stock when
issued pursuant to the Merger or the prices at which the Chevron Common Stock
will trade subsequent to the Merger. In connection with our engagement, we were
not requested to, and did not, solicit third-party indications of interest in
the possible acquisition of all or part of Texaco. We have been advised that the
Exchange Ratio was determined through arms' length negotiations between the
parties.
We have acted as financial advisor to Texaco in connection with the Merger and
will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. We and our affiliates have in
the past provided financial services to Texaco and certain of its affiliates and
to Chevron and certain of its affiliates unrelated to the proposed Merger for
which services we have received compensation, and are currently providing
financial services to Texaco and certain of its affiliates with regard to
matters arising out of but unrelated to the proposed Merger. In the ordinary
course of business, we and our affiliates may actively trade the debt and equity
securities of both Texaco and Chevron for our and their own accounts and for the
accounts of customers and, accordingly, may at any time hold long or short
positions in such securities.
It is understood that this letter is for the information of the Board of
Directors of Texaco in connection with its evaluation of the Merger and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote or act on any matter relating to the Merger.
E-2
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Exchange Ratio is fair from a financial point of view to the holders
of Texaco Common Stock.
Very truly yours,
/S/ CREDIT SUISSE FIRST BOSTON CORPORATION
E-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("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 by law, agreement, vote of stockholders or
disinterested directors, or otherwise.
Article IX of Chevron's Restated Certificate of Incorporation (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 liabilities 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.
II-1
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 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
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City and County
of San Francisco, State of California, on April 10, 2001.
CHEVRON CORPORATION
By DAVID J. O'REILLY*
-------------------------------------------
David J. O'Reilly
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Amendment No. 1 to Registration Statement has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on the 10th
day of April, 2001.
Principal Executive Officers (and Directors) Directors
DAVID J. O'REILLY* SAMUEL H. ARMACOST*
---------------------------------------- ----------------------------------------
David J. O'Reilly, Chairman of the Board Samuel H. Armacost
RICHARD H. MATZKE* SAM GINN*
--------------------------------------------- ----------------------------------------
Richard H. Matzke, Vice-Chairman of the Board Sam Ginn
CARLA A. HILLS*
----------------------------------------
Principal Financial Officer Carla A. Hills
JOHN S. WATSON* J. BENNETT JOHNSTON*
------------------------------------------ ----------------------------------------
John S. Watson, Vice-President, Finance J. Bennett Johnston
and Chief Financial Officer
CHARLES M. PIGOTT*
----------------------------------------
Principal Accounting Officer Charles M. Pigott
STEPHEN J. CROWE* FRANK A. SHRONTZ*
----------------------------------------- ----------------------------------------
Stephen J. Crowe, Vice President Frank A. Shrontz
and Comptroller
CARL WARE*
----------------------------------------
Carl Ware
JOHN A. YOUNG*
----------------------------------------
John A. Young
*By /s/ Lydia I. Beebe
-----------------------------------------
Lydia I. Beebe, Attorney-in-Fact
II-3
EXHIBIT INDEX
EXHIBIT DESCRIPTION
2.1 Agreement and Plan of Merger, dated as of October 15, 2000, among Chevron Corporation, Texaco Inc.
and Keepep, Inc., included as Annex A to the joint proxy statement/prospectus forming a part of this
Registration Statement and incorporated herein by reference.
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of March 30, 2001 among Texaco
Inc., Chevron Corporation and Keepep Inc., included as Annex A-1 to the joint proxy statement/prospectus
forming a part of this Registration Statement and incorporated herein by reference.
3.1 Restated Certificate of Incorporation of Chevron Corporation, dated May 3, 2000, filed as
Exhibit 3.1 to Chevron Corporation's Report on Form 10-Q for the quarterly period ended March 31,
2000 and incorporated herein by reference.
3.2 By-laws of Chevron Corporation, as amended March 29, 2000, filed as Exhibit 3.2 to Chevron
Corporation's Report on Form 10-Q for the quarterly period ended March 31, 2000 and incorporated
herein by reference.
4.1 Rights Agreement dated as of November 22, 1998 between Chevron and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent, filed as Exhibit 4.1 to Chevron's Current Report on Form 8-K filed
November 25, 1998 and incorporated herein by reference.
4.2 Amendment No. 1 to Rights Agreement, dated as of October 15, 2000, between Chevron Corporation and
ChaseMellon Shareholder Services L.L.C., as Rights Agent, filed as Exhibit 4.2 to Chevron
Corporation's Amendment No. 1 to Form 8-A filed December 7, 2000 and incorporated herein by
reference.
Pursuant to the Instructions to Exhibits, certain instruments defining the rights of holders of
long-term debt securities of Chevron Corporation 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 Chevron Corporation and its subsidiaries on a consolidated basis.
A copy of such instrument will be furnished to the Commission upon request.
5.1** Opinion of Pillsbury Winthrop LLP regarding the validity of the securities being registered in this
Registration Statement.
8.1** Form of Opinion of McDermott, Will & Emery regarding certain federal income tax consequences
relating to the merger.
8.2** Form of Opinion of Davis Polk & Wardwell regarding certain federal income tax consequences relating
to the merger.
10.1 Stock Option Agreement dated as of October 15, 2000 between Chevron Corporation and Texaco Inc.,
included as Annex B to the joint proxy statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference.
10.2 Stock Option Agreement dated as of October 15, 2000 between Chevron Corporation and Texaco Inc.
included as Annex C to the joint proxy statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference.
10.3 Chevron Corporation Management Incentive Plan, as amended and restated effective March 29, 2000,
filed as Exhibit 10.2 to Chevron Corporation's Report on Form 10-Q for the quarterly period ended
March 31, 2000 and incorporated herein by reference.
10.4 Chevron Corporation Excess Benefit Plan, amended and restated as of July 1, 1996, filed as
Exhibit 10 to Chevron Corporation's Report on Form 10-Q for the quarterly period ended March 31,
1997 and incorporated herein by reference.
10.5 Supplemental Pension Plan of Gulf Oil Corporation, amended as of June 30, 1986, filed as
Exhibit 10.4 to Chevron Corporation's Annual Report on Form 10-K for the year ended December 31,
1986 and incorporated herein by reference.
10.6 Chevron Restricted Stock Plan for Non-Employee Directors, as amended and restated effective April 30,
1997, filed as Appendix A to Chevron Corporation's Notice of Annual Meeting of
II-4
Stockholders and Proxy Statement dated March 21, 1997 and incorporated herein by reference.
10.7 Chevron Corporation Long-Term Incentive Plan, as amended and restated effective March 29, 2000,
filed as Exhibit 10.1 to Chevron Corporation's Report on Form 10-Q for the quarterly period ended
March 31, 2000 and incorporated herein by reference.
10.8 Chevron Corporation Salary Deferral Plan for Management Employees, as amended and restated effective
March 29,2000, filed as Exhibit 10.3 to Chevron Corporation's Report on Form 10-Q for the quarterly
period ended March 31, 2000 and incorporated herein by reference.
12.1 Computation of Ratios of Earnings to Fixed Charges and Preferred Stock Dividend Requirements for
Period Ended September 30, 2000 filed as Exhibit 12 to Chevron Corporation's Report on Form 10-Q for
the quarterly period ended September 30, 2000 and incorporated herein by reference.
21.1 Subsidiaries of Chevron Corporation, filed as Exhibit 21.1 to Chevron Corporation's Annual Report on
Form 10-K for the year ended December 31, 1999 and incorporated herein by reference.
23.1** Consent of Pillsbury Winthrop LLP (included in the opinion filed as Exhibit 5.1 to this Registration
Statement.
23.2** Consent of McDermott, Will & Emery (included in the opinion filed as Exhibit 8.1 to this
Registration Statement).
23.3** Consent of Davis Polk & Wardwell (included in the opinion filed as Exhibit 8.2 to this Registration
Statement).
23.4** Consent of PricewaterhouseCoopers LLP.
23.5** Consent of KPMG (regarding its report on the combined financial statements of the Caltex Group of
Companies).
23.6** Consent of Arthur Andersen LLP.
23.7 Intentionally omitted.
23.8 Intentionally omitted.
23.9** Consent of Arthur Andersen LLP and PricewaterhouseCoopers LLP
(regarding their report on the consolidated financial statements
of Equilon Enterprises LLC).
23.10** Consent of Arthur Andersen LLP, PricewaterhouseCoopers LLP and Deloitte & Touche LLP (regarding
their report on the financial statements of Motiva Enterprises LLC).
24.1*** Powers of Attorney for directors and certain officers of Chevron
Corporation, authorizing the signing of this Registration
Statement on Form S-4 on their behalf.
99.1** Form of Chevron Proxy Card.
99.2** Form of Texaco Proxy Card.
99.3* Consent of Lehman Brothers Inc.
99.4* Consent of Credit Suisse First Boston Corporation.
_____________________
* Previously filed.
** Filed herewith.
*** One Power of Attorney filed herewith; all others previously filed.
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